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Saturday, August 21, 2004

Profits and poverty -C.K.Prahalad via Economist

C.K. Prahalad thinks there can be a win-win relationship between business and the poor. C.K.Prahalad's views in a nutshell are,"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 consumers, a whole new world of opportunity will open up.” That “simple proposition” begins a controversial new management book that seems destined to be read not just in boardrooms but also in government offices. “The Fortune at the Bottom of the Pyramid. Eradicating Poverty Through Profits” (Wharton School Publishing), is essentially a rallying cry for big business to put serving the world's 5 billion or so poorest people at the heart of their profit-making strategies. It has already been praised by everyone from Bill Gates—“a blueprint for fighting poverty”—to a former American secretary of state, Madeleine Albright—“if you are looking for fresh thinking about emerging markets, your search is ended.”"C.K.Prahalad is a fierce critic of traditional top-down thinking on aid, by governments and non-governmental organisations alike. They tend to see the poor as victims to be helped, he says, not as people who can be part of the solution—and so their help often creates dependency. Nor does he pin much hope on the “corporate social responsibility” (CSR) programmes of many large companies. If you want serious commitment from a firm, he says, its involvement with the poor “can't be based on philanthropy or CSR”. The involvement of big business is crucial to eradicating poverty, he believes, but BOP markets must “become integral to the success of the firm in order to command senior management attention and sustained resource allocation.” Mr Prahalad reckons that there are huge potential profits to be made from serving the 4 billion-5 billion people on under $2 a day—an economic opportunity he values globally at $13 trillion a year. The win for the poor of being served by big business includes, he says, being empowered by choice and being freed from having to pay the currently widespread “poverty penalty”. In shanty towns near Mumbai, for example, the poor pay a premium on everything from rice to credit—often five to 25 times what the rich pay for the same services. Driving down these premiums can make serving the BOP more profitable than serving the top, he argues, and points to a growing number of leading firms—from Unilever in India to Cemex in Mexico and Casas Bahia in Brazil—that are profiting by doing precisely that.

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