How to Build Markets in Poor Countries

Written by Patrick Fisher February 7, 2011 0 comment

The View from Harvard Business
By Sean Silverthorne | February 7, 2011

Undeveloped nations need products, too.

People living on a few dollars a day still require shelter, food and services. There are three ways to attack this problem: 1. Give them money and other aid, 2. Teach them to develop their own products and services, 3. Let capitalism and entrepreneurs create markets around solutions.

The third type would seem to be the hardest to fulfill — how do you sell products to people who can barely afford to survive? Turns out that disruptive innovation and innovative entrepreneurs are helping advance the lives of millions of people living in poverty.

Think back to Harvard Business School professor Clay Christensen’s pioneering work on disruptive technology. One of the underlying foundations of the theory is the idea of a product that is “just good enough” — it services a basic need through simplicity at a fraction of the cost of the feature-bloated incumbent. Think disposable camera. Compared to an ordinary camera, the disposable produced crummy pictures, but they were good enough to satisfy millions of users who needed photos to send to relatives and stuff in the shoebox. Likewise, the transistor radio made music sound like it was coming from a tin can, but you could take it to the beach, unlike its table-bound predecessors.

OK, you are a social entrepreneur, and you have a problem to solve. In Liberia, only 2,000 homes out of 4 million are hooked up to the electric grid, but a cell phone revolution has taken place. Nigerians who have moved from rural to urban centers invest in cell phones as a way to keep in touch with far away families. The average Nigerian spends 25 percent of his income, roughly $48, to keep it charged through expensive “electricity centers.”

So there’s the market need and a ceiling price people are willing to pay. What’s your just good enough solution?

Ask Richard Fahey, a 2010 fellow of Harvard’s Advanced Leadership Initiative. Although he’s not trying to make a profit, you can see the workings of “just good enough” at play in his idea.

Fahey is working with companies to produce solar powered lanterns that are also chargers, which sell for $45. These lanterns would not only save Nigerians considerable money, but they could replace health-damaging kerosene lamps now in use. Read Turning on the Lights in the Harvard Gazette for more details.

This is how a market-driven solution begins to grow, says Michael Chu, an HBS professor who studies social entrepreneurship. It’s not that one firm finds success in a market, but rather that its success draws other competitors who then build an industry. Case in point: At least three companies are competing to sell cheap eyeglasses to the developing world, self-customizable specs that sell for a few bucks.

So the lesson is that disruptive innovation and “just good enough” products can allow you to reach markets that previously never crossed your mind. And if you sell to the developing world, you’ll be helping market capitalism change the world for the better.