The World's Poor Represent an Attractive Market and Source of Business Innovation
Companies must change management practices to successfully operate in the world's poorest regions, says McInally Memorial Lecturer C.K. Prahalad.
ANN ARBOR, Mich. Michigan Business Professor C.K. Prahalad used the 38th annual William K. McInally Memorial Lecture to depict a revolutionary and inspiring visiona market-driven global economy capable of ending poverty and empowering the world's poorest people while turning a profit.
Prahalad, the Harvey C. Fruehauf Professor of Business Administration, delivered the McInally address to a capacity crowd in Hale Auditorium at the Stephen M. Ross School of Business at the University of Michigan on Sept. 14.
Five billion people worldwide live on less than $2,000 a yearand decades of subsidies, welfare, and aid from governments, charitable agencies, and donor nations have not solved the problem, Prahalad said. Attempting to eliminate poverty through handouts casts poor people as victims, crushes their dignity, and ignores the fact that the bottom of the wealth pyramid represents a potential growth market of monumental size and significance, he said. Nine poor nationsChina, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa and Thailandhave a collective population of three billion people and $14 to $15 trillion in annual purchasing power. That exceeds the combined Gross Domestic Product of Japan, Germany, France, Italy and the United Kingdom.
"What you see is abject poverty, but what it is may be entirely different," Prahalad said. "The bottom of the pyramid is where the opportunity is. This may be a bigger opportunity than the Internet itself."
Prahalad's lecture shared a title and a thesis with his new book, which has received rave reviews from The Economist and Financial Times, among others: The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.
In his address, he said companies must be innovative and make fundamental changes in management practices to successfully operate in the world's poorest regions. By doing so, they can concurrently generate profits and provide local people with entrepreneurial opportunities that lift them out of poverty and, subsequently, fuel greater growth at the bottom of the economic pyramid.
"The question is, "How do we tap into this market?' " Prahalad said. "You must start with imagination, not capital. You must believe the world can be a better place."
The solution, he said, includes creating new distribution networks, forging alliances between global corporations and local entrepreneurs, transferring local innovations to other markets, and engineering products that are affordable, accessible and available to the poor. For example, single-use packages of commodities such as shampoo, salt and tea sell for a penny in Indiaan innovative marketing approach that meets the needs of low-income people and generates profits.
"I don't think (the world's poorest populations) are asking for a handout. They're asking for an opportunity," Prahalad said. "It's not all about money. It's about dignity."
The McInally Lecture began in 1966 in memory of William K. McInally, who served on the University of Michigan Board of Regents from 1960 to 1964.
Written by Dave Wilkins
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