by Atul Wad
How do we solve the problems of poverty in developing countries? Increasingly, people look to the private sector as an answer.
Notable in this trend is the recent book by Professor C.K. Prahalad, “The Fortune at the Bottom of the Pyramid,” in which he makes the compelling argument that corporations need to go beyond concepts of corporate philanthropy and social responsibility if they seek to combat global poverty (the bottom of the pyramid). In doing so, he says, they can reap larger profits while also achieving social good.
Central to this thesis is that corporations need to start viewing the poor as ‘customers’ for a range of products, services and technologies, which, if properly designed, priced and distributed, will benefit the underprivileged.
Professor Prahalad has done a great service by this contribution; nevertheless, some issues need to be recognized if one is to have a broader perspective of the problem at hand.
In the first place, poverty is not the only ill that besets this huge population that is described as an untapped market. Millions of people around the developing world are in far more dire straits.
The HIV/AIDS epidemic in Africa is so staggering that economies there may simply implode if current trends continue. In various parts of the world, civil wars and state sponsored campaigns have made millions into refugees; they live in a constant state of insecurity and terror, and have virtually no economic existence except as clients of aid programs and humanitarian agencies. Natural disasters and breakdowns in governance add to the problem.
These people are not even close to being active participants in any marketplace, unless you see millions of Africans with HIV/AIDS as being ‘customers’ for very expensive drugs.
The plight of the poor is not just lack of money. It is far worse. It is a lack of basic services such as water, health, education and infrastructure. It is the corrupt environment that they live within, where bribery is a fact of daily life. It is a socio-cultural nightmare for women, who have to live with abuse and marginalization. It is the existence of what can only be called a slave trade in child labor in many countries. It is disenfranchisement on a global scale.
Selling shampoo to them is not the solution.
Professor Prahalad is correct when he says everyone wants quality services and products. But, which ones? Selling shampoo in rural India is great for the producers, but with the very limited household income most people have, is this the best way for them to spend their money?
Though the collective purchasing power of the poor is enormous, buying decisions are still individual. By rampant marketing, a rural household may well end up spending its small disposable income on inappropriate products. They may spend on TVs and cosmetics and forsake savings for the education of their children and for their health needs. With the onslaught of credit cards, they may well end up borrowing against their future and securing these loans with their land. Farmers in India have committed suicide because they could not service government loans.
The concept of the ‘customer’ needs to be redefined
It is morally reprehensible to see people as purely consumers for shampoo and beer. Yes, the poor should be treated with respect and as customers, but in a broader sense – as customers of the corporate world, but also as customers of government, NGOs and the social sector.
The market opportunity they represent is not simply based upon their collective spending power – at least in some countries it is also based on their political power. Note that in India, they represent 80% of the population and electorate.
The real and unseen impact of globalization has been the acceleration of the search for profits by large corporations. I don’t have a problem with that goal, but I do believe that corporations need to look to the long term in the societies in which they operate. There is no sustainability if there is no long-term view. Unfortunately, most corporations don’t have the in-house capabilities to understand and analyze these issues.
The chocolate industry, for example, was recently in the news because child labor was being used on cocoa farms in West Africa. Despite some efforts by the industry, the child trade continues because they haven’t gotten to the root of problem: cocoa farmers find it economical to use child labor.
To solve the problem requires that major cocoa purchasers analyze the supply chains, production economics, technologies and farming patterns in these locations – and develop business tools and strategies that address the root of the problem.
Also, globalization and customerization is often taken to mean McDonald’sization. Is the solution to sell Big Mac’s in the countryside? At a time when people in the U.S. are becoming more aware of the damage this kind of food causes to public health, this would obviously be a ridiculous strategy. The fact of the matter is that poor people know food very well they just don?t have enough.
Delivering low cost, standardized and consistent food products may be a good business model, but it must be adapted to health concerns and local taste patterns.
A long time ago, I worked in the villages in India during a drought, and was given the job of distributing American milk (from milk powder) and wheat to the starving villagers. I set up shop and the lines were long, but then I found out that they used the milk to paint their huts and fed the wheat to their animals. They still ate their meager supply of “chapatis” and pickles, which was far tastier than anything I could give them.
We should not forget history. The developing world of today consists of yesterday’s colonies. The colonialists, especially the British, were extremely good at exploiting the local market with their products. They bought the raw materials, added value, and sold them back to the colonies.
The technology angle is interesting
Every IT company in India is trying to ‘do something’ in the villages. They give them handhelds, internet access, offer real time price information etc. But, after all is said and done, a subsistence farmer still lives with poor productivity, weak infrastructure, corrupt governments officials, bad roads and expensive water. Is knowing the latest prices for his crop in the global market of enough value to him to significantly improve his livelihood?
Yes, the potential of IT for addressing the needs of the underprivileged is enormous, but in ways that help people at the local level. In South Africa, pilot projects have been developed to use cell phones and e-mail to expedite transmission of medical tests from patients in remote areas to testing clinics and back to the patient.
To truly enlarge the local pie requires localized technological innovation and a better understanding of the market potential for new products. A company in India that produced ethanol from sugar cane was able, through technology and research, to find that red sorghum, a cheaper crop, could produce higher yields of ethanol per acre than sugar cane.
Since many of these countries have large agricultural sectors, the enormous waste in the agricultural sector needs to be examined. Some ventures have converted this waste into useful value added products. The waste from banana cultivation has been converted into biocomposites and oil absorbents, for instance.
We need to redefine capitalism. Corporations need to understand that by pursuing socially responsible objectives, they will benefit as businesses. There is nothing inherently conflicting between corporate goals and socio-economic progress, except that corporations don?t really
understand it.
The underlying thread in all of this is that, yes, corporations can be helpful in alleviating poverty. But society needs to identify exactly where they can make the most sensible contributions while simultaneously serving their corporate interests.
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Atul Wad has been involved in sustainable project and business development in developing countries for over 25 years. He works with corporations, government organizations and international development agencies. He has a Ph.D. from the Kellogg School of Management, Northwestern University, and a B. Tech from the Indian Institute of Technology, Bombay. Contact him: atulwad@sbcglobal.net; 847-831-4179
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