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Thursday, May 15, 2008

Guest Post: The Transformative Sector Approach in Latin America

By Derek Newberry

Emily FintelGuest blogger Emily Fintel is Regional Representative for Strategic Initiatives at Fundaci?n AVINA, one of the largest private foundations in Latin America. AVINA partners with civil society and business leaders to promote sustainable development through a network of twenty-one offices in eleven countries through the region, and has invested more than $350M in partners' initiatives since 1994.

In this post, Fintel responds to Allen Hammond's series on taking Base of the Pyramid models to scale. This week, NextBillion.net will publish responses from a number of BoP experts and practitioners, followed by a concluding post from Hammond.

By Emily FintelMy immediate reaction to Al's conversation with Jacqueline Novogratz of Acumen is that I too am haunted by the numbers. Within Latin America, which is the focus of our work at AVINA, hundreds of millions of people suffer from a series of market failures that prevent them from realizing many of the benefits that are enjoyed by middle and upper class winners of globalization. I completely agree with Al that the most promising avenues in order to make a contribution of significant dimension are those strategies which have a systematic approach and integrate a diversity of complementary actors in the development of new, socially inclusive business models and the transformation of entire economic sectors.

Working together in the Network for Inclusive Markets, comprised of WRI, AVINA and FUNDES, we have had the opportunity to begin to "test" the implementation of transformative sector strategies in Latin America, and the initial results are encouraging. For me, a large degree of the innovation rests on the fact that the transformative sector approach aims to enable selected economic sectors to generate a market model where inclusive businesses develop organically. This means that the approach is inherently catalytic in nature - once the demonstrative power of businesses that are profitable, environmentally and socially responsible and that improve the quality of life of low-income sectors is known, market forces help to propel the inclusive development of entire sectors. In other words, this approach has the potential to provide participative, more equitable growth in a very efficient, and scalable, way.

One of the most important success factors of this approach is to correctly identify and address the current sets of barriers that limit the more inclusive development of each sector, and in our experience these barriers vary considerably with each local context. For example, when we tried to replicate the model Al implemented in Kenya in Latin America, we found that the franchise pharmacies model, which had proved viable in Mexico, would be much more complex in Colombia for regulatory reasons. In this sense, the challenge is to identify the right technology and business model for each sector and to adapt it effectively to the local reality and constraints.

And this is where I may differ slightly with Al. I don't see the role of development institutions and of social entrepreneurs as "preliminary or transitional activities". My sense is rather that the field, at least in our region, continues to be fragmented, and that we aren't fully capitalizing on the full complementary value that each of these actors and approaches could bring to the table if we were to join forces in the transformative sector approach. This brings me to what our long-time partner, Jim Austin, formerly of HBS and the Social Enterprise Knowledge Network (SEKN), has called, "socially inclusive value networks".

SEKN, conformed of 10 leading business schools in Ibero-America, has been leading case-based research on inclusive business models since 2005, and in their findings some of the most effective transformative business models are the result of intricate co-dependent relationships - socially inclusive value networks - among a variety of different actors including private companies, social entrepreneurs, SMEs, government agencies, academic institutions, local NGOs and others. The key is to analyze at each step in the transformative sector strategy which types of actors and roles are needed - to understand the local conditions, to identify and remove basic constraints, to develop new technological applications which better serve current needs, to develop a scalable business model, and so-on.

Getting this right is quite powerful in that it can then generate a demonstrative effect and initiate a virtuous cycle that allows markets to generate both economic and social value across the sector. Along these lines, I believe it is important for all of us who are operating in this space to contribute toward a broader understanding of the BoP concept. In the light of a transformative sector approach, the difference between what was originally understood only as a market opportunity using a traditional business model (e.g. BoP as consumers of the current model), becomes clearer. The transformative sector approach goes much deeper within each economic sector in order to generate businesses that are profitable, environmentally and socially responsible and that improve the quality of life of low-income communities.

I have lived outside of the U.S. for nearly 15 years and in Latin America for nine years of that period. The people and initiatives I've had the opportunity to get to know during my travels lead me to believe that Latin America has a significant role to play in the global challenges facing the developing world, especially in creating demonstrative effects and shared learning. Within AVINA and together with our partners throughout the region, we are actively seeking to contribute to this dialogue. AVINA has supported the creation and/or strengthening of nearly 80 inclusive enterprises in the sectors of water, recycling, harvesting, handicrafts, and marine and coasts.

As a next step in these efforts, within the Network for Inclusive Markets we are currently undertaking feasibility and social impact studies for an initial group of inclusive enterprises in the sectors of water, recycling and housing across Latin America. The focus of these studies includes technology trends and innovative business models that can address the barriers and constraints of each sector and that are able to generate demonstrative effects, such as the cases described in Al's blog. We hope this will be contagious not only among the public and private sectors in different countries, but also and more important, among low-income citizens - and that it will contribute to our shared learning as a field.

Only working together will be able to adequately address and respond to the question: what are the most effective ways to stimulate the creation of truly transformative sector strategies among the public, private and social sectors - and together with low-income citizens - in order to promote broad scale social inclusion?

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