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Home arrow Business & Finance arrow Fighting Poverty Together: Rethinking Strategies for Business, Governments, and Civil Society to Reduce Poverty

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The Poor as Producers

The BOP proposition focuses on the poor primarily as consumers, as an attractive market. But the poor, like more affluent people, of course, are both consumers and producers. In discussing solutions to alleviating poverty, it is useful to conceptually separate the role of the poor as consumers and as producers. A concerted effort to view the poor primarily as producers, not as consumers, would go a long way toward alleviating poverty.

There are two ways for a person to be a member of the labor force: as an employee or as self-employed. As we saw in Chapter 2, microcredit, which aims to help poor people become self-employed, has not been effective. Creating opportunities for steady employment at reasonable wages is the best way to take people out of poverty.

Create Efficient Markets

The poor often sell their products and services into inefficient markets and do not capture the full value of their output. Any attempt to improve the efficiency of these markets will raise the income of the poor. Amul, a large dairy cooperative in India, is a great example of this approach.58 Amul collects milk twice a day from over 2 million farmers in 100,000 villages. It started by selling milk, but has since forward integrated into more value- added products such as butter, milk powder, cheese, ice cream, and pizza. It has even entered direct retailing through franchising parlors. Amul is owned by the poor (it is a cooperative), and buys from the poor (the farmers, who are its members); however, its products are mostly purchased by the middle and upper income groups, or exported.

Another example, often discussed by BOP proponents, is e-Choupal, an initiative ofIndia’s large tobacco conglomerate ITC. Based on an innovative business model, e-Choupal has brought efficiency to the system for moving soybeans from the individual farmer to oil processing plants. It has reduced the role of, and the rents captured by, middlemen in this process. ITC views the poor farmers as producers. “Our e-Choupal is fostering inclusive growth and enhancing the wealth creation capability of marginal farmers,” [emphasis added] says Y.C. Deveshwar, Chairman of ITC.59 However, only 10 percent of the users of e-Choupals are poor farmers, while 70 percent are middle income, and 20 percent are rich farmers.60

Table 3.3 summarizes the counterarguments to the “promises” of the BOP proposition. The poor cannot consume their way to

Table 3.3 Fortune or Mirage at the BOP?

Fortune at the BOP:

Large multinational companies can make a fortune by selling to the poor people at the bottom of the pyramid and simultaneously alleviate poverty.

Reality at the BOP:

The alleged large and lucrative market at the bottom of the pyramid is a mirage; to alleviate poverty it is better to view the poor as producers.

BOP market size is $13 to $15 trillion.

There is much “untapped” purchasing power at the BOP. Profit margins in BOP markets are high.

BOP market size is only $0.44 trillion.

The poor have a low savings rate, and little “untapped” purchasing power.

BOP markets are not so profitable because the customers are price sensitive, and the cost of serving them is high given the small size of transactions and poor infrastructure.

The poor often buy “luxury” items.

The poor spend 80% of their meager income on food, clothing, shelter, and fuel alone, leaving little room for buying luxuries.

Companies should reduce prices dramatically without reducing quality.

A significant improvement in technology could reduce prices dramatically without reducing quality, such as in telecommunications. But, in most other product categories, the only way to reduce prices significantly is to reduce quality. The challenge is to do this in a way that the cost-quality trade-off is acceptable to the poor.

Single-serve packages increase affordability.

Single-use packages increase convenience and help the poor to manage cash flow. But, the only way to increase real affordability is to reduce the price per use.

Large MNCs should take the lead role in the BOP initiative to sell to the poor.

Selling to the poor will alleviate poverty.

Markets for selling to the poor usually do not involve significant economies of scale, and small-to-medium-sized local firms are better suited to exploiting these opportunities. The best way to alleviate poverty is to view the poor as producers not as consumers, and to emphasize buying from the poor.

prosperity. One exception to this, however, is if private companies can profitably sell products that truly are beneficial to the poor and at prices the poor can afford. Unfortunately, there are only limited opportunities to do this, but it is feasible.

Harmless Illusion or Dangerous Delusion?

Private companies should try to market to the poor. However, the profit opportunities are modest at best and a cautious approach should be taken. The best opportunities exist when firms reduce prices significantly by innovatively changing the cost-quality trade-off in a manner acceptable to the poor. The private sector can help alleviate poverty by focusing on the poor as producers.

The BOP proposition is based on a creative illusion. There is no fortune to be made by selling to the poor. Neither will selling to the poor eradicate poverty. However, given the continuing problem of global poverty, perhaps it is a solution worth trying. Or, is it possible that the BOP proposition can hurt the very people it is trying to help? The BOP proposition is at best a harmless illusion, and probably a dangerous delusion.

 
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