An Invisible Hand for Stopping Hunger

Reading about Danone’s strategic innovations in the food industry[1] made me wonder about the role these multinational corporations are going to play in the resolution of hunger issues in the developing countries. Could it be possible that MNC’s rather than governments and international organizations are going to put an end to food crisis and bring alimentary security to the world population? Even if the future is uncertain, there are many tendencies pointing out this scenario as a likely result derived from evolving market practices and innovations.

Just a century and a half ago, nations saw as a common practice to conquer new territories every time there was a need to expand the markets. Nowadays, democracy has institutionalized self-determination in every nation, making older practices unviable most of the time. Also, widely accepted democratic ideals and market principles have shifted the balance of power between the private and the public sectors. During the mercantilist era, States would open markets for private companies. Today, companies have had to use their own means and adapt to a new –and freer– context by promoting innovations in products, services, supply-chains and many more areas.

So, if a Senegalese worker on a 2 dollars daily food budget can’t afford the Danone yogurt you would typically buy at Whole Foods, Danone comes up with the idea of selling this man a smaller portion of yogurt at a lower price. As a result, 42% of Danone sales came from emerging markets in 2009, while they ascended just to 6% ten years ago.[2] As Danone does, many other MNC’s such as Unilever or Tata Motors[3] are looking straight into the base of the pyramid to find new costumers.

If these trends keep increasing MNC’s profits, many more people will have access to food and health products they couldn’t even imagine to consume a decade ago. However, even in the long run the invisible hand is able to deal with scarcity and achieve an equilibrium between the demand and the supply of the most basic goods for every individual in the planet, the effect will take some time to materialize.

In the meantime, governments and international organizations are taking prompt actions to respond to the food crisis that has hit many nations. For instance, the World Bank and the UN High-Level Task Force have implemented a Global Food Crisis Response Program “to provide immediate relief to countries hard hit by food high prices.”^[4]

If the power of the invisible hand endorses MNC’s, eventually there won’t be need for IO’s and governments to intervene in this matter. So a new set of questions about the relative power of government arises. Could it be possible that by achieving adaptation MNC’s market innovations will lead to a shift in the balance of power vis-à-vis the State?

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^[1] Dannon Expands Its Pantry to Woo the World’s Poor (Wall Street Journal, July 29, 2010)

^[2] Dannon Expands Its Pantry to Woo the World’s Poor (Wall Street Journal, July 29, 2010) P. 107

^[3] Inside the Tata Nano Factory (Business Week, May 9, 2008)

[4] http://www.worldbank.org/foodcrisis/

Implementing Social Innovations for Development & Growth of BoP Ventures

The operating space of ventures of social enterprise has expanded its domain (Alboher: 2009 New York Times) from merely constituting social sector ventures, to also including the participation of for-profit businesses having ‘social mission’ as the core purpose of their existence. This interesting and emerging development introduces a greater scope for the integration and coordination of activities in the formal and social sector.

Thus, social entrepreneurs are afforded a window of opportunity to act on the implication behind removing the legal distinction between, the incorporation and registration of, the memorandums of association for profit companies and non-government not-for profit entities. The implication of this new development is, market orientated solutions for mobilizing capital in more formally established financial markets can thus be innovated for the purposes of funding capital formation and infrastructural developments targeted at the poorest regions of the world.

This development is based on developing a ‘social venture capital market’ for mobilizing capital from surplus agents to deficit agents pursuant to achieving a social mission. The volumes of capital which are mobilized create a far greater leveraging effect than traditional micro-financing institutions that operate at the Bottom of the Pyramid.

The Human Acumen Fund (http://www.acumenfund.org) is a non-profit social venture capital non-government agency which focuses on financing and consulting social enterprise ventures with the ethos ‘meeting urgent needs with patient capital’ (Case Study: Market Minded Development). Their social innovation is designing investment vehicles for small cap start ventures that cannot service debt under the terms of established merchant banks, as these ventures need patient financiers to grow. Social venture capital markets could therefore spark the next Greenback revolution in the history of usury and its impact on social change.

The Power of Yogurt

While focusing on venture development and growth, this week’s readings further explored the idea of providing social solutions for bottom of the pyramid markets without “going the nonprofit route.” In this post, I would like to highlight one such company that fits this model. Grameen-Danone Foods was launched in 2006 as a social business enterprise union of the international food giant Danon and the Bangladeshi non-profit Grameen, which is primarily known for its work in microfinance. Muhammad Yunus, the founder of Grameen, proposed a joint venture between Grameen and Danone with the objective of supplying nutritious food to poor Bangladeshi children. According to UNICEF’s 2008 State of the World’s Children report, 30% of all Bangladeshis and 56% of Bangladeshi children under the age of 5 suffer from moderate to severe malnutrition. To address this problem, Grameen Danone Foods Ltd. produces a yogurt called “shakti doi” (power yogurt), which is made from pure full cream milk that contains protein, vitamins, iron, calcium, zinc, and other micronutrients. This yogurt is primarily intended for children, but it can be eaten by adults as well. One of the most exciting aspects of this yogurt is its affordability. The price of each 80 gram cup of yogurt is 5 taka or 5 cents. Factories have been set up to produce this “power yogurt” all over Bangladesh, employing large numbers of people, and plans to expand this model to other countries are in the works. The Grameen-Danone Foods model is currently a “no loss, no dividend” one, and the company is confident that investment will remain strong. Because the product is suitable in much of South Asia and the model itself can be adapted all around the world, shareholders continue to invest although they are not currently being paid dividends. The framework for strategic innovation at the base of the pyramid, as discussed in the MIT Sloan Management Review article, stresses affordability, acceptability, availability, and awareness. I believe that Grameen-Danone’s success stems from its business strategy that focuses on these very areas. “Yogurt” for thought: Will paying shareholders dividends change the culture of the organization? If so, in what ways?