Bottom of the Pyramid: A Corporate Economist’s Perspective Paul Thomas Chief Economist Intel Corporation The Bottom of the Pyramid in Practice University of California, Irvine June 2, 2009

2 What is BOP? The poorest x Billion people in the world (people, not countries or regions) on a per capita basis (not household or family) –Per capita income less than $2 a day Why a pyramid? An empirical claim or poetic license? What happened to the Emerging Middle Class? –Answer: That was a different conference

3 Marketing Hype? (We are among friends, right?) Starting from the bottom, how many people are in families earning less than $2 per day? –Probably a good deal less than 4 billion people, maybe 2 billion? How much purchasing power do these people have? –Do NOT use PPP. Why not? –Should we adjust for hidden economy? –Don’t exaggerate – these are poor people, aren’t they? Probably have income of about $1TN to $2TN, lots of money but lots of people and needs

4 What are real issues for BoP? Can be mired in poverty Low life expectancy, high infant mortality Often one setback (disease, injury, monsoon, crime, war) away from disaster Social and legal barriers to progress –Role of neighbors and local elites What if adjust for quality of life? –Even poorer in spite of PPP and social capital arguments

5 What are hopeful signs for BoP? Rapidly rising per capita income in China, India, Southeast Asia, Emerging Europe, Latin America, Middle East, Africa through Why? –Community, NGO, and government programs? –Market growth? –Technology? Distribution of income –National convergence –Divergence within nations BoP population diminishing, income increasing

6 Too poor and too different to be viewed “just” as consumers? Claimed that need to view BoP as potential producers and partners –Is this different from normal corporate model? Local support and barriers Brand management Customers as community: Apple, Amazon, Microsoft, Toyota, Honda, Avon, Johnson & Johnson Romance of BoP

7 Inappropriate technology is real danger although over- diagnosed Delivery and payments probably do need to be customized Customers and fellow suppliers as partners: real potential for improved design and usage models –Claim: Digital products are ALWAYS used in surprising ways (CPUs – Tedlow story) –Second claim: Feedback from BoP to ToP inevitable Practicalities of BoP

8 All new markets surprise, including BoP Every market is potentially disruptive, including BoP –Can be good or bad for company and elites –Often good for consumers and for social progress Need to watch and correct for negative externalities Digital inclusion is package of goals and programs that has own momentum, very much owned by users who define themselves as partners. Practicalities of BoP

9 Sizing questions, snapshot and trend Need for product variation? Distribution costs, local production costs Role of customer in defining usage and shaping product Transaction cost mitigation – technology and institutions Role of government, NGOs, elites Role of markets, large and small businesses Economics questions about BoP