Foolish Book Review: "The Fortune at the Bottom of the Pyramid"

"What are we doing about the poorest people around the world? Why is it that with all our technology, managerial know-how, and investment capacity, we are unable to make even a minor contribution to the problem of pervasive global poverty and disenfranchisement? Why can't we create inclusive capitalism?"

Wow! What a way to start off a book, asking some of the most critical questions facing the world at the turn of the millennium. Fearlessly tackling the big questions with sound solutions is why I find C.K. Prahalad's book, The Fortune At the Bottom of the Pyramid, to be one of the more important business reads in circulation today.

In this edition of Foolish Book Review we will look at Prahalad's argument, followed by a few of the success stories he points to. Is it possible to eliminate poverty this century? Prahalad believes so, and from his vantage point, this is how it is possible ...

Bottom of the pyramid
Prahalad's opening section deals with establishing a "framework for poverty alleviation." To do this, he argues that society must start with this proposition: "If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up." From this perspective, it is his belief that the 4 billion poor -- those who live on less than $2 a day and what he refers to as the market at the bottom of the pyramid (BOP) -- "can be the engine of the next round of global trade and prosperity."

To tap into this BOP market, Prahalad wants to see a new partnership between private enterprise and the poor. "Sustainable win-win" solutions are needed, where businesses profit and the poor are empowered.

One may counter that the problem is big business -- multi-national corporations (MNCs) are the ones exploiting the poor and holding them down. Prahalad admits that there are some cases of large corporations undermining the "efforts of the poor," but the greatest travesty, he argues, is big business ignoring the poor altogether.

Rather than neglecting this important growth market, MNCs can play a vital role in "creating the capacity to consume among the poor." To do this, solutions that are affordable, accessible, and available are needed.

Further, these solutions must be "scalable and transportable" to other BOP markets. On this point, recent comments by Nike (NYSE: NKE  ) executives come to mind, and how the sporting goods giant plans to take its winning strategy in China, and apply it to other emerging markets, like Brazil.

Smart solutions to pervasive problems
But can big business really be profitable in BOP markets and empower the poor? Prahalad offers many examples of how corporations are doing just that.

In India, Citigroup (NYSE: C  ) found an innovative way to bring basic financial services to the poor. By using an ATM, networked, 24/7 model, Citigroup was the first global bank to offer a $25 deposit option to start an account. In its first year, 150,000 customers took advantage of the offer. Prahalad reports that, given Citigroup's success, other Indian banks now offer similar services.

In Mexico, the world's third-largest cement company, Cemex (NYSE: CX  ) , introduced a revolutionary new savings-credit system that assists the poor with building their own home in stages as they can afford it. The program serves obvious social benefits, while at the same time spurs cement sales -- the program "has helped Cemex triple its cement sales in places" where the program is in operation.

Through the use of a "single-serve" approach, Procter & Gamble (NYSE: PG  ) and Unilever (NYSE: UN  ) have been able to create a large market for high-end shampoo in India where there previously was none; now the "penetration of shampoo in India is about 90 percent."

Through its subsidiary in India, HLL, Unilever assists this important BOP market in other ways, as well. With more than 70 million children in India suffering from iodine deficiency disorder (IDD), which can lead to mental retardation, Prahalad highlights Unilever's research efforts to help alleviate the problem. Because of the harsh environment, as well as cooking habits among Indians, salt in India loses its iodine content too quickly. Unilever developed a new approach to iodize salt while retaining its attractiveness (whiteness, texture, etc.) and affordability. Unilever is now leveraging the technology for other countries dealing with similar problems, like Ghana, Ivory Coast, and Kenya.

Principles of collective prosperity
Prahalad highlights several principles needed to address the problem of poverty in BOP markets. Innovation, scale of operations, sustainable eco-friendly development, process innovation, customer education, interface functionality, and distribution, are just a few areas that MNCs can harness to tap into these lucrative growth markets.

Is it conceivable for Wal-Mart (NYSE: WMT  ) , with its immense scale and distribution know-how, to use its strengths to serve BOP markets profitably? Can continued innovations and affordability in renewable energy sources and cellular phones bring both electricity and communication to a populace where these basics of modern life are sorely lacking?

Prahalad believes so. The Fortune At the Bottom of the Pyramid shows how private enterprise can empower the poor; it is a blueprint for eradicating poverty through profits.

Further socially responsible Foolishness:

Cemex is a Stock Advisor recommendation. Wal-Mart is an Inside Value selection. Johnson & Johnson and Unilever are Income Investor picks.

As part of a graduate degree at Duke University, Fool contributor Jeremy MacNealy is writing an ethics and law thesis paper on corporate social responsibility. He has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.


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