3 Ways Businesses Are Addressing Inequality in Emerging Markets

by: Vijay Govindarajan and Ravi Ramamurti

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Last year, the World Bank added a new mission to its original goal of reducing poverty: boosting shared prosperity. The change reflects the state of today’s world: the fraction of the global population in extreme poverty, defined as those earning less than $1.25 per day, has dropped to 12% from 36% in 1990. Yet income inequality is more pronounced than ever. According to a report released by Oxfam International on Monday, the richest 80 individuals in the world hold as much wealth as the poorest 3.5 billion. World Bank President Jim Kim has called this reality a “stain on our collective conscience,” explaining that boosting shared prosperity is the best way to fight inequality. We agree wholeheartedly with that approach. And we believe businesses must play a large role in making it happen.

Unlike extreme poverty remediation, shared prosperity cannot be accomplished solely by government handouts or even the well-meaning initiatives of NGOs. The first is not affordable and the second is often not scalable. Businesses can be a significant part of the solution. But they much more likely step in if they recognize that serving the masses is not about altruism or charity — it can be profitable in its own right.

Business can apply its innovative genius in three ways to create shared prosperity: by supplying quality products at ultra-affordable prices, which will allow the masses to stretch their purchasing power and improve living standards; by creating new opportunities for gainful employment, which will increase their incomes; and by providing access to services that will increase their future earning potential.

Take the case of Safaricom, Kenya’s largest cell phone company and creator with Vodafone of the popular wireless banking product, M-Pesa. As in other developing countries, telephone service and banking were regarded in Kenya as products for the rich, but the emergence of mobile phones and online banking, and the innovative idea of combining them, has brought these services to the Kenyan masses at ultra-low prices. Before M-Pesa, most Kenyans were classified as “unbanked,” and they transferred money in cash, through a friend or via a bus or taxi. This was slow, risky, costly, and inconvenient.  Today, a phone doesn’t just give the poor the joy of communication but also a means to enhance their livelihood. One study reports that mobile phone usage increased the income of Ugandan farmers by 36%.

Businesses can also help the poor by enlisting the poor to serve the poor. An inspiring example is Aravind Eye Care Hospital of India. Two-thirds of its staff members are village girls with a high school degree who have been trained by Aravind for two years to perform many tasks, including helping doctors perform surgery. This has allowed Aravind to perform cataract surgery for just $100. (The cost of cataract surgery in the U.S. is over $3,500). As a result, Aravind has created thousands of jobs for village girls, while giving eyesight — and the dignity and employability that come with it — to three million poor. Because the girls come from the same villages as Aravind’s poor patients, they empathize with and serve them better than city-trained nurses tend to. The strategy produces winners all around, including Aravind, which has been able to fund its rapid growth entirely with internal resources.

Finally, businesses can provide income mobility to the poor and help them migrate up the income ladder — for instance, by giving them access to higher education. Kroton Educacional of Brazil is doing just that, in a country where just 57% of children finish high school and 14% of young adults enter college. Kroton started by developing innovative curricula for K-12 education in one province, and then grew to become a national leader in online higher education. Last year it merged with another for-profit firm to become the world’s largest online educator, with 1.2 million students and a market capitalization of $11 billion. Kroton has leveraged technology, such as online courses and satellite broadcasting of lectures by gifted teachers, to educate students across Brazil, including remote parts of the Amazon. Fees are low, quality is high, access is widespread, and the curriculum promotes employability. Kroton’s graduates have seen their incomes grow by a higher multiple than students in any OECD country.

These organizations have fewer peers than they ought to. But their winning formula is not a secret. To innovate for the developing world, companies must deeply understand the customer’s problem before designing solutions; localize RD, manufacturing, the supply chain, and marketing in the economies they serve; and stick to the goal of providing high-quality products at ultra-affordable prices. We won’t pretend this is easy, but the potential rewards for businesses — and for societies in narrowing income inequality — are too large to ignore.

About the Authors

Vijay Govindarajan, NYT and WSJ Best Selling author, is the Coxe Distinguished Professor at Tuck School at Dartmouth and Marvin Bower Fellow at Harvard Business School. He is coauthor of Reverse Innovation (HBR Press, April 2012).

Ravi Ramamurti is D’Amore-McKim Distinguished Professor of International Business and Strategy, and Director of the Center for Emerging Markets at Northeastern University.

Article source: http://feeds.harvardbusiness.org/~r/harvardbusiness/~3/cwrwQV9ENGw/3-ways-businesses-are-addressing-inequality-in-emerging-markets

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