August 22, 2002
Experts today urged multinational companies to invest in the world's poorest markets not only to radically improve the lives of billions of people but also make a profit for themselves.
In an article that will appear in the September issue of the Harvard Business Review, noted business scholar Dr. C.K. Prahalad and Dr. Allen Hammond, the World Resources Institute's (WRI) vice president for innovation, argue that poor communities in developing countries represent fundamental new sources of growth for multinational corporations.
They said that improving the lives of billions of the world's people could also bring about a more stable, less dangerous world. The article, "Serving the World's Poor, Profitably," outlines the opportunity of reaching the four billion-person market at the bottom of the world's economic pyramid. The authors said that companies can turn a fair profit while improving the quality--and often, lowering the costs--of goods and services that poor communities receive.
Poor communities today pay high prices for food, clean water, credit, and other services--often far higher than middle class consumers in the same country--as a result of inefficient supply chains.
"The collateral social benefits of providing poor consumers with real market choices can be enormous," says C.K. Prahalad, the Harvey C. Fruehauf Professor of Corporate Strategy at the University of Michigan Business School. "The current downturn of the world's markets and increasing globalization makes this approach very timely."
The authors document strategies and business models already being applied in these new markets by a number of multinational companies and entrepreneurial start-ups, and show that these can lead to top-line growth, cost-saving economies, and access to innovation. Moreover, they show how digital networks are providing low-cost distribution channels for these markets.
"It's already clear that wireless networks are going to be the killer app for rural communities--creating a very low cost infrastructure that links them to markets and provides access to information," says Dr. Hammond. Examples cited by the authors include:
-- n-Logue, an Indian company that is wirelessly connecting hundreds of rural villages at a capital cost of approximately $1 per customer;
-- Voxiva, a start-up that offers automated business applications to small- and medium-sized enterprises over the phone in Peru;
-- eChoupal, a network of Internet kiosks that has enabled Indian company ITC's agribusiness division to lower its procurement costs while paying its farmers more;
-- PRODEM, a Bolivian microfinance organization that uses multilingual smart-card ATMs to substantially reduce its marginal cost per customer.
These examples are taken from the World Resources Institute's Digital Dividend Clearinghouse (http://www.digitaldividend.org), an interactive online knowledgebase tracking nearly 700 such projects in developing countries around the world.
"As the work of Dr. C.K. Prahalad and Dr. Allen Hammond illustrates, the private sector can and must play a key role in helping bridge the global digital divide and expand the global market system to include those who currently have no stake in it," said Markle Foundation president Zoe Baird.
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