Despite their poverty, lower class farmers have the same needs as richer urbanites.
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When rising Third World incomes meet the shrinking cost of technology, multinationals are betting that markets will bloom. In October Silicon Valley's Advanced Micro Devices introduced a $185 Personal Internet Communicator--a basic computer--for developing countries, while Taiwan-based VIA Technologies plans to launch a similar device costing just $100. Motorola last month unveiled a no-frills cell phone priced at $40; the cell-phone manufacturer says it expects to sell 6 million cell phones in six months in markets including China, India and Turkey. "You've got nearly 2 billion people who will be buying a phone--need a phone--over the next five to 10 years," says Allen Burnes, Motorola vice president of high-growth markets. "This is the huge growth opportunity."
High-tech companies are pushing into previously unexplored--and unappealing--markets because most people who can easily afford computers and cell phones already own them; growth rates and profit margins in traditional markets are suffering as too many sellers chase too few buyers. The same situation exists in many businesses, says Prahalad. "The biggest problem facing global companies is the capacity for organic growth," he says. "At the same time, there are 4 billion people in the world saying, 'We would like to be part of globalization too.'"
Prahalad argues that squeezing profits from people with little disposable income--and often not enough to eat--isn't capitalist exploitation. In fact, tapping the spending power of the poor can reduce poverty, he maintains. Expansion by multinationals into new markets creates new jobs--product-distribution networks and shops, for example--and income earned from those jobs ripples through local economies, creating more new jobs, a phenomenon that economists call the multiplier effect. "This creates a large pool of individual entrepreneurs who are participating in an expanded economy," says Prahalad. "The company makes more profit, and the people's lifestyle changes." The poor also benefit because they have access to services such as banking and insurance that once were denied them, he says.
Marketing to the poor is challenging. Just stripping an existing product of features or packaging it in smaller quantities may not be enough to gain customers in this high-volume, low-margin enterprise. "It's not as simple as finding a low price point," says Richard Brown, marketing vice president for VIA Technologies. Company executives need to understand not only what poor consumers can afford but also what they want and can use. Motorola's Burnes says the company went through four redesigns to develop a low-cost cell phone with battery life as long as 500 hours (for villagers without regular electricity) and an extra-loud volume for use in noisy markets.