Even the Poorest Can Be a Thriving Market

Tuesday, April 29, 2008

By Jean-Louis Warnholz

The idea that global companies can do good and do well at the ?bottom of the pyramid??that is, among the poor populations of developing countries?has generated excitement among corporations, governments, and NGOs in recent years. But most of the resulting initiatives by multinationals have missed the very poor, the 2 billion people in places like Haiti and Bangladesh who live on less than two dollars a day and have been virtually ignored by the corporate world and cut off from the global marketplace. The multinationals seem not to have noticed the examples of Telenor and Digicel, innovative mobile phone companies that have found opportunities to earn profits and simultaneously improve local economic landscapes by serving the very poor.

Telenor was drawn to Bangladesh and Pakistan, and Digicel to Haiti, by low-wage workforces and the potential for creating local consumer markets, despite endemic poverty. Both companies refused to accept the low-purchasing-power status quo and have been systematically building up local consumer markets. They are now boosting economic growth by generating jobs, tax revenue, and investment.

Their success should come as no surprise. Indeed, the argument that companies can improve poor economies while making profits by selling consumer goods was put forth by C.K. Prahalad and Allen Hammond in their article “Serving the World’s Poor, Profitably” (HBR September 2002) and by Prahalad in The Fortune at the Bottom of the Pyramid (Wharton School Publishing, 2004). Since the publication of the article and the book, multinationals have begun “creating the capacity to consume” among the poor. In India, for example, Procter & Gamble sells single-use sachets of detergent and shampoo that are affordable for the poor. But the vast majority of such efforts have been aimed at urban consumers in India, China, and South America who are just below the middle class. Multinationals can learn a great deal from Telenor’s and Digicel’s creative ways of generating purchasing power among consumers with much lower income.

Telenor’s joint venture with Grameen Telecom in Bangladesh has several programs aimed at doing this, including one that allows people without bank accounts to pay utility and other bills via mobile phone. In Pakistan, Telenor offers would-be entrepreneurs in impoverished remote areas its “business in a box” solution: a subsidized phone plus training. And Digicel allows phone cards to be recharged from abroad, enabling people in the Haitian diaspora to help relatives pay for their phones, many of which are used in local businesses.

Both Norway-based Telenor and Jamaica-based Digicel have fared well: Telenor’s Grameenphone joint venture, which has been doing business in Bangladesh since 1997, became profitable in 2000 and is now the country’s largest telecom firm. Telenor Pakistan, a more recent initiative, increased its revenues 265% in 2007 and saw a nearly 200% jump in its customer base, to 15 million. Digicel doesn’t break down its profits by country, but Haiti represents the company’s largest market, and the corporation’s profits doubled to roughly $450 million for the year ending March 2008. The phenomenal growth in all three markets suggests significant improvements in local purchasing power. In Bangladesh, another indicator of increased purchasing power is a recent decline in the profits of the 280,000 “phone ladies,” who offer access to Telenor’s services, as more and more people in remote villages can now afford their own phones.

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Source: Harvard Business Review (link opens in a new window)