I attended the latest NewDay Speaker Series installment this Thursday and listened to Martin Fisher, founder of Kickstart, discuss his experience building a social enterprise which sells low-cost, durable agricultural equipment (designed specifically for the target market) to subsistence farmers in Africa. The idea is that the equipment increases the farmer’s production capacity to the point where they are no longer subsistence farmers, but instead are able to actually generate consistent profits from their crops. Fisher’s model is heavily based on market theories in the private sector, and the core philosophical bases of his company ring true to me in ways that most development program missions do not. They include statements like “The poor are not victims,” “The number one need of the poor is a way to make money,” “Giveaways create dependency: sell don’t give,” and “Good governance comes from a thriving middle class.”
In essence, Fisher is running a for-profit business with one hell of a positive social externality: the vast majority of his sales result in the marginalized poor consumer exponentially increasing his/her income to the point where his or her family becomes integrated into the middle class, with more time and monetary resources to devote to education, healthcare, and further entrepreneurship. Thus far the model has been so effective that even given the consumers who do not pull themselves out of poverty with their equipment purchase, Kickstart averages a $10 return in income increase for the consumer for every $1 they put into production, marketing, or sales (figure taken from Fisher’s powerpoint presentation)… Let me pause for a moment & meditate on how it feels slightly strange, but also somehow much more morally comfortable to refer to an impoverished person in the developing world as a(n) (empowered) “consumer” instead of a “receiver,” “member of the target community,” or “beneficiary…” ok. Moving along.
But Fisher’s “for-profit-esque” business model is not technically for-profit: it is very heavily subsidized (and sustained) by donations, because the market in which he is operating has not yet reached the “tipping point” where producing, marketing, and selling the equipment results in a return on investment- he simply hasn’t sold enough equipment yet. During his talk, Fisher explained that this economic “tipping point” is reached when virtually everyone in the target consumer population is familiar with the product. He provided the example that while Coca Cola now draws in regular profits from sales in Africa, it took them ten years of marketing and losing money to build up the brand power and familiarity within the consumer base to do so. And one key reason why most for-profit businesses do not try to sell to developing world markets is that until this “tipping point” is reached, demand is too low and supplying costs too much for firms to bite the bullet and be patient.
I am interested in whether there is any evidence that the dissemination of ICTs, particularly internet access, can shorten the time span between a product’s introduction into a developing world market and the “tipping point.” It follows logically that if a significant portion of the population has access to product information through online communication (social media, product websites, online ads, etc.), it should be much much easier for companies to market their products to them and more quickly reach a point where sales are viable- especially when they are targeting remote populations who would be less exposed to traditional marketing methods like billboards. This would imply yet another way that ICTs could help create a climate where international businesses can profit from investment in the developing world consumer base and subsequently invigorate the economies of poor countries.
Any idev & econ double-majors out there? Am I on the right track here (or just re-discovering the wheel…), and do you know of any country case studies (besides India & China) which might support this “theory?”