Business and the Global Poor

From HBS Working Knowledge, by Sean Silverthorne

Are the world's poor, who individually have less than $5 a day in disposable income, a viable market for new goods and services? Consider the fact that there are four billion people around the globe that fit this description and you have the start of an answer.

But businesses that want to enter this market at the bottom of the economic pyramid (BOP) must look beyond just selling products — they must find ways to create social and economic value, according to the editors of a new volume, Business Solutions for the Global Poor.

The book grew out of a Harvard Business School conference in December 2005 on business solutions for alleviating poverty. The work combines chapters from a variety of perspectives — business, academic, government, nonprofit — to examine the nature of poverty, how the poor can become producers as well as consumers, and the roles to be played by policymakers and society at large. Of particular interest to business leaders are a number of case studies of successful BOP business models.

The co-editors are all associated with HBS: V. Kasturi (Kash) Rangan and John Quelch are faculty, Gustavo Herrero is executive director of the Latin America Research Center, and Brooke Barton is a research associate. We talked with Rangan about the research and the courses he teaches on business and poverty.

Sean Silverthorne: Traditionally, it was thought that the goal of the private sector — to maximize profit—was at odds with efforts to alleviate global poverty. How do these two interests align?

Kash Rangan: At its core, the private sector has always been about value creation — producing goods and services valued by consumers, generating employment, and delivering profits for shareholders. Nothing has changed in that respect. The shift we see is in a new understanding about who the customer is. Traditionally, leading companies — both in the West and in developing countries — have operated under the assumption that the world's poor majority — those four billion people on the planet with a disposable income of $5 a day or less — were simply a non-market, just a void. Writing off four billion potential customers was short-sighted, because even if their individual incomes are tiny, collectively they represent a massive business opportunity.

But the myopia of the past toward this market is starting to correct itself. More and more companies now see the possibilities of undertaking traditional value creation activities — from sourcing to engaging the poor in production to distribution and sales — in low-income markets. To the degree that these ventures empower the poor — either by improving their quality of life (clean water, for example), providing them with productivity tools and services (cell phones, for example), or creating jobs — that's where the goals of poverty reduction and economic profit can align.

Q: One of the interesting perspectives you offer is that the global poor are not only potential consumers to be tapped; they're also potential producers as well. Could you describe some of these entrepreneurial efforts?

A: There is a lot of talk — both in this book and elsewhere — about the massive potential consumer market at the base of the economic pyramid. However, for a poor consumer, participating in the marketplace requires having cash in your pocket, which at the end of the day is all about having a job. So you could say that the drive to sell consumer products to the unemployed and underpaid may be putting the cart before the horse. We are not arguing the fact that, in some cases, much-needed, good-quality consumer goods could enhance one's quality of life, just that the pecking order from the poor person's perspective is likely to be different.

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