Reducing poverty: MNCs business strategies in developing countries

Camilla Ackermann

Student thesis: Master thesis


This thesis explores the concept of poverty, the promise of the poverty reducing effects of FDI, and MNCs business strategies in developing countries. The world’s population is rapidly increasing and the rich people are getting richer, whereas the poor people are becoming even more marginalized. During the years of liberalization the belief was that this led to economic growth, and hence was good for development. FDIs have boomed the last decades, and this flow of capital has been the main proxy for MNC activity; consequently the question has been centered on FDI is bad or good for the poor. However, research shows that neither liberalization nor FDI necessarily is good for development, and that FDI mainly makes a difference if it involves relevant types of linkages. MNCs are mainly motivated by opportunities that increase their profits, and the most important factors for MNCs are still market size and access to resources (Dunning 2002). Nevertheless, as markets are getting saturated and MNCs are looking for new opportunities, innovative business strategies have been developed. This thesis explores the following three business strategies in the developing world; the Bottom of the Pyramid (BOP), the Base of the Pyramid (BOP) and Social Business. The two BOP approaches argue that MNCs can seek profit opportunities in developing countries. The phrase “Doing good and doing well” are often used, indicating that MNCs can embark on poor markets while at the same time reduce poverty. The Bottom of the Pyramid approach claims that the poor market is an untapped market opportunity for MNCs, and that by establishing in this market MNCs can make a profit by offering their products/services while at the same time improve the life of the poor. On the other hand, the Base of the Pyramid approach argues that the poor need to be utilized as producers and that by developing local capabilities MNCs can spur development. The third approach, Social Business, also emphasizes developing local capabilities, and further states that MNCs have to look at problems in the developing markets as opportunities. However, this approach sees business strategy as a method to solve a social problem, and the idea of making profit is removed from this strategy. All three strategies are critically explored in the thesis, and cases are reviewed to evaluate the outcomes from until now implemented projects. The thesis concludes that more research is necessary to determine the overall impact from the MNCs presence in poor markets, but the available evidence suggests that a number of MNCs have been able to create strategies that can encourage development for the poor, mainly by developing local capabilities, innovative products/services and flexible solutions.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2010
Number of pages91