Tag Archives: Developing country

Struggling business or highly effective development effort? A social enterprise dilemma.

Developing 0.750–0.799 0.700–0.749 0.650–0.699...

Social venture and global competition

Suppose I told you about an investment opportunity with an outsourcing business based in a developing country. They’re the first of their kind in that country, which is an unknown in this particular industry. Furthermore none of their local employees speak English natively, and so all must study English and do their best in working with English-speaking clients on projects that are usually in English. Oh and by the way, this business’s main competitors are based in English-speaking developing countries with a history in the industry, and much more developed base of management talent. Would you like to invest?

Now let’s say I told you about an opportunity to support an innovative nonprofit
that provides top-notch training to underprivileged people in developing countries, and provides them three times their prior salary—plus benefits—to work in teams working on real projects, for real clients? And furthermore, after three to four years of work experience, employees are able to find even higher paying jobs, paying three times again what they made during training. Oh and by the way, this organization takes every dollar you donate and stretches it to be three dollars of impact, because of the income generated by the real world projects that are the heart of this training program. Would you like to invest?

Social enterprise, at the outset, is a great story to tell: running a real business that provides training and employment opportunities for disadvantaged people. But such businesses face the real-world challenge of competition from regular, for-profit businesses. When it comes to a local business, such as a restaurant, where the “delivery of value” is necessarily local and in-person, such social enterprises have a relatively even playing field on which to compete.

However when it comes to a global business, the playing field can be much more uneven. Whereas a competitor to a local restaurant faces similar costs for rent, personnel, and materials, a competitor to a global outsourcing firm might enjoy better English skills, a more highly educated talent pool, along with the ability to recruit highly skilled senior management locally, instead of from abroad.  Thus it can be very challenging to compete, sustainably, against such advantages.

So does this mean businesses shouldn’t set up shop in said developing country, because of those disadvantages? It depends on the goals and expectations of the business.

If the goal is to make bottom-line profit, then it doesn’t make sense to  “fight the current” on such a critical point such as the talent pool. You’re going to have to spend extra money to make up for the education system and bring people up to speed. Plus, to ensure that your organization can compete in the global space, you’re going to have to pay good money to hire for key strategic positions, whether you are hiring from the limited pool of locals, or you’re bringing in expats.

But if the goal is development, then the very sources of these disadvantages gives the justification for investment in such a social business. Because through such investment, the “disadvantaged” developing country can start on the road towards building a globally competitive talent pool. How else are they going to do it? Furthermore it’s a fair bet that in a country which has had much less investment in the talent pool, there are a lot undiscovered—and highly motivated—people looking for an opportunity. And this spark of enthusiastic hidden talent can be a real advantage for a business.

So yes, such extra costs to running a social venture in a “competitively disadvantaged” country make for a challenging business opportunity. However as a development opportunity, the ability to create a lively new industry that trains locals in relevant global skills can make for a highly impactful, highly relevant social investment.

The key question to me is, will traditional funders of development efforts have the insight and the courage to support a business-looking engine of economic development for the disadvantaged?

And at the end of the day, does the “developed” world actually welcome the competition?

De Soto on how and why institution building works

Photograph of Hernando de Soto, which he had t...

Hernando de Soto

Hernando de Soto is a very intelligent economist from Peru who has had a great positive impact on development in Peru, and around the world. Building from his cornerstone book The Other Path (to contrast with The Shining Path), he advised the government of Peru on over 178 institutional reforms related property rights, democracy, and constitutional reforms for freedom.

In this nicely produced video interview with de Soto, he eloquently describes his major ideas about how to best support the healthy growth of a developing country.

Early in the interview de Soto shares an interesting “metric” of how he knew he was having an impact on Peru, saying “If we hadn’t been shot at, it would have been an indication that we weren’t having an impact. We had an impact.” Talk about standing by your ideas.

Was it worth it? Consider that Peru’s GNI per capita PPP grew 37% between 2005 and 2009, compared to 6% growth for the United States. I bet institutions played a key role in Peru’s rapid growth. Watch the interview to learn more about de Soto’s ideas—definitely food for thought.