NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, August 17, 2005

They’re bringing microfinancing, business development — and eventually a consumer economy — to many impoverished Third World areas

Sue Igoe, a second-year MBA student at Columbia Business School in New York, is returning from her summer internship invigorated and ready to learn how to make a profit — and a difference.
Igoe, who originally sought to intern at a media outlet in New York, instead spent 11 weeks in Nicaragua assisting in the launch of Agora Partnerships, an enterprise that helps young entrepreneurs in Central America develop socially responsible businesses. “I was attracted to this job in part because it had such heart,” says Igoe.

Agora -? which draws its name from the Greek word for marketplace -? was founded by Columbia alumni and is headquartered in Washington, D.C., and Nicaragua. The goal of this early-stage outfit is to create a venture-capital fund based on for-profit principles to support small businesses in Central America.

“BOTTOM OF THE PYRAMID.” This is one of many opportunities MBA students and recent graduates are creating to help give purchasing power to people in Third World countries. In the process, the MBAs are also establishing a whole new set of consumers. Instead of offering aid or charity, these students and alumni are helping some of the world’s 4 billion poor people, who are sometimes referred to as those at the “bottom of the pyramid” (BOP), to stand on their own two feet.

Several educators like C.K. Prahalad, a professor of corporate strategy at the Stephen M. Ross School of Business at the University of Michigan, and Stuart L. Hart, a professor of management at the S.C. Johnson Graduate School of Management at Cornell University, are writing about these practices and sharing their ideas with students. However, B-schools still have largely ignored the phenomenon, says Meghan Chapple, senior associate at the World Resources Institute (WRI), a nonprofit group in Washington, D.C., that tracks B-school education that focuses on sustainable development.

“You’ll see that there isn’t enough happening in the classroom,” she adds. “The academic world has to keep up with what practitioners are doing.”

EVENTUAL PROFIT. BOP principles refer to a corporate strategy that has managers seeking to improve the lives of the less fortunate. The difference between BOP and charity is that the companies plan to make a profit eventually and turn the poor into consumers. The idea is also to provide them with dignity and the means to care for themselves.

In one example, GSM Assn., a trade organization in London for the global wireless industry, recently started the Emerging Markets Handset Program to provide lower-cost handsets to those in regions with fewer resources. The group hopes to be able to offer $30 handsets by early next year.

“By providing reliable and low-cost cellular technology to emerging markets and connecting the unconnected, we will be able to strengthen and accelerate economic development, which will ultimately help contribute to an overall better standard of living,” says David Taylor, director of strategic operations in high growth markets at Motorola Mobile Devices in Britain, a partner of GSM Assn. “Building a communications infrastructure is one element of this development.”

BEHIND THE TIMES. While Prahalad’s book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (Wharton School Publishing, 2004), has put the theory on the table, advocates say B-schools are behind the times in teaching this new approach. In the 2003-04 academic year about 25 elective courses focusing on BOP principles were offered. This fell to 23 the following year, according to “Beyond Grey Pinstripes 2005,” a survey by WRI and Aspen Institute of 90 B-schools that will be released in October. On average, about 818 students a year took an elective BOP course.

Students are seeking out many of the opportunities on their own. Ting Shen, a second-year student at the Tepper School of Business at Carnegie Mellon University, had worked as a volunteer for the U.N. in the Ivory Coast before heading to graduate school for an MBA and a master’s in public policy and management.

When she was offered the chance to intern at UNICEF in New York as a social and economic development intern -? a position that was created solely for her -? she was thrilled. The U.N. is focusing on ways in which business can help alleviate poverty. A grad student of business and public policy was a perfect fit.

GRASSROOTS RELIEF. But the position offered to Shen was unpaid, and that’s often not viable for MBA students. She went to Dean Kenneth B. Dunn, who agreed to give her a scholarship, so she wouldn’t be financially penalized for taking the job. In fact, Dunn and his colleagues are now trying to find a way to offer a similar scholarship annually to students interested in doing nonprofit work of this nature.

Many of the MBA students and alumni say the most exciting part of the sudden interest in BOP programs is watching a relatively new theory being put into practice. Providing necessities like clean water and health care plays an important role in the quest to alleviate poverty. Blaise Judja-Sato, an MBA graduate of the Wharton School at the University of Pennsylvania, had lifted himself out of poverty in Cameroon and in 2000 raised more than $1 million for relief efforts after a flood in Mozambique.

He quit his job and created VillageReach, a nonprofit group that brings basic health care to people in Mozambique and the Cabo Delgado province. The ultimate goal is to get a functioning health-care system that creates jobs for locals.

“LIKE A PIONEER.” Craig Nakagawa, chief operating officer of VillageReach and a 1997 alumnus of the Graduate School of Business at the University of Chicago, also gave up a cushy corporate job to do something more meaningful. “I use my business school skills more here than I did on Wall Street,” he says. “You feel like a pioneer in the new industry of social entrepreneurship.”

Similarly, Venkat Shankar, an M.D. and 2005 EMBA graduate of Vanderbilt University, returns to his native India regularly to help manage a community health facility in Chattisgarh, India. In addition to providing basic medical services, the group has trained nearly 50 local women as health workers and pays them a nominal wage for now.

“The work really recharges my batteries,” says Shankar. An interest in doing larger-scale projects similar to this one is what prompted him to enroll in the EMBA program in the first place.

Truly, Shankar represents a new wave of students who see business ?- not charity — as the solution to poverty. “Companies can be responsible, profitable, and change the world all at the same time,” says Prahalad, one of the leaders in the BOP movement. It’s just a matter of time before other B-school professors and researchers catch up to their students.

http://www.businessweek.com/bschools/content/aug2005/bs20050817_1763_bs001.htm