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Entries in bottom of the pyramid (8)

10:52AM

Great "Bottom of the Pyramid" logic

WSJ story on multinationals finding steady profit in marketing to the poor, who offer a "relatively stable demand":

Analysts have long argued that companies selling products and services to people earning less than $4 a day can outperform in tough times.  This is because consumers still must buy food, soap and other basic goods when the economy is bad, even as middle-class buyers cut back on discretionary items like fashion or gadgets.  Companies selling everything from cheese to diapers to frozen fish ahve discovered in Indonesia that they can turbocharge growth and add more stability to sales during slowdowns by offering small package sizes that are more affordable for the poor who have limited spending money on any given day.

One nit:  "Analysts have [not] long argued ..."

That was C.K. Prahalad's Bottom of the Pyramid logic that was first opposed, then ridiculed and now gets passed off as the conventional wisdom of the analysts.

Simplistic point, but smart people can make a lot of money off such simple stuff.

8:46AM

The rise of the rural market

WSJ story on GM betting big on China's rural market and FT story on Lenovo planning to use the selling expertise it gained there to penetrate similar bottom-of-the-pyramid markets in Indonesia, Brazil, Mexico, India and Turkey.  

Per the chart above, you can see GM's logic plainly:  China is already a market roughly equal to its US share.

Per both, you begin to understand the logic that says, To sell globally is to succeed first in China.  Why?  It's not just the market size, but the BOTP experience gained.  Thus the larger logic of allying with Chinese firms as they go global.  Master the one, progress to them all.

The rise of the global middle class necessitates being able to sell in the rural market, because that's where a good chunk are located amidst all the urbanization between now and 2050 (we basically double the number of urbanites globally from 3.3B to 6.6B).  In marketing terms, this is Leninist-Maoist:  Go back in time and catch your target in their pre-branded state!

First car and PC sale is like first vote as adult:  brand affiliation is often set for life, so the effort is more than worthwhile for a GM and Lenovo.

12:09AM

IBM follows Bharti Airtel into Africa

You remember my WPR telecom special feature a while back, where I highlighted Indian firm Bharti Airtel's purchase of Kuwaiti firm Zain's mobile customer base in Africa.  In that piece, I noted the Bharti model of subcontracting most of the basics while concentrating on expanding the customer base.  

Here, in an NYT blog, we see how Bharti is pulling along longtime partner IBM to the tune of a $1.5B investment:

Samuel J. Palmisano, I.B.M.’s chief executive, doesn’t jet around the world to make an appearance every time the technology giant wins a services contract. But the announcement Friday morning in Nairobi is different, says I.B.M.

[Bharti Airtel Samuel J. Palmisano, I.B.M.’s chief executive, left, with Sunil Bharti Mittal, the chairman of Bharti Airtel.]

I.B.M. will supply the computing technology and services for an upgraded cellphone network across 16 nations in sub-Saharan Africa. Its customer is India’s largest cellphone operator, Bharti Airtel, which paid $9 billion a few months ago for most of the African assets of Kuwait’s Mobile Telecommunications Company, or Zain.

Under the 10-year agreement, I.B.M. will handle customer service for Bharti and provide the hardware, software and services to run everything from billing and call-traffic management to delivering new services like music and video. The deal takes the broad partnership between Bharti and I.B.M., begun in 2004, beyond India. I.B.M. is not disclosing the dollar size of the deal, but analysts estimate it at more than $1.5 billion over the decade-long span.

The Bharti contract also punctuates I.B.M.’s Africa strategy. The company’s presence in Africa dates back 50 years, but in the last five years I.B.M. has invested $300 million in the region to build data centers, add country offices and foster technology training programs — and it plans to expand aggressively in the region.

“This is a huge step forward for I.B.M. in what we think is the next major emerging growth market — Africa,” said Bruno Di Leo, general manager for growth markets for I.B.M.

Though it looms small in the global technology market today, Africa is primed for growth, according to Frank Gens, an analyst at IDC. “And I.B.M. is, as it’s done before, getting in on the ground floor,” Mr. Gens said.

The company’s strategy calls for the growth markets — not only the well-known BRIC countries, Brazil, Russia, India and China, but also dozens of others — to increase as a share of I.B.M.’s revenue from 19 percent to 25 percent by 2015. That is the equivalent of $1 billion in new sales a year.

In these nations, I.B.M. is targeting the linchpin industries of economies including telecommunications, banking, transportation, health care and energy.

Same logic Enterra brought to our Development-in-a-Box work in northern Iraq: focus on the fastest connections to be built.

A serious example of how seriously multinationals (nay, globally integrated enterprises--to quote Palmisano) are beginning to appreciate Africa's growth trajectory.

12:07AM

China: eager to sell to the bottom-of-the-pyramid and confident of emissions advantage

image here

FT story on how Chinese low-end truck makers, having protected their own turf from foreign competition, are now looking to move aggressively into Gap markets (SE Asia and Africa).  Last year China produced almost half of the world's heavy and medium commercial trucks.  

China's manufacturers don't do so well in the Old Core West because they can't meet emissions standards--not a problem across the Gap.

12:03AM

Globalization's great infrastructural buildout: China's grid

WSJ story by Shai Oster.  Pic is of smart-grid demo center in Yangzhou.

GE, Siemens and others all competing fiercely to gain footholds in "one of the world's biggest markets for advanced power transmission and distribution systems."

I remember talking to a GE exec in 2005 in Williamsburg:  he said GE would make the bulk of their future profits on electricity and water alone--in Asia.

At least $100B spent over next decade, comparable to what we're spending for upgrades to our currently, far too dumb grid.  China likewise expected to spend $60-80B per year on gear, but Chinese companies will dominate there, so the smart-grid operation niche is where it's at for the West.  

The BOP (bottom of the pyramid) logic is clear:  

GE says the size of China's expected demand also offers opportunities for economies of scale in smart-grid products.  Long term, that could make products exported to other countries cheaper to produce.  GE said it would expand research facilities it already has in Shanghai.

Right now, China's losses due to bad transmission are roughly tripled that in the West (8% compared to OECD average of 2.5%).

12:08AM

Zoellick on lessons of "lost" decades

FT op-ed

The fear of a lost decade in the Old Core (a la Japan in the 1990s) must be dealt with by seeing the bottom-of-the-pyramid (that neo-Marxism-killing concept) potential staring us in the face.

Again, the Core survives by integrating the Gap and increasing prosperity there.  That's the dominant system impulse right now:  globalization must expand further to keep on prospering.  Shrink the Gap:  there is no alternative.

Zoellick:

Riots, debts and the creeping fear of a looming Lost Decade - no wonder there is pessimism in Europe. But what we are seeing is not just "financial crisis, part two"; it is "sustainable growth challenge, part one". The difference has implications for policy. Get the diagnosis wrong and the wrong treatment will follow.

Stimulus packages buy time--nothing more.

To avoid a decade-long work-out - with political and economic risks - the world needs stronger growth in developing and developed countries. We are seeing a shift towards a new multi-polar global economy, with better prospects in developing countries than in developed ones. The World Bank projects growth in developing economies of about 6 per cent this year and next - more than twice that of high-income countries. Since 2000, developing countries have accounted for more than half the rise in global demand for imports.

This is not about winners taking all. An acceleration of this shift can help developed countries work out their problems while building a better-balanced global system. A dollar spent on investment goods in developing countries can yield 35 cents worth of demand for capital goods produced in high-income countries, precisely the kind of high-value goods that generate well-paying jobs.

As for de-globalization and retreating from connectivity and seeking refuge in more state-ownership? Complete bullshit:

Financial crises can spur reform. Last year as developed economies focused on Keynesian changes in demand, Asia-Pacific economies were advancing reforms - especially in services - to generate higher growth. As developed economies focused on financial regulation and a broader reregulatory movement, Asians were considering how deregulation might foster innovation and jobs.

Developing countries have understood that a sustainable recovery depends on reviving the private sector. Businesses will invest if the policy environment enables them to turn a profit. More governments implemented regulatory reforms to make it easier to do business in 2009 than in any year since 2004, with nearly 300 reforms registered worldwide. Most occurred in developing economies.

In "sustainable growth challenge, part one", it is not about unmitigated austerity, but finding sustainable paths to prosperity. The EU and developed countries elsewhere need more than fiscal stringency, especially if achieved by piling on more taxes. They need to seize opportunities from growth in developing countries to avoid their own lost decade. There is a broader lesson: in 2008, the crisis was US-led; in 2010, it is European. For both the US and Europe, it is developing countries that point to the way ahead. It is time we took note.

As always, the smartest guy in the room.

Nothing confuses like success. We don't realize how successful we've been in institutionalizing--on a global scale, our American System-cum-international liberal trade order-cum-the West-cum-the global economy-cum-globalization.  It is the gift that keeps on giving, and our disciples now outrank us in the ferocity of their beliefs.

These are the best problems we could hope for at this point in history.

Eyes on the prize, boys, eyes on the prize.

12:04AM

Another Big Pharma purchase downmarket

Abbott buys Piramal Healthcare's generic drugs unit for almost $4B, "the latest in a series of deals by Western drug makers to strengthen their presence in emerging markets including India."

This is good, but it also undercuts Big Pharma's arguments about how there's unsafe drugs in unsafe markets and safe drugs in safe markets and never the two shall meet.

I support this M&A activity because I believe the bottom-of-the-pyramid markets should inform Big Pharma as to how it should be able to deliver drugs a lot more cheaply back home.

And it damn well better do so, because those of us American who buy their prescription drugs via Canadian online drugstores know full well that there's no reason for us to be paying these prices when nobody else in the world--either developed or emerging--seems to.

Abbott's big interest in India is that it's mostly self-pay (70%), as opposed to government-controlled--as in Europe.  So Abbott hopes to balance the belt-tightening in the West with the expanding New Core middle class being willing--and able--to spend more on their healthcare.

12:08AM

The invasion of the hypermarkets!

Carrefour plunges into India, putting all manner of corner markets at risk.  It follows Wal-Mart, which opened its first store in the north last year.

For now, supermarkets account for only 5% of grocery sales in India, where middlemen rule.  Laws prevent outsiders from coming in.

But that will inevitably change, not because of the big, bad foreign hypermarkets, but because India's emerging and voluminous middle class will demand more than one brand of rice at one price.  Already, Wal-Mart plans a dozen more stores and reports very positive noises coming from the bureaucracy on this subject.  Why?  A government-sponsored study said that the small shops, when presented with such challenge, lost a lot in the first year but then recovered, presumably by selling differently to maintain their niche rather than their monopoly.

Long-term project by Wal-Mart and Carrefour.  Only the deep-pocketed should apply.

But serious profits await for the stubborn and persistent.