Rising Expectations

After authoring two books on business strategy—Competing for the Future (1994) and The Future of Competition (2003)—the subject of C.K. Prahalad’s new book, The Fortune at the Bottom of the Pyramid (2004), was deceptively simple.

“I was concerned about new growth markets,” says Prahalad.

So he turned his attention to the five billion poor people of the world who aren’t even on the radar screens of most companies.

“We assume that because they are poor and they work for less than $2 or $3 a day, they do not constitute a market.”

In reality, says Prahalad, that’s a $14 trillion market, one that “no company can afford to ignore.”

Here are excerpts from a recent interview with Prahalad and CIO Insight’s Edward Baker.

CIO Insight: Can you discuss briefly how you came to write The Fortune at the Bottom of the Pyramid?

Prahalad: After a fairly successful book like Competing for the Future, back in 1994, I decided that I was going to put myself in a zone of discomfort. And as we talked about last time, Competing for the Future was a pre-Internet book.

So the first starting point, around 1995 to 1997, was to really ask the question: How will the Internet change the nature of the relationship between the consumer and the firm?

And I taught a course on strategy, and we divided companies between A type firms, which are traditional firms, and B type firms, which are the dot-coms. Basically, my argument in the class was that neither of them were going to survive in their current form. They’ll emerge as C type firms.

That dot-coms will have to still do logistics and still do supply chain. Amazon worked because they made the investment.

On the other hand, the GMs of the world will also have to learn how to interact with consumers in a totally different way. So that led to The Future of Competition, which is what you folks reviewed.

Simultaneously, I was also concerned about where is the largest growth market, and one thing led to the other, and it became quite obvious that there is only so much you can grow through mergers and acquisitions.

There’s only so much you can grow by creating the 78th version of coffee for the American retail market. But suddenly it’s obvious that four billion people are not even in the industry of large companies, and certainly American and European and Japanese companies.

It’s not that these four billion people do not have the same aspirations that the rest of the people have, but we assume, because they are poor and they work for less than $2 or $3 a day, that they do not constitute a market. Now that’s an important assumption that we have implicitly made.

So if you look at just ten countries—China, India, Brazil, Mexico, Turkey, Indonesia, South Africa, Russia and Thailand—on a purchasing power parity basis, which is a good measure of the vitality and the intensity of transaction of goods and services, within their economy they’re about $12.5 trillion. And that is larger than Germany, the U.K., France, Italy and Japan put together.

Now, no company can afford to ignore this market, but on the other hand, to participate in this market is not just taking existing stuff that you have here and tweaking it at the margin.

Next Page: Why tweaking the western model has failed abroad.