Living in Peru : your everyday companion

Being a resident of Peru, how many times per year do you travel abroad?   1 2 3 4 or more?

By Jacqueline Saettone, Professor, Universidad del Pacifico.


A few years ago, C. K. Prahalad and Allen Hammond wrote a very interesting article for the Harvard Business Review, named “Serving the world’s poor profitably”.  In it they speak of the great economic potential the market at the bottom of the piramid represents.

If this is true, then why have companies not traditionally invested in this market? Because: (1) They have assumed that the poor have no money, (2) They think that they are too worried with satisfying basic needs and (3) They consider that it is not possible to generate profits in this market segment.

But according to the study, the reality is that inhabitants of marginal areas in developing countries pay 100 times more for drinking water than the upper and middle classes; 20-30% more for food and they pay 10-15% per day to local lenders at annual rates of up to 2,000%. They specifically studied the cases of Dharavi – a poor neighbourhood in Mumbai, India – and Warden Road, an upper class neighbourhood in the same place. They found that in Dharavi, they paid 53 times more for credit than in Warden Road; 37 times more for water; 1.8 times more for telephone calls; 10 times more for diarrhea medicines; and 1.2 times more per kilogram of rice. With it, they demonstrated that the economy of the poor has a high cost.

This means that there is an opportunity for companies to develop products and services to which they rarely have access, at a lower cost, generating a situation where everybody wins: The poor because they could gain access to services at a lower cost and companies, because they could make a good profit if they develop a distinctive strategy. To analyze the potential, it would be interesting to perform the same calculation made in India, in Peru. This would be very useful to motivate potential social entrepreneurs. Intradevco, La Viga and Kola Real, among others, have already shown that one can be successful by serving the bottom of the pyramid.

In addition to developing products for the poor, it is important to create ways to link microenterprises with production chains in the modern economy, so that they can sell their products an become more prosperous. Danper Trujillo, for example, has been very successful in exporting artichokes using this kind of model. The company has given techniques, plants and financing, among others, to small agricultural producers in the coast and in the mountains, managing to reach very remote rural areas. And the Belgian technical cooperation, with its Managerial Non Financial Services project, has led the chocolate experts of Belgium’s Royal House to experiment with lucuma (a Peruvian fruit) from Ayacucho.

Innovating in the frontiers of economic and social matters represents and important vein to be exploited in fighting poverty.

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1 Comments

# Mike says :
15 March, 2009 [ 09:13 ]

In the US, the areas that have large numbers of poor people often have have higher prices for goods and services for a number of reasons.  Many of these reasons have to do with the higher crime rate (the business spends more money on security and insurance - theft can also be an issue), higher cost of bringing goods to the areas the poor live in, and the general lack of (consumer) education amongst the poor.

Can this be said for some things in other countries where there are poor people in different circumstances?  Yes.

*Higher crime rates make it difficult to convince businesses to invest in poor areas because of the higher costs and troubles.  Governments, too.

*Living in remote areas or areas where the government previously did not have plans to bring services can make things more difficult and expensive for the poor people who live there to bring water and other resources to their homes - just look at the area to the north of Chincha, for example.  Or how about the shanty-towns of the greater Lima area?

*I can tell you that the poor people I have met in the US, Peru, and other countries, often do not even consider looking for competitive pricing for many goods and services.  Sometimes it is out of convenience, sometimes practicality, sometimes a lack of choice, but often it is just never occurs to them (or they don't know they may have a choice) - which I chalk up to a lack of education.

Birth rates are higher among the poor - which just adds to the problem.  Few resources, a government without significant money or resources to "catch up" to the growing numbers....doesn't paint a pretty picture. 

What businesses do go to poor areas, want more money to compensate.  Since only a few do, there is a lack competition, and therefore, higher prices.

And remember, businesses are run by people.  If people are frustrated with the business situation, sometimes even a good profit won't be worth the trouble or risk.

What is the answer?  I don't know.  Certainly the micro-lending which has started in many developing countries is a positive step, and from what I understand, a successful one.

It is certainly a frustrating problem.

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