Peter Krouse,
Plain Dealer Reporter
In October, Case Western Reserve University will host a three-day conference on the social responsibility of corporations called "Business as an Agent of World Benefit: Management Knowledge Leading Positive Change."
Among the speakers will be noted thinker C.K. Prahalad, a University of Michigan professor who recently wrote "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits" (Wharton School Publishing, 2005). The book provides several case studies of large corporations defying conventional wisdom by doing business in Third World countries, making money and raising living standards at the same time.
Prahalad also will be honorary co-chair of the Case event, which will feature United Nations Secretary-General Kofi Annan as honorary chairman.
Prahalad was in Cleveland Monday to give a speech. We caught up with him at the Glidden House on the Case campus. His answers were edited for space and clarity.
Q: What is the bottom of the pyramid?
A: I coined the term "bottom of the pyramid" to signify that almost all our attention, especially the attention of large multinational companies and larger local companies, [has] been focused on the rich. That is about a billion people around the world.
And 80 percent of humanity has been under the radar screen of these [companies]. So when I say bottom of the pyramid, it represents 5 billion people.
Q: So there are opportunities at the bottom of the pyramid?
A: Absolutely. Let us go back to our own industrial history in this country. If you look at Singer sewing machine, it used to cost $100 [per machine]. The poor women in [the] Midwest could not buy because most of them could not pay $100 to buy this. So Singer sewing machine invented the monthly payment. So for $5 a month, you could own a sewing machine, and that is how the company was built.
Q: Which countries in the world today have a share of the people who represent the bottom of the pyramid?
A: Oh, I think almost every country including this one. If you look at what [Hurricane] Katrina showed so graphically, [it] is how many poor people are in this country. There are 40 [million] to 45 million people who are underbanked or unbanked in this country. So every country has some. But if you look at countries like China, India, a significant portion of the entire population is what I would call bottom of the pyramid.
Q: And these people represent potential markets to corporations?
A: Exactly right. But this is a market where you have to create the capacity to consume. The traditional question people ask, especially managers, is: If they don't have the resources, how can there be a market? I say, no, you have to create the capacity to consume. Just like Singer sewing machine created the capacity to consume by developing a new system called monthly payments. Now monthly payments is a routine everywhere.
Or take wireless. Cell phones today are proliferating dramatically across the world. Three billion people will be covered with cell phone usage around the world by 2010, most of them already poor people. They can afford a cell phone because now we have invented the prepaid cards.
Q: How will owning a cell phone help improve somebody's economic position?
A: I think connectivity is fundamental because first it creates a symmetry of information. You get access to information. It could be information about prices or vegetables in the market or milk in the market. So you can check what the prices are. You don't have to depend on the local middleman. Connectivity is the first engine of change.
Q: Are corporations starting to do this now?
A: Yes, I think increasingly more and more. If I look at Procter & Gamble or Unilever or Nestle, this is one of their biggest growth markets, the bottom of the pyramid. They all participate in it, and they're all very profitable in that market. Increasingly, companies like Microsoft, Monsanto, DuPont, Phillips, GE - they're all looking at this market, experimenting, trying to build fundamentally new business models so they can participate in this marketplace.
Q: Are they providing jobs?
A: A large number of jobs. If you look at the case studies in ["The Fortune at the Bottom of the PyrAmid"], take for example [the Shakti Amma - "empowered mother" - project in India of Hindustan Lever, a unit of Unilever]. What are they really doing? They are taking leaders from individual villages, one woman and one family, and converting her into a distribution point. That means now she stocks the product, she sells the products, she provides advice to the local community and she becomes somebody important in the community because she has some expertise.
Q: What are some other examples besides the Shakti Ammas where this bottom-of-the-pyramid investment is taking place?
A: Oh, I can give you examples from across the world. Take for example Avon beauty products. In Brazil, they employ about 700,000 women as salespeople all the way from the Amazonia to the rest of the country. And Avon sales in Brazil [are] more than a billion dollars, and they are very profitable. And the reason is they have a large distribution network, which is individual entrepreneurs who provide the products, who provide the advice, who provide the capabilities. You can look at Cemex in Mexico, which is providing housing opportunities for the poor, all the way to Grameen Bank in Bangladesh, which is mobilizing women and giving them access to credit and access to savings.
Q: And these companies are making money at the same time?
A: Actually, they are all making money.
Q: Your ideas, though, are not traditional types of charity. They are doing good through capitalism.
A: That's right. I call it inclusive capitalism, where you include people who have been excluded from the benefits of global trade and market-based economies.
Q: The world is a much smaller place. A company can have operations on the other side of the world and keep very close tabs on what's going on. Does that make this kind of inclusive capitalism more doable?
A: Absolutely. I think the Internet and the proliferation of cell phones and PCs have made this extremely easy.
Q: Tell me about the Grameen Bank and what they are doing.
A: The Grameen Bank is one of the fundamentally interesting examples, and they have become a role model for replication around the world. The idea is fairly simple. Poor people don't have collateral. So if you want to lend money, it cannot be based on collateral. It has to be based on trust. It has to be based on pressure for managing creditworthiness that is not based on your ability to repossess collateral that they have. So what they found is you can get a small group of women together as teams and lend money to one of them. But three other women who live in the same village in close proximity will guarantee it. So they are going to put peer group pressure to make sure there is no default. So you are holding each other hostage through an honor system in the village.
Q: So what happens if there is a default?
A: Either other people will chip in and help because if there is a default, the cost of capital for all of them goes up. If there is no default, everybody gets money at low levels of interest. If they default and therefore they are not eligible for this access, they will have to go back to the traditional money lenders or have no access at all to capital.
Q: Where is the Grameen Bank operating?
A: In Bangladesh, and surprisingly, it's all oriented towards women.
Q: In October of this year Case Western will be hosting a conference on Business as an Agent of World Benefit. How significant will this conference be?
A: I think it is extremely significant. I think as academics and as responsible business schools we have to highlight the opportunities and the problems that plague the world because it's our job as managers to see these problems as new opportunities and find solutions. And unless academics alert and identify these issues in the classroom, it is very difficult for young people to be motivated and energized by these opportunities.