Archive for the ‘Markets’ Category
Business Linkages at the BoP
Business Linkages are often-times the key to reaching out to the BoP. Often companies are unable to act on their own, requiring several layers of linkage in order to acheive their goals.
The IFC, in collaboration with the the International Business Leaders Forum, and the CSR Initiative of the Harvard Kennedy School has been organizing a series of roundtable discussions to understand the several kinds of linkages that exist. Following one such roundtable in Jaipur in 2009, they jointly brought out a report titled “Business Linkages: Enabling Access to Markets at the Base of the Pyramid.*”
The report draws from experiences of participants at the round table. The discussions are based around three areas: Opportunities to enable access to markets at the BoP, Challenges in forming business linkages, and Patterns of Solutions and cross-cutting themes.
The case examples used in the report draw not from “social enterprises” particularly. For example, while discussing the opportunities to enable access to markets at the BoP, the report highlights the work of the Aditya Birla group in selling to the BoP. The group’s cellular network service, Idea Cellular, has been able to penetrate into rural markets by offering a suite of products and services customized to the needs of rural customers.
The report also talks about how enterprises can find opportunity at the BoP by going beyond traditional value chains. These are applicable in areas that improve the quality of life and help strengthen and diversify local economies. For example, education and health. The work of the Syngenta Foundation is cited as an example. The Foundation focuses on raising farmer productivity and access to markets through farmer training, and assistance with commercialization.
However, the report identifies significant challenges to establishing business linkages. These are in the form operational challenges (obtaining reliable information), reputational and relationship management challenges (managing expecations and reducing dependence) and systemic challenges (skill-building, improving access to finance, strengthening regulatory environment).
The third part of the report draws from previous roundtables in Washington, Johannesburg and Rio de Janeiro, to establish a clear pattern of challenges and a scheme of solutions to meet those challenges. Beyond particular solutions, two broad solutions are offered. The first is to develop a “systems thinking” mentality. This is recommened to enable those engaging with BoP markets to counter inefficiencies that might arise due to the unpredictable nature of BoP suppliers, distributors and customers. To combat a system full of holes that can not be taken for granted, the report suggest that companies think proactively about the sytems, and often take action to make sure they work better.
A second solution on offer is that of “collaboration.” Collaboration becomes necessary when it is not economically feasible for a company to plug all the systemic loopholes on its own. In such cases companies may look for partners — either government agencies, civil society organizations, international development agencies — that are themselves in complementary lines of businesses. For example, GlaxoSmithKline is able to organize a milk value chain from end-to-end for its Horlicks brand, but ICICI Lombard partners with microfinance service providers such as BASIX.
The report emphasises the need for building these linkages at a time when truly risk-free opportunities are rare. The plethora of solutions on offer a valuable set of solutions to organizations looking to reach out to the BoP.
Read the entire report here.
* Jenkins, Beth and Eriko Ishikawa. 2009. “Business Linkages: Enabling Access to Markets at the Base of the Pyramid.” Report of a Roundtable Dialogue, March 3-5, 2009, Jaipur, India. Washington, D.C: International Finance Corporation, International Business Leaders Forum, and the CSR Initiative at the Harvard Kennedy School.
Growing Social Innovation
With it’s Office of the Third Sector, the UK invests a lot of money into supporting the social enterprise sector. NESTA – the UK’s National Endowment for Science, Technology and the Arts brought out a report titled “In and Out of Sync: The Challenge of Growing Social Innovations,” brought out a report which looks at the ways in which social innovation grows and spreads.
Drawing from 11 cases studies, the establishes conditions for growing a social enterprise. It also addresses the fundamental issue of growth: synchronizing ‘demand’ and ’supply’ factors through several strategies. Additionally, the report seeks to establish that there is in fact a distinct difference to the diffusion of social innovation from a diffusion of technology innovation, and therefore emphasizes the need to address social innovation differently.
The four necessary conditions for scaling up innovative products and services are identified below:
- A ‘pull’ factor, in the form of addressing an acknowledged societal need.
- A ‘push’ factor which stems from effective supply
- Effective strategies that connect ‘pull’ and ‘push’ factors, and finds the right organizations structure for the innovation
- A process of learning and adaption that ensures the innovation achieves its social impact, and adapts to changes in the environment
One finding that comes out of the report is the lack of institutions that connect ‘pull’ and ‘push’ factors. The report identifies several causes for this — fragile markets, an underdeveloped capital market, weak institutions and networks, a lack of knowledge of established methods and strategies for nurturing and growing innovation, and a lack of managerial talent.
Key to the growth of innovation is the strategy in use. The report develops a framework for classifying the growth/diffusion of innovation — depending on the organizational form, the control exerted by the innovator, location and the intended beneficiaries.
The framework identifies the following types of innovation diffusion:
- Uncontrolled diffusion: Typically carried forward by a self-appointed champion. Such diffusion tends to adapt itself to local conditions.
- Innovator-led diffusion: Such innovation typically follows prescribed processes and methods established by the innovator or parent organization. This can be done through concerted promotion through formal or informal networks, franchising, licensing and so on.
- Taken-over diffusion: Where innovators can adopt a deliberate strategy to allow their innovation to be taken over by a larger organization.
- Diffusion through organizational growth: Where the innovation spreads through the growth of the company itself
Besides adopting different strategies, the report goes on to list a set of priorities required for improving and scaling up innovation:
- Availability of more mature sources of financing. Particularly those that allow genuine risk-taking
- Developed exchanges and intermediaries
- Stronger knowledge and experience base for the field of social innovation
- Incentivizing the adoption of better performing models
While the case studies used in the report are not based in the developing world, the findings of the report definitely have implications for how social innovation globally can be enhanced.
This report was authored by Geoff Mulgan with Rushanara Ali, Richard Halkett and Ben Sanders. Read the entire NESTA report here.
Enhacing Food Value Chains
Agricultural practices have a direct bearing on how an economy feeds itself and the general quality of life of a population. Adopting sound agricultural practices is therefore crucial for any economy. Agri-businesses no doubt, play a strong role in enhancing agriculture value chains.
According to a recent report by the World Economic Forum, “Next Billions: Business Strategies to Enhance Food Value Chains and Empower the Poor,” more than 70% of the bottom of the pyramid depends on agriculture value chains for their income. The benefits of enhancing these value chains through new business models is no doubt huge.
Tapping in on this opportunity, the report takes a look at the several business models that can be employed to enhance value for the several actors in play. The report presents solutions to producers, consumers and solutions to empower entrepreneurs.
It also makes recommendations for stakeholder engagement, such as strengthening incentives for business engagement, providing complementary funding and capacity, facilitating corporate engagement.
The report offers business models that have the potential to create substantial value for the poor consumers, producers and entrepreneurs as well as for companies. It hopes to provide a roadmap for companies seeking a win-win approach in emerging markets, and those that wish to establish a workable, profitable and scalable business model.
Read the complete WEF report here.
Enabling Access to Energy at the BoP
The focus on renewable sources of energy has been reinforced in recent weeks by the BP oil spill off the Gulf Coast in the U.S. While one part of the globe voraciously consumes energy, 1.6 billion people globally have no access to electricity. A further 3 million still use traditional biomass for cooking, the health hazards of which have been substantially documented.
However, there are several – mainly local entrepreneurs – that are offering valuable energy solutions to this very segment of people. Most of these enterprises are removed from the traditional energy enterprises, and offer solutions based on local needs, and local possibilities. The Ashoka Network, in collaboration with Hystra, a hybrid organization that works with business and social sector entrepreneurs to design and implement strategies for the BoP, conducted a study on the work of these enterprises.
The study, “Access to Energy for the Base of the Pyramid,” is an in-depth look at several market-based approaches to BoP energy requirements. It looks at the different kind of technology available such as:
- Grid connections: which turns the BoP into legal, paying consumers
- Devices: such as solar lanterns and biomass cook stoves
- Solar home systems: Which deliver electricity to households
It also looks at systemic support to deliver these solutions. These include the roles of co-operatives which take on that challenge of providing sustainable power supply and create income generating opportunities, and the role of finance and various financing intermediaries. It also makes recommendations for action, outlined for various system enablers – aid agencies, governments, social investors and so on.
The study puts out two interesting observations – that it is not only important to focus on providing solutions that are cost and need-efficient, but also to optimize “human capital.” And secondly, that the most successful social entrepreneurs are also the ones who have tried harder to get the users who were implied in the value-addition process involved.
Download the entire report via the Hystra website.
Global Village vs. Small Towns
The global village is no longer an abstract concept. We live in a world that is more interconnected than ever, including the BoP. The business networks that exist at every level of our economies have implications for the workings of enterprises in the global village — multinationals.
Multinationals would particularly benefit from understanding the networks that exist at the base of the pyramid. This is a class of people often not studied enough or well-understood. Some firms have been able to distinguish their products well enough to serve this segment, while others have not.
Authors Miguel Rivera-Santos, and Carlos Rufin, work from the International Business Review, April 2010, “Global Village vs. Small Town: Understanding Networks at the Base of the Pyramid,” make the distinction for those building business models and strategies for the BoP. An excerpt from their paper is below.
“We compare and contrast business networks at the Base of the Pyramid (BOP) and at the Top of the Pyramid (TOP), and analyze their implications for multinational enterprises (MNEs). We first identify the specificities of BOP environments in terms of competitive environment and institutions. Building on this analysis, we develop a series of propositions regarding the impact of these specificities on the structural characteristics of BOP networks, their boundaries, the characteristics of their ties, the diversity of their partners, and their evolution over time, as compared to TOP networks. Our analysis suggests that major differences exist between both types of networks along all dimensions and that these differences have important implications for MNEs active in BOP environments.”
How Innovation Really Works (and 10 ways to recognize an innovative enterprise)
Think for a minute of the following: the jet plane, the television, the Internet, and the cell phone. What do each of these have in common?
Now, think about this. The jet plane effectively shrunk the world, making travel between Singapore and New York only 22 hours. The Internet allows a passenger wishing to travel between Singapore and New York to book his ticket from the comfort of his home. The cell phone allows him to check-in for his flight while driving to the airport, or to simply use his cell phone to access the airline-generated bar code that acts as a boarding pass. And the television (or an adapted version of it) entertains him while he travels the 16,000 km to his destination.
In short, each of these are or have been path-breaking. They, among countless other technology, have changed the course of the everyday life in several ways. Would we consider them innovative? Almost certainly so, I would think.
The term ‘innovation’ however is often used loosely. Often, it refers to simply anything new. The Monitor Group in India recently released a study it jointly conducted with leading business publication, Business Today titled, “How Innovation Really Works.” The report takes on the notion of innovation as simply “launching new products.” Through examples based on an Indian context, the report frames innovation against a proprietary framework — the Montior Group’s Ten Types of Innovation.
The frameworks defines (business) innovation as being “path-breaking, disruptive, and sustainable.” It divides the ten types of innovation into four broad categories: Finance, Process, Offering and Delivery.
Further, it lists out particular types of innovation under each of the category. Let’s take a look at what these types of innovation are, and the enterprises used to illustrate them.
Finance innovation involves Re-inventing Business Models and Creating Extended Networks. An example of the former can be found in Gyan Shala, a no-frills schooling project in Gujarat and Bihar. An example of the later can be found in FabIndia, which created an extended network of 17 community-owned companies that supply its products.
Process innovation involves two kinds of innovation — an Enabling Process and Core Process. An enabling process is one which supports an enterprise’s primary work, while a core process are capabilities that others can’t duplicate. An example of an enabling process is the Gujarati newspaper Dainik Bhaskar, which uses an external network to get news input through potential consumers. Thus indirectly building its own subscriber base. Core processing innovation can be seen in the working of Moser Baer, a CD/DVD manufacturing firm which diversified its operationg to the home-movie market.
Offering innovation can be found in three ways — Product Performance, Product System and Service. The report refers to TCS’s software product BaNCS as an example of a product performance innovation. Recognizing the benefits of using technology to make banking services more accessible to rural markets, TCS developed the “cloud computing” based software to provide branchless banking services to the State Bank of India. A product system innovation creates ways in which individual products can connect with each other to create a larger system. Case in point, ITC’s e-choupal. The system developed by ITC enables farmers to connect via village kiosks, creating a agri-commodity procurement platform. And lastly, a product service innovation is where companies create value in engaging with the customer once the core product has been purchased. An example of product service innovation mentioned in the report is TCS.
The last category of innovation accroding to the framework is Delivery Innovation. Delivery innovation can be in three ways — through an innovative channel, a distinct brand, and creating value through a unique customer experience. Moser Baer rapidly expanded through the Indian market by creating a distribution channel that banked on widespread, targeted outreach. Being able to release a home movie within a window period of 10 days to six months created a unique customer experience, which has contributed significantly to its growth. ITC’s e-choupal, beyond creating an innovative system has also been able to innovate further via leveraging the e-choupal brand to build its network.
The examples used in the study are not necessarily a reflection of the kinds of companies that might fit the bill. However breakthrough innovation almost always include multiple types of innovation, atleast 3-4 of the 10 within the Monitor Framework (the study selected eight organizations that fulfilled this criteria).
Clearly the framework might not lend itself to all models that exist. Still it is a useful way to recognize where greatest value lies, and to help build a business with lasting impact. Investors, incubators and other enablers interested in creating lasting social value too can use this framework as guideline towards assessing which enterprises to back.
Read more about the BT-Monitor study here, and tell us what you think about it. Also, have you come across a social enterprise that fits into this framework?
The Importance of Being Branded
Its all about branding isn’t it? That’s all Gen-Y India cares about. We recognize a brand quite simply by its distinctiveness. We associate a certain virtue to them – comfort, trust, great service and so on. With such incredible potential to impact lives, social enterprises would do well to capitalize on their brand value. But do social enterprises understand the power of their brand? Villgro Fellow Jeanne Chen reflects on the learnings from the recent Sankalp Social Investment Forum in Mumbai, India.
One of the more practical sessions at the Sankalp Forum last week was on developing the brand of an enterprise, sponsored by the brand consulting firm Center of Gravity. Unlike many of the theoretical, overarching discussion panels of the state of the social entrepreneurship sector, this session provided concrete advice for start-ups on how to begin thinking about their branding strategy. Appropriate brand management is often undervalued by start-ups who have enough capital expenditures to worry about without also needing to hire a brand consultancy firm. Yet, it is an important consideration that can aid in gaining traction. The session provided a few simple guidelines for start-ups, which albeit obvious can still be useful points to begin with:
1. Understand the profile of your customers
Center of Gravity begins the branding process with a market segmentation analysis to understand the demographics and motivations of the customers. Enterprises often approach the market potential as one homogenous mass of consumers, whereas the customers are a diverse group with different motivations for making the purchase. For example, organic food consumers are not all driven to purchase for health reasons – some people go organic because it’s a perceived indicator of social status , and others buy organic because it’s more sustainable and eco-friendly.
2. Make your cause and message relevant
After understanding the consumption drivers of the primary customer segments, it’s important to create targeted brand messages relevant to each segment. People respond to messages with which they identify. The healthy eater would not respond in the same way to Whole Food’s upscale organic brand, whereas the status seeker would. It’s important to make sure that your brand message is aligned with your growth strategy if you need to target certain customer segments.
3. Provide a “So-What?” statement that connects your social impact to the customer’s choice
Consumers are lazy, so don’t leave it for them to make the connection between the product and the social impact. Demonstrate a clear link between the purchase decision and the environmental / social impact. For example, if your organic produce company directly helps small local farmers, have a story of that farmer on your package.
4. Do more with less by leveraging high profile endorsers
This piece of advice is a no-brainer. Every start-up would love to do more with less, and if there happens to be an influential person who is sympathetic to your cause, all the better. Center of Gravity gave an example of how they engaged famous Indian stars for a democratic campaign in Bangalore, but hardly every start-up has the good fortune of such endorsers. A better corollary to this particular advice would be to engage everyone and anyone who is willing to speak for your company. A particular CSR person may not have the power to make the purchasing decision, but they can influence and convince others in that position of power to make that decision.
5. Simplify the complexities of your enterprise
Every entrepreneur is very excited about their start-up and can talk about their company until the room runs out of oxygen. This isn’t an intelligent way to sell your company. It may seem that every detail is important, but the more you complicate the story, the less the audience and potential customer will retain. Condense those complications into a simple, memorable story that will stay with them after your conversation. Remember that the average attention span is <1 minute, which is why the pithier, the better.
For the most part, the advice given above is more easily applied to consumer facing products and services, whereas niche market companies have a harder time developing a strong brand equity that contributes significant value. I continue to struggle with creating a brand identity for my company, Coir Atlas, which operates in a niche market within the greater steel industry, but I think the lessons learned from this session are general enough to be applied. The key as with all marketing advice is in understanding how to adapt it to fit to your enterprise’s needs. Don’t just blindly apply all branding strategies and go chasing Bollywood stars to be the face of your product. Adapt these strategies and then apply them.
As originally posted on the author’s personal blog, Crossworlds.
Pro Poor Value Chains
ITC’s Choupal Fresh was one example discussed at the Villgro Fellows Week. The retail business in India has witnessed a boom in recent years. Securing adequate supply – particularly of fresh fruits and vegetables – however continues to be a challenge. A 2009 Case Study by Rewa Misra, of the Coady International Institute in Canada, looks at the ITC example of establishing supply chains directly from the farmer. This pro-poor method can successfully integrate smallholder farmer.
The case study uses value chain analysis to highlight three aspects. Firstly, which activities/types of firms/strategies yield higher value than others for small holders. Secondly, what forms of relationships, contractual and otherwise work in the value chain and, thirdly what models work best for service delivery.
The key fact established through the case study is that integrating small holder famers within the fruit and vegetable value chain is possible, if large firms such as ITC take a lead in playing a larger role by fulfilling key functions. It also posits that the model works if inter firm relations are purely market based and mutually beneficial.
Read the entire case study here.
Non-farm enterprises growth: Evidence from Tanzania
Throughout the world a majority of rural business activities revolve around the agriculture/farming sector. Nonfarm enterprises have been slow to grow, and are often limited by supply side factors such as access to finance, road infrastructure, rural cell phone communication and so on.
In their paper, Small Enterprise Growth and the Rural Investment Climate: Evindence from Tanzania, authors Tidiane Kinda and Josef L. Loening analyze nonfarm enterprises in Tanzania — their growth in employment, business challenges and constraints. The authors discuss a number of factors that would help unleash the full potential of private-sector led businesses. The study also looks at the investment climate and supply side issues mentioned above, demonstrating that marginal improvements in the rural investment climate matter for growth.
This paper is part of a World Bank Policy Research Working Paper, and is available here.
Emerging Trends in Rural Marketing
In an earlier post, we looked at the potential for advertising to reach rural India. But how does one successfully develop a product to suit the needs of rural India? Increased industrialization in urban centres is causing a slow, but steady increase in rural India. This, coupled with increased agricultural output has lead to increased purchasing power among the rural poor. However, rural marketing still remains vastly different to urban marketing. One needs to accurately assess the needs, dynamics and interest of rural customers.
This article, by Professor Dinesh Babu and team at Mohammad Sathak Engineering College, discusses the challenges, limitations, and opportunities that are necessary to understand the rural markets and develop strategies to supply and satisfy the rural customer.
Read the entire article here.