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There is no single yardstick to define poverty but it can be define as absolute poverty and relative poverty. Poverty refers to a situation where the people not having means to meet the basic human needs such as food, clothing, health care, education and shelter. Basic human needs are those things which are necessary for survival in the world. The basic human right of the people is adequate housing, enough to eat and wear. Poverty is not just about money but the essential resources such as pure drinking water, healthcare, education and other things, which are taken into consideration. So lack of access in these essential resources effect the standard of life of the people. To lift out of people from poverty economic growth is essential.
World's poor refer to the people living in the world below the poverty line. The three quarter of the people living in the world are poor, most of them are rural farmers. The poor people cannot afford the high level of cost of living of urban areas. The poor people spend their income mostly on food rather than luxuries. If the food prices increases then people of low income cannot afford, this leads to hunger and poverty. The main factors such as lack of health care facilities, lack of education, violence, lack of shelter, overpopulation, corruption, alcoholism and drug abuse, political issues, war and some other factors that can affect the people living in the world. China and India is regarded as the most populated countries in the world taking the first and second place respectively. The family income affect on people life, lower a family's income, the more will be suffer from poverty. On the other side if a family's income is more, than spending will be more, which reflect on standard of life of the people.
2. LITERATURE REVIEW AND ANALYSIS
2.1. Poverty Definition
Poverty is a call to action for the poor and the wealthy alike, a call to change the world so that many more may have enough to eat, adequate shelter, access to education and health, protection from violence, and a voice in what happens in their communities. According to World Bank all low income and middle- income countries are regarded as "developing" countries. It is classified based on Gross National Income per capita. In 2008, classification of countries is made as per Gross National Income per capita, all the countries with GNI per capita below US$11,905 were considered as developing countries. According to the World Bank, poverty can be define in absolute terms, the people living on less than $1.25 per day is termed as extreme poverty (previously it was $1 a day) and the people living on less than $2.50 a day as moderate poverty ( previously $2 a day). In 2001, it is estimated that 1.1 billion people live in extreme poverty i.e., $1.25 a day and 2.7 billion people live in moderate poverty i.e., $2.50 a day. In the East and South Asia there an improvement occurred in the developing world's population, who are living in extreme poverty, it is decreased to 23% in 2004 when compared to 28% in 1990. But in African continent it is increased from 41% to 46% from 1981 to 2001.As a result the number of people living in poverty have been increased from 231 million in 1990 to 318 million in the year 2001. The World Bank report issued based on the per capita income of the Eastern Europe and Central Asia, the poverty rate has dropped from 31.4 percent of the population to 19.6 percent, it is predicted that from 2007 to 2027, people living poverty will increase from 17 percent in the country Georgia and 24 percent in Ukraine. In the total world population 1.4 billion people live below the poverty line with a $1.25 a day and 850 million people go to bed without food every night [World Bank 2010].
2.1.1. Poverty : Absolute poverty or Relative poverty
Absolute poverty refer to the people whose income level fall below the poverty line and unable to meet basic necessities of life such as basic quality and quantity of food, clothing and shelter. In United States the poverty line is measured was based on dollar costs of the economic food plan multiplied by a factor of three. According to the World Bank report "Global Economic Prospects" expects that the people living n absolute poverty is decreasing rapidly and it may falls by 50% -60%, around 600 million people, till the end of 2030.
Extreme poverty is not only about living on $2.50 a day or less. It's not only about living with few assets or no assets like land, and livestock. It's not only about having without shelter over one's head or no safe and sound employment opportunities. It's not only about having no political strength or social voice. It's not only about being inaccessible and helpless to extreme shocks like floods, droughts, starvation and sickness. It's not only about families worn out apart, insults, exploitation and hopelessness. Extreme poverty is all these attributes combined, multiplied and more. Extreme poverty means not having obtainable options. [Argos International 2010]
It is evident from above graph that the poverty rate is decreased to 12% in 1982 when compared to 23% in 1959, but form 1982 to 1995 it is show an upward direction, it reaches 15 percent, which slides again to 12 percent in 2000.
In the year 2005 it reaches 12.6 percent due to recession.
The life of the poor is being affected by the Recession in the world's economy.
Relative poverty refers to the situation of having low income or very less few resources to live than other society or country or compared with one country with another country. Relative poverty means “it is a living standards or income level of the population who has enough to satisfy their needs comparing to most of the people in the consideration “.
It is a measure of income inequalities, measured on income inequality metric as the percentage of population with income less than some fixed proportion of median income. The degree of household income inequalities are measured in Gini coefficient. It explains the people living at different ends of income distribution in an economy. In European Union the poverty line is measured in relative poverty, which is based on level of income set of the median household income at 50%.
From the above, the percentage of the world population is taken on x-axis and the purchasing power parity (PPP) of population living in poverty line in US $ is taken on y-axis. It is clear that population living below the poverty line is increasing with the value of US $ increases and population living above the poverty line is declining.
The people living below the poverty line in terms of US $ 1.00 per day is less than that of $1.25, there is a gradual increase in the percentage of population along with an increase in the $1.45 a day, it is estimated that 1.72 billion population live below poverty at $1.45 a day.
As the value of US $ increases the population increases, at $ 2.50 a day it is estimated that 3.14 billion population live below the poverty line, the figure is twice that of the population living at $1 .45 a day.
At US $ 10.00 per day, it is found that around 5.15 billion population, who live below the poverty line.
The world population live above the poverty line is quite opposite to the population live in below the poverty line. The population living with $1.00 a day and $1.25 a day is estimated at 5.58 billion and 5.06 billion respectively.
It's showing the decreasing figure from $1.45 to $2.50 a day i.e., 4.74 billion to 3.32 billion and at $10.00 a day, the world population is further declined to1.31 billion.
According to Robert Chambers's meanings of the word poverty is divided into four clusters.
The first cluster is income poverty, which describes the poverty in economic way; this cluster can be easily measured. The second cluster is material lack or want, which means that not only income is taken into account, but also a little wealth and some basic devices. The third cluster is expressed as capability deprivation, poverty as what we can do and can be, versus what we cannot do and cannot be. The fourth cluster is a multi-dimensional approach in which poverty is a combination of a lot of factors.
2.2. Ten poorest countries of the world
[World FactBookk 2008]
Ethiopia takes tenth place with Gross Domestic Product (GDP) per capita $700. More than 50% of its GDP depends on agricultural activity. Due to poor cultivation techniques the agricultural sector suffers lowdown. Some 74.7 million populations suffer from poverty and more than 80% of populations are in deadly line, most of them are illiterate. They also suffer from deadly diseases like hepatitis A, hepatitis E, typhoid fever, malaria, rabies, meningococcal and meningitis.
The Niger is on ninth poorest country in the world with 12.5 million populations. It's suffers from food crises and deadly diseases like hepatitis A, diarrhoea, malaria, meningococcal meningitis and typhoid fever.
With $700 dollars per capita Central African Republic stands as the poorest economy in the world. Most of the people depend on agriculture sector. More than 13% of population suffers from AIDS in this country.
Guinea Bissau is the next poorest country with $600 per capita and it completely depends on farming and fishing. The risk associated in this country among the people is HIV, which is estimated at 10% of its adult population.
With GDP $600 pounds Union of the Comoros stands sixth in poorest countries list. Population growth and unemployment are major problems of the country that are responsible for poor economic growth. In total GDP, 40% is contributed by the way of agriculture sector. Republic of Somalia is on fifth place among the ten poorest countries in the world with GDP per capita $600. It is located in the horn of Africa and the contribution of agriculture sector to its GDP is 10%.
The Solomon Islands is one of the poorest country in the world with GDP per capita $600, it is located in Melanesia. It has rich mineral resources like zinc, lead, nickel and gold.
The Republic of Zimbabwe is on third place among the ten poorest countries in the world with GDP per capita $500. Unemployment is the worst part of this country. About 80% of the people suffer from unemployment in this country.
The Republic of Liberia was on second place with GDP per capita $500, which is regarded as one of the poorest country in the world. The Republic of the Congo is on last at the bottom in the world economy. It is located in Central Africa.
2.3. Effects of poverty
The effects of poverty caused among the world poor are due to health issues, children education facilities, drug abuse, housing, violence and role of women in the society at local, national and international levels.
Health is a main issue among the poor people. Since 1990, the people died due to poverty is estimated approximately around eighteen million/year or fifty thousand people per day in total 270 million people, most of them are women and children. Those living in poverty suffer excessively from hunger or even malnourishment and disease. According to WHO report, greatest treats to the world's population is hunger and malnutrition. Nearly eleven million children in the world are dead before they reach their fifth birth day. People go to bed hungry every night is estimated as 1.02 billion. The risk associated with poverty is homelessness and worldwide there are over 100 million street children. The risk associated with poverty may also include drug abuse.
In the entire world, the South Asian region has the highest child malnutrition rate, it's a report issued by the Global Hunger Index, most of them are Indians, who are undernourished and in Sub-Saharan Africa it is 50% of the Indian children. Every year, around half a million women die in childbirth or during pregnancy. When it is compared with developed statistics (1%), Asia and sub Sahara maternal deaths are too large (90%).
In 1960, more than 20 million newborns child did not live up to fifth years. By 2006, the year for which firm records are available, the child deaths globally fell below 10 million, to 9.7 million annually. Every day the death rate of children are increasing, around 26,000 children below the age 5 die every day because of some needless causes. The death occurred within the first 28 days from birth among the children is estimated as one-third of all children. The total number of children in the world is estimated as 2.2 billion and half of them are suffer from poverty i.e., 1 billion children. Due to poverty about 121 million children are out of education worldwide. The million of children's health are affected due to lack of iodine and improper nutrition. Most of the children are dependent on their parent and these poor children are unaware of the problem which they may face in future life.
According to United Nations Department of Economic and Social Affairs report issue in 2007, Children are particularly affected by the HIV/AIDS epidemic. Globally, the death cause by the AIDS among the children below the age of 15 year account for one out of seven deaths and around 15 million children under age 18 have been orphaned because of AIDS. These Orphans are grown up in poverty and they face many risks such as violence, exploitation or abuse and many similar problems. It is estimated that more than 18 million AIDS orphans may suffer in poverty and similar problem by 2010.
According to United Nations Population Fund report --“over and over again poverty, and the marginalization associated with it, contributes to vulnerability. It can keep adolescents out of school, miserly them of an opportunity to find out about how the virus is transmitted and putting them at greater risk of drug abuse and risky sexual encounters. The people died due to poverty are estimated as 50,000 people per day in world, and most of them are women and children. Those living in poverty suffer excessively from hunger or even malnourishment, disease and life expectancy of these people may be lower. Poverty may also intensify tensions in the family that lead to family violence. Addressing the underlying causes of vulnerability to infection, including poverty and gender equality, is critical to eventually ending the epidemic.”
How can companies overcome consumer inertia at the Base of the Pyramid? A typical strategy to change people's mind set and behaviour is possible with an educational campaign. Education can help the poor children if they attend the school regularly. A UNICEF report of 2007, says that the funds to pay for teachers, classroom materials and school uniforms often are out of reach for poor families, even when they recognize the role of education in improving income-earning potential. The average student-teacher ratio in industrialized countries is 13:1; in sub-Saharan Africa, its 44:1. The low income household people face high risk of educational achievement in their children. These children are unfortunate because they face right from primary school level. In the United States educational system, this kind of kids is considered to have higher risks for maintenance in their grade. Why students lean to drop out of school certainly have many explanations to why work forcibly to have incomes. It also increases teenage pregnancy rate and criminal behaviours at higher level and most of them are dependent on their parents with low wages. The children's success in school is hugely affects due to Poverty. Child mannerisms should me observed carefully. So they can't take the advantage of the school teaching as they miss the classes. Being absence during academic year results their remark as very poor. This is the main reason far less educational success in the people living below the poverty line when compared to the people living above the poverty line. Moreover, the poor children often suffer from lack of food to eat, tiredness even irritability, some may suffer from headaches or ear infections, stomach infections or some may suffer from cold and fever. Because of all these illness the children could not focus and full concentration of studies. The children living in poverty are forced to join low- funded schooling systems because of their low level of income.
The slums of the cities have different ecosystems, with small retail shops, small businesses, clinics, schools, and moneylenders. Although there are few dependable estimates of the value of commercial transactions in slums, business action appears to be thriving. Some 2.5 billion poor people depend on biomass (fuel wood, animal dung and charcoal) to meet their energy need for cooling. Over 80 percent of the population of Sub Saharan Africa depends of biomass for cooking. In those areas improvement is required. Around the world, the poor children living in the institution are entered into orphanages but they think the orphanages are expensive and may harm their development because they are separated from their families.
According to a UN report, prostitution is the common form of human trafficking, which is largely effected to the people living in poverty. In some counties the girls are turning to prostitution to survive in this world only because of poverty.
2.3.3. Drug Abuse:
Unemployment is the main reason for drug abuse. It also results in prostitution, staling, sexual assault, killing etc. Societal poor performance is the main reason for drug abuse. The advice for many unusual substances begins to take over an addict's life. People get addicted and these people lose their families, friends, and homes leaving them alone in the malice of poverty.
The challenges face by women to overcome poverty is more when compared to men. Where women's land ownership is relationship-based, they risk losing access to land after widowhood, divorce, desertion or male migration, which can lead to poverty. According to Grameen foundation group, Women have proven to be the best poverty fighters. The profit they earned from their business is used to educate their children, expand their business and improving the living condition of their family members and taking nutritional food. Women take loan from Grameen Bank to start their own small trade fair. This Grameen bank advances loan to these poor women at very low interest rate. By this the poor woman earns income and supports their family members. Over 98 percent of loan granted by Grameen bank are repaid in due time.
According to UNICEF report released in 2007, poverty is a moral issue, the children displaced internally into armed conflict are estimated almost 9 million children and children trapped in the commercial sex trade are roughly 1.8 million and the revenue generated annually from human trafficking is estimated as $9.5 billion.
The developed countries like US, UK, Norway, Germany, Canada, Spain, Poland, Sweden, and other countries suffer from children in poverty. Norway which take the last place in term of children in poverty with 15 percent of poverty rates based on household incomes before taxes and transfers whereas Poland take the first place with 44.4 percent. [Children in Wales, 2007]
2.4. Bottom of the World Economic Pyramid
Nearly 4 billion people have been under the radar of large companies up until now but the large transnational companies unable to reach them. [C.K. Prahald, 2004]. This concept has achieved much interest even there are researchers who state that Pyramid Strategy provided by CK Prahlad has failed in realizing its objectives [Aneel Karnani; August 2009].
There is a great market waiting at the bottom of the world economic pyramid and it is too small to see by many large multinational companies because the business people things that the poor people cannot afford their products and service which are rendered by large firms and the advance technology have no use for poor.
In order to expand the business, the innovative products are required. The business people should provide credit facility to the poor people keeping in view of their needs. The income on the poor may be uneven but the innovative product should permit the customer to buy. For example, the Brazilian retailer, who developed the skills to offer credit facility to poor at low cost so that they can buy those product and can repay the money on due date. The large multinational companies are making a great business in developed countries for example; Wal-Mart, a largest retail Market, but whether these multinational companies are able to find any market in developing countries? Where there are millions of poor people live who cannot become Wal-Mart customers because they cannot afford their standard. These poor people who are living in poverty are estimated as five million people who live on less than $ 2.50 a day.
The poor people spend most of their income of food rather than luxuries. The large multinational companies can make a great business on food product in the developing countries. If the companies produce single serve package at very cheap price then business will expand in long run. Selling to the poor requires a unique perspective; their income level is very low so they cannot stock up on goods in large quantity. They visit frequently to buy any good when they require. Most of the poor people prefer to buy single serve packages like shampoo, detergents, pickles, tea, aspirin, cookies, matches and other similar products. There is a great demand for those products in the countries like India, China, the Philippines, and other countries. The context of Indian market is best example for the companies showing interest to sell to poor because they can achieve massive market for the food products in India [Aneel Karnani, April 2007]. Totally 60% of the value of all shampoo sold in India is in single-serve packets such as Dove, Sun silk, Pantene and many other. The capacity to buy any product is very low, so they prefer these single serve products. Selling to the poor can encourage price-performance breakthroughs. Profiting on denomination sachets of shampoo is only the start. The markets at the bottom of the economic pyramid force managers to rethink their costs of the product, best quality, scale of operations, and proper use of capital. If a company wants to create the world's largest market then they have to create an opportunity to the consumer to purchase whether in cash or on credit basis. When the company is selling on credit basis then it must find the needs of the costumer. Otherwise the risk associate with credit will affect the business. Foreign companies are investing in local to support poor, to achieve forgotten 4 billion mass markets at the bottom of the pyramid [Hammond, Allen L; Prahalad, 2004].
According to C.K. Prahalad, a consultant and economist at the University of Michigan, says that the people, who earns less than $2.50 a day are regarded as inspirational poor and they make up around three quarter of the world's population. If the companies would reach them then they contribute additional annual sales of $13 trillion to the global economy. But the bottom-of-the-pyramid market cannot be addressed without advanced technology--often technology that is much more innovatively deployed than that of the developed world.
2.5. Selling to the poor makes good business
Selling is defined as the performance of those activities which lead to obtaining orders from customers and direct the flow of goods and services from the seller to buyer. It is a sub-activity of marketing and is basically administrative in nature confined to physical transfer of ownership and possession of goods and services from the seller to buyer. It concentrates merely on increasing the volume of sales and follows sales promotion techniques. [Manegerial Marketing, 2010]
Multinational Corporations (MNCs) operate in different countries at the same time and it spread their business activities from corner to corner in several geographical frontiers. Let's take the example of computer manufacturer, HP, is a MNC, which could retain its marketing department in the USA, buy its components from other countries like Malaysia, assemble its products in China, and run its after-sale services from Europe. Popular MNCs in Africa include Shell, Diageo, Nestle, Unilever, Barclays Bank and some other companies. These and others have become poster-boys for anti-globalization movements whose public speaking have grown increasingly hostile in recent years. MNCs have been highlighted as thieving, monsters and bullying whose only contribution to life on the planet is to develop the population of the developing world and hoard their profits for the single assistance of those who possess and run them. MNC participation in developing economies is crucial because, firstly, the reduction of poverty depends on the growth of business, especially small and domestic businesses. For a local business to prosper it must have access to the world: to markets, credit, and technology, all facilitated by MNCs and second point is in order to reduce poverty a systemic change is required. MNCs are the world's most resourceful and sustainable engines to get systematic change in poverty reduction. Wise governments must make policies that can encourage the private sector to do as much spending on infrastructure as possible in order to guard their own treasuries. [R.A. Mashelkar, F.R.S., 1999-2000]
The large multinational companies are making a great business in developed countries for example; Wal-Mart, but whether these multinational companies are able to find any market in under developed and developing countries? Where there are millions of poor people live who cannot become Wal-Mart customers as they cannot afford their standard. These poor people who are living in poverty is estimated as five million people who live on less than $ 2.50 a day. There are many areas in countries like India where poverty increasing due to lack of water supply to the Poor farmers [K.D. Sharma, 2009]. It is possible that firms operating to sell to poor not only expand their markets but they also increase their profits along with improving the social conditions of the poor [Jose Antonio Puppim de Oliveira, 2006]. There is an invisible market waiting at the bottom of the world economic pyramid and it is invisible to many large multinational companies. It is invisible because the business people thing that the poor people cannot afford their products and service which are rendered by large firms and the advance technology for poor have no use. Selling to the poor is not so easy, it need a uniquely and prevailing techniques to sell their products. To explain these concept four case studies were presented below explaining the situations and solutions for the problems.
2.5.1. Four Case Studies:
Case Study 1:
Selling to the poor and serving the poor is not exactly the same thing. The most important while selling to poor is products. Advance technology has great impact on many customers. The large companies are coming up with innovative products at very cheap price; few companies are concentrating specially on the base of the pyramid so that the poor can also take the advantage. Analyst says that there is great market waiting in the bottom of the pyramid. The large multinational companies can make a great business in the developing countries. Let's take an example of a car that is being developed in India by Tata Motors, to sell for $2,500. In developed economies it may not match their luxuries or lack the classiness required to sell, but if the brand name is being changed then it may sold in any developed country. For example Tata's Indica, which Indians made car costing less than $7,000 is sold in India but the same car is being exported under the Rover brand to Europe, which is a developed country [Chippla Vandu, March 2008].
The poorest 40 percent of the world's population accounts for 5 percent of global income. In the developing countries if the large transnational companies innovate and generate profit and transfer these poorest people into customers then the problem of poverty can be solve up to some extent. Some billions of poor people have a strong desire to join the world's economy. The disruptive innovation can pay the way towards helping companies combine sustainable corporate growth and social responsibility. [Anup Shah, March 2010]
The people of the developing nation want to be a part of the globalization; they are interested to change their life style. They want to adopt the well discipline life within their income limits. But the large companies are unable to design innovative product and not able to finding market in these nation. Companies should develop innovative product based on today's best practice.
According to Wall Street Journal- some Indian companies are challenging such ossified thinking with innovative products designed to fit the needs of India's poor. It represents a basic shift in the international order of innovation. The west developed nation served rich consumers more efficiently and there is a change in its products and technology, which turns down to developing countries. Now, with the developed world mired in a slump and the developing world still growing quickly, companies are focusing on how to innovate, and profit, by going straight to the bottom step of the economic hierarchy.
The competition is increasing in the bottom-of-the-pyramid markets, in poorer countries, because it matters to managers for transforming firm's organic growth. It is an opportunity for large companies to identify new sources of value and to do well besides. Ignoring these markets in the long term could be a fatal mistake; participating will help lay the groundwork. For example: Nano technology, a car for poor. India's largest car company, Tata Motors, has come up with an idea to manufacture a car that poor people can afford. It successfully did it, today we can find this car in the market, which are sold at just rupee 1,00,000 or $2050. It's a ultra cheap Nano car with 3.1 meters long, has windshield wiper, a diminutive trunk with a 623 cc rear engine. Its body is all steel metal with 4 seated. It gives 65 miles per gallon or 28 km per liter. Nano make a revolution in the worlds poor to purchase. By 2011, it's planning to offer a car of European version, which cost about $2300, which will be more luxuries car. So it is a clear example that to increase global competition it is necessary to design good model for local market at cheaper price. It's a newer way of thinking about poverty, and one driven by bottom-line concerns. It is great to hear about companies creating products that within the financial reach of India's lower middle classes.
The low end of the world is a new source of innovation. It offers the best opportunity to discover a new product for large multinational companies based on current requirement of the poor people. It is necessary to research on basic desire of the poor. Once the companies get an idea about the need then they can use the advance technology to come up with such product which the world's poor can afford. The cost of technology is shrinking, Personal Internet Communicator, a basic computer, is being sold for just $185, which was introduced by Silicon Valley's Advance Micro Devices. While competing with advance technology VIA Technologies launched a similar device (Personal Internet Communicator) at much better cost of just $100. This will create a desire among the poor people to buy such product.
Many business visionaries have suggested that the people make up an enormous market at the Base of the Pyramid, developing nations. Then companies began to design products that they hoped would find huge demand and could increase global competition between a country and another country.
Case Study 2:
Marketing to the poor is challenging. Making a low price product and selling is not so simple. The large multinational companies have to come up with an innovation so that the world's poor can take the advantage of that innovation. It is crucial for large multinational companies to understand the need of the poor consumers, which they can afford and also use it.
Large companies are concentrating on high range of product which can afford by high level income people. If these companies make a product which poor can afford then the poor nation can use those products and create market to the companies.
A marketing strategy can serve as the foundation of a marketing plan and to implement it successfully some specific actions are necessary. For example: a cost of a product should be low when compared with similar product to attract consumers with similar quality. Because low cost products provides good relationships between company and the customers. The firm's interaction will update information about the product with higher cost and product with low cost.
Making a low price product and selling it is not simple, marketing to the poor is challenging. The large multinational companies has to find what poor customers can afford at their income level and at the same time find what actually they want to use in their daily life. Whether it is a necessary or it is luxury for them. It is very important to find out what is necessary goods and what is luxury goods because for many people once the goods are regarded as luxuries but as the time laps the same goods are regarded as necessity.
Multinational companies started to change the way they looked at impoverished consumers after they snapped up low-priced cell phones. For example: Motorola, a cell phone company, developed a phone with long life battery backup, around 500 hours especially for villagers, where the supply of electricity is irregular, at a low cost and design an additional feature of extra loud volume speaker, if the people is using in a noisy place. Such an innovative product will give a great market to the companies. Recently it has unveiled an economy cell phone priced at $40; which is expects to sell 6 million cell phones in six months in markets in developing countries including China, India and Turkey. Today billions of people need a cell phone. Once it is regarded as luxury good for poor people but today it is find in every individual. If the price of the good is low and gives benefits then obviously people will buy. Such an innovation will create great opportunity to the large multinational companies to develop their business. The technology used by cell phone companies brings the market to poor in the developing countries. If information is provided to the farmers they can produce best crops and sell for profits. It makes financial services easily reachable to the poor.
It is not only useful to communicate but also create revolution in banking sector, for example; mobile banking, money can be transfers in rural areas via these cell phones in the developing countries. The access to mobile banking service will help to the poor people but the cost of maintenance of saving account and heavy regulation are the problems to be face with mobile banking. However the mobile financial services in the developing world have been started and would be worth $6 billion a head of developed countries by 2012. The life style of the people will change and the companies can expand their business by make more profits. If the companies expand then it creates new jobs in the local market, which will reduce poverty among the people. An innovative idea has a chain process which reflects the developing economy.
Case study 3:
The Situation: Around the world, billions of people live in poverty, but Western companies haven't figured out how to turn them into customers.
The Problem: There is no market in the countries with low-income people. They haven't been conditioned to think that the products being offered are something you'd even buy because of many reasons such as illiteracy, low income level and some other reason like they haven't followed their life to fit the products with their income.
The Solution: Large multinational companies must create markets in the developing countries among poor consumers with an idea of easy payment of money to their product by the customer.
Case Study 4:
Thirsty Work: Procter & Gamble Co., in partnership with the Centers for Disease Control and Prevention, developed a chemical treatment called PUR that converts murky, contaminated water into pure drinking water. It is one of the most rigorous efforts done by Proctor & Gamble Company. When you enter a new market, you are supposed to market the product. The development team did everything, they seeking out input the customers, whose income level is low and visited their homes and villages to educate about their product and their benefits. They conducted several tests in some countries and finally this product has many benefits to the potential customer. It is gone in vain, as it could not make a huge income with their PUR product, it ends with commercial failure. The product gave low return on investment. Anyhow the company has provided hundreds of millions of Sackets of PUR to help the poor as social service and non profit through the initiative of the company's Children's Safe Drinking water scheme. But it failed, so they drop the idea of using PUR product as it is unable to afford with their low income. In order to make PUR product to be part of these poor people, they have to educate about the bacteria that present in water which could harm once life. By using the product of PUR in water will purify and tastes sweet.
The people living in the village may face conflicts with their family members when they spend money on PUR product and the benefits of this product may not be utilized properly. However P&G has put their effort to market the PUR product but could not make it successful in the market. When a new product is introduce in the market it is necessary to market about the benefits of the product.
In developing markets innovation may find new customers but the product will be success only when an idea is really benefits to the poor people. Many innovative ideas may raise the issues of product acceptance; product can be affordable, whether such product is available in the market and about awareness of the product. It is important to find the marketing efforts are going towards growth of the company or not. The segmentation of marketing will create new market or improves the existing one with an innovation.
Most of the companies may not follow cohesive strategy and unable to achieve the targets. A company can sustain on efforts to educate about the product to the customers. P&G has evolved a new plan to include partner in their business to develop their product in different way. It was a successful with this plan and now it has around 70 partners in PUR product and marketing in more than 50 centres through an ongoing education, by this effort they have delivered purified water to the people in rural areas and it is estimated around 1.8 billion gallons of water. It is necessary to follow marketing strategies.
2.6. Selling To The Poor: AID
[Anup Shah, April 2010]
Aid is a social service given in the form of funds, loans or in the form of labour or materials, for the benefit of the poor people by individuals, private companies or government organizations. It is voluntary transfer of resources from rich nation to poor nations. It is a social security provides by donor to citizens, who are suffering from poverty. The aid will benefits the poor nations in many forms like developing infrastructure facilities in the country, starting educational institutions, fair trade or those who suffer from war or from natural disaster. It is also known as international aid or overseas aid. In United States it is known as foreign aid.
2.6.1. Different types of AID:
Humanitarian aid is an immediate assistance given to people by individuals, voluntary organizations, to those who suffer from war and natural disasters. It is also called as emergency aid. Under this kind of aid the organizations provide vital services like food aid to prevent starvation or in kind services like transport or logistics through aid agencies.
The humanitarian organization like International Committee of the Red Cross, protect the civilians of those countries affected by war.
Development aid is given by rich nations for the social development or economic development in the developing countries. It main aim is reduce poverty in the long term. This kind of aid is given by multi lateral institutions like World Bank or by individual countries through charities such as Oxfam, Care International or Action aid.
More than 50 percent of the people living in the world are in misery condition. They are suffering from diseases due to inadequate food, water crises and lack of health care units. The life of the poor people is stagnant and primitive. Anyhow the voluntary organizations are helping to these world's poor to root out of poverty.
Conditional cash transfer, this can be supported to individual especially children, enrolling in school, this has shown a positive results, that is children started going to school rather than begging on the streets. There are specific aid organization which run for specific cause like project aid, which is given only for special purpose like help a education institution by the way of building material or books to children. The food aid is given to those countries which suffer from natural disasters like earth quakes, floods, etc., in the form of food supply. The untied aid, where the receiving party or country can spend the money received from aid, as they choose. Some other types of aid are programmer aid, budget support aid, sector wide approaches, technical assistance aid etc.
Microfinance is another form of aid. Under this type of aid small amount of fund is given to villagers at very low interest rate. The villagers take the loan and start their small business. The money they earned from those business are repaid on due date. Grameen Bank is the best example, founded by Professor Yonus, in Bangladesh. Another example, the Thai government's people Bank has started similar type of granting loan to their farmers. With the loan of $100 to $300 they brought equipment, seeds and other product to sell. It becomes inventory for them to do business. With the help of this small amount of money the poor will improve their business and indirectly it has some changes in their lifestyle. Microfinance loans aims at development of the economy and at the same time it will improve the life of the poor people. The percentage of repayment of such microfinance loan is 98%, which shows the reliability of advances. In fact, it is higher than the repayment rate of student loans and credit card debts in the United States— The Grameen Foundation [Grameen Foundation, 2010].
Some donor nations support aid to the poor nation but their condition is that the receiving nation have to spend the money on those product produced in the donor country. They force the receiving nation to spend on foreign goods and services. Some MNCs are involved in welfare and charitable work in the host societies as well. The amount given by such companies in charity is not comparable to their profits. Moreover, the charitable work revolves around activities that result in various kinds of gains for the corporations directly or indirectly. Where the corporate interest suit best there charity is given by the MNC.
Debt relief is another proposed ways to support the poor countries by the rich nations. The developing nations cannot generate the interest repayment on the loan they had received. They mainly use to reduce poverty. Many nations saving the debt relief funds and using for free health care services. For every $ 1 in aid a developing country receives, $ 25 is spent on debt repayment. The rich nations like US, UK, Germany, France, Netherlands and many others agreed to give 0.7 percent of their gross national income annually. Among the all rich nation, US rank lowest in this regard.
Net ODA in dollars and percent of GNI
From the above graph it is clear that, the US being the wealthiest, strongest and most influential nation, it is worth seeing how their actions or inaction towards aid affect other nations. US play an important role in the International Monetary Fund, World Bank and also helped to formulate the United Nations over 50 years ago but when it comes to aid its actions are at lowest rank among the other top countries in the world.
Around the world from number of years, many have criticized the US for cutting back on its promised obligations and responsibilities, and that furthermore, when it has provided aid, it has been tied to its own foreign policy objectives and it is criticized by many developed countries, which provide similar type of aid.
2.6.2. Non-governmental organization (NGO)
NGO refers to the organization which is legally constituted by non legal person, where there is no participation of government is involved. It is social service organization, which serve the poor worldwide. NGO's are also called as volunteer sector or independent sector or grassroots organizations or non-state actors (NSA's). It is a heterogeneous group. The important role play by NGO's is development.
Rapid development of the non-governmental sector occurred in western countries as a result of the processes of restructure of the welfare state. The importance of NGO gave rise during 20th century Globalization. NGOs have developed to lay emphasis on civilized issues, developmental aid and sustainable development.
NGOs are of different types, one varies with another in their role. Some NGO's primarily acts as lobbyists and some others NGO's primarily conduct development programs and activities relating to awareness among the people. For example, an NGO such as Oxfam, concerned with poverty alleviation, might provide needy people with the equipment and skills in finding water. There are some other types of NGO's which provide services on the ground of other organizations with some specific technical products and services to support development activities.
According to World Bank NGO's are classified in two types. They are Operational and Advocacy
Operational NGO's primary purpose is to design and implementation of projects related to development mainly focusing on service rendering to the poor. This type of NGO's may be religious or secular; public or private oriented organization; they may be national or international based. Whereas, Advocacy NGO's are aims to promote a specific cause such as any awareness programme, press work activist events etc.
A code of ethics was established in 2002 by The World Association of Non Governmental NGOs. In NGO's management techniques are very important to succeed in their project. Non-governmental organizations may have private community or environmental focus which deals with different issues such as religion, civilized affairs or even emergency aid. So it is regarded as international relations landscape.
The people working for non-governmental organizations can provide immediate benefits for themselves as well as those they serve, including skills, experience, and contacts, it is not necessary that they should be volunteers. There is some difference of opinion among these volunteers about help the people living in developing countries, who are expatriates because these people living in developing countries but that is not their own country. However, the expertise these employees or volunteers may have can be counterbalanced by a number of factors. The annual budget of the American Association of Retired Persons (AARP) in the year 1999 was around US$540 million. NGO's main source of fundraising are membership dues, grants from international institutions, grants from national government, the sale of goods and services and some other sources like private donations. The fundraising channels include European Union, which provides funds to NGO's annually.
The term "non-governmental organization" implies separate from governments but for funding most NGOs depend greatly on governments. The British government and the European Union has donated around $40 million to Oxfam, famine relief organization in the year 1998 and from American government, around US$55 million was collected by the Christian relief and development organization world vision in the same year. Nobel Prize winner Medicines Sans Frontiers (MSF) (known in the USA as Doctors without Borders) gets 46% of its income from government sources. However the NGOs legal form is different and mainly depends upon domestic variations in the country's they organized and follow those country rules and regulations. However, four main family groups of NGOs can be found worldwide: Unincorporated and voluntary association, Trusts, charities and foundations, Companies not just for profit and Entities formed or registered under special NGO or nonprofit laws. NGOs are not subjects of international law, as states are.
Non-government organization also provide services their work on international health Services provided by international health NGOs include direct health care, community potable water, vitamin supplementation, and mitigation of endemic and epidemic infectious diseases and malnutrition. Examples of NGOs dedicated to international health include: Care, Medicines sans Frontiers (Doctors without Borders), etc. The Rural Women Development Council (RWDC) is located in the southwest province of Cameroon, it is a female centered non-government organization, and it provides micro-credit schemes to the rural women to fight against poverty.
It is estimated that around 40,000 international NGO's operating in World. The number of NGO's operating in Russia is 2,77,000 and the number of NGO's operating in India ranges from 1 -2 million approximately.
Types of NGOs:
Civil society organization -CSO
Donor organized NGO
Technical assistance NGO
Grassroots support origination
Market advocacy NGO
Community health and rural development society
2.6.3. International NGO- Oxfam
[Oxfam International 2010]
Oxfam International is an international non-government organization working with over 3,000 partners, confederation of 14 organizations in around 100 countries to help the poor people suffer from poverty and injustice through promoting awareness programme, press work, activist events, etc. It is found as the oxford committee in 1942 for relief of Famine in oxford, UK. In Canada, the first overseas Oxfam was founded in 1963.
Oxfam Great Britain is considered as the largest of the Oxfam International family. Its head office is located in Cowley, Oxford and its operations are in 70 countries in 8 regions. There are 5955 employees working world wide with a total income estimated in the year 2008 as £299.7 million and recognized as one of the best Britain's top employers by CRF from 2007 to 2009.
Oxfam Canada is a founding member of Oxfam International, the federation of Oxfam's worldwide. Oxfam Canada is the first overseas Oxfam international. It traces history in the year 1963 and in the year 1966 it was independently incorporated. In the next year i.e., 1967, it became successful organizer in fund raising through Miles for Millions fundraising walk across the country. Oxfam Canada provides educational material to institutes and promote awareness programme for the development of the people. To support its work it established a network of staff and volunteers and stared its own programming overseas in Latin America, Africa and the Caribbean in 1970. Till now it act as a charity trust but in the same year it analyze its role towards long term development programming to make a positive change across the country. By 1980's it address the fundamental and underlying causes of poverty. In 1990s, Oxfam's turned as a major advocacy organization to help the people suffering from poverty by changing policies. In developing countries, Oxfam works with over 100 partner organizations, finding the root causes of poverty and inequity among the people and helping them to create self-reliant and peaceful communities in the world. In Canada, Oxfam is actively participating in education programs, policy advocacy like press work and building a strong constituency of support from the people to operate effectively.
Oxfam's initial concern was the provision of food to relieve famine; over the years the organization has developed strategies to combat the causes of famine. Oxfam also work on developing international trade where the poor people can open market and sell the goods at a fair price and get benefits from those good directly eliminating middlemen. Oxfam's mainly focus on development work to lift communities out of poverty, find solutions based on their needs of the people and humanitarian work, which assist to those people those get affected by natural disasters like earth quake, drought or even conflicts which leads to development work especially in the field of water and sanitation; and lobbyist, advocacy and popular campaigning, trying to affect policy decisions on the causes of conflict at local, national, and international levels. Oxfam works on health awareness programme, trade justice, educating children, debt and aid, natural disasters, climate change, campaigning for an international arms trade treaty, fair trade and livelihoods. In developing countries Oxfam works with over 100 partner organizations, finding the root causes of poverty and inequity among the people and helping them to create self-reliant and peaceful communities in the world.
[Oxfam International 2010]
Oxfam has numerous shops all over the world, which sell many fair-trade items. The first charity shop was opened in the year 1948, since then it works on helping the poor and different charities get paid by Oxfam relief around the world. The products donated by public may includes handcrafts, books, clothing, food and music CDs instruments from the developing countries like Africa, South America, Asia, will reach to the public through fair trade. It will help the poor to improve their quality of life and also their communities.
In 2008, Oxfam GB worked with over 20,000 volunteers in shops across the UK, raising £17.1 million for Oxfam's programme work. There are around 15000 charity shops are found in all over the world and total 750 Oxfam charity shop around the UK. Oxfam sell second-hand books in Europe and every year it sell around 12 million books. In Europe, Oxfam is well known as one of the largest retailer of second-hand books.
Oxfam has a number of successful fundraising channels in addition to its shops. In UK around half a million people contribute regular financial resources to Oxfam in the form of gifts, money or goods towards its work. Many celebrities and Marathon competitors work for Oxfam to raise funds. In conjunction with the Gurkha Welfare Trust, Oxfam also runs several Trail walker events in Hong Kong, Australia, New Zealand, the United Kingdom and Japan. In August 2009, crying lightning was released through Oxfam shop as a charity.
A critical strategy for companies trying to reach the Base of the Pyramid is plant lots of seeds to succeed.
When creating a market from the beginning it's not possible to expect the reaction of the customer. A product like PUR may not gain a commercial success even through the idea was great and has many benefits with that product to the poor people living in rural areas where there is lack of purified water. Keeping this point in view it is better to come up with lot of ideas which are interrelated to one another instead of introducing just one product. So out of these products one or two ideas may get success. But fixed cost investment to be keep in mind while introducing bunch of products to reallocating resources and company should take decisions regarding which product must dropped and which product to be produce more. It is depend on customer preference, so company need to do research based on sales.
The non-profit group Kick Start used this strategy to create an irrigation-pump market that stretches across Africa. It started in the year 1991. It launched products, manually powered technology, which gives returns to the customer quickly. Kick start developed other products with its technology of irrigation pump. They are an oilseed press, a hay bale and a block-making press. Kick Start tested the waters in poor, rural areas of Kenya, mainly small family farms, getting its products into mom-and-pop shops initially on consignment and using live demonstrations, radio advertising and grass-roots marketing. Based on the customer feedback Kick start has modified as lighter and more portable pump for one and all. By 2004, the Moneymaker irrigation pumps accounted for 98% of KickStart's total unit sales—prompting the organization to channel its energy and resources on this clear winner. Finally this results in production of effective products. So the strategy of introducing a bunch of product with the same core technology has multiple uses.
Along with NGO's private sector has lot of work to do to eradicate poverty [Raworth, Sumi Dhanarajan and Liam Wren-Lewis; June 2008].
2.7. Selling To the Poor: Business view
It is necessary for the companies in both private and public sectors to create market in order to sell their products profitably to the poor [Erik Simans, 2009]. Companies that are selling to an existing market rightly focus their message on what makes their products' unique value or something special or that makes them different from the competitive product. This message will help the customers take a proper decision about the product but when they are not aware of product concept and unable to assess the value of the product then the companies must adapt marketing strategy as many as possible. These marketing strategies will help the customer to take prompt decisions. This create a market, customers make an effort to try out the product once thinking that there is something special in that product. Once the customer uses it then the benefits can be discovered by the customer itself, whether to continue it or not. Unsalable products of the companies trying to sell to poor are increasing (40% approximately) because of their improper planning and execution of their plans this can be eradicated by proper plans [Anne Lightburn, 2003]. A large part of microfinance loans are paid by checking account or saving account which are spent on products either to trade or for personal use. Farmers produce best selling or profitable crops with availability of information. The poor people spend their income mostly on household product rather than luxuries. Example: Companies invested in businesses on household product in developing countries and who it was developed its business. The Anglo-Dutch firm Unilever had sold household products in remote areas of the country and saw a rise in sale up to 23 % within one year. The company sold Sun silk shampoo in tiny villages keeping in view that everyone wants to look good, whether rich or poor in the world.
It is observed that, there are around 4 billion people who don't even earns $2 per day and struggling for their lives, it is necessary to support them [Ilse Oosterlaken, 2008]. Businesses communities are striving hard to achieve success in achieving success in achieving the main objective to turn poverty line market into profitable business market [Adam Smith International, 2009]. Indeed globally operating companies should come out with efficient plans to identify hidden business in poor countries. It would be a great challenge that company enters low or even no market and starts creating business. It just not is enough to write off any country's potential in purchasing goods but it ultimately matters for the company that it sells commodities and continues to do so.
What lures any multinational or even a mid scale business firm about making business in poor or underdeveloped nations is the availability of fresh and ready market with no competitors. The actual impact of entry would be lucrative as the products offered may do it for the company initially but it needs to be very careful in choosing further business option about how to step up onto expansion strategies.
The penultimate challenge and a solution variable is thorough market research and in depth analysis and realization about what the company or business organization needs to do throughout its business activities. It is of utmost priority that organizations make a slow and optimistic start but needs to continue after facing a severe challenge of little flow of money throughout the markets. Yet, companies need to believe that they can built up business in the verge of local issues while understanding what the actual population in a geographical region demands.
Companies should be positive when they are marketing their products in the developing countries. For example PUR product, by which the people got not only purified water but also some tasty dishes by family members while marketing. The poor people spend most of their income of food rather than luxuries. If the companies think to invest investing on household product in developing countries it definitely develops its business. For Ex: Unilever, an Anglo-Dutch company sold its domestic goods in remote areas of the country and saw a rise in sale up to 23 % within one year. The company sold Sun silk shampoo in tiny villages keeping in view that everyone wants to look good, whether rich or poor in the world. There are several other products redesigned keeping the poor in mind.
Transnational companies have to face huge competition in the developing countries. If they want to attract world's poor than they to understand the need of the customers, which varies from one country to another country. Based on the geographical location they have to produce the good with best quality and at affordable price. The innovative product should have multiple uses, suppose if the product is fail in developing country from one point of view due to any reason then it should be used for other purpose in the same region. The growth opportunities can be identified by relevant insight on mindset and behavior of the customer. The customer desire to buy few goods when there is immediate need, for example; during rainy season umbrella is purchased by the customer. There are few goods which can be purchase after search like cloths, electronic appliances, for such goods the companies has to manufacture as per the requirement of the customer.
In the Wall Street Journal's Technology Innovation Awards, held in 2008, third place goes to the solar-powered cell phone base station. The innovation in cell phone technology is great but when a business is started in the country where there is no proper food to survive, water crises, lack of education among the children and some other similar problem will give returns to the large companies? It is very important to find where the large multinational companies should invest. If the companies think on household product in developing countries will develop the business. For example; The Anglo-Dutch firm Unilever, had sold household products in remote areas of the country and saw a rise in sale up to 23 % with in one year. The company sold Sun silk shampoo in tiny villages keeping in view that every one wants to look good, whether rich or poor in the world. There are several other products redesigned keeping the poor in mind.
Today MNCs are working in the developing countries and many MNCs are not p