The Market Opportunity with the Next 3 Billion (Part I)

What is the status quo of the world right now? The question can have multiple answers ranging from total population, consumption or production to broader aspects like economic development or technological advancement. However how far have we really progressed as a civilization over the last few centuries? We have rapidly advanced in terms of population growth for sure (some 6.5 billion+ now), and have moved on to the information age but in terms of the quality of living of the greater mass maybe we were better off in the past.

There are around 2.7 billion people who live below U$ 2 a day. That is 2 out of every 5. The total wealth distribution of the world has become extremely skewed. The richest 0.5% control over 35% of the total wealth. US and Europe collectively own 60%+ of the world’s wealth. The rise of capitalism propelled by the industrial revolutions, world trade, technology, and consumerism means that the total resources of the world get controlled by those with economic might.
The story however is not totally bleak or that of only profit driven institutions, the advanced economies have actually invested U$ 2.5 trillion over the past 60 years into the developing nations. Multilateral agencies, INGOs, donor firms and local NGOs have done a fantastic job in transitioning many developing countries into emerging economies. Yet poverty is still rampant and unless traditional intervention models are altered, the status quo cannot be rapidly improved. Additionally, the recent financial meltdown followed by the Eurozone crisis means that the funding sources may dry up over the coming years resulting in downward pressure on financial aid or grants.
Conversely, we can look at this as an opportunity. Instead of focusing on aid based interventions can we focus on building sustainable models where we work not in isolation but hand in hand with entrepreneurs, investors and businesses to explore new markets, discover more customers and in the process transform the lives of these 2.7 billion people? The solution lies in bringing them as an integral part of the market economy, creating employment and converting them into consumers and not keeping them in fringes of the informal economy.
This is where the “Zero-Based Design” discussed by Paul Polak and Mal Warwick in their book “The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers” can make a difference. The core idea is to look at the BOP market as a fortune (as often emphasized by the late Dr. C K Prahalad). With the infusion of private capital into mission-driven businesses affordable essential goods and services need to be designed for the next ~3 billion markets while generating income and employment for them.
The opportunity space for businesses focusing on frugal solutions is immense starting from providing safe drinking water, electricity, low-cost nutritious foods to affordable education, housing and healthcare. To bring this approach to reality development partners, private enterprise and the government has to act in synergy.
Grameen-Danone launched “Shokti Doi” in 2006 which provides essential nutrients to rural children at subsidized cost while cross-fertilizing the rural business from premium sales in the urban market. This means that the business is sustainable, generates income for future expansion, and creates employment and a market at the rural level. Unilever employs a business model where they employ a female-intensive rural Salesforce who does door-to-door sales of hygiene and personal care products to the rural market (mainly in the form of mini-pack shampoos, and soaps), another example of tapping into the BOP market.
The sheer volume of ~ 3 billion means that if businesses can tap into this market via frugal market solutions the economies of scale would provide the requisite sustainability. At the same time employment would be generated for the BOP and they come in as active consumers thereby enhancing the overall economic size. This seems to be the way forward for us to end poverty and develop as a prosperous civilization.