Alleviating Poverty through Business Strategy

This volume has been developed to communicate important developments in the lessening of poverty in the world’s developing countries through initiatives by larger businesses and individual entrepreneurs. Expectations are currently ballooning as new possibilities are seen for using new technologies and collaborations to empower the very poor to participate in the global economy. We see surge of imagination around the world in the creation of new and successful approaches to using business strategy to alleviate poverty.

Business managers and leaders, and management researchers alike over the last decade have displayed an unprecedented interest in poverty related issues from several perspectives (Zadek 2004; Hopkins 1999), including marketing and market creation (Hammond and Prahalad 2002; Prahalad 2004), social entrepreneurship (Bornstein 1998; Ashoka Foundation), as well as the connections between nature conservation and poverty alleviation (PriceWaterHouseCoopers 2007). Research in this growing field has often tended to emphasize the identification of the potential contributions of business for poverty alleviation. However, it has not built on solid conceptual foundations of the key notions of poverty and development. This chapter aims to evaluate the potential contributions and shortcomings of three of these emerging business approaches to alleviating poverty using Amartya Sen’s definition and framework of development. The three business approaches evaluated here in light of this framework are: 1) the Bottom of Pyramid, 2) Social Entrepreneurship, and 3) Business and Nature Conservation.

The Indian economy is growing at a spectacular growth rate and is one of the fastest growing economies of the world. However, if one analyzes the statistics one will see that the growth is not inclusive.

Business strategy practice and scholarship have developed frameworks and processes for understanding and acting within complex social systems that are proving valuable for multi-stakeholder, intersectoral, societal issues such as poverty. These frameworks and processes have evolved over the last 50 years to incorporate the assessment of: 1) economic efficiency within and across organizations, industries, sectors, and nations, 2) power structures within and across networks, and 3) compliance-driven rule structures that promote or restrict equitable and market-driven incentives within and across these boundaries.

What can a unniversity do to help alleviate poverty worldwide?

The literature on strategy has long been silent as regards the possible link between poverty and business strategy, and the subject matter has only recently begun to attract attention in this particular line of thinking. The main debate shaping this newly emerging literature (e.g., Rankin 2001; Prahalad 2005) seems to revolve around one basic idea, which advocates that a long-term solution to the problem could be attained if the poor become active participants in business life. Accordingly, the discipline of strategic management should help in this endeavor by working on ways to transform the poor into consumers and/or into producers/entrepreneurs. This argument is, in fact, not new in the broader literature on poverty, and the responses to this stream of thought range from those emphasizing the possibility that there might be instances in which such an approach might or might not work (thus there is a need to conduct ethnographically informed studies), to those severely criticizing the idea on both ideological and substantive grounds (Blowfield 2005; Darrell 2005; Walsh, Kress, and Beyerchen 2005).

Over 30 years ago, Muhammad Yunus founded the Grameen Bank in Bangladesh with just $27 and the idea that desperately poor, working rural women were credit-worthy (Yunus 1997). Yunus found that women almost universally used the credit to expand their fledgling businesses, and they would pay back the loans with proceeds from these businesses. Yunus thus developed the idea that even with no collateral, these women should be granted small loans at competitive interest rates with frequent payback cycles. This concept, that small loans (usually less than $100) should be granted to the previously “unbankable,” came to be called microcredit (Unitus 2007). Early on, practitioners such as Yunus realized that microcredit borrowers have payback rates as high as 95 percent (Felder-Kuzu 2005). These payback rates allow the lending institutions to survive, expand, and provide loans to additional borrowers. Concurrent to the work of Yunus in Bangladesh in the early 1970s, other social innovators developed similar practices in other countries (consider ACCION and its early work in Brazil or the subsequent work of John Hatch and the growth of village banking [ACCION 2007; FINCA International 2007]). Thus. the microcredit movement was born.

Every society develops products to deal with the mundane aspects of life: preparing food, creating a living space, adorning the body, and so on. Some of these products are primarily utilitarian while others carry strong aesthetic components. As museum catalogs generally argue, however, both utilitarian and artistic items are informed by the cultures in which they were developed. From this creative process, then, has come an array of culturally informed craftsmen who use their specialized skills to generate relatively high incomes serving their local communities.

Unilever’s name in India was Hindustan Lever (HLL). Project Shakti was one of the seven new initiatives to tap the vast pool of potential customers in non-urban India (Amann, Steger, and Ionescu-Somers 2006a, Ionescu-Somers, Steger, and Amann 2006). Shakti meant “strength” or “power” and was an ambitious plan to stimulate new demand at the lower end of the market by creating a self-sustaining cycle of business growth through people growth. HLL planned to develop a win-win partnership with rural self-help groups (SHGs) by helping them access microcredit, buy HLL products, and sell them in their villages. If successful, the initiative would create hundreds of jobs, train new entrepreneurs, and extend HLL’s distribution reach to the most inaccessible of India’s rural villages. Penetrating the informal sector in this way was a potentially risky endeavor; furthermore, was it really the company’s role to develop rural areas? At that time, the management had been concerned about potential channel conflicts with the existing, successful distribution network. Coordinating with governmental and NGO partners would be a key success factor, but this also brought its own complexities. Training mostly illiterate women in sales and promotion techniques was a major challenge, although the payback in terms of new markets and wealth creation was potentially enormous.

Management research has recently begun to shed new light on the role and nature of business innovations targeted at subsistence marketplaces (Viswanathan and Rosa 2007), the four billion poor that have also been referred to as constituting the Bottom of the Pyramid (Prahalad 2005). The notion that ways might be found for business to effectively serve the needs of subsistence markets is gaining increasing currency, and holds promise for both firms and consumers. For firms, it constitutes potential access to a vast, undertapped market for products and services. For subsistence consumers, it includes the promise of affordable access to products hitherto unaffordable or unavailable. Although gaining momentum, this viewpoint still faces many challenges, including the central question of whether business really can help to overcome the problem of poverty. We contend that the best way to begin to address such issues is to develop deep understanding of the lives of individuals living in subsistence conditions. This paves the way for a bottom-up, grounded understanding of the potential for business to contribute to economic and social development among the poor. Our subsistence marketplaces perspective is a bottom up approach to understanding buyer, seller, and marketplace behavior that complements mid-level business strategy approaches, such as the base of the pyramid approach, and macro-level economic approaches to studying business and poverty that currently exist in the literature.