"If we stop thinking of the poor as victims or as a burden and start recognising them as resilient and creative entrepreneurs and value-conscious customers, a whole new world of opportunity will open up."
So says C. K. Prahalad, professor at the University of Michigan, in his new and controversial book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (Wharton School Publishing). Prahalad calls big business to target the world's poorest consumers as they develop and roll out profit-making plans for the future.
Prahalad speaks of focusing on the BOP (bottom of the pyramid) rather than on those at the TOP. He argues that charity will not renew economies, that government aid and "corporate social responsibility" won't move the needle on world poverty. The problem with most traditional approaches to "helping the poor" has to do with how the recipients of assistance are regarded.
People cannot be lifted, they cannot move up if they are seen only as helpless victims.
Market forces can make amazing differences, but businesses will have to adopt new strategies and embrace completely different paradigms in order to be successful. In short BOP markets must become an important target in the future growth and success strategies of the corporations involved.
Prahalad argues that companies deciding to serve the 4-5 billion people who live on under $2 a day will find vast, new economic opportunity. The poor will benefit from having new choices and many of the penalties for being poor will fade away.
Currently, poor people around the world must pay a premium on everything from food to credit--often five to twenty-five times as much as the well off pay for the same goods and services. Prahalad is convinced that opening viable markets among the poor will be more profitable than focusing only on the TOP.
Corporations who adopt his suggestions will need to "re-engineer" their products to serve the economic realities at the bottom. Smaller packaging, lower margins per unit of sale and higher volumes will be what's needed to be successful at the bottom. At the same time, markets will need to be built from the ground up and consumers will need to be educated about everything from credit to handwashing.
Of course, critics and skeptics abound for Prahalad.
But what he writes rings true to me as I think about the urban poor in America.
Much of the market potential of our inner cities remains untapped. Poor people pay extraordinarily high rates of interest to pawn shops for small loans. They purchase food and other goods and services at a premium due to the absence of grocery stores and retail businesses that bring healthy competition to parts of metropolitan areas outside the inner city.
And yet, the market for goods and services is here.
What we need in our cities is exactly what is needed in developing nations. We need less charity. We need better public policy and more economic development that would encourage the growth of markets for people at the bottom in our cities.
Transformation would follow this sort of new development. Where are the urban pioneers for a city like Dallas?
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2 comments:
I heard recently that near South Dallas has such a dearth of food outlets that it has the capacity to support at least 7 more grocery stores before they start to compete with each other. The opportunity is wide open, but businesses are not going there.
And when they do, like you mention, they charge a premium on everything from milk to diapers to cigarettes (which they are now selling to the poor one at a time, no doubt at a super-premium).
What can be done? It is probably not feasible for organizations like CDM to open a grocery store (or is it?), so how can business leaders be convinced to invest in poor communities?
I don't think it's quite accurate to say that these markets aren't served--low-income neighborhoods are served by inefficient markets.
The competition level is low, so that high costs and high markups are the rule.
I think what low-income markets need, in large part, is more efficient markets, more competition, and, in short, better capitalism.
The poorest neighborhood we serve in Dallas has about the same average income as Poland, or Mexico. While those aren't rich countries, they are countries with vibrant, active economies, and their fair share entrepreneurs who have become wealty.
The economic opportunities in poorer urban neighborhoods exist, they may just take more work than in wealthier neighborhoods.
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