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Serving the world's poor, profitably.

C K Prahalad1, Allen Hammond

  • 1University of Michigan Business School, Ann Arbor, USA.

Harvard Business Review
|September 14, 2002
PubMed
Summary

Multi-nationals can profit by serving the 4 billion people earning under $2,000 annually. Tapping into these emerging markets offers substantial revenue growth and cost reduction opportunities for global businesses.

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Area of Science:

  • Business Strategy
  • International Development
  • Economics

Background:

  • Billions live on less than $2,000 annually, representing a largely untapped global market.
  • Traditional business assumptions about developing economies are often outdated.
  • Despite low individual incomes, aggregate purchasing power in poor communities is significant.

Purpose of the Study:

  • To present the business case for multinational corporations (MNCs) to invest in the world's poorest markets.
  • To demonstrate how MNCs can achieve profitability by serving the economic base of the pyramid.
  • To highlight the mutual benefits of stimulating commerce and development in low-income regions.

Main Methods:

  • Analysis of market potential in low-income populations.
  • Examination of pricing strategies and profit margins in developing markets.
  • Assessment of how new technologies mitigate barriers to entry.

Main Results:

  • Poor markets offer substantial aggregate buying power, even for non-essential goods.
  • Higher prices and margins are often found in low-income areas compared to middle-class ones.
  • Rapid revenue growth is achievable due to early-stage economic development.

Conclusions:

  • MNCs can act in their self-interest to improve lives by serving the poorest populations.
  • Success requires creative thinking and challenging preconceptions about high-volume, low-margin business.
  • Investing in emerging markets offers significant rewards and contributes to global stability.

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