Prahalad Responds to "Mirage at the Bottom of the Pyramid"

Aneel Karnani posted his paper, "Mirage at the Bottom of the Pyramid," to NextBillion.net ten days ago, setting off a bit of a firestorm among commenters on-site. In an effort to hear both sides of the argument, the editors contacted C.K. Prahalad and invited him to submit a response to Professor Karnani. (Full disclosure: Prahalad on the Board of the World Resources Institute, NextBillion.net's parent organization). We received the following reply:

Professor Karnani’s piece, Mirage at the Bottom of the Pyramid, deserves a rebuttal. I provided that in private before Professor Karnani posted his paper on the web. I decided to post my response to him as well, given the likelihood that readers may not get a balanced view of the core arguments about the BOP opportunity – to “do good and do well.”

Here is my original response to Prof. Karnani’s draft.

Read C.K. Prahalad's response to "Mirage at the Bottom of the Pyramid" (PDF download)

Related:

Read Al Hammond's response to "Mirage at the Bottom of the Pyramid" (Link)

cweinman

on Aug 31, 2006

Mutiple views, multiple perspectives

I too read the article critique by Prof. Karnani and wanted some time to truly consider some of his thoughts. I will add that C.K. Prahalad's book "The Bottom of the Pyramid" is what first sparked my interest in developmental economics. But I am open to ideas and opinions.

First I believe that Prof. Karnani did uncover one particular important note that I believe even C.K. would agree with. That there is a risk that multi-nationals might not embrace the BOP but utilize it to further enrich themselves. This is a typical view and one which is basic to business. In truth, it is the very definition that I personally would love to destroy. But it does have some validity and business has exploited the poor in the past. This is a risk, but I believe in today's world, in this world of globalization, where the "World is Flat" (thanks T. Friedman), that this does not need to be a case and cannot be the case. And if you want proof; example cases of good business by doing good are in C.K.'s book and in the activity database here at nextbillion.

I further would like to share one quote that seems to always be the emphasis and pulls at me. "Business needs to look and treat the BOP as individuals and consumers." (Thanks C.K.)

Finally I think one part where Prof. Karnani is definitely off the mark is by focusing on only multi-nationals and only focusing on them within his critique. Please remember that the poor can empower themselves and have proven time and time again (examples available upon request) that they are innovative entrepeneurs.

The solution will not be from one source, and it will not take only one method. I personally found that the approach Jeffery Sachs outlines within "The End of Poverty" to be most realistic. The underlining concept was similar to how a doctor attends to the sick, Sachs called it clinical economics. Where you realize the problems are not simple, but sometimes complex. That each segment of poverty requires a seperate diagnosis. He further goes into describing treatment and monitoring to also be keys to eliminating poverty. It is a very interesting perspective he brings to the table. I would be interested on his perspective on this article.

And in closing, I would like to thank Prof. Karnani for posting his original critique on this site. It has helped create and facilitate further discussion and analysis on the topic we are all focused on, eliminating poverty. Let's not focus on who is right or who is wrong, rather on seeking a solution to the problem at hand.

Thanks to the following people I quoted in some form during my response: Aneel Karnani, C.K. Prahalad, Jeffery Sachs, Thomas Friedman.

ere are some of my own shared as I borrow some words from Dr. Karnani, C.K. Prahalad, Jeffery Sachs, and Thomas Friedman. Sorry if you found my response long-winded.

— Rob Katz replied over 3years ago

Thanks for the long comment, Chad. Not long-winded - long is not necessarily a bad thing. These documents are thick and they take some serious thought to digest...something that's sometimes hard to come by in the blogosphere. So props to you for actually reading and thinking and now writing. I don't think Karnani and Prahalad diverge all that much. If you carefully read Prahalad, you'll see that he favors the "BOP as producer" concept as well (which he notes in his response to Karnani). He also discusses MNCs, because how else are you going to move the big elephants unless you talk about other elephants? (poor analogy?) Anyway, if you're interested in even more reading on this, I got an e-mail from Peter Wilson, co-author of an upcoming book, "Make Poverty Business" Hopefully I will get a proof copy to review and get that up on site, but check out the web site in the mean time. Kinda has a ring to it - similar to "Make Poverty History" Cheers - and have a good weekend.

Anonymous

on Sep 5, 2006

why not $2?

let's imagine that we somehow increase everyone in the BOP's income to something really high - $30,000.

...but, MNCs never take notice. they never begin marketing products and services to them; they never innovate with their business models or even begin to care. the result is that the BOP can not consume, even though their income warrants it.

$30,000 is, obviously, an extreme amount and it makes little sense to think that MNCs would not take notice. but the question becomes: "what level of income should attract MNC interest?" ...why not $2 ???

Anon - you make a good point. What level of income should attract MNC interest? If I knew that, I probably wouldn't be writing here... :) Seriously though, $2/day isn't chump change. Annually, that's $730 (USD). But convert that to Purchasing Power Parity, and now you're talking about buying power in the $2000-$3000 range in some BOP communities. For a US or European MNC, that might yet be too little, but for a local SME or even large company? If it's paying local wages, local transport costs, no tariffs - you get the picture. $2/day might be "poverty" from an economist's point of view, but it's a real business opportunity if you look at it from a different perspective. (Remember, this isn't just about MNCs - local companies are as important - if not more important - than the big ones you keep reading about)

Ramsey

on Apr 20, 2008

Lets not forget that upwards

Lets not forget that upwards of $1.5 a day are being spent on food and other essential goods. That potentially leaves 50 cents a day to be spent on non-essential goods. Also, as Karnani points out, MNCs use the market exchange rate and not ppp. As far as distribution and marketing to these 4 billion potential consumers goes, prahalad makes the convincing argument that urbanization will help to tackle this problem by 2015...at least part of it. To be more specific, urbanization means that .8 billion BOP members will live in urban cities. that leaves 3.2 Billion in hard to access rural villages. For MNCs to try and access these remaining 3.2 Billion for a potential pay off of .50 cents per head per day is not smart business, nor is it viable. 2 final points. the first already discussed by other users is the real potential to exploit the BOP by MNCs. The goal of any MNC is profit. it doesnt matter where the profit is coming, as money is nameless and faceless. Social enterprise--the fourth sector-- is the way to go. this is the mix between both worlds. that is to say, you get a profit seeking organization that reinvests at least half of their profits back into the community in which they serve. Social enterprise may very well be the only way to combine private business and poverty alleviation into one package. All these points need to be expanded upon, but Im not writing a paper here. :)

Julia

on Mar 4, 2009

what happened to the Prahalad Response (pdf)?

I tried to open the document, but all I got was an error message. Is there any other way to read this document?

Thanks in advance for your help!
Julia

Development through Enterprise

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Rob Katz

Portfolio Associate

Acumen Fund

New York City

Comments

cweinman

Mutiple views, multiple perspectives

— Rob Katz replied over 3years ago

Anonymous

why not $2?

— Rob Katz replied over 3years ago

GM Samy

$2 per day is a big money

Ramsey

Lets not forget that upwards

Julia

what happened to the Prahalad Response (pdf)?

Francisco Noguera

Thanks

Comment on article: Prahalad Responds to "Mirage at the Bottom of the Pyramid"

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