Guest blogger Dr. Anand Kumar Jaiswal is a faculty in marketing area at the Indian Institute of Management Ahmedabad, India. He received his Ph.D. from XLRI Jamshedpur. His research interests include business strategies for low-income markets, sustainable development, services management and business-to-consumer e-commerce. He has published articles in refereed journals, besides several presentations at research conferences. His latest paper, Fortune at the Bottom of the Pyramid: An Alternate Perspective, was featured on NextBillion.net here.

By Professor Anand Kumar Jaiswal

Prahalad’s argument is that MNCs should play a proactive and important role in tapping "base of the pyramid" (BOP) markets. However, most initiatives catering to the needs of BOP customers have come from local entrepreneurs and SMEs. In India, participation of MNCs in BOP markets is mostly limited to products such as fast moving consumer products that are technologically less sophisticated. SMEs have shown better record in understanding the needs of BOP customers and fulfilling them effectively.

Micro finance is one area where local organizations in developing countries have been far more successful in reaching out to BOP customers. Grameen Bank in Bangladesh and organizations such as BASIX and nationalized banks in India have been instrumental in making micro credit an effective tool for fight against poverty. MNCs participation in micro finance in developing countries has been minimal.

BOP markets pose a different kind of challenge to multinationals. For example, in India rural markets are spread over 600,000 villages. About 82 percent of the rural population lives in villages with a population less than 5,000 (Swamy, 1999). Reaching out to this population is not easy, given the poor physical infrastructure. Large areas are not connected with roadways. The thin dispersal of rural markets poses serious challenges in terms of logistics, product shipment, delivery of stocks and reaching out to retailers. Lack of communication network and power unavailability are common (Venugopal, 2002). Further, because of low purchasing power, BOP customers buy lower volume of products on each purchase occasion, pay a lower price and consume smaller quantities on a per capita basis and hence transaction cost is much higher. These factors make it difficult for MNCs to achieve manufacturing and distribution efficiencies through increase in product volume. The high cost structure of MNC operations compounds the problems in BOP markets.

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