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Illustration by Marco Ventura

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 Illustration by Marco Ventura don’t have the modern infrastructure or products to

The Fortune

Pyramid

Bottom

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of the

by C.K. Prahalad and Stuart L. Hart

S E C U R I T Y A N D S T R AT E GY

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mal education and are hard to reach via conventional distribution, credit, and communications. The quality and quantity of products and services available in Tier 4 is generally low. Therefore, much like an iceberg with only its tip in plain view, this massive segment of the global population — along with its massive market opportunities — has remained largely invisible to the corporate sector. Fortunately, the Tier 4 market is wide open for technological innovation. Among the many possibilities for innovation, MNCs can be leaders in leapfrogging to products that don’t repeat the environmental mistakes of developed countries over the last 50 years. Today’s MNCs evolved in an era of abundant natural resources and thus tended to make products and services that were resource-intensive and excessively polluting. The United States’ 270 million people — only about 4 percent of the world’s population — consume more than 25 per- cent of the planet’s energy resources. To re-create those types of consumption patterns in developing countries would be disastrous. We have seen how the disenfranchised in Tier 4 can disrupt the way of life and safety of the rich in Tier 1 — poverty breeds discontent and extremism. Although complete income equality is an ideological pipe dream, the use of commercial development to bring people out of poverty and give them the chance for a better life is critical to the stability and health of the global economy and the continued success of Western MNCs.

The Invisible Opportunity Among the top 200 MNCs in the world, the over- whelming majority are based in developed countries. U.S. corporations dominate, with 82; Japanese firms, with 41, are second, according to a list compiled in December 2000 by the Washington, D.C.–based

Institute for Policy Studies. So it is not surprising that MNCs’ views of business are conditioned by their knowledge of and familiarity with Tier 1 consumers. Perception of market opportunity is a function of the way many managers are socialized to think and the ana- lytical tools they use. Most MNCs automatically dismiss the bottom of the pyramid because they judge the mar- ket based on income or selections of products and serv- ices appropriate for developed countries. To appreciate the market potential of Tier 4, MNCs must come to terms with a set of core assumptions and practices that influence their view of developing coun- tries. We have identified the following as widely shared orthodoxies that must be reexamined:

• Assumption #1 The poor are not our target con- sumers because with our current cost structures, we can- not profitably compete for that market.
• Assumption #2 The poor cannot afford and have no use for the products and services sold in developed markets.
• Assumption #3 Only developed markets appreci- ate and will pay for new technology. The poor can use the previous generation of technology.
• Assumption #4 The bottom of the pyramid is not important to the long-term viability of our business. We can leave Tier 4 to governments and nonprofits.
• Assumption #5 Managers are not excited by business challenges that have a humanitarian dimension.
• Assumption #6 Intellectual excitement is in developed markets. It is hard to find talented managers who want to work at the bottom of the pyramid. Each of these key assumptions obscures the value at the bottom of the pyramid. It is like the story of the per- son who finds a $20 bill on the sidewalk. Conventional economic wisdom suggests if the bill really existed, someone would already have picked it up! Like the $

Exhibit 1: The World Economic Pyramid

• Based on purchasing power parity in U.S.$ Source: U.N. World Development Reports

Annual Per Capita Income*

More Than $20,

$1,500–$20,

Less Than $1,

Population in Millions

75–

4,

Tiers

1,500–1,

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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

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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. 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)

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reach many more people — lending money to individ- uals with no collateral and no formal address. Since there is lower overhead and little paperwork, AutoBank’s costs are 30 to 40 percent lower than those at tradition- al branches. At the 1999 Microcredit Summit, the United Nations, in conjunction with several major MNCs, such as Citigroup Inc. and Monsanto Company, set a goal of making basic credit available to the 100 million poorest families in the world by the year 2005. Unfortunately, the success of this undertaking has been slowed by high transaction costs, a lack of automation, and poor information and communications infrastructures in rural areas. To address these issues and accelerate the develop- ment of microlending, French banker Jacques Attali, the founding president of the European Bank for Reconstruction and Development and a former chief aide of French President François Mitterand during the 1980s, has created PlaNet Finance. Its Web site, www.planetfinance.org, links thousands of microcredit groups worldwide into a network to help microbanks share solutions and lower costs. Ultimately, the development of an automated solu- tion for tracking and processing the millions of small loans associated with microlending should be possible. If processing and transaction costs can be reduced enough, they can then be bundled together and sold in the sec- ondary market to multinational financial institutions

like Citigroup. This would greatly expand the capital available for microlending beyond the current pool from donors and governments. In the United States, microlending has also taken root over the past decade in poor urban neighborhoods. For example, the ShoreBank Corporation, formerly South Shore Bank, has demonstrated the profitability of banking for the poor in Chicago’s troubled South Side. Project Enterprise, a Grameen-like program based in New York City, is aimed at minority entrepreneurs. Several multinational banks are beginning to offer microbanking services in developing countries. Citigroup, for instance, is experimenting in Bangalore, India, with 24/7 services for customers with as little as a $25 on deposit. Initial results are very positive.

Shaping Aspirations Sustainable product innovations initiated in Tier 4, and promoted through consumer education, will not only positively influence the choices of people at the bottom of the pyramid, but may ultimately reshape the way Americans and others in Tier 1 live. Indeed, in 20 years, we may look back to see that Tier 4 provided the early market pull for disruptive technologies that replaced unsustainable technologies in developed countries and advanced the fortunes of MNCs with foresight. For example, Unilever’s HLL subsidiary has tackled the lack of practical, inexpensive, low-energy-consum- ing refrigeration in India. HLL’s laboratories developed a radically different approach to refrigeration that allows ice cream to be transported across the country in stan- dard nonrefrigerated trucks. The system allows quantum reductions in electricity use and makes dangerous and polluting refrigerants unnecessary. As a bonus, the new system is cheaper to build and use. Electricity, water, refrigeration, and many other essential services are all opportunities in developing countries. A U.S.-based NGO, the Solar Electric Light Fund (SELF), has creatively adapted technology and applied microcredit financing to bring electrical service to people in remote villages in Africa and Asia who otherwise would spend money to burn hazardous kerosene, candles, wood, or dung for their light and cooking. SELF’s rural electrification system is based on small-scale on-site power generation using renewable resources. A revolving loan fund gives villagers the finan- cial means to operate these electrical systems themselves, also creating jobs. Since its founding in 1990, SELF has launched projects in China, India, Sri Lanka, Nepal,

Exhibit 5: The Commercial Infrastructure at the Bottom of the Pyramid

Improving Access

• Distribution systems
  • Communications links

Shaping Aspirations

• Consumer education
  • Sustainable development

Tailoring Local Solutions

• Targeted product development
  • Bottom-up innovation

Creating Buying Power

• Access to credit
• Income generation

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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, per line in the developed world; CorDECT has reduced this cost to less than $400 per line, with a goal of $ 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-

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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

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Roddick, built a business predicated on understanding the basis for local rituals and practices. For example, she observed that some African women use slices of pineap- ple to cleanse their skin. On the surface, this practice appears to be a meaningless ritual. However, research showed active ingredients in pineapple that cleared away dead skin cells better than chemical formulations. MNCs must develop research facilities in emerging markets such as China, India, Brazil, Mexico, and Africa, although few have made a big effort so far. Unilever is an exception; it operates highly regarded research centers in India, employing more than 400 researchers dedicated to the problems of “India-like markets.”

• Form new alliances. MNCs have conventionally formed alliances solely to break into new markets; now they need to broaden their alliance strategies. By enter- ing into alliances to expand in Tier 4 markets, MNCs gain insight into developing countries’ culture and local knowledge. At the same time, MNCs improve their own credibility. They may also secure preferred or exclusive access to a market or raw material. We foresee three kinds of important relationships: Alliances with local firms and cooperatives (such as the Khira District Milk Cooperative); alliances with local and international NGOs (like Starbucks’s alliance with Conservation International in coffee); and alliances with governments (e.g., Merck & Company’s recent alliance in Costa Rica to foster rain forest preservation in exchange for bio- prospecting rights). Given the difficulty and complexity of constructing business models dependent on relationships with national or central governments (e.g., large infrastruc- ture development), we envision more alliances at the local and regional level. To succeed in such alliances,

MNC managers must learn to work with people who may not have the same agenda or the same educational and economic background as they do. The challenge and payoff is how to manage and learn from diversity — economic, intellectual, racial, and linguistic.

• Increase employment intensity. MNCs accus- tomed to Tier 1 markets think in terms of capital inten- sity and labor productivity. Exactly the opposite logic applies in Tier 4. Given the vast number of people at the bottom of the pyramid, the production and distribution approach must provide jobs for many, as in the case of Ruf & Tuf jeans from Arvind Mills: It employed an army of local tailors as stockers, promoters, distributors, and service providers, even though the cost of the jeans was 80 percent below that of Levi’s. As Arvind demon- strated, MNCs need not employ large numbers of peo- ple directly on their payroll, but the organizational model in Tier 4 must increase employment intensity (and incomes) among the poor and groom them to become new customers.
• Reinvent cost structures. Managers must dra- matically reduce cost levels relative to those in Tier 1. To create products and services the poor can afford, MNCs must reduce their costs significantly — to, say, 10 per- cent of what they are today. But this cannot be achieved by fine-tuning the current approaches to product devel- opment, production, and logistics. The entire business process must be rethought with a focus on functionality, not on the product itself. For example, financial services need not be distributed only through branch offices open from 9 A.M. to 5 P.M. Such services can be provided at a time and place convenient to the poor consumer — after 8 P.M. and at their homes. Cash-dispensing machines can be placed in safe areas — police stations

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and post offices. Iris recognition used as a security device could substitute for the tedious personal-identification number and card for identification. Lowering cost structures also forces a debate on ways to reduce investment costs. This will inevitably lead to greater use of information technology to develop production and distribution systems. As noted, village- based phones are already transforming the pattern of communications throughout the developing world. Add the Internet, and we have a whole new way of commu- nicating and creating economic development in poor, rural areas. Creative use of IT will emerge in these mar- kets as a means to dramatically lower the costs associat- ed with access to products and services, distribution, and credit management.

A Common Cause The emergence of the 4 billion people who make up the Tier 4 market is a great opportunity for MNCs. It also represents a chance for business, government, and civil society to join together in a common cause. Indeed, we believe that pursuing strategies for the bottom of the pyramid dissolves the conflict between proponents of free trade and global capitalism on one hand, and envi- ronmental and social sustainability on the other. Yet the products and services currently offered to Tier 1 consumers are not appropriate for Tier 4, and accessing this latter market will require approaches fun- damentally different from those even in Tiers 2 and 3. Changes in technology, credit, cost, and distribution are critical prerequisites. Only large firms with global reach have the technological, managerial, and financial resources to dip into the well of innovations needed to profit from this opportunity. New commerce in Tier 4 will not be restricted to businesses filling such basic needs as food, textiles, and housing. The bottom of the pyramid is waiting for high- tech businesses such as financial services, cellular telecommunications, and low-end computers. In fact, for many emerging disruptive technologies (e.g., fuel cells, photovoltaics, satellite-based telecommunications, biotechnology, thin-film microelectronics, and nano- technology), the bottom of the pyramid may prove to be the most attractive early market. So far, three kinds of organizations have led the way: local firms such as Amul and Grameen Bank; NGOs such as the World Resources Institute, SELF, The Rainforest Alliance, The Environmental Defense Fund, and Conservation International, among others;

and a few MNCs such as Starbucks, Dow, Hewlett- Packard, Unilever, Citigroup, DuPont, Johnson & Johnson, Novartis, and ABB, and global business part- nerships such as the World Business Council for Sustainable Business Development. But to date, NGOs and local businesses with far fewer resources than the MNCs have been more innovative and have made more progress in developing these markets. It is tragic that as Western capitalists we have implicitly assumed that the rich will be served by the corporate sector, while governments and NGOs will protect the poor and the environment. This implicit divide is stronger than most realize. Managers in MNCs, public policymakers, and NGO activists all suffer from this historical division of roles. A huge opportunity lies in breaking this code — linking the poor and the rich across the world in a seamless market organized around the concept of sustainable growth and development. Collectively, we have only begun to scratch the sur- face of what is the biggest potential market opportunity in the history of commerce. Those in the private sector who commit their companies to a more inclusive capi- talism have the opportunity to prosper and share their prosperity with those who are less fortunate. In a very real sense, the fortune at the bottom of the pyramid rep-

resents the loftiest of our global goals. +

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Resources The concepts in this article were first articulated in 1998, and have been made available for discussion in a working paper. For more information, contact the authors. Stuart Hart, “Beyond Greening: Strategies for a Sustainable World,” Harvard Business Review , January–February 1997; www.hbsp.harvard.edu/hbr/index.html C.K. Prahalad and Kenneth Lieberthal, “The End of Corporate Imperialism,” Harvard Business Review , July–August 1998; www.hbsp.harvard.edu/hbr/index.html “Is the Digital Divide a Problem or an Opportunity?” Business Week Supplement, December 18, 2000 Robert Chambers, Whose Reality Counts? Putting First Last (ITDG Publishing, 1997) Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization (Farrar, Straus and Giroux, 1999) Amartya Sen, Development as Freedom (Alfred A. Knopf, 1999) Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000)