Sunday, August 30, 2009

Part 1. Review of Chapter 1: The Market at the Bottom of the Pyramid

CK Prahalad, in his book “The Fortune At The Bottom Of The Pyramid” has brought up the concept of a socio-economic pyramid according to which the entire society can be divided into five parts or five tiers: Tier 1 where Purchasing Power Parity is more than USD 20,000, Tier 2 and 3 where PPP is in the range USD 15,000 – 20,000, Tier 4 with PPP of USD 1,500 and the lowest segment Tier 5 with PPP less than USD 1,500. Since the population in the Tier 4 and 5 is more double the population in the upper parts of the pyramid, this signifies a huge potential. This segment needs to be tapped, but not in the traditional ways. Prahalad emphasized on the role of the individuals and private sector in this movement that he initiated about 14 years back. Talking of the “inclusive capitalism”, he says, “…private sector competition for this market will foster attention to the poor as consumers.” He also challenges the traditional myth that rural population is primarily poor and the urban population is primarily richer, which, he claims, is not the truth.
Though I completely agree with his philosophy and respect the amount of research that he has put into this book, I still feel that the first chapter has created more questions in my mind than it has answered. In a way, that was disappointing, but at the same time, I think he might have intentionally done so, or maybe my questions will be answered in the subsequent chapters as I read on.
The first conflict that this chapter has created is: Will it do any real sustainable good to the society if we encourage our BOP consumers to spend all that they earn that day? In this chapter, Prahalad has argued that there is enough money at the BOP. He claims that the total GDP of 9 developing countries put together is $13 trillion (PPP adjusted) and that represents a huge potential for big companies and MNCs to invest in. It is true that currently, the BOP population is spending more if adjusted for the poverty penalty, but do we really want to uplift this market segment or try to compete for sucking this market off all the blood it has? If the current income is completely converted into current expenditure, won’t this sector be helpless in times of need? Microfinance and micro-credit have come up as very useful options for the poor, but they do not come in handy for the people who do not use them for creating a personal business. Also, Prahalad says that the poor might not want to spend on sanitation and clean water but they do spend on luxurious items and that’s where the companies should try to tap in. The conflict here is that whether he proposes a social entrepreneurship model or a business entrepreneurship one because the former will try to reverse the situation while the later will try to tap the situation as it is without paying a heal to the overall goodwill of the BOP segment.
The second major issue that I see with Prahalad’s argument on supply chain is: Is it economically viable to sell the products beyond Dharavi slum of Mumbai, India? Though this question has been answered in the book, the argument seems to be rotating only around the big cities which are expected to have the density of urban poor to the tune of 15,000 per hectare by 2015. He has also mentioned about the Shakti project of HLL in India which empowers the women to be entrepreneurs in their own power. But how feasible is it to tap into the markets that are far away from even the nearest towns and are sparsely populated, like the people in the North Eastern states of India or the ones residing in the hills of Himachal Pradesh in India or the ones living in the Siberian desert of Russia. Though they have been counted in the 3 billion strong potential customer base, there is no way the companies can reach there without a support from the government in terms of subsidies and tax exemption. All in all, it doesn’t make an economic sense because those dispersed markets do not have a critical mass to support an economic project. For such markets, we need to come up with some other models that are economically viable in the long run.
The third issue with this chapter is about the confusion that it creates about ITC’s e-choupal program in India. After reading this chapter, it becomes very confusing to decide whether e-choupal is a philanthropic initiative taken by ITC as a part of its CSR or is it a business model as well which is benefitting the farmers to as great an extent as it is doing to ITC. If it’s a philanthropic initiative, I think Prahalad has been a bit confused because he contradicts what his own statement that “charity might feel good, but it rarely solves the problem in a scalable and suitable fashion.” If it’s just a charity, it prevents other companies to compete for technological advances in this sector. But, if it’s a business model as well, no clarification has been given on it in the chapter. I look forward to read about it in the second part of the book that has the case-study on ITC e-choupal.
Though these arguments might seem to be a criticism of the well known professor, arguments like these will certainly end up with a better model for the overall development of the BOP and the entire pyramid.

Arun Sharma

Friday, August 21, 2009

Delhi: A long way to go.

It’s really difficult to understand the relevance of the claims made by Mr. Kalmadi and Ms. Sheila Dixit about ‘successfully’ holding the Commonwealth games in Delhi next year. We do not have the stadia ready to play, we do not have the audience to watch sports apart from Cricket, we do not have the roads to carry the tourists across the city and we do not have the buses to do so. In such a case, how do we make the claims to hold Commonwealth Games in India and are bold enough to bid for Olympics.
A short stint of 4.5 months in Dubai was enough to change my perception on India Shining. A GDP growth rate of 6% and the ability to fight the inflation did not have any impact on the actual condition of India. Through this post, I do not intend to criticize and re-criticize the government for its failure in bringing up the talent to the forefront, but I’ll pick up three most grieving problems faced by Delhi to attract foreign tourists and businesses. I end this blog with three recommendations for the government and the citizens to start the change process and give a speed to it.
The first and the foremost factor is the portrayal of the image of India. I landed at New Delhi IGI Airport and the first sight was old, stressed out baboos sitting at the immigration counter, handling the foreign tourists and creating the proverbial first impression on them. The moment I came out of the airport, the scene outside was even worse. There was a long queue at the pre-paid taxi counter that was shattered itself. After standing in queue for 15 minutes, I got the receipt for the taxi but no taxi number and nobody to tell me where to get the taxi from. As if that wasn’t enough, the taxi itself was in a broken condition with foam coming out of the seats, rear view mirror missing and seat belt just tied at one end. And if you get a chance to travel by train in the morning, you’ll see people doing their chores besides the railway tracks making India the butt of the joke.
The second serious problem faced by Delhi today is the road traffic control system. Delhi-NOIDA express way was created to showcase India’s prowess in the road transportation but despite the wide, high-speed roads, the toll-gate has done the damage by making the cars wait for long times. Though I am proud of the DMRC project in the city, but the traffic hassles that it has been creating for the last 6-7 years have been a major headache. The temporary roads that have been built as bypass to the metro-line have been built in a very bad condition as if the responsibility for travelling on temporary roads lies with the drivers and not with the authorities. At traffic lights, it becomes evident that there’s no lane system existing in Delhi, whatever are the claims of the Delhi traffic control authorities.
Third major problem faced by Delhi is the safety of its citizens, especially at night. Every other day, we read a couple of news of murder in some corner of Delhi or a rape in the other. Night life is pathetic, to say the least, in Delhi and the only reason is the security issue. People don’t feel safe to come out of their houses at night, even for a walk. And foreigners are the least protected of the entire lot because of their naiveté about India.
Given these basic problems, apart from the administrative, bureaucratic and sports issues, how does Delhi claim to be in control of the situation and sure enough to be able to hold the Commonwealth games in 2010?
Coming to the solution part, there are three basic things that Delhi needs to focus on, rather than beating around the bush with same old policies leading to absolutely nowhere.
The first thing that Delhi needs is the role clarity between the Center government’s responsibilities and the State government’s. Not long ago, the state and central governments were from different parties and one could see a constant blame game going on between the two for the responsibilities of the safety of citizens, public transportation, power supply, water supply and other basic infrastructural facilities. Even now, it’s not clear whether the Indian Olympics Association (IOA) needs to tighten the state government for certain facility requirements or the Center govt. Before we move on to ensure a Developed Delhi, we need to sit for a while and draw clear lines of responsibilities.
The second important step to be taken by the Indian government is to ensure a better road network and a planned expansion of the same. Just like the Andhra Pradesh government, Delhi govt needs to take some bold steps to expand the road network within the city at a much faster pace than it has been doing. Roads in Old Delhi need to be broadened and new roads to be added, even if it means purchasing the land from the residents of the area. The Delhi-Gurgaon flyover system was planned to take on the traffic for next 20 years, but it has already been clogged up with traffic jams and long queues. Proper traffic planning needs to be put into place before mindlessly creating new roads. The BRTS system has faced so much resistance from the local public because this system created another barrier in the already bad traffic condition of the capital. A centralized support system for the public transportation should be set in place to help the non-residents of Delhi. In the nutshell, the master plan for the city or Delhi Vision 2020 should be created for Delhi and every department should be aligned to work towards the same.
My last recommendation to the Delhi government will be to shift as fast as possible from the man-oriented governance system to e-governance. I really appreciate the Bhagidari initiative of Delhi govt. under the supervision of Ms. Sheila Dixit, but this initiative needs to be more inclusive in approach. E-governance should not only be focused at the citizens or residents of Delhi, but it should also be targeted at making the stay of the tourists as comfortable as possible. E-governance should help the citizens to fill in the bills online, file complaints against public offices, get to know the bus routes, know about the decisions of the government, know about the plans for Delhi’s development, rules and regulations prevalent in Delhi and other needed support for the residents of and visitors to Delhi.
I think these three solutions will form the base for the Delhi government to start its further development towards proving itself as the capital of the next super-power of the world. Once developed in Delhi, the same model can also be implemented in other cities in India that suffer the problems similar to New Delhi’s.
But before putting it all on the government, I must say that nothing can be fruitful if the citizens of the country will not support the system. Any initiative of the government needs an encouragement and acceptance in right spirit by the residents. Only then will we be able to create a Shining Delhi and Shining India.