March 29, 2007
The World's Poor: Huge Market or Just a Marketer’s Fantasy?
by Anne Moore Odell
New report from the International Finance Corporation and World Resources Institute measures the
market-size of the Earth's people who live in poverty.
That people live in poverty the world over is not a question. However, questions abound about the
Earth’s poor. How, for example, can poverty be measured? What can be done to help people live
healthier, fuller lives? How can businesses approach this population?
A new report
from the International Finance Corporation (IFC)
and World Resources Institute (WRI) entitled "The Next 4
Billion: Market Size and Business Strategy at the Base of the Pyramid," attempts to answer some
of these questions by measuring the size of markets at the bottom of the economic pyramid. The
report states that four billion people are living in "relative poverty" with the projected buying
power of $5 trillion.
To analyze the size and scope of "Base of the Pyramid" (BOP)
markets, WRI worked with the International Finance Corporation and Inter-American Development Bank
to access national household survey data, using income data from 110 country surveys and
standardized expenditure data from a subset of 36 countries. The report also includes analysis and
case studies of businesses that have succeeded in the BOP markets. This is the first report to
attempt to gauge the size of BOP markets.
One of the goals of generating the data found in
the report is to help businesses create practices that stop or at least cut back on the "BOP
penalty." The "BOP penalty" is when the poor actually have higher priced goods of lower quality
relative to more affluent populations, or can’t even gain access to goods and services.
"Low-income communities are often served by monopolies - for food, water, transport, finance,
and other basic goods and services," said Robert Katz, Research Analyst of the Sustainable
Enterprise Program, World Resources Institute. "Absent competition from the private sector, these
local, unregulated monopolies charge higher prices. For example, low-income communities often don't
have public water service, leaving BOP consumers to purchase from private water vendors. These
vendors charge anywhere from eight to sixteen times as much as the utility."
cited in the report of a company that has succeeded in the BOP markets is Mi Farmacita, a pharmacy
franchise based in Tijuana, Mexico. Started in 2003, Mi Farmacita’s 47 franchises are placed in
neighborhoods, eliminating travel costs to distant cities. People can receive inexpensive on-site
doctor consultations and local pharmaceutical manufacturers allow franchises to sell low-cost
generic medication. Stores have diversified their product and service offerings, including
telephone and Internet usage, widening income-generating opportunities.
Breaking down the
analysis by geographic region, the report asserts the Asian (including the Middle East) BOP market
is the largest with 2.86 billion people and an estimated purchasing power of $3.47 trillion. The
African BOP market includes 486 million people and has a purchasing power of $429 billion. Three
hundred sixty million people are counted in the Latin American BOP market with a $509 billion
purchasing power. The Eastern European BOP market includes 254 million people with a purchasing
power of $458 billion.
The data show that the BOP is not monolithic. Some countries, such
as Nigeria, have a very "bottom heavy" BOP, meaning that most of the population and income is
centered in the lowest income segments. Others, including Ukraine, are equally interesting as a
potential BOP market, but exhibit "top heavy" tendencies, most of the population and income is
centered in the top three segments.
"Furthermore, the data show significant latent demand
- untapped potential - in sectors such as IT and transport," Katz stated. "As incomes increase, the
poor demand more and more IT and transport services. If a company could provide these services at
lower cost or with better access to the BOP, they would find a lot of under-served demand - and
However, some experts disagree with the report’s numbers and the
conclusions drawn from them. Aneel
Karnani of the Strategy Group, Ross School of Business at The University of Michigan takes
issue with the new report. Karnani told Socialfunds.com: "Some earlier BOP articles used the $1500
PPP [purchasing power parity] standard. The Next 4 Billion uses $3000 PPP. This will, of course,
lead to a larger market size. But, the report does not justify the $3000 cutoff level, which is
much higher than any commonly used poverty line."
Do making profits and helping the poor
go hand in hand? When billions of people living in poverty become full-fledged consumers, what is
the environmental and societal impact? Both supporters and critics of the BOP proposal agree that
the world’s poor need more and better services, opportunities and products. They need employment,
education, health care and basic necessities like clean water and food.
"The best way to
raise people out of poverty is to provide them employment opportunities at reasonable wages,"
Karnani said. "Private companies can help to create job opportunities for low-skill employees. They
can also try to improve the productivity of the poor by investing in training, appropriate
technology and capital, and achieving scale economies."
"The public sector too can help to
increase the employability and productivity of the poor by providing basic services such as
education, public health, and infrastructure. To some extent the private sector too can play a role
in providing these services," Karnani added.
"The base of the pyramid is critical to
sustainability. It is not enough for companies operating in emerging markets to ‘go green’ if they
fail to create jobs and local wealth," Katz told Socialfunds.com. "We cannot protect the
environment without alleviating poverty, and vice versa. At the same time, companies that fail to
address the BOP are missing an opportunity to generate shareholder value. Socially responsible
investors should understand the BOP theory as both an opportunity and an obligation."
non-profit, non-partisan WRI creates and promotes policies to help the environment and improve
people’s lives. The IFC is the private sector arm of the World Bank Group. Its mission is to
promote sustainable private sector investment in developing countries, helping to reduce poverty
and improve people's lives.