The Fortune at the Bottom of the Pyramid, Notas de estudo de Engenharia de Produção

Baixe The Fortune at the Bottom of the Pyramid e outras Notas de estudo em PDF para Engenharia de Produção, somente na Docsity! st ra te gy + bu si ne ss is su e 26 content strategy & com petition 2 Ill us tr at io n by M ar co V en tu ra Low-income markets present a prodigious opportunity for the world’s wealthiest companies — to seek their fortunes and bring prosperity to the aspiring poor. With the end of the Cold War, the former Soviet Union and its allies, as well as China, India, and Latin America, opened their closed markets to foreign invest- ment in a cascading fashion. Although this significant economic and social transformation has offered vast new growth opportunities for multinational corporations (MNCs), its promise has yet to be realized. First, the prospect of millions of “middle-class” con- sumers in developing countries, clamoring for products from MNCs, was wildly oversold. To make matters worse, the Asian and Latin American financial crises have greatly diminished the attractiveness of emerging markets. As a consequence, many MNCs worldwide slowed investments and began to rethink risk–reward structures for these markets. This retreat could become even more pronounced in the wake of the terrorist attacks in the United States last September. The lackluster nature of most MNCs’ emerging- market strategies over the past decade does not change the magnitude of the opportunity, which is in reality much larger than previously thought. The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers: It is the billions of aspiring poor who are joining the market economy for the first time. This is a time for MNCs to look at globalization strategies through a new lens of inclusive capitalism. For companies with the resources and persistence to com- pete at the bottom of the world economic pyramid, the prospective rewards include growth, profits, and incal- culable contributions to humankind. Countries that still don’t have the modern infrastructure or products toIll us tr at io n by M ar co V en tu ra The Fortune Pyramid Bottomat the of the by C.K. Prahalad and Stuart L. Hart SECURITY AND STRATEGY content strategy & com petition 5 st ra te gy + bu si ne ss is su e 26 bill, the bottom of the pyramid defies conventional managerial logic, but that doesn’t mean it isn’t a large and unexplored territory for profitable growth. Consider the drivers of innovation and opportunities for companies in Tier 4. (See Exhibit 2.) MNCs must rec- ognize that this market poses a major new challenge: how to combine low cost, good quality, sustainability, and profitability. Furthermore, MNCs cannot exploit these new opportunities without radically rethinking how they go to market. Exhibit 3 suggests some (but by no means all) areas where an entirely new perspective is required to create profitable markets in Tier 4. Tier 4 Pioneers Hindustan Lever Ltd. (HLL), a subsidiary of Great Britain’s Unilever PLC and widely considered the best- managed company in India, has been a pioneer among MNCs exploring markets at the bottom of the pyramid. For more than 50 years, HLL has served India’s small elite who could afford to buy MNC products. In the 1990s, a local firm, Nirma Ltd., began offering deter- gent products for poor consumers, mostly in rural areas. In fact, Nirma created a new business system that included a new product formulation, low-cost manufac- turing process, wide distribution network, special pack- aging for daily purchasing, and value pricing. HLL, in typical MNC fashion, initially dismissed Nirma’s strategy. However, as Nirma grew rapidly, HLL could see its local competitor was winning in a market it had disregarded. Ultimately, HLL saw its vulnerability and its opportunity: In 1995, the company responded with its own offering for this market, drastically altering its traditional business model. HLL’s new detergent, called Wheel, was formulated to substantially reduce the ratio of oil to water in the product, responding to the fact that the poor often wash their clothes in rivers and other public water systems. HLL decentralized the production, marketing, and dis- tribution of the product to leverage the abundant labor pool in rural India, quickly creating sales channels through the thousands of small outlets where people at the bottom of the pyramid shop. HLL also changed the cost structure of its detergent business so it could intro- duce Wheel at a low price point. Today, Nirma and HLL are close competitors in the detergent market, with 38 percent market share each, according to IndiaInfoline.com, a business intelligence and market research service. Unilever’s own analysis of Nirma and HLL’s competition in the detergent business reveals even more about the profit potential of the mar- ketplace at the bottom of the pyramid. (See Exhibit 4.) Contrary to popular assumptions, the poor can be a very profitable market — especially if MNCs change their business models. Specifically, Tier 4 is not a market that allows for the traditional pursuit of high margins; instead, profits are driven by volume and capital effi- ciency. Margins are likely to be low (by current norms), but unit sales can be extremely high. Managers who focus on gross margins will miss the opportunity at the bottom of the pyramid; managers who innovate and focus on economic profit will be rewarded. Nirma has become one of the largest branded deter- gent makers in the world. Meanwhile, HLL, stimulated by its emergent rival and its changed business model, registered a 20 percent growth in revenues per year and a 25 percent growth in profits per year between 1995 and 2000. Over the same period, HLL’s market capital- Exhibit 2: Innovation and MNC Implications in Tier 4 Increased access among the poor to TV and information Tier 4 is becoming aware of many products and services and is aspiring to share the benefits Deregulation and the diminishing role of governments and international aid More hospitable investment climate for MNCs entering developing countries and more cooperation from nongovernmental organizations Global overcapacity combined with intense competition in Tiers 1, 2, and 3 Tier 4 represents a huge untapped market for profitable growth The need to discourage migration to overcrowded urban centers MNCs must create products and services for rural populations Drivers of Innovation Implications for MNCs content strategy & com petition 6 ization grew to $12 billion — a growth rate of 40 per- cent per year. HLL’s parent company, Unilever, also has benefited from its subsidiary’s experience in India. Unilever transported HLL’s business principles (not the product or the brand) to create a new detergent market among the poor in Brazil, where the Ala brand has been a big success. More important, Unilever has adopted the bottom of the pyramid as a corporate strategic priority. As the Unilever example makes clear, the starting assumption must be that serving Tier 4 involves bring- ing together the best of technology and a global resource base to address local market conditions. Cheap and low- quality products are not the goal. The potential of Tier 4 cannot be realized without an entrepreneurial orienta- tion: The real strategic challenge for managers is to visu- alize an active market where only abject poverty exists today. It takes tremendous imagination and creativity to engineer a market infrastructure out of a completely unorganized sector. Serving Tier 4 markets is not the same as serving existing markets better or more efficiently. Managers first must develop a commercial infrastructure tailored to the needs and challenges of Tier 4. Creating such an infrastructure must be seen as an investment, much like the more familiar investments in plants, processes, prod- ucts, and R&D. Further, contrary to more conventional investment strategies, no firm can do this alone. Multiple players must be involved, including local governmental author- ities, nongovernmental organizations (NGOs), commu- nities, financial institutions, and other companies. Four elements — creating buying power, shaping aspirations, improving access, and tailoring local solutions — are the keys to a thriving Tier 4 market. (See Exhibit 5.) Each of these four elements demands innovation in technology, business models, and management process- es. And business leaders must be willing to experiment, collaborate, empower locals, and create new sources of competitive advantage and wealth. Creating Buying Power According to the International Labor Organization’s World Employment Report 2001, nearly a billion people — roughly one-third of the world’s work force — are either underemployed or have such low-paying jobs that they cannot support themselves or their families. Helping the world’s poor elevate themselves above this desperation line is a business opportunity to do well and do good. To do so effectively, two interventions are cru- cial — providing access to credit, and increasing the earning potential of the poor. A few farsighted compa- nies have already begun to blaze this trail with startling- ly positive results. Commercial credit historically has been unavailable to the very poor. Even if those living in poverty had access to a bank, without collateral it is hard to get cred- it from the traditional banking system. As Peruvian economist Hernando de Soto demonstrates in his path- breaking work, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, commer- cial credit is central to building a market economy. Access to credit in the U.S. has allowed people of mod- est means to systematically build their equity and make major purchases, such as houses, cars, and education. The vast majority of the poor in developing coun- tries operate in the “informal” or extralegal economy, since the time and cost involved in securing legal title for their assets or incorporation of their microenterprises is prohibitive. Developing countries have tried govern- mental subsidies to free the poor from the cycle of poverty, with little success. Even if the poor were able to benefit from government support to start small busi- nesses, their dependence on credit from local money- lenders charging usurious rates makes it impossible to succeed. Local moneylenders in Mumbai, India, charge interest rates of up to 20 percent per day. This means that a vegetable vendor who borrows Rs.100 ($2.08) in the morning must return Rs.120 ($2.50) in the evening. Extending credit to the poor so they can elevate themselves economically is not a new idea. Consider how I.M. Singer & Company, founded in 1851, pro- vided credit as a way for millions of women to purchase sewing machines. Very few of those women could have Exhibit 3: New Strategies for the Bottom of the Pyramid Price Performance • Product development • Manufacturing • Distribution Views of Quality • New delivery formats • Creation of robust products for harsh conditions (heat, dust, etc.) Sustainability • Reduction in resource intensity • Recyclability • Renewable energy Profitability • Investment intensity • Margins • Volume content strategy & com petition 7 st ra te gy + bu si ne ss is su e 26 afforded the steep $100 price tag, but most could afford a payment of $5 per month. The same logic applies on a much larger scale in Tier 4. Consider the experience of the Grameen Bank Ltd. in Bangladesh, one of the first in the world to apply a microlending model in commercial banking. Started just over 20 years ago by Muhammad Yunus, then a pro- fessor in the Economics Department at Chittagong University, Bangladesh, Grameen Bank pioneered a lending service for the poor that has inspired thousands of microlenders, serving 25 million clients worldwide, in developing countries and wealthy nations, including the United States and Great Britain. Grameen Bank’s program is designed to addresses the problems of extending credit to lowest-income cus- tomers — lack of collateral, high credit risk, and con- tractual enforcement. Ninety-five percent of its 2.3 million customers are women, who, as the traditional breadwinners and entrepreneurs in rural communities, are better credit risks than men. Candidates for loans must have their proposals thoroughly evaluated and sup- ported by five nonfamily members of the community. The bank’s sales and service people visit the villages fre- quently, getting to know the women who have loans and the projects in which they are supposed to invest. In this way, lending due diligence is accomplished without the mountain of paperwork and arcane language common in the West. With 1,170 branches, Grameen Bank today pro- vides microcredit services in more than 40,000 villages, more than half the total number in Bangladesh. As of 1996, Grameen Bank had achieved a 95 percent repay- ment rate, higher than any other bank in the Indian subcontinent. However, the popularity of its services has also spawned more local competitors, which has cut into its portfolio and shrunk its profits over the past few years. In addition, Grameen Bank’s rate of return is not easy to assess. Historically, the bank was an entirely manual, field-based operation, a structure that undercut its efficiency. Today, spin-offs such as Grameen Telecom (a provider of village phone service) and Grameen Shakti (a developer of renewable energy sources) are helping Grameen Bank build a technology infrastructure to automate its processes. As the bank develops its online business model, profitability should increase dramatical- ly, highlighting the importance of information technol- ogy in the acceleration of the microcredit revolution. Perhaps the most pertinent measure of Grameen Bank’s success is the global explosion of institutional interest in microlending it has stimulated around the world. In South Africa, where 73 percent of the popula- tion earns less than R5,000 ($460) per month, accord- ing to a 2001 World Bank study, retail banking services for low-income customers are becoming one of the most competitive and fast-growing mass markets. In 1994, Standard Bank of South Africa Ltd., Africa’s leading consumer bank, launched a low-cost, volume-driven e-banking business, called AutoBank E, to grow revenue by providing banking services to the poor. Through the use of 2,500 automated teller machines (ATMs) and 98 AutoBank E-centres, Standard now has the largest presence in South Africa’s townships and other under- serviced areas of any domestic bank. As of April 2001, Standard served nearly 3 million low-income customers and is adding roughly 60,000 customers per month, according to South Africa’s Sunday Times. Standard does not require a minimum income of customers opening an AutoBank E account, although they must have some regular income. People who have never used a bank can open an account with a deposit of as little as $8. Customers are issued an ATM card and shown how to use it by staff who speak a variety of African dialects. A small flat fee is charged for each ATM transaction. An interest-bearing “savings purse” is attached to every account to encourage poor customers to save. Interest rates on deposits are low, but superior to keeping cash in a jar. The Sunday Times also reported that Standard Bank is considering a loan program for low-income clients. Computerization of micro- lending services not only makes the overall operation more effi- cient, but also makes it possible to Exhibit 4: Nirma vs. HLL in India’s Detergent Market (1999) Source: Presentation by John Ripley, senior vice president, Unilever, at the Academy of Management Meeting, August 10, 1999 Total Sales ($ Million) 150 100 180 Gross Margin (%) 18 18 25 ROCE (%) 121 93 22 Nirma HLL (Wheel) HLL (High-End Products) content strategy & com petition 10 However, where telephones and Internet connections do exist, for the first time in history, it is possible to imag- ine a single, interconnected market uniting the world’s rich and poor in the quest for truly sustainable econom- ic development. The process could transform the “digi- tal divide” into a “digital dividend.” Ten years ago, Sam Pitroda, currently chairman and CEO of London-based Worldtel Ltd., a company creat- ed by a telecommunications union to fund telecom development in emerging markets, came to India with the idea of “rural telephones.” His original concept was to have a community telephone, operated by an entre- preneur (usually a woman) who charged a fee for the use of the telephone and kept a percentage as wages for maintaining the telephone. Today, from most parts of India, it is possible to call anyone in the world. Other entrepreneurs have introduced fax services, and some are experimenting with low-cost e-mail and Internet access. These communication links have dra- matically altered the way villages function and how they are connected to the rest of the country and the world. With the emergence of global broadband connections, opportunities for information-based business in Tier 4 will expand significantly. New ventures such as CorDECT in India and Celnicos Communications in Latin America are devel- oping information technology and business models suit- ed to the particular requirements of the bottom of the pyramid. Through shared-access models (e.g., Internet kiosks), wireless infrastructure, and focused technology development, companies are dramatically reducing the cost of being connected. For example, voice and data connectivity typically costs companies $850 to $2,800 per line in the developed world; CorDECT has reduced this cost to less than $400 per line, with a goal of $100 per line, which would bring telecommunications within reach of virtually everyone in the developing world. Recognizing an enormous business and develop- ment opportunity, Hewlett-Packard Company has artic- ulated a vision of “world e-inclusion,” with a focus on providing technology, products, and services appropriate to the needs of the world’s poor. As part of this strategy, HP has entered into a venture with the MIT Media Lab and the Foundation for Sustainable Development of Costa Rica — led by former President Jose Maria Figueres Olsen — to develop and implement “telecen- ters” for villages in remote areas. These digital town cen- ters provide modern information technology equipment with a high-speed Internet connection at a price that is affordable, through credit vehicles, at the village level. Bringing such technology to villages in Tier 4 makes possible a number of applications, including tele-educa- tion, telemedicine, microbanking, agricultural extension services, and environmental monitoring, all of which help to spur microenterprise, economic development, and access to world markets. This project, named Lincos, is expected to spread from today’s pilot sites in Central America and the Caribbean to Asia, Africa, and Central Europe. Tailoring Local Solutions As we enter the new century, the combined sales of the world’s top 200 MNCs equal nearly 30 percent of total world gross domestic product. Yet these same corpora- tions employ less than 1 percent of the world’s labor force. Of the world’s 100 largest economies, 51 are economies internal to corporations. Yet scores of Third World countries have suffered absolute economic stag- nation or decline. If MNCs are to thrive in the 21st century, they must broaden their economic base and share it more widely. They must play a more active role in narrowing the gap between rich and poor. This cannot be achieved if these companies produce only so-called global products for consumption primarily by Tier 1 consumers. They must nurture local markets and cultures, leverage local solu- tions, and generate wealth at the lowest levels on the pyramid. Producing in, rather than extracting wealth from, these countries will be the guiding principle. To do this, MNCs must combine their advanced technology with deep local insights. Consider packag- ing. Consumers in Tier 1 countries have the disposable income and the space to buy in bulk (e.g., 10-pound boxes of detergent from superstores like Sam’s Club) and shop less frequently. They use their spending money to “inventory convenience.” Tier 4 consumers, strapped for cash and with limited living space, shop every day, but not for much. They can’t afford to stock up on house- hold items or be highly selective about what they buy; they look for single-serve packaging. But consumers with small means also have the benefit of experimenta- tion. Unburdened by large quantities of product, they can switch brands every time they buy. Already in India, 30 percent of personal care prod- ucts and other consumables, such as shampoo, tea, and cold medicines, are sold in single-serve packages. Most are priced at Rs. 1 (about 1¢). Without innovation in packaging, however, this trend could result in a moun- content strategy & com petition 11 st ra te gy + bu si ne ss is su e 26 tain of solid waste. Dow Chemical Company and Cargill Inc. are experimenting with an organic plastic that would be totally biodegradable. Such packaging clearly has advantages in Tier 4, but it could also revolu- tionize markets at all four tiers of the world pyramid. For MNCs, the best approach is to marry local capa- bilities and market knowledge with global best practices. But whether an initiative involves an MNC entering Tier 4 or an entrepreneur from Tier 4, the development principles remain the same: New business models must not disrupt the cultures and lifestyles of local people. An effective combination of local and global knowledge is needed, not a replication of the Western system. The development of India’s milk industry has many lessons for MNCs. The transformation began around 1946, when the Khira District Milk Cooperative, locat- ed in the state of Gujarat, set up its own processing plant under the leadership of Verghese Kurien and created the brand Amul, today one of the most recognized in the country. Unlike the large industrial dairy farms of the West, in India, milk originates in many small villages. Villagers may own only two to three buffaloes or cows each and bring their milk twice a day to the village collection cen- ter. They are paid every day for the milk they deliver, based on fat content and volume. Refrigerated vans transport the milk to central processing plants, where it is pasteurized. Railroad cars then transport the milk to major urban centers. The entire value chain is carefully managed, from the village-based milk production to the world-scale processing facilities. The Khira District cooperative pro- vides such services to the farmers as veterinary care and cattle feed. The cooperative also manages the distribu- tion of pasteurized milk, milk powder, butter, cheese, baby food, and other products. The uniqueness of the Amul cooperative is its blending of decentralized origi- nation with the efficiencies of a modern processing and distribution infrastructure. As a result, previously mar- ginal village farmers are earning steady incomes and being transformed into active market participants. Twenty years ago, milk was in short supply in India. Today, India is the world’s largest producer of milk. According to India’s National Dairy Development Board, the country’s dairy cooperative network now claims 10.7 million individual farmer member–owners, covers 96,000 village-level societies, includes 170 milk- producer unions, and operates in more than 285 dis- tricts. Milk production has increased 4.7 percent per year since 1974. The per capita availability of milk in India has grown from 107 grams to 213 grams per day in 20 years. Putting It All Together Creating buying power, shaping aspirations, improving access, and tailoring local solutions — the four elements of the commercial infrastructure for the bottom of the pyramid are intertwined. Innovation in one leverages innovation in the others. Corporations are only one of the actors; MNCs must work together with NGOs, local and state governments, and communities. Yet someone must take the lead to make this revo- lution happen. The question is, Why should it be MNCs? Even if multinational managers are emotionally persuaded, it is not obvious that large corporations have real advantages over small, local organizations. MNCs may never be able to beat the cost or responsiveness of village entrepreneurs. Indeed, empowering local entre- preneurs and enterprises is key to developing Tier 4 mar- kets. Still, there are several compelling reasons for MNCs to embark on this course: • Resources. Building a complex commercial infrastructure for the bottom of the pyramid is a resource- and management-intensive task. Developing environmentally sustainable products and services requires significant research. Distribution channels and communication networks are expensive to develop and sustain. Few local entrepreneurs have the managerial or technological resources to create this infrastructure. • Leverage. MNCs can transfer knowledge from one market to another — from China to Brazil or India — as Avon, Unilever, Citigroup, and others have demonstrated. Although practices and products have to be customized to serve local needs, MNCs, with their unique global knowledge base, have an advantage that is not easily accessible to local entrepreneurs. • Bridging. MNCs can be nodes for building the commercial infrastructure, providing access to knowl- edge, managerial imagination, and financial resources. Without MNCs as catalysts, well-intentioned NGOs, communities, local governments, entrepreneurs, and even multilateral development agencies will continue to flounder in their attempts to bring development to the bottom. MNCs are best positioned to unite the range of actors required to develop the Tier 4 market. • Transfer. Not only can MNCs leverage learning from the bottom of the pyramid, but they also have the content strategy & com petition 12 capacity to transfer innovations up-market all the way to Tier 1. As we have seen, Tier 4 is a testing ground for sustainable living. Many of the innovations for the bottom can be adapted for use in the resource- and energy-intensive markets of the developed world. It is imperative, however, that managers recognize the nature of business leadership required in the Tier 4 arena. Creativity, imagination, tolerance for ambiguity, stamina, passion, empathy, and courage may be as important as analytical skill, intelligence, and knowl- edge. Leaders need a deep understanding of the com- plexities and subtleties of sustainable development in the context of Tier 4. Finally, managers must have the inter- personal and intercultural skills to work with a wide range of organizations and people. MNCs must build an organizational infrastructure to address opportunity at the bottom of the pyramid. This means building a local base of support, reorienting R&D to focus on the needs of the poor, forming new alliances, increasing employment intensity, and rein- venting cost structures. These five organizational ele- ments are clearly interrelated and mutually reinforcing. • Build a local base of support. Empowering the poor threatens the existing power structure. Local oppo- sition can emerge very quickly, as Cargill Inc. found in its sunflower-seed business in India. Cargill’s offices were twice burned, and the local politicians accused the firm of destroying locally based seed businesses. But Cargill persisted. Through Cargill’s investments in farmer edu- cation, training, and supply of farm inputs, farmers have significantly improved their productivity per acre of land. Today, Cargill is seen as the friend of the farmer. Political opposition has vanished. To overcome comparable problems, MNCs must build a local base of political support. As Monsanto and General Electric Company can attest, the establishment of a coalition of NGOs, community leaders, and local authorities that can counter entrenched interests is essential. Forming such a coalition can be a very slow process. Each player has a different agenda; MNCs have to understand these agendas and create shared aspira- tions. In China, this problem is less onerous: The local bureaucrats are also the local entrepreneurs, so they can easily see the benefits to their enterprise and their village, town, or province. In countries such as India and Brazil, such alignment does not exist. Significant discussion, information sharing, the delineation of benefits to each constituency, and sensitivity to local debates is necessary. • Conduct R&D focused on the poor. It is neces- sary to conduct R&D and market research focused on the unique requirements of the poor, by region and by country. In India, China, and North Africa, for example, research on ways to provide safe water for drinking, cooking, washing, and cleaning is a high priority. Research must also seek to adapt foreign solutions to local needs. For example, a daily dosage of vitamins can be added to a wide variety of food and beverage prod- ucts. For corporations that have distribution and brand presence throughout the developing world, such as Coca-Cola Company, the bottom of the pyramid offers a vast untapped market for such products as water and nutritionals. Finally, research must identify useful principles and potential applications from local practices. In Tier 4, sig- nificant knowledge is transmitted orally from one gen- eration to the next. Being respectful of traditions but willing to analyze them scientifically can lead to new knowledge. The Body Shop’s creative CEO, Ms. New business models must not disrupt local cultures and lifestyles. An effective combination of local and global knowledge is needed, not a Western system.