— By Vikash Singh (Acara Corps Fellow)
Did we know that a company could make a bigger profit by focusing on the market share consisting of people who earn less than $2 per day?
Did we realize that the world’s fastest growing market is at the bottom and not the top of the fortune pyramid?
Were we aware that nine countries including China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa, and Thailand – collectively have a GDP of $12.5 trillion, larger than the GDP of Japan, Germany, France, Italy, and the UK combined?
The answer is that we hadn’t and we didn’t, until UMich’s professor C.K. Prahalad came out with his work “The Fortune at the Bottom of Pyramid”.
“Why is it that with all our technology, managerial know-how, and investment capacity, we are unable to make even a minor contribution to the problem of pervasive global poverty and disenfranchisement?” This profound question hits you only to leave you answerless. In 2002, The Fortune at the Bottom of the Pyramid ushered in a new level of consciousness in international business strategy. Although the idea of doing good and doing well was already well established, the anecdotal case by C.K. Prahalad and Stuart Hart that the four billion people each living on less than US$2 a day (the bottom of the economic pyramid or simply “BoP”) held the potential for immense profit captured popular imagination. Multi-national companies (MNCs) around the world launched initiatives to adapt and market their products and services to the world’s poor.
ACARA has aptly understood it and is trying to identify sustainable business opportunities based on above and at the same time being environmentally conscious in its approach.
However, the real fortune being sought is the simultaneous accomplishment of a trifecta of goals –corporate profit, relevant and sustainable social impact and local poverty alleviation. The impending questions are:
I. Securing Internal Support: How can companies gather data affordably in order to make a compelling business case and develop accurate projections?
II. Testing on a Budget: How can we run pilot programs at an affordable cost with low-margin business models?
III. Patience: How can we balance corporate pressures for profitability with commitments for impact in the community?
IV. The challenge of growth: How can we scale while adapting the product composition and its delivery mechanisms to the needs of each local community?
The assumption that the poor need to seen as a market, but one different from the conventional perception of a market, has some immediate consequences – all of the traditional business concepts are applicable but each and every one of those concepts needs to be applied from a distinct perspective. What results is a practical example of the application of innovative thinking and innovation to an intractable problem – How to cater to the more than 4-billion humans who do not form part of the target market of the organizations that are driven by conventional assumptions about products, services, value and needs.
Professor Prahalad demonstrated that the process of making products more affordable to the world’s poor can provide substantial returns to create real partnerships and innovations for established companies.
As ACARA understands, Top of the Pyramid Approach may just lead to Sustainability BUT Bottom of the Pyramid leads to Sustainable Development
What is required is to undertake an analysis of the current BOP paradigm to support the development of a sustainable, participatory multi-stakeholder approach.
• From multi-nationals towards SME
• From single projects towards business models
• From market penetration towards sustainable development
• From technology push towards market pull
• From private sector /CSR initiative towards a participatory, bottom-up initiative
To a great extent, financially sustainable and integrated BoP business lines are the pinnacle of truly sustainable and strategic Corporate Social Responsibility. Answering the questions at the bottom of the pyramid may be the key to ushering in a new era of capitalism which generates profit, offers wealth-creation opportunities for the poor, spreads products to reduce sickness and spreads education around the world– welcoming billions of people to participate in a more inclusive, sustainable global economy. The thousands of little fires lit by corporations, entrepreneurs, academics, governments and non-profits may yet become a blaze that will change the world.
This is a lot of hot air…where are the results?
An old Nigerian saying goes that you can build a castle of spit but not live in it…I’m afraid poverty should not be seen in such a trivial fashion as profits for companies…but as a means of empowerment to enable them a life of dignity. Merely peddling products which are cheap does not result in that empowerment…
sorry for being blunt but naivete is not what the poor can afford any more…
Social entrepreneurs (it sounds like you are one yourself) are not about “selling stuff to the poor”, nor was that the intent of the original work that popularized the BOP. It’s about recognizing that change comes from economic empowerment if you will, how do you make a change but do it in a way that allows you/changer to make a living.
No questions large MNCs may look at as just a market but in the long run, that’s what it is.
And there are lots of success stories. Acumen, Ashoka, Skoll have portfolios full of them.
When the term BOP is mentioned, it is encountered in the perspective of creating an ecosystem which thrives on the economic well being of the poorer section of the society. The approach may be different, one that requires them to be seen as a consumer, and practically that’s the way it should be. A life of Dignity arises from the very fact that they are treated as equals among Consumers.
The Poor can afford to buy products. Businesses are here to stay. All that can be done is-to find out ways to include them in the formulation of a financial ecosystem that nourishes grassroot development.
The Bottom Line is: It’s Inclusive Growth which matters, Not how you Bring it!
The article began with the following line
Did we know that a company could make a bigger profit by focusing on the market share consisting of people who earn less than $2 per day?
and has this following line too…
Multi-national companies (MNCs) around the world launched initiatives to adapt and market their products and services to the world’s poor.
Now economic exclusion is but one exclusion that keeps the poor in poverty…and it may be that creating economic opportunities for inclusion will help some…but will it affect the structural exclusion inherent in terms of
social exclusion
gender exclusion
political/power exclusion
and inherently the lack of ability through education and opportunities to be able to shed their poverty?
Take the example of water…the solution posited in one of your competitions is an end of the pipe water filter…presumably to be made cheaply. Does this address the root cause of the issue? How sustainable is this solution? As the ground shifts under the feet of water quality and more on more stuff such as fluoride /arsenic/radon/chemicals et al come into the waters, fostered by the same economic forces that you tom-tom, through cheap detergents/shampoos et al . the problem is only acerbated and more and more such filters will be needed.One for bacteria, one for arsenic, one for fluoride, one for nitrate et al and the silver bullet of ‘em all which will clean up everything and dump the rejects god knows where.
Be that as it may, good luck on your journey and really would like to see the ‘portfolios’ of success that you talk about with Acumen/Skoll/Ashoka…hugely grant funded initiatives which themselves do not run on ‘sustainable’ principles. While they are grant driven their ‘beneficiaries’ or ‘partners’ have to take loans which are to be returned at high interest rates. One rule for the goose one for the gander…:):)
Please also see this as honest criticism of someone in the sector who is still grappling to find answers…and thank you for the replies too…
Agreed to your points!
But I shall maintain that though the grassroot problems must be addressed, the efforts in itself shouldn’t be vandalized; given that each small solution in some way or the other contributes in its very own way.
There may be more due diligence needed on their part but the intention to Cater to such segment forms the base of the whole agenda.
The message, therefore, is that BoP households are a stark social reality — those who are at the top of the pyramid cannot just ignore the 200 plus million (or even 456 million) Indians who are at the absolute bottom of the economic ladder — simply because in absolute numbers, this BoP stratum has very significant socio-political power and if their needs and aspirations are not looked into, they can, knowingly or unknowingly, create significant social unrest and instability. The BoP stratum, therefore, should not be seen at this time as another business opportunity but a social obligation for more privileged individuals and businesses to take cognizance of. Efforts should be made to include them in the overall economic uplift process by way of creating/enabling conditions to make them employable for higher-value added functions so that their income levels first increase to a point that they become customers rather than mere consumers of basic needs.
Thanks for your comments! They have indeed been thought provoking!