Use of ICTs in delivering critical tools and services to
BOP consumers in developing countries*


By

John Mathew
Director
T.N. Rao college of Management Studies
Rajkot-5
 


A B S T R A C T

If we consider this bleak vision of the world fifteen years from now: The Global economy recovers from its current stagnation but growth remains the same. The gap between the rich and the poor keeps widening, and incidents of economic chaos, governmental collapse, and civil war plague developing regions. Terrorism remains a constant threat, diverting significant public and private resources to security concerns. Opposition to the global market system intensifies. Multinational companies find it difficult to expand, and many become risk conscious, slowing investment and pulling back from emerging markets.

Now consider this much brighter scenario. Driven by private investment and widespread entrepreneurial activity, the economies of developing regions grow vigorously, creating jobs and wealth and bringing hundreds of millions of new consumers into the global marketplace every year. China, India, Brazil, and gradually, South Africa become new engines of global economic growth, produces a range of social benefits, helping to stabilize many developing regions and reduce civil and cross-border conflicts. The threat of terrorism and war recedes. Multinational companies expand rapidly in an era of intense innovation and competition.

Both of these scenarios are possible. Which one comes to pass will be determined primarily by one factor, the willingness of big, multinational companies to enter and invest in the world's poorest markets. By stimulating commerce and development at the bottom of the economic pyramid, MNCs could radically improve the lives of billions of people and help bring into being, a more stable, less dangerous world. Achieving this goal does not require MNCs to spearhead global social development initiatives for charitable purposes. They need only act in their own self-interest, for there are enormous business benefits to be gained by entering developing markets.

In fact many innovative companies, entrepreneurial outfits and large, established enterprises are already serving the world's poor in ways tat generate strong revenues, lead to greater operating efficiencies, and uncover new sources of innovation. For these companies, and those that follow their label, building businesses aimed at the bottom of the pyramid promises to provide important advantages as the twenty-first century unfolds.

Big companies are not going to solve the economic ills of developing countries by themselves, of course. It will also take targeted financial aid from the developed world and improvements in the governance of the developing nations themselves. But its clear to us that prosperity can come to the poorest regions only through the direct involvement of MNCs. And it's equally clear that the MNCs can enhance their own prosperity in the process.

Global expansion of digital networks, the spread of the Internet, and the proliferation of cyber-cafes, village phones, and other forms of shared access to communications technology. High capacity fiber-optic links now span the oceans, crisscross China and Latin America, and extend to many African countries. Next generation mobile networks are beginning to emerge that will carry data as well as voice messages, providing mobile access to the Internet. Still in development are fleets of low-orbit satellites that will offer phone service and data links from virtually everywhere on earth by connecting modified mobile phones or cyber-kiosks in even remote rural villages. In little more than a decade, the vast majority of the Earth's people will live in communities that are connected, in one way or another, to the global digital network.

"Half of Humanity"- a huge Untapped Market

The world's poor are distressingly plentiful. Fully 65% of the world's population earns less than $2000 each per year, that's 4 billion people. But despite the vastness of the market, it remains largely untapped by multinational companies. Companies assume that people with such low incomes have little to spend on goods and services and that what they do spend goes to basic needs like food and shelter. They also assume that various barriers to commerce- corruption, illiteracy, inadequate infrastructure, currency fluctuations, and bureaucratic red tape- make it impossible to do business profitably in these regions.

But such assumptions reflect a narrow and largely outdated view of the developing world. The fact is, many MNCs already successfully do business in develo0ping countries (although most currently focus on selling to the small upper middle-class segments of these marketers) and their experience shows that the barriers to commerce- although real- are much lower than is typically though. Moreover, several positive trends in developing countries-from political reforms, to a growing openness to investment, to the development of low-cost wireless communication networks- are reducing the barriers further while also providing businesses with greater access to even the poorest city slums and rural areas. Indeed, once the misperceptions are wiped away, the enormous economic potential that lies at the bottom of the pyramid becomes clear.

While the rural poor are naturally harder to reach than the urban poor, they also represent a large untapped opportunity for companies. Indeed, 60% of India's GDP is generated in rural areas. The critical barrier to doing business in rural regions is distribution access, not a lack of buying power. But new information technology and communications infrastructures especially wireless promise to become an inexpensive way to establish marketing and distributing channels in these communities.

Misperceptions & Examples

Take the assumption that the poor have no money. It sounds obvious on the surface, but its wrong. While individual incomes may be low, the aggregate buying power of poor communities is actually quite large. The average per capita income of villagers in rural Bangladesh, for instance, is less than $200 per year, but as a group they are avid consumers of telecommunications services. Grameen Telecom's village phones, which are owned by a single entrepreneur but used by the entire community, generate an average revenue of roughly $90 a month- and as much as $1000 a month in some large villages. Customers of these village phones, who pay cash for each use, spend and average of 7% of their income than consumers in traditional markets do.

It's also incorrect to assume that the poor are too concerned with fulfilling their basic needs to "waste" money on nonessential goods. In fact, the poor often do buy "luxury" items. In the Mumbai shantytown of Dharavi, for example, 85% of households own a television set, 75% own a pressure cooker and a mixer, 56% own a gas stove, and 21% have telephones. That's because buying a house in Mumbai, for most people at the bottom of the pyramid is not a realistic option. Neither is getting access to running water. They accept that reality, and rather than saving for a rainy day, they spend their income on things they can get now that improve the quality of their lives.

Another big misperception about developing markets is that the goods sold there are incredibly chap and, hence, there's no room for a new competitor to come in and turn a profit. In reality, consumers at the bottom of the pyramid pay much higher prices for most things than middle class consumers do, which means that there's a real opportunity for companies, particularly big corporations with economies of scale and efficient supply chains, to capture market share by offering higher quality goods at lower process while maintaining attractive margins. In fact throughout the developing world, urban slum dwellers pay, for instance, between four and 100 times as much for drinking water as middle and upper class families. Food also costs 20% to 30% more in the poorest communities since there is no access to bulk discount stores. On the service side of the economy, local moneylenders charge interest of 10% to 15% per day, with annual rates running as high as 2000%. Even the lucky small-scale entrepreneurs, who get loans from nonprofit micro-finance institutions pay between 40% and 70% interest per year-rates that are illegal in most developed countries.

It can also be surprising cheap to market and deliver products and series to the world's poor. That's because many of them live in cities that a re densely populated today and will be even more so in the years to come. Figures from the UN and World Resources Institute indicate that by 2015, in Africa, 225 cities will each have populations of more than 1million, in Latin America, another 225; and in Asia, 903. The populations of at least 27 cities will reach or exceed 8 million. Collectively, the 1300 largest cities will account for some 1.5 billion to 2 billion people, roughly half of who will be bottom of the pyramid (BOP) consumers now served primarily by informal economies. Companies that operate in these areas will have access to millions of potential new customer's who together have billions of dollars to spend. The poor in Rio de Janeiro, for instance have a total purchasing power of $1.2 billion ($600 per person). Shantytowns in Johannesburg or Mumbai are no different.

The slums of these cities already have distinct ecosystems, with retail shops, small businesses, schools, clinics, and moneylenders. Although there are few reliable estimates of the value of commercial estimates of the value of commercial transactions in slums, business activity appears to be thriving. Dharavi- covering an area of just 435 acres boasts scores of businesses ranging from leather, textiles, plastic recycling, and surgical sutures to gold jewelry, illicit liquor, detergents and groceries. The scale of the businesses varies from one-person operations to bigger well-recognized producers of brand name products. Dharavi generates and estimated $450 million in manufacturing revenues.

A final misperception concerns the highly charged issue of exploitation of the poor by MNCs. The informal economies that now serve poor communities are full of inefficiencies and ex-ploitative intermediaries. So if a micro finances institution charges 50% annual interest when the alternative is either 1000% interest or no loan at all, is that exploiting or helping the poor? If a large financial company such as Citigroup were to use its scale to offer micro loans at 20%, is that exploiting or helping the poor?

ICT's in BOP markets??

Conventional wisdom says that people in BOP markets cannot use such advances technologies, but that's just another misconception. Poor rural women in Bangladesh have had no difficulty using GSM cell phones, despite never using phones of any type. In Kenya, teenagers from slums are being successfully trained as Web page designers. Poor farmers in El Salvador use telecenters to negotiate the sale of their crops over the Internet. And women in Indian coastal villages have in less than a week learned to use PCs to interpret real-time satellite images showing concentrations of schools of fish in the Arabian Sea so they can direct their husbands to the best fishing areas. Clearly poor communities are ready to adopt new technologies that improve their economic opportunities or their quality of life. The lesson for Multinationals: Don't hesitate to deploy advanced technologies at the BOP while, or even before, deploying them in advanced countries.

The idea behind this new development model is that basic services should generally be provided by businesses-sometimes directly sometimes in partnership with governments or networks of non-governmental organizations (NGO's). the right strategies can enable the poor to become customers and pay for the services they receive, services that will improve their quality of life and increase their productivity. Such programs could reach tens of thousands of communities or rural villages. Very few, if any, governments of developing countries can deliver services in a million places at once, yet many global corporations do just that everyday.

The ICT scenario

Global expansion of digital networks, the spread of the Internet, and the proliferation of cyber-cafes, village phones, and other forms of shared access to communications technology. High capacity fiber-optic links now span the oceans, crisscross China and Latin America, and extend to many African countries. Next generation mobile networks are beginning to emerge that will carry data as well as voice messages, providing mobile access to the Internet. Still in development are fleets of low-orbit satellites that will offer phone service and data links from virtually everywhere on earth by connecting modified mobile phones or cyber-kiosks in even remote rural villages. In little more than a decade, the vast majority of the Earth's people will live in communities that are connected, in one way or another, to the global digital network.

Communications technologies could accelerate development in far more than just the economic sphere. Indeed, wiring the planet will transform it beyond recognition. It will increase access to educational materials, basic health information, and other critical resrouce4s in local languages.  A single database in Spanish, Chinese or Hindi accessed by phone or cyber kiosk, could serve much of a continent. Connecting the world could unlock the productivity of poor communities: farmers could access weather forecasts of planting advice or market prices, which would empower them to produce larger crops for more money. Access to digital networks could improve quality of life more generally, by allowing people to summon help, share experiences with others, form political coalitions across a region or the globe, and add their voices to world affairs. Even an illiterate farmer could use a phone and an automated voice recognition system to check crop prices. A woman visiting a rural health clinic could use a similar system to obtain information about AIDS she might be too embarrassed to ask a health worker for.

How is ICT being used???

TARAhaat an ambitious business startup organized by a widely praised Indian development group called Development Alternatives aims to create jobs a nd provide a broad suite of services for poor communities in rural India through village kiosks and Internet based information systems linked to a digital network.

In Argentina, a novel public private partnership will soon supply affordable Internet access and educational services from the Education Ministry, bringing the country's schools and some ten million students online. The costs of the system and of students' access are being financed by a new private company that will raise money from advertising and e-commerce rights. The combined effort will train the workers (Internet-savvy college graduates) that Argentina needs to enter the virtual economy and jump-start the country's e-commerce marketplace, all without massive public investment.

Maintaining Radical Transparency

Access to new technology and credit will not be enough, however; poor communities also need simple justice. Such justice can be achieved by NGOs and community groups coming to form global networks, linked through the internet, and then work together with leading companies or trade associations to establish environmental and social standards. These groups could then monitor corporate performance against those standards, even in developing regions, exposing companies that employ child labor, cut down old-growth forests, or defy other social and environmental expectations. Such networks could also root out and reveal corrupt officials or help protect poor farmers form land grabs.

Imagine, the public pressure civil society will be able to bring to bear on companies, industries or even governments a few years hence. A network of several hundred local groups, each equipped with miniature video cameras small enough to hide in a purse would exercises tremendous influence. The cameras could be linked to the Global Positioning System (GPS) so that each frame of video would be stamped with the time and location- creating evidence that would be hard to dismiss.

All these examples have several things in common: they use novel partnerships and build on the digital networks being put in place by the private sector to deliver development services or protect environmental resources on a very large scale. And they suggest new ways of "privatizing" the delivery of basic services- whether they relate to connectivity, credit or justice to support a bottom-up, self-development model.

Who will pay for the Progress??

It is commonly argued that a lack of money is the primary barrier to helping the poor, keeping the peace, or protecting the environment. But if governments really want to tackle such projects, the means are readily available. For example, Governments could agree by treaty to tax the global economy for what are essentially global purposes, with the proceeds going into a global fund to pay for services such as development and peacekeeping. International flows of trade, capital and information have been growing much faster than national economies; nearly 9% a year for international trade, nearly 20 % a year for international capital flows and an even higher rate of international flows of digital information (data traffic on the Internet is growing at about 100 percent annually). The value of these international transactions is huge: currency transactions alone add up to more than $1.5 trillion a day. One reason for such staggering growth may be the absence of taxation. This means that in effect, the global economy currently gets a free ride, since it is not taxed at a global level. Yet a tariff on currency transactions at a rate of a quarter of one percent- so low as to be invisible to anyone except currency speculators- would raise $750 billion per year. Even in the new economy that would-be real money.

A far better way to make progress maybe, in effect, to "hire" the private sector to provide basic services and to empower civil society to work with and monitor the private sector.

Venture capital may need to go global- there is too much money chasing too few good ideas in individual countries like the US. And competition for higher rates of return will increasingly lead venture capital groups and major corporations to seek unexploited opportunities in other parts of the world. Venture financing stimulates innovation at a very rapid pace, far faster than any other social mechanism yet devised. And rapid innovation- the invention of new ways to provide basic services, of new ways for people to earn a living or improve the quality of their lives- is what is needed to accelerate development, especially in poor societies.

The strategies described above should have both ample capital and powerful commercial incentives behind them, for they involve more than half of humanity- a huge untapped market.

References:

1. Digitally Empowered Development- Allen Hammond, Council on Foreign Relations Inc.
2. Serving the World's Poor, Profitably- C.K. Prahalad and Allen Hammond, Harvard Business Review
3. www.digitaldividend.org
4. Digital Dividend Digest
 


*This paper was presented in a National Conference on Contemporary issues in management September 2003 when the author was at R.P. Bhalodia College of Commerce & Computers, Rajkot.
 


John Mathew
Director
T.N. Rao college of Management Studies
Rajkot-5
 

Source: E-mail July 4, 2005

 

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