The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits

The Unfortunate at the Bottom of the Pyramid: Eradicating Poverty through Increasing the Real Income


Research Paper (undergraduate), 2012
22 Pages, Grade: 2

Excerpt

Table of contents

1. Introduction
1.1. Discussions

2. The Unfortunate at the Bottom of The Pyramid
2.1. Poverty Elevation Through Increase of Real Income

3. Conclusions and Recommendations

Bibliography

1. INTRODUCTION

Poverty is the lack of basic human necessities such as nutrient food, water, cloths and shelter. “Poverty is a condition of having insufficient resources or income”[1]. Poverty relates with other social, political and moral aspects of men. “Widespread poverty is an economic, social, political, and moral problem”[2]. There is an alarming scale of global poverty, two third of the modern world population are in various levels of poverty. “Somewhere between three and four billion of the earth’s six and a half billion inhabitants are mired in poverty at the bottom (or, as some term it, the base) of the economic pyramid (the “BOP”), many of them to an extreme degree”[3].The most poverty deprived parts of the world are Asia, Latin America, Africa and Eastern Europe. “The world’s poorest people live in developing areas of Africa, Asia, Latin America, and Eastern Europe”[4]. Poverty persist at both urban and rural human settings; however, rural communities are impaled on sever poverty. “The poverty deepens; with the income disparities between rural and urban areas tend to increase”[5].

Hunger is the condition that person is lacking enough income to buy food for subsistence. Almost 11% of the world’s population is suffering from hunger. “A person is defined as suffering from hunger if he or she does not have enough income to be able to meet his or her basic food needs. According to this definition, 687 million people in the world are suffering from hunger”[6]. Hunger is most serious outgrowth of poverty. “It can cause horrendous suffering and death, and even its modest levels can prevent people from realizing many of their desires and selecting way of life”[7].

Eradicating poverty was biggest world challenge for many decades. “Different institutions have struggled for tackling this gobble challenge”[8]. However, there is increasing tendency towards the business role in the world poverty elevation endeavors. “There is an increasing discussions for the role of business could play, particularly the large multinational corporations (MNCs) which considerably influence the way in which society operates”[9].This discourse had became an issue among the global intellectuals. “C.k. Prahalad had boosted his BOP premise, which is the most dominant model in the business field”[10].

1.1. Description

The Bop theory argues “that there is much market at the bottom of the pyramid. It says the Private companies can make more profits by selling to the poor”[11]. He argued that private take the opportunity of the untapped market and selling to the poor, whilst the private companies will bring affluence to the BoP consumers, and thus can help eliminate poverty. C.k. Prahalad argues “that large multinational companies (MNCs) should play the leading role in the process of selling to the poor”[12].

Though of these arguments, the BOP proponents seems to have not taken in holistic approach. The geographical, social, and political disparities of the BOP will riddle the concept and make it unrealistic and fallacy. Therefore, the underlying premises of the BOP preposition will require cautious scrutiny. The query of the obtainable fortune at the bottom of the Pyramid, and if the MNCs can solve the existing root causes of poverty at the BOP will need to ensure. This essay is intended to focus on the BoP preposition, particularly C.K Prahalad’s (2005).The Fortune at the Bottom of the Pyramid: Eradicating the Poverty through Profits. The purpose of this essay is to answer the following two questions: is there a fortune at bottom of the pyramid? if it exists, could the MNCs easily access the BoP market and elevate the persisting roots causes of poverty?

I argue that there is no huge untapped market at the BoP as argued by the BoP proponents. I also argue that 55% of the BoP consumers are rural peasants, that MNCs could hardly access to convert as consumers. I attest that the MNCs could not solve the hunger outgrowth of poverty and its root causes at the BOP which is not only economic issue. I argue that encouraging the consumption of luxury goods among the poor could aggravate the incidence of poverty in the world.

However, I argue that poor must be viewed as producer rather than consumer. I attest that enhancing the employment and productivity of poorest communities would lead a sustainable prosperous future and betterment live for the poor. I argue that small and middle scale business enterprises could play inevitable role in the poverty elevation through increased employment of the global Poor at the BoP.I also argue that enhancing the employability of the poor at the BoP is very crucial for poverty elevation. Employability relates much with education I argue that vocational training for different sectors more viable for poverty reduction. I also argue that increasing employment alone is not enough if poverty eradication is required , then enhancing the productivity of the poor must be in focus.This essay has two major significances. First it has an academic significance as it will endow me the understanding of the global scale of Poverty. Again It will replicate my study in this course by combining the academic endeavors to my profession, which will ease the experiential and academic understanding of Development course as an essential part of the discipline. This essay is organized into three chapters. First chapter is the introduction of the essay. The second is the un Fortune at the Bottom of the Pyramid. The Third chapter is the conclusions and recommendation.

2. Discussions

According to (Encarta ,2008), the Poverty at its most extreme form, poverty is a lack of basic human needs, such as adequate and nutritious food, clothing, housing, clean water and health services”[13].The $2 /person /day had already met all of his basic necessities , but I would use the latest world bank poverty line of 1.08/person/day in this essay.

2.1. The Unfortunate at the Bottom of the Pyramid

C.k. Prahalad argued in 2005 “that The Multinational Corporations (MNCs) serve only at the upper end of the economic Pyramid and they ignored at the Bottom of economic Pyramid”[14], He argued that there is huge untapped market at the bottom of the pyramid. “The BOP market potential is huge: 4 to 5 billion underserved people and an economy of more than $13 trillion PPP”[15].

He argued that “Private companies can make significant profits by selling to the poor; BoP market is 10 to 200 times advantage (compared to the cost structures that are oriented to the top of the pyramid markets”[16]. To tap this vast market at the BoP he suggest that MNCs need to redesign and produce a quality products and services or they have to select away that they can produce a great quality product with affordable price. “BOP consumers expect great quality at prices they can afford therefore challenge to large firms is to make aspiration products affordable to BOP consumers”[17].C.k. Prahalad argued that the private companies will bring affluence to the BoP consumers, and thus can help eliminate poverty, while they are taking the opportunity of this untapped market at BoP. “Poverty alleviation can become a business development task shared among the large private sector firms and local BOP entrepreneurs”[18].

The BoP proponents have premised their arguments in several fallacious statements. His excellence (Karnani, 2007) stated that,” the BoP preposition is seductively appealing, but it is riddle with fallacies, there is little glory or fortune at the bottom of the pyramid- unfortunately, it is (almost) all a mirage”[19].The true sizes of the existing fortune at Bop market have realized falling-off in huge size. The World Bank estimate of BoP market size is very controversial to the sizable magnitude as argued by the C.k. Prahalad. According to the World Bank data In 2005, “2.4 billion people lived in low-income countries and 751.8 million people of those lived in LDCs; where the per capita gross national incomes averaged US $378.2, realistically these very low income earners at the extreme bottom of the pyramid are not likely to be profitable customers for MNCs.

The probity estimation of the pertinent market agglomeration at the BoP had revealed a real different as argued by C.k. Prahalad “World Bank estimate of the average daily consumption of poor people is $1.25 per day and assuming 2.7 billion poor people, this implies a BOP market size of $1.2 trillion, at PPP in 2002”[21].

The BoP preposition is more fallible for being imprudent in view of the MNCs profit orientation to repatriate earnings at actual currency exchange rates. Considering the actual currency exchange rates instead of PPP, the real BoP market size will drastically become $ 0.3 Trillion that is very dissimilar to the Prahalad’s estimate of $13 trillion. “MNCs would repatriate profits at actual currency exchange rates, not at PPP. Taking this factor into account, he estimates the BOP market size as less than $0.3 trillion, which is just 2.3 percent of Prahalad’s estimate of $13 trillion”[22].

[...]


[1] Microsoft ® Encarta ® 2008. © 1993-2007 Microsoft Corporation. All rights reserved

[2] http://dx.doi.org

[3] Edgar Wille OBE & Kevin Barham.(2009). “A ROLE FOR BUSINESS AT THE BOTTOM OF THE PYRAMID”. Berkhamsted: Ashridge Business School.Pp5

[4] Microsoft ® Encarta ® 2008. © 1993-2007 Microsoft Corporation. All rights reserved.

[5] www.imf.org/external/pubs

[6] http://www.adb.org/documents/periodicals/adr/pdf

[7] https://www.turnitin.com/viewGale.asp?oid

[8] http://www.ece.ucsb.edu/~roy/classnotes

[9] Edgar Wille OBE & Kevin Barham.(2009). “A ROLE FOR BUSINESS AT THE BOTTOM OF THE PYRAMID”. Berkhamsted: Ashridge Business School.Pp6

[10] https://www.turnitin.com/viewGale.asp?oid

[11] www.update.un.org

[12] http://www.ece.ucsb.edu/~roy/classnotes

[13] Microsoft ® Encarta ® 2008. © 1993-2007 Microsoft Corporation. All rights reserved

[14] www.iimahd.ernet.in/publications/data/2007

[15] Prahalad http://lrd.yahooapis.com

[16] www.update.un.org

[17] www.update.un.org

[18] www.update.un.org

[19] http://www.un.org/esa/coordination/Mirage.BOP.

[20] http://lrd.yahooapis.com

[21] http://lrd.yahooapis.com

[22] www.ece.ucsb.edu

Excerpt out of 22 pages

Details

Title
The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits
Subtitle
The Unfortunate at the Bottom of the Pyramid: Eradicating Poverty through Increasing the Real Income
College
Atlantic International University  (School of Bussiness and Economics)
Course
World Poverty
Grade
2
Author
Year
2012
Pages
22
Catalog Number
V198788
ISBN (eBook)
9783656266631
ISBN (Book)
9783656268055
File size
568 KB
Language
English
Tags
fortune, bottom, pyramid, eradicating, poverty, profits, unfortunate, increasing, real, income
Quote paper
Abdiqani Egal (Author), 2012, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Munich, GRIN Verlag, https://www.grin.com/document/198788

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