Growing the Middle Class in Asia Through Microfranchising
Southeast Asia is a major population center and contains several emerging markets although the burden of the poverty is often holding these countries back. There is growing potential in these locations but businesses are unable to enter the market with goods and services because they are not affordable to the majority of the population. However, there is great potential for companies who are able to leverage microfranchising and adjust products in order to capture customer loyalty and incubate future customers as they transition out of poverty to the middle class.
Microfranchising is able to tap into the entrepreneurial spirit within substance markets where people have difficulty accessing credit and business education. Microfranchising provides turn-key business solutions and training to low-income individuals. This reduces the overall risk taken by individuals and has been shown, over time, to create jobs and well as raise the owners out of poverty. Different from Western models, microfranchising in subsistence markets is less focused on creating exact business replicas. Additionally, franchise fees are lower and often payments are spread out over time to make business more accessible. (Parsons, 2010) Providing ways to rise above the poverty line is beneficial for both human development as well as grows the consumer base.
Danone and Grameen bank formed a joint venture in 2006, Grameen Danone Foods for the Bangladeshi market. They produced an enriched yogurt at a price point that was affordable to the local poor. This enriched yogurt was part of both company’s commitment to the triple bottom line. While Danone produced the yogurt, Grameen was ensured that employment was created through the whole value chain and purchased the raw products from micro-farms and set up microfranchises. Women distributed the yogurt door-to-door and received a 10% commission. Ultimately, 1,600 jobs were created that year alone. Developmentally speaking, their product has been shown to raise the cognitive function of children under 5 who are eating this product (Grameen Creative Lab, 2006) In the long term, their corporate responsibility will also benefit the parent companies when consumers are able to afford their traditional product. Both the people and the company benefit from sharing the benefits of the product line. Demand for the product has grown and this enterprise has given Grameen Danone access to more than 750,000 potential customers.
While it can be argued that Grameen Danone have developed too aggressive of a business plan that has uplifted the community, but not produced profits. It does not mean that there aren’t valuable insights for other companies looking to enter new markets in socially responsible ways. The companies benefit from globally positive consumer response by managing the triple bottom line and within their operating area a company can both alleviate poverty and grow the consumer base that one day can afford more expensive goods and services.
Hewlett-Packard is another company that has used social responsibility to both improve people’s lives while increasing market share. They also developed a micro-franchise model, but in India. They have trained women to take wedding photos using their digital cameras that are then printed on HP printers. This provides an income and new revenue stream for these women while promoting photo printers, while Hewlett-Packard’s competitors are essentially out of the market. (Moharana, 2009)
Companies looking to enter emerging markets in Asia should look to creative solutions to enter the markets early and capture market share. Additionally, by investing in people and developmental goals, a company can be both socially responsible and grow a consumer base that will provide long-term benefits.
MBA Candidate 2016