The 86% Solution
McCombs Vijay Mahajan Illuminates Challenges and Opportunities in the Developing World

Everything about the developing world is immense—its land mass (think Africa, parts of Asia, much of Latin America), its population and its needs. But one important part of the developing world isn’t large at all—its per capita gross national product, which averages less than $10,000 per year.

With a statistic like this, you might not think that developing countries have much potential as markets. Problems plague these areas, from poverty and disease to inadequate infrastructure and minimal amenities. These issues and their cultural contrasts with developed nations make them invisible to companies that haven’t learned to think creatively about reaching emerging economies.

That’s where Vijay Mahajan and Kamini Banga come in. Their book, “The 86 Percent Solution: How to Succeed in the Biggest Market Opportunity of the Next 50 Years,” offers practical ideas and creative strategies to reach this untapped market. And it’s a big market to reach—that’s what the “86 percent” in the book’s title refers to. Of the world’s six billion inhabitants, only 14 percent live in countries with a per capita GNP that exceeds $10,000.

“Not only do these 86 percent markets represent the future of global commerce,” write Banga, managing director of Dimensions Consultancy Pvt. Ltd., and Mahajan, professor of marketing at McCombs, “but they also present rich opportunities for companies that have the imagination and creativity to envision…consumers” in these markets.

The authors point out both the enormous potential of this population and the challenges that likely haven’t been considered by companies in the developed world. Realities such as small homes without reliable electricity or plumbing, informal marketplaces where consumer goods are sold, and nonexistent distribution networks mean that companies must be innovative in their approach.

As technological advances and global economic changes unlock previously unreachable markets such as India and China, Mahajan and Banga believe that companies can no longer afford to ignore emerging economies.

For a sneak peek inside this new book, read the following excerpt, published by permission of Wharton School Publishing.

Preface: Do You Want To Be In This Market? Can You Afford Not To Be?

Managers at a major U.S. office equipment manufacturer were considering how to market an overhead projector to the developing world when we asked a simple question: How would the overhead projector work without electricity? There was silence. It was a question that they had never even considered. But this is a question that must be answered every day in the developing world. By asking and answering this type of question, Hewlett-Packard has created battery-operated digital cameras and printing systems that allow entrepreneurial photographers to operate completely off the grid. Ask yourself: Do you know what an inverter is? If you don’t, you probably haven’t thought enough about the weak infrastructure and other distinctive conditions of emerging markets. These differences, and the strategies needed to address them, are the focus of this book.

To appreciate the complexities of these markets and solutions designed to meet their needs, consider the toilet. China is now second only to the U.S. in web users. It is expected to have more broadband and mobile-phone users than any other nation by 2006. Yet more than 60 percent of Chinese citizens do not have access to proper sanitation. This means about 700 million people in China (along with another 700 million in India) do not have a basic toilet. Think about that. Researchers at MIT’s Media Lab are creating wearable computers, but wouldn’t a computer built into a toilet be a more appropriate solution for the developing world? The airport in Frankfort, Germany has toilets that automatically clean their seats and flush themselves. South Korea, as the logical outcome of a national obsession with technology, has set a goal of having 10 million “smart homes” online by 2007, including toilets that relay body temperature, pulse rates, and urinalysis results to your doctor. Yet a market of more than a billion people has gone virtually unmet. Where are the innovations focused on the parts of the world that lack sanitation?

This is not about altruism. In creating solutions for the developing world, companies can solve one of the most pressing problems facing them today: sustaining growth. IBM’s Global CEO Study in 2004 found that four out of five CEOs believe that revenue growth is the most important path to boosting financial performance.1 Where will this growth come from? With the largest populations and fastest growth rates on the planet, developing markets represent the future of the global economy. To seize the opportunities of these 86 percent markets, we need different mind-sets and market strategies. We need managers who can envision creating a business selling sachets of shampoo for pennies, distributing products in stores the size of phone booths, or offering credit cards to people whose idea of banking is storing rolls of coins in a money belt. As you will see in the following pages, the creative companies that serve these markets are willing to provide refrigeration along with their bottles of cola and design cars that are modeled after bullock carts. They can sell a product to a customer in California that is picked up by a relative in Mexico City. In short, they have used a distinctive set of market strategies to recognize and realize the opportunities of these 86 percent markets.

This book is designed to challenge the thinking of managers from developed markets about strategies that have worked well in the past. Managers in developing countries will find some new insights from different parts of the developing world that will very likely work in their region. Entrepreneurs will see the rich opportunities in the emerging world. Finally, leaders of governments, nongovernmental organizations (NGOs), and other organizations can gain insights into the dynamics of business in this environment.

This book started with a phone call to Vijay in the mid-1990s from Wharton Professor Jerry Wind, who had been contacted by the organizers of a conference at the United Nations. They were looking for creative strategies to encourage developing nations to stand on their own two feet rather than relying on handouts from the developed world. The question was insulting. Many hugely successful companies have grown up in these developing nations. Entrepreneurship is alive and well. While well-meaning people in developed countries were discussing foreign aid, industrious citizens of the developing world have left their homelands for jobs in the developed world and were already sending billions of dollars back home. How could these compassionate and intelligent people from the developed world not see this?

After this discussion, Vijay, Jerry, and Marcos V. Pratini de Moraes, then minister of agriculture for Brazil, joined in writing an article on principles for reaching the forgotten 86 percent of the world in “The Invisible Global Market,”2 published in 2000 in Marketing Management. Vijay continued to study this topic at the University of Texas at Austin and as dean of the Indian School of Business in Hyderabad, writing a second article on “The 86 Percent Opportunity” in India.3 He spoke with executives and government officials in several developing countries. The growing interest in these ideas was so encouraging that he decided to work with Kamini on this book. As a consultant, Kamini is in direct contact with diverse businesses in India that are applying new strategies for these developing markets. We have seen firsthand the creative strategies they are using.

Around the same time that we were engaged in this work, C.K. Prahalad and others were focusing attention on the same areas of the world from a different perspective. In his insightful work, “The Fortune at the Bottom of the Pyramid,” he points out the potential of the poorest citizens of the world. But the poorest of the poor are just one segment of these markets. Will you know how to meet the needs of the growing middle class or luxury segments? In 2004, a single Rolls Royce was sold in India for more than $700,000, some 1,500 times the average per capita gross national income in that country. This book focuses on the entire spectrum of business opportunities in these emerging markets, for both very poor and more affluent consumers. It also discusses the characteristics of these markets that must be addressed in market strategies.
In addition to the specific strategies explored in this book, we hope the examples in the following chapters will encourage you to think more broadly about the approaches that might work in your part of the world. Every day, innovative companies are coming up with new ways to address or overleap the limitations and respond to the distinctive needs of emerging markets. They are developing the 86 percent solutions. Challenge your thinking, and you can do the same.

Vijay Mahajan, Austin, Texas
Kamini Banga, London

Notes
1 “Your Turn.” The Global CEO Study 2004, IBM Business Consulting Services, IBM Corporation, 2004.
2 Vijay Mahajan, Marcos V. Pratini de Moraes, and Yoram Wind. “The Invisible Global Market: Strategies for Reaching the Forgotten 86 Percent of the World.” Marketing Management, Winter 2000, pp. 31–35.
3 Mahajan, Vijay, “The 86% Opportunity,” The Smart Manager, Quarter 1 (2003) 17–25. Reproduced in Business Today, (India), Collector’s Edition, 4 (2003) 50–58.