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Malaysia’s New Economic Model:
Risks and Rewards
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AseanAffairs Magazine May - June 2010
CONTENT • BEYOND ASEAN 
• ASEAN BAZAAR • FEATURED COMPANIES
ASEAN MANAGEMENT • INSIDE OUT
• ASEAN MONEY • OPINION
• ASEAN TRAVELLER • MALAYSIA IN FOCUS

Prime Minister Najib Razak vows to take Malaysia forward and transform it into a high income nation through economic and social reforms. Initial responses to this ambitious drive are mixed, details are scarce and investors play wait-and-see.Yet, Najib insists he’s got support to push ahead.

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By Rohit Bajoria


 
 

Revisited: The Bottom of the Pyramid
Coimbatore Krishnarao Prahalad or CKP as the world knows him was an eminent thought leader, a renowned management thinker and a distinguished professor of the Ross School of Business, University of Michigan. He was considered one of the world’s top 10 management thinkers. He passed away in San Diego, US after a brief illness at the age of 69, however his contribution will continue to pervade our daily lives for generations to come.

The impact of CKP’s management theories can be seen and felt in many areas. Nowhere is it more visible than in the emerging markets of the world.

It was CKP’s proposition that businesses stop thinking of the poor as victims and instead start seeing them as value-demanding consumers that drove companies such as Hindustan Lever (a subsidiary of Unilever in India) to come out with ultra-small sachets of everything from shampoo at Rs 1 ( USD 1 = Rs 45 approximately) to soap to toothpaste sparking off a retail revolution in India reaching the hinterland, increasing sales and reaping profits like never before.

His 2004 book The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, became a New York Times bestseller and catapulted him to a rock star among management thinkers although he was already a storied business guru by then.

CKP explored new business models targeted at providing goods and services to the poorest people in the world arguing that the fastest growing new markets and entrepreneurial opportunities were to be found among the billions of poor people “at the bottom of the [financial] pyramid.” Even Bill Gates was impressed, saying “Prahalad’s ideas offer an intriguing blueprint for how to fight poverty with profitability.” Billions have been spent or donated across the world for time immemorial by kings, corporates, countries and individuals towards the betterment of the poor and underprivileged however most have been non-self sustainable. However with CKP’s idea about generating profitable growth in fighting various forms of under development opened up the flood gates for self sustainable and profitable social development.

Well-publicised examples will help illustrate the base-of-the-pyramid concept. The first being the Grameen Bank in Bangladesh which was started by Nobel Prize laureate Muhammed Yunus to offer mini-loans to entrepreneurs who wouldn’t qualify for traditional bank loans based on collateral. Close to ten million people have borrowed from the bank, with incredibly high levels of repayment (almost 98 percent) an envy of quite a few of the largest lenders in the world.

This concept has been carried forward in a effective and efficient way to the second most populated country of the world, India, where micro-finance companies have started assisting farmers and small traders, selfhelp groups, home based industries run by homemakers bringing out a revolution and social & economic liberation to many and all this is being done in a sustainable and profitable manner, to the extent multinational banks like HSBC, PE firms of the like of Sequoia Capital and HNI’s like Vinod Khosla have provided funding.

The segment where companies like SEWA, SKS Microfinance Ltd., Bandhan Financial Services Pvt. Ltd among others are operating was largely un-banked and looked upon as a social obligation. SKS Microfinance Ltd. is culling out plans to get listed in the bourses & apply for a banking license. Similar experiences have been experienced in Philippines and other Southeast Asian Asian nations with good success.

Cellphone and telecom providers have developed means of selling relatively cheap units to remote villages, allowing farmers, fishermen & people across the ‘bottom of the pyramid’ segment, access to mobile telephony making India the second largest consumers of Nokia phones in the world, moreover a largely non-existent company Airtel a couple of decades back has a almost global footprint with aspiring ambitions.

This philosophy has also found application in the automobile segment, where most international players were facing the heat with dipping sales & rising input costs, and Tata Motors announced the launch of the Nano, (arguably) the cheapest car in the world which has taken almost all manufacturers back to the discussion rooms to re-strategise.

Air Asia being a budget airline is growing leaps and bounds even when most airlines are struggling to keep their balance sheets from turning red. This theory is not only applicable from the consumption point of view, but also from the resource generation ie: sourcing or manufacturing point of view.

ITC (whose parent company is British American Tobacco or BAT) has tied up with NGOs & self-help groups across India which employs women for sourcing incense sticks hence providing the rural folk a source of livelihood, and ITC assists the NGOs & workers with expertise, materials & training.

The total market in India for incense sticks is close to INR 1000 crores ($200 million) and ITC is close to becoming a market leader with having started the production only in 2002 in a largely unorganised sector.

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