Thinking out of the Dabba (India and Global Affairs)

The most hotly debated business idea in recent times is the idea of 'fortune at the bottom of the pyramid'. Its originator Prof C K Prahalad points out that two thirds of the world is poor, and not being served well by the existing market economy, which has been designed for the rich.

The poor either are unable to access many products and services because they are priced beyond their reach, thanks to the business economics prevalent; or they effectively end up paying far more for them than the rich do - either because of the price penalty that exists in today's market for the buyer of miniscule quantities or because they are served by the unorganized sector, comprising many layers of usurious middle men.

He makes the case that that the large number of poor people that exist in the world actually represent an enormous and lucrative potential market, which businesses can profitably address, if they think innovatively about their business models and business economics. The message of "profit from the poor" has caused a storm of protest in certain development sector circles, leading to debates about whether the poor should be thought of as mere consumers or also as producers. The answer of course is that thinking of the poor as consumers does not preclude them from being thought of as producers.

Some micro finance institutions see themselves as operating on both sides of the "poor as producer, or poor as consumer" equation. Their financial and business assistance enables the poor to be economically productive. And as they get economically productive, they can afford to pay for other things that they need, provided they can get it at the right price - food, nutrients, education, healthcare etc. However, even without any further boosting of current levels of economic activity, there is already a lot of consumption expenditure that is being incurred by low income earners, and they are not getting their money's worth. For example many of them have opted out of the dysfunctional government health, education and transport services, and they collectively pay a lot of money to a rural medical practitioner who does not have an MBBS degree; or to a small hole in the wall private schools that are not regulated by anyone; or to an un safe, overloaded, uncomfortable private transporter.

Thankfully though, the school of thought that rejects the thinking laid out in "The Fortune at the Bottom of the Pyramid", because it is anti-poor, has not carried the day; the broader message has been generally accepted that we need to design businesses or public service systems that are win - win for the poor (enable them to participate in the market economy) and for the supplier (creates profit).

The broader message, to elaborate, is that (1) businesses often have over engineered, over priced products and services, produced and delivered in a manner which is high cost; or if they are priced affordably, they are of poor quality (2) businesses can, if they think differently, design cheaper, appropriate-performance products and services that the poor will want to buy and can afford. (3) Contrary to popular belief, they can make as much money doing this as they are making now from serving the rich - provided they figure out how to produce and deliver such products and services at a really low cost.

The message that the poor can be profitably integrated into the market economy if the supply side thinks differently, is an important message for a country which is in the process of setting up the rules of its consumption game; and at a time when the markedly visible difference in consumption and access to public goods between the rich and the poor, is causing concern over our social stability. Everyone in India who is providing products and services to Indians, be it social amenities or consumer goods and services, needs to take note of this. The structure of demand (or consumption) in India makes for difficult economics, and this structure is here to stay for a long time. India is a collectively rich economy made up of many poor individuals, and the consumption structure for all manner of goods and services is that there are lots of people spending a little bit each that collectively adds up to a lot. It is only through innovative business design that we can make acceptable quality, affordable priced goods, services and amenities accessible to the poor (whichever way you define them) and still have healthy bottom lines for the suppliers.

This message is not just relevant for the commercial "for profit" sector but also for the social "not for profit" sector, where there is a vibrant group of forward looking people who see themselves not as doing charitable or social workers but as being social entrepreneurs. Social entrepreneurs are increasingly clear that philanthropic funding is not sustainable, and as the poor are slowly getting less poor and aspiring more actively than ever before for a better quality of life, they can afford to pay a little bit for services that they need. Therefore, many of them are embracing the idea that the principles and practices of the market economy could possibly make their work more effective. If beneficiaries buy goods and services offered by social entrepreneur organizations at an affordable price, and if these are produced and delivered using an efficient, low cost business system, then the profit generated helps in making these organizations financially sustainable, and also provide the growth capital for expansion. Not only that, if consumers are paying for it, then they will reject services which are not relevant and of the right quality, and bring accountability to development organizations also.

Prof Mohammed Yunus labels such business ventures as "social business', and describes their guiding principle as being "no loss, no dividend". His concept is that social businesses should function like any other business: social organizations borrow and use financial capital to set up a business that is designed to offer affordably priced goods and services to the poor, produced at a cost that enables them to make a modest profit on it - or at least not make a loss on it. The profit generated is the growth capital for the business, and the financier does not get any dividend for his capital, but can take his capital back, once the business has generated enough reserves to replace it. His famous example is the micro nutrient enriched yoghurt business that his social organization and Dannone have jointly architected, and he adds that direct distribution had to be door to door and not via shop fronts, to ensure that the rich kids did not have access to this benefit of low margin, hence low priced yoghurt. The most experimented with model for social business is that the microfinance provider sees the self help groups that he serves as also being his "target market" for consumption goods and services as well; and the provider of microfinance is now also the seller of other goods and services. SKS micro finance is a prime example of this. They also go a step further and say that they don't see a problem with paying a dividend to their financiers either, as long as the poor are well served.