Big multinational firms can help cut poverty and boost profits at the same time by tapping a huge market of 4 billion low-income consumers in developing countries, business consultant CK Prahalad says.
Below are excerpts from a recent interview with Prahalad, author of the book "The Fortune at the Bottom of the Pyramid, Eradicating Poverty through Profits" in Johannesburg.
Why have companies ignored the poor for so long?
"Part of the problem is that people do not have a full understanding of the size of the opportunity.
"There is a deeply held assumption that the poor will not appreciate high quality or will not accept high technology and they have no need for products and services that are innovative.
"I think there has been a reluctance to make a fundamental change in business models. We try to protect our cost structures and forgo opportunities."
How can big firms selling to the poor also cut poverty?
Think of the poor both as micro consumers and micro producers. If you look at the cell phone industry you can argue that we have increased consumption of connectivity today, that's true, but this is also changing people's lives, they're increasing their livelihoods as micro producers.
{{/usCountry}}Think of the poor both as micro consumers and micro producers. If you look at the cell phone industry you can argue that we have increased consumption of connectivity today, that's true, but this is also changing people's lives, they're increasing their livelihoods as micro producers.
{{/usCountry}}For example, I'm a small 'spaza' (informal) shop operator. Now I can use my cell phone only to order what I can sell, therefore I don't have excess inventory."
How quickly is the trend spreading?
I think there has been a sea change. The multinational companies are quietly making experiments, all the way from a Microsoft to P&G (Procter & Gamble) to Intel.
Some are willing to publicise it and some are less willing because they also think it's going to be a source of their competitive advantage.
I recently had a meeting with the president of Colombia which lasted eight hours because he had read the book and he thought this was one way to solve the problem. He had invited CEOs, his entire cabinet.
What must companies do in order to sell products in this new market?
If you want to serve people with world class products, and I used the word world class, not luxury, the same standards of quality you and I would like, and at the same time at affordable prices, the only way to do it is through innovation.
I'm big on innovations which dramatically challenge and change the price performance equation and that is critical.
"The bottom of the pyramid can be a focal point for innovations for the large company."