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Far from being immoral, it is REQUIRED for the benefit of the poor. 6 years ago, I left a 6-figure job in the states and spent a year living on $2 a day in Indi

by pitdesi 15y ago

Far from being immoral, it is REQUIRED for the benefit of the poor. 6 years ago, I left a 6-figure job in the states and spent a year living on $2 a day in India (I was an early employee at http://kiva.org http://kiva.org trying to understand the plight of those we served)... It was hard as hell... but a lot of companies served those markets tremendously well and made a lot of money. I ended up writing business school cases about a couple of things I learned in that regard here are some briefs- 1) Mobile phones. Super cliche, but they use mobile phones in every aspect of their lives now, and it has made a tremendous difference. Something that used to require an hour bus ride to the nearest city and then waiting in line for an hour, ruining a days worth of work in the fields can now be accomplished in 5 minutes via SMS. Airtel (one of the largest mobile providers in the world, one of the biggest companies in India) has made a tremendous amount of money by focusing not on ARPU (Avg. Revenue per user) like every other mobile company, but rather focusing on how much profit they can make per minute sold... they are happy to serve tons of farmers that only use their phone for 100 minutes a month (~$2 a month). If it was not profitable for Airtel, the poor would never have access to cellphones, something that has DRASTICALLY upgraded their lives. Nokia sells amazing phones tailored to that market for $20... they have radios, flashlights, and batteries that last a week (all crucial to rural India), and Nokia is able to maintain fantastic margins on those products. Airtel has an ARPU of $4 (contrast to US carriers ARPU of ~$55)... yet they have a $30Bn market cap I actually co-wrote a case on this topic with professor CK Prahalad (the founder of base of the pyramid thought - you should read up on him. if this topic interests you at all read his books, particularly "the fortune at the base of the pyramid" http://en.wikipedia.org/wiki/C._K._Prahalad http://en.wikipedia.org/wiki/C._K._Prahalad) If you're interested in reading my case (http://www.globalens.com/casedetail.aspx?cid=1428834 http://www.globalens.com/casedetail.aspx?cid=1428834) give me a shout. 2) Clean water. A lot of villages don't have it. There are both for-profit and non-profits trying to tackle this situation, but regardless they've found that the only way to scalably get clean water to the masses is to charge for it... to "profit on the backs of the poor" I co-wrote a case on that topic here: http://www.globalens.com/casedetail.aspx?cid=1428987 http://www.globalens.com/casedetail.aspx?cid=1428987

fennecfoxen 15y ago
Regarding bringing water to the poor: Even if you're a charity, if you can charge for it and make money off it, that means you can bring it to the next group of poor people sooner. If you're a business, being able to charge for it and make money off it means that more people are going to be willing to give you money as an investment and accelerate your build-out even more. This can easily outpace the pace of donations.
dextorious 15y ago
As I understood it, the question was not whether it's ethical to "charge for it", it was whether it was ethical to charge big bucks, ie. make a killing profit. If you had a filter that can purify water, and you could get away selling it for huge margins, like 500%, just because they need it and they'll sacrifice other things in order to buy it, would you? I, for one, don't think that would be moral. A heathy profit to sustain your business would be OK.
- _delirium 15y ago
  I do agree that large profit margins mean something is wrong, though I'm not sure the blame should necessarily fall on the person making the profit. It's the kind of situation where one should ask: why are profit margins high, especially if persistently high? Classic economic theory would predict that large profit margins shouldn't persist for more than a short time, because competitors will enter the market, whether the initial company wants them to or not. So then a question would be what's keeping the market uncompetitive. Sometimes it might be the fault of the entrepreneur in question, especially if he/she has government connections: there are situations where a company is maintaining large profit margins serving the poor because their potential competitors keep running into licensing roadblocks. Other times it's something to do with patents, or network effects, or who knows what else.
  - dextorious 15y ago
    """I do agree that large profit margins mean something is wrong, though I'm not sure the blame should necessarily fall on the person making the profit.""" Well, if that person is you, though, then you have the morality question to answer, not the market. It doesn't matter, morality wise, if the profit happens because the market is inefficient or for some other reason. An easy example would be, because you have a patent for the thing you sell, so no one else can get into the market while it holds. That's essentially what big pharma does (they justify it with the "we fund future research" line, which I call BS. If you can save more people now, do it, instead of invoking vague future benefits. Else, even when that future drugs are available, you'll just screw the people of the future needing them, with the exact same argument about more future research).

by pitdesi 15y ago

fennecfoxen 15y ago

Regarding bringing water to the poor: Even if you're a charity, if you can charge for it and make money off it, that means you can bring it to the next group of poor people sooner. If you're a business, being able to charge for it and make money off it means that more people are going to be willing to give you money as an investment and accelerate your build-out even more. This can easily outpace the pace of donations.

dextorious 15y ago

As I understood it, the question was not whether it's ethical to "charge for it", it was whether it was ethical to charge big bucks, ie. make a killing profit. If you had a filter that can purify water, and you could get away selling it for huge margins, like 500%, just because they need it and they'll sacrifice other things in order to buy it, would you? I, for one, don't think that would be moral. A heathy profit to sustain your business would be OK.

_delirium 15y ago
I do agree that large profit margins mean something is wrong, though I'm not sure the blame should necessarily fall on the person making the profit. It's the kind of situation where one should ask: why are profit margins high, especially if persistently high? Classic economic theory would predict that large profit margins shouldn't persist for more than a short time, because competitors will enter the market, whether the initial company wants them to or not. So then a question would be what's keeping the market uncompetitive. Sometimes it might be the fault of the entrepreneur in question, especially if he/she has government connections: there are situations where a company is maintaining large profit margins serving the poor because their potential competitors keep running into licensing roadblocks. Other times it's something to do with patents, or network effects, or who knows what else.
- dextorious 15y ago
  """I do agree that large profit margins mean something is wrong, though I'm not sure the blame should necessarily fall on the person making the profit.""" Well, if that person is you, though, then you have the morality question to answer, not the market. It doesn't matter, morality wise, if the profit happens because the market is inefficient or for some other reason. An easy example would be, because you have a patent for the thing you sell, so no one else can get into the market while it holds. That's essentially what big pharma does (they justify it with the "we fund future research" line, which I call BS. If you can save more people now, do it, instead of invoking vague future benefits. Else, even when that future drugs are available, you'll just screw the people of the future needing them, with the exact same argument about more future research).