August 13th, 2020
A movement of academics and activists is urging businesses to target the ‘bottom of the pyramid’ as a way of addressing chronic poverty:3 not to write off the poorer 3 billion people in emerging markets, but to treat them as a huge untapped source of future growth. This applies to energy just as much as to mobile phones, computing and so on. But within this movement there tends to be a preoccupation with larger corporations, rather than the entrepreneurial start-ups. Is it right that we should be more preoccupied with attracting big business when it comes to accelerating renewable energy diffusion in emerging markets?
If we look at solar diffusion in emerging markets, we can see that it was actually the entrepreneur, the consummate ‘outsider’ that pioneered the market. This is very much in line with the theories of innovation and diffusion discussed in Chapter 2. The existing industries, the established players that could in theory have propagated this innovation, decided to stay on the sidelines when faced with the opportunity to participate. This included utilities, PV module manufacturers and consumer goods companies. They did not see the same opportunity that the entrepreneurs saw in this market in the early stages, nor did they have the will or the drive to try to create it.
But is there not some point in the diffusion process when it helps if big business comes behind the innovation and promotes it? In the case of solar, we saw that when larger firms entered with more resources and a different set of capacities – such as Shell Solar – they could help accelerate diffusion. They did this by investing more, by building a stronger market infrastructure, by holding more inventory, by weathering accounts-receivable challenges more easily, and by bringing new management tools and the power of their brand to the business.
However, we should also take note that, in the case of solar, big business did not demonstrate the same staying power as entrepreneurs. For instance, Shell Solar chose to exit the solar business in emerging markets about six years after entering it. By contrast, several of the entrepreneurs profiled in this book are still at it – still working to drive diffusion onwards more than one, sometimes two, decades later. In contrast to big businesses, entrepreneurs tend to be rather single-minded individuals who, in Schumpeterian style, do not quit that easily. This is critical generally, but it is particularly critical to trying to sell renewable energy in emerging market conditions which can be very difficult at times, and which might prompt a larger corporation to pull out.
Big businesses tend to have multiple divisions and multiple streams of revenue. If their solar business is not working out, for example, but the others are, then it is easy to exit the solar business. But a solar entrepreneur cannot relax if his solar division is doing poorly, because he only has one division, one line of business. This focus means an entrepreneur will tend to develop a better understanding of the market, more determination to find a way through and a greater propensity to take risks. Furthermore, big businesses are often founded on policies that restrict quick decision-making, and are encumbered with political machinations that dilute focus. For all these reasons, big businesses are unlikely to prove the ideal vehicles for renewable energy diffusion in emerging markets.
We might note that in the broader, global solar market, this has already played out. Many of the present market leaders in the solar PV industry were mere entrepreneurial start-ups five or six years ago.4 But they invested aggressively, grew rapidly, went public to raise more capital and have since gone on to dominate the space. At the same time the larger energy companies, such as BP and Shell, which were in the top five of the solar industry when these entrepreneurs were just beginning, have either been eclipsed or have exited.
There is still a lot of excitement around the potential for large corporations to transform the world’s energy infrastructure.5 But whether larger companies have the staying power to accelerate renewable energy diffusion in emerging markets over the longer term is questionable. It is easier to imagine if a large corporation can see its way clear to setting up a completely independent unit, branding it differently, funding it like an investor and treating it like a start-up. This would give employees the freedom and focus they need to develop and grow the business, and the corporation the distance it needs to be patient with the progress. But in the absence of this, it is likely that the entrepreneur will remain the stronger vehicle for accelerating the diffusion of renewable energy in emerging markets.