Aneel Karnani, business school professor at the University of Michigan, has a firmly held opinion that the BOP market is much, much smaller than previously mentioned in CK’s book Fortune at the BOP.
All I can say to AK is “stop hating on a brother”. Big whoop, Karnani. So the market isn’t $15 Trillion. It’s $5 Trillion, per the WRI Next 4 Billion report.
The view that Karnani holds, seems to be purely focused on economics of publicly traded companies that are looking to maximize revenue in a quarter, not companies who are focused on long term growth potential.
I posted a comment to the NextBillion blog that doesn’t seem to show up, so I will post its comment, a letter to Prof. Karnani here:
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With all due respect, Professor Karnani: if I may challenge your statements made in the “A ‘Poor’ Market” article you wrote in “Business Standard” recently.
“The growing appeal of the BOP proposition has been fuelled by the argument that the poor represent a large and lucrative market.“ Well, sure it has. But I’d argue that the growing appeal is fueled by myriad other vastly more important factors as outlined below:
- Whether the market for product/service offerings from MNCs is $5 trillion or $15 trillion is no doubt important to Wall St, companies with a long term perspective should eagerly anticipate new streams of revenue in any new markets because it is inevitable that competing in domestic markets is just playing the market-share-game.
- CK makes the argument that innovation (in my opinion the only top line growth strategy there is) happens best with constraints; The type of constraints you see in the BOP are second to none. The potential innovations in products and even more sustainable inclusive models of business might be well received in the low-income communities in developed markets such as the US.
- Now is a seminal time to build brand equity in the BOP for the long haul. Though it is tricky to capture the value of a brand as many studies have shown (Interbrand, Brand Valuation, March 2003), it is fairly evident that brand value can account for more than half the shareholder value of the company in cases like Coca Cola.
- As I’m sure you know, there is a great deal of overlap between sustainability and serving the BOP. China/India’s lower and middle class, by adopting a new lifestyle (i.e. the 1 lakh car..) and increasing their energy demands will 1) strain crumbling infrastructure, 2) contribute massively to global warming and localized pollution, and 3) ultimately cause the largest threat to U.S. national security, and stable governments across the world, there has ever been. (No, I am not referring to terrorism, b/c people love to point out the Princeton Kruger/Maleckova study. I am referring to the hundreds of peasant uprisings that take place that go unheard of year after year, the voiceless citizenry of impoverished countries with little political representation. These, in my opinion, are a drop in the ocean for what is to come if we continue on our current trajectory)
“If a private company is motivated not by economic profits, but by social responsibility, then of course there are many opportunities for marketing to the poor.”
- It is becoming increasingly clear that there is no dichotomy between the two; Only companies with longer-term, market oriented approaches are sustainable. Myopic quarterly-revenue dependent players with an outsourced CSR/Social PR agenda are doomed to failure. The writing is on the wall, this news is old; Isn’t it?
“Fuelled by rapid economic growth, the shape of the economic pyramid is changing in many developing countries leading to a rapid emergence of the middle class. Companies seeking new profitable opportunities are much better off targeting this vast new pool of consumers — the fast growing middle class — in the emerging economies, especially China and India.”
- Isn’t the middle class you mention “emerging” because poor people are breaking out of poverty? A great thing, but considering the ramifications of a burgeoning middle class who aspire for more and more: who consume at alarming “American” rates. The planet can only support one SUV-driving, McMansion-laden, disposable culture -U.S.A, Professor.
- It is highly apparent that corporations who hold the purse-strings also hold the key to hard and soft power. They control culture, habits, and to a great extent, aspiration! It is corporations, I argue, that should be stewards of our limited resources for their own future benefit. Trite, I know; but the future of humanity sort of depends on it.
p.s. By the way… Your other argument, about Fair & Lovely skin whitening lotion… I blogged about it earlier. Fascinating argument. You’re a business school professor in the largest free market economy in the history of the world; I’m assuming you are pro-consumer choice. What is your opinion of botox and tanning salons? Do you also look down on them in disdain (it’s okay if you do, because I do too). As long as consumer protections are in place and the products are deemed safe, if consumers gain utility from them, it is not fair to admonish Unilever for purchasing another brand and continuing to sell its products. Right?
Thanks for reading– I welcome your sage response.
“How long? Not long, ’cause what you reap is what you sow.”
- “Wake up”, Rage Against the Machine (adapted from MLK’s “Our God Is Marching On” speech, March 25 1965)
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