Serving the World’s Poor, Profitably - C.K. Prahalad and Allen Hammond

Name:   LE THI ANH TAM

Student ID:   MBAIU 14079

INDIVIDUAL ASSESSMENT

In the case “Serving the World’s Poor, profitably” by C.K. Prahalad and Allen Hammond considered that BOP markets can help the poor and make the lucrative for companies.

They said that the poor people aren't too concerned with fulfilling their basic need to “waste” money on non essential goods. In fact, the poor people often do buy “luxury” items. Consumers at the bottom of the pyramid pay much higher prices for most things than middle-class consumers do, which means that there’s a real opportunity for companies, particular big corporations with economic of scale and efficient supply chains, to capture market share by offering higher quality goods at lower prices while maintaining attractive margins. The cheap of market and deliver products and services to the world’s poor is the main reason why the poor people would like to live in the cities. Mumbai shantytown of Dharavi, for example, 85% ò households own television set, 75% own a pressure cooker and a mixer, 56% own a gas stove, and 21% have telephones.

C.K. Prahalad and Allen Hammond argue that when MNCs provide basic goods and services that reduce costs to the poor and help improve their standard of living- while generating an acceptable return on investments – the results benefit everyone. The business opportunities at the bottom of the pyramid have not gone unnoticed. their experience is proof of concept: Business can gain three important advantages by serving the poor - a new source of revenue growth, greater efficiency and access to innovation. For instance, poor farmers in El Salvador use tele centers to negotiate the sale of their crops over the Internet. And women in Indian coastal villages have in less than a week learned to use PCs to interpret real-time satellite images showing concentrations of schools of fish in the Arabian Sea so they can direct their husbands to the best fishing areas. Prahalad and Allen advised MNCs that “Don’t hesitate to deploy advanced technologies at the bottom of the pyramid while, or even before, deploying them in advanced countries.”

The demand for low-priced, high-quality goods is enormous. Growth is an important challenge for every companies but now it's very important for big companies. That's the reason why BOP is a Top-Line Growth and an opportunity for MNCs. With the high quality confection made with real sugar and fruit, the candy sells for only about a penny a serving. Unilever is very successful when they introduce their new product in Indian, they got enormous profits.

No less important than top-line growth are cost-saving opportunities. When the MC's put the location in the poor countries, they can reduce cost by hire labors in this countries and training them. For example, venture capitalist Vinod Khosla describes the remote-services opportunity this way: “I suspect that by 2010, we will be taking about [remote service] as fastest-growing part of the world economy, with many trillions of dollars of new markets created”. But they considered that tapping into cheap labor polls is not the only way MNCs can enhance their efficiency by operating in developing regions. The competitive necessity of maintaining a low cost structure in these areas can push companies to discover creative ways to configure their products, finances, and supply chains to enhance productivity.

BOP markets are hot-beds of commercial and technological experimentation. They can use information to education the poor and make them use internet and technology. Such as: E-commerce systems that run over the phone or the Internet and enormously important in BOP markets because they eliminate the need for layers of intermediaries.

But succeeding in BOP markets requires multinationals to think creatively. The biggest change, though, has to come in the attitudes and practices of executives.  Entrepreneurs in BOP markets lack access to the advice, technical help, seed funding, and business support services available in the industrial world. Prahalad and Allen believed that MNCs need to take on mentoring roles or partner with local business development organizations that can help entrepreneurs create investment and partnering opportunities. They advice MCNs that should pay particular attention to women entrepreneurs. Women are also likely to play the most critical role in product acceptance not only because they must care their children and manage their house but they want to built up their communities. Prahalad and Allen believed that listening to and education customers is essential for success.

Prahalad and Allen also think that since BOP markets require significant rethinking of managerial practices, It’s worth the effort for the managers ask. Big corporations will have big problems. But the profits from BOP markets too great to ignore. The companies need to focus on big market opportunities if they want to generate real growth.

On the other hand, Annel Karnani “The Bottom of the Pyramid Strategy for Reducing Poverty” said that “This romanticized view of the poor does not help them, and actually harm the poor”. He maintains that 2 main problems which BOP can cause. First, it results in too little emphasis on legal, regulatory, and social mechanisms to protect the poor who are vulnerable consumers. Second, it results in overemphasis on micro-credit and under-emphasis on fostering modern enterprises that would provide employment opportunities for the poor. And he stresses that more importantly, the BOP proposition grossly under-emphasizes the critical role and responsibility of the state for poverty reduction.