In a Wall Street Journal blog, development research and strategist, Lindsay Clinton, discusses the need for larger businesses to develop more innovative and inclusive business models in emerging markets. Clinton sites Novartis as an example of such a company providing medicine, health education, and disease prevention services across 30,000 Indian villages. By Lindsay Clinton
Four or five years ago, all you had to do to get people excited about poverty alleviation was to mention the words “Prahalad” or “Yunus” and you had their attention. These two South Asian gurus—the late business professor C.K. Prahalad and the microfinance proponent Muhammad Yunus—captured the hearts and minds of hundreds of thousands of business leaders, academics, students, and social entrepreneurs through their messages and models. Importantly, they made many want to work in low-income markets and to find new solutions to sustainable growth in the developing world.Mr. Prahalad, through his bestselling 2005 book The Fortune at the Bottom of the Pyramid, advanced a vision of the poor as, on the one hand, consumers with a combined $5 trillion to spend, and on the other hand, as producers, if given access to markets. Mr. Yunus, through the Grameen microfinance model, showed us a sustainable business model that directly involved the poor and that could be profitable, scalable and have immense impact.
However, a lot has changed in five years. During the economic crisis, many companies, while excited about the prospect of entering low-income markets, have taken a back seat in order to mind the store, so to speak. Meanwhile, the microfinance industry has gone through a minor meltdown in South Asia in the last six months, touched off by political debate and new regulation. We’ve sobered to the fact that we’re not going to “put poverty in a museum” through microfinance, as Mr. Yunus said, and that we may need to revise the model.
With companies still struggling to understand how to contribute to economic development and reach the base-of-the-pyramid customer, we are in need of new, inclusive business models and new case studies that involve social change. It no longer works to point to microfinance as a model to live by, or to continually reference the same models when many of them are defunct, or struggling to find a market.
Having worked in the social development arena in India, where social innovation is practically in the blood, I have seen the energy, hope and ideas coming from people doing business at or with the base of the pyramid today. These entrepreneurs strive to close the gaps that government will not fix, and that profit-first private enterprise cannot justify. But, if we are realistic about the magnitude of the challenges we face, these entrepreneurs are a drop in the bucket. They struggle to reach scale, to take their impact from several hundred to several hundred thousand or million, and to expand their models to new geographies.
Is there an opportunity to harness the power of capitalism while spiriting the hope and energy of social enterprise? With more companies aware of the need for more inclusive growth, in the near future we will likely see more business leaders exploring models that contribute to the planet’s resilience, and therefore, their own companies’ resilience.
Some of these companies are already headed in that direction. For all the criticism heaped on Wal-Mart, the company has made strides in making its supply chain friendly to farmers. For instance, the company has committed to working directly with 1 million smallholder farmers in China by 2012, providing them with salaries 10 to 11 times what they would otherwise make off the land.
Meanwhile, Novartis continues to provide medicine as well as health education and disease prevention counseling to 30,000 rural villages across India through its profitable Arogya Parivar program. (Note: Novartis is a client of ours.)
While many of us would prefer local solutions and admire the beauty of small business, these companies have the ability to impact millions of lives because of their sheer size.
Many of us—from development consultants to researchers to economists—want to believe Mr. Prahalad’s argument that we can eradicate poverty through profits. Business leaders want to believe in it, too. But, with the exception of a handful of projects, many big businesses have struggled to make inroads at the base of the pyramid. To drive large-scale change, we must find better ways for big business to contribute to societal good.
Over the next several weeks, I’ll be exploring the intersection of private enterprise and social enterprise. I welcome your comments and ideas.
Lindsay Clinton is a researcher and development strategist at SustainAbility, a hybrid think tank/ consultancy with offices in Delhi. She writes about business opportunities, urbanization and social innovation in emerging markets.