A Consumer, not a Recipient

28 August 2010 at 08:00 4 comments

There is a lot of debate in the world of international development about the role, both positive and negative, that multinational corporations play in developing countries. When I´m not interviewing borrowers or helping to train new staff on Kiva procedures here at PADECOMSMCrédito in El Salvador, I´ve been laying in the hammock and reading The Fortune at the Bottom of the Pyramid, C.K. Prahalad´s book about the potential for social improvement and profits in developing markets.

The book is a call to action for corporations and businesses to view the poor as potential consumers instead of as passive recipients of charity, and proposes that the entry of goods and services designed for these markets can benefit local communities. Markets in the developing world are different from those in the developed world; access to information is limited, future income is uncertain, and decisions are based on shorter time frames. The common assumptions that people in these markets don´t want new technology, care about brand recognition, or have discretionary income to spend on goods and services are not true – goods need to be designed with these dynamics in mind.

In the outskirts of Mumbai, a shampoo manufacturer realized that low-income people used shampoo, but weren’t able to commit enough money at one time to buy a bottle that would last several weeks. Individual-use packets, however, became a top seller in local stores. In South America, consumers in isolated areas didn´t trust the new products of a large household goods company, but they did trust the local franchisees that created businesses to distribute them to local communities.

In no way is the example of the benefits of sustainable business in developing areas more clear than in pre-paid cell phones. By eliminating the contract-based model of cell-phone service used in developed countries and adopting a pay-as-you-go philosophy, mobile phone providers offer useful and accessible products to the poor, able to charge their phones at any time with the spare change in their pockets.

There is also a place for local entrepreneurs in this process. As markets expand, financial access become more available, and local people find greater opportunity to use their knowledge and talents. Hair salons open with new services incorporating affordable shampoo, cleaning services increase their margins with more affordable supplies, and cell phone recharging stations open on every corner. New technology creates demand for media and information, and as local entrepreneurs take advantage of these changes the growth of local economies accelerates.

Prahalad´s ideas about the beneficial relationship between big and local businesses may not prove true in every situation, but his work serves as a reminder of the different dynamics at play in developing markets, and the opportunity for innovation that exists for local entrepreneurs operating within them.

Brandon Vaughan (KF12) is getting a degree in pupusas and queso fresco with a minor in El Salvadoran slang with PADECOMSMCrédito. Loan to a PADECOMSM client or join our lending team – we’re posting more and more loans every day.

Entry filed under: Americas, blogsherpa, El Salvador, KF12 (Kiva Fellows 12th Class). Tags: , , , , , , , , , , , , , , , , , , , , .

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  • 1. dantulchin  |  1 September 2010 at 15:00

    great stuff Brandon, definitely putting that book on my list…

  • 2. Joy Corcoran  |  30 August 2010 at 11:45

    Investing in small businesses run by local merchants who understand the needs and limits of their community can be a powerful tool for both peace and prosperity in our changing world. Local control is always a better option.

  • 3. Sam  |  29 August 2010 at 22:20

    A great, clear, and short introduction to the discussion needed on this topic. Thanks Brandon well written and at least from me, well recieved.

  • 4. Fehmeen | Microfinance Hub  |  29 August 2010 at 11:35

    I love the idea of spreading the market economy to service the poor, because I simply shudder to think of the greedy businessmen that operate in the black market. We all know about loan sharks, but this ill extends to other areas too; for instance, our house cleaner get her cooking gas from an intermediary who charges her 4 times the amount that we (the entire household) pay in a month!

    By establishing formal economic links into the bottom of the pyramid, prices will fall and help the poor as well as the company (through huge unmet demand).

    The idea of smaller packaging has seeped into other non-shampoo products too (such as, powdered juice sachets) and we tend to find them practical as well!

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