NextBillion.net - Development Through Enterprise - Response to "Mirage at the Bottom of the Pyramid" - Comments

comment on karnani's paper

baljoshi — Wed, 30 Aug 2006 15:24:08 -0400

I completely disagree with Karnani’s bashing of CK Prahalad. What CK has done is identified a “potential” market. How MNCs offer their product to that market and maintain profitability depends on how well they understand users need. Isn’t’ that business 101? As long as you are catering to a specific need and creating transactions, socio-economic benefits will be created. CK needs to be credited for the awareness he has built to the market that has previously been ignored. Yes I agree in some context with Karnani where some of the numbers have been exaggerated, e.g. is $2/day really the spending capacity in all economic sectors?…perhaps not. This reflects to only a certain number of population but cannot be generalized for all others without more defined sets of data. I think it’s a discriminating approach to punish the so called “poor” with cheap, low quality products and continue to exploit them ONLY for the productions of Nikes and iPods. Why can’t the Poor have a “choice” to wear jordans or run around the village with ipods? The keyword here is “choice.” Are we still in colonolial period or what?? What I am trying to say is as long as there is a value proposition that strikes a chord for a person at the BOP market, he/she will find a way to finance the product. E.g. cell phones, television, VCRs and in the 80s antennas for TVs. May be items like Jordans or the iPods are not on their top of the list for all the obvious reasons but other gadgets might be….the demand for products are created by completely different sets of needs…and that’s the key component in the approach… identify the need…(don’t stereotype) This leads to one of my beliefs: “Replace the word poor and identify them as beneficiaries.” Wal-Mart the largest retailer in the world does not identify to its customers as poor people. They approach their segment as customers who are sensitive about prices; hence the logo “Always low prices.” So how can a product enhance the lives of people living at the BOP market is the million dollar question only the MNC that are trying to penetrate answer? Perhaps there is no value and that’s fine but that does not mean that the multi-billion people does not have any other need that they can afford. Ignoring them is your loss. Addressing the poverty question: Coming from one of the BOP markets of the world here is my version of why many of the poor people exist in our part of the world? I feel the bridge between the poverty and wealth is Access: Access to Capital Access to Technology Access to Better Health, education Access to Infrastructure Access to Information The list can go on and on… So another billion dollar question is what access MNCs product will create contribution of socio-economic development? In my business we are leveraging the access to capital a diaspora has in purchasing products and services for their friends and families in Nepal. So if I had listened Karnani’s article 6 years ago then we would not have more than 30,000 beneficiaries that have helped create new socio-economic opportunities in Nepal. Talking about “poor” people is definitely a nice thing to do but treating them as beneficiaries might perhaps do more good. Cheers, Bal

Aneel's paper

Kapil — Tue, 29 Aug 2006 10:13:50 -0400

I think focus should be on the simple truth that Aneel presents - the poor need to realise their economic potential to climb out of their poverty trap - ie, income is the highest priority for them - ask any poor person - and businesses stand to gain by addressing this in manners that provide business benefits. Presenting arguments to shift focus from this simple truth by making them sound esoteric will only serve to keep academicians and employees of non-business institutions busy.

Risk Management

Sanjay — Sat, 26 Aug 2006 23:08:19 -0400

What I disagree with Kalkarni on is the premise that the West doesn't see BOP as producers. Sure they do, just ask Nike. The problem is the unrealistic set of expectations the BOP have on opportunities to become producers. The onus is not on the West to change their criteria for investing in BOP, the onus is on BOP as the investment-seeker to improve their credibility for attracting investment. So I think Kalkarni's arguments amount to the tail wagging the dog. The credibility ball is entirely in BOP's court, since they are the wage-seekers. When it comes to service-sector jobs, then the West has no trouble in outsourcing this work to the underdeveloped world, since this requires minimal upfront investment. But manufacturing is an altogether different enterprise, which requires huge upfront capital investment, and thus much higher exposure and risk. If Kalkarni can come up with useful proposals on how to mitigate or minimize risk when investing in BOP -- he hasn't -- then this might attract further interest in investing in BOP for production purposes.

Response to "Mirage at the Bottom of the Pyramid"

Al Hammond — Thu, 24 Aug 2006 15:22:06 -0400

Dr. Aneel Karnani has posted a critique of Professor Prahalad’s book, The Fortune at the Bottom of the Pyramid and its thesis—as Karnani describes it—that multi-nationals will enrich themselves and the poor by participating in the base of the pyramid (BOP) market. Karnani describes this thesis as "at best a harmless illusion and potentially a dangerous delusion." He raises questions about the size of the BOP, its relationship to poverty, and calls for a focus on the BOP as producers.

While Karnani’s characterization of the Prahalad thesis is questionable, we can certainly agree with him that improving the productivity and welfare of BOP households is an important component of poverty alleviation. Our BOP work at Development through Enterprise has always been focused on improving both the productivity of the BOP as micro-producers and their welfare as micro-consumers-through access to information and connectivity, to financial services, to health care, to agricultural prices and inputs, and to more competitive and hence more equitable markets.

In response to Professor Karnani’s concerns about previous estimates of BOP size, we agree that a more sound empirical grounding is necessary to inform the debate. Our forthcoming publication, joint with the IFC, is based on a re-analysis of national household income and expenditure surveys—each with sample sizes in the tens of thousands and relevant to entire populations—from more than 110 developing countries.

Entitled "Tomorrow’s Markets", the publication will describe the BOP market based on purchasing power - by income level, by country and region. It will also analyze expenditure patterns by sector and by income level, focusing particularly on sectors that enhance productivity.

The point is that BOP households collectively spend money, lots of it, on a wide variety of goods and services, and are clearly willing to pay for services such as connectivity, clean water, financial services, energy, health care, and education for their children, as well as food, housing, and consumer goods. The BOP is already an economic actor, not just a passive, dependent group, and its collective actions define a market.

The pertinent development question is whether the BOP is well served by the present (often informal) markets, and whether there are unmet needs that could be better served by more competitive markets and broader participation by the legitimate private sector. Our analysis will attempt to answer such questions, with empirical data and well-documented examples. It will also clarify the difference between a poverty analysis (which seems to underlie Professor Karnani’s concerns) and a BOP market analysis.