Opportunity at the Bottom of the Pyramid – CK Prahalad proposed the idea and many of us cashed upon it. The “Business Pandits” of the world like Mr. Prahalad, say that the opportunity exists in emerging markets like India and there too, in the rural markets of India. My point of dissatisfaction with this approach is with treating the rural population as target market and not as a means to ensure a fair distribution of wealth.
The major indicator of India’s financial intents is the Annual Budget of India. The Finance Minister of India, Mr. Pranav Mukherjee presented the budget on 6th July 10, 2009 and spelled out a budget that clearly revolved around the single point agenda of the upliftment of the Bottom of The Pyramid. Increased allocations for JNNURM (Jawaharlal Nehru National Urban Renewal Mission) and NREGS (National Rural Employment Guarantee Scheme) are just a few indicators of this approach. Another important step taken by government is to subsidize the communication infrastructure set-up in rural India to ensure a faster reach.
Any considerate citizen of India would’ve appreciated this approach of India, Inc. to pave a path for the rural population of India to reap the same benefits as the urban population. Infosys Chief Mentor, Mr. Narayan Murthy appreciated the Finance Minister by saying, “heart of the UPA is in Inclusive Growth.”1 Through budget focus on agricultural growth by fertilizer policy and credit availability to the farmers at low interest rate, it has been tried to create an equated society of India.
But then why at the end of the day, Sensex (Bombay Stock Exchange Index) fell by 6% in a single day? And why has every other person from the industry criticized the approach adopted by Indian government? Why has the approach of India to make a rich brother help his poor brother been criticized by the “Industry Experts”? Why did The Wall Street Journal regard this budget as “A Budget for Second-Tier Developing Nation”2 ? Why would The Financial Times pass judgments about the Finance Minister by saying, “one would expect him to at least balance the politics”3 ?
I see only one reason for this – Expectation of immediate gains. In May alone, the FII to the Bombay Stock Exchange went up by $ 4.14 bn4 on the hopes of immediate gains when their economies back home were not stable and needed the cash badly for revival. But excess “money attracts more money” is the rule. So, the business logic makes sense only when it adds to itself – doesn’t matter what the country needs. And they expected Indian government to pave a path for them to realize their short term objectives, which obviously did not happen and the stock markets plummeted.
There is a major problem with the idea that all these organizations agree with – the fact that the “Opportunity lies at the Bottom of the Pyramid” where everybody looks at them just as potential customers. Several NGOs work at the grassroot level to take the benefits of government policies to the real beneficiaries. Not to miss out that the corporate also contribute to this, but only from a single perspective of “Tapping the untapped markets” or being “Prime-movers in markets of no-competition”. Never has any business organization thought about the welfare of the society in general and not as customers.
Why I am so against the “mutual benefit” theory of the Corporate Social Responsibility? The reason is that there is always an Information Asymmetry in Urban-Rural interaction and hence, there cannot be an equal “mutual benefit” for the corporates and rural population. And in such a case, it is the prerogative of the government to provide essential infrastructure to the rural population (and urban poor) to bring them at par.
So, the opportunity indeed lies at the bottom of the pyramid but let’s not consider them just a Market but a part of the family that we left behind in the run for money.
References:
1 “FM did a good job: Narayana Murthy”, The Economic Times, http://economictimes.indiatimes.com/FM-did-a-good-job-Narayana-Murthy/videoshow/4744647.cms
2. “A Budget for a Second-Tier Developing Nation”, By PAUL BECKETT, JULY 6, 2009, The Wall Street Journal, http://online.wsj.com/article/SB124687522344399695.html
3. “India’s Budget lacks a reform agenda”, By John Elliott, July 6 2009, The Financial Times, http://www.ft.com/cms/s/0be648c2-6a2c-11de-ad04-00144feabdc0
4. “India is now flooded with $1billion per week”, by Swaminathan S Anklesaria Aiyar, June 7, 2009, The Times of India
Copyright © 2009, Arun Sharma. All Rights Reserved.
Well written dude...u have really thought deep for writing this article...and loved the way u cud relate so many things together!!!
ReplyDeleteHowever, want to bring ur attention to the following lines:
"Not to miss out that the corporate also contribute to this, but only from a single perspective of “Tapping the untapped markets” or being “Prime-movers in markets of no-competition”. Never has any business organization thought about the welfare of the society in general and not as customers."
Can we always assume that Corporates are only thinking abt their own profits and not abt the welfare of the society...seems specially contradicting after i went thru ur earlier post on CSR!!!
Hi Arun,
ReplyDeleteI couldn't agree more. But I believe we need to do much more in Agricuture sector's growth as it is there the bigger chunk of the population is. Other sectors would benefit those who are fairly comfortable. We need to focus on max benefit for the most.
Good effort.
@ Ravitosh: Thanks for your post. I never disagree with the fact that companies like Tatas, HUL and ITC are working at grassroot level. CSR contribution by the companies is going up, especially so since the issue has been highlighted so much over the past few years. But I have just carried forward the idea postulated in my previous post. The motive of my writings is to focus the attention on the success of CSR initiatives, which has not been much. In addition, I want to bring up a debate on whether these CSR initiatives are really benefitting the rural and urban poor or are they biased towards attracting the customer bse. If the latter is true, the day isn't far when you'll witness cut-throat competition in these markets as well and "upliftment" will be just another academic term.
ReplyDelete@ Rajiv: Yes Rajiv, we need to do a lot more indeed to give a competitive edge to the rural India. Our efforts should not be focused at extending the urban markets to the villages but to flourish the village economies and make them self sustaining. I would recommend a reading on Mr. R Elango from Chennai ("The real public servants", by Ashwin Mahesh, http://ia.rediff.com/www/news/2002/aug/24ash.htm) Since the time of writing the article, Elango has moved ahead in working on the concept of "Local Independent Economies" in over 200 villages in vicinity of Chennai.
ReplyDeleteWe need more efforts of similar nature.
Arun - well written. Your anguish is justified. But rome is not built in a day and 60 years of sewage cannot be cleaned up overnight. Opportunitism is the survival instinct of any living being, Humans just have an extra bit of greed attached to it. But i would like to correct u on one thing about information assymmetry. The point of contention is 'mutual benefit'. As the phrase clearly states, it's mutual benefit and not equal benefit. Hope you understand the difference i am quoting.
ReplyDeletetake care and how is spjcm coming along?
Really the very wellwritten article..
ReplyDeleteBusiness is all about the Money.They don't care how it comes?
People criticize the Left parties but I would the real reason of Congress again coming in Power was the Policies which were initiated by Left pressure.(e.g.initially congress was against NREGA).
One thing on which I disagree is the JNNURM.
1.Most of Funds goes for metros(and only 63 large cities are covered so what about the small and medium towns?)
2.Most of money goes in creating fly-overs and other big things which has little relavenace for a common public.
3.India is still blindly following the western style of planning.Not a even single model was put forward for such a Huge project!
Hi Imay, I agree with what you said about 'mutual benefit' that it's about helping both beneficiaries, not necessarily to equal extent. But the long term benefits should also be in line with the short term gains. Govt., in its budget, has tried to cover this aspect of the 'mutual benefit' and hence prevented the companies to gain short term 'benefits' from the potential rural markets and transforming the rural markets into the battle grounds for brands to fight.
ReplyDeleteVijay, you have rightly pointed about the JNNURM implementation. But I won't say that I completely agree with your viewpoint.
1. JNNURM is targetted at the upliftment of Urban Poor, so the funds are bound to be diverted to the cities, esp the big cities that have the worst concentration of urban poor.
2. Employment to the urban poor and provision of 'all-weather housing' are two major objectives of JNNURM. This employment is created by means of building infrastructure for the cities, thereby having a two-folded benefit.
3. I agree with this point of yours. No Indian economist except Dr. Raghuram G. Rajan in the recent times, has contributed in formulating the economic models for India's growth. We have been following the Keynesian models and other outdated models postulated by the US Economists and trying to fit them into our economy. Thankfully that has not backfired yet, but there is a high probability.
I didnt't understand what was the point you were trying to make?
ReplyDeleteThat the government did less than what it was supposed to do for the upliftment of the ones at the BOTP?
Or the Corporates are just after their profits with no care about the real upliftment of the poor?
Or you are unhappy with both?
And there 'are' a lot of corporates doing a lot for the ones at the BOTP. What is the problem if this gives them some profit too?
Entering a rural market to sell your cellphones is going to help both. The company and the rural population.
Even building their image with a charity is a way of increasing their profits in the long run? Or one would suppose a company to be concerned about the welfare, with no s*** to the profits, only if such a charity is anonymous?
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ReplyDeleteHi Ankur, thanks for that very thought provoking response! I'll answer your questions and clarify your confusions one-by-one.
ReplyDeleteFirst, the intent of my article is to say that the corporates have taken a very bad note of the government efforts in this budget that were targetted at the development of the rural population. So, I'm happy for the government but unhappy with the way the corporate houses or the investors in stock markets reacted to this move.
And if you read my last blog "Corporate Social Responsibility: The Change Mechanism", I've given the examples of many corporate houses who are working in the rural sector and some of them are working even for the upliftment of the urban poor as well. But the problem with them earning profits out of this 'social benefit' is the biasing of the market. Today, if Nirma has a very stronghold in the rural detergent market, HUL is not trying to reach out to help the rural population (through Shakti and iShakti) earn money, but to sell its own Surf Excel. There's a very thin line between business entrepreneurship and social entrepreneurship- the only difference being of intent. But this small difference finally decides the extent wo which you will go to meet the ends and the way you'll make them meet.
So, I do not disagree with your point that indicates that there are no free lunches. But at the same time, I reinforce the point that in absence of such free lunches, it's the govt. who has to decide that who will get how much pie of this lunch and not the corporates themselves.