Monthly Archives: July 2016

Rethinking poverty – from aid to economic miracle

 

Last Year’s documentary, “Poverty, Inc.” asks if the global approach to addressing severe poverty has unintended consequences and asserts we could be inadvertently damaging the ability of people in those countries to better themselves through internal economic development.

 

The framework for addressing human suffering from disasters (natural like earthquakes and unnatural like wars and many famines) has been the same my whole life. Driven by heart wrenching media reports and championed by celebrities and public figures from all walks, well intentioned people give money through tax receipts, charitable donations, and feet on the ground to addressing suffering and to longer term developmental programs. We do this through transfers to governments and NGOs who are supported by armies of consultants and volunteers of all stripes. More conservative elements argue with the adage “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime”. But there are critics to both mindsets, arguing that giveaways and the ‘teach them to fish” approach are not the best mindsets for supporting developing countries becoming developed countries.

Global Poverty

There are many entities from governments, NGOs, charities and even celebrities involved in the global effort to reduce suffering

There are many entities from governments, NGOs, charities and even celebrities involved in the global effort to reduce suffering

We want to believe this is helping, and of course it does, but it comes with a not-so hidden cost that perhaps substitutes treatment for cure. This is the focus of “Poverty, Inc.” the most thought-provoking documentary I have seen all year. Please consider watching it. You can stream it on Netflix or rent it from YouTube, Amazon. It argues that everyone from celebrities and our governments to NGOs and charities to the peoples of both the developing and developed worlds have bought into a system that only now we are realizing does massive, sustained harm even as it does good.

 

The 2010 Haitian Earthquake Case Study

On January 12th 2010 a 7.0 magnitude quake hit just outside Port-au-Prince affecting 3 million people and destroying or severely damaging almost the entirety of Haitian infrastructure including emergency and medical services, air sea and land transportation, communications and supply chains. Corpses rotted in the rubble and the government resorted to mass graves. Over the next few years there was a massive Cholera epidemic affecting 6% of all Hattians. Although the numbers are highly contested, between 100,000 and 160,000 probably died.

 

The global community reacted almost in unison and at massive scale to the devastation, sparking talk about a new, global approach to disaster recovery. Money, donated goods and people flooded into Haiti Clearly a lot of good was done and Haiti has a lot of ongoing needs. The government estimates 10,000 NGOs are operating in Haiti, many continuing programs started as earthquake responses. Temporarily supplementing private enterprises that have been devastated is one thing but consider how long that goes on before you are denying these local businesses the markets they need to prosper, grow, provide jobs and so forth. Subsidies are designed to create market distortions. But distortions of giving on a large, sustained scale have consequences. When humanitarian aid becomes a way of life with programs and giveaways sustained over years it displaces or even prevents the internal development of the country.

 

Case in point is rice. For decades, the US government has subsidized American rice farming. During Bill Clinton’s presidency the US began a new, sustained hunger program of delivering highly subsidized American rice. US farmers have received $ 13B in rice subsidies and very low import tariffs when selling to Haiti. Haitian farmers have received no subsidies. This was intended to address hunger and also designed to supplant inefficient and environmentally damaging local agriculture techniques. Plus, it promoted US agriculture and the President, Congress and many others celebrated a great program. What has happened is that the Hattian consumer now consumes rice offer at 3 meals a day, destroying domestic rice production and the businesses and jobs that supported them. The documentary shares a clip of Bill Clinton himself explaining how he and others was wrong about this program and he sees now the damage it did. American rice growers have benefited from the expensive taxpayer subsidies but this sort of sustained corporate welfare causes its own distortions in the resources and techniques applied to food production as also demonstrated by corn subsidies from Ethanol fuels.

 

Even well intentioned social programs. At least 80% of Haitian orphans have at least one living parent. Most are arguably ‘poverty orphans’ whose parents gave them up thinking that the institutions would raise them better. Doing so costs them their parental rights and effectively dismantles any hope of the child being raised or reunited with its parents. Well intentioned, prospective adoptive parents often don’t know they are adopting a child who has a parent who actually wishes they were raising them. In essence, the program actually CREATES some orphans.

 

African Cheetahs

After the Rwandan genocide a church in Atlanta organized an effort to deliver free eggs to suffering villagers. They flooded the market with free eggs. This drove local egg producers out of business. They shared the story of a chicken farmer who was focused on egg sales. Since nobody would buy his eggs the farmer sold his hens only to then see the church stop the program and move on to new causes. Now the community has to import eggs

 

One argument for programs like these is that if you free up local economies from subsistence farming they can focus development on higher value-added industries and develop their economies faster. Herman Chinery-Hesse is a software entrepreneur called “the Bill Gates of Ghana.” He tells of a time that he and other local techies bid on a government software contract. They bid against a European country. The home government for that European country gave Ghana a loan for the project and their software company won, telling Herman that nothing beats free money. The Ghana firm ended up subcontracting to the European firm doing as he says “the hardest and least profitable parts.”

 

Even respected and cool social entrepreneurs like Tom’s Shoes gets some treatment in the documentary. It raises the issues of what happens when free shoes (for example) enter a market on a large scale but often unpredictable schedule.

 

The documentary references a George Ayittey TED Talk on Africa’s Cheetah and Hippo generations whose criticism of “Swiss Bank Socialism” by their society’s slow moving, ‘hippos’ in the government and entrenched business interests at the expense of their at the younger, more entrepreneurial generation of ‘cheetahs’ I recommend watching this. Ayittey is unflinching in his criticism of African governments and leaders and argues that aid subsidizes these rulers and disincentives them from creating an environment that promotes local economic growth.

 

If you have ever traveled to a developing country with extreme poverty one thing you notice is that they are not universally poor. Some development exists in all places at varying levels and with varying support. All people have the ability and right to improve their lot and the question is what role can the international community and the people and institutions of the wealthiest countries play in supporting and encouraging that.

 

“Poverty Inc.” effectively argues that there are unintended consequences from the aid-centric approach to global poverty and argues that these have developed into a “Social Fact” that reinforces continuing with a given approach.

Our approaches to global poverty have become entrenched and habits and vested interests reduce review of the overall effectiveness of the approach.

Our approaches to global poverty have become entrenched and habits and vested interests reduce review of the overall effectiveness of the approach.

Instead it argues we should shift to promoting development of the local economies by pressuring governments where needed and supporting efforts to improve rule of law, land property rights, right to start a business, links to exchange ideas and trade which are lacking in many places.

 

The best outcome for is for local countries to create the circumstances for a sustained ‘economic miracle’, the rapid economic growth in an area. After World War II much or Europe including and especially Germany along with Japan, aided by the Marshal plan began long, transformative processes that took them from shattered, starving states to economic powerhouses. In many different forms this later occurred in Taiwan, Hong Kong, Singapore, South Korea, China Brazil, India and many others. All of these examples include aid and plenty of examples of richer countries “teaching them to fish” (perhaps best illustrated by W. Edwards Deming’s efforts in japan). But the critical ingredient that may separate these from Haiti and the poorest states in of Asia, Africa or the Americas is that the conditions for growth were developed. Step one may be repositioning recipient nations not as ‘victims’ of disasters, natural and unnatural, but as partners who have the right and ability to create their own miracles.

Get ready to hear this election will good for newspapers.

Here is why it won’t be.

100 newspapers have disappeared since 2004. Get ready to start hearing how this election will be good for newspapers.

 

Now, I two years ago I didn’t actually say “News Is Dead.” But ‘misquoted me’ may have been more correct than the real me was at the time. In 2013 and 2014 I was quoted pretty publicly that I felt that traditional editorial and entertainment media were simply not going to transition their existing model to digital revenues and something much more serious was needed. Like many, I was critical that sponsored content had been something developed by the publisher’s sales department and then was published to mimic editorial content. This was by placid agreement by sales & editorial which have decades of avoiding each other in the company lunch room. So what is the update?

Pew Research Newspaper Revenue Trends

Newspaper revenues are shrinking and digital ad revenues are growing much slower than the drop in print advertising and subscriptions as seen in this Pew Research Chart from 2003 to 2014.

Newspapers are designed to be ‘inefficient’ producers of content. By that I mean they produce some of the costliest original content possible. Produced in medium-to-short-form but with a lots of research, interviews and fact checking, the news business has always depended on subscriptions plus healthy advertising rates to survive.

 

Election cycles have historically been fantastic for local media. Newspapers will see a blip in an otherwise downward collection of trends. This will lead the PR folks in the print news industry to try to use it to argue that the long term trends are actually neither. Unfortunately for them it isn’t true. Digital is taking a larger portion of a rapidly shrinking pie.  The Pew Research Center’s annual report tells the tale. In 2015 their circulation fell by the greatest amount so far this decade. Advertising revenue dropped even faster than overall circulation diving 8% last year.

 

Young people are ignoring newspapers in droves but the bleeding is occurring much faster than aging. The Pew Research report says that only half of the elderly read papers now.  We are probably past the point of no return. Let’s hope the news industry can pivot better before misquoted me turns out to be right.

 

eCommerce Strategies — How eStartups Should Plan to Thrive, Survive, and Fail in Emerging Markets

eCommerce is a critical marketing battlefield between brands, and though it is true that pioneers and early venture capitalists will enjoy the low bearing fruits, newcomers have the advantage of hindsight — they can rely on the mistakes of early adopters and learn from them.

 

At Cloud Commerce we preach that it is good practice to establish some ground rules before embarking on any venture like eStartups for instance. Let’s get started.

 

At first we’ll talk about failure, specifically; how you can fail as an eCommerce startup.

 

HOW TO FAIL IN NEW and EMERGING MARKETS

 

Once an e-Startup has established the countries that are ripe for growth, and the ones that they want to target, their next step is to develop the strategy for entering new markets. Let me introduce the five ways that can assure you a failed attempt at expanding or even entering in the overseas market.

 

Replicate Your Business Model

 

The most well-tested business models are simply experiments with high repeatability, under specific circumstances. The slightest change in market conditions, demographics, and buying choices can force the startups to review their model, scale it, and make amends to remain market competitive.

 

These tested and proven models will fail in emerging countries.

 

Why?

 

Primarily because the whole market landscape has changed. A lot of companies, founders, CEOs, and executives believe that their U.S based business models (or based in any developing country for that matter) can easily be tweaked, and their processes scaled or morphed according to the local laws and business practices.

 

I’ll be severely blunt here: read modern history and learn from it. You cannot simply try to colonize another landscape (the market in this case) and impose your values or model one way or the other, and believe that it will work. It will only generate anomalies; ones that we’re still trying (and failing) to control.

 

The marketplace is no different.

 

Your existing business model is targeting a specific consumer group existing in a specific market niche that has grown out from realizing the needs or wants of the consumers in the market as a whole. You can profile them and understand them while assuming certain similar/overlapping values, behavioral traits, and certain marketed and propagated perceptions about needs, wants, and consumption.

 

Your current business model isn’t good enough, and there are a lot of hard facts to be researched ahead before you can start thinking about the new business model. You’ll need to understand the new culture and their ingrained values, the marketplace and how their culture affects them, and then re-profile your target audience.

 

Testing the new model that emerges from this endeavor is a thought on the horizon.

 

Assume Recognition and Entitlement

 

Your product may be a household item in every home of your target audience, and your brand awareness campaigns and stellar service may have changed your brand name into a verb or an adjective even, but you cannot (must not) assume that your brand is known in the new markets.

 

It’s just another local brand with a local product in a country on the globe.

 

So, it’s back to the drawing board for your marketing strategy and campaigns.

 

Set Unrealistic Expectations

 

This is a corollary of the previous point. Remember your initial days of marketing campaigns where you had to spend every waking hour thinking up creative ways to get it right. Remind yourself that it will take time to establish yourself (leave growing for the moment) in the new market within a new country. Avoid creating KPIs that compare the progress of your established business with the new one.

 

Choose the Wrong Local Partners

 

Maybe you’ve pulled together a great team at home, one that has conducted exhaustive research on the new market. You may even believe that you know the market more than the locals do, that you have better insights into its working, and now you have created a business strategy to take the market by storm.

 

Many will miss the end point-of-effort in this whole picture. It will be the local partners in that market that will play an integral role in properly executing your business strategy.

 

Have you found the right local partners to take your business through the tough times? Unless your feet are firmly planted on the market floor, and you actually have built a local team in the emerging market of choice, you cannot hope to accomplish much.

 

Avoid Investing in a New, Country-Specific Website

 

Google translate is a good tool for translating foreign websites, but just for the fun of it. Translating saps the message of the actual, local, and culturally entrenched language, metaphors, and expressions. There is no marketing, just plain communication of a non-engaging message.

 

A lot of companies are simply investing in creating a website and simply translating their original message into the foreign language. What is actually needed is original content for your marketing campaign, in the voice that the local people understand, can relate to, and engage. Hence, having a simple “.in”, “.cn”, “.br” as a domain suffix will not make your business become part of the market environment. eStartups vying for local masses’ attention need to add more original content (created locally and targeting the local populace) to their content strategy.

 

Let’s get into the surviving and thriving mode for your eCommerce startup.

A TALE OF TWO STRATEGIES

I’ll start with the two blunt, battle-tested rules of thumb. Call them strategies to avoid failure if you may. They are:

 

#1 — Put Working Systems at the Core of Your eCommerce Model

 

Build your eCommerce model around business functions, rather than people.

 

Yes, when it comes to developing your eCommerce strategy, your focus should be on defining your business functions and developing long-term systems for your eCommerce venture. Your focus should be on building a structured system organized around these business functions so that your startup departments can work at optimal levels. For example, prime departments could include tech, HR, marketing, finance, etc. As a result, you’ll have a business model where systems run the business while people run the systems.

 

While defining these systems, their workability should address their sensibleness (and hence ease of use) by employees and potential investors. This is where developing integrated CRM, POS software, and relevant APIs for integrating other business systems into a holistic unit come into play. Furthermore, it facilitates your startup launch by increasing viability and dramatically cutting time to market.

 

Though it may sound a bit mechanical and representative of the caricature idealization of business centered execs, but Michael Gerber did hammer the point just right:

 

“Organize around business functions, not people. Build systems within each business function. Let systems run the business and people run the systems. People come and go but the systems remain constant.”

 

It’s harsh, but true.

 

No other tech startup’s success is more enslaved to technology and robust business systems than eStartups. You need to have a great team, but you also need sound, well structured, and lasting systems representing well defined business functions. You need seamless automation and transparency across all systems to boost your data collection for your Big Data bank and hence increase the power of your analytics.