The Jig Saw

Saturday, February 12, 2005

Making business for the poor

Monday Feb 12, 2005

Professor C. N. Prahlad, the University of Michigan Business School, author of the book "The Fortune at the Bottom of the Pyramid-Eradicating Poverty through profits "presented some cases for all innovative approach to convert the poverty into an opportunity for all concerned. He said, what is needed is an approach that involves partnering with the poor to innovate and achieve sustainable win-win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable. The market at the BOP with more than 4 billion people living on less than US $2 per day presents tremendous opportunity for the private sector.

These opportunities can be unleashed if large and small firms, government, civil society organisations, development agencies, and the poor themselves work together with a shared agenda. Large-scale and widespread entrepreneurship is at the heart of the solution to poverty. Prahlad has tried to show that at the top of the pyramid are the wealthy, with numerous opportunities for generating high levels of income. The distribution of wealth and the capacity to generate incomes in the world can be captured in the form of an economic pyramid. The quality, efficacy, potency, and usability of solutions developed for the BOP markets are very attractive for the top of the pyramid.
The traditional MNC approach and the approach suggested by Prahlad here -- top of the pyramid to BOP and from the BOP to the top of the pyramid could work. He presented some successful examples and tried to prove that innovative approaches can "convert the poverty into an opportunity for all concerned", including the poor and the private companies. As per his opinion, we should not be seeing the poor just as the target beneficiaries of development assistance, but as creative entrepreneurs who take initiative, often for the basic survival.

An innovative private sector can find ways to deliver low cost (even sophisticated) goods and services to demanding consumers across all income ranges. It can sell to the urban distressed areas as well as the poor rural villages or towns. Innovation might arise from the focus on the lower quintile market which creates cost advantages from economies of scale, or the firm may have developed distribution links to the end consumer in the village and so are able to better harness knowledge of the actual needs of this segment of the market. Firms might keep costs low through outsourcing, for greater flexibility. The private sector can thus alleviate poverty by contributing to economic growth, empowering the poor by providing them with services and consumer products, increasing choices and reducing the prices. The first creates employment and income growth. The second improves the quality of life for the poor. The greater interaction between those at the bottom of the pyramid and the private sector creates opportunities for direct involvement in the market economy.
With broad recommendations for action developed by the UN Commission on Private Sector and Development (namely: to collaborate and mobilise capabilities of the private sector, to drive innovation and use of IT: to engage in public-private partnerships for sustainable development; and to form ecosystems and build networks of companies), it said these should be translated into concrete actionable initiatives at the country and regional levels. Some potential ideas like women entrepreneurship development; pro-small entrepreneur reforms; kiosks/one stop shops for registration; single business permit; alternative dispute resolution; automated assignment of cases; specialised debt collection courts; collateralising real estate assets; business plan competition; in-country monitoring; ISO certification support; hands-on educational programmes; and microinsurance schemes etc. are also helpful as recommended by the report.

Efforts to design innovative project initiatives should, however, go further and beyond what has worked successfully to-date in terms of SME development and promotion of micro-enterprises. There is an immense opportunity to maximise the use of the private sector market-based forces to fight poverty at the BOP. In the light of the above, a potential role of UNDP could be in providing market intelligence to identify profitable initiative that help satisfy the needs of the poor while paying by the rules of the market. UNDP may help Bangladesh by taking specific role which will in turn would help developing SMEs. SME representative organisation can take lessons from the report of the commission on how to integrate large companies with SMEs through well defined ecosystem to make market for the poor and help them sustain the market.


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