Turning the page…

Another interesting year is rapidly winding down. This year, I had the chance to work with many gifted business and tech leaders, but it was particularly satisfying collaborating with innovators in developing regions — the Sub-Sahara, the Middle East and South Asia.

It’s time for Western multinational companies — especially those in the customer-facing sectors — to enter developing markets where consumer-led growth is robust but capital and resources are in short supply.

Many Westerners have misconceptions about working in emerging markets. For example, they assume that the transfer of knowledge flows only in one direction — from us to them. But our clients in developing regions bring a keen understanding of their markets and what’s needed to elevate their businesses. We typically learn as much from them as they do from us.

Innovation Hothouses

Some of the most interesting business and technology breakthroughs are now coming from developing markets which have become hothouses of disruptive innovation. Behold the $2,500 car, the $25 business hotel room and the $25 mobile handset that provides service for just 2.5 cents a minute.

Developing innovators are finding novel ways for using mobile phones to perform vital functions like transferring money, paying bills, monitoring elections, diagnosing and treating illnesses, and buying and selling food. Each of these breakthroughs was created by inventive, driven entrepreneurs and engineers to improve the lives of consumers in their markets.

Those who aspire to work with innovators in developing regions must recognize the unique challenges that they face.  While conditions are generally improving, operators are often grappling with government red tape, dodgy distribution networks and difficulty securing credit. They demonstrate in quotidian ways how to overcome the kinds of constraints that would crush many Western enterprises.

Price of Admission

To contribute to and benefit from opportunities in emerging regions demands the wise use of capital, talent and resources. Understanding the market and culture are essential. Patience and perseverance are crucial.

Working in these markets also obliges us to give a portion of our time and resources to lend a helping hand where it’s needed the most. Whether that means donating digital equipment to bridge information gaps or mentoring a new generation of leaders, each of us can have a lasting impact.

Serving developing markets isn’t for everyone. For those who are fiercely determined to make a meaningful contribution on a global stage, the rewards outweigh the inconveniences.

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Want more?

I suggest a book, Winning in Emerging Markets, by two Harvard professors, Tarun Khanna and Krishna Palepu. They write, “Companies with ambitious emerging market growth strategies have no choice but to engage deeply with these economies – but the complex nature of these markets has made success elusive.”

Also have a look at McKinsey On Africa — a continent on the move, a “box-set” of essays and interviews about the opportunities and challenges in Africa.

In prior posts I’ve looked at how mobile phones are being used in emerging markets including in this tribute to Professor C. K. Prahalad who died earlier this year. His sage advice resonates. “Focus on becoming part of global citizenry. In exchange for the opportunity to participate everywhere/anywhere in the world you have the obligation to do something productive, which will improve the world.”

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Distinguished scholar and visionary

The distinguished business scholar, C. K. Prahalad, died unexpectedly last week of a lung ailment at the age of 69. His contributions to the pursuit of business strategy and innovation are unparalleled.  He’s had an enormous influence on my work and that of my peers.

Dr. Prahalad was more than a celebrated management guru, he was a visionary.  He redefined the way that a growing number of global businesses deal with developing markets, and he helped to shape a new economic paradigm.

The Indian-born Prahalad received his doctorate from Harvard and taught at the University of Michigan’s Ross School of Business, but he never strayed far from contemplating the social and economic issues that affected his native India.

A recurring theme in his work concerned the centrality of the customer in today’s global, interconnected marketplace. He urged business leaders to “co-create” or develop products in tandem with their customers.

During the much of his career, his focus was on corporate strategy at multinational enterprises. Among his  notable works were “The Core Competence of the Corporation” (Harvard Business Review, May-June, 1990), and a 1994 book,  Competing for the Future, both of which which he co-wrote with Gary Hamel.

The Bottom of the Pyramid

However, C. K. Prahalad is best known for his 2004 book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.  In that work, he argued that businesses stand to reap benefits from serving the world’s poorest people or those at “Bottom of the Pyramid” (BoP) who live on $2 or less per day and who comprise a majority of the world’s population.

“Four billion poor can be the engine of the next round of global trade and prosperity,” he wrote.  “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”

His view of serving consumers in emerging markets, or “inclusive capitalism”, was eye-opening for many business leaders who had long ignored the needs of the poor and, in so doing, missed important opportunities.

Accessible and affordable products

Dr. Prahalad identified several obstacles in serving BoP consumers. For example, he observed that poor consumers typically have unpredictable income streams and they subsist on daily wages. They tend to buy only when they have money on hand, and only what they need that day.

Accordingly, he pointed out that single-serve packaging, for items like shampoo, condiments, tea and coffee, and aspirin, is well suited to this population, noting that a single-serve revolution is sweeping BoP markets.

In order to make products accessible and affordable for BoP consumers, Dr. Prahalad challenged business leaders to re-think traditional value chains by determining which components can be outsourced and which need to be “centralized” to minimize costs while maintaining quality.

Dr. Prahalad also recognized that emerging markets are “laboratories” for innovation.  He argued that reverse or “trickle up” innovation — goods and services made in and for developing markets — can transform industries in developed markets.

Examples  of “trickle-up” innovations include micro-lending, mobile-banking (“M-banking”), low-cost mobile phones, low cost hotels, and even car manufacturing where Tata Motors’ Nano – a car made for Indian consumers that sells for $2,000 USD – is slated to be sold in developed markets.

Lessons learned

Western businesses have only begun serving BoP markets, but a growing number of us are learning from consumers and entrepreneurs in developing markets about how to restructure our own business models.  The lessons we’re learning about lean manufacturing and virtual distribution chains from BoP markets are already transforming global markets.

The most profound change that we in the West have in serving BoP consumers is one of attitude. As we drop our assumptions and learn to better understand the needs of low income consumers, we’ll be able to tap the full measure of opportunities that Dr. Prahalad envisaged.

C.K. Prahalad spoke poignantly about how much the developed world can gain from serving and ultimately raising the living standards of people at the base of the Pyramid. He’s inspired my colleagues and me to see both developing markets and consumers through sharper, more accurate lenses, and we owe him an inestimable debt of gratitude.  He’ll be sorely missed.

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As always I’d appreciate your perspective.

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Want more information about Dr. Prahalad? Here is the Times Of India’s eulogy.

This is an ’07 video clip featuring his discussion of  “the good and not-so-good” news about globalization’s impact on the Bottom of the Pyramid.

This video features an interview with Dr. Prahalad via Thinkers50 which named him “the most influential business thinker in the world” in 2009.  Here is his keynote address to the Acumen Fund Fellows Class of 2009.

I  recommend Dr. Prahalad’s ’08 book, New Age of Innovation, co-written with M. S. Krishnan.

Finally, here are assorted posts on this blog referring to Dr. Prahalad and emerging markets opportunities and issues.

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In my lifetime, conditions have grown immeasurably better, freer and more prosperous for a majority of humanity, yet hand-wringing about the miserable remains the reflex mode for most coverage of planet earth.

Nowhere more so than in Africa, from which I’d just returned when the e-mail landed. During a short stay in Ghana, which will hold free elections in December, Vodafone had bought a majority stake in Ghana Telecom for $900 million (entering a fiercely competitive mobile-phone market) and I’d heard much about 6 percent annual growth, spreading broadband and new high-end cacao ventures.

Accra, the capital, is buzzing. Russian hedge funds are investing. New construction abounds. Technology enables people in the capital to text money transfers via mobile phone to poor relatives in the bush.

I think most of Cohen’s points are well taken. He doesn’t mention the discovery of oil off Ghana’s coast and the country’s fiber projects or the investments being made by multinationals in the country’s business infrastructure.  The business climate in the region is improving, albeit in successive approximations.  The country’s services sector — chiefly teleco and financial services — are contributing to Ghana’s high annual growth rate.  Inflation is a growing concern, but so far it’s been manageable.  The process leading up to this December’s election should be interesting.  So far so good.

It’s also true that Africa’s success stories aren’t newsworthy to many news consumers.  We mostly hear about war, corruption, disease and rampant poverty.  On this point, I recommend Charlayne Hunter Gault’s “New News Out of Africa: Uncovering Africa’s Renaissance,” — it’s  chiefly about South Africa, but pertinent to the problem of media coverage across the continent.

If Ghana’s political environment remains stable and forward-looking, the country will be in a position to contribute even more of its stalwart intellectual capital to a “globalized” resource (R=G) community in the coming years.  So, even if the global media is fixated on the region’s challenges, the numbers will support a different story.  So look for Ghana and other gazelle nations of the sub-Sahara to lead the way.

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The duo discusses their book in the New Age of Innovation blog where Prahalad asserts that our industrial system has reached an inflecton point.

He writes,

“Ubiquitous connectivity (e.g. cell phones and PCs), digitization, convergence of technology and industry boundaries (e.g. consumer electronics, computing, communications), and the emergence of social networks have collectively put a turbo charge on this transformation. This transformation is affecting all industries.”

The transformation, he argues, is changing the way firms create value and, therefore, the way we all work.

He poses the following questions:

a. How are these trends playing out in your industry? Obvious impact (e.g. advertising, music industry) or subtle but significant (e.g. insurance) or weak signals for now but accelerating (e.g. shoes)?

b. Is there an emerging consensus among your colleagues on how it will transform the way you work? The way you approach your customers?

c. How will it impact the work of CIO/CTO/HR professionals? How well prepared are you for the changes needed in the basic approach to the function and the new skills needed (e.g. global project teams, flexible and resilient business processes)?

d. Will the nature of relationships between the CEO, business unit managers, and CIO/HR change? Should it?

e. Do your colleagues see IT as strategic or do they still persist in believing IT does not matter?

This transformation in business is dramatically changing the way firms will create value. How shall we adapt our business models to operate successfully in the new paradigm?

Good questions.

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