Editor’s note: This article, which came to us over the proverbial transom via email, explores some of the issues Paul Polak and Mal Warwick raised in The Business Solution to Poverty, placing them in a broader social and economic context. The author calls for a thoroughgoing re-examination of the role of corporations in the wider world, paralleling Polak and Warwick’s plea for a Business Revolution along lines sketched out in their book.
A decade ago C.K. Prahalad made the compelling argument in The Fortune at the Bottom of the Pyramid that corporations need to go beyond corporate philanthropy and social responsibility if they seek to combat global poverty, and that by doing so they can reap larger profits and become more successful as businesses, while simultaneously achieving social good. This argument highlighted the need to examine the fundamental issues involved in the impact of globalization on the poor and underprivileged, and the implications for the role of the corporate sector.
In the first place, poverty is not the only ill that besets this huge untapped market. Millions of people around the developing world are in far more dire straits.
Poverty means more than lack of money
The underprivileged (or marginalized) population includes those affected by disease such as malaria, tuberculosis, HIV/AIDS, and a number of widespread tropical ailments not well known in the nations of the Global North. In various parts of the world, civil wars and state-sponsored violence, even genocide, have made tens of millions into refugees; they live in a constant state of insecurity and terror, and have virtually no economic existence except as clients of aid programs and humanitarian agencies.
Natural disasters and breakdowns in the governance of states have also added to the problem. These people are not even close to being active participants in any marketplace, unless you see millions of Africans with HIV/AIDS as being “customers” for very expensive drugs.
The plight of the poor is not just a lack of money. It is far worse. It is a lack of basic services such as water, health, education, and infrastructure; it is the corrupt environment they live within, where bribery is a fact of daily life; it is a socio-cultural nightmare for women, who have to live with abuse and marginalization; it is the existence of what can only be called a slave trade in children in many countries; it is disenfranchisement on a global scale.
Taken in this broader perspective, the concept of livelihood, or quality of life, is a more sensible approach, in that it views the condition of the underprivileged in broader than solely economic terms – and includes issues such as security, infrastructure, representation and governance, dignity, culture, gender bias, environment, communalism, health, education, and other basic needs. This involves a rethinking of the concept of sustainable development itself – a process that is already underway in many circles in these countries.
Win-win solutions through public-private partnerships
It is from such a broader, and more complex, perspective that the role of the corporate sector, and the requirements to accomplish this role, can be articulated. Indeed, corporate philanthropy is a limited approach, and corporate social responsibility may be mostly lip service. The notion that a win-win solution that achieves social benefits and also serves corporate interests is conceptually valid and compelling, but it could be seductive, and requires a great deal more analysis, and the development of business tools, strategies, and capabilities that will enable such solutions to be implemented. It also suggests that the roles of other social actors – government, non-governmental organizations, and the social sector, broadly defined – need to be examined in a similar manner.
Central to the concept of sustainability is the role of partnerships among these actors (public-private partnerships) that can more effectively harness their collective capabilities to serve a social purpose. Equally important is the need for new knowledge and new conceptual frameworks that reflect the reality of the circumstances of the underprivileged and the socio-economic context within which they exist.
For example, it may be correct to say that everyone, including the poor, wants quality services and products and should be treated as customers. But, which products and services? Selling shampoo in India in single-serving packets is a great concept in terms of market penetration, but with the poor’s very limited household income, is this the best way to spend their money? The rural sector in India and most other developing countries, has a host of much more serious problems: lack of power and water for their farming, inadequate health and education services, weak infrastructure, and virtually no insurance. They should be seen as customers in this light – as customers for a broad range of products and services that improve their livelihood and the circumstances of their existence.
Though the collective purchasing power of the poor is enormous, buying decisions are still individual. By rampant marketing, a rural household may well end up spending its small disposable income on inappropriate products. They may spend on TVs and cosmetics and forsake savings for the education of their children and for their health needs. With the onslaught of credit cards, they may well end up borrowing against their future and securing these loans with their land. Farmers in India have even committed suicide because they could not service government loans!
Redefining the concept of the “customer”
Yes, the poor should be treated with respect and as customers, but in a broader sense – they are the customers of the government, the corporate world, NGOs, and the social sector. Their political power needs to be recognized as well; the market opportunity they represent is not simply based upon their collective spending power, but, at least in some countries, their political power. Note that in India, the poor represent 80% of the population and the electorate. Despite the great strides the Indian economy has made in the last two decades, elections routinely demonstrate this power. In the midst of this great economic advance, the rural sector had been largely neglected.
The concept of the “customer” needs to be redefined.
There are other areas where new thinking is needed, as well. For instance, the analysis of supply chains needs to include equity and environmental considerations. The real and unseen impact of globalization has been the acceleration of the search for profits by large corporations. By itself, this is not necessarily a problem, but this strategy should be based upon some sense of long-term sustainability. There is no sustainability if there is no long-term view. Supply chain management must therefore take into account equity as well as environmental and social factors.
Unfortunately, most corporations don’t have the in-house capabilities to understand and analyze these issues. The chocolate industry, for example, gained the attention of the news media because it was discovered that cocoa farms in West Africa were using child labor. Despite some efforts by the industry, the child trade still continues. To eliminate child labor requires that these major purchasers of cocoa become more intellectually involved in the problem. They must analyze the supply chains, production economics, technologies, and farming patterns in these locations – and develop business tools and strategies that address the root of the problem, which is simply that cocoa farmers find it economical to use child labor.
It is also a matter of technology and of knowing where your true competency lies. Globalization and “customerization” is often taken to mean McDonaldization. The business model here is the delivery of low-cost, standardized, and consistent food products. Notions of localized health concerns and taste patterns are largely absent from such an approach. At a time when people in the US are becoming more aware of the damage that fast food does to the public health, such a model has severe limitations. The fact of the matter is that poor people know food very well – they just don’t have enough of it.
And they have taste. A long time ago, I worked in villages in India during a drought and was given the job of distributing milk (from milk powder) and wheat to the starving villagers. I set up shop and the lines were long, but then I found out that the villagers were using the milk to paint their huts and feeding the wheat to their animals. They still ate their meager supply of chapatis and pickles, which were far tastier than anything I could give them.
But the McDonalds model does have value. The company has managed to develop an impressive technological foundation, along with supply chains and distribution systems that enable them to deliver consistently high quality food products at economical prices to millions of consumers all around the world. The poor need good quality food at low prices: rural women spend most of their day making food, and this would relieve them of some of this burden. Corporations could find a way to use this model to deliver locally acceptable food to these markets. It could well be applied to other product areas and industries, perhaps for the delivery of medicines.
The developing world of today consists of yesterday’s colonies. The colonialists, especially the British, were extremely good at exploiting local markets with their products. They bought the raw materials, added value, and sold them back to the colonies.
Adding value in the creation and distribution of products and services is central to sustainability, but it needs to be enriched in at least two important respects. First, it needs to be localized. The conversion of raw materials and resources into higher value products should be achieved locally, so that the local economic pie is enlarged. To some extent, this is taking place through the slow and spotty expansion of national economies into rural areas, but on a limited scale. To truly enlarge this local “pie” will require more localized technological innovation and capacities, a better understanding of the market potential for such products and services, and a rethinking of the economic potential of local resources. For example, a company in India that produced ethanol from sugar cane was able, through technology and research, to find that red sorghum, a cheaper crop, could produce higher yields of ethanol per acre than sugar cane.
Secondly, since many of these countries have large agricultural sectors, the concept of waste needs to be reexamined. There is enormous waste in the agricultural sector for a number of reasons, including seasonality, the lack of storage facilities, and market fluctuations. Yet there are examples of ventures that have taken this waste and converted it into useful, value-added products. The waste from banana cultivation has been converted into biocomposites and oil absorbents, for instance. Biofuels are being made from waste fats and oils from fast-food outlets.
There is a need to view agricultural waste as a source of value, rather than an economic cost, and to explore the opportunities that may lie there. Corporate research and product development efforts need to change their search strategies to encompass this domain. They might also consider the potential of information technology in their efforts to bring benefits to the bottom of the pyramid.
Practically every IT company in India is trying to “do something” in the villages. They give away handhelds and Internet access, offer real-time price information, and so forth. But, after all is said and done, a subsistence farmer is still living with his poor productivity, weak infrastructure, corrupt government officials, bad roads, and expensive water for his crops. Knowing the latest prices for his produce in the global market must give him some comfort and some economic gain, but a more useful approach may be to explore how the total value added that he can produce could be enlarged, and how IT could improve the overall quality of his livelihood.
The potential of IT for addressing the needs of the underprivileged is enormous, especially as prices decline and the reach of the technology expands. In South Africa, pilot projects have been developed to use a combination of cell phones and e-mail to expedite the transmission of medical tests from patients in remote areas to testing clinics and back to the patient.
In the financial sector, the “Equator Principles” for socially responsible investment have received a great deal of press and have been endorsed by many leading financial institutions. Yet even the International Finance Corporation (IFC), which promoted the protocol, would probably agree that its impact in terms of actual utilization has been limited. The concept is great – the limitation lies in the capabilities of the implementation structure. In India, rural financial institutions, which are mainly government-controlled, lack the in-house technical abilities to conduct the proper analyses, and fall back on the more traditional criteria. Someone made those loans to those suicide farmers. Notably, some private corporations have developed innovative services to reach the rural sector, and there is the success of micro-finance in some countries. One would hope that such positive examples are built upon and that better models and tools are developed.
The underlying thread in all of this is that corporations need to expend a great deal more intellectual energy to identify more precisely the areas where they can make the most sensible contributions to society and simultaneously serve their corporate interests. Essentially, this requires examining every functional dimension of business and developing the analytical tools, relationships, and strategies that would make them more effective.
In 2003 Raghuram Rajan and Luigi Zingales of the University of Chicago Booth School of Business wrote Saving Capitalism from the Capitalists. Perhaps that’s what is really needed – a redefinition of capitalism. Corporations need to understand that by pursuing socially responsible objectives they will benefit as businesses. There is nothing inherently conflicting between corporate goals and sustainable socioeconomic progress, except that most corporations don’t have the knowledge base or the capabilities to address both ends meaningfully.
It is ultimately an issue of knowledge. The production of knowledge that can be used to address these issues is such an important need that it should probably become a new interdisciplinary field. Corporations have designated directors of social responsibility, but for the most part their leaders don’t really want to do much more than that, and business schools, for the most part, don’t dive any more deeply into the matter, either. It’s time for the business sector as a whole to take a long, hard look at its central role in the new world that’s emerging – a world of eight or nine billion people, most of them people of color who live in the Global South, many of them poor – and determine how best to help themselves by helping all the rest of us.
Atul Wad (email@example.com or firstname.lastname@example.org) is a Visiting Fellow at the Center for Research on Innovation Management of the University of Brighton, UK. He has been involved in sustainable project and business development in developing countries for over 25 years. He works with corporations, government organizations and international development agencies. He has a Ph.D. from the Kellogg School of Management, Northwestern University, and a B. Tech from the Indian Institute of Technology, Bombay.