A photoessay from Foreign Policy titled “China International”
“The mining site, like others along the Irrawaddy River, is a concession given by Burma’s ruling military junta to local warlords or businessmen — who, it is believed, then make deals with Chinese financiers. China’s border is only 60 miles away.”
“There are two things that matter in politics. The first is money. I can’t remember the second.” – Mark Hanna
In December, a group calling itself the Republican Commissioners on the Financial Crisis Inquiry released a report titled the “Financial Crisis Primer,” which provides an explanation for economic crisis. According to the report’s authors, the big lenders, including the government, gave too many high-risk loans as part of a government-directed strategy to increase home ownership in the country. Because the price of housing never goes down (allegedly), creating a financial environment where everyone can afford to buy a home is a no-brainer, since the asset is guaranteed (almost) to increase in value over time.
Once all the credit-worthy, middle-income customers received loans to buy a house, lenders started to look to low-income population as a viable market. They started pushing subprime loans with introductory “teaser” rates that would eventual re-adjust and send the person who couldn’t really afford the house in the first place into bankruptcy. And the driving force behind this whole sequence of events was a social policy to increase asset ownership among the low-income segments of the population, otherwise known as the poor. This dynamic is explained here in the introduction to the Primer:
What a time to be sort of close to North Africa! Revolutions abound, first in Tunisia, and now Egypt. Normally, Develop Economies would offer his opinion on the significance of the overthrow of Hosni Mubarak and its ramifications for Israel, democracy in the Arab world, civil unrest in Iran, and the foreign policy strategy of the Obama administration. Unfortunately, anything I could say has already been said by countless others. For a play-by-play of the events and a thorough parsing of the discussion among the Egypt bloggers, go to Andrew Sullivan’s Daily Dish. For an in-depth analysis of the implications for America’s foreign policy, see the lead article in this month’s edition of Foreign Policy magazine, which features astute observations from the likes of Nick Burns, Elliot Abrams (real reactionary), and others. In other words, there is no room for Develop Economies to hit the people over the head with some insanely awesome analysis. So I’ll write instead about something that struck me as funny while watching grainy CNN international coverage from my hotel room in Sunyani: Wolf Blitzer saying the word “tweet.”
What a beard.
I don’t know what it is about Wolf Blitzer that grinds my gears. I should feel a special kinship, given that he is a card-carrying member of the Beard-Wearers of America since 1982, a 6th-degree black belt, in official terms, where as I only have my blue belt, or whichever one comes after yellow (orange?). I mean, just look at that beard. That is the beard of a man who has earned the moniker “Wolf.” If he is Wolf, then, on my best days, I could call myself “Billy Goat” or “Chinstrap Penguin.” Like me, he is short and probably not very good at basketball. So what is it about this man that I share so much in common with that causes such a visceral reaction in me?
This is the second of two posts about Hapinoy that I wrote for Next Billion.
As Hapinoy expands, it reaches more of the BoP market. Through its network of suki stores, the company is able to offer other products and services that do not currently reach the BoP.
The founders like to think of Hapinoy as analogous to the iPhone. In the same way that the Apple device is an open-source platform for apps created by outside programmers, Hapinoy is a distribution vehicle for products to the BoP developed by social entrepreneurs. For example, through its stores Hapinoy sells solar lanterns, mosquito nets to combat dengue fever, and, starting in April, eyeglasses.
A few years ago, it created a pharmacy program, selling low-cost over-the-counter medicines. Hapinoy stores also are mobile cash agents for Smart Money and act as a mail acceptance counter for Mail and More. In the future, it will focus on nutrition and water, health and wellness, technology, energy, and livelihood opportunities. Ruiz would like to incorporate local producers into its supply chain network. “One key pillar of the future is to open up the Hapinoy Distribution Platform for the products of community-based microenterprises as well. Product development exists to help microentrepreneurs create BoP products, but many have difficulty in marketing and sales.”
This is part I of a two-part post that appears on NextBillion today. I will post part II tomorrow.
If you’ve ever been to the Philippines, you’ve no doubt seen a row of identical tiny stores selling Coca-Cola and laundry detergent. In fact, there are about 630,000 of these sari-sari storesserving the 90 million Filipinos across the country (a little less than one per 100 people), and each one may record less than $10 per day in sales. Each store sells the same single-use household and food products, but buys its inventory from grocery stores in the cities. As a result, the BoP end up paying even more for products and services.
Mark Ruiz and Bam Aquino of MicroVentures recognized the opportunity to consolidate this supply chain by centralizing sourcing and reducing distribution inefficiencies. The result isHapinoy, a franchise that has reached nearly 10,000 sari-sari stores in a few short years.
Hapinoy is an example of a conversion franchising model, which “transforms pre-existing, independently-owned businesses into members of a standardized network.” The company manages its operations and negotiates supplier contracts with Nestle, Unilever and others from its headquarters in the capital city of Manila. Products are purchased in bulk and distributed via Hapidelivery to a network of community stores, each of which serves between 50 and 100 “suki” stores (Hapinoy sari-sari stores). The suki stores buy from the community store at a lower cost and sell at a higher margin.
The following is the full transcript of an interview with Mark Ruiz, the founder of Hapinoy, a franchise of sari-sari stores in the Philippines. It is a companion piece to an article published on NextBillion.
Develop Economies: How did Hapinoy start? What, in your opinion, was the problem? Why is Hapinoy the right innovation for solving this problem?
Mark Ruiz: Hapinoy started as a fusion of paradigms, ideas, and people. In terms of paradigms, we wanted to fuse social development with the discipline of business. It started a combination of people from social development and the business sector. We wanted representation from a diverse set of relevant backgrounds, including microfinance, NGO’s, government, as well as corporate experience in distribution/marketing/sales/advertising, and entrepreneurship.
There were three fundamental problems we were looking at:
- The products and services needed by the bottom of the pyramid (BoP) don’t reach them. The operative word is needed – for example, medicine, water, and electricity.
- The products and services that do reach the BoP end up becoming more expensive due to distribution inefficiency. The poor end up paying more for noodles and shampoo than those who have money!
- The BoP doesn’t have access to market opportunities, whether it is sari-sari stores looking for financing, new businesses, etc. or microproducers looking for a distribution/market for their products.
There’s a fundamental gap to the BoP. So we ask ourselves – how do we bridge this gap? How do we enable the last mile and bring products, services, and opportunities to where they’re needed the most?
For the last week I’ve been in Techiman, a city of 80,000 people and the leading market town in Ghana. Because it is situated near the Tano River, it has historical significance as a major trade route and is now home to the second-largest market in West Africa. Trucks from Mali and Niger come down here to distribute products to the rest of Ghana and other countries in West Africa. I am up here to meet some maize aggregators (middlemen) and try to figure out their margins. Most farmers accuse the aggregators of cheating them on prices, but no one knows for sure because the aggregators aren’t exactly forthcoming with their pricing arrangements and, even if they were, they don’t keep records so they can only tell you with any certainly about the last few purchases they maize. Not to mention, maize is absolutely crazy – the price might fluctuate from 25 Ghana cedis (Ghc) to 100 Ghc in a year. So it is a tough task, but I’m slogging my way through (right now, I have calculated 20-30% gross margins, 5-10% net margins, but who knows).
For the last month I have been working with a group of small-scale pineapple juice processors. I met with the owner of I.E. Starke, the maker of “For You” brand pineapple juice. We went over his business and collaboratively developed a business plan (it is essential not to write the plan for the company you are working with, because they will just treat it as another document on the shelf and never look at it again). I took a look at his operations and listened to what the challenges are in terms of his business. Then I went on my merry way to head up to Techiman.
The other day I listened to an interview with Nicholas Kristof on the role of storytelling in development and its importance for advancing the cause. Kristof has received a lot of flak from development bloggers for oversimplifying issues and focusing the narrative around a single, white, typically American protagonist. In doing so, Kristof misrepresents the problem, which leads his readers to believe that, for example, Western sex tourists are the reason for child prostitution in Cambodia, or diamond mining is the cause of all of the problems in the Congo. These causes, however, are a) easily understood, and b) resonate with Kristof’s readers on an emotional level. It is easier to get people fired up about an issue they wouldn’t normally care about when you elicit feelings of empathy and anger about grave injustice. But once you start to talk about the deeper roots of these problems – the boundary-based ethnic conflicts, the desperation of poverty, and the gangsterism of warlords and army generals – the eyes of the marginally-interested reader begin to glaze over as the words “impossibly complex” and “hopeless” come to his mind.
I agree with Kristof here. He makes the (good) point that many people make the mistake of dismissing marketing for development causes to be irrelevant or cheap. In doing so, the issues they support languish without financial or political support from people who either don’t know or don’t care about their cause. The cause-and-effects of poverty and its ills are impossibly complex. There is a tendency, I think, among career development people to become increasingly dismissive of anyone or anything that oversimplifies these issues they have spent their lives trying to understand. But, unfortunately, most people don’t like complexity, and it has a tendency to turn people off an issue.