Sunday, 25 August 2013

Poverty Alleviation and Profitability: A contradiction in terms?


There are very few experts globally who can claim to have an informed and researched opinion on Poverty Alleviation through Profitability. One such rare thought leader is Jaideep Prabhu a Jawaharlal Nehru Professor of Indian Business and Enterprise, Director of the Centre for India & Global Business at the Cambridge Judge Business School. He is also the co-author of the best-selling book Jugaad Innovation: Think Frugal, Be Flexible, Generating Breakthrough Growth. Jaideep is also a member of the University of Sydney Business School's Poverty Alleviation and Profitability Research Group. I caught up with him and Andrew Jenkins from BRAC recently to talk about the challenges ahead for organisations that are looking to engage with the poor consumer at a profit in a bid alleviate poverty.

According to Prof. Prabhu, the World Bank estimates that around 4 billion people around the world live at the Bottom-of-the-Pyramid, earning less than $3,000 PPP per annum, that is less than $9 PPP a day. This includes more than half the world’s population, many living in Africa, Asia, Latin America, and some other parts of the world. They are usually left out of the formal economy and so don’t have access to things that most of us take for granted, such as financial services, clean energy through the grid, healthcare and education. Traditionally the “solution” or approach to solving this problem has always been aid or big government projects. While some of that has been successful, he felt there is an increasing understanding that we need other ways to go about this – one of which involves business. For example, small businesses and in some cases very large corporations are beginning to offer market based solutions that meet the unmet needs of these people, while making them economically viable. A classic example for this is the mobile phone industry, where small and large companies have been profitable while providing solutions that have meaningful benefits to people in remote areas. People who didn’t have access to communication now have access to financial, educational and health services through mobile phones. So it may not actually be a contradiction in terms.

An important question therefore is when does a business decide to venture into a market where the consumer’s spending prowess is significantly less? Professor Prabhu observes that the motor or the incentive for companies now to get into this for the long haul is making itself apparent. Namely, the decline of growth in the west in their traditional markets – and the rise in opportunities in emerging markets. If you look at emerging markets like Bangladesh or India, the opportunities aren’t so much in the cities where it is already saturated, they’re in the smaller towns and in the villages because that’s where so much of the population is. So the financial motor is making itself apparent and that’s why you see this move of companies into this space. Andrew Jenkins agreed in principle to this notion but added that investment in these markets had potential to generate substantial ROI, given that the market is massive and the demand for goods and services is strong. A simple justification is the World Bank’s stats of those considered living below the poverty line.

While profits and social benefits can be the drivers, the sustainability and expansion of such initiatives will be key to successfully alleviating poverty. There still are many questions to be answered but it is in these kind of conversations where solutions are born.

Author: Jarrod Vassallo
Founding member of the Poverty Alleviation and Profitability Research Group. He is also guest lecturer at the University of Sydney Business School and a PhD candidate at Cambridge Judge Business School.

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