Friday, July 06, 2007

How large is the bottom of the pyramid?

The fortune at the bottom of the pyramid is management guru C K Prahalad's pet theme. He has argued that people there may lack water, health and housing but they can still constitute a market for a range of products- cellphones, for instance. Prahalad puts the size of the market at $13 trillion in PPP terms, large enough to make the world's MNCs salivate.

Prahalad's colleague, Aneel Karnani, has long been sceptical of this claim. He has argued that the size of the BOP is smaller. In a recent article in Business Standard, Karnani reiterates his point using recent data from a report, The next 4 billion, released by the IFC. The report, Karnani says, puts the size of the market at $ 5 trillion. Karnani thinks this too is an over-estimate, although much lower than Prahalad's.

The IFC report arrives at its estimate using $3000 as the cut-off for the poverty line. Karnani says this is too high. Using a cut-off of $1000 in PPP terms and IFC data, Karnani arrives at a market size of $1.42 trillion in PPP terms. The fortune at the BOP, he says, is a 'fantasy'.

Karnani's more interesting point, made in a paper, is that the whole idea of treating poor people as customers whom large companies can profitably cater to is ridiculous. The way to attack poverty is to treat poor people as producers and to augment their income, not to treat them as customers.

Karnani's point is a compelling one. The danger in seeing poor people as customers for various consumer items, he says, is that the deprivations that they suffer in other ways- in terms of healthcare and housing- can be easily forgotten. So can the government's role in addressing these deprivations. When poverty alleviation is reduced to the production of goods for the BOP market by large companies, it can harm the cause of removing poverty.

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