Social Franchising Models Proving Poor Bring Profits

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

The four billion people in the world who live on less than US $2 a day have been described as the bottom of the economic pyramid, or BOP for short. In his book The Fortune at the Bottom of the Pyramid, Indian business consultant and professor CK Prahalad argues that this attitude must be turned on its head: rather than seeing the world’s poor as a burden, only worthy of charity, Prahalad sees nothing but opportunity and unmet needs that business can address. In short, he argues, profits can be married with the goal of eradicating poverty.

Prahalad has gone so far as to claim this is a market potentially worth US $13 trillion, while the World Resources Institute puts it at US $5 trillion in its latest report, The Next 4 Billion.

One of the tools business is turning to reach the world’s poor is known as social franchising. The concept borrows from the business world and the highly successful franchise models that are more commonly associated with fast-food restaurants and computer and clothing retailers – wherever rapid expansion and scale are required to reach the biggest market possible. And there is no bigger market, social franchising advocates claim, than the world’s four billion poorest people.

In the past, most formal business in developing countries chased the small middle class or the even smaller elite or foreign expatriate communities. Traditional poverty eradication strategies have also been criticized for being too narrow, focused on a very small group, or for wasting time and resources replicating what has already been achieved elsewhere, and for ballooning and shrinking depending on aid grants or success at fundraising. Social franchising aims to bypass these weaknesses by finding models that work, making sure they are self-financing, and then quickly scaling them up to reach as many people as possible. It’s a model that is gaining more followers and the serious interest of big and small businesses.

One example is the Scojo Foundation in India, established to tackle the common problem of blurry vision as people age (presbyopia). Not a disease, the first symptoms occur between the ages of 40 and 50. Low vision affects 124 million people in the world according to the World Health Organization’s Vision 2020 campaign, organizers of World Sight Day 2007 on October 11.

Blurry vision is a serious disability for weavers, mechanics, goldsmiths and others whose livelihoods depend on near vision. As vision deteriorates, these people are unable to provide for their families. Yet it is easily treatable with a pair of eyeglasses.

Since, 2002, the Scojo Foundation (the social franchising wing of eyeglasses manufacturer Scojo New York, has launched operations in Bangladesh, Mexico, Guatemala, El Salvador and Ghana. Its largest and fastest growing operation is in India, where it employs more than 560 entrepreneurs in rural villages, and selling more than 50,000 pairs of glasses since 2001.

It has grown quickly because the business model has been replicated by local staff who work as franchisees. It has followed the franchise model by building a network of “vision entrepreneurs” – low-income men and women, who in turn sell reading glasses directly to rural villagers throughout India. The franchise model enables the “vision entrepreneurs” to earn a good income, and gain respect from other community members.

Nico Clemminck, co-author of a case study on Scojo, found the price was very competitive with other options in India, and that the higher quality of the glasses made them attractive to villagers.

“The franchisees, or Vision Entrepreneurs as Scojo calls them, that we met were very involved with Scojo – some of them shifting away their focus from previous occupations to spend the majority of their time on conducting vision screenings and selling glasses. The main reason is that the business is quite profitable to them – they make a US $1 margin per glasses sold, which is very high compared to other retail products. A trend we did notice is that commitment decreases over time, as the entrepreneurs exhaust their immediate circle of relatives or target village populations, and the incremental sale becomes tougher to make.”

According to Clemminck, Scojo has been able to quickly and successfully expand to other countries by forming partnerships with existing networks that reach into villages.

The profit hierarchy works like this: the manufacturer charges US $1 for the reading glasses, Scojo charges another US $1, the franchisee a further US $1, and the customer pays US $3 for the glasses. By creating profit at each stage, the model ensures the financial incentives are there to keep the distribution network active.

Prior to Scojo, it was believed developing infrastructure in rural Indian communities is too high to sustain a franchising model for low-cost products. Scojo found it was possible to succeed with this model, by focusing on profitability and sustainability right from the start, pursuing aggressive growth through partnerships to build economies of scale, blocking competitors by having a strong brand and first-mover advantage, constantly refining the model across regions, and delivering a tangible social benefit, both economic and health.

On average, franchisees work 20-30 hours per month and earn US $15 to US $20 per month. Considering most franchisees were living on US $1 a day, the extra income is very welcome, Clemminck said.

“This project gave me insight into the large, untapped market opportunity that exists,” says case study co-author Sachin Kadakia, “and how the concept of ‘Bottom of the Pyramid’ provides a tangible and significant improvement to the quality of life of people in these communities.”

Another social franchise gaining ground in India is Medicine Shoppe. As a chain of pharmacies, Medicine Shoppe targets underserved communities by offering entrepreneurs franchises. It is an offshoot of the largest franchiser of independent community pharmacies in the US, Medicine Shoppe International Inc.. It can draw on its strong brand and identity to appeal to potential franchises.

Acumen Fund fellow Nadaa Taiyab, who is working with Medicine Shoppe’s expansion to help the rural and urban poor, found it was important to learn lessons and adapt the model.

“When I arrived in December (2006),” she said, “we opened the first Sehat Clinic. Last weekend we opened the seventh, with an eighth shortly underway. The model has undergone a tremendous evolution in the past six months. We shifted our site selection strategy from relatively affluent areas with a slum nearby, to locating the clinics right inside slums. We redesigned the process through which we recruit doctors and created an employment package that allows us to hire experienced doctors at a salary we can afford.

“We also implemented an entirely new concept for Medicine Shoppe called community marketing outreach. Through this program, we hire local women in each area to make daily home visits, refer patients to the clinic, spread health education and awareness, and promote our free health camps and health clinics. In the past four months we have held over 35 health-plus-vision-testing camps, serving over 4,000 people.

“We have also made some changes to the look and feel of the clinics and shops and put all our marketing materials in the local language, to make our services more appealing to low-income markets.”

There are critics of the BOP approach, however. Aneel Karnani from the Ross School of Business at the University of Michigan, argues from a for-profit perspective, business would be much better off targeting the needs of the growing middle classes, especially in countries like India and China. He, however, does acknowledge that social franchising businesses like above, where social responsibility is key, are relevant to meeting the needs of the poor.

Resources

  • A detailed and thorough case study of how the Scojo Foundation model works is found here

  • An excellent set of decision matrices to help budding social entrepreneurs and existing businesses to decide if social franchising is the right solution: www.createproject.org

  • The Social Enterprise Alliance has built a knowledge network and extensive range of resources (including 160 case studies) on social enterprise.

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