Currently on sabbatical from the University of Michigan, Prahalad also runs a San Diego-based technology company, PRAJA Inc. It has helped launch a software program for the Project Clearinghouse, a service run by Washington's World Resource Institute, that enables companies and organizations to locate information-technology projects in poor nations. Recently, Prahalad discussed his new initiatives with BusinessWeek correspondent Pete Engardio. Here are edited excerpts from their conversation:
Q: Why should huge multinationals bother with the world's poor?
A: Because they're a growth opportunity. We cannot have 5 billion well informed but disenfranchised people. But look at what has been happening on the streets of Genoa, Prague, and Davos. It's clear that poor people are getting a voice.
Another reason is that, contrary to popular view, the poor actually can be a source of innovation and creativity. The poor of the world adopt the most advanced tech faster than we in the U.S. because they have nothing to forget. In U.S., all new technologies are substitutes for existing technology. So we have to absorb [the] cost of switching. Not so in developing nations.
Q: You've likened the U.S. company approach to globalization a decade ago to "corporate imperialism," and you note that many strategies didn't work. How should companies approach emerging markets?
A: Increasingly, companies need to address the issue of whether their strategy should be asset- or access-centric. I believe they should focus on access. If you try to get market access through investment, you can only reach a niche market. The bottom line is that the next round of global expansion is as much about imagination as resources. Putting a billion dollars down does not involve any imagination.
Q: What are some of the lessons companies have learned?
A: One of the big lessons from the last decade is that companies should get plugged into infrastructure that may already exist on the ground. In some cases, you have to build new infrastructure, such as telecom networks. But in many countries, there already is a significant infrastructure for logistics and distribution.
Post offices and train stations are critical, for example, because that's where people congregate. The postal department serves every village throughout a country. In India, rail is very efficient. There are companies, such Hindustan Lever, that even get access to every village through bullock carts and camels. That's not the same as using 16-wheel semis on highways. It's easy to dismiss existing infrastucture without understanding the economics. In Brazil, Avon has $1 billion in business using Avon ladies to take products into the Amazon. They handle distribution, provide market expertise, and serve as the credit and collection agents.
Q: How should companies deal with local interests?
A: In order to work smartly, you can't underestimate the impact of government agencies, nongovernmental organizations (NGOs), and existing firms. You need to learn how to use them, how to co-opt them, how to understand their agendas. They may be more powerful than in developed markets. These players have access to the media and can mobilize fast. If they're interested in you, it makes it a lot easier. So everyone is starting to understand that.
When Cargill went to India 11 years ago with sunflower seeds, it had its offices burned twice. Today, however, they're a very significant company. They have a big part of the trade in feed and petroleum projects. They now understand how the system works. The idea is learn how to use collaborative arrangements, from local sourcing to co-creation.
Hewlett-Packard is working a lot with NGOs in its e-inclusion initiative (see BW, 8/27/01, "Smart Globalization: Hewlett-Packard") in Costa Rica, Senegal, and India. This is an attempt to go to the bottom of the pyramid. If you want to digitize villages, you have to deal with all the local issues.
Q: You're a big fan of telecenters, which offer computer services to villages and communities. Why?
A: To operate in emerging markets requires a basic departure from the way we think right now. For example, to get access to information does not require ownership of PCs or cell phones. You also could rent them. If there were the equivalant of coin-operated laudromats for PCs and cell phones, people could get access at a very low cost. With a single Internet connection, you can serve 20 to 30 users. And if they can get access, they can get information right away to run businesses.
Therefore, the digital divide becomes less onerous. So for a telecenter to be successful, you need not look at the number of Internet users. Look at the catchment area, the number of people these centers can serve.
Let me give you an example. Fisher folk in India now use cell phones on their boats to get prices for their fish before they reach shore. They can now basically hold auctions. The next phase is for them to download info on a PC to find out where the fish are, using advanced satellite imaging. Then they can auction the fish before they even catch it. This can change their lives.