emerging markets

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Ashish Karamchandani Michael Kubzansky Paul Frandano March 2009

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

FOR MORE INFORMATION PLEASE CONTACT:

Michael Kubzansky [email protected] +1.617.252.2486 Ashish Karamchandani [email protected] +91.22.6658.2000 www.mim.monitor.com www.monitor.com

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Executive Summary ...2

Introduction ...8

New Approaches to Low-Income Markets ...16

Business Models That Work ...34

PAY-PER-USE ... 40 NO FRILLS SERVICE ...47 PARASKILLING ...55 SHARED CHANNELS ...64 CONTRACT PRODUCTION... 77 DEEP PROCUREMENT ... 86 DEMAND-LED TRAINING ...95

What the Models Teach ...102

Recommendations and Concluding Thoughts ...120 Ashish Karamchandani Michael Kubzansky Paul Frandano

with the assistance of Victoria Barbary, Anamitra Deb, Davis Dyer, Nishant Lalwani, Varad Pande, and Suchitra Shenoy

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Appendix

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THIS REPORT INVESTIGATES “MARKET-BASED SOLUTIONS”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READING BY SOLAR LANTERN

The poor participate daily in markets, whether for livelihoods, food, social services, or basic products like lamps and stoves. But these markets are often informal and provide low quality goods and services at a penalty. Market-based solutions are delivering better outcomes.

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Executive Summary

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D! =*$(! 5&)1"#'! %'5',%#! ),! $%)5(",+! (*'! &"+*(! 9/#",'##! 1)%'0#A! 3*"2*! 1/#(! 9'! ($"0)&'%! ()! (*'! 5$&("2/0$&! '2),)1"2! $,%! #)2"$0! 2),%"("),#!)6 !(*'!5))&7!E/#",'##!1)%'0#!(*$(!6/,2("),!3'00!3*',! %'$0",+!3"(*!$6"!/',(!$,%!1"%%0':",2)1'!2/#()1'&#!$&'!/,0"4'0;!()! 3)&4!$#!3'00!6)&!0)3:",2)1'!1$&4'(#7!

“Soft” funding plays an important role in low-end markets and helped many of the successful enterprises examined in this report to reach scale — even some of those started by large corporations.

4

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

A SELF-HELP GROUP IN ANDHRA PRADESH

Village women meet regularly to manage credit and savings for purchases of dairy cows and other income-generating assets.

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Introduction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A great product idea

married to a noble mission is rarely enough to make meaningful progress in the face of massive social challenges like improving the lives and livelihoods of billions worldwide living in impoverished conditions.

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We found many examples of market-based approaches that seemed promising on the surface but upon further investigation proved not to be commercially viable or scalable.

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New Approaches to

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GRINDING FLOUR

Among low-income families, food preparation is often laborious and time-consuming. Today, market-based solutions offer better ways to simplify traditional chores like cooking or securing clean water.

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New Approaches to Low-Income Markets

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The Poor as Economic Actors

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the economic pyramid are customers with the power to choose — not simply “benefi ciaries.”

20

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Business Models in Low-End Markets

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New Approaches to Low-Income Markets !" #$%&%'()**)+,-"."/%+0"123'"4&%)+"%+5"6/7*80"'698+5%&0:'9;88*" ,&%5<%46'"%'"*8%+"8=!"96&'"48")/7*6/6+4"')/7*)!"65"*6+5)+,"'0'46/'>" )+'46%5"8= "98**6,6"56,&66";8*56&'"=8<+5")+"98//6&9)%*"?%+('@ 1)9&8!"+%+96A'"7&8B6+>"&8?<'4"/856*"98+4)+<6'"48"6C7%+5>"6B6+"%'")4";%'",6+6&: %465"%"*)B6*0>"%+5"%4"4)/6'";6%465>"56?%46"8+"4;6"46+')8+'"?64D66+"98//6&9)%*"%+5" '89)%*"8?E694)B6'@FG

Where the Formal Economy Reaches…and Doesn’t.

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22

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Just How Big, Really, is the Opportunity?

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Some large corporations do participate in low-income markets, especially in industries like telecommunications, pharmaceuticals, and fast moving consumer goods.

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New Approaches to Low-Income Markets !"#$%&'()$*+,%-'.(#/-%'$"0"123'4*#'%5-')*%%*.'67'8-#9-1%'*4 '%5-'"19*.-':"$%#"),%"*1&' ;1:"(<$'-:,9(%"*1'.(#/-%'"$'-$%".(%-:'%*')-'()*,%'=>?@')"++"*1&'('$"0()+-'*88*#%,1"%A' )A'(1A'.-($,#-?BC_{'D$'8*"1%$'*4 '.(#/-%'9*.8(#"$*1&'%5"$'"$'()*,%'%5-'$(.-'$"0-'($'} %5-'2+*)(+'.(#/-%'4*#'#(:"*'4#-E,-19A'":-1%"!'9(%"*1'FG!;HI'95"8$'"1'@77J&B>_'%()+-%' KL$'"1'@77M&B6_{'1-%N*#/'$-9,#"%A'$*4%N(#-'(1:':-O"9-$'"1'@77J&}BJ_{'*#'%5-'(1%"9"8(%-:'} L5"1-$-'.(#/-%'4*#'+($-#'8#"1%-#$'"1'@7B7?BP_{'Q5-'9,##-1%'5-(+%5'9(#-'.(#/-%'4*#'%5-'}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

Education in India: Market Size Comparison (US$B)

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The sheer size of the market alone may be a deceptive signal of whether large companies will rush in.

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Whom Can We Expect to Find in These Markets?

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The Imperative to Scale

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The majority of ventures entering low-end markets will be small to medium-sized social enterprises or private fi rms, and especially those seeking to serve low-income segments as customers.

(30)

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