The Business Model that Ruined the World

Written by Martin Kruse

Back in 2004, the influential book The Fortune at the Bottom of the Pyramid was published, written by Professor C.K. Prahalad. In his book, Prahalad argued that the four billion people who earned less than USD 1.500 a year were ignored by global corporations, even though they represented an enormous unexploited business potential if you knew how to use the right business models.

These included, among other things, “special packaging for daily purchasing, and value pricing.” What Prahalad referred to was the fact that the poorest people in the world may not have the money to buy an entire pack of chewing gum, but a single piece of gum is within their financial capacity.

So, large companies should package their products in smaller quantities. Prahalad summed up the challenge like this: “In short, the poorest populations raise a prodigious new managerial challenge for the world’s wealthiest companies: selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive, environmentally sustainable, and economically profitable ways.”

What was the outcome of adopting the 'right' business model?

Now, almost two decades later, we can look back at the development in the world’s poorest countries. In China, infant mortality has been reduced from 3 to 0,6 percent since 2000, many African countries have seen GNP growth rates of more than 10 percent, and the proportion of the world’s population living in extreme poverty has been reduced from 29 percent in 2000 to approximately 8 percent today.

Today, large multinational corporations are present in almost all growth markets and have adapted their business models along the lines laid down by Prahalad. So, on the surface, the development seems to have progressed as he predicted.

However, this is not the case, for Prahalad’s advice was only followed in part. In the most poorly regulated countries where multinational corporations operate, the environmental aspects stressed by Prahalad have largely been ignored. The result is no less than catastrophic.

The most immediate consequences have to do with trash and pollution. Detergents, cleaning products, and foods that are sold in one-litre bottles in the USA and Europe are sold in Asia in portion sizes and packaged in glittering plastic. This creates a massive waste problem which is made worse by the fact that waste management in some of these countries is poorly functioning or even non-existent.

For visitors who travel to the countries like the Philippines expecting to see palm tree-lined white beaches, it can be a shock to see them turned into rubbish dumps. And to the locals, that is a problem because it affects one of their most important sources of income, tourism. In some places, locals agree to organise beach clean-ups but this is a Sisyphean task. The ocean keeps washing plastic ashore.

Will the plastic in the seas surpass the number of fish?

The threat to the tourism industry is far from the worst part. The catastrophic waste problems also have a profound effect on sea life. Corals and fish may ingest microplastics and get a false sense of “fullness” contributing to biodiversity loss.

Microplastic also contains carcinogenic materials such as PCBs and these substances work their way up the food chain and end in the bodies of poor people living in coastal areas who get a large part of their proteins from fish. The sustainability of fish stocks is already declining and may be additionally threatened by marine plastic pollution. This adds more pressure to areas with food insecurity, such as Asia and Africa, where fish make up an essential part of the diet.

According to the UN Environment Programme, 99 percent of all marine birds will have consumed plastic in 2050, which may influence the ecosystem in yet unknown ways.

Since Prahalad wrote his book, the consumption of plastics has been steadily increasing and the quantity of plastic that is neither recycled nor burned but ends up as rubbish on the ground or in the ocean is frightening. World Economic Forum reports that by 2050, the mass of plastics in the world’s oceans will exceed that of fish.

Prahalad was right when he said that the West could contribute to improving life for the poorest people on the planet. The poor have become better off and have gained access to services and products that were not available to them previously. The same development has created enormous plastic pollution in the ocean, and in the long term, this could make it difficult for the same parts of the world’s population to secure their access to important food sources.

It does not have to be that way.?In addition to improved regulation, enforcement of the law, radical cultural changes, and innovation of waste systems. A solution requires that Western companies operating in poor countries read Prahalad and take note of his important message about sustainability. Without an environmentally sustainable business model, their business model will not be economically sustainable in the long term either.

CIFS is currently cooperating with the Danish NGO Plastic Change on creating its vision for a waste-free future.

Reach out to Director Lasse Jonasson and Futurist and Senior Advisor Martin Kruse if you want to learn more about climate futures.

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