Synthesis Documents

Emerging Markets, Emerging Models: Market-Based Solutions to the Challenges of Global Poverty, The Monitor Group, 2009

    Description
    This report, from Monitor Group, investigates market-based solutions as a means to help those residing at the base of the global income pyramid. An alternative and complement to traditional government expenditures, aid, and philanthropy, market-based solutions give low-income people better access to socially beneficial products and services that genuinely and directly improve the quality of their lives and livelihoods. The report focuses mainly, but not exclusively, on India


    Methods for info gathering
    The research is based on site visits, interviews, existing data and documentation.


    Summary of results
    The report draws the following main conclusions:

    - While the role of markets in the current global economic crisis is being reevaluated, market-based solutions in emerging markets have generated remarkable benefits to low-income people and offer enormous promise to do even more in the future.
    - That promise depends on adopting the right business models, which must be tailored to the particular economic and social conditions of the poor.
    - As happened in microfinance, new entrants and small enterprises are more likely than large corporations to lead the development of market-based solutions in low-end markets. Exceptions will be large enterprises that engage poor people as suppliers.
    - Noncommercial or 'soft' funding plays an important role in low-end markets and helped many of the successful enterprises examined in this report to reach scale
    - Meaningful scale takes time. Most small enterprises require at least a decade to reach significant scale. Market-based solutions are not a quick-fix. The most common mistake among unsuccessful market-based solutions is to confuse what low-income customers or suppliers ostensibly need with what they actually want.


    Emerging Markets, Emerging Models recommends seven business models, tailored to the circumstances of low-income groups. Four of these focus on serving the poor as customers:

    - A Pay-Per-Use approach in which consumers pay lower costs for each use of a group-owned facility, product, or service. This limits the impact on their cash flow while the sheer numbers of consumers makes the proposition sufficiently attractive for third-party providers.
    - A pared-down, No Frills service that meets the basic needs of the poor at ultra-low prices and still generates positive cash flow and profits through high volume, high asset utilisation, and service specialisation.
    - Paraskilling, which combines No Frills services with a reengineering of complex services and processes into a set of disaggregated simple standardized tasks that can be undertaken by workers without specialised qualification.
    - Distribution networks that reach into remote markets via Shared Channels, piggybacking products and services through existing customer supply chains, thus enabling poor people to afford and gain access to socially beneficial goods such as solar lanterns or efficient kerosene burners.

    The remaining three business models devise ways of engaging low-income suppliers
    or producers:

    - A system of Contract Production that directly involves small-scale farmers or producers in rural supply chains. The contractor organises the supply chain from the top, provides critical inputs, specifications, training, and credit to its suppliers, and the supplier provides assured quantities of specialty produce at fair and guaranteed prices.
    - Deep Procurement setups that bypass traditional middlemen and reach into the base of the economic pyramid, enabling direct purchases from large networks of low-income producers and farmers in rural markets and often providing training for quality and other specifications.
    - Demand-Led Training that applies a formal-sector "temp agency" model to down-market opportunities, with enterprises paying a third-party to identify, train, and place employees for job openings at the edges of the formal and informal sectors.