Professor Prahalad's visionary work suggests ways in which firms might establish a profitable rapport with the deprived, to the benefit of all. Stefan Stern reports
Ernest Hemingway and F Scott Fitzgerald once famously debated what the rich are really like. 'They are very different from you and me,' Fitzgerald said. 'Yes,' Hemingway retorted, 'they have more money.' The same is true of the poor, but in reverse. Four billion people live on less than two dollars a day. But they need food and shelter like anybody else, desire consumer goods, hope to improve their status, and have untapped talents and abilities.
The simple yet powerful insight at the heart of CK Prahalad's new book is just this: the rich world has turned its back on the poor, and both are losing out as a result. 'While large firms and multinational corporations have exploited the poor in some cases, the greatest harm they have done to the poor is to ignore them,' he says in his opening chapter.
Professor Prahalad, who teaches at the University of Michigan business school, has been one of the world's few truly original business thinkers of the past 20 years. In the 1980s he was among the first to describe the challenges of running the modern multinational corporation. In the 1990s (with Gary Hamel) he wrote the groundbreaking Competing for the Future, still a key text on strategic thinking and the core competencies of the corporation.
In recent years, Prahalad has been exploring what he sees as the three major trends shaping business. There is the need for businesses to 'co-create' value with their customers. There is the global restructuring of industries, labelled 'outsourcing' for short. And then there is this third and, for him, most important development: the emergence in world markets of the poor, the people who are, in the words of the title, 'at the bottom of the pyramid'.
Prahalad challenges his readers to reconsider the prejudice that may have deterred them from doing business in poorer parts of the world. It is as though we have forgotten our own history, he suggests. Didn't Marks & Spencer start out in business by saying: 'Don't ask the price, it's a penny'? Low margins but high volume and high return on capital have always been a successful business strategy when executed properly.
But his argument is more ambitious than that. The bottom of the pyramid (BOP) markets are potentially huge. They could become 'the engine for global growth and change'. We must help turn 'the poor' into 'consumers', and develop markets where in the past there was only 'poverty alleviation'.
But trading in BOP markets requires imagination, flexibility and innovation. Price matters, so 'single serve' packaging must be developed to provide affordable yet high-quality goods. Hire purchase or pre-paid credit schemes may be required.
'Products and services must be available where the poor live and work,' Prahalad writes. 'Most of them work the whole day before they have enough cash to buy the necessities for that day. Stores that close at 5pm have no relevance to them. Their shopping begins after 7pm. BOP consumers cannot travel distances. Stores must be easy to reach, often a short walk.'
This book comes as a package. Not only are there 12 case studies of businesses that use the latest technology, flexible pricing, imaginative logistics and distribution to make healthy profits, but a CD-Rom also provides video evidence, presented by the business owners themselves, of how they are making money in BOP markets.
For example, Casas Bahia, a Brazilian supermarket, serves only the poor and makes a good return safely in spite of the apparent risk of crime in the ghettoes of Brazil, and Cemex, the Mexican cement firm, offers low-cost building materials and high-tech distribution to low-income families.
India has many illustrations: Jaipur Foot offers affordable prosthetic surgery at a fraction of the cost in the west; the Aravind Eye Care System performs eye surgery, in many cases for free and always at infinitely lower cost than in the developed world; Hindustan Lever Ltd is bringing affordable soap to the poor, helping greatly in the fight against diarrhoea and other infections. Financial services and mobile telephony are now also within reach of some of the world's poorest people.
What Prahalad is describing here is 'inclusive capitalism'. It is designed as a win-win for both business and the poor. It has almost nothing to do with corporate social responsibility, which is already - or very nearly - a busted flush. CSR, Prahalad says, has been a sideshow, a way of avoiding bigger, tougher questions. BOP markets are the main show.
'We should stop talking about poverty and the poor,' says Prahalad in his introduction. 'We should start talking about consumers and markets. Treating the poor as consumers is about starting with respect for them as individuals.'
For once, a new book really does deserve the label 'visionary'. Prahalad is describing a brave new world of global business. Will business rise to meet the challenge?
- Stefan Stern is a freelance writer specialising in management and business.
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