Position Paper, Values, ethics and sustainability

Journal of International Business Ethics Vol.2 No.1 2009

22

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ETHICAL CONCERNS AT THE BOTTOM OF THE PYRAMID:

WHERE CSR MEETS BOP

Kirk Davidson

Mount St. Mary’s University, Emmitsburg, Maryland, USA

Abstract: There is growing interest in C.K. Prahalad’s concept of attacking world

poverty by encouraging multinational firms to do business with the “bottom of the

pyramid,” the billions of people in the world who must survive on $2 a day or less.

This paper enumerates and describes the ethical problems associated with this

concept and reviews two classic case studies which shed light on our analysis.

Prahalad specifically disassociates his concept from corporate social responsibility.

However, this paper argues that properly understood, the core elements of corporate

social responsibility must be incorporated into bottom-of-the-pyramid strategies if

they are to have any chance of success.

Keywords: marketing to the poor, ethics, corporate social responsibility, bottom of

the pyramid

DEFINING THE ISSUE

Throughout this decade excitement has continued to build about finding a “fortune at the bottom of the

pyramid,” a concept and phrase first introduced by Prahalad and Hart in 2002 and then expanded by

Prahalad in 2005. The authors hold out the hope that by doing business with the most impoverished people

around the world who make up the so-called bottom of the (economic) pyramid, or BOP, firms can not

only make substantial profits but can “bring prosperity to the poor” and help to eradicate poverty across the

globe (Vachani and Smith (2008) set the number of this population at 2.7 billion). This would be the

quintessential win-win situation; it is an intriguing, promising, and seductive prospect. Quite

understandably, these individuals and families who earn less than $2 per day have been largely ignored

because, as a “market,” they have so little to spend and also because many of them are so difficult to reach.

But Prahalad argues that in spite of their deplorably small per capita income the sheer number of these

individuals makes up a potential market of trillions of dollars of disposable income. He cites examples of a

few firms which have found creative ways to design, package, price, advertise, and deliver products for

this market. Hindustan Lever markets its Annapurna brand salt to the BOP in a small package size. Amul, a

large Indian dairy cooperative, has had similar success in marketing its ice cream. An eye care center has

reduced drastically the cost of eye surgery through operational innovations and provides its services free to

those who still cannot afford the price. Casas Bahia, a Brazilian retailer, has made appliances available to

thousands by offering credit to those who previously could not qualify. Hindustan Lever has also pioneered

a new distribution system, described below, using poor but entrepreneurial Indian women as intermediaries

to cover hard-to-reach small villages. Furthermore, Prahalad reasons that engaging these poorest of the

poor in such commerce will eventually turn the income distribution pyramid into a diamond pattern as

hundreds of millions and ultimately billions of the poor move up the income distribution ladder and swell

the ranks of the lower-middle and middle income tiers. Journal of International Business Ethics Vol.2 No.1 2009

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When in 2006 the Nobel Peace Prize was awarded to Muhammad Yunus and the Grameen Bank for their

pioneering work in offering “microcredit” loans to individual poor Bangladeshi women so that they could

pursue small but productive and profitable entrepreneurial projects, the concept of eradicating poverty by

engaging in commercial activity with the BOP gained world-wide attention (see Yunus, 1999). The Wall

Street Journal (Byron, 2007) recently reported that Procter & Gamble has established a unique distribution

system in Mexico to sell small portions (sachets) of detergent and even single disposable diapers through

thousands of tiny tienditas, the closet-sized mom-and-pop stores frequented by Mexico’s poor. The stakes

are high for consumer goods companies, according to the article; revenues gained from emerging markets

accounted for 40% of sales for Unilever and Colgate-Palmolive and 26% for P&G, and the rates of growth

for these market segments far exceed what these companies now experience in their mature, established

markets.

Prahalad’s BOP strategy has some inherent problems, however, and he admits that “profit creation and

poverty alleviation do not mix easily or well” (2005:9). Whether his vision is feasible or whether it is a

“mirage,” as Aneel Karnani (2007) argues in a rebuttal article, is a debate that should engage scholars for

some time to come. In the meantime business schools in the United States from Harvard in the east to San

Francisco State University in the west, and any number of schools in between, have adopted courses that

encourage their students to grapple with the complexities of doing business with the BOP and dream the

perhaps impossible dream.

Meanwhile, as momentum builds behind this concept, and as multinational firms join the search for

this “fortune,” it will be important to explore two related subjects: what do we know about corporate social

responsibility (CSR), stakeholder management, and the proper role of business in the global society that

should guide our progress, and second, what ethical questions are raised in doing business with this vast

group of impoverished stakeholders?

THE TRUE NATURE OF CSR

At its most fundamental core, corporate social responsibility encompasses two related principles. First,

profit maximization is not the sole purpose of the firm. The bottom line cannot be measured only in

economic terms but must reflect, and in some cases be tempered by, social and environmental metrics as

well. This is what is meant by the so-called “triple” bottom line. Second, a firm’s shareholders are not the

only stakeholder group for whom managers bear some responsibility and with whom they have sometimes

important relationships. The constellation of stakeholders for any firm includes its employees, customers,

suppliers, and the communities in which it operates, along with its shareholders. More often than not, and

always with firms of any significant size, the list of stakeholders will include various governmental

agencies, the media, non-government organizations, and advocacy groups.

This interpretation of corporate social responsibility and this evolved view of the purpose of the firm

stand in stark contrast with the position taken by Milton Friedman in his classic New York Times article of

1970. Much has been written since then attempting to paper over the differences: that “doing well by doing

good” satisfies both camps. More recently Porter and Kramer (2006) have argued that a firm’s social

responsibility initiatives must be aligned with its overall strategic direction to be truly effective, that is,

profitable. These attempts at reconciliation, however, miss the point. Profit maximization, which results in

the elevation of shareholders’ interests and the subjugation of all other stakeholders to some secondary Journal of International Business Ethics Vol.2 No.1 2009

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status, can no longer be the only guiding principle of the firm because that is no longer acceptable to the

global society in which firms operate.

Certainly, there are plenty of examples where “doing good” does indeed lead to “doing well.”

Companies have often discovered that by reducing their emission of pollutants or by recycling waste

products they increase their profits while improving the environment at the same time. Or they may find

that paying a living wage and offering adequate benefits will improve morale, reduce turnover, and

increase productivity, thereby helping shareholders, employees, and their communities simultaneously.

These are happy and most welcome alignments, but corporate social responsibility, as properly understood,

requires more. There are circumstances that call for a firm to look beyond profit maximization, go beyond

mere compliance with existing laws and regulations, and pursue a course of action because it is “the right

thing to do.” James Burke, as CEO of Johnson & Johnson, set the standard when, faced with the deaths

caused by a few bottles of cyanide-laced Tylenol, he directed his company to withdraw all Tylenol from

retail shelves across the country – going well beyond the recommendation of the FDA. There certainly was

no assurance that the decision would in the long-run result in increased profits, and the costs of the

decision were enormous, but Burke and the company management believed it was the right thing to do.

Similarly, when Merck could find no government or foundation to finance the development of Mectizan,

the miraculous cure for river-blindness, Roy Vagelos and other executives decided that the company should

itself bear the heavy development costs, and ultimately the distribution costs as well. There was no chance

that through enhanced reputation and in some foreseeable time frame Merck could recoup those costs. It

was simply the right thing to do; to have done nothing with a drug product that has brought such

extraordinary benefit to the world’s poorest peoples was inconceivable (Davidson, 2007).

In planning strategies for doing business with the “bottom of the pyramid” it is of the utmost

importance that managers – especially managers of global enterprises where the reputation of corporate

and brand names is so important – understand the true meaning of corporate social responsibility. Healthy,

satisfactory profits are absolutely essential as is compliance with home and host country laws and

regulations. But corporations today must also fulfill society’s expectations that they behave ethically –

which among other things means that they must not abuse the power which they hold in the marketplace

vis-à-vis their customers – and when and where resources permit that they support the communities which

are supporting them (see Carroll, 1991, p. 39).

ETHICAL CONCERNS

There are two over-riding questions to keep in mind in this exploration of specific ethical concerns. Is the

fundamental relationship between buyers and sellers cooperative or is it adversarial? And to what extent

must global corporations adjust their tactics and strategies, perfected in developed economies, to the

special circumstances and conditions of developing countries? Nowhere are these questions more

apparent or more important than in the search for a “fortune at the bottom of the pyramid.”

Appropriate Products

All products are not created equal in ethical terms, especially when they are marketed to the BOP. Consider

again Procter & Gamble’s pursuit of growth and revenue by selling detergent in single-serve packages to

low-income Mexican women. The utility of this product raises no ethical concerns. But what if P& G were

to choose another of its diverse product categories, say Cover Girl cosmetics? Would we approve if the Journal of International Business Ethics Vol.2 No.1 2009

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firm were to devote its efforts to marketing eye-liner, or lipstick, or blush to these same women,

remembering that the BOP, by definition, have less than $2 a day to spend on all their needs?

What about tobacco products, or alcoholic beverages? There are reasons galore to criticize the

marketing of these problematic products in developed countries to middle- and upper-income consumers.

But the ethical questions are multiplied and magnified when the target market is the BOP, and whatever

amounts are spent by the poor on these products must necessarily reduce the funds available for essential

goods: adequate food, clothing, and shelter.

On this matter the economist and the ethicist will be at odds. The former will argue that each

consumer must determine for himself or herself how much utility is derived from each purchase and allot

the limited funds accordingly. However, Karnani (2006), citing Efroymson and Ahmed (2001) tells the

story of a rickshaw puller who spent twenty cents a day on tobacco, but when asked if his children ever eat

eggs, responded with the question, “Where will the money come from?” In that economy the twenty cents

could have been spent on an egg a day for each of his three undernourished children. Under these

circumstances the ethicist will argue that while we must grant Hasan, the rickshaw puller, his free choice, it

would be wrong for tobacco producers and marketers to encourage and promote such sales.

Karnani goes on to offer another example of a questionable product, Fair & Lovely, a skin cream

marketed by Unilever for lightening the color of dark-skinned Indian women. The television commercials

promoting the product were deemed “racist, discriminatory, and an affront to women’s dignity,” and were

subsequently withdrawn by Unilever. The company clearly has a right to sell the product, according to

Karnani, but to claim that this is helping to eradicate world poverty is “morally problematic.”

Casas Bahia, the Brazilian appliance retailer, is often cited as a good example of a success story in

marketing to the BOP. The firm expanded its business dramatically by selling its products on credit to

millions of Brazil’s poor who had no access to credit elsewhere. An argument can be made that it is a good

thing for these BOP consumers to have the opportunity to purchase such utilitarian items as washing

machines. To be liberated from the time-consuming and energy-draining drudgery of the traditional

washboard is a readily acknowledged benefit. Do we feel the same, however, about saddling the poor with

high interest debt so they can purchase consumer electronics from Sony and Toshiba – video game players,

DVDs, boomboxes, and the like – which Casas Bahia also sells? All products are not created equal in

ethical terms.

Fair Pricing

In theory, every transaction involves a negotiation between buyer and seller over the price of the product or

service offered. The buyer enters the negotiation with a maximum price he or she is willing to pay, and the

seller enters the negotiation with a minimum price he or she is willing to accept. Consider the way we buy

real estate or automobiles or almost anything through online or off-line auctions as examples of this model.

True enough, most of our purchases through traditional retail outlets do not involve outright negotiating

over price, but the theory is still valid. The buyer can and often does refuse to buy a product if he or she

feels the price is too high. This theory holds in developing economies with consumer/buyers at the BOP as

well. The poor presumably have a maximum price they are willing or able to pay for an item, but it is the

seller’s – and more specifically the producer’s – pricing decision that is in question here. Clearly, Procter &

Gamble’s sachet of detergent must be priced at or below what the BOP is willing to pay or there will be no Journal of International Business Ethics Vol.2 No.1 2009

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transaction and, in fact, no market for that product.

An ethical question arises, however, when P & G makes its pricing decision: giving proper account

for the necessary retailer and other intermediary markups, should the company price its detergent at the

maximum price to create and maintain a market or should it price the product a few pennies less? Here

the economist and the ethicist cross swords once again, and we also have another skirmish in the unending

battle between the followers of Milton Friedman and the proponents of CSR. The economist, as well as the

Friedman followers, would argue for setting the price at the maximum to capture every last penny of the

buyer’s “surplus.” But the ethicist and the CSR proponents would remind us that this is supposed to be a

win-win situation and that eradicating poverty is as much a goal as making a profit. Is there an acceptable

compromise under which the producer makes a satisfactory, if not maximal, profit and the BOP consumer

has a few desperately needed pennies left from the transaction? On the other hand, if Procter & Gamble,

Unilever, or any other multinational consumer goods company, in doing business with the BOP, wrung

every possible cent out of each transaction, how would this be perceived by the host country and, indeed,

by the entire global society?

Consider also the microfinance business. In emphasizing the viability of this “industry” Chu (2007)

tells us enthusiastically that the return on equity (ROE) for banks making these loans to the poor often

exceeds the ROE of banks with more traditional loan portfolios. Indeed, Financiera Compartamos in

Mexico and BancoSol in Bolivia, two of the largest Latin American banks in the microfinance business,

achieved average ROEs of 52.2% and 26.3% over the three-year period 2002-04. One might well ask if the

price of these loans to the poor, the interest rate that the borrower paid, could not have been reduced since

they were so extraordinarily profitable to the lenders.

Advertising and Promotion

Under this category there are at least three ethical concerns to be noted. 1) Honesty in advertising: To

misrepresent products and services is wrong regardless of the setting or target market: developed or

developing markets, rich or poor consumers. The critical question is not whether the advertising in

question contains falsehoods but how much of the truth it tells. How explicit does the producer and/or

seller need to be about the characteristics or potential dangers associated with the product?

This concern takes on special importance when advertising to the BOP. Those who make up this

population are not only poor in income; most are poor in terms of education as well, and they lack

experience in evaluating advertising claims that are so much a part of the developed commercial world.

Under these circumstances, the puffery that is acceptable in developed markets may well be unethical if

used in advertising to the BOP.

2) Sales promotion tactics: The use of contests, coupons, rebates, sweepstakes, prizes, and the like are

common in the marketing of consumer goods in developed markets, and marketing textbooks assure us that

such tactics add value to the product and offer an extra incentive to the buyer. Of course, they add a cost to

the product as well that must be recouped by the seller at some point. One of the enduring criticisms of

marketing in general – advertising, selling, and all other forms of promotion – is that all of these marketing

costs are wasteful and that in spite of the textbook authors, they add little or no value to the products

offered. Generally, the rightness or wrongness of these additional costs is overlooked in marketing to the

upper levels of the income pyramid, but the question cannot be ignored with the BOP. Journal of International Business Ethics Vol.2 No.1 2009

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3) Marketing creates demand: Another enduring criticism of marketing is that it stimulates demand by

creating unnecessary wants and needs. There is a well-developed debate on this point by psychologists and

other social scientists: can marketers really “create” demand or are they just bringing to the surface a latent

demand that already exists? This criticism and debate is important but perhaps not critical in developed

markets. In developing countries, however, if marketers use advertising and other promotional tactics to

influence BOP consumers to shift their expenditures from essential to non-essential products, the

consequences would be dire indeed and without question be damaging to the poor. Such tactics might

fatten the firms’ economic bottom lines and undoubtedly would pass legal scrutiny. They would not,

however, pass ethical scrutiny and would ultimately lead to charges of exploitation.

Distribution Concerns

As multinational firms ratchet up their efforts to reach the BOP, they sometimes create new channels of

distribution in the process. Sometimes this will lead to unquestioned benefits for the poor. Project Shakti,

the name given to Hindustan Lever’s innovative channel of distribution, in which poor, rural Indian women

are trained to distribute and sell consumer goods products to hard to reach villages, an adaptation of the

age-old traveling salesman, allows villagers to have access to needed products that would otherwise be

totally unavailable. Sometimes, however, the changes can have mixed results, helping one segment of the

poor while hurting others. Procter & Gamble’s tienditas may indeed bring products to the poor at lower

prices, but they displace the previously existing small retail outlets, the street vendors, and the multiple

intermediary levels so common in developing countries (Byron, 2007). This does indeed raise questions of

fairness.

Branding

Prahalad and others tell us that the BOP often express a preference for branded goods. At first blush, this

seems counter-intuitive; branded items are usually more expensive than their generic competitors, and we

might expect those consumers forced to live on less than $2 a day to always choose the least expensive

alternative. The explanation given is that the BOP are the least able to afford a mistake in their purchasing

decisions and, therefore, will often choose a branded item whose reputation and quality are known.

This poses an ethical issue for consumer goods producers. Brands become widely recognized and

preferred only through the expensive process of advertising and other forms of promotion, and this expense,

of course, is passed along to the consumer in the higher price of the item. We also know that branded items

are often identical, in functional terms, to their unbranded, generic counterparts. Then the critical question

is: does the brand impart real value to its buyer? In developed countries and economies we assure

ourselves that the psychological value imparted by the brand name justifies the higher price, even if there

is no additional functional value. This explanation is less persuasive when applied to the BOP.

Packaging

It is now commonly understood that the BOP, with such limited resources, cannot afford to have an

“inventory” of anything; they buy only what they need to use or consume immediately and then buy more

when they need more. Thus, many of the success stories we have from Procter & Gamble or Unilever are

based on packaging the goods in single-serve quantities, often referred to as sachets. Karnani (2006) tells

us that the paanwallas, the small kiosks of India often sell cigarettes individually, rather than in packs, to Journal of International Business Ethics Vol.2 No.1 2009

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increase consumption, and that in Malaysia cheap liquor is sold in bottles not much bigger than a quarter of

a pint. No large, economy-size packages for this market. However, according to Byron (2007), the

single-serve packages of Procter & Gamble’s detergent may cost twice as much on a per-ounce basis as

larger packages of the same item. To what extent, then, are we eradicating poverty around the globe if the

truly poor must pay this premium? Are the poor misled into thinking that the smaller packages, while

more affordable, are really cheaper, when in fact they are paying more on a per unit basis? In developing

countries there are not the same requirements to display per-unit pricing on the kiosk shelves as is required

in U.S. supermarkets. Prahalad also recognizes that single-serve packaging creates significantly greater

environmental problems in the accumulation of non-biodegradable waste.

Repatriation of the “Fortune”

When Procter & Gamble sells a sachet of detergent or an individual disposable diaper to a BOP consumer

in Mexico or India, what happens to the profit P & G derives from the sale? If it is immediately

repatriated to Cincinnati, little has been done to raise the income level of the BOP and “eradicate world

poverty.” The poor consumer has simply substituted buying the detergent or the diaper for rice or beans

or some other essential product. To what extent is the seller willing to reinvest those profits in the BOP

community?

Leonard (2007, pp. 370-72) provides a checklist of the kinds of products that are most beneficial to

the BOP and where the net effect of the transaction will be the greatest. He points out that a multinational

firm’s product (e.g., the detergent or the diaper) quite likely will have been made outside of the community

and perhaps even outside of the country. In this instance, the net effect of the transaction may well be

negative on the BOP since it substitutes a “foreign” made product for a locally made one. Products offering

the most hope for raising the income level of the community are those which include some local element in

the production or distribution, those which in some way expand business opportunities and improve the

wage-earning opportunities of local workers.

Leonard cites Hindustan Lever’s Project Shakti as an example. Although the products sold are

consumer goods made elsewhere (a slight negative effect on the income level of the community), Lever

created and trained women entrepreneurs to serve as small-scale distributors who could reach the

heretofore unserved markets throughout much of India. The income derived from the distribution services

provided by the women, the skills that they learned, and the accompanying psychological benefits all

served to create a net benefit for the communities.

The BOP as a “Vulnerable” Market

The vulnerability of the BOP consumers is the most difficult issue of all the ethical concerns and has

already been suggested in many of the preceding paragraphs. Traditionally, children have been recognized

as a vulnerable market because of their limited capacity to make rational buying decisions, but in certain

situations senior citizens, women, and minorities have been viewed as vulnerable. Do consumers at the

bottom of the pyramid constitute a vulnerable market because of their (usually) limited education and lack

of experience in evaluating marketing claims? If so, do producers and marketers have some special

obligations in choosing their marketing tactics? How should firms strike a balance between respecting the

dignity and rights of the dreadfully poor to make their own decisions as consumers while at the same time

acknowledging their limitations? Journal of International Business Ethics Vol.2 No.1 2009

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Who should make these consumer purchasing decisions? For example: Tobacco products vs. eggs or other

nourishing food for children, a boom-box vs. a month’s education for a child, washing machines vs. video

game players, and skin-whitening cream vs. shoes. Surely, it would be patronizing, demeaning, and just

plain wrong to suppose that the BOP consumers cannot or should not make these decisions for themselves.

Yet it is equally wrong for producers and marketers to exploit the BOP, to take advantage of their lack of

education and sophistication. Karnani (2006) tells us, “…the poor lack self-control, yield to temptation,

and spend to keep up with their neighbors. In this they are no different than people with more money, but

the consequences of bad choices are more severe for the poor.” The blandishments, the hype, the marketing

tactics that are acceptable in wealthier, developed markets are not appropriate in marketing to the BOP. The

exercise of some restraint on the part of marketers in their transactions with the BOP is essential, but

restraint is not a common characteristic of the marketing profession.

CASE STUDIES AND THE LESSONS TO BE LEARNED

Fortunately, there are some case studies from the business ethics and CSR course material that can help us

analyze the ethical concerns identified above. These cases date from fifteen to twenty years ago, and so

there has been adequate time to learn some lessons from them.

Nestle Infant Formula

For many years, the case involving Nestle’s marketing of its infant formula to third world mothers stood as

a common element in virtually all business ethics courses, and it still finds its way into textbooks on the

subject. This is the case study that most closely fits our interest in and concerns for the BOP. In the late

1970s Nestle came under severe world-wide criticism for marketing its infant formula to poor mothers in

developing countries who had neither the income nor the understanding to use the product properly. Nestle

implied in its advertising that its infant formula was the modern, Western way to feed babies, liberally

handing out free samples without first insuring that there that there would be an adequate supply of potable

water to mix with the powder. Mothers were not warned that after a few days’ use of the formula their own

milk, containing essential antigens, would dry up, nor were those mothers sophisticated enough to consider

whether they could afford to buy the product for an extended period after the free samples were exhausted.

Saleswomen were dressed in nurses’ uniforms to add an aura of medical professionalism to the marketing

effort.

Critics railed against the company publishing slogans such as “Nestle Kills Babies.” Legislative

bodies in developing and developed countries, including the U.S. Congress and the United Nations,

considered what action to take. Eventually, after some years, Nestle and the other infant formula makers

agreed to a code of conduct ruling out the most egregious of the marketing tactics. The lesson to be learned:

When doing business in developing countries, and especially when targeting the poor, multinational firms

have an obligation to use marketing tactics appropriate to those countries and those markets. Tactics that

pass the tests of ethical scrutiny in developed countries cannot simply be translated for use in the BOP

markets.

Reynolds Tobacco’s Uptown Cigarette

In 1989 Reynolds Tobacco, maker of Camel, Winston, and Salem brands, learned from its marketing

research that the preference for menthol-flavored cigarettes was greater among African-Americans than

among white smokers in the United States. To acknowledge this preference Reynolds designed and Journal of International Business Ethics Vol.2 No.1 2009

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produced a brand which it named Uptown. It had a heavy menthol flavor, the color and graphics of the

package were chosen based on information gained from African-American focus groups, and the style of

the package was changed to conform to the way blacks opened the packages. Philadelphia, with its heavy

African-American population, was selected as the site for the test market. Black models were chosen for

the advertising of Uptown, and the placement of billboards was concentrated in black neighborhoods. In

short, it was a textbook-perfect marketing plan for the launch of a new product.

Black smokers liked the new cigarette, and Uptown met with considerable success in the marketplace,

but the test market generated a firestorm of criticism from other elements of society. Church, civic, and

political leaders, both blacks and whites, complained that it was immoral to target African-Americans,

known for having more serious health problems than other ethnic groups, with a product which causes any

number of lung, heart, and other health problems and which contributes to more than 400,000 deaths a year

in the United States. The critics demanded that Reynolds cancel the Uptown test.

Reynolds initially responded that blacks had the same rights as any other group to decide which

products to buy, including even those that might be damaging to their health. The company also pointed

out that it would be patronizing for the company, the government, or any other group in society to make

that decision for them. But the criticism continued with letters to the editors of the Philadelphia

newspapers and sermons from the pulpits of black churches. Finally, Reynolds gave in and ended the test

market when it concluded that the Uptown brand, however successful with its target market, was not worth

the negative public relations from the surrounding society.

The lessons to be learned: While the Reynolds Tobacco experience is not directly related to poor

consumers, and certainly not to the BOP, nevertheless this case has important implications. First, marketers

must please more than just their customers. There are other stakeholders who can have an effect on the

company’s operations and who must be considered. Even though both buyer and seller may be satisfied

with the results of a transaction – whether it be the purchase of Uptown cigarettes in Philadelphia or the

purchase of Fair and Lovely skin-whitening cream in Mumbai – elements of the encompassing civil

society such as the media and various advocacy groups may raise the charge of unethical behavior. Second,

emotion may trump reason. The rational argument defending the rights of blacks and their free choice in

the marketplace got nowhere against the picture of a major corporation targeting a vulnerable segment of

the market with a product as harmful as cigarettes. Third, it is the perception of justice and fairness that is

all important, the situation as understood by the surrounding society. When multinational firms target the

bottom of the pyramid as a profit-making strategy, it may be perceived as exploitation by some NGOs or

even by the host government. All three of these lessons are applicable and important in doing business with

the BOP.

CONCLUSION: CSR MEETS BOP

In The Fortune at the Bottom of the Pyramid Prahalad goes to great lengths to de-link doing business with

the bottom of the pyramid consumers from any notion of corporate social responsibility. Understandably,

he wants to make “the business case” for his vision of eradicating world poverty: that there are indeed

profits to be made – the “fortune” – by the multinational corporations that engage the BOP in

honest-to-goodness, straight-out, buyer-seller commercial transactions. He reasons that the only way to

capture the real and ongoing interest of hard-headed corporate executives is to talk their language of profits Journal of International Business Ethics Vol.2 No.1 2009

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and returns to shareholders, not the soft, mushy stuff of social responsibility. At best, Prahalad is only

half-right. There may be the opportunity here – if we ignore the problems raised by Karnani about the true

size of the market and other criticisms – to enter new, profitable markets. But he is wrong in confusing

corporate social responsibility with charity. It is charity that Prahalad wants to erase from the picture: to

establish engaging with the BOP as a mainstream business activity, not as some peripheral function to be

taken up when profits allow and dropped when they do not.

Corporate social responsibility, on the other hand, is quite a different matter as explained above. In

fact, engagement with the BOP can be successful only if the core elements of CSR are understood and

incorporated into the BOP strategy from the outset. Satisfactory profits are essential, and the financial

interest of shareholders can never be forgotten or neglected, but there are other stakeholders who must be

considered as well. Indeed, engaging with the BOP creates an especially sensitive and complex stakeholder

map. The BOP, by definition, are not “ordinary” consumers, and therefore, a firm’s responsibilities to them

are in no way ordinary. We have explored a lengthy list of ethical concerns unique to the BOP, and there

will be new groups and potential corporate critics who will monitor the firm’s success or lack of success in

finding a proper course through the turbulence of potential criticism. Home and host country governments,

NGOs both local and global, new public media, new supplier networks, new distribution networks all must

be shaped and formed into new stakeholder relationships and responsibilities that are quite different from

the firm’s previous operations.

Ethical concerns, challenges, and problems are an integral part of every business endeavor, because at

the core of all business activity there is the fundamental and natural tension between buyer and seller.

Regardless of country, culture, income level, market served, product or service category, high-tech or

low-tech: this tension is there, raising ethical questions which must be addressed. As has been emphasized

above, engaging in business with the world’s poorest consumers toward the goal of eradicating global

poverty creates its own unique set of ethical problems. Especially for large, multinational firms there is

always the threat that such engagement – not as charity but as a profit-making enterprise – will be

perceived as exploitation and manipulation of unsophisticated and poorly educated consumers.

To avoid this perception requires an understanding of the role of the firm, not simply as a

profit-generating organization, but as an essential part of a larger society. It requires an awareness of the

firm’s responsibilities to its shareholders, but also to a multitude of other stakeholders. It requires that the

firm be a good global citizen, and good citizenship demands that the firm fulfill not only its economic

responsibilities but its ethical and social responsibilities as well. In short, the firm must integrate all the

principles of CSR along with its business planning for the BOP if it is to be truly successful.

The Goldilocks Principle

It is no easy task, however, to find the proper blend of economic and social responsibility that will be

acceptable to the broad society in which multinational firms operate. They must somehow balance their

responsibilities to multiple stakeholders; they must temper their natural drive to maximize profits and yet

achieve satisfactory profits to maintain the economic health viability of the firm in a highly competitive

environment. But where are they to find this proper balance, this middle road? Here is where we might

borrow from the famous children’s fairy tale, Goldilocks and the Three Bears. Just as Goldilocks was

searching for a bed that was not too hard and not too soft, for porridge that was not too hot and not too cold, Journal of International Business Ethics Vol.2 No.1 2009

32

so also are we searching for just the right amount of social responsibility to mix with the firm’s economic

goals. Too little attention to CSR, and the firm, like Nestle and Reynolds, will be perceived as exploitative

and manipulative. Too much attention to CSR, and the firm’s efforts will be confused with charity, to be

increased when resources permit or perhaps eliminated entirely when resources are constricted.

For most global corporations doing business with the world’s most impoverished citizens is new and

uncharted territory. As Prahalad advises, multinational firms should be encouraged to test these new

markets. But it is only by embracing the concepts of corporate social responsibility, not rejecting or

marginalizing them that these business firms have any chance of finding the fortune at the bottom of the

pyramid and that significant steps can be taken toward a meaningful reduction in world poverty.

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Carroll, A. B. (1991). The Pyramid of Corporate Social Responsibility: Toward the Moral Management of

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Quelch J. A., Herraro G., & Barton B. (Eds.), Business Solutions for the Global Poor: Creating

Social and Economic Value. San Francisco: Jossey-Bass, John Wiley & Sons.

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Increase its Profits. The New York Times Magazine, pp. 32-33, 122, 124, 126.

Karnani, A. (2007). Fortune at the Bottom of the Pyramid: A Mirage. How the private sector can alleviate

poverty. California Management Review, Summer, 49(4), 90-111.

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Quelch, G. Herraro, & B. Barton (Eds.), Business Solutions for the Global Poor: Creating Social

and Economic Value. San Francisco: Jossey-Bass, John Wiley & Sons.

Porter, M. E. & Kramer, M. R. (2006). Strategy and Society: The Link Between Competitive Advantage

and Corporate Social Responsibility. Harvard Business Review, December, pp. 78-92.

Prahalad, C.K. (2005). Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits.

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Prahalad, C.K. and S. L. H. (2002, January 26). The Fortune at the Bottom of the Pyramid. Strategy +

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NOTES

1 An earlier version of this paper appeared as a chapter in Sustainability Challenges and Solutions at

the Base of the Pyramid, P. Kandachar and M. Halme, eds., (Sheffield, U.K., Greenleaf Publishing, 2008).

Journal of International Business Ethics Vol.2 No.1 2009

119

Contributing Authors

Gerhold K. Becker is Regular Visiting Professor in the Graduate School of Religion and Philosophy,

Assumption University of Thailand, Bangkok. He is the Founding Director of the Center for Applied

Ethics and a retired Chair, as well as Professor of Philosophy and Religion at Hong Kong Baptist

University. His publications include Ethics in Business and Society, Chinese and Western Perspectives

(1996), Changing Nature’s Course: The Ethical Challenge of Biotechnology (1996), and The Moral

Status of Persons: Perspectives on Bioethics (2000).

Kirk Davidson received a B.A. degree from Princeton University, an MBA from Harvard University,

and a PhD. in Business Administration from Golden Gate University. He spent the first thirty years of

his career in the business world as a retailer with both large and small firms. Twenty years ago he

became a full-time academic and now holds the rank of Professor in corporate social responsibility and

marketing at Mount St. Mary’s University in Emmitsburg, Maryland. He is the author of two books,

Selling Sin, The Marketing of Socially Unacceptable Products and The Moral Dimension of Marketing:

Essays on Business Ethics, as well as numerous chapters in edited books and journal publications.

F. K . M a r s h is an Associate Professor of Management at Mount St. Mary’s University. She received her

MBA from Canisius College and PhD. from the University of Michigan. Her research interests include

corporate integrity and business ethics, leading change in times of structural turmoil, and workplace

spirituality and organizational performance.

Anand Amaladass is Professor-Emeritus at Satya Nilayam, Institute of Philosophy and Culture,

Chennai, India. He was founder-editor of Satya Nilayam Chennai Journal of Intercultural Philosophy

(2002-2007) and co-editor of the Journal of Hindu Christian Studies (1988-2007). At present he is

working on a publication on the “Christian Themes in Indian Art” which will be ready by September

2009.

Songbai Liu is a Professor of Management, Director of Beijing Normal University Libraries, and

Director of the MBA Education Center in Beijing Normal University. His research interests include

management, international management, change management, theory of organization, and strategic

management.

Margit Osterloh is full Professor of Business Administration at the University of Zurich. Her main

areas of research include organization design, knowledge management, corporate governance, open

source software production, and gender issues.

Jetta Frost is full Professor of Organization Management and Theory at the University of Hamburg.

She received her PhD and habilitation in business administration from the University of Zurich. Her

research interests include theories of the firm and organizational as well as knowledge governance in

multidivisional firms and research-based organizations.

Felix Ekardt is a Lawyer, Philosopher, and Sociologist, and Professor for Environmental Law and

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