{"id":13429,"date":"2014-07-03T05:00:31","date_gmt":"2014-07-03T11:00:31","guid":{"rendered":"https:\/\/tested-neuron.flywheelsites.com\/?p=13429"},"modified":"2015-02-17T13:22:27","modified_gmt":"2015-02-17T20:22:27","slug":"who-will-grab-the-fortune-at-the-base-of-the-pyramid","status":"publish","type":"post","link":"https:\/\/unreasonablegroup.com\/articles\/who-will-grab-the-fortune-at-the-base-of-the-pyramid\/","title":{"rendered":"Who Will Grab the Fortune at the Base of the Pyramid?"},"content":{"rendered":"<p>In <a href=\"http:\/\/www.nextbillion.net\/blogpost.aspx?blogid=3767\">a post<\/a> on NextBillion Blog, Stuart Hart, who coauthored <a href=\"http:\/\/www.strategy-business.com\/article\/11518?pg=all\"><i>The Fortune at the Bottom of the Pyramid<\/i><\/a> with C.K. Prahalad, wrote with concern about the potential of creating disruptive innovations for poor customers that can trickle up to Western markets. He fears \u201cthe risk that corporations [will] gradually come to view the world\u2019s slums and rural villages primarily as laboratories for incubating innovations for the rich.\u201d<\/p>\n<hr \/>\n<p><strong>We don\u2019t believe Professor Hart has anything to worry about<\/strong> \u2014 because major corporations have demonstrated no meaningful interest in the bottom-of-the-pyramid market. And we don\u2019t think they\u2019re likely to do so in the future, either.<\/p>\n<p>It\u2019s highly unlikely that any product or service explicitly designed to address the needs of the world\u2019s poorest people could be put to wide use in North America or Europe. The problems of the poor \u2014 70 percent of whom live in rural areas \u2014 are not the problems faced by those who live in the West. Most of the poor work some 500 million farms of five acres or less. With rare exceptions, their most urgent needs include irrigation to grow their crops and financial services that allow them to smooth out the ups and downs in their income and feed their families in lean times. In rural and urban areas alike, what we regard as the necessities of life are too often lacking: shelter fit for human habitation; a variety of nutritious foods; safe drinking water; electricity; quality education; affordable and responsive healthcare. Some of these problems that underlie the need for radically affordable, disruptive innovations for poor customers exist for the rich as well, but the products and services based on those innovations require radical re-design to fit the specific context of their wealthy counterparts. It\u2019s hardly likely, then, that any profit-centered corporation would go squander its resources at the bottom of the pyramid <i>even if its leadership were inclined to do so<\/i>. As a philanthropic effort, perhaps, or in connection with its commitment to corporate social responsibility \u2014 but not in search of profit.<\/p>\n<p>It\u2019s also important to note that we believe Prahalad and Hart\u2019s conception of the bottom of the pyramid was based on a fundamental misunderstanding of poverty. In their article in the <i>Harvard Business Review<\/i> that introduced the concept, they defined the \u201cbottom\u201d as those living on $1,500 per year or less. Here is their original definition:<\/p>\n<p>\u201cNow consider the 4 billion people in Tier 4, at the bottom of the pyramid. Their annual per capita income \u2014 based on purchasing power parity in U.S. dollars \u2014 is less than $1,500, the minimum considered necessary to sustain a decent life. For well over a billion people \u2014 roughly one-sixth of humanity \u2014 per capita income is less than $1 per day.\u201d<\/p>\n<p>That $1,500 per year translates into slightly more than $4 per day in 2002 dollars, when their article was published, and to over $5 per day in current dollars. However, the most widely accepted global poverty line is $2 a day per person. Between those two income levels lies a vast difference in circumstances representing markedly different market needs and opportunities. Moreover, most of the case studies included in <a href=\"http:\/\/www.powells.com\/biblio\/65-9780137009275-2\"><i>The Fortune at the Bottom of the Pyramid<\/i><\/a> described businesses serving what are essentially middle-class customers in developing countries, many of them selling products and services to those earning substantially more than $4 a day. The true bottom of the pyramid are the 2.7 billion bypassed customers in the world who live on $2 a day or less. They represent the greatest challenge \u2014and the greatest opportunity \u2014 for creating new markets and earning new profits at scale.<\/p>\n<p>But not profits for the world\u2019s existing multinationals.<\/p>\n<p>Paul Polak has spent the last 30 years interviewing 3,000 $1-a-day families and designing market-based solutions to poverty based on what he has learned from them. As a result, <a href=\"http:\/\/www.ideorg.org\/\">iDE<\/a> (International Development Enterprises), the organization he founded in 1981, has enabled some 20 million, $1-a-day customers to earn enough new net income to essentially move out of poverty \u2014 permanently. The key to success in these efforts was to harness the energy of thousands of small village-based enterprises to act in their own self-interest by manufacturing, marketing, and installing radically affordable, income-generating tools such as the treadle pump.<\/p>\n<blockquote class=\"right\"><p>Most products or services explicitly designed to address the needs of the world\u2019s poorest people couldn&#8217;t be put to wide use in North America or Europe.<span id=\"tweetquote\"><a href=\"https:\/\/twitter.com\/intent\/tweet?url=https:\/\/wary-sunlight.flywheelsites.com\/opinion\/who-will-grab-the-fortune-at-the-base-of-the-pyramid\/&amp;via=unreasonable&amp;text=&quot;Products\/services designed to address needs of the world\u2019s poorest could be put to wide use in the US or Europe.&quot;\"><i class=\"fa fa-twitter\"><\/i> \u00a0Tweet This Quote<\/a><\/span><\/p><\/blockquote>\n<p>In the process, Paul had direct experience attempting to persuade large corporations to start designing products and services that could profitably serve customers living on $2 a day or less. In this he failed miserably. For example, one-acre farmers in Asia and Africa desperately needed \u2014 and still need \u2014 affordable small-plot drip irrigation technology, but when he tried to persuade the largest drip irrigation companies in the world to enter this market, they turned him down flat. Inevitably, he concluded that most multinational corporations prefer not to serve $2-a-day customers. Why? Because (1) they don\u2019t feel they can earn attractive profits in this space; (2) they don\u2019t have a clue how to design radically affordable products and services that are attractive to poor customers; and (3) they haven\u2019t found ways to cross the last-mile distribution barrier and make a profit.<\/p>\n<p>Mobile phones are the one exception to this pattern. Most poor people in the world now either own a mobile phone or have access to someone who does. This sudden new reality created a revolution in communication for $2-a-day customers, but it was largely home grown enterprises, not multinational corporations, that spread the technology within emerging nations. Furthermore, the most promising innovations to result from the widespread availability of mobile telephony\u2014such as the M-PESA system of funds transfer by text messaging in Kenya\u2014were local innovations, not invented in the West.<\/p>\n<p>During the past four years Paul has had many positive relationships with multinational corporations. He has found them to be extremely receptive to help design radically affordable products for $2-a-day customers. For example, General Mills collaborated with him in designing a nutritious soft drink that could be sold for a nickel, and aeronautical engineers volunteering at Ball Aerospace have now designed a solar water pump that cuts the cost of conventional solar photovoltaics by 80 percent. However, he has been unable to persuade either of these two companies\u2014or, for that matter, any other large corporation\u2014to undertake any effort to create new markets that serve $2-a-day customers.<\/p>\n<p>Paul\u2019s many friends who are corporate leaders have advised him that the best way to involve big corporations in the $2-a-day market is to create new enterprises himself. Persuading a corporation to invest capital and human resources in businesses serving poor customers, they said, is a task equivalent to asking for an oil tanker to execute a 90-degree turn. Consequently, Paul has spent the last four years creating four model companies for a new breed of multinationals serving the bottom of the pyramid (as we define it). Each of these new companies is designed to transform the livelihoods of at least 100 million $2-a-day customers, generate $10 billion in annual revenues, and earn sufficient profit to attract international commercial investors.<\/p>\n<p>For example, one of the four companies Paul is incubating with his colleagues is a company designed to transform agricultural waste into a low-carbon-emitting, economically attractive substitute for coal and charcoal. European utilities, which are under pressure to reduce carbon emissions, have invested hundreds of millions of dollars in building plants utilizing timber by-products and a process called torrefaction (essentially, roasting them in an oven)\u2014at a cost of between $10 million and $40 million each. But the majority of agricultural waste and invasive species of plants is found in scattered rural locations in many of the same places inhabited by the world\u2019s $2-a-day customers. So the new energy company we\u2019re creating is in the process of designing a $25,000 torrefaction plant to be located in villages with a four-kilometer collection radius. Each of these plants is designed to earn $1,000 a day from the sale of approximately seven tons of torrefied briquettes\u2014a huge boost to the villagers\u2019 income.<\/p>\n<blockquote class=\"left\"><p>It&#8217;s not possible to make cosmetic changes to products and services successfully serving poor customers and expect them to be applied to markets serving the rich.<span id=\"tweetquote\"><a href=\"https:\/\/twitter.com\/intent\/tweet?url=https:\/\/wary-sunlight.flywheelsites.com\/opinion\/who-will-grab-the-fortune-at-the-base-of-the-pyramid\/&amp;via=unreasonable&amp;text=&quot;You can't make cosmetic changes to products\/services serving the poor and apply them to markets serving the rich.&quot;\"><i class=\"fa fa-twitter\"><\/i> \u00a0Tweet This Quote<\/a><\/span><\/p><\/blockquote>\n<p>The key problem shared by Nova Scotia\u2019s timber industry and $2-a-day villagers in India is the high cost of collecting biomass waste in its bulky, low-density form. If our torrefaction company is successful, this disruptive, radically affordable innovation can be migrated upwards, but only by redesigning the technology from the ground up to take into account the much higher labor rates in the West. Instead of a $25,000 torrefaction plant, it may be possible to design a $300,000 torrefaction plant for Nova Scotia. Maybe.<\/p>\n<p>Prahalad, Hart, and others have made a giant contribution to ending poverty by pointing the way to a market-based solution that engages Big Business. What remains is to refocus the base of the pyramid on $2-a-day customers who represent the biggest challenge and the greatest opportunity for creating profitable new virgin markets. The success of the new breed of frontier multinationals conceived to serve them is likely to create systematic moves up-market applying the same principles. But just as it\u2019s not possible for a corporation to make cosmetic changes to product lines serving the rich and sell them to the poor, it is not possible to make cosmetic changes to products and services successfully serving poor customers and expect them to be applied to markets serving the rich.<\/p>\n<hr \/>\n<p>This piece was originally written by Paul Polak and Mal Warwick for the <i>NextBillion Blog.<\/i> See the <a href=\"http:\/\/www.nextbillion.net\/blogpost.aspx?blogid=3827\"><b>original post here<\/b><\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Major corporations have demonstrated no meaningful interest in the bottom-of-the-pyramid market, and it seems unlikely to do so in the future because it squanders resources. Who will fix this disconnect?<\/p>\n","protected":false},"author":13,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":"","_links_to":"","_links_to_target":""},"categories":[476,1491,1547,1490],"tags":[2247,1397,185,220,410,462,1398,17,677,1041,228,119],"class_list":["post-13429","post","type-post","status-publish","format-standard","hentry","category-article","category-development-tags","category-emerging-markets","category-poverty-tags","tag-article","tag-bfp","tag-communication","tag-design","tag-emerging-markets","tag-impact","tag-intdev","tag-money","tag-opin","tag-polak","tag-poverty","tag-success"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Who Will Grab the Fortune at the Base of the Pyramid? - UNREASONABLE<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/unreasonablegroup.com\/articles\/who-will-grab-the-fortune-at-the-base-of-the-pyramid\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Who Will Grab the Fortune at the Base of the Pyramid? - UNREASONABLE\" \/>\n<meta property=\"og:description\" content=\"Major corporations have demonstrated no meaningful interest in the bottom-of-the-pyramid market, and it seems unlikely to do so in the future because it squanders resources. 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