Market-Based Solutions: What’s holding them back?

by Ahmed Irfan, Harvey Koh, April 4, 2014

In our previous blog post, we discussed how market-based solutions to poverty, which could have potentially transformative benefits, were proliferating in number yet failing to achieve scale. (Click here to read part 1 of the series)

When we think about what causes a business to grow, it is natural to think about the factors within the business itself. Maybe successful growth has been driven by the brilliance of the entrepreneur, or failure by deep flaws in their business model.

But an analysis of scaling barriers focused only at the level of the firm is severely incomplete, especially when that business is trying to engage the global poor in socially beneficial ways.

Take, for example, the value chain barriers facing firms trying to deliver innovative, life-saving drugs to the rural poor in developing countries. While people in rural areas might desire and be able to afford these medications, logistics providers might not exist to get these products to their villages. And even if logistical hurdles were overcome, how would villagers get their hands on these drugs when they have no doctors to write prescriptions or pharmacists to fill them?

Or consider the public goods barriers facing a firm offering clean-burning cookstoves to poor customers. This firm is faced with not only the challenge of designing, developing and delivering a quality product at an affordable price, but also with convincing customers of the benefits of its innovation. The problem is that many of its target customers have low awareness of the health hazards of smoky cookstoves, and therefore little appreciation of the benefits of a clean-burning stove.

There may also be government barriers that potentially inhibit the growth of these new industries. Take, for example, countries where solar lighting products bear a significant tax burden while kerosene is actually subsidized by the government.

The framework below lays out these four levels of scaling barriers for market-based solutions:

Framework

Monitor Deloitte analysis

Not only does an exclusive focus on the individual firm cause us to lose sight of the real barriers to scaling, it also deflects us from the goal of fostering vibrant, competitive industries that are key to sustainable scale for any market-based solution. This can only be achieved when critical scaling barriers are resolved for all firms in an industry, rather than only for one firm.

These are difficult challenges for firms to resolve on their own. Many of them are small, boot-strapping operations with limited resources. Even where firms have more resources, they may find it difficult to work together to resolve these issues. So, if firms cannot do this on their own, who will?

In the third and final blog of this series, we will introduce the concept of the ‘industry facilitator’ and describe how a range of actors—including foundations, aid donors, mission-driven intermediaries, multilateral development agencies, impact investors and host governments—can help these ‘inclusive industries’ overcome scaling barriers and accelerate towards scale.

Harvey Koh is a Director at Monitor Deloitte and is the lead author of Beyond the Pioneer

Ahmed Irfan is a Senior Consultant at Monitor Deloitte

This blog was originally posted in the Alliance magazine blog and can be accessed here.

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