Seforum2007chris

Full Economic Citizenship March, 2007

FEC initiative – India 2007

Our definition of “Full Economic Citizenship” • By “Full Economic Citizenship” we mean that the global economy should be more inclusive and offer opportunities for all. It implies that all over the world: • Low-income consumers should have economic and physical access to basic products and services at a fair price, in a way that leads to a better quality of life and increases their economic opportunities • Small producers should have access to the distribution channels, equipment, technology and materials so that they are able to increase or get a fairer share of the value they create • Communities and individuals should be able to borrow against their assets, regardless of the location or the size, to finance their own economic growth

FEC initiative – India 2007

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To advance Full Economic Citizenship globally, we have defined a three-prong approach HYBRID VALUE CHAIN

Serving low-income consumers Improve products and services to low-income communities around the world thanks to business social hybrid collaborations

CLASSES OF SMALL PRODUCERS

FULL ECONOMIC CITIZENSHIP

Support the restructuring of production and distribution systems for a whole cluster of small producers to allow them to get an increased value for their production

Transforming small producers economies Enable a faster development of mechanisms that allow low-income people and organizations to leverage the economic value of their assets

Leveraging assets of the poor Core programs

WEALTH OF THE POOR

FEC initiative – India 2007

Current focus

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Millions of people are currently underserved and are paying a premium on essential goods

Cost of product or service

Dharavi slum (Mumbai)

Warden road (upper-class area, Mumbai)

Poverty Premium

Credit (annual Interest)

600% - 1,000%

12 - 18%

53 x

Water

$1.12

$0.03

37 x

Phone call (per minute)

$0.04 - 0.05

$0.025

1.8 x

Diarrhea medication

$20

$2.00

10 x

Rice (per kilogram)

$0.28

$0.24

1.2 x

These cost differences common around the world could be reduced if low-income communities could benefit from the scope, scale and supply chain efficiencies of large companies. FEC initiative – India 2007

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In order to map out collaboration opportunities, we have developed the Hybrid Value Chain framework

Citizen organization

Business Hybrid Value Chain

Product/ service development

Production

Distribution & logistics

Sales & marketing

Financing

Lowincome markets

The Hybrid Value Chain model draws on each sector’s core competencies. Together, businesses and social entrepreneurs can combine assets and skills to better serve low-income markets.

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Our goal is to create a new generation of collaborations to successfully serve these low-income markets Creating value for low-income consumers, business partners and social partners: Access to affordable and appropriate products and services, empowered customers

Low-income Consumers

Business Partners New markets, goodwill and pioneering corporate image

FEC initiative – India 2007

Win-Win

Social Organizations Sustainable sources of income and higher social impact 6

Key elements of FEC strategy •

Change the mindset of large private companies so that: • They integrate low-income consumers in their business strategy • They realize the benefits of partnering with social entrepreneurs to do so

•

Change the mindset of social organizations so that they realize the potential of partnering with the private sector

•

Implement demonstration projects to illustrate the potential of win-win hybrid models to reach low-income market segments and strengthen social organizations

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The Amanco business model

Amanco

• US$ 1 million in sales during the pilot phase • Potential large rural market for irrigation products (Mexico and Latin America)

Social entrepreneur (rural distributor)

• 35% discount on list price • Expected profits between $100,000 and 130,000 during the pilot phase

Small-scale farmer

• Drip irrigation technology at a competitive price • Pilot goals: 500 hectares irrigated

Ashoka

FEC initiative – India 2007

• 1.5% on the total sales to the distributor for 3 years

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Summary a “win-win-win” collaboration leading to the creation of a competitive model of rural distribution Small-scale farmers • Have access to affordable irrigation systems that were previously not available for small plots • Have access to financing mechanisms, and now to technical and marketing assistance • Able to grow higher-value crops, increase their family revenue and improve family food security

Amanco Mexico • Accelerate their growth through new markets

Competitive model of rural distribution

Ashoka Fellows • Increase their social impact in their regions of intervention

• Create social value in addition to economic value

• Access alternative sources of financing independent of grants

• Strengthen their image of socially responsible company for stakeholders

• Continue to innovate through new forms of strategic alliances

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Opportunities for Hybrid Value Chain collaborations Steps of the value chain

Common barriers for businesses willing to enter low-income markets

Potential contributions of citizen organizations

Product/ Service Development

• Limited knowledge of low-income individuals’ needs, capacities and value system

• Provide insights on consumers’ needs, values and their actual utilization of new products

• High cost structure of current business model

• Implement a “bare foot” business model to reach out low-income communities • Build capacities of communities to participate in market processes

• Cost of reaching individual consumers in rural areas or urban slums due to the lack of existing distribution channels • Business in low-income markets is based on low margins

• Aggregate demand/supply thanks to their local networks • Concentrate business delivery in single points

Sales & Marketing

• Traditional promotion channels are not adapted to low-income markets (illiterate, less connected…) • Limited understanding of low-income individuals’ value system • No existing relationship with low-income communities

• Help maximize the value of services for customers by providing an integrated solution and by mobilizing various local players (education, civil rights, community development, etc.), thereby strengthening demand • Able to mobilize community and implement behavior change campaign to create awareness around a need or issue • Facilitate trust-based promotion and sales through established local networks

Financing

• Limited disposable income • No access to formal banking services

• Provide micro financing or develop alternative financing methods (leasing) • Help mobilize available subsidies

Production

Distribution & Logistics

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