Fortune at Bottom of the Pyramid - Literature review Example

Fortune at Bottom of the Pyramid Dr. C.K. Prahalad’s book, “The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits” highlights the author’s vision that, the problem of poverty can be solved by co-creation of a solution and that, “Entrepreneurship on a massive scale is the key”. In this book Prahalad summarizes a plan on how, economic development and social transformation can be attained through collaboration of work between the private enterprises, governmental and non-governmental organizations and the fourth and the forgotten tier comprising the poor. Prahalad together with Hart have put forward an opinion that the largest part of the economic market, the fourth and the often forgotten tier has long been hidden in the depths of the marketplace. This tier has never been acknowledged as potential generators of wealth and as a source of innovation by research and development entities (2002). However, this often forgotten, bottom of the social hierarchy, fourth sector has its own set of treasures (Bendell 2005, Viscio and Pasternack 1996). The poor have within them the basic cultural knowledge for innovation and their knowledge of environmental sustainability is quite intimate (Pralahad and Hart 2002). Hence a more full-fledged engagement of this sector within the economy both as producers and consumers will result to a responsible society, marketing strategies that are culturally perceptive and overall will yield a healthy economy. Through these yields the fourth sector might even realize their importance as a generator of wealth, which will naturally lead to their self-determination and empowerment. By harnessing these yields, the fourth tier can very much realize successes similar to those of India and China, opines Prahalad and Hart. However, here it can be argued that if cultural knowledge is valued as intellect, then the fourth sector holds key only for a more integrated world economy with greater participation and products and services that are innovative and ecologically safe, economies that can avoid the mistakes generally made by the developed countries. This argument that the fourth sector holds the key to economic development and social transformation has been countered on several levels, especially by Rost, Ydren and Gustaffen (2006). Most of the points that have been illuminated in these counter arguments have been matters of definition. Moreover the trio, assert that the poor may simply be unwilling or lack the resources to accomplish the transformational business model, put forward by Dr. Prahalad. Therefore, based upon the elements of Prahalad’s business model suggestion and the counter arguments, this paper has been devised so as to focus on the fine points, infer relevant data from supplementary reports and argue that given the opportunity, the fourth sector would not only reinvent the products that are marketed but also the marketing aspect and the method of production. Given time the model will definitely convert itself to a more sustainable one, both in terms of performance and ecological standards. The fourth sector that makes up for the poor people can be defined in many ways (Rost, Ydren and Gustaffsen 12-15). The most convenient way to define and measure their income is in comparison to U.S. dollars. The global statistics shows an estimated number of 4 billion people living on 2 dollars or less per day (Rost, Ydren and Gustaffsen 1). These people form the fourth and the hidden sector that makes the bottom of the economic pyramid (BOP) (Rost, Ydren and Gustaffsen 1, Prahalad, 2002). This fourth sector does not only represent the number of people earning 2 dollars or less per day, but more importantly, this fourth tier represents a culturally informed knowledge base, a sustainable lifestyle and innovation. After all, necessity is the mother of all innovations. In the helms of poverty stricken fourth tier, ingenuity, resourcefulness and innovativeness can be seen in plentiful as these are the keys to their everyday survival (Yunus 2007). This concept of survival through ingenuity of fourth tier will be better understood through the examination of Third World nations that have been able to lift more number of people out of poverty and any other and by studying and analyzing the business booms within them (Pralahad 2002, Rost, Ydren and Gustaffsen 22-27). With the Cold War acting as punctuation to the conversation between the two power blocs- America and Russia, the markets of the west started diverging, engulfing the independent countries like India and South America. On the other hand, the countries that fell under the curtain became insular with regard to foreign trade and investment. After the culmination of World War II, the west and its developed countries started reconstructing and rebuilding their markets, labor forces, production systems and other developments that later resulted in the economic boom. This post World War II growth as suggested by Viscio and Pasternack was however a direct result of the extension of the 19th century model infused with the elements of the all important- necessity (Viscio and Pasternack 3). In addition to this, the modern ideas of progress and invention that accompanied the model facilitated the boom to a good extent. But as for the countries that fell into the hidden fourth realm of the world economy, they still persisted even as they turned inward. And as history shows these countries through their ingenuity, survived and emerged. Through innumerable trials and errors, these countries strengthened and accordingly acquired insight, wisdom and skill. India and China are two examples of such nations (Pralahad, 2002). Times of scarcity taught them to produce sustainably and sustainable and limited production lead to acquiring the skill of effective marketing to those within their circles. Reflecting upon the present times and acknowledging the emergence of the Third World nations as active participants within the global economy, one can say that the 19th century business model has failed miserably to keep by with the 21st century business and economic dynamics (Viscio and Pasternack 1-3, Rost, Ydren and Gustaffsen 5). The statistics of the model highlights the widening gap between the rich and the poor and the concentration of wealth at one corner. This is evident in the many domestic mergers within the U.S. and the abnormal rise of multinational corporations (Viscio and Pasternack 2). These MNCs are rich men’s corporations catering to the upper tiers of the society. They lack the ability to market to the fourth tier and in addition the products of the MNCs are not in the league with the needs of the fourth tier (Viscio and Pasternack 1-3, Rost, Ydren 12-18). In this age of globalization where the where flow of information is fast and universal, the MNCs and other large corporations that have had previous successes are now experiencing difficulties. Hence, to this end, the way global business is conducted as per the 19th century model needs to be changed, reinvented, remodeled or replaced altogether by a new better one. A question should be asked that how can a business model of the 19th century be expected to meet the business and economic demands of the 21st century? Indeed, this question is reminded of every time a global business or trading partners experiences difficulties. Like the 97-98 ASEAN financial downturn, as this downturn not only affected the developed nations but also the fourth tier people of these nations (Bendell 2005). A painful but an enlightening lesson that was learnt from this crisis and from the affected business circles, was that the fourth tier that remains seemingly hidden and forgotten and is thought of as an insignificant factor has the power to affect the larger sphere. And that the upper business circles can no longer afford to turn a blind eye on them. Therefore, to avoid such crisis in the future the business circles should take initiatives to address this sector not only for reversing the trends of global poverty and degradation but also to engage the other hidden aspects of the tier, especially their markets for the general benefit of all. Yet, the MNCs, are reluctant to draw upon this fourth sector for reasons of their own. The MNCs contend that the income levels of the fourth tier are too low for them to profit from (Pralahad 3). However, countering this Prahalad argues that the MNCs can possibly target this market through re-invention and customization of their products (Rost, Ydren and Gustaffsen 1, 17, 24). In addition he contends that the fourth tier, who currently produces goods for most of the MNCs, could efficiently produce and market their own goods and services. After all the fourth tier does participate within the economy, it’s just a matter of involving them as fully as the other tiers (Yunus 2007, Pralahad 2002). Secondly, Prahalad argues that the MNCs also believe that the factor that effectively limits the fourth tier’s desire for participating in mainstream production and services is their poverty, which excludes them from affording technology. However, today technology is being developed for those who are less able to afford it, XOXO laptop is an example of such a technology development. In addition, the Indian farmers have successfully demonstrated the ability to work together and share a common medium of technology as in sharing one computer for their business purposes (Rost, Ydren and Gustaffsen 15-16). This latter example counters Rost, Ydren and Gustaffsen as it demonstrates that the poor too can establish trade networks within emerging or developing economies (18). While most of the MNCs argue that the fourth tier is none of their concern with non-profit and other forms of non-governmental organizations for the purpose. Additionally, Yunnus with his model of micro-investment largely mirroring that of Prahalad’s has transformed the fourth tier at the local level (2007). With the intersection of business and non-profit organizations social entrepreneurship is on the rise at the local level of the fourth tier (Bendell 2005, Rost, Ydren and Gustaffsen 34-35). Due to this diaspora of ideas and investments the markets have developed beyond the borders of many such business localities again proving Rost, Ydren and Gustaffsen wrong in their assumptions. This latter development has also disproves the myth that business managers are not eager about engaging in business transactions or markets with a humanitarian end or ideal (27-35). Yunnus micro-lending and Kiva loan programs together with other blended marketing strategies have been actively participating in supplying larger economic assistance with greater assets to the fourth sector that are often hidden from view thus invalidating MNC’s mythical belief that talented managers would not be enthusiastic to be involved in the fourth tier, social entrepreneurship, fair trade networks and the like. Lastly, innovation enters the market not only through the goods produced by the fourth tier, but also through small networks created through partnership and humanitarian focus (Crafts for Peace 2008). Moreover, the growing number of NGOs and non-profit organizations in the U.S. has also supplemented and facilitated the entry of fourth tier innovation into market (Viscio and Pasternack 3, Pralahad 2002, Rost, Ydren and Gustaffsen 19, 27, Bendell 2005). This has resulted in the growth of entrepreneurships within the fourth sector and has been able to engage community participation. UWEC is an example of this (Crafts for Peace 2008). For argument’s sake, this paper has thus far highlighted successes and innovative strategies that interdependently assisted in harnessing the hidden aspects of the humanitarian/socially responsible but forgotten fourth sector (Bendell 2005, Landrum 1). Hence, understandably these principles have not been applied universally. However, with these arguments in view one can say that with the right global initiatives from the business and economic circles at the top tier, fortune that is “at the bottom of the pyramid” can be definitely reaped. List of References: 1. “Base of the Pyramid Protocol,” retrieved from: http://bop-protocol.org/about/ 2. Bendell, J. February 2005, “From Responsibility to Opportunity: CSR and the Future of Corporate Contributions to World Development.” MHC International Ltd, retrieved from: http://www.mhcinternational.com/corporate-social-responsibility/publications/from-responsibility-to-opportunity-csr-and-the-future-of-corporate-contributions-to-world-developme.html 3. “Crafts for Peace.” retrieved from :http://craftsforpeace.com/About%20US.html 4. Landrum, N.E., 2007 “Advancing the Base of the Pyramid,” Strategic Management Review, 1(1), retrieved from: http://www.strategicmanagementreview.com/ojs/index.php/smr/article/viewFile/12/16 5. Pralahad, C.K. and Hart, S., First Quarter 2002. “The Fortune at the Bottom of the Pyramid.” Strategy+business, retrieved from: http://www.strategy-business.com/press/16635507/11518 6. Rost, C. Ydren and Gustaffson. Profit for the Poor: Sustainable Market Development in BOP-Markets 7. Viscio, A. and Pasternack, B., Second Quarter 1996, “Toward a New Business Model” Strategy & Business, retrieved from: http://www.strategy-business.com/research/96201/page7.html 8. Yunus, Muhammad, and Karl Weber. Creating a World Without Poverty: Social Business and the Future of Capitalism, New York: Public Affairs, 2007. Read More