“Sometimes it takes a genius to point out the blindingly obvious.” – Thank you to Robert Brook for pointing me to an old Radio 4 In Business program on Professor CK Prahalad. The program was made shortly after Professor Prahalad’s death, and covers two of his concepts that are credited with transforming business thinking at the time.
Although India born, CK made his name in the USA as a management expert at Harvard and at the University of Michigan’s Ross Business Schoool. Together with Gary Hamel of Harvard, he devised the concept of corporate core competence, discussed in his book Competing for the Future. The idea of a central tendency for each business – and sticking to it – resonated at a time when larger corporates were becoming diversified and loosing their focus. But there was a bigger idea to come, and that is the one that has caused me to ponder and post.
“The Fortune at the Bottom of the Pyramid”
In 2002 Peter Day interviewed Prof Prahalad about his Harvard Business Review article on “The Fortune at the Bottom of the Pyramid.” Multinational companies, said CK, could make huge profits by turning their attention to producing goods and services for the global poor. It’s the main focus of the Radio 4 program, and it lead to a best-selling book. CK said that there are two ways to address the 4.5 billion poor people around the world: ignore them, and create a depressing world, or look at them as 4.5 billion people who want to join the market economies.
CK challenged multinational businesses to create affordable products and services for the poor, addressing the latent markets located in China, India, Mexico, Brazil, Africa and other developing countries. His hypothesis was that not only would this lead to economic growth that would benefit the West, but that it would also benefit the poor. Of course, that begs the question: is that serving the poor, or exploiting the poor?
The Paradox of the Poor
The poor live in what Professor Prahalad termed “high cost sub-economies.” While the rich in India, Brazil and elsewhere get affordable access to credit (at rates around 15-16% APR), the poor in the same country end up paying 6-8% interest per day for credit. Similarly, when you look at the products that are accessible to them, they are generally higher cost alternatives to those available to the rich, e.g. mobile pre-pay – paying not only more for the service, but also paying up front for it. Mean while, the rich get the same service on interest free credit. Conversely, he argued, that also showed that the poor could be an attractive market for businesses: they pay more for products. That went against the conventional business wisdom of the time, but it has been shown again and again.
CK argued that people are smart enough to choose the right product, and that they make inherently rational choices. To me, that sounds like an economist speaking. With my marketing/psychologist head on, I have a niggling worry that people end up being pressured into buying products that they don’t need, and that they can’t actually afford, by social pressures and manipulative advertising. Those reservations were recognised by CK, but he responded that other remedies to poverty have been tried and have failed – “The face of poverty has not [been] changed… …instead what has been created is a culture of dependency [rather than autonomy].” Commerce may not be perfect, but neither is it totally flawed. That’s still not unproblematic though. Aside from a discomfort thrusting people into a bucket labelled “the poor” and pathologising an economic reality, there still seems a real risk that the disadvantage end up exploited. CK’s points have caused me to thing more broadly about what we might mean when we talk about exploitation. Getting businesses to think about people, rather than ignoring them, and treating them as potential customers, rather than a source of cheap labour, is hard to argue against – it seems to be the only form of manners that some global businesses understand.
Beyond Global Businesses – Ecosystems and Transported Ideas
CK conceived of a positive cycle, where the actions of multinational businesses transferred skills and knowledge into, and between, the micro-economies of the poor, while the poor made good (local) purchasing decisions that guided (global) product developments. I still struggle with that a little, as CK’s own evidence points to the fact that the choices open to the poor are restricted. However, the argument cycles back on itself: If more businesses seek to serve the poor (by creating products to sell to them), then there will be more choices open to them, leading to better decisions and better products, and so on. CK’s long term vision, therefore, was a world where the poor have access to the same quality of products as the rich. CK called on resilient and creative entrepreneurs to serve the needs of value-conscious customers:
“If you think about longer term, I would like to make sure that all products and service sold to the poor are as good as anything that you and I can get.”
You Need Me But I Don’t Need You
New business modules, like single serve, pay as you go, co-operatives, shared ownership, and so on, are creating models that enable micro-consumers and micro-producers to gain entry into the broader market place. It’s an interesting, highly positive reconstruction of the role of multinational corporates in the developing world – A view that sees them meshing with local producers, entrepreneurs and consumers. Several years on, one thing seems almost certain: economic growth to drive the future of the West is unlikely to come from the Western economies themselves. The future may be a world where the West needs the poor more than the poor need the West. Let’s hope that they don’t exploit us as much as we have exploited them. Currently the 4.5 billion, to most of the West, are a cheap source of labour to produce the cheap consumer goods that drive our economy. It’s going to take both businesses and consumers to change that.