Introduction
Poverty is a major problem that many countries in the world deal with in the 21st century. This makes it necessary for multinational companies to work together with low-income earners in different countries to develop programs that would help in poverty reduction. This would be more applicable in developing countries since they face numerous challenges. Low-income earners in different countries need to cooperate with multinational companies to raise their living standards.
Aim
This report aims at providing a critical analysis of C.K Prahalad’s perspective about poverty reduction in developing countries. He argues that poverty among low-income earners in different countries can be reduced by involving individuals in economic activities that enable them to supplement their income. Involving individuals in economic activities is a profitable and sustainable strategy. The report further highlights some of the sectors that can provide low-income earners with additional income and how individuals should participate in different economic activities. The report gives insights on how multinational companies can establish businesses in developing countries as a way of reducing poverty. For example, the establishment of businesses that deal with soap and detergents in India, which is among countries with the highest number of low-income earners in the world.
Selling to the Poor, the Problem and its Potential Benefits
The problem
Most people believe that selling products to low-income earners is not profitable. In some countries, multinational companies that target low-income earners even exploit them instead of improving their lives. For example, they employ individuals from poor backgrounds and pay them a little amount of money that does not match the work they do. The companies also use resources meant to be used by low-income earners without providing financial compensation. Although such cases do not happen in all developing countries, it is wrong for multinational companies to ignore low-income earners in developing countries instead of improving their livelihoods by creating opportunities for them to earn additional income. Low-income earners in these countries struggle to work for multinational companies, yet they earn very little. As a result, they do not enjoy the benefits of globalisation. Leaders in developing countries make it difficult for low-income earners to access quality products and services because they create a perception that low-income earners do not have financial resources that can enable them to purchase certain products. Another misconception is that low-income earners do not readily embrace new products and services. However, this is not the truth. The truth is that low-income earners are provided with products that do not meet their requirements and lifestyles. Thus they are locked out of the global economy.
The Benefits of Engaging Low-income Customers
Contrary to what many people believe, low-income earners in developing countries possess a strong purchasing power. Assisting them to increase their purchasing power would be a sustainable way of reducing poverty. For multinational companies to effectively incorporate low-income earners in the larger market, they should abolish traditional business models that target only individuals who earn a higher income. There should be markets for low-income earners because this is one way of involving them in profitable business activities, which contribute towards poverty reduction. It would be impossible to reduce poverty without engaging low-income earners in business activities.
Low-income earners, through the government, have the right to accept or reject products or services provided to them by multinational companies. By doing this, they can foster non-traditional competition in the market. In most developing countries, they endeavour to exercise this right, when they believe that trade or investment deals conducted by multinational companies do not favour them. This enables them to enjoy beneficial market relationships with multinational companies.
India, the Lucrative Low-income Market
The idea of selling products like soap and detergents in India is a clear example of how multinational companies can establish businesses that benefit low-income earners. India is the world’s seventh-largest country, with a population that exceeds 1.2 billion people. It is a multilingual country since it is comprised of different tribes. Despite the uncertain political environment of the country, it is considered to be viable for investments. Bureaucratic structures and poor infrastructure also characterise the country. However, multinational companies that have a global outlook find India a suitable place to establish their businesses because of the country’s potential.
India’s economy is tenth worldwide in terms of stability. The country also has a strong purchasing power. As a result of market-based economic reforms that took place in 1991, India became one of the fastest-growing world economies. It is considered to be among countries that have recorded remarkable industrial growth for many years. However, the country still grapples with corruption, illiteracy, poverty, malnutrition and health care challenges. In 2012, the number of households that were considered to be comprised of low-income earners was 171 million. According to statistics released by the World Bank in 2010, about 400 million people in India were living in abject poverty. This implies that it is important for multinational companies to involve low-income earners in business activities that increase their overall incomes. The companies should not focus on making profits only while low-income earners continue to live in poverty. Low-income earners in India play an important role in raising the country’s wealth since they contribute about 75% of the country’s total wealth.
Research has shown that India has an impressive market provided by low-income earners, although it has not been tapped. Continued abandonment of this market would affect the world economy negatively. Research has also shown that most low-income earners use a big percentage of their income on basic needs such as food, housing, clothing, health care and education. Multinational companies can improve the lives of low-income earners by involving them in different business activities. However, the companies should shift from traditional marketing practices, which target individuals who earn a higher income to practices that benefit both high and low-income earners.
Country Factor Analysis
Political and Legal Environment
India has been an independent country for the last 60 years, making it the largest liberal democracy in the world. The country has a federal government, with a well-established legal system and an independent judiciary. The Indian government has been working hard to shield multinational companies from political interference, something that has increased efficiency and productivity of the companies. India is politically stable most of the times, although sometimes political unrest occurs due to partisan politics. Changes in the political scene lead to changes in the business environment. Generally, the country is a suitable place for investment activities because the government and local corporations strive to develop policies that favour foreign direct investment. This is why companies like Unilever have succeeded in the Indian market.
Economic Environment
A large and growing market characterises India. For instance, its GDP grows by 8% every year. In 2011, the GDP growth was estimated at $3.965 trillion. The country has the third-largest GDP in the world after the United States and China. Despite this impressive growth rate, reports have indicated that the majority of the country’s citizens might remain low-income earners for a long period. However, the country has the potential to attain significant economic growth if its full potential is exploited. It is therefore important for the Indian government and multinational companies to improve the economic statuses of low-income earners by involving them in profitable economic activities.
In 1991, the economic reforms that took place in India introduced significant changes in the country’s industrial sector. For instance, they removed restrictions on imports, introduced foreign competition, privatised public industries, improved infrastructure and expanded industries that produced fast-moving consumer goods. Since then, many multinational companies have moved into the country because of the existence of a friendly business environment. Also, monopoly has been reduced hence paving the way for other companies to venture into the market. This has reduced prices of various products, thus benefiting low-income earners.
Socio-cultural Environment
India is the second-most populous country in the world. The country has four major religious groups, namely Buddhism, Islam, Christianity and Hinduism. Its diversity in terms of cultural values makes it important for multinational companies to know products that should not be traded in the Indian market. For instance, cultural barriers prevent Indians from eating particular types of foods. However, other household products such as soaps and detergents are readily accepted into the market. Also, companies should be aware of acceptable and unacceptable promotional activities in the context of Indian culture. This can be achieved through market studies before entering the market. The traditional Indian society is characterised by a well-defined social hierarchy, which is highly respected. The Indian caste system represents social stratification and restrictions that define Indian culture.
The Indian culture upholds family values, and as a result, parents arrange marriages for their children. Marriages among young people aged below 18 years are common, especially in rural areas. Eighteen years is the legally acceptable age for a person to get married in India. India’s high population, therefore, makes the country a suitable place for multinational companies to start businesses. However, companies should understand how to deal with corruption, which is common in the Indian market. Many corruption cases are reported in India every year, and this might be a problem for multinational companies. Generally, Indian culture creates a conducive business environment for multinational companies to operate their businesses, and this gives them a chance to involve low-income earners in business activities, which increase their income.
Approaches and Methods of Selling in the Indian Market
Multinational companies need to understand the most appropriate selling strategies that can be used in the Indian market. They should identify ways of satisfying the needs of low-income earners by addressing the constraints they encounter. Multinational companies should also change their attitudes towards developing countries. One of the strategies that they can use to cater to the needs of low-income earners is through packaging products in smaller units. The other strategy is reducing the prices of different products. This would benefit low-income earners and create new markets for companies. The companies should also restructure their business models to achieve cost-effectiveness. Restructuring of a business model can be achieved through embracing cost-effective distribution channels to reach all markets. For example, multinational companies can employ locals to assist in the distribution of their products. This would earn them more income and reduce distribution expenses for the company. Multinational companies should also be more innovative to develop products that satisfy the needs of low-income earners.
Low-income earners are always prepared to purchase products so long as the products satisfy their needs and do not infringe on their cultural and religious beliefs. This implies that multinational companies should respect the tastes and preferences of low-income earners. Innovativeness enables multinational companies to provide different types of products, which give low-income earners a wide range of products to choose from. Their major aim is to improve the lives of low-income earners while making reasonable profits. Other different strategies can be used. However, the main objective that multinational companies should achieve is to ensure that low-income earners benefit from their activities.
Conclusion
Multinational companies need to involve low-income earners in their business activities to reduce poverty and improve their lives. Long term solutions should be sought to ensure that low-income earners in developing countries engage in sustainable economic activities. However, to achieve a real business revolution, companies should change their perceptions of low-income earners and developing countries. Innovations create numerous opportunities for low-income earners, and this improves their lives significantly. Multinational companies should develop entrepreneurial solutions to reduce the financial burden of developing countries and create favourable investment opportunities.