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The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (The Wharton Press Paperback Series) (平装)
by C. K. Prahalad
| Category:
Current affairs, Economics, Global politics, Nonfiction |
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| MSL Pointer Review:
A rare book that presents important research findings and explains in a concise and compelling style how to explore opportunities in the world's largest and fastest growing markets. |
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AllReviews |
1 2   | Total 2 pages 15 items |
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Harold (MSL quote), USA
<2007-01-10 00:00>
With so many businesses focusing on the middle to upper income markets under the belief that they are the ones with the disposable income to purchase their products, C. K. Prahalad argues that there is tremendous profit potential at the bottom of the pyramid among the poor nations. In a compelling argument he presents his position with clarity, convincing narrative, and multiple examples. But this is not just about corporate profits from the poorest nations but also about how it can be used to significantly reduce or eradicate poverty. While as an individual those at the bottom of the pyramid don't have a lot of purchasing power, as a group they are the largest group in the world. More than that they often have a entrepreneurial spirit that can be tapped to further corporate profits while raising them out of poverty.
The author divides the book into three parts. The first part examines how the private sector can engage in win-win arrangements with the poor (or under-served customers). Part two looks at twelve case studies and what made them work. And the third part is a collection of video stories on CD. These are the collected works of several MBA research teams who actually interviewed those at the bottom of the pyramid to see their perspective and viewpoints. Enlightening and very interesting, this section points out that these are real people with real needs and dreams. The Fortune at the Bottom of the Pyramid is recommended reading for anyone looking to penetrate this market, concerned about the social plight of the poor, or generally interested in effective measures of reducing poverty. |
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Donald Mitchell (MSL quote), USA
<2007-01-10 00:00>
Poor people in developing countries are at the bottom of Maslow's hierarchy. They are often focusing on scratching out the most fundamental needs for food, clean water, shelter and a chance to earn a living to provide for those same needs. Economic statistics suggest that they have no money to spend, and many companies act as though the poor don't exist.
C. K. Prahalad and his graduate student collaborators strive to make a different case. Large companies can earn good profits by providing solutions to those problems the poor have that are most costly to them economically. Solving the problems then generates spendable income that will find its way to the large company. A good example comes in creating reasonable cost credit and access to futures markets to farmers so they earn more profits. The inefficient system that most go through now simply clips them like the feudal lords did on their domains.
The strength of the book comes in its detailed case histories which I found to be much more revealing than the primary text. In fact, the text seemed sometimes almost to be at odds with the main points of the case histories. If you find you are pressed for time, read the case histories and skip the text. There is also a brief CD to help illustrate the cases. Some of the cases are only on the CD so be sure to watch it.
I especially found the cases of Aravind Eye Care, CEMEX, Jaipur Foot, ITC e-Choupals and Voxiva to be interesting. These are essentially business model innovation stories, something that interests me very deeply. I learned from these cases how using local people can eliminate unnecessary overhead and that adapting the business model to the situation requires the local perspective of the poor…not that of the executives of a large company.
One reason that the main text reads a little strangely is that if everyone focused just at the bottom of the poorest consumers you would have too many companies working on the same problems (clean water, hygiene, overcoming simple forms of disease, etc.). It looked to me like the best business areas were ones that catered to those further up the ladder economically…but who were still poor. I was especially fascinated by how the Aravind solution is so powerful that people will be coming to India from the developed world to have their cataracts treated…and will save money even after paying for the travel costs! In this way, poor countries could become laboratories for better business models that could be transferred at least in part to wealthier people and countries.
I was also surprised not to see any material in here about Philip Morris, Coca Cola and Gillette who have been selling their products to the poorest people around the world for decades. When I first wanted to learn about the problem defined by this book, I went to visit those countries and learned many helpful answers that are only partially captured by this book.
Finally, I felt like the book makes a mistake in primarily looking at cases involving quite large companies. The bulk of innovation comes from much smaller firms. What role can these organizations plan in partnering with poor consumers around the world to create better business models and products? Genius isn't determined by whether you are born rich or poor. How can we tap into the potential of genius in more ways? |
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Gerard Croese (MSL quote), USA
<2007-01-10 00:00>
C. K. Prahalad is Professor of Business Administration and Professor of Corporate Strategy and International Business at the University of Michigan Business School. This book was published in 2005 and is split up in 2 parts, which each consist of 6 chapters. The third part to the book is a CD detailing video success stories filmed on location. For starters it is important to understand that the term "Bottom of the Pyramid" (BOP) is based on the economic pyramid of the world. "At the top of the pyramid are the wealthy, with numerous opportunities for generating high levels of income. More than 4 billion people live at the BOP on less than $2 per day. They are the subject matter of this book."
The objective of the first part - The Fortune at the Bottom of the Pyramid - is to build a framework for poverty alleviation. A whole new world of opportunity will open up as we start recognizing the poor as resilient and creative entrepreneurs and value-conscious consumers instead as victims or burden. In the first chapter Prahalad explains that the market at the BOP is full of opportunities as long as we start with some basic assumptions: First, active engagement of private enterprises is a critical element in creating inclusive capitalism. Second, the BOP, as a market, provides a new growth opportunity for the private sector and a forum for innovations. Third, BOP markets must become an integral part of the work of the private sector. He continues with discussions on the existing nature of the BOP market and the possible market development market imperative. "The case for growth opportunity in the BOP markets is easy to make. However... the private sector must learn to innovate. Traditional products, services, and management processes will not work."
The second chapter discusses a philosophy of innovation focused on the BOP markets. "The basic economics of the BOP market are based on small unit packages, low margin per unit, high volume, and high return on capital employed." Based on research, the author has identified 12 principles that taken together constitute the building blocks of a philosophy of innovation for BOP markets. Obviously these principles form a challenge to western managers. However, they can learn a lot from their active participation in BOP markets since it requires questioning the existing capital intensity and managerial cost structures.
In the third chapter Prahalad sets out the four distinct sources of opportunity for a large firm that invests time and energy to understand and cater to the BOP market: 1. Local growth opportunities. 2. Local innova- tions can be leveraged across other BOP markets. 3. Local innovations can find applications in developed markets. 4. Lessons can influence the management practices of global firms. "Because the BOP forces an extraordinary emphasis on price performance, firms must focus on all elements of cost." Working at the BOP also requires learning to live with a wide variety of relationships with a large number of institutions.
The need for building an ecosystem for wealth creation and social development is a prerequisite for developing markets at the BOP. This subject is discussed in the fourth chapter. The author believes that we need "to change the focus of the debate from a preference for one form of private sector at a time to a focus on a market-oriented ecosystem that is a combination of multiple forms of private enterprises coexisting in a symbiotic relationship." He starts with a discussion on the components of the market-based ecosystem followed by a discussion of the three-step process in creating a transaction governance capacity based on the marketing ecosystem.
In the fifth chapter Prahalad attempts to address the ever-present but seldom discussed topic of corruption. He believes that it is a fact that corruption and poverty go together, but that this can be mitigated rapidly through transaction governance capacity which is about making the entire process as transparent as possible and consistently enforced. Transaction governance capacity (TGC) is discussed in detail including methods for building this. The Andhra Pradesh e-Governance Story is used as an example. "There are significant impediments to the entire process, the most important being the education of the citizen."
The sixth and final chapter of Part I discusses the development as social transformation. "As BOP consumers get an opportunity to participate in and benefit from the choices of products and services made available through market mechanisms, the accompanying social and economic transformation can be very rapid." Examples from BOP markets indicate that newly found advantages are the same building blocks that are leading to more consumer activism in developed markets: dialogue, access, risk benefits, and transparency. It also indicates that BOP consumers are upgrading from their existing condition. Prahalad concludes the chapter with the "real test", whether the pyramid can become a diamond with the bulk of the population as middle class. He also believes that "given bold and responsible leadership from the private sector and civil society organizations" poverty and deprivation can be eliminated by 2020.
The second part - Innovative Practices at the Bottom of the Pyramid - presents detailed case stories of successful innovations at the BOP, ranging from health care to agriculture and from Peru to India. In addition, global firms, large domestic firms, nongovernmental organizations and start-ups are all represented. The intention of these case stories is to demonstrate that opportunities at the BOP are virtually unlimited. They were also written with 3 goals in mind: First, show how to innovate at the BOP. Second, there is no mystery to unlocking the potential of BOP markets. Third, understanding of the potential of this opportunity.
The third and final part is a CD with 35 minutes of video success stories filmed on location in the Bottom of the Pyramid in India, Peru, Mexico, Brazil, and Venezuela. Each video is approximately 4 minutes in length. In addition, the CD includes 3 interactive practices texts in PDF format based on three success stories.
Yes, I do like this book. It covers an important humanitarian issue, the eradication of poverty through profits. Although the book introduces a useful framework for capturing growth and opportunities in bottom of the pyramid markets, I still believe that a lot of multinational companies are still not too keen or do not have the courage to invest in these markets. However, the book provides some useful guidance and advice for those people and companies that do have that courage to seek opportunities and growth in these markets. I like the positive approach of the author emphasizing that we should see these markets as full of "value-conscious consumers instead as victims or burden." It is also important to note that findings from investments in these markets can have positive impacts on organizations and markets all around the world.
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Ed Uyeshima (MSL quote), USA
<2007-01-10 00:00>
The power of University of Michigan Professor C. K. Prahalad's fine treatise lies in the wealth of valid case studies he provides to prove his point that poverty can be overcome through corporate profitability, a seemingly ironic cause-and-effect that he argues with conviction. Since 1997, with the exception of a brief and unsuccessful stint within the dot com bubble, he has been evolving his ideas about how firms should focus on the bottom of the pyramid, which he euphemistically calls the BOP versus the wealthy at the TOP. He wholeheartedly believes there can be a win-win relationship between business and the poor, and he's done his homework to support his claim. According to his statistics, there are 4-5 billion people living on under $2 a day, which in aggregate, represents an economic opportunity he values globally at $13 trillion a year. The win for the poor seems obvious, being empowered by choice and being freed from having to pay a "poverty penalty", a practice that appears widespread in certain developing countries like India. There, the poor pay a premium on everything from rice to credit-often five to 25 times what the rich pay for the same services. He argues that driving down these premiums can make serving the BOP more profitable than serving the top, but the challenges inherent in implementing BOP economics are daunting.
Prahalad divides his book into three main sections. The first spells out his BOP theories; the second provides twelve case studies; and the third presents specifics from these case studies via video clips contained on an accompanying compact disc. This last section is particularly valuable in recording how the poor themselves feel about the impact of BOP economics. Otherwise, Prahalad can sound somewhat pedantic in expressing his abstract thinking, even though he makes a lot of valid points along the way. For instance, he strongly feels the traditional top-down thinking on aid by management in both public and private sectors is vehemently wrong- headed because there is an inevitable attitude of charitable giving. The poor are seen as victims who need help, not as people who can be part of the solution, so their help often creates an unwarranted dependency. Prahalad also does not have much confidence in corporate social responsibility (CSR) programs of many corporations, which he views as more a public relations ploy. Philanthropy, he asserts, cannot be at the root of helping to eradiate poverty, and the BOP markets must become integral to the success of the firm in order to command senior management attention and sustained resource allocation.
Simple applications of TOP marketing and distributing strategies will not work, so Prahalad outlines new tactics to reach the BOP through his case studies. There will be a more diverse set of stakeholders involved - governments, nongovernmental organizations (NGOs), and BOP consumers themselves. Engaging the BOP consumers directly will be essential by means of the products produced there. The accompanying CD is a huge plus here, as it effectively shows the individual cases that fortify Prahalad's argument. There is a three to four-minute video clip of each study, each one a mini-documentary filmed in various locations in India, Peru, Mexico, Brazil and Venezuela. Once I digested all the facts presented, I still feel Prahalad does not quite recognize the full extent of involvement it will take corporate leaders to buck current traditions to establish the right positioning and right fulcrum toward change. Moreover, there is a need to allocate resources to more fully-developed solutions toward the attendant environmental problems that BOP economics will inevitably create. Realistically, it will take the optimal mix of BOP and TOP to eradicate poverty through profit and that the real benefit is in understanding fruition is actually superior to profit. However, Prahalad raises strong points here well worth continued investment, and I look forward to more of this thinking in the next chapter of Prahalad's studies.
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Joanna Daneman (MSL quote), USA
<2007-01-10 00:00>
There are 1 billion Indians. There are a billion Chinese. There are millions in South America, Africa and Asia. The average income per year is close to the pocket money of the average American teenager per month. How can these people be served by corporations manufacturing and distributing consumer goods? Are they being taken advantage of or is there a relationship of mutual assistance here? The Fortune at the Bottom of the Pyramid uses interesting examples from developing countries to illustrate how capitalism can help people in these areas and how it's actually a win-win relationship.
Example in point: soap and handwashing promote health in rural India. Hindustan Lever Ltd markets Lifebuoy Soap, in packages ranging from 125 grams to 60 grams, smaller sized and priced so that someone who couldn't afford more than 4.5 Rupees (pennies) can still buy soap. Public messages about how washing with Lifebuoy can prevent stomach, eye and skin infections are promoted even out to rural villages. They partner with schools, local govenments and clinics to promote hygiene. Result? Improved health and hygiene, more sales for HLL. If HLL weren't in India selling soap and educating the public, there would be more disease. So a firm making profits has a positive effect on the public good. Other firms have taken note of HLL's success and started marketing toiletries like toothpaste in small packets, aimed at the customer who can't afford more than a few cents per purchase but still wants to clean teeth, wash or shampoo.
This book contains a CD with case studies filmed on location. What a great idea? After reading about Casas Bahia, HLL and other firms discussed in the book, you can watch a film made on site.
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Dennis Littrell (MSL quote), USA
<2007-01-10 00:00>
On the one hand this book is endorsed by Microsoft's Bill Gates and Former Secretary of State Madeleine Albright. That ought give the prospective reader some idea of its value. On the other hand, it might be asked, what kind of book is this that purports to tell businessmen how to make money by selling goods and services to the poorest people on earth? After all, the poorest people that have any disposable income at all make something like two dollars a day.
First question then is, how big is the market at the bottom of the pyramid (BOP)? Prahalad writes that China's per capita gross domestic product of $1000 really represents a dollar purchasing power parity (PPP) several times that, resulting in a $5 trillion dollar economy. He sees the Indian economy as being worth about $3 trillion in PPP terms. (p. 10) It's easy to see that even the apocryphal "two dollars a day" multiplied by two, three or four billion or so results in a whole lot of money.
The second thing that might be asked is, is it really moral for the business world to turn its considerable powers of inducement and persuasion on people who have so little to begin with? What kind of person would aim to exploit those least able to afford the exploitation? The answer given persuasively by Prahalad is that by making products and services available to the poor, two good things will happen. First is the fact that goods and services hitherto unavailable to the poor will actually become available. Second, these products and services will increase their standard of living and allow them to "acquire the dignity of attention and choices from the private sector that were previously reserved for the middle-class and rich." (p. 20)
How might this work? Presently people in the poorest neighborhoods in the world ironically often pay a premium for what little goods and services they get. Prahalad points out that this is because they are paying a "poverty penalty" which is the "result of inefficiencies in access to distribution and [because of] the role [played by]...local intermediaries." By "local inter- mediaries" he means the line of middlemen - some traditional, some corrupt, some both - that presently stand between the poor and their products and services. These middlemen add no value but have their hands out and therefore artificially increase prices for the people at the BOP. Products using modern distribution methods will undersell the old ways.
Prahalad emphasizes targeting products precisely to the needs of the poor. BOP people are "value-conscious by necessity," he argues, and contrary to what might be assumed are "very brand-conscious." They are interested in "aspiration products" - brand names - since these products symbolize a higher standard of living and a better way of life. We can see this in our own poor neighborhoods where brand icons like Nike and Sony are almost worshiped. Prahalad notes that the "poor have unpredictable income streams. Many subsist on daily wages and...tend to make purchases only when they have cash and buy only what they need for that day." Conse- quently a good marketing strategy is to offer "single-service packaging - be it shampoo, ketchup, tea and coffee, or aspirin..."
This may work I believe if, and only if, the products that big business makes available to the people at the BOP really do improve the quality of their lives. If they are persuaded to buy, say, cigarettes which they would not other- wise buy, clearly this will not improve the quality of their lives. If they are persuaded to buy soft drinks and other artificial "foods" consisting of empty calories, it's doubtful that they will benefit.
But is all of this more "globalization trickle down"? - that is, the rich get richer and the poor get - well, somewhat less poor? Prahalad believes that turning the people at the BOP into consumers will raise their standard of living and in the long run eradicate poverty. He uses the phrase "creating the capacity to consume" as a means to this end.
The unstated assumption behind Prahalad's idea (and the consumptive economy in general) is that there is great wealth in the world that only needs to be created by human ingenuity, and then efficiently distributed by the capabilities of the modern corporation. If we can find an energy source as cheap as oil and make a smooth transition to an oil-less economy, I think there is a good chance that Prahalad's vision will be realized. However, if we don't solve the coming energy problem, Prahalad's idea will gather dust and decay like so many abandoned SUVs alongside roads that we can't afford to repair.
In a sense then, this could be a visionary book well ahead of its time. |
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Johnson (MSL quote), USA
<2007-01-10 00:00>
Tons of information backed by practical means. There is a ton of contem- porary and useful information, statistics, charts, and analysis in this book. Equally important are the lists of specific steps and methods to implement these practical ideas.
In The Bottom of the Pyramid, C. K. Prahalid details the critical realities that are witnessed and experienced in our radically changing world today. Especially for those that are living in LDC nations, or those on the lower end of the Per Capita Income scale, and/or those that are not experiencing sufficient economic growth. "BOP" is also quite relevant to high economic growth nations such as China and others, as these countries evolve (or is that devolve)?
Several concepts are examined and advocated in The Bottom of the Pyramid by Prahalad, MFIs, and Purchasing Power Parity (PPP) at the Bottom of the Pyramid (BOP) are relevant examples of purchasing parity. The author's concept of these populations being "value conscious by necessity" is real.
As practical as the means to implement these concepts are in this
book, often aided with specific models, examples, and instruction - it also takes - local people to accept it and do it. Many of the means and methods proposed for these areas at the BOP at times seem visionary and over-idealistic and also, too consumer-oriented. Prahalid does note the impediments, and is realistic about them.
Supplying market needs is helpful to people by providing them access and affordability to the products they need. Beyond this, what can be achieved once these market niches are filled? Again, Prahalid uses a lot of charts, graphs, and stats to outline current challenges, and also the specific ways to address them. Prahalid lists logistics, payment methods, transportation, etc.
One concept advocated is "creating the capacity to consume" in these poor countries, facilitated by the "single serving revolution." This single serving marketing approach is for sales of smaller packages of products instead of larger ones because lower income people in BOPs can't afford to buy larger packages and quantities and put them on the shelf at home for later use. Good value for a good product, with a good portion-to-cost ratio. Some small packaged single servings specifically listed by Prahalad are: "ketchup, tea, shampoo, coffee, and aspirin." Trivial products, many of us in the world use. Going farther and beyond these items would help, however: and, Prahalid does. In addition, his concept of the "Three As" is realistic in this approach to marketing: Affordability, Access, Availability.
Some of the bureaucratic policies and private industries noted: citizen- centric governance, e-governance, the salt industry in India, landmines and prosthetics, eye care, rural kiosks, training, deliveries, and supply- chains, etc.
Prahahlid noted the challenges to implementation. Ideas and words are quite different from implementation. (The doing.) This book's ideas can be helpful in certain circumstances and in many areas of the world. There is opportunity to implement these concepts, There are however, many hurdles to implementing them and achieving success. Will people at the BOP make the behavioral changes needed? Changing mentalities is where it starts. Are these recommendations, a form of cultural imperialism to some degree? One obstacle is corruption; it's rampant in many of these BOP countries. A high percentage of aid and investments are stolen throughout the world. Multi-national companies (MNCs) are often squeezed. Theft, corruption, and judiciary systems are built to work against foreigners and obstruct them, while these BOP nations depend upon them. NGOs acquire and spend a lot of money. What do they actually do? Not much, as a whole. NGO corruption and embezzlement is endemic. Aid is used by governments of the "developed world" to push forward its own agenda in these nations. Aid, is a carrot and a stick at the same time.
In these nations there is no concern for individuals. Governments of BOP nations care about large corporations that dump millions of dollars of FDI into these countries. These MNCs often flush millions down the drain to get into these nations to get market share, reduced labour-costs, and to often export what they produce in BOPs nations to consumers in highly developed countries. Outsourcing is the latest motivator for the globalized competitive world where MNCs wield enormous power. Where do the 4 billion people Prahalad mentions as living on $2 per day fit into this? at the BOC (Bottom of the Company). Author Prahalid states: "The process must start with respect for Bottom of Pyramid consumers as individuals." Consumers? Target marketing aspirin, coffee, and shampoo.
If foreigners can be the saviour, how long will they have to stay? This sounds like a business oriented financial quid-pro-quo with the time- consuming and often ineffective Peace Corps approach: "We can do things better than you can. So let us come. Let us in. We're doing you a favor, while we're furthering our interests at the same time. Mutual benefits to some degree, but what is the ratio? Different parties want access to the pie. If the entire pie grows and greater pieces and access of it are available to those who have less, those who have nothing or little, will in theory get a larger piece of the bigger pie. An element of Game Theory, perhaps.
There are 6.3+ billion people on this planet, and the population is contueing to rise rapidly. Water and food will take prevalence over economic growth if something is not done about it. Lack of these basic necessities needed for basic survival will obstruct the prospect for economic growth and better quality of life. And, developed nations plunder world's the environment and harm the lives of those with less political and economic power. We live in one world, not three. What we do, more than ever, affects the entire population. This is a very positive book, with realistic means to achieve its aims.
Ideas, facts, and realistic methods are superbly tied together in The Bottom of the Pyramid. The biographies at the back of the book add depth to the people involved. A Highly recommend book for everyone, and in particular those in internationally development, international business, MNCs, and government. Great book.
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Mike (MSL quote), USA
<2007-01-10 00:00>
The Fortune at the Bottom of the Pyramid fails to live up to the hype. I've heard so many business-school types gushing about this book that I decided to pick it up and give it a read. While a good quick, the readers who call Prahalad a visionary are a bit inexperienced. Putting aside the fact that most of the book was written by grad students and poorly edited, the fact is that most of these ideas are not original. In fact most people living in a developing country would recognize them as common sense if not old-news. Lastly, his prescription is far from a `solution' to poverty. The title therefore, is false advertising.
Major problems with Prahalad's argument include the fact that with the exception of products like microfinance and healthcare, increasing the value poor people get out of the products they buy does not expand their productive capacity. So while they may raise the standard of living incrementally, cheaper, better soap and prosthetic limbs are not going to bring the poor into the middle class.
This major flaw, and the inane flow charts aside I'm glad the book is around. It rightfully brings to the fore the fact that these markets represent a tremendous opportunity to MNC's. Where Prahalad really adds value is in his very accurate portrayal of the poor in developing nations as value conscience, savvy consumers that can and will adopt technology faster than those of us in the West. I have seen with my own eyes that people in developing countries seize upon a product which offers them the kind of value Prahalad describes in Unilever products. Your take away? -Invest in companies that understand and orient themselves to these markets. |
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Bill Gates (MSL quote), USA
<2007-01-10 00:00>
C. K. Prahalad argues that companies must revolutionize how they dobusiness in developing countries if both sides of that economic equation areto prosper. Drawing on a wealth of case studies, his compelling new bookoffers an intriguing blueprint for how to fight poverty with profitability. |
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Christopher Rodrigues (MSL quote), USA
<2007-01-10 00:00>
Prahalad challenges readers to re-evaluate their pre-conceived notionsabout the commercial opportunities in serving the relatively poor nations ofthe world. The Bottom of the Pyramid highlights the way to commercialsuccess and societal improvement - but only if the developed worldreconceives the way it delivers products and services to the developingworld. |
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