By Alexandra Dubsky
Emerging markets and the world's poorest people hold to key to ecomomic growth, according to a top economic strategist.
Speaking at the Leaders of Dubai summit last week, economic analyst CK Prahalad argued that the bottom of the world’s pyramid – the 4 billion people that make up the poorest around the globe - could be worth up to US$13.75 trillion annually when corporations understand how to tap their potential.
This market, he said, could be created by multinationals, NGOs and the poor themselves, who he believes will become the middle classes of tomorrow.
He claimed that poor nations are incubating new business models and innovative uses of technology that will begin to transform entire global industries within the next decade, whether they are in the financial sector or telecom services, through to healthcare and engineering.
Prahalad, named by Business Week magazine as “the most influential thinker on business strategy today”, said this change would be accelerated by globalisation, outsourcing, the internet, and the spread of cheap wireless telecom. Few Western corporations are truly using these tools to their full extent, he added, which will put them in danger of being swamped by a new breed of cross-border companies currently operating outside their radar.
The key to business innovation in poorer markets such as India is that the creativity has been generated in highly cost-conscious surroundings, where minimal resources are available but new solutions are being used.
Innovation in nations such as India, with low cost operations and high levels of poverty, can be adapted for the Middle East, according to Prahalad.
He reasoned that the secret to India’s corporate success is not just the low cost of labour. Instead, it is the judicious use of capital investment, a hefty reliance on outsourcing, smart use of technology and creative cost-cutting practices – techniques that can be adapted to other parts of the world.
“Nearly five million new subscribers register for cell phone services in rural India, opening up opportunities for many,” he said.
“China’s growth has largely been based on exports while India’s growth has been dictated by the internal consumption,” he pointed out.
“The challenge for China is to turn the workers into consumers while in India this is already happening.”
He said capacity building is the key.
“The key here is capacity building in the rural areas and maintaining the high price performance level of products and services. The poor countries can widen the scope of the opportunity by empowering their people, a task the NGOs have already begun,” he said.
Former US President Bill Clinton, who spoke via video cast from Sri Lanka where he was reviewing Tsunami reconstruction work, said that globalisation brought benefits and burdens.
“One of the key factors of the modern age is: Can the world’s poor be brought into this globalised economy? Half the world’s people are living on less than half a dollar a day. This leaving out of half of the world’s people is not without its consequences,” he warned.
“Can we bring the poor into the positive world of globalisation, and can our obsession with economic growth and opportunity accommodate and deal with environmental challenges and the long term effects of climate change?” he asked.
Clinton said the world knows how to move people from poverty to opportunity, from ignorance to education, from sickness to health but questioned its commitment to do so.
“The question is will we put the money behind it?” he added, “If we don’t do it we can expect to have more enemies, tribal wars and a more expensive clean-up for the wealthier countries when it’s all over,” hinting towards the Bush administration’s approach.
The Leaders in Dubai forum was held last week for the third time.
Guest speakers include Her Majesty Queen Noor of Jordan, Colin Powell and former Disney boss Michael Eisner among others.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.