strategy + business issue 26
at the of the
SECURITY AND S T R AT E GY
by C.K. Prahalad and Stuart L. Hart
content strategy & competition
Low-income markets present a prodigious opportunity for the world’s wealthiest companies — to seek their fortunes and bring prosperity to the aspiring poor.
With the end of the Cold War, the former SovietUnion and its allies, as well as China, India, and Latin America, opened their closed markets to foreign investment in a cascading fashion. Although this significant economic and social transformation has offered vast new growth opportunities for multinational corporations (MNCs), its promise has yet to be realized. First, the prospect of millions of “middle-class” consumers in developingcountries, clamoring for products from MNCs, was wildly oversold. To make matters worse, the Asian and Latin American financial crises have greatly diminished the attractiveness of emerging markets. As a consequence, many MNCs worldwide slowed investments and began to rethink risk–reward structures for these markets. This retreat could become even more pronounced in the wake of the terrorist
attacks inthe United States last September. The lackluster nature of most MNCs’ emergingmarket strategies over the past decade does not change the magnitude of the opportunity, which is in reality much larger than previously thought. The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers: It is the billions of aspiring poor who arejoining the market economy for the first time. This is a time for MNCs to look at globalization strategies through a new lens of inclusive capitalism. For companies with the resources and persistence to compete at the bottom of the world economic pyramid, the prospective rewards include growth, profits, and incalculable contributions to humankind. Countries that still don’t have the moderninfrastructure or products to
Illustration by Marco Ventura
C.K. Prahalad (firstname.lastname@example.org) is the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan Business School, Ann Arbor. He is also the founder and chairman of Praja Inc., a pioneer company in interactive event experiences, based in San Diego, Calif.
Stuart L. Hart (email@example.com) is professor ofstrategic management, Sarah Graham Kenan Distinguished Scholar, and codirector of the Center for Sustainable Enterprise at the University of North Carolina’s Kenan–Flagler Business School.
meet basic human needs are an ideal testing ground for developing environmentally sustainable technologies and products for the entire world. Furthermore, MNC investment at “the bottom of the pyramid” meanslifting billions of people out of poverty and desperation, averting the social decay, political chaos, terrorism, and environmental meltdown that is certain to continue if the gap between rich and poor countries continues to widen. Doing business with the world’s 4 billion poorest people — two-thirds of the world’s population — will require radical innovations in technology and business models. Itwill require MNCs to reevaluate price– performance relationships for products and services. It will demand a new level of capital efficiency and new ways of measuring financial success. Companies will be forced to transform their understanding of scale, from a “bigger is better” ideal to an ideal of highly distributed small-scale operations married to world-scale capabilities. In short, the poorestpopulations raise a prodigious new managerial challenge for the world’s wealthiest companies: selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive, environmentally sustainable, and economically profitable ways.
Four Consumer Tiers
At the very top of the world economic pyramid are 75 to 100 million affluent Tier 1...
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