Arnold Kling

Opportunity in Poverty

Arnold Kling, Great Questions of Economics
Previous Entry Next Entry

In a long article in Strategy+Business, authors C.K. Prahalad and Stuart L. Hart argue that corporations should pay attention to opportunities in the poorest nations. They point out that fewer than 100 million people have per-capita incomes of $20,000 or more, and only another 1.5 billion people have per-capita incomes of $1500 to $20,000.

The authors point out that there are political challenges that companies must meet.

Empowering the poor threatens the existing power structure. Local opposition can emerge very quickly...To overcome [these] problems, multi-national coporations must build a local base of political support...

Given the difficulty and complexity of constructing business models dependent on relationships with national or central governments (e.g., large infrastructure development), we envision more alliances at the local and regional level. To succeed in such alliances, MNC managers must learn to work with people who may not have the same agenda or the same educational and economic background as they do...

MNCs accustomed to Tier 1 markets think in terms of capital intensity and labor productivity. Exactly the opposite logic applies in Tier 4. Given the vast number of people at the bottom of the pyramid, the production and distribution approach must provide jobs for many...

Discussion Question. Given the nature of the challenges, are smaller companies actually better suited than large multinational enterprises to do business in poor countries?

Return to top