The Bottom of the Pyramid (BOP) debate raises heated arguments between the supporters of the idea that multinational companies (MNC) have the capabilities to reduce poverty by strengthening the purchase power of the poor, and those who support the adverse idea that MNCs solely exploit the poor. The main proponents of this debate are C.K. Prahalad and Stuart Hart, who mitigate for the BOP theory in their study “The Fortune at the Base of their Pyramid”, and Aneel Karnani, who demounts the BOP claims in his “Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector Can Help Alleviate Poverty?”. While in his article Karnani criticizes Prahalad and Hart’s arguments that support the BOP theory, Prahalad further responds to Karnani’s criticism, by counter-arguing his claims. The two parties of the debate cannot reach an argument on the actual influence of MNCs on BOP and have different perspectives in terms of economies of scale, production, consumption and purchase power.
Prahalad and Hart’s (2) argument in favor of the value of BOP for economy, holds that there is a significant market unexploited by MNCs and other marketers, composed of approximately 4 billion potential consumers, representative of the world’s poorest individuals. The authors consider that it is not only the responsibility of MNCs to alleviate poverty for this population segment, but also that this is an untapped market, which should be optimized (Prahalad & Hart 1). Furthermore, they sustain that the poor people are nevertheless consumers, because even with a $2 budget per day, they need to have choices for their consumption needs. In addition, in response to Karnani’s skepticism regarding BOP proposition, Prahalad (2 – 3) sustains that the consumption can lead to increasing incomes, exemplifying that incomes can emerge from accessing credits.
On the other hand, Karnani attacks many of the ideas exposed by Prahalad and Hart. The mere idea that consumption can lead to increasing incomes is contested by Karnani, who observes that economically, through accessing a credit the income does not actually increase, but having access to immediate money generates “instant gratification” (Karnani 96). The author also sustains his claim with an example that tackles Prahalad’s Casa Bahia argument. According to this argument, BOP consumers are able to have access to home appliances that they could not afford otherwise, due to accessing credits. Karnani holds that a BOP consumer, who spends $2 per day, would have to save for six months in order to purchase Casa Bahia appliances; alternatively, they can access a credit to purchase the desired appliances and spend 6 months to return the money, with an extra income of 4% per month for instant gratification (Karnani 93).
The contradictions between the two parties stretch further and reach new territories, such as ethics. While for Prahalad and Hart and again Prahalad in his response to Karnani, the topic of ethics is not discussed in their discourse, for Karnani, ethics is a significant topic for poverty alleviation and economic stimulation. The author does not mention ethics per se in his article, although his ideas converge to this topic.
For instance, he argues that instead of increasing the affordability of products in order for the poor to be able to consume, a more sustainable solution for poverty eradication would be to purchase from the poor (Karnani 90). The author also states that implicating the MNCs in reducing the poverty and increasing the consumption power of the poor is a fallacy. He explains that MNCs solely invest in what is profitable for them and addressing the market composed of the 4 billion poor people would imply triggering profitability from that market (Karnani 91).
This was the case of the shampoo sachets sold for the poor, who could not afford purchasing an entire bottle of shampoo, but could occasionally procure a shampoo sachet, hence creating the impression of affordability, when in fact the marketers only exploited poverty through small quantities (Karnani 94). The idea that Karnani is making is that the value of the product sold in small quantity was not reduced for the poor. On the contrary, the shampoo sachets gave the impression of affordability, but the price per unit of sachet was the same as the same corresponding unit from an entire bottle of shampoo.
However, Prahalad and Hart (6) accurately explain the fact that MNCs can help the poor get out of poverty, by introducing the concept of scale. By accessing credits, consumers, even consumers from the 4th tier (the world’s poorest population) contribute to increasing the consumption, which naturally implies the demand for more products, which creates the opportunity to offer them at a lower price, due to economy of scale principle (Prahalad & Hart 6). In this context, the ethical principle meets the economic development principle of economy of scale, two independent concepts, which, nevertheless, do not exclude each other. Therefore, although Karnani’s (97) poverty exploitation argument that speaks about unethical consumption is accurate and understandable, Prahalad and Hart’s (6) economy of scale argument is also valid.
Another point of tension between the arguments of each side is the one referring to the poor people’s freedom of choosing for themselves. Prahalad and Hart (8) mitigate for poor people’s right to choose the products that they want to consume. On the other hand, Karnani (97) counter argues this idea, by explaining that poor people do not have the capital required for choosing, considering that their income is fix. Furthermore, the author also brings in the debate the argument of education, suggesting that poor people cannot decide for themselves what is better for them, because of their poor education, which often guides them towards bad decisions. In response to Karnani criticism, Prahalad (4) counteracts the former’s argument that poor are incapable of choosing the best for themselves, stating that elites should not decide for the poor what is good for them. At this point, Prahalad is the one that takes side with the poor consumers, by suggesting that they are equal with the elites, because they have the same individual liberty of choosing for themselves. At the heart of this claim is a capitalist reason of sustaining consumption, as the author exemplifies with the case of “Fair and Lovely” cosmetic product that promotes the idea that fairness (obtained by using this product) can bring social rewards and individual opportunities (Prahalad 4). Karnani (99) does agree with Prahalad that consumers are free to purchase this brand and even that Unilever can sell this brand, but he nevertheless highlights the fact that in purchasing this product consumers do not express their power of choosing, but they are solely deepening racism and sexism.
An important point that Karnani (101) raises as a criticism for the BOP’s economy of scale idea that is likely to lead to decreased prices, provided that the consumption is high, is that with decreased value for products, quality also shrinks. Continuing on the idea that consumers, even the poorest ones, have the right to choose for themselves, Karnar (101) demonstrates that they choose the cheaper product, which are likely to damage their health, as it was the case with Nirma, a detergent valuing one third of Surf’s price, which overcome Surf because of its smaller price.
The contradictions between the two views are very complex, but they provide the reader the possibility to develop a critical understanding on the actual implication of BOP and economic alleviation of poverty through MNC involvement. While Karnar’s concerns regarding the potential exploitation of the poor and the decreased quality of products for reaching decreased prices cannot be ignored, Prahalad’s bottom of pyramid philosophy does indicate that there is a significant untapped market of 4 billion people. Recognizing the potential of this market is where Prahalad and Karnar disagree, as the first mitigates for creating affordable prices for them, and the second suggests that their potential should be used for creating products and being the vendors instead of customers, hence stimulating the economy.
Works Cited
Karnani, Aneel. The Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector Can Help Alleviate Poverty? California Management Review. 49(4): 90-111. 2007. Print
Prahalad, C.K. & Hart, Stuart, L. The Fortune at the Bottom of the Pyramid. Booz Allen Hamilton, Inc. 2002. Print.
Prahalad, C.K. Response to Miracle at the BOP. [Online] 07 April 2015. Available from < http://documents.mx/documents/prahalad-response-to-mirage-at-the-bop.html >. [Accessed 14 July 2016].
