In Niigata, Japan, on December 10th, 2009, the International University of Japan (IUJ) hosted the second annual FASID-IUJ International Development Seminar. This seminar was conducted as a part of the Project Cycle Management (PCM) class, which is generously sponsored by the Foundation for Advanced Studies on International Development (FASID). This class is designed to provide students with a practical knowledge of the management methods, skills and tools for development projects including ODA projects and NGO projects. The PCM class has been offered to the international IUJ student body since 1996. Since last year, class members are also invited to attend a seminar, which is also open to all students in IUJ.
Professor Cooray consults with former classmate Professor Minato
Students listen to the presentations
Opening the seminar Professor Minato, now acting director, International Development Research Institute, FASID, explained two aspects of his job: doing policy-orientated research to help formulate and implement projects and also to educate people. As a part of this educational aspect, he looks forward to coming to IUJ to teach PCM every year. Professor Minato thanked Professor Cooray and Professor Rajasekera for taking the time to participate in the seminar. He then invited Mr. Mori, the President of IUJ, to say some opening words.
President Mori thanked the teachers for taking the time to organize the seminar, and that he was excited to participate as a “student.” President Mori stressed the importance of this seminar because the notion of social responsibility is important to today’s companies. In addition, to creating economic value, modern corporations also need to create social value.
Professor Minato's presentation
Professor Minato began his presentation by explaining that during his numerous visits to developing countries he has observed a new trend: private enterprises having a big impact! Professor Minato explained that because public sector employment and agricultural productivity are often low in poor or rural areas, the private sector can play an important role in development. Foreign direct investment (FDI) can provide jobs, promote technical transfers, and generate exports and income tax revenues. Professor Minato noted that, since 2003, FDI has been rapidly increasing while ODA has remained constant. Professor Minato underlined that the seminar would concentrate on the largest, but poorest socio-economic group, the BOP or bottom of the pyramid. This group of people do not have access to goods and services, and they live in disadvantageous circumstances as consumers.
Professor Minato showed students what a potential business model that caters to the BOP could look like. He noted that this model was advantageous for businesses, for people at the bottom of the pyramid, and for development organization and NGOs. However, because these three groups look at the BOP market from different perspectives and with different motivations, it is important to pay particular attention to the creation of a public-private partnership. Professor Minato mentioned three cases where the private sector was positively contributing to economic growth in developing countries: firstly, the YKK production unit in Dhaka EPZ, Savar, Bangladesh opened in 2000 that now employs 700 employees with 24 hour operation, secondly, Sumitomo Chemical’s royalty-free technology license to A to Z textile mill in Arusha, Tanzania to produce the Olyset Net used to prevent malaria, and thirdly, Ajinomoto Co., Inc. in Nigeria now exporting to 11 surrounding countries and employing 600 people.
Professor Cooray's presentation
Professor Minato introduced Professor Cooray. Professor Cooray expressed his delight to be among so many familiar faces and to be encouraged by the presence of President Mori. He opened his presentation by asking students what they thought was the most important global issue today. For Professor Cooray poverty is by far the most important issue. Professor Cooray invited students to think about poverty by showing images of the three groups of the pyramid: the top, the middle and the bottom. He emphasized the need to help those people at the bottom of the pyramid who live in poverty, and also the need, as economists, to use data to support our arguments. Professor Cooray situated the BOP group on the supply and demand curve. He noted that they were below the market equilibrium because their income is not high enough to consume at the market price. Because of this, the BOP people are left behind.
Professor Cooray noted that one of the reasons BOP people were left behind was because of inaccurate perceptions of donors on poverty over the last few decades. Because it is believed that developing countries lack resources, aid from donors is often offered for specific projects such as infrastructure projects, and projects with high multiplier effects such as health and education. However, there has recently been a change in this mindset as donors begin to link with the private sector. Professor Cooray mentioned the importance of developing these new business models.
Professor Cooray elaborated on one example of a project that addresses the problems facing the people at the bottom of the pyramid: SELCO Solar Pvt. Ltd. SELCO Solar Pvt. Ltd is an Indian enterprise that provides sustainable energy solutions and services to under-served households. This company dispels three common myths associated with selling sustainable technology to the rural poor:
1) poor people cannot afford sustainable technologies
2) poor people cannot maintain sustainable technologies
3) social ventures cannot be run as commercial entities.
SELCO Solar Pvt. Ltd. employs about 140 employees in 21 energy service centers. Since 1995, they have serviced and financed over 100,000 solar systems to customers, allowing them access to solar powered lights. These lights have in turn increased the quality of life and the productivity of their users. Professor Cooray showed a brief movie about SELCO Solar Pvt. Ltd. He hoped that this short movie would inspire us to think of new business that would help not only ourselves, but help to eliminate poverty in the world.
Professor Minato introduced Professor Rajasekera. Professor Rajasekera focused his presentation on business models that reach the bottom of the pyramid wherever the bottom might be. Like Professor Cooray, he emphasized the fact that there are many ideas and concepts that originate in myths and may misrepresent the situation in the world economy. For example, there does not appear to be a correlation between the poverty of a country and its ability to progress through the use of modern technology. Another myth is that the bottom of the pyramid is found only in poor countries, and rich countries do not need to develop their business models to cater to the BOP.
Professor Rajasekera's presentation
To illustrate this point, Professor Rajasekera focused on two Japanese business models. The Japanese BOP model focused on the continuous improvement of the production process to reduce the price of goods, making them available for the mass market. As the price goes down, these products also become more and more exportable. However, this model has been displaced by a new Japanese business model: the Kansei Innovations. Japan began targeting the development of highly specialized products which appeal to the feelings of consumers. This model has produced a Galapagos effect.EFor example, currently in Japan, there are thousands of different models of cell phones, which are very expensive to create. However, this kind of over innovation is not sustainable when the economy is going poorly. This model is actually the opposite of the old Japanese mass-production model which produced to the bottom of the pyramid market.
He noted the success of China and India in exporting to Africa, as an example of how, although Japan may have forgotten its old model, some countries are successfully exporting to the BOP market. Other examples of successful marketing to the BOP market are the village phone business model promoted by the Grameen Bank in Bangladesh and 100 Yen shops in Japan. He noted that China and India were the two biggest markets, and that is where where the new rich were located. Therefore, as suggested by economist C.K. Prahalad, companies should adjust their strategies to the BOP market. Professor Rajasekera concluded by reminding students that the bottom of the pyramid is everywhere and the bigger the country, the bigger the bottom. Professor Minato opened the floor for questions and answers. Professor Minato then closed the seminar by thanking both the professors and the students for their participation.