selling to poor people doesn't necessarily reduce poverty
Selling products like these to poor people in India is no way to reduce poverty.

By Mal Warwick

A recent New York Times article by Stephanie Strom (“Multinational Companies Court Lower-Income Consumers“) spotlighted the efforts of General Electric, Unilever, PepsiCo, and Nokia to pursue what C. K. Prahalad and Stuart Hart famously termed “the fortune at the bottom of the pyramid” in their seminal 1998 Harvard Business Review article. As Strom makes clear, these and other multinational corporations are now heavily engaged in pursuing the vast new market represented by billions of the world’s poor. Presumably, they’re happily making money in the process.

Is this a good thing? I’m not so sure.

It’s hard to argue against the development of a more affordable baby warmer for small, private hospitals in India, as GE has done, or Nokia’s $20 mobile phone that slum-dwellers can afford. In fact, the Nokia 105 clearly represents a boon for many poor people, because it makes it possible for them to increase their income. However, other products — such as snack foods sold by PepsiCo and a clunky water-purifying system from Procter & Gamble that requires time, effort, and training to use — seem far less calculated to deliver genuine benefits to customers. Moreover, from the companies’ standpoint, it seems, all these products are most interesting because, having been developed for use in emerging markets, they hold promise of generating profits in rich countries as well.

The brilliance and beauty of the vision revealed in The Fortune at the Bottom of the Pyramid (the 2004 book built on Prahalad and Hart’s article) was that the private sector could bring its resources to bear on addressing the needs of billions of the global poor and, in the process, lift them out of poverty. Unfortunately, virtually none of the case studies in that book demonstrated how that vision could be realized. Prahalad and Hart had defined the “bottom of the pyramid” as including the four billion people living on $4 a day or less; nearly all the case studies in their book focused on marketing to people whose income far exceeded $4 a day. Similarly, it’s difficult to see how the 2.7 billion people now living on $2 a day or less will become less poor as a result of the activities of GE, Unilever, or PepsiCo as reported in Strom’s New York Times article.

As Paul Polak and I made abundantly clear in our book, The Business Solution to Poverty, outsiders inevitably fail when they set out to “lift people out of poverty.” The poor have to invest their own time and money in the process. You can’t donate people out of poverty, and you can’t talk them out of it. The only direct, sure-fire way to enable that transformation is to help them find ways to put more money in their pockets and purses. Business can play a pivotal role in this effort — but only in one of three ways:

1) By hiring poor people for steady jobs at good wages;

2) By selling them income-generating goods and services that directly increase their families’ income; or

3) By selling them products and services that save them meaningful amounts of money they would otherwise be forced to spend.

Business brings huge advantages to the task of meeting the needs of the world’s poor, both abundant resources (capital and talent) and incentives (wages and profits). But the poor people of the world will see little or no benefit from those assets unless they’re channeled through business enterprises that single-mindedly pursue the goal of reducing poverty.

So, is making money in emerging markets, as GE, Unilever, and PepsiCo are doing, a bad thing? That depends on how you feel about capitalism and the profit motive. However, this much is clear: taking profits out of those markets to enrich the executives and shareholders of multinational corporations at the expense of the world’s poor is no way to reduce poverty.

 

 

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