Challenging CK Prahalad
CK Prahalad's theory on the purchasing power at the 'bottom of the pyramid' (BOP) has a legion of enthusiastic supporters. The BOP argument that savvy multi-nationals will enrich themselves and the poor by selling to this market is "at best a harmless illusion and potentially a dangerous delusion", according to Michigan professor Aneel Karnani. His new working paper, Fortune at the bottom of the pyramid: a mirage, is the strongest criticism I've seen of Prahalad and his devotees.
Clearly influenced by Amartya Sen's convictions that development should focus on improving the capacities of the poor, Karnani praises microfinance and efforts to improve market efficiency for poor producers (such as Amul and eChoupal). Karnani's conclusion:
Certainly the best way for private firms to help eradicate poverty is to invest in upgrading the skills and productivity of the poor, and to help create more employment opportunities for the poor.
Via Karnani himself, at NextBillion
Update: Prahalad's letter (PDF) responding to Karnani, thanks to Rob at NextBillion. The halls of the University of Michigan must be buzzing. One snippet:
Poverty alleviation is, simply, improving the disposable income for the families - by reducing the costs of services, improving its quality, and releasing their time to do work that is productive.
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The productivity of the poor is largely held back by failures of infrastructure. Africa alone is probably half a trillion dollars behind where it needs to be in road construction if it wants to expand trade and actually lift people out of poverty. ICT for business, clean water for health, reliable electricity for manufacturing. Most poor countries are missing all of these things. Governments will have to become much more efficient at the same time for the private sector to then make a big impact.
Posted by: Dan Kahn | Aug 23, 2006 7:34:02 PM
i believe that the theory of c.k.pralhad is not grandiose but it sometimes seems to be one. the reason being that when a person talks about creating a market for people living below $1 a day. but the thing is that what he is saying is that there is a oppurtunity available for companies to create and serve this virgin market of more than 700mn. people. what is required on the part of the co. is that they should keep in mind that to serve the market at the bottom of pyramid priceof the products should be reasonable.ITC e-choupal and HLL shakti amma are classic examole of serving this kind of market.
Posted by: dharmendra sharma | Aug 25, 2006 9:34:45 AM
Reading this post has motivated me to order a copy of CK Prahalad's book.
Karnani's conclusion is to me so clearly wrong I've got to learn more about the book that could provoke such a response. Whatever Socialists (is he? he must be) might believe very few people actually want jobs, they want food, shelter, status.... as Maslow explained quite clearly.
Posted by: Michael Saunby | Aug 25, 2006 4:26:16 PM
Hello,
I am writing as I would like to ask you one thing. I am in my exchange period in Brazil where I am taking a course Marketing for low income population...I love it...now, I have to do a report in regard to a company that is targeting the BOP. I would like to come out with a company that even the teacher would be impressed. Any idea?
Thank you very much for your time.
Regards,
Dana
Posted by: Dana | Oct 30, 2008 4:38:43 PM