The Fortune at the Bottom of the Pyramid
A few months ago, I had the opportunity to participate on a panel alongside C.K.Prahalad,author of The Fortune at the Bottom of the Pyramid.
His book invites us to open our eyes and discover the great wealth at the “Bottom of the Pyramid,” the lowest levels of the income distribution.
I prefer the term Bottom of the Pyramid (BOP) to “the poor,” since it allows us to focus on the existing opportunities in the market segment instead of scarcities --see Poverty from Another Angle.
Some of the most interesting points of the book include:
- There is an enormous fortune at the bottom of the pyramid: the GDP of developing economies in terms of purchasing power is US$14 trillion and its population is 5 billion, 80% of mankind. In Mexico, there are 80 million people with a purchasing power of US$300 billion. According to Prahalad, “It is reasonable to think that five billion people seeking a better life is the greatest growth engine the world has seen throughout its history. The challenge is to incorporate these people into the global market” –and now, keep the economic crisis from holding back even more the development of these economies.
- When people at the Bottom of the Pyramid become customers, they get much more than access to products and services. They get a face, a name and the dignity to be paid attention by a company. They have an equal relation with the companies that give them service- the opposite of experience with governments and politicians, who have always deceived, despised and exploited them, and on this subject, populists take the pride from.
- The BOP’s economy requires effective distribution, low margin, high volume and a return on capital.
- It is important to create a market-oriented ecosystem: this favors private initiative, non-governmental organizations and consumer interaction to create wealth in a symbiotic way. Each part of the ecosystem depends on the rest, it adapts and evolves and is resistant and flexible.
The solution to the current crisis will determine the roles of Market and Government, respectively, on a global level. In times of crisis, populists and protectionists look forward to restricting our economic liberties even more; now, more than ever, it is important to defend them –see Economic Freedom in Crisis.
In this global crisis, populists will look to “protect” people from “old-fashioned capitalism,” but only through market can a solid medium class be built, as The Economist
opines in a recent article. There are effective free-market tools to definitively eradicate poverty by unchaining the highly creative energy of the BOP, including microcredit, microsavings, telecommunication services, microinsurance etc.
At Grupo Salinas, we have been practicing the basic thesis of Prof. Prahalad. At the Bottom of the Pyramid we can find enormous human wealth and we need to facilitate the entry into the market. In future posts I will talk about how we have managed to do this through technology and other tools.
If we succeed in incorporating the BOP into the global economy, we will be able to multiply it by six –there is no global crisis that can resist this force.