Scott Anderson

Weekly roundup 6-14-14: When conventional wisdom gets upended

When conventional wisdom gets upended, well, we’re all a little better off for it. Here are two examples from this week.

“We are not interested in the tip of the pyramid, but the base. Ninety percent of phones selling in India are selling at less than 5,000 rupees (around $85), if [major international] brands want to ignore that [segment] it’s their problem, we cannot,” Shashin Devsare, executive director at Karbonn Mobiles told CNBC.

Karbonn, along with Indian homegrown players Micromax and Lava, together have pulled in 30 percent of the smartphone market share, according to analysts quoted in the CNBC report. The local firms are taking share away from some of the biggest worldwide names in telecom, which are competing feverishly for the country’s $13 billion mobile market – second only to China’s. Analysis from consulting firm Technopak confirms Devsare’s point, that local brands are besting the foreign brands by offering phones for as much as 30 percent less in monthly fees.

“We decided to leverage the China ecosystem and took a bottom-up approach. Our research showed that no one was servicing the tier-three and tier-four markets,” SN Rai, one of Lava’s founders, told CNBC.

And local firms are not just competing on price, but features. Brands like Firstouch, the CNBC report goes on to note, are (get this) actually selling hardware with keyboards designed for Indian alphabets.

“Only 10 percent of the Indian population knows English…so we are targeting those who love their own language and are not comfortable with English,” said Firstouch co-founder Rakesh Deshmukh.

What a novel concept.

To be sure, foreign brands aren’t about to give up the market. But it appears they’ve been caught, for the moment, flat footed by their lack of a base of the pyramid strategy (or at least a lower-income market strategy) and are playing catch-up. It’s a cliche by now, but I’m guessing the multinationals can hear them now.

Social enterprises vs. public companies

Over at The Guardian, Abbie Rumbold takes a look at new research (which she helped to generate incidentally) from Professor Simon Denny, director of enterprise, development and social impact at Northampton University. Denny wondered if social enterprises in the UK were more prone to failure than, say, publicly listed companies (PLCs) on the FTSE 100.

Rumbold, a partner at Bates Wells Braithwaite, says she encountered the perception that social enterprises have an inordinately higher failure rate when she was negotiating with a for-profit public service provider on behalf of a social enterprise client. The service provider wanted extensive payment guarantees in the contract, because, “social enterprises go bust all the time and we have to protect ourselves.” Feeling the assertion was unfounded, she wanted to test the perception that social enterprises are riskier than their private sector equivalents.The resulting study, called “Who lives the longest? Busting the social venture survival myth” reported that social enterprises have an even better survival rate than the top 100 companies on the FTSE when examined over a 30-year period.

“… for the period from 1984 until 2014, of the 100 top social enterprises and trading charities in comparison with the top 100 PLCs, (Denny) found that the social ventures were not more likely than the PLCs to cease operating or fail to repay investments. In fact, overall, 41 percent of these ’competitive third sector organisations’ have endured, compared with 33 percent of the PLCs.”

“… No one is claiming that being a social enterprise or trading charity is plain sailing. There will always be those that fail. But this research shows that giving social ventures tougher contracts than traditional businesses on the grounds that they are inherently riskier, is unjustified and unfair.”

When the 40 charities are taken off the list, the 60 social enterprises lose out to the PLCs, but only slightly, with 31.6 percent versus 33 percent respective survival rates.

Check out the full survey and/or the press release for more.

Can these results be extrapolated for social enterprises writ large? That’s a tougher question. Many of the “third sector” enterprises in the UK enjoy a fairly supportive regulatory and governmental environment, which is still the exception rather than the rule in most countries, even those considered developed economies. Most of the enterprises appear to be serving domestic stakeholders and/or the UK government. Still, this is the first study that I can recall (please add links if you have others) showing social enterprises holding their own with solely for-profit firms.

Series Reminders

We do a lot of series on NB and occasionally they get lost in the daily ether of our blog. So I wanted to remind you about two ongoing projects that I hope you’ll bookmark, as we’re going to be providing several updates over the course of the coming months.

First, this week NB Financial Innovation Editor James Miltzer took the opportunity in his coverage of the EMERGE Conference to announce our new series: Domestic Financial Innovation. In the first post, he explores the industry’s shifting attitudes toward bank and non-bank players in the U.S. We’ve also established a new Focus Area on Domestic Financial Innovation, tracking recent enterprises, initiatives and outreach by both established market players and startups to bring low-income people into the financial system and to serve their needs responsibility. There are many lessons to be learned and many things to share in providing financial services to, for lack of a better term, America’s BoP. We hope to chronicle and spread the best ideas in savings, microlending, financial literacy and capability, and other innovations that may not easily fit into established categories.

Another reminder for readers of NextBillion Health Care, please stay tuned to our series Market Dynamics, which explores best practices and new thinking for nudging markets toward improved health care delivery. While the posts thus far have all been impressive, Mike Miesen’s two-parter on his company, Gradian Health Systems, and its nontraditional approaches to getting its anaesthesia machine into poor hospitals, was particularly instructive for me on the many elements of market dynamics. As always, we welcome your suggestions for both series on what we should cover and/or whom we should invite to share their thoughts on NB.

Scott Anderson is NextBillion’s managing editor.

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