Prof. Geoff Kistruck @ columbus (social) entrepreneurs 21.may.2009

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    But this type of setup is rare and doesn’t happen very often

    These are their voices asking for help and I call on you to give it…

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    Prof. Geoff Kistruck @ columbus (social) entrepreneurs 21.may.2009 - Presentation Transcript

    1. Social Intermediation as a Means of Poverty Alleviation Columbus Social Entrepreneurs 2009 Professor Geoff Kistruck Fisher College of Business © Kistruck 2009
    2. The ‘Real’ Face of Poverty Percentage of Population Living on Less than $1 per Day Source: 2007/2008 United Nations Human Development Report © Kistruck 2009
    3. Historical Approaches to Poverty Alleviation First Wave: Foreign aid at the government level “So what [our organization] was doing, in – inadequate because of corruption and our previous experience here, was typical poor execution — trying to work with the poorer people to just produce something. But they had Second Wave: ‘Give a man a fish and you feed a problem…they didn’t have a market to sell it.” him for a day…teach a man to fish and you feed him for a lifetime.’ – improvement in subsistence levels but failed to build “We started to help them to get three markets times more fish. We created a lot of fish and then…where’s the market? We just Third Wave: Actively bridge informal stayed in the first part of the chain. We developing markets with formal developed [now] want to help them to coordinate the second part of the supply chain.” markets – just beginning to gain traction © Kistruck 2009
    4. Why is ‘bridging’ required? • Current trading channels dominated by exploitative middlemen or ‘coyotes’ • Lack of competition results in oligopolistic situation in which virtually all economic rents accrue to ‘coyotes’ • As a results, social enterprise (organizations with a mixed social and financial purpose) are becoming involved in mediating these markets © Kistruck 2009
    5. Overview of Social Intermediary Cases Case Location Age (Yrs) Scope of Clients Scope of Suppliers Product Microfinance Zimbabwe 10 5,000 borrowers and 7,000 1 large domestic bank Small, short-term loans of jobs between $1,000 – $25,000 Tableware Swaziland 15 1 local retail store and 550 660 women from 14 villages Tablemats, napkins, bowls stores internationally Palm Hearts Brazil 3 1 large local distributor 346 co-op members Palm hearts Organic Grains Bolivia 20 14 franchises, 3 super-markets, 100 co-op members 77 different products in total foreign clients Coffee Honduras 6 1 large Canadian distributor 5 co-ops with a total of 324 High-grown coffee beans members Handicrafts Brazil 2 1 large local buyer with several 9 co-ops with a total of 450 Baskets primarily but also small buyers and 1 small retail members brooms, honey, eggs, outlet vegetables, etc. Pastoralists Western Kenya 4 1 large local buyer with several 9 co-ops with a total of 561 Primarily cattle but also sheep small ones members Shrimp Farm El Salvador 5 Many small local middlemen 20 co-ops with a total of 600 Only shrimp members Fish Farm Brazil 4 2 large local buyers 1 co-op with 48 members Only Fish - experimenting with oysters Horticulturalists Eastern Kenya 7 2 large local buyers with 16 co-ops with 500 members Asian vegetables several small ones © Kistruck 2009
    6. Alternative Bridging Approaches 1. Bypass the middleman • Domestically • Internationally 2. Find a bigger, better middleman 3. Use the same middleman, but change the rules of the game 4. Become the middleman, distributor, and retailer © Kistruck 2009
    7. Bypass the Middleman - Domestically Product: Fish Farming Location: Bahia Region, Brazil Size: 1 Cooperative with 48 members Key Lessons: When the truck came, everything was wrong. It took two days to get everything right, and when they opened the truck, everything was spoiled because the truck was broken and nobody had known…it was not freezing temperature inside.” “So…if we buy from them, we can help them as well as make more profit for us…and for them. Our business is selling to others, so we have to make money with that. We can help with a lot of things just to make the process easier…but we still have to make some profit.” © Kistruck 2009
    8. Bypass the Middleman - Internationally Product: Coffee Beans Location: Tegucigalpa, Honduras Size: 5 Cooperatives with 324 members Key Lessons: “So [the social intermediary] was audited, and they were like, you guys should be depreciating — but no, there’s still no depreciation. “So what happened, when [the social enterprise] quit buying coffee? The next day the coffee price in the community go down…the next day. So, when MV keepsin business, dealing in the community, the middleman has to compete so there’s a benefit — they can get a better price with the middleman. The competition, you know, is good in a way — when MV is buying, coyotes pay better prices. And, when MV is not buying coffee, coyotes pay lower prices.” © Kistruck 2009
    9. Find a Bigger, Better Intermediary Product: Palm Hearts Location: Baxio Sul, Brazil Size: 1 Cooperative with 346 members Key Lessons: “You do not construct the ideal project with a community, because if they cannot appropriate the project, they cannot assume a portion of the responsibility for it.” “Over 80 percent of the producers were illiterate and possessed no knowledge of elementary arithmetic, thereby making it difficult to transact efficiently” © Kistruck 2009
    10. Use the same middleman…but change the rules Product: Shrimp Farming Location: Usulatan, El Salvador Size: 20 Cooperatives with 600 members Key Lessons: “We had a worker, one person [follow] the coyote…where he sold. [He found out] to how many persons, what pounds, and what price. We have this data and we think this project has improved [because of it]. Per pound, they are now paying more.” “Now when the coyote come, I call other cooperatives to find out what price he pay.” © Kistruck 2009
    11. Become the Middleman, Distributor, and Retailer Product: Organic Grains Location: La Paz, Bolivia Size: 100 producers, 14 franchises Key Lessons: “The organic grains intermediary just got 3,000. And I ask [the producers], ‘what happened to the other 2,000?’ They say, ‘well…it went to [the coyote].’ Why? Because sometimes people cannot wait two months to keep all their production, so they have to go over and sell it.” – buyer representative “Producers, when they deal with the price, they forget that we give them training workshops, we give all that…taught them how to even treat their soil. Now they say, ‘that's the same. We just deal with the price. Why you are not paying us five more Boliviano?’ They don't remember that we trained them, gave them all the technology... all the preparation. But that's how producers are.” © Kistruck 2009
    12. Which Bridging Approach is Best? • As with most things in life, the answer is … “it depends” – Cultural Norms – Transaction Frequency – Product Durability – Level of Financial Capital – Contract Enforceability • However, most important factor was the form and structure of the social enterprise © Kistruck 2009
    13. Alternative Forms • Two different types; – Enterprising Nonprofits (nonprofit) – Social Purpose Businesses (for-profit) • Very often, social intermediation involves the shift of either a nonprofit or for-profit towards the “middle” – Path Dependence © Kistruck 2009
    14. Which Form is Better? • On average, social enterprises with for-profit origins outperformed those with nonprofit origins • Embeddedness – Cognitive (two-hats, social dissonance) – Network (unidirectional to bi-directional) – Cultural (institutionalized trust) © Kistruck 2009
    15. Structural Combinations of Social and Financial Activities INTEGRATED SEPARATED Internal Cross-Divisional Partial Complete Joint-Venture Formal External Informal External Operation Coordination Subsidiary Subsidiary Subsidiary Partnership Partnership © Kistruck 2009
    16. The Interplay of Form and Structure Organizational Form Nonprofit For-Profit Integrated Organizational Structure Moderately Unsuccessful Unsuccessful Separated Moderately Successful Successful © Kistruck 2009
    17. Current Project • Microfranchising in BOP Markets – How to gain scale at successful ventures – McDonalds as exemplar? • Comparative case studies of franchised pharmacies in Kenya and the U.S. © Kistruck 2009
    18. “Every single pressing social and global issue of our time is a business opportunity.” Peter F. Drucker © Kistruck 2009

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