We must see India and Bharat as one

Image: Kent Coston Horner / AFP for Forbes India
C.K. Prahalad, Paul and Ruth McCracken Distinguished University Professor

One of the debates from the beginning has been whether it is fortune at the BOP vis-a-vis fortune for the BOP. Where do your thoughts on this stand?
It is a silly debate. It’s not either-or. If a micro-finance institution (MFI) lends at 20 percent interest and makes money, it’s fortune for the MFI. But if the alternative for the poor is to borrow at 150 percent, is it a fortune for the borrower as well? She is reducing her interest burden. No business can sustain itself if there is no value created for the consumer. If both parties don’t get value, there is no transaction. That’s a truism in business.

Can we say that poor people have no value for time? Take the example of the chulha where we use pellets instead of branches, grass, and firewood. Now the villagers don’t have to walk in the sun for three-four hours to get firewood. In the short term there can be asymmetry of value, but people will find alternatives.

There are so many MFIs in India — everyone is trying to give money away because they think there is value here. Business can survive only when there is joint value for the consumer and the firm. The cost to the poor is going down. In the long-term, competition will drive asymmetric profits away.

If I am poor and I have no choice but to borrow from the moneylender, I am dealing with an inefficient local monopoly. We have to break those by bringing the benefits of an organised sector that competes and is more transparent. 

We need to look at the institutional basis for long-term efficiency and I define long term as 10 years, rather than short-term profit making by some deviant organisation. If you have 1,000 people giving microfinance and five do something stupid, you can’t take the example of these five and think that everyone is bad.

In the last five years, what are the key lessons that have emerged about the rules of engaging with BOP markets?
The traditional approach to poverty alleviation assumed that we — the elites — have to tell the poor what to do. While we must enforce global standards, global technology and the global ability to organise, we also need to have local responsiveness. Co-creation is an integral part of serving — there are a lot of knowledge and capabilities in the poor. People are smart. We were developing a chulha with British Petroleum. When we talked to women in villages, we received a lot of suggestions for improvement like the inclusion of a fan to regulate the flame; or to get 45 minutes of cooking time to cook a full meal per load of pellets and not 35 minutes.

The BOP concept talks of just corporate-led social transformations. Do you see a role of the state in this?
I think there is some role in making healthcare, education, and information infrastructure easily accessible and available. This would be public-private partnership rather than the public sector assuming that they can deliver at a lower cost and efficiently. The private sector has the motivation to be efficient. The public sector can provide the infrastructure and support base. Your maid will probably, despite her constraints, send her child to a private school. Your maid will want her kid to get an English education. The poor demand value and they want good quality.

Critics of the concept say it is not how big it is made out to be. What is your evaluation of the real size of the BOP opportunity?
People ask the question of value versus volume. They concede that if there are 500 million people that we can serve but the value per person will go down so the overall margins will go down. The value in terms of margins and profits is lower than the top. Yes, you are right about this.

But we need to change the business model. Look at Airtel. They have converted all fixed costs to variable costs. Instead of looking at ARPUs [average revenues per user], they look at profit contribution per minute. They are agnostic to the rich and poor, and the urban and rural.

Unless you change the business model you won’t crack this opportunity. I don’t think Airtel is complaining about moving into rural India. Innovation is at the heart of going after the BOP. The size of the opportunity is at least 4 billion consumers globally. Airtel is negotiating with MTN — if they bring the same discipline they have learnt in India to Africa, look at the potential. If you break the code, you can take this model to advanced countries as well — and make more money there. The Tata Nano can sell in Europe. Innovations can travel.

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