Month: July 2001

In a paper written about a year ago entitled “Raising the Bottom of the Pyramid: Strategies for Sustainable Growth”, CK Prahalad and Stuart Hart state:

It is tragic that as a society we have implicitly assumed that the rich will be served by the corporate sector (MNCs) and governments or NGOs will protect the poor and the environment. This implicit divide is stronger than most realize. Managers in MNCs, public policy makers, and NGO activists all suffer from this historical division of roles. A huge opportunity lies in breaking this code – linking the poor and the rich across the world in a seamless market organized around the concept of sustainable growth and development.

Raising the 4 billion poor at the “bottom of the pyramid,” however, will require radical innovations in technologies and business models. It will require a reexamination of the “price-performance” relationships for products and services. It will demand a new level of capital efficiency. It will create a new logic for measuring financial success. It will quicken the penetration of disruptive new, environmentally sustainable technologies. Companies will be forced to transform their understanding of scale, from “bigger is better” to the capability to marry highly distributed small-scale operations and world scale capabilities.
In short, the bottom of the pyramid presents a new managerial challenge one potentially as powerful as the challenge posed by the Internet and e-business.

The emergence of the 4 billion people whom we have called the Tier 4 market is a great opportunity for MNCsThe Tier 4 opportunity is not restricted to businesses serving “basic needs” such as food, textiles, and housing. On the contrary, the bottom of the pyramid represents a massive opportunity for “high-tech” businesses such as financial services, cellular phones, and low-end computers. In fact, for many emerging, disruptive technologies (e.g. fuel cells, wind energy, photovoltaics, satellite-based telecommunications), the bottom of the pyramid may prove to be the most attractive early market.

(The full-text of the paper is at:
http://www.digitaldividend.org/pdf/0203ar02.pdf).

There is a similar pyramid when it comes to the world’s enterprises. At the bottom of this pyramid are over 20 million small and medium enterprises in developing markets like India. How can technology, and especially software, fulfill their needs and aspirations? At the heart of the discussion is the question asked by Prahalad and Hart: How can low cost, good quality, sustainability, and profitability be combined?

There is no doubt that in the last decade, India and Indian programmers have carved out a name for themselves internationally. Companies like TCS, Infosys, Wipro and Satyam are the nation’s pride. They are also incredibly profitable, and consistent in their growth. Much of this growth has come from software services. So, the irony is that while Indian software programmers are the toast and envy of the world and Indian software companies work with the largest and the best companies in the world, there are few Indian software products which have made a mark internationally.

One approach to this software conundrum is to say that why should we (or the software companies) bother to change something which has worked so well in the past decade. This is the same approach has now enabled 4 Indian software companies (Infosys, Silverline, Wipro and Satyam) to list on the US stock exchanges. Why change a winning team?

There is another way to look at this. As Indian software companies offer services to international clients, the IP (intellectual property) that is being created belongs to someone else, and thus Indian companies are leaving a lot of (potential and future) money on the table. There is an obvious element of risk here – risk which becomes harder to justify when one is expected to deliver high, consistent growth to justify their market capitalisations. It then becomes better to take the money instead of trying to worry about market risk.

At the same time, Indian companies (along with similar brethren in other developing markets) face a challenge: the high cost of legal software. A PC is now available for Rs 30,000, while a legal copy of Microsoft Office costs Rs 15,000. Little wonder then that piracy levels run high in many of these countries. This is not to belittle the importance of software. In today’s world, computer hardware may have become a commodity (and a necessity), but software is the fuel to drive a company’s growth. Software is a critical component of the enterprise. And yet, the high costs are scary and unaffordable for many of the companies in emerging markets, especially the small and medium-sized enterprises.

These “aspiring corporate poor” can now think of ASP services providing software functionality on tap, but there are three problems. The first is that of connectivity, which still remains intermittently reliable in most parts of the world. The second is that even for ASP services, the costs are dollar-denominated, while earnings for many of the companies are not. Thirdly, the ASP market is still very much US-centric.

So, then, here is the central issue. Even as Indian software companies help the world’s leading companies with their IT needs, the local (Indian) companies are faced with a no-win situation when it comes to fulfilling their own technology needs. What, then, is the way forward?