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Published: June 1, 2004

 
 

The Philosopher of Progress and Prosperity

Professor Hart and University of Michigan professor C.K. Prahalad authored an article in strategy+business in 2002 espousing the business theory that global companies can thrive by developing markets for the poor at the “bottom of the pyramid.” In other writings, the professors cite the example of Cemex, the Mexican cement company, which is now the largest cement company in the world, in part because they serve “irons-of-hope” homeowners, who can expand their houses only one floor at a time. The company finances their construction costs at low interest and stores and delivers the cement at the time the homeowner needs it. ILD’s Peter Schaefer cites Cemex as a harbinger of the kinds of companies that naturally emerge when underground capital surfaces in the formal sector. “I say that serving those markets is ‘the next big thing,’” says Mr. Schaefer, “and [businesspeople] don’t challenge me. They all get a wistful, faraway look in their eyes.”

If a history of globalization is ever written, perhaps this moment will be remembered as a time of two prevailing private-sector models. Corporations can enter a new country in a hurry, exploiting cheap labor and buying natural resources. Or they can enter with the idea of helping to develop markets, expanding their customer base for the long term. If the second model catches on, then Mr. de Soto’s theory may be a prerequisite. For until they have property rights, and the habitual behaviors that go with property rights, people in developing countries won’t be equipped to become the kinds of consumers, employees, distributors, and suppliers who can sustain the presence of global companies effectively.

“We don’t go into a country with a message that they must change,” says Mr. de Soto. “We diagnose the change that is already taking place, and we try to add the laws, the accountability, and the infrastructure that will allow people to hold their own. Once those elements are in place, you can give people a choice about how to set up their own lives and work. That choice, in the end, is what we’re really trying to provide.”

Reprint No. 04211

Author Profile:


Art Kleiner (art@well.com) is the “Culture & Change” columnist for strategy+business. He teaches at New York University’s Interactive Telecommunications Program. Mr. Kleiner is the author of The Age of Heretics (Doubleday, 1996) and Who Really Matters: The Core Group Theory of Power, Privilege, and Success (Currency Doubleday, 2003). His Web site is www.well.com/user/art.
 
 
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Resources

  1. C.K. Prahalad and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” s+b, First Quarter 2002; Click here.
  2. Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000)
  3. Hernando de Soto, The Other Path: The Economic Answer to Terrorism (Second ed., Basic Books, 1989)
  4. Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (Free Press, 1995).
  5. C.K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (Wharton School Publishing, 2004)
  6. The World Bank, Doing Business in 2004: Understanding Regulation (Oxford University Press/World Bank, 2003), Click here.
  7. Erica Field, “Entitled to Work: Urban Property Rights and Labor Supply in Peru” (July 2003); Click here.
  8. Erica Field, “Property Rights, Community Public Goods and Household Time Allocation in Urban Squatter Communities” (September 2003); Click here.
  9. Erica Field with Maximo Torero, “Do Property Titles Increase Credit Access Among the Urban Poor? Evidence from a Nationwide Titling Program” (January 2004); Click here. 
  10. Center for International Private Enterprise: Click here. 
  11. Center for Sustainable Enterprise, University of North Carolina: Click here. 
  12. Institute for Liberty and Democracy: Click here.
 
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