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2004-08-20

Profits from the poor - to help them 

The Economist has a positive review of a recent book by management guru C.K.Prahalad. I haven't read the book, but the idea seems interesting: Prahalad claims that big businesses can generate a lot of egoistic profits from the 4-5 billion poor in the world, and in the process help the poor to improve their lives more than top-down development aid programmes by governments or NGOs will achieve.

The reason is that the poor often pay higher prices for goods they consume than the well-off, for example because of risks associated with doing business in their vicinity, bad distribution networks and smaller package units. When businesses reengineer their products and distribution channels, they can reach these consumers, often by involving them in entrepreneurial roles, such as for the delivery of goods.

A small excerpt from the Economist-article to give you a flavour of these arguments:
Another challenge will be to persuade development experts to support a profit-driven strategy. Mr Prahalad worries that firms may be deterred from BOP [bottom-of-the-pyramid, ed.] strategies by fear of attracting criticism from activists. If a large international bank were to start lending to the poor at interest rates, reflecting higher risks and start-up costs, of say 20% (compared with around 10% in rich countries), “the whole anti-globalisation lobby would probably be against it. Yet the alternative is for the poor to borrow at 500% from a money lender. Whose side are the activists on?” If you are on the side of the poor, he says, “surely you need to help get rates down from 500% to 20%. After that, you can work on getting them from 20% to 10% like in the rich world.”
UPDATE: More details at Mahalanobis


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