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Published by: Mansi Bhandari on Jun 22, 2012
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¬THEFORTUNEATTHEBOTTOMOFTHEPYRAMIDByC.K.PrahladSubmittedBy:RollNo.2010B46Thepyramidherereferstotheeconomicpyramid,whichdepictsthedistributionofwealthandthecapacitytogenerateincomes.Atthetopofthepyramidarethewealthywithnumerousopportunitiesforgeneratinghighlevelsofincome.Whereastherearemorethan4billionpeoplewholiveatthebottomofthepyramid.Thisisthegroupthattheauthorfocuseson.Thepurpose:Theauthor,throughthisbook,wantstochangetheimagethepublichasofthepoorasvictimsorliabilitiesandattemptsthemtobeviewedascocreatorsofideas,valueconsciousconsumersanddriversofinnovationandeconomicgrowth.ThishedoesbycitingexamplesandapproachesthathavebeensuccessfulandhasmentionedcaseswhichillustratethatthereareviablebusinessopportunitiesattheBOP.HearguesthatdevelopmentofmarketattheBOPcangiverisetomassiveentrepreneurship.Andthisheviewsasthemostpowerfultoolforthealleviationofpoverty.Authors’Suggestions:HeexhortstheprivatesectortonotconsidertheBOPmarketasapartoftheirCSRinitiatives,butasacompany’scoreaudiencethatdemandsseriousattentionfromcompany’sseniormanagementandsincereresourceallocation.Andalsotellsthemtoidentifythesegmentasadriverofinnovationsinceconventionalformulaswon’tcreatemarketattheBOP.HechallengestheassumptionsthatimpedimentstheparticipationofmultinationalsintheBOPmarkets,forexample,theassumptionthatdistributionaccesstotheBOPmarketisdifficult.almost35-40%ofthepeopleinurbanIndiaarecomposedofBOPconsumers.Anotherassumptionthathetriestodefyisthatthepoorarenotbrandconscious.Hesaysthatpoorareextremelybrandconsciousandareextremelyvalueconscious.Theyexpectgreatqualityatthepricestheycanaffordandthusposeachallengeonmanagerswithincreasingpressureoncostsofdevelopment,manufacturinganddistribution.Alsoduetoincreasingnetworkingandconnectivity,theBOPconsumersaregettingconnectedlikeneverbeforeandhencethewordofmouthpublicitybythemhasbecomeapotentforceforassessingproductquality,pricesandoptionsavailabletothem.AnotherassumptionthatheattemptstooverrideisthatBOPconsumersdon’taccepttechnologyreadily.Infactrealityisquitetothecontrary,farmers’responsetoITC’se-choupalprogrammeisacaseinpoint.
 
Inchapter1Hesuggeststhedevelopmentofthepoorintoconsumers,ataskheconsiderstobethatofamarketdevelopment.Hesuggeststhatbeingpoorandhavinglowlevelofincome,theseconsumersneedtobeaccesseddifferently,andthereforetoconverttheBOPintoaconsumermarket,theircapacitytoconsumeshouldbeincreased.Andtodothis,thetraditionalmethodsofcreatingcapacitybyprovidingthoseservicesfreeofchargewouldn’tsolvetheprobleminasuitableandsustainablefashion.Todevelopthesemarkets,developmentofnewproductsandservicesalsobecomesimperativeandthisiswheretheprivatesectorcomesintopicturesinceitcanprovideopportunitiesforthedevelopmentofnewproductsandservices.Accordingtohim,whenthepoorareconvertedtoconsumers,theyalsoacquiredignityofattentionandchoicesfromtheprivatesectorwhichwerepreviouslyreservedforthemiddleclassandrichanddeservetobetreatedaccordingly.AlsotrustbuildingbetweenthelargefirmsandtheBOPconsumersisalsooftheessence.TheauthoremphasizesonhowtheprivatesectorstandstogainbytreatingthepoorasconsumersandtheprocessofpovertyalleviationthatcanresultwhenbusinessesfocusontheBOP.ThishesubstantiatesbythefactthattheBOPmarketpotentialishuge,i.e.,4to5billionunderservedpeopleandaneconomyof$13trillionPPP.Andalsotheneedsofthepoorareeverescalating.Theprinciplesincreatingthecapacitytoconsumehavebeendescribedas"ThreeAs":i.Affordability:Withoutcompromisingqualityorefficacyii.Access:Tobeensuredthroughgeographicallyintensivedistributioniii.Availability:Tobeensuredthroughdistributionefficiency.TheidealsituationistocreatecapacitytoearnmoresothatBOPconsumerscanaffordtoconsumemore.ITC
 
se-Choupalisasuccessfulexampleinthisregard.ThecriticalrequirementistheabilitytoinventwaysthatcantakeintoaccountthevariabilityinthecashflowsofBOPconsumersthatmakesitdifficultforthemtoaccessthetraditionalmarket.TheinvolvementoftheprivatesectorattheBOPcanprovideopportunitiesforthedevelopmentofnewproductsandservices,poorasconsumersgetmoreaccesstoproductsandservicesandacquirethedignityofattentionandchoicesfromtheprivatesectorthatwerepreviouslyreservedforthemiddle-classandrich.Theprerequisiteisthatbothsides,thelargefirmsandtheBOPconsumersdeveloptrust,whichhasbeenmissingtraditionally.Chapter2:TheauthorgoesontosuggestprinciplesofinnovationfortheBOPmarket.Accordingtohim,thereshouldbeafocusonpriceperformanceanddevelopinghybridsolutionssincetheproblemsofBOPconsumerscannotbesolvedwithexistingtechnologiesandprocesses.Thesolutionsdevelopedmustbescalableandtransportableacrosscountries,culturesandlanguages,mustfocusonresourceconservationandshouldbedevelopedonlyafteradeepinsightofthefunctionalityoftheproduct.Itisimportanttounderstandthatinnovationinproductsinthesecountriesshouldbeaccompaniedbyprocessinnovationssothatalargeraudiencecanbeaccessed.Andeducatingtheseconsumersonproductusagetooiscriticalalongwiththecapacityoftheproductstosurvivehostileenvironments.Productdevelopersmustfocusonbroadarchitectureofthesystem,sothatnewfeaturescanbeeasilyincorporated.TheauthorsaysthattheMNCsapproachtoengagetheBOPmarkets,whereintheybeginwithexistingmodelsthatweredesignedforthedevelopedworldandarethenfinetunedtotheneedsoftheBOP,isarecipeforfailure.ThesefirmsmuststartbyunderstandingthenatureofneedsoftheBOPconsumersandthenengineertheirbusinessmodelkeepinginmindtheserequirements.Therefore,thequalit
 
y,efficacy,potencyandusabilityofsolutionsdevelopedfortheBOPmarketsareveryattractiveforthetopofthepyramidtoo.Theauthorcitestheexamplesofiodinisationofsalt,successofHLL’s“Wheel”brandofdetergent,ideaofsingleserveunitsandsuccessofGrameenBankindevelopingmicrofinancetodrivehomethepointthatLocalInnovationsleadtoGlobalOpportunities.Chapter3:Titled“BOP:AGlobalOpportunity”.ItjustifiestheeffortsrequiredforinnovatingforBOPbyidentifyingfoursourceofopportunityforalargefirmthatmakesandefforttounderstandandcatertoBOP:a.SomeBOPmarketsarelargeandattractiveasstand-aloneentities.b.ManylocalinnovationscanbeleveragedacrossotherBOPmarkets,creatingaglobalopportunityforlocalinnovations.Forexample,UnileverhasreplicatedproductsinIndiainotherBOPmarkets–lessonsfromdevelopingWheelwereusedtolaunchasimilarproduct,“Ala”inBrazil.c.SomeinnovationsfromtheBOPwillfindapplicationsindevelopedmarkets.TheVoxviasystemfounduseintheU.S.DepartmentofDefenseinitsinoculationprogramme.d.LessonsfromBOPmarketscaninfluencethemanagementpracticesofglobalfirms–NirmaandWheeloperateonlowergrossmarginbutyieldahigherreturnoncapitaemployed.TheBOPmarketposechallengeemergingfromrapidacceptanceofinnovation(a“Icurve”ascomparedtotraditional“Scurve”.Therapidgrowthdemandsnewapproaches.InnovationssuchasSHGsandShaktiAmmacutcostsdrasticallyandreducerisks.LessonsMNCscanlearnfromBOPmarkets:Judicioususeofcapitalbyusingajudiciousmixofoutsourcingtodedicatedsuppliers,focusonlogisticsanddistributionandfinallyfocusonrevenuemanagement.SustainabledevelopmentbylearningthatBOPcustomersareattunedtototalcostofownershipandnotjusttheinitialcostandhencetheefficiencyofenergyuseisasignificantdeterminantofmarketsuccess.InnovationsduetothenecessityofdevelopingnewbusinessmodelstosuittheneedsofBOPconsumers.MNCsworkingattheBOPneedtorapidlylearnhowtolivewithawidevarietyofrelationshipswithwidevarietyofinstitutionsrangingfromNGO,healthdepartmentstogovernmentsandevenWorldBank.Andthereactionsfromthesevariousgroupscanvaryfromthatofbeingopenlyhostiletobeingcooperative.Chapter4:Itshowshowlargefirmscancreateaprivatesectorecosystemandactasanodalfirm.Theauthorhasincludedsocialorganizationsofdifferenttypes–individualentrepreneurs,SMEs,CooperativesandMNCs.Amarketbasedecosystemforwealthcreationconsists:ExtralegalNGOenterprises,Microenterprises,Smallandmediumenterprises,Cooperatives,Largelocalfirms,MNCsandNGOsEverycountryhasalltheseplayers,therelativeimportanceofthesefirmsdiffersacrosscountriesandthepolicymakersfaceadilemmainthisregard–Ifwecan’tpickonesectorforspecialattention,howdowemobilizethewholeecosystem?Alternatively,howdowemovethecompositionoftheecosystemtowardslargefirms?Theauthorsaysthatthedebatemustshifttowardsbuildingmarket-basedecosystemsforbroad-basedwealthcreation.TheHLLprojectShaktiandITC’se-chaupalaresuchexamples.ThebenefitofprivatesectorecosystemsresultfromtheacceptanceofsanctityofcontractsbyBOPandreductionininequitiesoftraditionalmoney-lender,localslumlordbasedcontractsystem.Theprivatesector,initsdesiretoleverageresourcesandgainmarketcoverage,willinvestnewsystemsdependingonthenatureofthemarket.Thismeansnotonlygainingthebenef

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