The future of corporations

Paul Polak believes that, in the future, corporations will only remain competitive in the global marketplace by creating vibrant new markets – serving customers living on less than two US dollars a day – at scale.

***

Three years ago, General Motors, the biggest, most powerful corporation in the world, was brought to its knees by failing to react quickly and effectively to competition from Japanese imports, which were smaller, more fuel-efficient, and cheaper.

The treadle pump is a human-powered irrigation device that sits on top of a well. Pumping is activated by stepping up and down on treadles which drive pistons, creating cylinder suction that draws groundwater to the surface. Paul Polak’s International Development Enterprises (IDE) played an instrumental role in popularizing treadle pump technology in Bangladesh in the early 1980s through focused value chain and social marketing interventions. Eighty-four manufacturers now produce treadle pumps and 1.4 million treadle pumps have been sold to small plot Bangladeshi farmers since 1985. The United Nations Food and Agricultural Organization (FAO) and other organizations have since begun their own treadle pump initiatives in other countries. | Photo: Mukul Soni

Companies like Wal-Mart, Coca-Cola, and Microsoft, will soon face the same ‘do-or-die’ crossroads that General Motors faced if they don’t react quickly and effectively to the challenge of earning attractive profits, at scale, from emerging markets.

Thirty million people shop at Wal-Mart every day, but there are three billion people in the world that will never set foot inside a Wal-Mart store. They include 2.6 billion potential customers who live on less than two dollars a day. Most of them live in rural areas in developing countries and earn their livelihoods from one or two acre farms. Many more live in urban slums, and live on what they can earn from informal enterprises, like small shops selling consumer items, or tailoring enterprises.

Coca-Cola sells what amounts to an aspirationally branded, fizzy, sugar-water for about 25 cents a bottle in villages all over India. In those same villages, 50% of the children are malnourished. What would happen to Coca-Cola if a well-financed Chinese company started selling a nutritious soft drink at five US cents a bottle in millions of villages around the world? I believe Coca-Cola could quickly find itself in the same position that General Motors faced three years ago.

The Gates Foundation has helped millions of people move out of poverty, and improved the health and education of millions more. But, as far as I know, Microsoft, the parent company, does not make a single product that sells to the 2.6 billion people in the world who live on less than two dollars a day.

However, the opportunities to create profitable businesses serving three billion by-passed customers are almost limitless. For example, there are a billion people who will never connect to electricity. That’s about the same as the total population of the United States and Europe combined. There are another billion people who don’t have access to safe drinking water. Many of them get sick and some of them die because of it.

Why aren’t existing businesses successfully involved in emerging markets? There are three main reasons:

• They don’t see a profit in it.
• They don’t have a clue how to design the radically affordable products and services that poor people need.
• They don’t know how to design and operate profitable last-mile supply chains.

Three key practical strategies need to be incorporated by businesses serving ‘two US dollars a day’ customers:

• Small margins at large volumes equal attractive bottom-line profits. Supermarkets used this formula to replace ‘mom-and-pop’ grocery stores, and Wal-Mart improved on it. For emerging markets, it is really the Wal-Mart strategy multiplied one hundred times.
• Design for radical affordability. A movement called ‘Design for the other 90%’ is gaining a lot of momentum. It’s about learning to design things that are affordable for people who live on less than US$2 per day, and that also are income- generating.
• Implement profitable last-mile supply chains.

Spring Health, the company I’ve started with my partners in India will, if successful, create a model platform for profitable last-mile supply chains to small rural villages in India. The mission of Spring Health is to sell safe drinking water at scale to people who don’t have access to it now.

There are some 300 million people in eastern India alone that don’t have access to safe drinking water. Most of them live in small villages with 100 to 300 families, and those villages have little in the way of markets. But every one of these small villages has three or more ‘mom-and-pop’ shops. They sell everything from cigarettes to soap, to candy, to cookies, and all kinds of consumable household items. What Spring Health has done is to build a 3,000-litre cement water tank, for about US$100, beside each shop, and then purify the water in it using a radically affordable water purifier liquid. The shopkeeper sells the purified water for less than half a cent a litre to people in the village. Our customers – most of whom live on less than US$2 a day – report that they are experiencing a major drop in illnesses and in medical bills. Each family estimates that they pay between US$25 and US$250 a year for medicines to stop diarrhoea, for visits to clinics and doctors, for electrolyte replacements, intravenous infusions, and hospital stays, all to treat the illnesses that they get from drinking bad water.

The mission of Spring Health is to provide safe drinking water to five million people through 10,000 village shops within three years, and to provide safe drinking water to more than 100 million people through shops in 400,000 villages around the world within ten years.

I believe there are thousands of opportunities for creating new markets and creating new companies to serve the three billion customers in the world who are bypassed by current markets. It will take nothing less than a revolution in how businesses design, price, market, and deliver their products and services to accomplish this. But the outcome of this revolution will be to create millions of new jobs, help more than a billion people move out of poverty, and take a giant step toward ending environmental imbalance on the planet.

■

● Paul Polak – founder of Colorado-based non-profit International Development Enterprises (IDE) – is dedicated to developing practical solutions that attack poverty at its roots. For the past 25 years, Polak has worked with thousands of farmers in countries around the world – including Bangladesh, India, Cambodia, Ethiopia, Myanmar, Nepal, Vietnam, Zambia and Zimbabwe – to help design and produce low-cost, income-generating products that have already moved 17 million people out of poverty.