Low-income markets present a prodigious opportunity for the world’s wealthiest companies to seek their fortunes and bring prosperity to the aspiring poor. The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers: It is the billions of aspiring poor who are joining the market economy for the first time.

This is a time for MNCs to look at globalization strategies through a new lens of inclusive capitalism. For companies with the resources and persistence to compete at the bottom of the world economic pyramid, the prospective rewards include growth, profits, and incalculable contributions to humankind. Countries that still don’t have the modern infrastructure or products to meet basic human needs are an ideal testing ground for developing environmentally sustainable technologies and products for the entire world.

Furthermore, MNC investment at the bottom of the pyramid means lifting billions of people out of poverty and desperation, averting the social decay, political chaos, terrorism, and environmental meltdown that is certain to continue if the gap between rich and poor countries continues to widen.

Doing business with the world’s 4 billion poorest people, two-thirds of the world’s population will require radical innovations in technology and business models. It will require MNCs to reevaluate price performance relationships for products and services. It will demand a new level of capital efficiency and new ways of measuring financial success. Companies will be forced to transform their understanding of scale, from a bigger is better ideal to an ideal of highly distributed small-scale operations married to world-scale capabilities.

In short, the poorest populations raise a prodigious new managerial challenge for the worlds 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.

At the very top of the world economic pyramid are 75 to 100 million affluent consumers from around the world. This is a cosmopolitan group composed of middle and upper income people in developed countries and the few rich elites from the developing world. In the middle of the pyramid, are poor customers in developed nations and the rising middle classes in developing countries, the targets of MNCs past emerging-market strategies.

Now consider the 4 billion people at the bottom of the pyramid. Their annual per capita income based on purchasing power parity in U.S. dollars is less than $1,500, the minimum considered necessary to sustain a decent life. For well over a billion people roughly one-sixth of humanity per capita income is less than $1 per day.

Even more significant, the income gap between rich and poor is growing. According to the United Nations, the richest 20 percent in the world accounted for about 70 percent of total income in 1960. In 2000, that figure reached 85 percent. Over the same period, the fraction of income accruing to the poorest 20 percent in the world fell from 2.3 percent to 1.1 percent.

This extreme inequity of wealth distribution reinforces the view that the poor cannot participate in the global market economy, even though they constitute the majority of the population. In fact, given its vast size, the bottom of the pyramid represents a multitrillion-dollar market. According to World Bank projections, the population at the bottom of the pyramid could swell to more than 6 billion people over the next 40 years, because the bulk of the world’s population growth occurs there.

The perception that the bottom of the pyramid is not a viable market also fails to take into account the growing importance of the informal economy among the poorest of the poor, which by some estimates, accounts for 40 to 60 percent of all economic activity in developing countries. Most people at the bottom of the pyramid live in rural villages,  urban slums and shanty towns, and they usually do not hold legal title or deed to their assets (e.g., dwellings, farms, businesses). They have little or no formal education and are hard to reach via conventional distribution, credit, and communications. The quality and quantity of products and services available to them is generally low. Therefore, much like an iceberg with only its tip in plain view, this massive segment of the global population  along with its massive market opportunities has remained largely invisible to the corporate sector.

To appreciate the market potential at the bottom of the pyramid, MNCs must come to terms with a set of core assumptions and practices that influence their view of developing countries. We have identified the following as widely shared orthodoxies that must be reexamined:

• Assumption #1 The poor are not our target consumers because with our current cost structures, we cannot profitably compete for that market.
• Assumption #2 The poor cannot afford and have no use for the products and services sold in developed markets.
• Assumption #3 Only developed markets appreciate and will pay for new technology. The poor can use the previous generation of technology.
• Assumption #4 The bottom of the pyramid is not important to the long-term viability of our business. We can leave the bottom of the pyramid to governments and nonprofits.
• Assumption #5 Managers are not excited by business challenges that have a humanitarian dimension.
• Assumption #6 Intellectual excitement is in developed markets. It is hard to find talented managers who want to work at the bottom of the pyramid.

Each of these key assumptions obscures the value at the bottom of the pyramid. It is like the story of the person who finds a $20 bill on the sidewalk. Conventional economic wisdom suggests if the bill really existed, someone would already have picked it up! Like the $20 bill, the bottom of the pyramid defies conventional managerial logic, but that doesn’t mean it isn’t a large and unexplored territory for profitable growth.  MNCs must recognize that this market poses a major new challenge: how to combine low cost, good quality, sustainability and profitability. Furthermore, MNCs cannot exploit these new opportunities without radically rethinking how they go to market.

Excerpted from The Fortune at the Bottom of the Pyramid, First Quarter, 2002

By C.K. Prahalad, The Harvey C. Fruehauf Professor of Business Administration at the University of Michigan Business School, Ann Arbor and Stuart L. Hart, a professor of strategic management, Sarah Graham Kenan Distinguished Scholar.