1By Paul Polak and Mal Warwick

It’s a rare honor for an author’s work to be addressed in the pages of Foreign Policy magazine, as is The Business Solution to Poverty in Daniel Altman’s recent column. However, in our case, the pleasure is multiplied because Mr. Altman’s column provides us with an opportunity to address two significant issues that received too little attention in our book.

Mr. Altman takes the position that the potential for profit at the bottom of the pyramid is severely limited because the total buying power of people living on $2 a day or less amounts to only $1 trillion globally, and little of that money will be available to purchase products and services from the new companies we’re starting to build. He adds that the 2.8 billion poor represent a fragmented and scattered market dispersed across the globe and, in many cases, outside the bounds of cost-effective distribution.

Let’s take those two issues one at a time.

The dispersion of the bottom billions

1It’s true, of course, that the $2-a-day customer base we write about is scattered among a total of perhaps 100 countries. After all, there are 48 nations in Africa south of the Sahara alone, and many of them are tiny. However, by emphasizing that as many as half the world’s poor live in China and India, Mr. Altman ignores the reality that the lion’s share of the remainder live in other large countries. Consider the following population figures:

Indonesia (251 million)

Brazil (201 million)

Pakistan (185 million)

Nigeria (174 million)

Bangladesh (152 million)

Mexico (118 million)

Philippines (99 million)

Vietnam (90 million)

Ethiopia (87 million)

Egypt (84 million)

Take Egypt, for example, the least populous of these ten countries. Egypt is a nation of 84 million people, 20 percent of whom live below the official World Bank poverty line of $1.25 a day. An Egyptian scholar has calculated that overall about 44 percent of the population are in the range of extreme poor to near poor, which is roughly equivalent to the $2-a-day standard we use. That 44 percent represents approximately 37 million people. Would Mr. Altman suggest that 37 million potential customers in a single country wouldn’t constitute a large enough market for one of our companies?

Now let’s turn to the matter Mr. Altman emphasized even more strongly.

Is $1 trillion a big enough market? 

1Mr. Altman’s view is that the aggregate global buying power of people living on $2 a day is only about $1 trillion – a significant sum, surely, but, he implies, not nearly enough to create a whole new generation of frontier multinationals. However, this argument misses the key point. Right after graduating from medical school, Paul took a job as an intern at Montreal General at a salary of $40 a month. Was his buying power $2 a day? Perhaps. But three years later it was $40 a day, and $100 a day not long after that. The real market potential of poor people is not what they’re earning now, but the vast untapped human and earning potential that resides within most of them. And that potential can be unlocked, not by selling them toothpaste or other consumer products common in wealthy countries, but by marketing a whole new range of affordable, livelihood-enhancing products and services.

Mr. Altman appears to have fallen prey to the misconception that the objective of lifting people out of poverty is to transform them into American-style consumers who will fritter away their limited resources on trivialities. That’s most certainly not the case. The businesses we promote in The Business Solution to Poverty and are building on the ground are conceived to add real value to the lives of their customers. As thousands, then millions, then tens of millions of people’s incomes rise from $2 a day to $5 or $10, the new wave of multinational companies will market such products as truly durable appliances, nutritious soft drinks, and healthful tea biscuits – desirable rather than essential, surely, but with value added.

Even if Planet Earth could support seven or eight billion people living at the level of current American lifestyles – and it most assuredly cannot – why would we want to replicate a set of social values that have failed to foster even the level of happiness already experienced by many poor people around the world?

3 Responses to “Is There a Limit to the Fortune at the Bottom of the Pyramid?”

  1. Salvatore Chester

    Great article, Mal.
    Actual facts, for example in Africa, show that if the products are ‘right’ (innovative/quality/affordable) like mobile phones, 800 million out of 1 billion customers bought them COD (Ghana has already more m/phones than inhabitants). Evidently market demand is there, supply is the problem.
    Happy New Year.
    https://www.facebook.com/groups/TEA.ethiopia/

    Reply
  2. Pushpendra

    The critique is valid in the context of the manner in which you generally couch your challenge in the book: If you can’t sell transform the lives of 100M of people making less than $2/day, and generate $10B of revenue, don’t bother. As even a quick back of the envelope calculation shows, this requires getting $100 of revenue per year from someone who makes $730 dollars. What companies do you know of today who can claim to attract roughly 15% of any person’s spending? This unnecessarily negates the other good ideas in your work.

    You walk down a bit of that in the article above (37M is a large enough market) and that $2/day may grow to $5 or $10). This should have been emphasized more in your book and your followup articles.

    I also believe that your original goal can be reached, but not in the manner generally described. The focus seems to be in selling goods and services to the BOP, that market is limited by available income.

    If the focus were to turn to creating companies offering opportunities to increase incomes of the BOP, now you have a market that has no upper bound.

    Reply
    • Mal Warwick

      Hello, Pushpendra,

      Thank you for your comments. However, you seem to have misread the article — and perhaps the book. We do not envision that every one of the companies we advocate building (and are building) would earn all their revenue every year exclusively from $2-a-day customers. Much of the potential for these companies lies in the fact that their customers will earn increased income and no longer be part of the $2-a-day market — and thus potential buyers of new products from our companies. It won’t be necessary for the companies to draw 15% of the annual income from its customers!

      Another misinterpretation lies in your reading of the mention of a 37M market. This refers only to ONE potential country to which one of our companies might expand. We envision each company operating in many countries.

      Reply

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