Microsoft Research India

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Microsoft Research India

• Established Jan 2005 - Bangalore
• Goals
• World-class academic research
• Contributions to Microsoft products and
  businesses
• Support growth of research programs in India and
  elsewhere
• Six research areas
• Cryptography, Security and Applied Mathematics
• Vision, Graphics and Visualization
• Mobility, Networks, and Systems
• Multilingual Systems
• Rigorous Software Engineering
• Technology for Emerging Markets
• Collaborations with government, academia,
  industry, and NGOs

Computer-skills camp in Nakalabande,
Bangalore (MSR India, Stree Jagruti Samiti, St.
Josephs College)
Understand potential technology users in
economically poorer communities Adapt, invent,
or design technology that contributes to the
socio-economic development of poor communities
worldwide
http//research.microsoft.com/india
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The Fortune at the Top of the PyramidWhy the
BoP should care about profiting from the ToP
Gucci embroidered handbag, 2905
Pantene shampoo sachet, 0.06

• Aishwarya Lakshmi Ratan, Microsoft Research India
• BoP in Practice workshop, IMTFI, June 1, 2009

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Overview

1. The classic BoP approach (and its detractors)
2. Returning to the evidence what enables ascent
   from poverty?
3. Inverting the classic BoP paradigm
4. Pursuing BoP Producer ? ToP Consumer linkages
5. Technologys role in enabling ascent from poverty

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(1) The classic BoP approach (and its
detractors)
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ToP Producers ?BoP Consumers

• Huge collective purchasing power at the BoP
  5-13 trillion (PPP)
• Large and small companies can make significant
  profits by selling to the BoP
• Small margins, large volume business models
• Selling products services to the poor can
  enable poverty exit through improved consumption
• ToP corporations development impact is in
  selling quality and needed products to the BoP

Sell
But to what extent can lowering the cost of
consumption at 2 a day incomes eradicate
poverty?
Figure source Edelweiss Research
Prahalad 2004 Hammond 2007
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Limitations

• Inaccurate measurement much smaller mkt at 1.2
  trillion (PPP). Even smaller at real fx rates.
• Cost of and constraints in serving BoP very high
• Cited examples either non-profit or serving MoP
• Significant poverty exit can only occur through
  increasing the real incomes of the poor
• State must deliver key services to the poor and
  protect from bad consumption
• ToP corporations development impact is in
  employing the BoP

Is the supply of labour and primary commodities
the only way that the BoP can participate in
markets?
Karnani 2007, 2009
Photos Indrani Medhi, Rikin Gandhi, Jonathan
Donner, Aishwarya Ratan
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(2) Returning to the evidence what enables
ascent from poverty?
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Stages of Progress studies
Out of Poverty Into Poverty
India (Rajasthan) Diversification of income sources (importance of urban contacts), additional small businesses, land improvement (successful irrigation investment) Ill health/high healthcare costs, high-interest private debt, social and customary expenses (funerals and weddings), failed irrigation investment
India (Gujarat) Diversification of income sources (informal sector employment and additional small businesses like dairying), obtaining a private sector or government job (importance of contacts), minor irrigation facilities Ill health/health-related expenses, large customary expenses (marriage and death feasts), high-interest private consumption debt (debt and debt bondage)
India (Andhra Pradesh) Diversification of income sources, land improvement Ill health/high healthcare costs, social and customary expenses, high-interest private debt, drought
Krishna et al, 2003, 2004, 2005, 2006
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(1) Dominance of income-related improvements in
ascending households
Out of Poverty Into Poverty
Kenya Diversification of income by linking to urban economy (mostly private jobs, few govt jobs), establishing successful small businesses Ill health/high healthcare costs, death of major earner, heavy funeral expenses (slaughter of family livestock),large family size, small land-holdings, uneconomical subdivision of land
Uganda Land improvement, Diversification of income sources, Gain from Business (mainly commercial crops), Jobs in private sector, education IF person finds job after education Ill health, healthcare expenses, death of income earners, large family size, funeral/marriage expenses, land division, crop disease, land exhaustion
Peruvian Andes Diversification of income (livestock, diversified cropping strategies), Support of community organizations, Improvements in physical infrastructure Ill health/high healthcare costs (including physical disability), social and customary expenses (mostly marriages, some funerals)
North Carolina Employment (finding a job), multiple jobs, longer hours, better budgeting Ill health, healthcare ex penses, loss of job, lack of family support compounds effect
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(2) Diversification of income sources critical

• Diversification of income sources was mentioned
  as a principal reason in the corroborated
  accounts recorded for 35 per cent of escaping
  households. Accounted for in equal part by
  irregular, informal sector employment and by
  ancillary activities, especially dairying, such
  diversification of income sources is a very
  significant reason for escaping poverty in these
  villages, and it is almost as important in more
  industrialised Vadodara district as in less
  industrialised Sabarkantha district (Krishna,
  200519)

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(3) Inverting the classic BoP paradigm
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Status quo

• Every participant in a market economic system is
  both a producer and a consumer
• Those who produce primary goods and supply wage
  labour are numerous, the valuation of their
  offerings in the market is low, and they are only
  able to consume that which is cheap, i.e. primary
  goods and labour-intensive services.
• Those who produce processed goods with
  value-added components and supply specialized
  services are few, the valuation of their
  offerings in the market is higher, and so they
  are able to consume higher-priced processed goods
  and services

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A BoP Consumer Focus

• Encourage ToP producers to reach out to BoP
  consumers (Prahalad and Hart, 2000, 2006).
• The size disparity between these two segments is
  vast, with the BoP constituting two-thirds of the
  worlds population.
• ToP innovation in making and selling processed
  products and services to the BoP can lead to a
  new source of revenue for them through
  thin-margin, large-volume sales.
• The poor would like to consume more. Why not sell
  them what they want to consume in affordable
  packets.

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Inverting the paradigmA BoP Producer Focus

• Encourage BoP producers to reach out to ToP
  consumers
• BoP producers have a comparative advantage in
  their low costs of labour and production
• Small scattered producers find efficient ways of
  aggregating what they produce, adding value in
  ways that will specifically please ToP consumers
  who can assure demand, and marketing/distributing
  these products and services to those at the top
  of the income distribution

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(4) Pursuing BoP Producer ? ToP Consumer linkages

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Why should the poor care about the rich?
In India, the top 20 of the population is
responsible for 45 of aggregate consumption.

• BoP as Consumers

• ToP as Consumers

• Income streams of the poor highly unreliable
• Poor consumer seeks standard products that have
  the lowest ticket price
• Poor consumer may face welfare trade-offs between
  consuming in the present vs. the future

• Income streams of the rich steady and
  well-insured against numerous shocks
• Rich actively seek differentiation from peers
  -drive consumption of luxury, custom-made goods
• Rich consumer has sufficient surplus to consume
  in the present and invest in the future

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BoP Producers ? ToP Consumers
Company Products Annual turnover (US ) Producers
Masuta Silk Producer Company (Jharkand) Largest producer of Tasar silk yarn in India 1.5M 2500
SEWA Trade Facilitation Centre (Kutch) Traditional textile, embroidery, and craft products 0.5M 3500
Gujarat Cooperative Milk Marketing Federation (Gujarat) Largest food products company in India (milk powder, baby food, milk drinks, etc.) 1.3B 2.6M
Calypso Foods (Tamil Nadu) Specialty fruits and vegetables (gherkins) 6M 5000
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(A) Institutions for Aggregation and Processing

• CONTRACTUAL PRODUCTION
• Third party assures producers of demand and sets
  price
• Risk is borne by the external aggregating agency
• Earnings gain is only through sales, and does not
  include any stake in any further value addition
  or the final product
• Producers still retain individual ownership of
  assets

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(A) Institutions for Aggregation and Processing

• PRODUCER COMPANIES
• Aggregate the production of the poor in a manner
  that allows greater bargaining power in the
  market around both sales as well as procurement
  of inputs
• Use the Producer Company structure to allow
  member-ownership structure (one member-one vote)
• Hire management to target new markets
• Allow thousands of producers to pool their
  output, and invest in some amount of processing
  and value-addition
• Producer-members have a stake in the final
  returns generated by the company
• Distributed dividends alone 4 of annual
  household income (Masuta)

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(B) Sustaining demand Meeting the Aspirations
of the Rich

• Hansiba production styles, designs, colour
  combinations and marketing incrementally enhanced
  to match the palate of external high-end
  customers
• Brand ambassador at the recent opening of a third
  Hansiba outlet in Mumbai was Leah Martin, an
  American singer and model

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Sustaining demand Meeting the Aspirations of
the Rich

• The Amul Moppet was initially targeted at urban
  upper class homemakers
• Sensibilities and tone of the campaign are mostly
  urban
• The gimmicky one-liners used, called topicals,
  are in English and are drawn from national and
  international news

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(C) Mobilising Capital

• Providing finance for production becomes a less
  risky proposition for most banks when the
  supply-side is streamlined, efficiency gains from
  aggregation and specialisation are realized, and
  a collective of producers shares the risk of
  production
• In a Producer Company, internal management of
  working capital is moulded to suit production
  timings, input purchase, and the consumption
  needs of the producers. Innovations in financial
  management allow convenient cash flows for the
  producers throughout the production cycle.

Photo PRADAN, Masuta
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(C) Mobilising Capital

• Surviving shocks
• PRADANs poultry cooperatives grew by 50 in
  2005-2006
• But the bird flu scare caused the market price of
  chicken to plummet to half the cost of production
• Heavy losses of Rs. 5 to Rs. 20 lakhs per coop
  that year
• Yet, the size of the organisation allowed the
  producers to use reserve funds, collectively
  mobilise more working capital, wait out the
  downturn
• They subsequently rode the boom in 2006-07 to
  more than double their revenues the next year

Photo PRADAN
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(5) Technologys role in enabling ascent from
poverty
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The role of technology

• Technology, it is already apparent, can be as
  powerful a tool for addressing barriers and
  inefficiencies at the bottom of the pyramid as in
  more established markets. (Prahalad and Hammond)
• Yet, the effects that investments in technologies
  have on enabling the poor to move out of poverty
  vary greatly, and in many cases are hard to
  establish.
• Technology primarily works as an amplification
  tool. The impact of technology in enabling
  poverty alleviation is then only as good as the
  task it seeks to enable.

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Enabling Consumption of the Poor

• M-PESA a mobile money transfer/payments service
  with outreach to 6M in Kenya
• Used predominantly for small-denomination (lt80)
  domestic P2P remittance transfers between family
  members and friends
• Weakest case Urban migrant paid 1 more per
  transaction using M-PESA once every 2-3 months
• Strongest case Urban migrant saved 8 of
  monthly income by using M-PESA

Photo Indrani Medhi
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Enabling Exchange with the Poor

• ITC's empowerment plan for the farmer centres
  around providing Internet kiosks in villages
• ITCs e-choupal is primarily used to facilitate
  the distribution of coupons for procurement of
  crops like soybean by ITC - less for accessing
  information for negotiation or arbitrage by the
  farmers
• The disintermediation leads to an average net
  upgrade of 6 of annual income per farmer

Photo PC Quest
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Enabling Production by the Poor

• The Masuta Producer Company coordinates and
  aggregates the production of Tasar silk yarn. The
  fabric produced goes on to be part of FabIndia
  textile products,
• A combination of TV, DVD players and videocameras
  (through Digital Green) enables training in
  productivity-enhancing opportunities and assists
  with the ongoing promotion and sharing of best
  practice
• The average producers income has involved an
  increment of 30-40 of household income

Photo Rikin Gandhi
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Wrap-up
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Summary

• Some market-based mechanisms to assist poor
  households to rise out of poverty are more
  effective than others
• The most powerful mechanisms have to do with
  substantially improving incomes of the poor
• Strong earnings gains have been realised by
  aggregating production of the poor, collective
  risk-sharing, specialization, value-addition
  through selective processing, and direct sales
  and marketing to rich clients
• Pursuing BoP Producer-ToP Consumer linkages
  through Producer Companies and enabling these
  with appropriate technologies can indeed make
  significant progress towards eradicating poverty
  through profits

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Additional considerations

• Role of Government in Producer Companies must be
  limited to infrastructure provision and prudent
  industry regulation
• Social and psychological effects of technology
  adoption/consumption are critical to well-being
  as well, but often do not themselves drive ascent
  from poverty
• In an economic downturn, overall demand falls.
  Yet, the rich have greater buffers to sustain
  consumption than the poor.

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Last wordMumbais dabbawallas

• The century-old supply chain of dabbawallahs is
  operated by 5,000 semi-literate men and women who
  pick and deliver 200,000 tiffin boxes to office
  goers per day.
• The average turnover of the dabbawallah industry
  is 8.5 million per annum.
• 'The method we adopt is simple and easy. For us,
  customer satisfaction matters a lot and we are
  here to deliver services to them.

Source Rediff , Pawan Agrawal, Sanjay Sawant
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Thanks!?aratan_at_microsoft.com
Hansiba embroidered handbag, 2905?