Global Entrepreneurship: Inefficiency as Opportunity in the Developing World

moderator: Alex (Sandy) Pentland, MIT Media Lab, School of Architecture + Planning, Massachusetts Institute of Technology, MIT
author: Damien Balsan
author: Randy Zadra
author: Rick Burnes, Charles River Ventures
author: Iqbal Quadir, MIT Program for Developmental Entrepreneurship, Massachusetts Institute of Technology, MIT
published: Sept. 3, 2013,   recorded: September 2006,   views: 2377

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Where aid programs and government policies fail, small-scale business people armed with the latest technology can succeed.

Damien Balsan perceived that in developing nations, ordinary “bottom of the pyramid” merchants -- taxi drivers, plumbers, electricians -- could grow their businesses if they could accept secure credit card payments. So Balsan equipped mobile phones with a card reading stripe and pulled together a credit network. After first testing his notion in the U.S., he headed overseas. Balsan found the formula works just as well in China, where “merchants are happy to take your cards when visiting the Great Wall.” In Mexico, mariachi bands now accept plastic, and even salaries can be managed through cell phones in South Africa, via “guys on oxcarts.” Balsan’s next target is the Avon lady—part of a vast army of direct sales vendors: 13 million in the U.S. alone and rising rapidly elsewhere in the world.

Randy Zadra brought the internet to customers in developing nations back in the mid 90s, when it was a “battle to get resources dedicated to emerging markets.” Zadra realized that these economies were often based on inefficient communication, transportation or financial networks. He turned these deficits into opportunities. One of his programs provides improved ways for foreign workers to send money back to their home countries. Throughout Latin America, these remittances amount to $36 billion per year. Zadra enables bank users to send videos and voice mail back and forth as well. Another program provides electricity in small rural villages, using low cost LEDs, recharged by the people themselves. “It’s putting the base of the pyramid to work,” says Zadra.

Venture capitalist Rick Burnes believes “that backing pure technology is a sure way to lose money,” but that companies will succeed if they “clearly identify a market need and customer demand.” With the developing world, “deep knowledge of local markets and cultures is critical to success.” The only way to stimulate more entrepreneurial activity in these regions is by “working from the demand backwards.” Burnes suggests employing “returnees,” the people who come to the U.S. for work or school, and then go back to their countries of origin. “These people understand both worlds and can be particularly effective in getting new organizations started.”

“Poor countries are poor,” says Iqbal Quadir, “because a vast number of things are wasted – including people and time.” Quadir, who marked well the success of the Grameen Bank (provider of microcredit loans to poor people in Bangladesh) “realized the telephone could be a weapon against poverty.” He developed a “phone for the masses,” whereby a poor villager takes out a loan to buy a phone, sells phone calls to neighbors, then pays off the loan and earns additional income. In Bangladesh, this venture has provided phone access to close to 100 million people, and improved the lives of micro-merchants. Grameen Phone’s total impact on his nation’s GDP, Quadir believes, is probably three times larger than the foreign aid it receives, which often lands in the pockets of corrupt officials.

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