An Invisible Market Opportunity
C.K. Prahalad, Across the Board Magazine - Jan/Feb 2002

Today, there are more than 4 billion people who make less than $1,500 a year. Most of them live in rural villages and urban slums and shantytowns. Over the next 40 years, this group could swell to 6 billion or more, since the bulk of the world's population growth is expected to come from this segment.
The basic needs of these people are served by unorganized sectors such as the local moneylenders. The markets are local, and hard to reach in terms of distribution, credit, or communications. Not entirely surprising, then, that they have been largely invisible to the corporate sector.
That is likely to change. This change is unlikely to be motivated by a desire to parrow the gloval gap between rich and poor because it is a good thing to do or by a fear that the disenfranchised can easily disrupt the lifestyle and the safety of the rich. The change will be motivated by the fact that the bottom of the economic pyramid - the very poor - represents the greatest market opportunity of the future. Indeed, I believe it presents an opportunity for business, government and civil society to join together to dissolve the conflict between proponents of free trade and global capitalism on the one hand, and environmental and social sustainability on the other.
Why has the maket opportunity represented by the poor been invisible thus far to multinational corporations? Because orthodoxies held deeply by most firms (and most managers) restrict their ability to be innovative and create a market out of the poor. Multinational corporations must create a framework for an 'inclusive' global capitalism.
The poor can be a very profitable market - if multinationals are willing to change their business models and realize the game is about volume and capital efficiency. Margins are likely to be very low by current norms, but unit sales can be extremely high. Managers who focus on gross margins will miss the oportunigy; managers who innovate and focus on economic profit will be rewarded.
Managers must recognize that this market poses a new challenge: How can low cost, good quality, sustainability, and profitability be combined? To illustrate how this challenge can be met consider the experience of Hindustan Lever Limited (HLL), a subsidiary of Unilever PLC, widely considered the best-managed company in India. Like most multinationals, for over 50 years it catered to the needs of India's elite. Then a local firm, Nirma, challenged HLL in its detergent business by creating a new business model that included a new product formulation, distribution, packaging, pricing, and branding. Nirma decentralized the production, marketing and distribution of the product to take advantage of the abundant labor pool in India and quickly penetrated the thousands of small outlets where the poor shop. The company reinvented the cost structure of the business, enabling the introduction of the product at a price point affordable to those at the bottom - only a third of its competitor's price.
As Nirma grew, HLL realized both its new opportunity as well as its vulnerability and responded, somewhat belatedly, with its own offering for this market - drastically altering the traditional HLL business model. Unilever then took the lessons from India to Brazil to great success. The Indian subsidiary has taken the lessons and dramatically expanded its coverage of products and services to the poor, often inventing new approaches and using new technologies.
Other multinational corporations are also experimenting. Hewlett-Packard's World e-Inclusion project is a significant initiative to understand this opportunity. Experiments in Costa Rica, Senegal, and among the American tribes in the San Diego area are proving the viability of this idea. Citigroup is experimenting, with great success, with 24/7 service to small depositors with just $25 in India.
So, then, the real strategic challenge for managers is to visualize an active market when what exists is abject poverty.
They must first develop a commercial infrastructure tailored to the needs of the poor. The elements of this infrastructure - creating buying power, shapping aspirations, improving access, and growing healthy markets - are the keys to opening this market of the poor. If poverty and disenfranchisement constitute a breeding ground for terrorism, then creating real buying power for the poor must be first priority. To do that, companies must, like HLL, increase the income-earning potential of the poor.
Another critical ingredient to breaking the cycle of poverty is providing access to credit on a commercial basis. This is not a new concept: During the latter part of the 19th century, the Singer Sweing Machine Co., realizing that few women could afford $125 for the outright purchase of a machine, allowed them to buy on the basis of a $5 monthly payment. The same logic applies on a larger scale to poor people throughout the world.
By the late 1990, the combined sales of the world's top 200 multinationals equaled nearly 30 percent of total world gross domestic product. Yet at the same time, these same corporations employed fewer than 1 percent of the world's labor force; and the world's 100 largest economies, 51 are economies internal to corporations. Scores of the Third World countries have suffered absolute economic stagnation or decline, and the gap between rich and poor continues to widen. These trends are not sustainable. If multinational corporations are to thrive in the 21st century, they must seek to generate a broader base of economic activity that is more widely shared than it has been in the past.

Professor Prahalad is co-founder and chairman of Praja Inc. and Harvey C. Fruehauf Professor of Business Administration at the University of Michigan Graduate School of Business Administration.