Analysis

Jimmy Wales, Digital Freedom South Africa: What would you ask him?

On Thursday, 19th April, Jimmy Wales - of Wikimedia fame - will be in South Africa to present at the Digital Freedom Expo at the University of the Western Cape (UWC).

Says Professor Derek Keats of UWC, "A lot of people still seem to be afraid that it’s not sustainable, or that there isn’t enough support for Free and Open Source products.  But one of the things we’re aiming to show with the Expo is that there are several very successful open source models out there. All it takes is a very small shift in thinking ... "

I have been invited to interview Jimmy on Thursday on behalf of the Cape Argus where I am a business writer. My questions will focus on the long-term sustainability of the open-source movement and the ways in which it can be used by developing nations to leap a generation or two ahead.

If you would like to suggest questions of your own for Jimmy Wales please be sure to post them in the comments section.

UWC are quite excited about their speaker list:  "Creative Commons founder Prof Lawrence Lessig, Wikipedia founder Jimmy Wales, Co-founder of the Apache Software Foundation and CTO of Collab.net Brian Behlendorf, Free and Open  Source Software Entrepreneur and instructor in Computing Systems at  MIT  Philip Greenspun ..." amongst others, and I would recommend that anyone who can get there goes.

See also:  From Linux to Mozilla: donations mean that open-source isn't really free

Unlearning helplessness: how donors reinforce poverty and dependency

Do you have a hand ... out?

"No it isn't. You're making the assumption that the recipients of corporate charity can't do any better for themselves," said I.

"But they can't. They're poor."

There is a condition known as learned helplessness in which a person, through experiences beyond their control, is sensitised to the belief that they can do nothing to change their own circumstances. Women who remain in abusive relationships, children who are bullied at school, students who don't study because they believe they're going to fail anyway – it is a form of mental shackle that restrains any ability to see a way out of the problems the sufferer is experiencing.

Sadly, it cuts both ways.

Abused women have friends who tell them that they are just awful with men, bullied children have parents who think of them as weak, and the teacher of lazy students doubts they have the ability to be taught.

Giving charity is just another way of saying, "I don't believe you can do it either." And so the poor give up on themselves and develop a culture of entitlement. "How do you expect me to help myself, I'm poor." It's an excuse everyone can use.

In India and China, two billion people don't think of themselves as poor. They are certainly not wealthy, but they're pursuing opportunities and growth at a rate almost unprecedented in human history.

South Africa has one of the largest rich/poor divides anywhere in the world. Two-thirds of the people in this country have only 20% of the wealth that the other third has. Companies in South Africa concentrate on that wealthy component under the impression that the poor are a market not worth pursuing.

And so the poor are left paying more for services received by the rich. Transport costs are higher, food variety is poorer and significantly more expensive. Even so the poor spend R 100 billion a year on goods – surely a market worth pursuing.

And, no, it isn't exploitation to aim products at the poor. Exploitation is when you allow intermediaries to purchase bulk quantities of your product, dilute it and repackage it in smaller quantities and then sell it on under your name at twice the price of what consumers should be paying. This regularly happens with everything from sugar, to soap. Companies that allow this surely don't care about their reputations with the poor or about the integrity of their products.

And the end result will be that they will lose their future revenues.

The same products that are being developed in India and China for their informal markets are just as well-received in South Africa. Chinese biscuits are growing their market-share by 15% a year.

The first step for South African companies is to unlearn the idea that the poor are helpless recipients of handouts and recognise that they're the largest and most exciting new market in the world.

What market is worth R 100 billion a year and is growing at 10.9%?

See beyond dominant logic ...

Strategies for Businesses reaching out to Informal Markets

The South African informal sector is worth 6.5% of GDP -

R 100 billion a year - and it is growing at 10.9% per annum

Tata plans to introduce a R 15 000 car; Haier markets a R 150 fridge.  Chinese and Indian companies are already here leveraging the lessons they learned from their own 2-billion-strong home markets, taking on local incumbents and winning!

Will your company be overwhelmed by these powerful and ambitious competitors? How do you combine the latest communication technologies with the aspirations of 20 million South Africans living in the informal economy? What do we have to do to unlock the awesome market on our doorstep?

Unlocking the Fortune at the Bottom of the Pyramid is a two-hour presentation on the techniques and strategies used by South Africa’s most successful emerging-market firms.

As companies adapt their businesses to sell to the poorest, they also become astonishingly competitive in their traditional markets.  

Even if you choose to ignore the informal sector, what new innovations may come out of that market to radically alter your business environment?  What happens when your competitors reduce their prices – not by 5% or 10% - but by 50 times?

Unlocking the Fortune at the Bottom of the Pyramid is divided into three parts:

1.  The poor are intelligent and sophisticated consumers

• The poor love high-quality brands; they cannot afford to risk their money and will not experiment on new products unless there is an overwhelming reason to do so
• Stokvels are complex and well-run financial services co-operatives that give the poor a hedge over short-term income fluctuations
• Spaza shops are profitable ventures, worth an aggregated R 30 billion annually, that repackage branded goods into volume sizes most affordable to the poor
• The taxi industry is a vast and under-appreciated network of business owners worth R 21 billion a year

2.  Change your revenue model

• Recognise the truth of informal markets:  contracts are unenforceable; pricing debt-defaults into goods dramatically increases costs; infrastructure limits make product support and delivery expensive
• Either your product can be repackaged to reduce the price dramatically, or it cannot; which of two strategies will you follow to adapt?

3.  Change your distribution and business model

• It is not possible to own the entire distribution and business chain; how are you going to form partnerships with the communities in which you sell?
• Co-creation of your products will require a whole new focus on HR and product development; never before will the cultural differences through your value-chain be so stark
• Try and imagine a 25-year-old business graduate having to learn from the 25-year experience of a township trader in order to develop a new market; now imagine ... how will they communicate?

For more information on how Unlocking the Fortune at the Bottom of the Pyramid can benefit your firm, please contact us to book a presentation.

Hedging and bundling; improving the efficiency of microlending

Where do I plug in my iPod?

Aid agencies managed to look a little sheepish but the OECD still reckons that, between them, 31 poor-country governments received 10 837 donor "missions" in 2005, almost one a day.

As Jon Carrol at the San Francisco Herald wrote, "Mistakes, as they say, were made. Words were written. Ideas were promulgated. These ideas may not have been accurate, although I have no memory of intending to deceive anyone. It is not my way to blame my subordinates, although they are indeed at fault."

Highlighting, once again, the need for thorough external evaluation of aid organisation effectiveness to ensure that overlaps, and concomitant underlaps, are kept to the minimum. A poor credit environment drives up banking costs and, by extension, a poor aid environment drives up development costs. It doesn’t have to be that way.

The housing market is a case in point. The whole world is suffering from a housing bubble. Part of the problem has been easy access to credit. Banks don't look at the value of the investment, they look at the applicant's ability to pay back the loan and their credit record. The asset can easily be resold and so a fixed income combined with no history of bad debts will allow bank largesse to flow. And it has. The failure has come from banks not watching how the housing market is overheating, and that they have done less monitoring than they should on people’s real incomes; the so-called "sub-prime" lending market. Even so, all they are doing to ameliorate their excess is to bundle up the debts and sell them as a hedge fund.

Microfinancing solutions work in an aggregated credit model. Grameen has perfected the model but, largely, all microfinance banks work in the same way. A self-help group comes into being; impoverished women (men are not regularly involved in such things) with little income form a collective to pool their resources and lend to each other. They develop an understanding of the needs of each other as well as their capacity for risk and repayment. Records are kept. After a year of successful activities a microfinance bank will approach them and offer to lend them an ever-escalating amount of cash which they will use to buy the things they need (usually personal expenditure, like treats, clothes, health care and the like).

The model works well. It is a way for the banks to hedge their risks by lending more to a larger group over a range of different needs.

Aid agencies could learn from this. Usually a development organisation will raise funds for a single project or even for a single year of business. This doesn't allow an investor to hedge their bets and they are at risk to a single project or a single year’s activities.

On the other hand, if agencies worked with other organisations to present a single unified request for capital covering an integrated approach this would act to hedge the investment. If one or two agencies out of ten fell down under the strain an investor would know that the other eight could still ensure that the overall project was delivered.

Alternatively, a single entity could collect a range of unrelated projects and present them as a single investment vehicle. Again, the hedging is present over a range of different activities.

All of this relies on the good name of the organisations concerned. If eight organisations with a great record work alongside two organisations who are new and little known then all ten can gain finance to perform a single large-scale integrated project.

In other words, get over yourselves and click on the little button above that says, "get rated, free".