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Published: January 10, 2002

 
 

The Fortune at the Bottom of the Pyramid

Other entrepreneurs have introduced fax services, and some are experimenting with low-cost e-mail and Internet access. These communication links have dramatically altered the way villages function and how they are connected to the rest of the country and the world. With the emergence of global broadband connections, opportunities for information-based business in Tier 4 will expand significantly.

New ventures such as CorDECT in India and Celnicos Communications in Latin America are developing information technology and business models suited to the particular requirements of the bottom of the pyramid. Through shared-access models (e.g., Internet kiosks), wireless infrastructure, and focused technology development, companies are dramatically reducing the cost of being connected. For example, voice and data connectivity typically costs companies $850 to $2,800 per line in the developed world; CorDECT has reduced this cost to less than $400 per line, with a goal of $100 per line, which would bring telecommunications within reach of virtually everyone in the developing world.

Recognizing an enormous business and development opportunity, Hewlett-Packard Company has articulated a vision of “world e-inclusion,” with a focus on providing technology, products, and services appropriate to the needs of the world’s poor. As part of this strategy, HP has entered into a venture with the MIT Media Lab and the Foundation for Sustainable Development of Costa Rica — led by former President Jose Maria Figueres Olsen — to develop and implement “telecenters” for villages in remote areas. These digital town centers provide modern information technology equipment with a high-speed Internet connection at a price that is affordable, through credit vehicles, at the village level.

Bringing such technology to villages in Tier 4 makes possible a number of applications, including tele-education, telemedicine, microbanking, agricultural extension services, and environmental monitoring, all of which help to spur microenterprise, economic development, and access to world markets. This project, named Lincos, is expected to spread from today’s pilot sites in Central America and the Caribbean to Asia, Africa, and Central Europe.

Tailoring Local Solutions
As we enter the new century, the combined sales of the world’s top 200 MNCs equal nearly 30 percent of total world gross domestic product. Yet these same corporations employ less than 1 percent of the world’s labor force. Of the world’s 100 largest economies, 51 are economies internal to corporations. Yet scores of Third World countries have suffered absolute economic stagnation or decline.

If MNCs are to thrive in the 21st century, they must broaden their economic base and share it more widely. They must play a more active role in narrowing the gap between rich and poor. This cannot be achieved if these companies produce only so-called global products for consumption primarily by Tier 1 consumers. They must nurture local markets and cultures, leverage local solutions, and generate wealth at the lowest levels on the pyramid. Producing in, rather than extracting wealth from, these countries will be the guiding principle.

To do this, MNCs must combine their advanced technology with deep local insights. Consider packaging. Consumers in Tier 1 countries have the disposable income and the space to buy in bulk (e.g., 10-pound boxes of detergent from superstores like Sam’s Club) and shop less frequently. They use their spending money to “inventory convenience.” Tier 4 consumers, strapped for cash and with limited living space, shop every day, but not for much. They can’t afford to stock up on household items or be highly selective about what they buy; they look for single-serve packaging. But consumers with small means also have the benefit of experimentation. Unburdened by large quantities of product, they can switch brands every time they buy.

Already in India, 30 percent of personal care products and other consumables, such as shampoo, tea, and cold medicines, are sold in single-serve packages. Most are priced at Rs. 1 (about 1¢). Without innovation in packaging, however, this trend could result in a mountain of solid waste. Dow Chemical Company and Cargill Inc. are experimenting with an organic plastic that would be totally biodegradable. Such packaging clearly has advantages in Tier 4, but it could also revolutionize markets at all four tiers of the world pyramid.

 
 
 
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Resources

  1. The concepts in this article were first articulated in 1998, and have been made available for discussion in a working paper. For more information, contact the authors.
  2. Stuart Hart, “Beyond Greening: Strategies for a Sustainable World,” Harvard Business Review, January–February 1997; Click here.
  3. C.K. Prahalad and Kenneth Lieberthal, “The End of Corporate Imperialism,” Harvard Business Review, July–August 1998; Click here.
  4. “Is the Digital Divide a Problem or an Opportunity?” Business Week Supplement, December 18, 2000
  5. Robert Chambers, Whose Reality Counts? Putting First Last (ITDG Publishing, 1997)
  6. Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization (Farrar, Straus and Giroux, 1999)
  7. Amartya Sen, Development as Freedom (Alfred A. Knopf, 1999)
  8. Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000)
 
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