Fortune at the Bottom of the Pyramid-2

THE FORTUNE: AT THE BOTTOM OR THE MIDDLE OF THE PYRAMID?

Before looking at the larger questions, it’s important to estimate the true size of the BOP market. Prahalad and Hart (2002, p. 2) refer to the 4 billion people in Tier 4 as the bottom of the pyramid. But certainly income inequality is widespread across the developing countries where the BOP population lives. Many developing countries, especially the least developed countries (LDCs), are characterized by extreme poverty. Many factors make it unrealistic for the private sector to participate in economic development in most LDCs. Among them are inefficient regulation, widespread corruption, lack of basic infrastructure, extreme poverty, and the underdeveloped financial and banking structure. In these countries, people’s most basic needs must be fulfilled before anyone can look at them as profitable BOP markets. The success stories of MNCs serving poor customers cited in the BOP literature are predominantly in fast-growing economies such as India, where the GDP per capita remains low, as well as in countries like Brazil and Mexico with higher per-capita income. Not surprisingly, BOP advocates fail to provide cases of MNCs serving the BOP population in LDCs.

                                        World Bank data can be used to estimate the size of the BOP market. In 2005, 2.4 billion people lived in low-income countries (Table 1), and 751.8 million people of those lived in LDCs where the per capita gross national incomes averaged US $378.2. Realistically, these very low income earners at the extreme bottom of the pyramid are not likely to be profitable customers for MNCs. (See Table 2 for comparative figures for selected countries among the LDCs and Newly Industrializing Economies). In 2001, 1.1 billion people were living on less than $1 a day which the World Bank considers to indicate extreme poverty. If we enlarge the base, a total of 2.7 billion people live on less than $2 a day (World Bank, n.d.). The 1.1 billion people living in acute poverty, and struggling to meet even their basic needs, cannot possibly be viewed as a profitable market for large corporations. Whatever fortune does exist is only at the lower middle and middle of the pyramid, definitely not at the bottom. When Prahalad and Hart (2002, p. 2) talk about “doing business with the world’s 4 billion poorest,” they count the entire population of both developing countries and least-developed countries. Depending on the products and services and economic conditions prevailing in poor countries, a significant portion of this population will be totally out of the direct reach of MNCs. MNC involvement in LDCs can be viable and fruitful only after these countries reach a certain threshold of economic development.

                         Karnani (2007) provides an interesting contradiction to Prahalad’s estimate that the BOP market size is $13 trillion at purchasing power parity (PPP)2. He construes that as a gross overestimation. Using the World Bank estimate of $1.25 a day as the average consumption of the 2.7 billion poor and total poor, he calculates the BOP market size as $1.2 trillion. He also points out that MNCs would repatriate profits at actual currency exchange rates, not at PPP. Taking this factor into account, he estimates the BOP market size as less than $0.3 trillion, which is just 2.3 percent of Prahalad’s estimate of $13 trillion.