Eradicating poverty through profit would need a big push

Claims that poverty could be eradicated, and huge profits made, by selling consumer goods to poor people have been met with enthusiasm by some policymakers and business leaders. But in reality the links between big business and lifting people out of poverty are much more complex.
Research from the University of Oxford, in the UK, challenges the increasingly influential idea that poverty can be tackled by multinational companies (MNCs) unlocking the potential of underdeveloped markets in poor countries and empowering poor people as consumers.
The idea stems from the 2004 book by business academic C K Prahalad, ‘The Fortune at the Bottom of the Pyramid’. In the book, Prahalad identifies the world’s four to five billion poor people – the bottom of the pyramid (BoP) – as a new business opportunity worth up to US$13 trillion a year.
Prahalad calls on MNCs to help create this market by devising innovative solutions to meet the needs of poor people. He predicts a win-win situation: businesses get access to a huge untapped market and poor people get products and services at appropriate and affordable prices.
The research shows that the size of the potential BoP market is much smaller than suggested. Using data for the 45 most populous low and middle income countries, the research estimates the disposable income of people living at four different levels of poverty. In each case, their estimated combined disposable income is considerably less than US$13 trillion.
The research also challenges the idea that there is a huge potential untapped market. In India, a bar of soap, a bottle of shampoo and a tube of toothpaste (global brands) would use up the monthly disposable income of people living on less than US$1 a day. While people living on between US$5 and US$8 a day, whose budget is about ten times bigger, are likely to be buying some of these goods anyway.
Key findings of the research include:
The 2.5 billion people living on less than US$2 a day have a combined disposable income of US$141 billion a year; those on less than US$8 a day have a disposable income of US$684 billion.
For big business, US$141 billion is a relatively small market compared with other markets in rich countries.
In most poor countries, people living on less than US$1 and US$2 a day cannot afford to buy global branded consumer goods.
An increased presence of big business in poor countries could damage small businesses and threaten local jobs and incomes.
The research shows that the opportunities for MNCs in poor countries are more complex than Prahalad and others have suggested.
The author concludes that:
The BoP idea has created a space for new ways of looking at poor people and their purchasing power.
To succeed in reducing poverty and making profits, big business would need to develop supplementary strategies which could help to expand consumer demand by generating employment and incomes in poor countries.
More specific country-level analysis is needed to understand the needs and potential of the bottom of the pyramid.
Source(s):‘Poverty Reduction for Profit? A Critical Examination of Business Opportunities at the Bottom of the Pyramid’, Queen Elizabeth House Working Paper Series 160, Queen Elizabeth House: Oxford, by Jean-Louis Warnholz, 2007 (PDF) Full document.
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