Bottom Of The Pyramid Essay ⋆ Business Essay Examples ⋆ EssayEmpire

“Bottom of the pyramid” (BOP) refers to the persistent dilemma of the world’s poorest four billion people subsisting on less than $2 per day in developing countries. According to C. K. Prahalad, this socioeconomic demographic is a relatively untapped commercial market for multinational corporations (MNCs). He calls on MNC chief executive officers to change their long-held beliefs regarding these people as victims to be pitied and instead see them as resilient individuals, skilled entrepreneurs, and consumers demanding value from their products and services.

Prahalad argues that there are business opportunities for MNCs that create innovative products and services for BOP consumers, as he calculates they possess purchasing power parity (PPP) of $13 trillion. Furthermore, these BOP consumers are not necessarily difficult to reach, very brand conscious, and increasingly open to state-of-the-art telecommunications technology. Prahalad and Stuart Hart recommend that these MNCs: (1) build a host country base of political support; (2) reorient research and development efforts to the needs of the poorest consumers; (3) form new alliances with host country organizations; (4) increase host country employment opportunities; and (5) reinvent cost structures.

Aneel Karnani, however, challenges Prahalad’s BOP claim of a potential PPP of $13 trillion, since profits are repatriated by MNCs at the financial exchange rate, not the PPP, resulting in a global BOP market of less than $0.3 trillion. With the poor spending nearly 80 percent of their income on food, clothing, and fuel, it leaves little room for the purchasing power needed to acquire brand name luxury goods. Nevertheless, Anand Jaiswal argues that the poor need to be viewed as consumers so that MNCs can offer them increased value products at a lower cost (saving them money), as well as welfare-oriented goods and services, e.g., agricultural inputs enhancing productivity and insurance and microfinance.

Karnani recommends that the best way for MNCs to help eradicate poverty is for them to invest in upgrading the skill sets and productivity of the poor and help create more local employment opportunities. Reflecting Karnani’s economic development approach, Erik Simanis, Stuart Hart, and Duncan Duke offer a BOP protocol presenting a new innovative business process model that includes both collective entrepreneurship development and business enterprise co-creation between local communities and MNCs.

Bibliography:

Jaiswal, “The Fortune at the Bottom or the Middle of the Pyramid?” Innovations: Technology/ Governance/ Globalization (v.3/1, 2008);
Karnani, “The Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector Can Help Alleviate Poverty,” California Management Review (v.49/4, 2007);
K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (Wharton School Publishing, 2004);
K. Prahalad and S. L. Hart, “The Fortune at the Bottom of the Pyramid,” strategy + business (v.26, 2002);
Simanis, S. Hart, and D. Duke, “The Base of the Pyramid Protocol: Towards Next Generation BOP Strategy” (Center for Sustainable Global Enterprise, Cornell University, 2008).

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