Washington, USA (by Green Biz) – Four billion people who live in relative poverty represent a $5 trillion market, according to a new report released by the International Finance Corporation and World Resources Institute.



The report, “The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid,” offers a first-of-its-kind measure of the size of markets at the base of the economic pyramid using income and expenditure data from household surveys. Coupled with the survey information is an overview of business strategies that have succeeded for companies working in these markets.



In its geographic analysis, The Next 4 Billion finds the following global BOP numbers:

• The Asian BOP market (including the Middle East) is by far the largest, with 2.86 billion people and a total income of $3.47 trillion, constituting 83 percent of the region’s total population and 42 percent of the its aggregate purchasing power.



• Eastern Europe’s $458 billion BOP market includes 254 million people, 64 percent of the region’s population, with 36 percent of aggregate purchasing power.



• In Latin America the BOP market of $509 billion includes 360 million people, representing 70 percent of the region’s population but only 28 percent of aggregate purchasing power, a smaller share than in other developing regions.



• In Africa, the BOP market is $429 billion, but it represents 71 percent of aggregate purchasing power in this region. The African BOP includes 486 million people – 95 percent of the region’s surveyed population.

In studying the economic situations of the world’s population, the authors found that base of the pyramid markets are often rural, underserved, and dominated by the informal economy, and as a result are relatively inefficient and uncompetitive. And these BOP markets, made up of people who on average earn less than US$3,000 per year, often run into a “Bottom of the Pyramid Penalty.” Poorer people often have access only to goods that are more expensive than they can afford, or are very low-quality goods. The report seeks to help businesses think more creatively about new business models that meet the needs of these markets, and suggests the mobile phone industry is one that has shown how profitable these markets can become.



Professor C.K. Prahalad, who originated the “base of the pyramid” concept, said the mobile phone industry succeeded in “cracking the BOP code.” Over 2.5 billion people now have access to the phones because of industry innovations like pre-paid phone cards, which gives them access to the service regardless of income.



Prahalad believes these examples are just the beginning. He told the WorldWatch Institute, “There is an opportunity here, but it’s not yet fully understood…. This is all about imagining the world differently. If we can not imagine a different world, we cannot create it.”



“The report backs up the calls for broader business engagement with the base of the pyramid, stressing the need for the private sector to play a greater role in development,” said IFC Chief Economist Michael Klein. “The report also highlights the need for governments to pick up the pace of reforms to the operating and regulatory environment, so that it becomes easier to do business,” he added.



The empirical profile of the base of the pyramid in the analysis substantially extends previous analyses by C.K. Prahalad, Stuart Hart and other experts by offering a detailed economic portrait of BOP markets, broken down by income segment, urban/rural location, economic sector, country and region.



Some striking patterns emerge from the data. More than half of BOP health care spending, for example, is for pharmaceuticals. As incomes rise, the share of household spending for food declines, while the share of spending for transportation and for phone and Internet access rises sharply. Access to electricity is universal in Eastern Europe and high for most BOP households in Asia and the Latin America region, but quite low for Africa. For all regions except Eastern Europe, firewood is the dominant cooking fuel for the lower-income segments in the BOP, while propane or other modern fuels dominate higher BOP income segments and urban areas.



Sector markets from the report range from those that are relatively small, such as water ($20 billion) and information and communication technologies ($51 billion), to medium-scale markets such as health ($158 billion), transportation ($179 billion), housing ($332 billion), and energy ($433 billion), to truly large markets, such as food ($2,895 billion).



“This report shows how critical it is to focus on the BOP in all its dimensions,” said Jonathan Lash, president of the World Resources Institute. “The BOP wins when brought into the formal economy. Businesses win when they pay attention to the needs of the BOP markets. The world wins when environmental sustainability, transparency, and equity are as deeply embedded in BOP growth strategies as the drive for profits. This report lights the path to sustainable business engagement with the BOP.”