Product and Market Development For Subsistence Marketplaces

FOREWORD In my forty years of academic research, I have seen the scope of consumer behavior expanded in many directions, both theoretical and practical. One direction has been a dramatic growth beyond behavioral responses to marketing efforts and simple decision making to include the understanding of how consumers process and internalize information and respond to market stimuli at both conscious and subconscious levels. A second area of expansion has been the breadth of theories that enhance our understanding of consumer behavior, theories ranging from stimulusresponse models of behavior that continue to play a crucial role in prediction (and indeed revitalized by more recent brain research); to complex theories of information processing and representation; to theories that capture the role of emotion in consumer decisions and behaviors; to theories that capture the interplay between consumer beliefs, attitudes, and behavioral actions; to the many external factors (family, culture, society, environment, etc.) mediating or moderating consumer behavior. Finally, we have seen significant expansion of the demographic and psychographic consumer profiles for discovering unique market segments. Also, no longer does the field take a gender and ethnicity-neutral view of consumers, nor does it by default consider only middle-class and traditionally educated consumers as the bellwether for consumer theory. In that context, the research in this volume, focused on the subsistence market, is a very valuable next step in the development of scientifically rigorous and managerially valuable knowledge about consumers. For me, the augmentation of knowledge and effort in consumer research has been exciting and highly involving. It has been a pleasure to contribute to it directly and even more to see new scholars entering the field and contributing to its development. The empirical research and theoretical advances reflected in this tome, however, are even more satisfying for several reasons. First, the tome represents a cogent blend of knowledge and perspectives from multiple areas of consumer research in pursuit of a deeper understanding of a long-ignored consumer segment – the largest worldwide minority of people living in poverty and difficult conditions, who have been ix

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erroneously assumed by both marketers and policy makers to be not able or willing to function in the modern marketplace. Second, by improving our knowledge of subsistence consumers and marketplaces, this volume will open the eyes of scholars and practitioners to the significant potential for generating value for both buyers and sellers that subsistence consumers represent. Far from ignorant and destitute, this volume correctly portrays subsistence consumers as sophisticated consumers capable of making fine distinctions between products and services, and whose creativity allows them to participate in active exchange despite having low incomes. This volume also joins others in encouraging responsible development of products and services for subsistence marketplaces and provides valuable insights into how to reach them most effectively. Finally, this book represents the undercurrent of optimism toward successful development of subsistence marketplaces, success being characterized by companies delivering products and services that improve the quality of life of billions of consumers while concurrently yielding healthy returns for their constituents and the societies in which they function. For me, this positive belief of ‘‘doing well by doing good’’ is both emotionally moving and a rationally compelling value of this volume. Research published in this volume is a first and very important step and it is my sincere hope that its contributors and those attracted by their work will continue in their search for a complete understanding of subsistence marketplaces and how to best serve them. I congratulate the volume editors, the series editors, the publishers, and most of all, the authors for making this volume possible. With the inevitable rise of China and India, or what I call ‘‘Chindia,’’ as major economic superpowers, I am totally convinced that the subsistence economy which is today a peripheral market will become the mainstream market. This will encourage focusing of product and marketing innovations on affordability and accessibility issues as well as generating what I call ‘‘trickle-up’’ diffusion, in which the bottom of the pyramid markets becomes the pioneering markets. I thank the volume editors, Madhu Viswanathan and Jose´ Antonio Rosa, for asking me to write this foreword. Jagdish N. Sheth and Charles H. Kellstadt (Professor of Marketing) Goizueta Business School, Emory University, Atlanta, GA, USA

LIST OF CONTRIBUTORS Edward McKenzie Abbey

Plan International Dominican Republic, Santo Domingo, Dominican Republic

Eric J. Arnould

College of Agriculture & Life Sciences, University of Arizona, Tucson, USA

Sharmin Attaran

University of Illinois at Chicago, Chicago, IL, USA

Dwayne Ball

University of Nebraska-Lincoln, Lincoln, NE, USA

Steven Michael Burgess

UCT Graduate School of Business, Rondebosch, South Africa

Kanwalroop Kathy Dhanda

DePaul University, Chicago, IL, USA

Nakeisha Ferguson

Advertising Department, University of Texas at Austin, Austin, USA

Ina Freeman

Mississippi Valley State University, Itta Bena, MS, USA

Nancy Higginson

Northern State University, Aberdeen, SD, USA

Ronald Paul Hill

Villanova University, Villanova, PA, USA

Rachel Oakley Hsiung

Huntingdon, PA, USA

S. Usha Nandhini

Department of Management Studies, National Institute of Technology, Tiruchirappalli, India

Pfavai Nyajeka

School of Economic and Business Science, University of the Witwatersrand, Johannesburg, South Africa xi

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Julie L. Ozanne

R. B. Pamplin College of Business, Virginia Tech University, Blacksburg, VA, USA

Alejandro Plastina

University of Nebraska, University of Nebraska-Lincoln, Lincoln, NE, USA

William J. Qualls

University of Illinois Urbana-Champaign, Champaign, IL, USA

J. Raja

Department of Management Studies, National Institute of Technology, Tiruchirappalli, India

Rohithari Rajan

Hindustan Lever Limited, Mumbai, Maharashtra, India

Robin Ritchie

University of Western Ontario, London, Ontario, Canada

Jose´ Antonio Rosa

University of Illinois at Chicago, Chicago, IL, USA

Julie A. Ruth

Rutgers University, Camden, NJ, USA

Bige Saatcioglu

Virginia Tech University, Blacksburg, VA, USA

Srinivas Sridharan

University of Western Ontario, London, Ontario, Canada

Madhubalan Viswanathan

University of Illinois at UrbanaChampaign, Champaign, IL, USA

Jerome D. Williams

Advertising Department, University of Texas at Austin, Austin, TX, USA

Charles M. Wood

University of Tulsa, Tulsa, OK, USA

M. J. Xavier

Institute for Financial Management and Research, Chennai, India

ACKNOWLEDGMENTS We are grateful for the privilege of editing this book and organizing the conference that it celebrates. We thank our universities, departments, and organizations for their generous support, the many people who helped organize the conference, and the reviewers acknowledged below. Most of all, we thank our presenters, participants, and authors for their interest and energy. Reviewers for book chapters          

Avinish Chaturvedi, University of Illinois at Urbana-Champaign Nancy Higginson, Northern State University Ronald Paul Hill, Villanova University Ramasubramanian Krishnan, University of Miami Cele Otnes, University of Illinois at Urbana-Champaign Rohithari Rajan, Unilever, India Srinivas Sridharan, University of Western Ontario Linda Tuncay, Loyola University, Chicago Terri Rittenberg, University of Wyoming David Wooten, University of Michigan

Presenters at the conference (in alphabetical order)            

Ed Abbey, PLAN International Eric J. Arnould, University of Arizona Richard Bagozzi, University of Michigan Stacey Menzel Baker, University of Wyoming Dwayne Ball, University of Nebraska Avinish Chaturvedi, University of Illinois at Urbana-Champaign C. Y. Chiu, University of Illinois at Urbana-Champaign David Cooperrider, Case Western Reserve University Robin Coulter, University of Connecticut Kathy Dhanda, DePaul University Nakeisha Ferguson, University of Texas at Austin Marı´ a Flores Letelier, Tecnolo´gico de Monterrey, Mexico xiii

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ACKNOWLEDGMENTS

Ina Freeman, Mississippi Valley State University Roland Gau, University of Illinois at Urbana-Champaign Avijit Ghosh, University of Illinois at Urbana-Champaign Silvia Gonzalez, Tecnolo´gico de Monterrey, Mexico Hamish R. Gow, University of Illinois at Urbana-Champaign Nancy Higginson, Northern State University Ron Hill, Villanova University Rachel Oakley Hsiung, Independent Researcher David Hunt, University of Wyoming Philip Kotler, Northwestern University Angela Lee, Northwestern University Stefanie Lenway, University of Illinos at Chicago Kent Monroe, University of Richmond Usha Nandhini, National Institute of Technology, Tiruchirappalli, India Cele Otnes, University of Illinois, Urbana-Champaign Julie Ozanne, Virginia Polytechnic Institute and State University Alejandro Plastina, University of Nebraska William J. Qualls, University of Illinois at Urbana-Champaign J. Raja, National Institute of Technology, Tiruchirappalli, India Rohithari Rajan, Unilever, India Paul Rigterink, Potomac Technical Advisors Robin Ritchie, University of Western Ontario Terri L. Rittenburg, University of Wyoming Jose´ Antonio Rosa, University of Illinois at Chicago Julie A. Ruth, Rutgers University–Camden Bige Saatcioglu, Virginia Polytechnic Institute and State University Anju Seth, University of Illinois at Urbana-Champaign Aleksan Shanoyan, University of Illinois at Urbana-Champaign Sharon Shavitt, University of Illinois at Urbana-Champaign Jagdish Sheth, Emory University Benet De-Berry Spence, University of Illinois at Chicago Srinivas Sridharan, University of Western Ontario M. J. Xavier, Institute for Financial and Management Research, Chennai, India Madhubalan Viswanathan, University of Illinois at Urbana-Champaign Tiffany White, University of Illinois at Urbana-Champaign Jerome D. Williams, University of Texas at Austin Charles M. Wood, University of Tulsa

Acknowledgments

Sponsors  College of Business Administration, University of Illinois at Chicago  College of Business, University of Illinois at Urbana-Champaign  Department of Business Administration, University of Illinois at Urbana-Champaign  Illinois CIBER  Walter H. Stelner Marketing Lecture Fund, University of Illinois at Urbana-Champaign  University of Illinois at Urbana-Champaign

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PRODUCT AND MARKET DEVELOPMENT FOR SUBSISTENCE MARKETPLACES: CONSUMPTION AND ENTREPRENEURSHIP BEYOND LITERACY AND RESOURCE BARRIERS Madhubalan Viswanathan and Jose´ Antonio Rosa INTRODUCTION In August 2006, 85 academicians and practitioners from industry and the nonprofit sector came together on the campus of the University of Illinois at Chicago for a conference unlike others in recent management research history. This conference focused on the subsistence marketplace and its constituents – the billions of individuals and families living in substandard housing, with limited or no education; having limited or no access to sanitation, potable water, and health care; and earning minimal incomes. Subsistence consumers and entrepreneurs have been largely ignored by contemporary marketing and management research and practice, but are poised to become a driving force in 21st century economic and business development. It is expected that as many as 1 billion new consumers Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 1–17 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20001-4

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wielding discretionary income will enter global markets before 2020. In addition, even among those consumers who lack discretionary income, it is expected that they will be much more active in the marketplace in the near future, because of expanded access to products and information through the Internet and wireless technologies (Davis & Stephenson, 2006). Moreover, the combined purchasing power of these consumers, already in the trillions of dollars, is likely to grow at higher rates than that of consumers in industrialized economies. These factors come together to suggest that consumer markets will need to adjust radically to the needs and demands of these emerging markets over the next 2 to 3 decades, even though companies and scholars across the business disciplines know very little about subsistence consumers. It was this need for knowledge about subsistence marketplaces that inspired the conference and the research presented here. The goal of the conference, and this volume, is to highlight current research and practice on subsistence marketplaces, and to stimulate further the pursuit of such knowledge at an accelerated rate. We believe that a profound understanding of subsistence consumers and entrepreneurs will help companies to serve their unique needs better and respond to their preferences and means of communication and exchange. It will also improve the effectiveness of marketing and management practice, teaching, and research. Moreover, such knowledge in the hands of business and nonprofit organizations will help to empower individuals living in subsistence contexts, both as consumers and as entrepreneurs. In addition, the potential benefits extend beyond transitional economies to advanced economies in which isolated subsistence marketplaces may exist and, ultimately, to all markets, as products, services, and processes that are tested in the crucible of limited resources and teeming masses that subsistence marketplaces represent ultimately teach us to do more with less and to find sustainable solutions to global consumption problems. It is an exciting fact of modern management and marketing science that subsistence marketplaces challenge conventional business theory and practice, as well as everyday notions of what the poor care about and are capable of doing. Much research is needed if we are to respond properly to this new opportunity. The conference and this book build on the visionary thinking of Prahalad (2005) and Hart (2005), who painted a broad picture of the potential for profit, innovation, and significant improvements in social welfare that can be found at the bottom of the pyramid. The business practices that Hart and Prahalad chronicled, as carried out by responsible businesses and social

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enterprises, demand special mention. Their synthesis of field practices around the world that predate academic research, provides extraordinary examples of innovations that benefit individuals and communities in subsistence marketplaces. Several contributors to this volume draw on the work of Hart and Prahalad, as well as on research on poverty issues across a variety of academic disciplines, creating an impressive backdrop for the study of subsistence marketplaces across literacy and resource barriers. The focus of our conference and this volume differs from other approaches to subsistence consumers and the bottom-of-the-pyramid perspective in that it begins with the individual consumer, instead of the macrolevel economic focus of most policy studies and the medium-level business strategy perspective. The predominant level at which the research in this volume is conducted is that of the individual buyer and/or seller. If the macroeconomic view is at the 30,000 foot level, and the business strategy perspective is in the 12,000- to 15,000-foot range, our contributors are flying low enough to distinguish the individual boulders, rivers, and forests that give texture to the landscape. Flying close to the ground greatly increases the variety and diversity of factors to be noted and studied. Paradoxically, it also blurs the boundaries between superficially distinguishable aspects such as sky, earth, and water or, in the case of markets, profit and nonprofit, buyers and sellers, public and private organizations, and academic silos such as business administration, the social sciences, and public health. Subsistence consumers and marketplaces do not fit neatly into most of the existing categories used by organizations and policy makers, and those truly interested in understanding and serving them better must be willing to cut across existing boundaries and delve into new areas of research and action. Not surprisingly, this volume reflects a wide variety of perspectives, both disciplinary and organizational. The conference presenters and participants and the chapter contributors span a wide range of academic perspectives (e.g., psychologists, sociologists, anthropologists, strategists, economists, political scientists, marketers, feminists, mathematicians, and organizational theorists); large, medium, and small for-profit companies; regional and global nongovernmental organizations (NGOs); independent foundations and aid providers; and government. It is a breadth of perspective demanded by the issues being addressed. Equally diverse is the target audience for this volume. Given the size of the market and our limited understanding, we hope that academicians across the various disciplines will benefit from this knowledge. Subsistence

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marketplaces challenge conventional theory across the disciplines, theory that is primarily based on inquiry into literate and resource-rich populations. In addition, this volume can provide valuable insights to companies across the industry and size spectra, as they retool for a multibillionconsumer marketplace. Hart (2005), Prahalad (2005), and others have argued strongly for such retooling. The task of developing in-depth knowledge that supports such retooling is undertaken by the contributors to this volume and those that follow. Dominant business practice views the world by and large through the lenses of organizations serving industrialized markets, and needs the new set of lenses that this volume provides. Beyond the academic and business audiences already mentioned, we believe that government agencies, social welfare and development agencies, and public and private funding organizations can also glean valuable insights from the research in this volume. This is based on the firm recognition that, although short on economic resources and capabilities, subsistence marketplace constituencies are sophisticated and discriminating thinkers, capable of implementing intricate strategies for survival and advancement and of organizing collective action of significant proportions. Subsistence buyers and sellers must be understood by those seeking to help them through education, health care, and other programs as well as by those seeking to help them through the commercial exchange process. In addition, their sheer numbers demand that we understand and serve them responsibly for many reasons such as the impact that 2.5 billion additional active consumers are likely to have on the environment. A proper understanding of subsistence marketplaces and the influence they are likely to have on areas such as energy consumption, waste management, and financial services can help those areas and others be better prepared to meet them as they grow. Moreover, the proper management of the subsistence communities we study can in turn benefit the rest of the world. We do not assume that solutions for the potential challenges that subsistence marketplaces pose lie exclusively with large organizations or have to be scalable. We believe, in fact, that many sustainable solutions across the range of areas already touched upon lie in the efforts of decentralized, locally based, and subsistence buyer- and seller-staffed organizations and enterprises. There is much to learn from subsistence marketplace constituents, much that can be useful in meeting their needs and the possible future needs of generations in non-subsistence markets as well. We believe that the perspective and initiative for policies and strategic funding that get ahead of subsistence marketplace challenges lie with policy-setting and funding institutions in the public and private sectors, and hence we invite

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them to learn from the research in this volume and to remain active contributors to the dialogue that we hope will ensue.

TERMINOLOGY A brief discussion of terminology is pertinent, particularly to a newly emerging field of study. The terms ‘‘bottom of the pyramid,’’ ‘‘base of the pyramid,’’ and ‘‘poorest of the poor,’’ for example, have effectively raised awareness across the business disciplines and beyond of the latent concurrent potential for improved social welfare and profitability. As our knowledge has broadened, however, the need for a more inclusive label has become clear. Our chosen term, ‘‘subsistence marketplaces,’’ captures a wider and more diverse array of factors than the aforementioned terminology. One of our objectives was a term that communicates latent realities and is not patronizing or demeaning. We consider the term subsistence to be adequately descriptive of the phenomenon on which we focus, individuals and communities who struggle to fulfill their most basic of needs. We accept that the term signals being resource-poor, barely having sufficient resources to maintain life, indicative of a struggle for survival. In contrast to other terms, however, it does not signal low capabilities across all domains of life in the same way that the vertical imagery of ‘‘bottom’’ might indicate. Subsistence constituents lack economic and physical resources, but are rich in emotional, social, and cognitive capabilities. Likewise, we choose the term marketplace to signal the ubiquity of vibrant and beneficial exchange that exists regardless of the educational capabilities of those involved. It is a fallacy of current business thinking to assume that buyers and sellers who lack literacy and numeracy skills cannot function in the marketplace, or must function ineffectively and inefficiently. They seem to ignore the fundamental human basic drive for fair and mutually beneficial exchange that shaped preliterate cultures at the dawn of human existence and continues to fuel the marketplaces that serve many of the world’s 2.5 billion subsistence consumers. Subsistence market contexts are best characterized as thriving environments, devoid of technology but teeming with relationship energies and often invisible to the literate resource-rich world. The toil, ingenuity, and innovation that characterize subsistence marketplaces are worthy of being noted as such. Thus we have subsistence marketplaces as the focus of this book, arenas in which buyers and sellers who have been largely ignored by practice and the academy fulfill the exchange imperative and from which there is much we can learn.

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GUIDING ORIENTATION As expressed earlier, subsistence marketplaces challenge conventional theory and practice. In fact, it sometimes appears as if they defy conventional notions of rationality. Consider, for example, the widespread acceptability of planning purchases, considering potential needs over the next few days when shopping, and possibly switching vendors or brands when a better price can be attained and there are no differences in the products being offered. These are typical consumer practices in most industrialized economies, with some consumers taking great pride in their ‘‘rational and wise’’ purchase behaviors and deviations from such behaviors being considered ‘‘wild and foolish’’ or ‘‘going crazy.’’ When it comes to subsistence consumers, however, the opposite is true. One of the most rational statements we heard from subsistence consumers was in a rural setting in India, when we asked a woman if she planned for her purchases and how she spends her income. She said, ‘‘Why should I plan? Why should I plan when I don’t know where my next source of income is coming from?’’ Equally rational is to not purchase larger quantities at wholesale prices even when the money is available, because in a few days or weeks, during the next crisis, it may be necessary to buy from the more expensive but always available retail store on credit. We asked one woman who patronized a retail store whether she checks prices. She said no, and then asked us to consider how the retail owner would feel if she were to do so, after all the credit he has provided in times of need. As an aside, and in line with challenges to rationality, it is interesting to note the wide array of services offered by neighborhood retail stores. In one sense they behave as banks, holding money safe for a fee, an important service for families always at risk of pilferage and who want to keep their money safe from thieves or alcoholic husbands. They also offer credit and maintain deep knowledge of client creditworthiness through personal interaction and the stories it generates. Subsistence markets are resource-poor but often network-rich, a phenomenon we like to call a one-on-one interactional world. Contacts between service providers are numerous, and the shared knowledge is deep. Low-literate subsistence patients often get prescriptions from doctors, have them filled by the local apothecary or pharmacy by identifying the medication names graphically (pattern matching one or two characters), and sometimes ask the doctor to confirm that the prescription was filled correctly, all in the same neighborhood and often on the same day. All of these behaviors, seemingly irrational or odd to consumers in industrialized economies, are part and parcel of the subsistence

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consumer experience and represent the urgent call for a shift in thinking that this volume promotes. Finally, the volume asks that the reader consider the inseparability of consumption and entrepreneurship in subsistence marketplaces. Recent literature serves to reinforce our focus on these two sides of the same coin and the need to enable entrepreneurship and participation of individuals living in subsistence in the value creation process. Such an approach can lead to buying power and win–win scenarios, because consumption and entrepreneurship are mutually reinforcing behaviors for a large part of the subsistence consumer population (Prahalad, 2005).

ORGANIZATION OF THE BOOK Reflecting the individual consumer or bottom-up approach of the conference and the research presented, the chapters in this book are arranged in sections based on the types of knowledge they provide and questions they raise. The first section focuses on providing a better understanding of subsistence consumers and their behaviors to the reader, along with discussion of the unique research challenges that subsistence consumers can pose to traditional academicians and organizations. The second section focuses on understanding entrepreneurship in subsistence marketplaces, activities that for many subsistence consumers are intimately linked to consumption, but have been seldom studied in mainstream academic circles and, by and large, ignored by organizations seeking to serve subsistence populations. These first two sections are the foundations of our bottom-up approach, with much of the data consisting of individual consumer and entrepreneur narratives. As we move into the third section, we raise our level of aggregation to that of the companies and organizations that seek to operate in subsistence marketplaces and the marketing and management challenges they must overcome. Physical distribution, merchandising, and promotional tactics, both planned and in use, are discussed. The final section focuses on economic and policy implications of subsistence marketplaces, some to be addressed at the organizational or industry level and some at the level of government agencies.

Understanding Subsistence Consumers Subsistence consumers are characterized by short-term planning horizons (e.g., 1–2 days), decisions based primarily on concrete thinking, and an

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undercurrent of resignation to their thinking and behavior. The chapters in this section highlight several factors that contribute to these tendencies, and to how they are manifest in different countries. One recurring factor is low literacy and numeracy skills. Countries vary substantially in how they assess literacy and numeracy levels among their citizens, but there is a correlation between poverty and low literacy and numeracy skills. Viswanathan’s discussion of subsistence consumers in South India and Ruth and Hsiung’s discussion of a similar demographic group in South Africa reveal an overrepresentation of women among subsistence consumers, possibly because in many countries with limited resources, women are denied even elementary education in favor of advancing the education of the males in the households. Also contributing to low functional literacy and numeracy among subsistence consumers are the growing demands in the marketplace (e.g., product packaging and labels and self-service signs), a fact made highly salient by the discussion by Williams, Qualls, and Ferguson of subsistence consumers in the United States. The National Assessment of Adult Literacy report (2003) revealed that 14% of US consumers have ‘‘below basic’’ literacy skills, which means they are capable of no more than the most simple and concrete literacy skills (e.g., brand recognition and reading traffic signs), and an additional 29% can perform no more than simple everyday literacy activities (e.g., read billboards and newspaper advertisement, but not legal notices). This compares to the results from the International Adult Literacy Survey (1995), which found that 20.7% of the US population scored at the lowest level, Level 1 (e.g., no more than basic literacy tasks), and 25.9% scored at Level 2 (e.g., basic literacy skills). Other countries with Level 1 populations similar to that in the United States are Poland (42.6%), Ireland (22.6%), and the United Kingdom (21.8%); and Level 2 populations include Germany (34.2%), French-speaking Switzerland (33.7%), The Netherlands (30.1%), and Ireland (29.8%). There are few comparable data for emerging economies and subsistence consumer populations, but there is no reason to believe their literacy and numeracy deficiencies would be less than those of industrialized economies. The cognitive implications of low literacy and numeracy skills among consumers have been discussed in the marketing literature (e.g., Viswanathan, Rosa, & Harris, 2005; Wallendorf, 2001) and include concrete thinking (i.e., relying primarily on sensory information versus abstractions in their mental representations) and reliance on pictographic information in decision making. Concrete thinking has been linked to short-term planning and envisioning (e.g., Luria, 1976; Viswanathan et al., 2005) and reliance on pictographic thinking to errors when purchasing packaged goods (Viswanathan et al., 2005). Low literacy

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and numeracy skills, therefore, are directly linked to some of the concrete and short-term thinking exhibited by subsistence consumers. Short-term planning among subsistence consumers is exacerbated by unpredictability in their environments. For example, many subsistence consumers live in homes they do not own, and often as squatters in urban slums, which leaves them susceptible to expropriation at any time. Moreover, law enforcement cannot be relied upon to provide protection from such actions by landlords and other parties, for reasons as wide ranging as corruption and the unequal administration of legal standards based on religion, social class, gender, and ethnicity. Against such odds, subsistence consumers develop highly relational strategies for survival, not only for the individual but also for the family. Ruth and Hsiung give us an excellent portrayal of relationship-focused strategies and their importance among South African consumers, and Viswanathan discusses at length what he calls the one-on-one interactional world in which South India consumers exist. Moreover, the importance of relationships comes across in Ozanne and Saatcioglu’s highly informative discussion of the participatory research methods that have proved most valuable to researchers among subsistence consumers – methods that by definition seek to harness and channel existing family and communal relationships to surface important facts that traditional research methods cannot reveal. One final set of factors causing uncertainty for subsistence consumers is their vulnerability to physical and psychological harm. Substandard housing and health care, lack of potable water and sanitation, and exposure to the elements are recurring themes in most of the chapters in this volume. In addition, we learn of psychological risks such as spousal abuse, lack of privacy, the possibility of home invasion, ethnic and gender discrimination, and exploitation by the more powerful or the more knowledgeable. Vulnerability is particularly poignant in the Williams, Qualls, and Ferguson chapter and highly evident in the remaining discussions. Taken as a whole, the chapters in the first section paint a powerful image of subsistence consumers, punctuated by the hardships they face, on one hand, and the resilience and strength they exercise on the other.

Entrepreneurship in Subsistence Marketplaces It is estimated that as many as one-half of subsistence consumers are small business entrepreneurs (Prahalad, 2005). They tend to a small business on a daily basis, the income from which is an integral and vital part of their

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sustenance and shelter. Most of these businesses involve the merchandising of products, be they items purchased in bulk and resold through door-todoor sales and small kiosks or products prepared for daily sales (e.g., food items, flowers), but they can also involve handcrafts and other artisan products. Regardless of the output, the businesses invariably involve basic functions such as raw materials sourcing, value-added activities (e.g., preparation, assembly, transportation), and merchandising. Daily earnings are used for providing food and shelter, acquiring resources for the following day’s business activities, and repaying small loans. In their chapter, Xavier, Raja, and Nandhini give us a highly informative window into the responsibilities of subsistence entrepreneurs; in this case the women distributors that comprise the Hindustan Lever Shakti program. Xavier et al. also give us valuable insights into the economic and social implications of being empowered as an entrepreneur, as well as the responsibilities that come with the position. We revisit the Shakti program from the company perspective in the Rajan chapter. Loans are an absolute necessity to subsistence entrepreneurs, given their low net worth and the exigencies of the marketplace for some working capital. Because subsistence entrepreneurs are considered high risk, their typical $200–$300 loans can be at interest rates as high as 100%. Low net worth notwithstanding, subsistence consumers and entrepreneurs exhibit lower default rates than more affluent consumers and lending to them has become a significant business enterprise. Microfinance is the label used most often for the network of commercial and industrial banks, NGOs, and government agencies involved in lending to subsistence consumers, with 2006 Nobel Peace Laureate Mohammad Yunus and the highly successful Grameen Bank as its most recognized icons. Grameen represents only one approach to microfinancing, however, and its methods have not been uniformly successful because of subtle market and customer differences across cultures. Research methods that isolate the critical needs of entrepreneurs in need of loans in targeted areas, and the values and attitudes that signal preferred repayment approaches, are the focus of the Abbey and Attaran chapter. In a manner of speaking, Abbey and Attaran build on Ozanne and Saatcioglu’s discussion of participatory research. Abbey and Attaran, however, focus primarily on microfinance-relevant issues and methods and give us valuable insights into the practices, challenges, and valued outcomes associated with microfinancing efforts among subsistence entrepreneurs. Freeman and Higginson also focus on microfinancing practices, but with a strong social responsibility message. The majority of subsistence entrepreneurs are women, determined in part by mores and customs that give

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preference to men for day jobs in factories and other employment venues and by the fact that self-managed businesses provide the flexibility needed to care for the family. Consequently, microfinance organizations target women for their services, encouraged also by the almost 100% repayment of loans among subsistence female entrepreneurs. In their chapter, Freeman and Higginson point out that, although microfinance marketing practices have adjusted to reach female entrepreneurs, their collection policies, and the government and corporate policies behind them, have been less adept at recognizing the special needs and characteristics of female entrepreneurs and adjusting so as to capitalize on their unique characteristics and enhance their chances for success. Moreover, they issue a strong call for such adjustments, both to ensure equity and to meet the needs of this particular group of subsistence entrepreneurs better.

Marketing and Management in Subsistence Marketplaces Although subsistence consumers have been largely ignored by mainstream academia and most business enterprises, they have not gone completely underserved. The subsistence entrepreneurs discussed earlier represent the first line of service to these consumer populations, each one adjusting to local factors such as culture, language, and social customers. Moreover, those entrepreneurs are in turn served by an array of locally based and oriented distributors and manufacturers, and by a few visionary large organizations that see the potential of subsistence markets and are trying to establish an early advantage. Needless to say, serving populations in which many of their members lack literacy and numeracy skills, savings and borrowing power, health care and proper sanitation, and the sense of security that comes from having their own home or a permanent domicile requires practices that are different from those typical of industrialized economies. As other chapters illustrate, subsistence consumers think differently compared to more affluent consumers, they process information differently, and they value different aspects of products and services. From chapters in this section we learn more about how organizations market to subsistence consumers and overcome the management challenges they represent. The Ritchie and Sridharan chapter makes a strong case for adopting distribution and promotion networks that are decentralized, relying on independent wholesalers and retailers who are embedded in their local markets and committed to them and using them to foment a healthy word-of-mouth promotion of products. Their unassailable rationale for this

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approach, which stands in stark contrast to the increasingly controlled and monolithic networks found in the industrialized world, is built on an excellent exposition of social capital theory and how its elements and processes are manifest in subsistence markets. As we aggregate consumers, the one-on-one interactional experience discussed by Viswanathan gives rise to intricate multilevel webs of filial and exchange relationships among subsistence consumers, and these relationship webs serve as tools for the distributor to manage credit, inventory flows, promotion, and the balance between supply and demand. Marketing and management functions are performed by taking full advantage of the oral traditions that characterize subsistence marketplaces and are steeped in the interconnectedness of family and community, which are discussed by other chapters. Ritchie and Sridharan show how the webs of relationships that characterize subsistence marketplaces can be leveraged for the benefit of firms and consumers alike and hence offer us suggestions that are contrary to the received wisdom in current marketing circles, but serve as sound advice to organizations trying to serve subsistence consumers. Adding to our understanding of how companies can serve subsistence marketplaces is the chapter by Burgess and Nyajeka, who have gathered a rich array of data from independent retailers operating in South Africa and apply contemporary marketing theory and methods in their study. The Burgess and Nyajeka piece is intriguing and of great value from two perspectives. First, they provide us evidence that quantitative methods can be applied even in markets in which respondents do not all posses high numeracy and literacy skills. We see this also illustrated in the Arnould, Plastina, and Ball chapter to be discussed later, but it is a fact sometimes lost to scholars and practitioners in general. Second, Burgess and Nyajeka provide us with insights into boundary conditions for some of the recognized antecedents for market orientation. They find that market orientation influences performance even in subsistence marketplaces, but that the characteristics of the organization that gives rise to market orientation can differ substantially based on local culture and other factors. The Rajan chapter is a valuable addition to this volume, because in contrast to the traditional outsider perspective adopted by most authors, it takes us into the thinking and objectives of a visionary organization as it seeks to serve subsistence marketplaces profitably and responsibly. The focal company is Hindustan Lever (HLL), a subsidiary of Unilever and a leading consumer packaged goods producer in India. Not content with its dominant share among affluent Indian consumers, HLL has a long history of research and development of products and strategies aimed at tapping the revenue

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potential of India’s subsistence consumers, which by some estimates number more than 500 million. The bulk of Rajan’s exposition focuses on the innovative Shakti program, which trains and finances independent house-tohouse distributors in rural parts of India not accessible to HLL’s traditional distributors. Shakti is aimed squarely at women entrepreneurs, many of them who struggle with minimal education, discrimination, and negligible access to financial resources. The plight of female subsistence consumers was made clear by Freeman and Higginson, and their descriptions provide an excellent backdrop against which to assess the value of HLL’s efforts. Rajan makes clear, however, that Shakti is in no way a charity program, but is instead a well-developed approach to increasing HLL revenues while concurrently making health- and life-enhancing products available to consumers who would otherwise not be able to get them and providing an opportunity to capable and ambitious female consumer entrepreneurs. Coupled with the Xavier, Raja, and Nandhini exposition of how Shakti has changed the lives of its distributors, the Rajan article provides us with valuable insights into how companies can do well by doing good.

Policy Issues in Subsistence Marketplaces Although we adopted a bottom-up orientation to the conference and this book, some aspects of subsistence consumer behaviors and welfare are ultimately best addressed at a policy level, be it organizational, industry, or government policy. The Wood chapter discusses the possibly detrimental effects that product innovations can bring to the intricate webs of relationships that characterize subsistence marketplaces, which were seen by Ritchie and Sridharan as a significant asset. Moreover, Wood proposes a propensity to adopt innovation and resistance to cultural change as surrogate factors that can be used by companies to assess the potential influence of their innovations on target subsistence marketplaces and emphasizes the need for companies to adopt policies that minimize adverse effects and maximize marketing effectiveness. Wood also argues that local governments should consider such effects when they invite foreign investments. Dhanda and Hill focus squarely on government policy challenges as they provide us with a compelling argument to consider the environmental consequences of increased consumption by subsistence consumers. Most of the other chapters in this book extol the virtues of empowering subsistence consumers, both through the marketing and management practices that make health- and life-enhancing products available and affordable and

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through the design of marketing networks that not only make products available, but also enhance opportunities for the many subsistence entrepreneurs who are likely to be involved in such efforts. Dhanda and Hill remind us that all such efforts are likely to influence factors such as water and energy consumption, and loads on the sanitation and transportation infrastructure, across subsistence marketplaces. They address all involved, and primarily governments, to consider the environmental impact of increased consumption, lest the improved quality of life experienced by subsistence consumers and the accompanying benefits to organizations elsewhere be short lived. Complementing Dhanda and Hill’s chapter is the industry-level analysis of fair trade practices provided by Arnould, Plastina, and Ball. In an ambitious and well-executed study involving coffee growers in three Latin American countries (Guatemala, Nicaragua, and Peru), Arnould, Plastina, and Ball provide us with an encouraging view of how industry policies can deliver quality-of-life benefits to subsistence consumer–producers while also serving consumers in industrialized economies. Their focus is the fair trade pricing and purchasing practices that have been voluntarily adopted by many coffee wholesalers in the United States and Europe and the differences that ensue for coffee growers and their families from participation in fair trade cooperatives. Country differences notwithstanding, their results suggest that fair trade policies are achieving their intended objectives, providing participating coffee growers with income and opportunities that are significantly higher than those achieved by nonparticipating growers. Along with the Dhanda and Hill chapters, Arnould, Plastina, and Ball emphasize the need for organizations, governments, and in this case consumers in developed economies to consider the implications of empowering subsistence consumer–producers and to understand that the lives of subsistence consumers can be greatly enhanced without having adverse effects for other entities in the marketplace.

A NOTE ON RESEARCH CHALLENGES IN SUBSISTENCE MARKETPLACES Several chapters in this book, such as Ozanne and Saatcioglu, Ritchie and Sridharan, Abbey and Attaran, Burgess and Nyajeka, and Arnould, Plastina, and Ball, discuss and/or illustrate the challenges of gathering data in subsistence marketplaces. With the majority of subsistence consumers

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lacking the literacy and numeracy skills typically found in developed economies, traditional methodologies such as surveys and experiments are not as easily administered, and their results when administered must be analyzed carefully. Moreover, cultural nuances and oral traditions that are barely understood by the educated and Westernized managers at most organizations nevertheless play a critical role in the shaping of subsistence consumer responses to products and marketing strategies and must be unpacked through the careful administration of qualitative methodologies. Such methodologies can also be used to understand phenomena such as social networks, family systems, gender differences, the effect of empowerment, and the ingenuity of subsistence consumers, all factors that can in turn lead to enhanced commercial opportunities in subsistence marketplaces. As a bonus to the knowledge the authors provide across the levels presented, therefore, we have a fifth theme running through the book that must be highlighted – the multiplicity of research methods that are being successfully applied to understanding subsistence consumers and the need for continued advances in this area to enhance the benefits to subsistence marketplaces.

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CLOSING COMMENTS AND FUTURE DIRECTIONS As expressed earlier, this volume and the conference that gave it life are pioneering efforts in pursuit of a more complete understanding of the subsistence marketplace, recognizing that because of its human and economic size, it is a force poised to affect the practice of management in the 21st century significantly. The end result is both satisfying and exciting. Because of the diversity of perspectives and contributions here represented, this volume makes a significant contribution to the field of management, bringing into a single forum sufficient knowledge for practitioners and academicians alike to take away a more holistic understanding of subsistence consumers than what is otherwise available from a fragmented and sometimes contentious literature. In that sense one of our primary objectives has been achieved satisfactorily. We thank our contributing authors and Elsevier Ltd for making it possible. On the other hand, this volume is but a first step in the pursuit of knowledge about subsistence marketplaces that matches what we know about consumers, entrepreneurs, management practices, and policy issues in developed marketplaces. A recurring theme throughout all chapters is the need for more research, a need made more urgent by the sheer size of the marketplace involved and by the impending entry of hundreds of millions of subsistence consumers and entrepreneurs into markets that are ill-prepared to serve them. More knowledge is needed at all levels: individual consumer thinking and decision making, the role of family and social networks in thinking and decision making, subsistence entrepreneurs and how they function, the marketing and management practices that will prove most effective in serving subsistence marketplaces, and the types of policies that should be implemented across organizations, industries, and nation states to maximize welfare and avoid unforeseen negative consequences and disasters. Moreover, the immensity of the knowledge gap suggests that this may be the first of many volumes dedicated to enhancing our understanding of subsistence marketplaces.

REFERENCES Davis, I., & Stephenson, E. (2006). Ten trends to watch in 2006. The McKinsey Quarterly, January 2006. Hart, S. (2005). Capitalism at the crossroads: The unlimited business opportunities in solving the world’s most difficult problems. Upper Saddle River, NJ: Wharton School Publishing.

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International Adult Literacy Survey. (1995). http://www.nifl.gov/nifl/facts/IALS.html Luria, A. R. (1976). Cognitive development: Its cultural and social foundations. Cambridge, MA: Harvard University Press. National Assessment of Adult Literacy. (2003). http://nces.ed.gov/naal/ Prahalad, C. K. (2005). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Upper Saddle River, NJ: Wharton School Publishing. Viswanathan, M., Rosa, J. A., & Harris, J. E. (2005). Decision-making and coping by functionally illiterate consumers and some implications for marketing management. Journal of Marketing, 69(1), 15–31. Wallendorf, M. (2001). Literally literacy. Journal of Consumer Research, 27(4), 505–512.

UNDERSTANDING PRODUCT AND MARKET INTERACTIONS IN SUBSISTENCE MARKETPLACES: A STUDY IN SOUTH INDIA$ Madhubalan Viswanathan ABSTRACT This chapter examines the marketplace activities of subsistence customers in South India. It presents a picture of the day-to-day behaviors and interactions of subsistence customers in terms of the products they purchase and their interactions with sellers and outlets. The method involved observations and in-depth interviews of a variety of buyers and sellers over several years in urban and rural South India. Needs, products, and market interactions, as well as typical budgets in subsistence contexts are described. These descriptions are used to derive broader characteristics of product and market interactions in terms of uncertainty, complexity, and

$

This chapter was based on research supported by the Center for International Business and Education Research, University of Illinois, and the National Science Foundation. This material is based upon work supported by the National Science Foundation under Grant No. 0214615. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author and do not necessarily reflect the views of the National Science Foundation.

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 21–57 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20002-6

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lack of control; one-on-one interactions; transactional fluidity; and make or buy decisions. This chapter examines the marketplace activities of subsistence customers in South India. The primary objective of this chapter is to present a picture of the day-to-day behaviors and interactions of subsistence customers in terms of the products they purchase and their interactions with sellers and outlets. I delineate this paper in several ways. The focus is on individuals in a subsistence context as buyers and consumers, rather than as sellers. Moreover, I focus on describing how individuals relate to products and the marketplace. Such delineation is important in providing focus to phenomena that can and have been approached in many different ways (cf., Sen, 1992; Narayan & Petesch, 2000). I distinguish my focus from alternative foci, such as explaining consumer behavior in terms of necessary consumer skills and their development or in terms of coping strategies to overcome cognitive and economic constraints. This paper is based on observations and in-depth interviews over several years in urban and rural South Indian contexts. The aim is not to catalog marketplace interactions for generalization, but to use the chosen contexts as a starting point to highlight key issues. The paper is organized as follows. I begin by describing the methods used, followed by the insights gained from the data. These insights are organized by product categories relevant to subsistence customers and their economic relationships with the marketplace. The discussion is used to distill key characteristics of the interaction of subsistence customers with products and markets. Relevant literature is incorporated into the discussion of findings. Such an organization maintains the flow of the paper while staying close to the data.

METHOD Data Collection Data were collected in the city of Chennai (formerly Madras), the fourth largest city in India, located in the state of Tamil Nadu, and in nearby rural areas. I began the project by interacting with a community-based NGO, which works for integrated family and community development among slum dwellers and provides a variety of services to people in low-income

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communities. This NGO encourages its target beneficiaries to form neighborhood-based organizations to aid with the implementation of development programs and activities. These neighborhood organizations assist families through loans, financial assistance, tuition and nutrition for children, vocational training for adults, and training and grants for starting businesses. Two employees of the organization with over 20 years of aggregated experience, who later became full-time associates of our research project, assisted with recruitment and interviewing of participants and with transcription and translation of the interviews. Unique to our data collection is that several members of our research team have experienced the subsistence context firsthand. The research involved interviews and observations of individuals with low levels of literacy in their roles as customers. Such an approach enabled understanding of a range of issues confronting low-literate, low-income individuals. Our interviews were designed to allow informants to share a broad range of information about their life circumstances. An overview of issues covered in the interviews is shown in the appendix. Although we attempted to cover the issues listed in the appendix in each interview, these issues did not constrain the content or sequencing of questions in the interview, which was in the form of a conversation. The research process involved recruiting people from various communities based on the need to balance demographic representation as well as theoretical considerations. Individuals were interviewed and observed in marketplace settings. Interviews were audiotaped and reviewed on an ongoing basis, resulting in methodological adjustments (e.g., adding questions) and in identifying emerging characteristics of informants for purposes of gaining insights. Final sample composition developed over time. Interviews were conducted in Tamil, the language spoken in the state of Tamil Nadu, and also the native language of the author. Beginning with female customers, who made most of the purchase decisions and had education levels of eighth grade or less, the sample was deliberately expanded to cover customers with various education levels, of both genders, with various income levels, and with urban or rural residence and a variety of different sellers. About 60 interviews of buyers and sellers supplemented with many observations were conducted and analyzed over a 4-year period. The basic research was used to develop, pilot, and offer a consumer and entrepreneurial literacy program in parallel with the research effort (Viswanathan, Gajendiran, & Venkatesan, 2007). This training provided another important source of insights into the marketplace and individual buyers and sellers.

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Analyses The process of readying a subset of interviews for analysis involved transcribing interviews into Tamil, the language of the informants, translating interviews from Tamil to English, and typing the material. Transcription was performed by research associates in a form that remained close to the original text, almost word for word. The team performing translations and transcriptions was very proficient in Tamil and moderately proficient in English, a combination of proficiency that was ideal for research purposes. Other than correcting for grammatical errors, the quotes were left as is to reflect the transliteration that was close to the text in the original language. We used qualitative analyses, looking for themes in the data that informed us about low-literate, low-income individuals and the lives they lead. During data collection, immersion in the environment was combined with listening to interviews to develop field notes. As mentioned earlier, this process was greatly facilitated by two of the research associates having vast experience, in their capacity as employees of a nonprofit organization, and in working with individuals who were similar to our informants in their income and literacy levels. In some instances, the informants were individuals who had received benefits from the nonprofit organization at which our research associates worked.

Overview of Findings The discussion is organized by first providing some background on the individual context and the larger marketplace context. This is followed by a discussion of product interactions and then of marketplace interactions. A concluding discussion examines unique characteristics of the product and market interactions we studied. A broad picture of the subsistence individual is painted in terms of the set of products with which he or she interacts and the nature of his or her marketplace interactions. Some key characteristics of these interactions follow.

THE CONTEXT The typical low-income, low-literate individual lives in a small, usually rented dwelling and spends a high proportion of income on necessities such

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as food (rice, the staple in this part of India; lentils; vegetables; meat; and spices), clothing, and unexpected expenses (usually for serious illnesses or family commitments due to traditions associated with birth, death, or marriage or for visits by guests or even something like a punctured tire on a bicycle). In terms of the family context, the woman is usually responsible for household purchases, with assistance from husbands on some big-ticket items or when considerable travel is involved. The male tendency is to delegate most shopping decisions to his wife. Thus, males sometimes do not know the distribution of the family budgets nor have the ability to assess the quality of generic products.1 In terms of the nature of work itself, males sometimes run very small businesses such as street vending or are employed by others in jobs, such as house construction or agriculture for hourly/daily wages or as a painter or some other service provider for a fee. In addition to the normal uncertainties of obtaining a regular income, seasonality is a major influence, with the rainy season, in particular, severely affecting income. In terms of employment for women, the bottom of the pecking order is to work as a housemaid, with a very low salary usually supplemented with food, clothing on special occasions, and help in need. More and more women are employed outside the home and two-income families are becoming common. Educating children is a high priority. Whereas government schools offer free education, individuals strive to send their children to private schools, considered of higher quality, which typically require a fee. Birth, death, and marriage are events for which tradition is central and typically involves financial expenditure. Others may speak ill of those who do not live up to local traditions, for instance, criticizing an individual for not even giving money when a close relative died. People usually borrow or find some way to meet expenses and live up to tradition.

PRODUCTS AND PURCHASES The set of products that subsistence individuals use is discussed while also describing purchase options whenever they are difficult to separate from the product offering itself. A subsequent section examines market interactions in more depth. A rough category of needs, products, markets, and budgets for households in subsistence contexts is presented in Table 1 and our discussion is summarized in Fig. 1.

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Table 1. Categories of Needs

MADHUBALAN VISWANATHAN

Sample Needs, Products, Sellers, and Expenses in Subsistence Marketplaces. Sample Goods and Services

Sample Sellers/Providers

Sample Expenditure Breakdown (for Families with Monthly Income as Listed)a Rs. 1500

Housing Sanitation Food and beverages

Clothing

Personal care and hygiene Health care Education

Entertainment Financial services

Transportation

Communication

Energy

Spiritual/ religious needs a

Mud huts, concrete houses Sanitation service, water Rice, meat, vegetables, spices, grinder, stove

Homeowner, landlords, government programs Government services Neighborhood retail store, large reseller, mobile vendors, large markets, government ration shops Saris, lungis (clothing for Larger stores, sidewalk men) sellers, door-to-door resellers Soap, detergent soap, Neighborhood retail toothpaste store, large reseller Consultations, allopathic Government hospitals, medicine clinics NGOs, government, Government schools, private organizations private schools, adult education Televisions, movies, Theaters, cable stations festivals Retailer credit, pawning Neighborhood retail store, pawnshop, jewels, noncollateral moneylenders loans, savings plans with stores, chit schemes Government buses, Walking, bicycle, private buses, auto motorized twocompanies wheeler, public bus, autorickshaws Cell phones, land lines, Private phone centers, cell phone centers phone plans sold through retail outlets Electricity, fuel for Government utilities, cooking, fuel for twogasoline stations, retail wheelers outlets, large resellers Fruits as religious Temples, retail outlets, offerings; new clothes; community-based fairs and carnivals organizations

Rs. 3000

Rs. 5000

oRs. 400

oRs. 750

oRs. 1000

Nil oRs. 600

oRs. 50 oRs. 1000

oRs. 100 oRs. 1200

oRs. 40

oRs. 250

oRs. 300

oRs. 100

oRs. 150

oRs. 200

oRs. 25

oRs. 50

oRs. 100

oRs. 50

oRs. 100

oRs. 200

Nil

oRs. 100

oRs. 150

oRs. 75

oRs. 100

oRs. 150

oRs. 50

oRs. 50

oRs. 400

Nil

Nil

oRs. 400

oRs. 160

oRs. 300

oRs. 600

oRs. 100

oRs. 200

Families may receive material help from employers, other acquaintances and friends, and organizations. Examples include medical expenses paid by employers, educational materials for children, clothing, food and other items, and gifts during festivals. The cost breakdown shown above is for income received as money. The approximate currency rate is about Rs. 45 to a US dollar, which does not reflect the higher buying power of the rupee for daily necessities.

Understanding Product and Market Interactions in Subsistence Marketplaces

Fig. 1.

Product and Market Interactions in Subsistence Marketplaces.

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General Background The typical family lives in a small rented dwelling, often with very poor infrastructure related to electricity, water, and sanitation. Housing may range from mud huts to concrete structures.2 Transportation is typically through public buses, walking, or bicycles or motorized two-wheelers. In rural areas, lack of access is characterized by few transportation options for travel to nearby larger towns for medical treatment and other shopping needs. Long-distance communication is done through phone centers for calls, owning landlines, or owning cell phones. Cell phones are increasingly used and provide an example of technology not being viewed negatively when it has clear benefits, as well as an illustration of the adaptivity of users to new products. Individuals have increasing exposure to a variety of information and products through television and word of mouth and are willing to try and learn about new products. Energy needs for cooking include kerosene for stoves and gas cylinders for gas stoves. Electricity is used for lighting and appliances, although power supply is often not reliable. Children’s education is central to parents, with government schools or private schools being the alternatives. Individuals are willing to make sacrifices to enable their children to have a good education. Schools with English as the medium of instruction are valued. Similarly, parents may also strive to send children to college. In rural areas, individuals may have access to about the eighth grade or so for basic education with further education requiring travel to a larger town. This latter constraint can be difficult or impossible for many girls to overcome, due to parents being fearful of sending them a long distance from home. A generational difference that is noteworthy is the higher level of education in terms of grade completed for the younger generations compared to middle-aged or older people. It is less likely that one will find individuals with no education or only first/second grade education among the younger generations. Some expenses are directly related to spiritual and religious needs, such as for making religious offerings of fruits and other items at temples. Religious festivals are also the occasion for travel and celebration with new clothes. Thus, they are often the single or few occasions in a year when individuals buy some products by way of celebration, such as new clothing.3 Food Rice is the staple diet in South India. Rice has special meaning in being used synonymously with food, akin to the use of the term ‘‘bread’’ in other

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societies. Often, the focus of daily life is to have one square meal of rice a day. Even the poorest may pay a little more to get better quality rice. Lentils are purchased to make liquid dishes with spices and vegetables or meat, to go with rice. Vegetable and meat dishes are also prepared in a dry form to accompany the rice. With relatively higher income, these liquid and dry dishes become viable. The state where we conducted interviews also has an extensive cuisine of snack items that can serve as regular meals. With extreme constraints, the diet may be only plain boiled rice with salt. In extreme adversity, food options are even more limited, such as to a starchbased drink. The quality of rice, as well as of other generic food items, is subject to many variations, including agricultural factors, such as the quality of the soil. Many products are generic, needing further processing, such as boiling. This is akin to making bread out of dough versus buying it directly. Trials are needed to determine whether rice boils appropriately. Some buyers may try out small quantities of rice before buying in larger amounts. The quality of rice is an important issue. There are many variables in how cooked rice turns out and individuals manage the process of identifying the type to buy and complaining to sellers. The same rice can be perceived as being of different quality by different individuals based on such factors as their style of boiling it or the type of water they use. Localized variations exist in factors such as water quality that affect the outcome. Many factors that may be assumed to be similar in Western societies can affect the processing of food products in this context. Rice is sold by neighborhood retailers, and by larger stores who deal in both retail and wholesale distribution, heretofore referred to as large resellers. Moreover, a set amount of rice and other basic necessities may be available through government ration, which is generally of poorer quality. Rice may also be obtained in bulk from villages by some who either own land or have relatives in villages engaged in farming. Vegetables are usually sold by weight by neighborhood retailers, large resellers, street vendors, and larger markets, the latter being either just retail or both retail and wholesale. Often, lower quality assorted vegetables are sold at a lower price, not by individual weight but as an assortment of vegetables with a specific price. Very poor individuals often opt for such a purchase. It should be noted that there is segmentation based on price going on at various levels in the value chain, from farmers using their land of different soil quality or later versus earlier in the season, to resellers sorting based on quality. Vendors may offer lower prices late in the day to avoid inventory being left over.

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Health and Medicine Medicine can range from homemade treatments, to relatively inexpensive country medicine, to allopathic medicine based on advice from a pharmacy or corner retail store, to consultation with doctors depending on the seriousness and duration of illness. Government hospitals are the cheapest option, providing free consultation and medicine, but they have restricted hours.4 Private doctors, considered as offering better quality health care, usually charge more (Rs. 20 to 30 for minor illnesses), with medicine being extra. Medical doctors are identified and assessed for effectiveness, with those perceived as being good or lucky developing a loyal following. Patients ask their doctors to check filled prescriptions for accuracy, reflecting the one-on-one (1–1) interactional marketplace. In rural areas, lack of access includes distances to be traveled for medical treatments. Bicycles and public buses are possibilities but options are often restricted during the night hours, leading to individuals suffering through the night without medical attention. One form of capital that people have, often the only form, is their own body. They sacrifice their bodies, often neglecting health concerns until it is too late. There is resignation and acceptance in health-related issues. Only when health is affected to the point of affecting earnings do some seek out medical attention. Interviewer: Where do you go for treatment when you are ill? Rani (female, 30 years, no formal education): I always go to the government hospital. But I would take the children to private practitioners when they fall ill. The treatment in the government hospital won’t be effective. When I take the children to the government hospital, they would advise to take 1/4 tablet or 1/2 tablet where we are supposed to take 1 tablet. So, it won’t be cured. y But, I won’t prefer (private practitioner) for me, I would compromise and go to the government hospital. Interviewer: You visit the government hospital for treatment for yourself? Why are you going to private practitioners only for children? Rani: We get treatment from the private practitioner only for children. Interviewer: y Is the private hospital located nearby or at distance? Rani: It is situated near my house. Interviewer: How much do you pay as doctor’s fees? Rani: He would charge Rs. 20 and provide drugs too. When we go for the treatment for cough and cold, he would give cough medicine, tablet (pill), everything. He would prescribe medicine, if we feel that the child is too ill and ask him to prescribe. Otherwise he won’t prescribe. The drugs he provides are sufficient.

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Interviewer: It would be cured y if he prescribes y? Rani: I would ask to prescribe, I can’t tolerate, when the children are affected by cough and wheezing. There would be high shivering due to fever. They will be crying. I am struggling completely for the children. I should take care of them. Therefore, I would ask the doctor to prescribe medicines and assure him that I would buy it outside. He would prescribe within Rs. 20 to Rs. 30. Interviewer: Where will you buy those medicines? Rani: Nearby, there is a medical shop. I would buy it there. Interviewer: You will buy it at the medical shop. OK. Are you checking, whether they are giving the same medicine prescribed by the doctor? Rani: Yes. I would check. I would take it and show it to the doctor. ‘‘See doctor, whether the medicines are the right ones.’’ After checking, he would advise doses to be taken and timings in a day.

Here is an example of how things may work in a 1–1 world, with the patient taking the purchased medicine back to the doctor to make sure it is the right one. Here, this lady takes her children to a private doctor while she herself goes to the government hospital, which she views as being of lower quality. Interviewer: Do you go to hospital when you are sick? Badri (husband, 37 years, 5th grade education): If I have money I will go to the hospital or else I will buy medicine from the shop. Interviewer: Where do you go and buy the medicine? Sivakami (wife, 30 years, no formal education): Medical store. Interviewer: You buy it from medical store when you have money? Badri: If I have money I will take injection. Interviewer: Whom do you go to? Badri: Dr. (name of doctor). Interviewer: What are his fees? Badri: Rs. 20 is the fees. I will go to him if I have Rs. 40 or else I will get medicines for two times. Interviewer: You will go buy the medicines from the medical shop. Will you check the medicines? Badri: All these things, I don’t know sir. Sivakami: We don’t know much about the medicine. We will take whatever medicine they give. We will take it, even for our children. Interviewer: When do you go to the doctor?

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MADHUBALAN VISWANATHAN Badri: Only when we are very unwell, we will go to the doctor. When we are attacked by fever and are unable to walk, we will go. If we get cough or slight fever, we will take the medicine from the shop. Interviewer: Do you go to the government hospital? Badri: We have no time to go to the government hospital. Interviewer: You can’t go in time? Badri: Instead of going to the hospital I go to Dr. (name of doctor) who will clearly see and give medicine duly telling us how to take the medicine but it is not so in the hospital where they will give the medicine without even telling us how to take it. But (name of doctor) will tell us to take porridge or bread and take the pills. Interviewer: Will he use injection? Badri: He will use injection and for that reason I will go to him. The injection will make us all right. Interviewer: In which shop do you buy the medicine when he prescribes? Badri: Medical shop sir. Interviewer: Will they give the correct medicine? Badri: They will give the same medicine, which he prescribes. Interviewer: How do you know that? Badri: I will see the first letter sir. It will be in English. But there will be number like 550, 5500. I will see the first number. I will ask my children to see the number.

When going to a doctor, an injection is a hallmark of good treatment. As this person states, he goes to a doctor because the doctor administers an injection, apparently for even common colds. An option here is to go to a government hospital, which has restricted time and little by way of instruction compared to a private doctor. In terms of medicine bought at pharmacies, some individuals do not check but take whatever is given. Others match the first letter as mentioned. Some individuals take the medicine back to the doctor to confirm that it is the right one. Interviewer: Do you visit the same doctor? Kavitha (female, 38 years, 5th grade education): We visit the same doctor. Interviewer: Why do you visit the particular doctor? Kavitha: We get cured when he administers the injections, it is healed immediately, and we get sudden remedy. He is a kind of lucky and auspicious person. We are cured if we get treatment from him, hence we visit him. Suppose it is other doctors, they would ask us to visit again and again. He won’t do this; he would administer an injection and tell us that it would be cured in one visit.

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Interviewer 2: Is there any difference in the fees between both the doctors? Kavitha: All are charging the same fees of Rs. 20. Interviewer 2: He too charges 20 rupees? Kavitha: But, he charges 20 rupees and prescribes medicines for 75 rupees. y Kavitha: If we go to another doctor, he would prescribe costly medicines for 100 rupees and ask us to visit him again and again for three days. He would administer three injections too. The fees would cost around 60 rupees and medicine cost around 100 rupees, so it would cost a total of 160 rupees. But, we visit the same doctor here and try to finish it within 100 rupees. Interviewer: Administering injection is y for what kind of problems? Is the injection for fever? Kavitha: He would administer injection if we go with fever or cough with cold. Earlier, he provided both the injections and medicines. Now, that is not the way it is. He would inject if we buy the drugs from medical stores and give it to him. It costs around 30 rupees to buy the injection drug. Interviewer: Now, which medical shop do you buy from? Kavitha: There is a medical shop on the main road; we buy there. We would straight away go to the shop from the clinic and buy the medicines. Interviewer: The price is less or high there? Kavitha: No, all same price. Interviewer: Would you buy any medicines without consulting the doctor, for problems like headache? Kavitha: Yes, we crush the ginger, pepper and boil in water and prepare a kind of thick juice at home. It would arrest the cough and fever, if we had a glass. Interviewer: Would you buy any medicines from the shop without going to the doctor? Kavitha: We have bought. If we tell them that we have headache or cold with cough and ask them to give medicines, they would give it to us.

Several issues pertaining to medical attention are relevant here. Sometimes, the seller at the pharmacy administers medicines after hearing symptoms. People usually visit doctors when they are severely affected by an ailment to the point of affecting earnings or when their children suffer from ailments. Otherwise, they may try some home remedy or ask the pharmacy for some medicine. When visiting the doctor, they develop a relationship, often considering whether a particular doctor is lucky for them. Perceptions of ‘‘lucky doctors’’ stemming from past experience play an important role in deciding

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on doctors. With medicines, individuals may buy a small, affordable fraction of the total prescribed. Sometimes, individuals may diagnose their own conditions and buy and use medicines prescribed for previous illnesses that appear to be similar.

Clothing and Ornaments In a mostly warm weather climate, clothing is often bought at sidewalks or at specific large stores, which cater to the low-income clientele with lower prices or through door-to-door resellers. Whereas sidewalk vendors provide cheaper prices, they usually do not sell matched sets of clothing and require more search compared to stores. With daily urgency relating to basic necessities, other possessions take a back seat or have symbolic value. For example, buying a silk sari (costing about Rs. 2000 or more) or jewels symbolizes good times and individuals do treat themselves to these possessions for occasions such as a festival or a wedding. But this is distinctly different from the desire to constantly accumulate possessions. Rather, the general frame of mind is one of fixation on the next meal and on food and basic necessities, coupled with the occasional, symbolic purchase to treat oneself to better things, to keep as a reminder of better times, and sometimes to use as an investment to pawn or sell in times of need.5

Financial Products Financial products are, of course, central to day-to-day living in subsistence contexts. The literature has examined the complexities associated with financial services for the poor (cf., Rutherford, 2000). A variety of financial services are discussed here. This discussion is organized into savings and loan alternatives. Savings Different savings schemes abound, often motivated by fear of interacting with larger banks, anxiety about filling out forms due to problems with literacy, or anxiety about the perceived need to know English. In some communities, NGOs or self-help groups run savings schemes to encourage regular savings, with collection even occurring door-to-door. The neighborhood retailer may also be willing to safeguard money from neighbors, family

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members, and thieves for a fee. Stores may also offer ‘‘chit’’ schemes, with an example being a Rs. 10 per day savings requirement over 100 days, with a bulk amount of Rs. 900 returned. Accounts are maintained by marking a 100 boxes or squares on a card – a pictorial representation equally meaningful to the literate and the low-literate. Savings amounts vary and can be as low as 1 rupee per day. Savings amounts can also vary between visits (e.g., a. customer visits with 10 rupees, buys items for 8 rupees, and leaves the balance toward the savings plan). The record-keeping system varies based on the arrangement. Some savings schemes are communal, as when a chit organizer enrolls members into schemes that vary by maturity period, amount due, and net chit amount received based on saving capacity of members. If 10 members joined in the chit scheme with a chit sum of Rs. 10,000, the chit conductor would invite bids from the members on a specific date every month to receive the collection for the month. Members who are in need would bid if they are ready to receive something less than the monthly collection of Rs. 10,000, for example, Rs. 9000. This discounted Rs. 1000 would be shared by all members as a benefit of the scheme and the members can pay just Rs. 900 instead of Rs. 1000 as the due amount for that particular month. At the same time, the bid amount or discount is a form of interest charged on those receiving the money in advance or prior to the completion of the chit period, i.e., 10 months. In this order, nine members would get the money in advance and prior to the completion and pay the bid amount, akin to paying interest. The 10th person who receives the money at the end of the 10th month would get the full amount, Rs. 10,000, but would have paid less than the monthly due for the nine months. Interviewer: Suppose this lady is a chit conductor, would she visit door to door y? Kavitha (female, 38 years, 5th grade education): They won’t visit; they would invite the neighbors and people known to them for the enrollment. They would tell us that she is going to start chits and would ask us whether we are interested in joining. We should be present there (at the chit conductor’s house/place) promptly on every 10th day (of the month). We should be ready with the chit amount when the bidding starts. Collected chit money would be available for bidding. Those interested can join in the bidding. Whether you join the bid and take the money or not, you should remit your monthly chit dues immediately to the conductor.

Here, the chit conductor is a de facto member of the team and fully responsible for collecting amounts from other members and providing funds to the bidder within a reasonable time frame. The benefit for the chit conductor is that he or she may be able to take the full amount of the second month’s collection bidding. Another benefit may be that each month, bidders may

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pay 2% of the total chit (Rs. 10,000) to the chit conductor (Rs. 200). Chit schemes are examples of need-based savings services originating in the community. Peer pressure is an important element in these schemes. Loan Alternatives Loan alternatives include buying for credit at the neighborhood store. Interviewer: You make purchases in wholesale shops for cash or any credit? Vanitha (female, 45 years, 5th grade education): No credit, only cash payment on hand. Interviewer: Cash on hand purchase? Vanitha: Yes cash on hand. Interviewer: Have you bought anything on credit recently? Vanitha: I won’t buy credit. I have to pay back the credit. They may raise the due from Rs. 5 to Rs. 6. I am saying as an example, it is just for the sake of argument. Again they may record it as Rs. 8 instead of Rs. 6. I don’t want these things and decided accordingly.

This lady avoids credit due to loss of control over the accuracy of transactions and the possibility of being charged more than she owes. Another person related the loss of respect that came with credit purchases. Avoiding credit also protects the individual from such loss of control of public face. Interviewer: Do you feel that when you are going there, making purchases, the people at the shop respect you, using kind words and enquiring about your needs? Rani (female, 30 years, no formal education): How can he? If we have money, every one would respect us y when my husband, he used to go for jobs. Once he had a problem, I approached the (local shop owner). He told me that he was ready to give more credit. I won’t buy credit usually. I fear whether we could repay it or not. However what could I do? He (husband) never went for a job for 10 days once. During that time, I got credit for Rs. 100. He (local shop owner) harassed me lot, while my husband was there. I felt so sad. Then I got money unexpectedly, and the first thing I did was to settle the credit. From that incident I feared about credit. I won’t buy on credit from anybody. Interviewer: So, the local shop owner shouted because you bought on credit. Rani: He shouted loudly. Why do we need this? We don’t want credit. Interviewer: Will he respect and speak politely, if you don’t buy on credit? Rani: Yes, people would respect, whoever.

Here, the local shop owner disrespects the buyer who purchases on credit, who is dependent on him in terms of credit purchases. Such disrespect stems from the lower means and income level of the buyer. We also found

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situations, however, in which the relationship is amicable and respectful. The neighborhood retailer will likely exert influence if the buyer who owes money purchases from a different store such as a large reseller. In some instances, the neighborhood retailer may ask that some items be bought at his or her store and others at the wholesale store. There are many forms of loans available. Here is an example of a loan without collateral. Mythili (female, 40 years, 4th grade education): It is borrowed money. I won’t borrow for interest. I would borrow for temporary receipt. If no one is there to help me, I would go for (high-interest noncollateral loan). y It is with daily repayment arrangement. Interviewer: y How much have you borrowed? Mythili: I would borrow Rs. 1000 from (high-interest noncollateral loan), sir y I would agree to pay Rs. 10 daily. Interviewer: How many days do you have to repay? Mythili: I have to pay for 90 days. Interviewer: OK, it is for Rs. 1000. Mythili: 90 y 100 days. Interviewer: y How much would they deduct when paying you? Mythili: They would deduct Rs. 150. Interviewer: They deducted? Mythili: They would give me Rs. 850 after deducting Rs. 150. I should repay it correctly in 100 days. Rs. 1000 in 100 days.

This is similar to a Rs. 850 loan at an average balance of Rs. 425 over 50 days with a Rs. 150 interest, which works out to an interest rate of 258% [(150/425)  365/50], with higher rates being common. Loans without collateral are usually the ones with high interest rates, often enforced through the threat of public humiliation. Noncollateral lenders enforce payment through public humiliation, using offensive language and expletives outside borrower’s houses when they fail to make a payment. Interviewer: Have you borrowed on any occasion and anyone questioned you like that? Sangitha (female, 46 years, no formal education): We had borrowed Rs. 30,000 when my husband was ill. The moneylender came once and shouted with filthy words. We felt sad and worried much. My husband felt that the person who came up well (in life) with his support shouted at him because of the credit. So, he instructed that I should not go to him (moneylender), whatever the family situation is in the future.

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This lady was deeply pained about the public humiliation many years later, recounting how her husband was anguished by the event and how the lender had been someone the husband had helped before. There is genuine fear of such humiliation and it appears to be an effective mechanism in a 1–1 world, in which, sometimes, the only thing that people possess is their dignity. Some avoid taking loans just because of this fear while others have learned through experience. Pledging jewelry is a preferred option for those with the means to make the initial purchase. After relatively large earnings, individuals will often purchase some pieces of jewelry (e.g., gold arm bracelets, pendants), which serve both as an adornment and as a ‘‘rainy day’’ savings account. They will pledge their jewelry in bad times for a loan with a period, such as a year, to redeem. Whether they actually redeem the jewelry or not, the choice of redemption is one that individuals like to have. Individuals often prefer buying jewelry to regular savings. There is symbolic value in owning and using it, a remembrance of good times. Moreover, pledging does not require individuals to commit to regular payments with uncertain future income, compared to other loan arrangements. Interviewer: So, you would pledge the jewels, when you have money problems and then you would redeem it? You talked about the redemption. What would be the amount when you pledge and what would be the redemption amount? Murali (male, 40 years, 8th grade education): Yes sir, it would be less. We buy material for Rs. 1000 or Rs. 800. We may have to pledge it for Rs. 400. If we don’t have a regular job in the subsequent months, we have to lose that article (without redeeming it). It becomes a big loss to us. We have only those items to manage our crisis situations on time. We have nothing else. Interviewer: Rainy seasons are difficult times in your profession? Murali: Yes, we have to suffer on those days. Interviewer: So, this is an option you have and you adjust? Murali: Yes sir. Interviewer: I mean you buy jewels or articles and pledge it when you are in need. Murali: Yes, we used to pledge. If we join in the chit, we may not be in a position to pay it regularly, especially when we don’t have a regular job. It would be a problem when we could not pay on time. Hence, we prefer to have articles or jewels (to pledge) and we would adjust. Chandra (female, 28 years, no formal education,): Yes, I have done so even very recently. We have pledged the jewels. Still, we are not in a position to redeem it.

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Interviewer: You are unable to redeem it and it is still there. So, sometimes you pledge the jewels and get the money to manage y Chandra: Yes y Interviewer: Why do you pledge like that? Few people take loans without pledging any items and few get money after pledging their jewels as capital. Why do you borrow like this? Chandra: They would come to my house and shout, if I get a loan. If I pledge my articles and get money, I can be fearless. I can redeem it whenever I wish. They won’t come and shout, in front of my house. So, we decided that we should borrow after pledging our articles. Interviewer 2: How much interest for this? How much do they charge from you as interest, if you pledge the jewels and get money? Chandra: y They fix and charge Rs. 2.50 or Rs. 3. Interviewer 2: How much would you be charged with interest, if you take a loan from someone without pledging any articles? Chandra: I don’t borrow for interest like that y Maybe for temporary cash rotation of about Rs. 500.

Here, the rate of interest is Rs. 2.50 or Rs. 3 per month, per 100 rupees. In addition, Rs. 10 may be levied for document charges and a month’s interest may be deducted in advance from the loan amount. Loans through pledging valuable items versus loans without collateral, which come with the potential for public humiliation, are often the set of alternatives that individuals consider. Entertainment Options Movies, either on TV or in theaters, soap operas on TV, and variations on these forms are primary means for entertainment, along with fairs during religious festivals. With severe income constraints, individuals may avoid going to movies or even avoid going out of the home except for work. They may avoid going to a nearby food vendor even to buy and drink tea due to lack of money, either making items or foregoing them altogether. Even under these circumstances, festivals are often celebrated. For certain festivals, individuals may take a trip to their home village or town or spend some money at a fair. Televisions are increasingly owned and provide almost all the entertainment. Through installment plans, individuals may buy a black and white television for about Rs. 2400 (say, in installments of Rs. 100 a month for 24 months), with cable costing around Rs. 100 per month. Some

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may prefer to buy a newspaper or go to a movie rather than consider buying a television because it involves a longer-term financial commitment.

MARKET INTERACTIONS The discussion to this point has centered on the set of products purchased by the subsistence customer. Embedded in this discussion were interactions with sellers and the marketplace, which are difficult, if not impossible, to separate from the set of products. This section focuses on interactions of subsistence customers with the marketplace and the primary economic relationships they form.

Neighborhood Retail Stores and Large Resellers The typical individual in these communities has a primary economic relationship with one store. Usually, in urban areas, this is likely to be a small neighborhood retail store that buys generic products at wholesale rates and sells to the local community. Geographic proximity in terms of a neighborhood and lack of mobility are key considerations, the latter due to cost of traveling longer distances, time constraints due to restrictive work schedules, and just-in-time daily wages (say, wages earned by evening and the need to prepare a meal soon after). The primary relationship may also be with a larger store located farther away that sells to retailers as well as individuals.6 Both retailers and large resellers are characterized by being responsive to customer needs and having very detailed knowledge of individual customers, akin to and in some ways better than sophisticated databases. They accept product returns, allow exchanges for bad products, adjust supply based on customer complaints, sometimes deliver products to homes, and generally strive to satisfy customers. Customers may often resort to trial and error to try out products, such as a variety of lentils, and provide regular feedback to sellers about products, such as rice varieties. Due to income constraints, people often buy from neighborhood retailers at higher prices. The retailer is also used for last-minute convenience purchases, such as for a final ingredient during cooking, a common occurrence with daily wages. The large reseller sells to retailers as well and may reserve credit only for customers with large monthly expenditures, beyond what is typical for low-income households. The neighborhood retailer is more likely

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to offer credit for low-income residents of the neighborhood. For those with sufficient money at the beginning of the month, the large reseller provides practically all the necessities, responsive service, and refunds/returns. However, with weekly or daily incomes, or later in a month with monthly income, the large reseller is often not a viable alternative. Individuals buy from a retailer, who usually charges higher prices and offers credit. Thus, the customer is tied to the retailer, who may likely ask for full repayment if patronage stops or decreases. The retailer is usually responsive to customer needs. Regular customers often receive better treatment in terms of weightings, extras, and discounts. The neighborhood retailer may price higher for credit purchases, usually without explicitly communicating with customers and usually on generic products (e.g., charging Rs. 16 for a kilogram of rice instead of Rs. 13 or 14). Interviewer: Have you bought anything on credit recently? Vanitha (female, 45 years, 5th grade education): I won’t buy credit. I have to pay back the credit. They may raise the due from Rs. 5 to Rs. 6. I am saying as an example, it is just for the sake of argument. Again they may record it as Rs. 8 instead of Rs. 6. I don’t want these things and decided accordingly.

By helping in time of need, being responsive, and providing credit, the neighborhood retailer often cements relationships with customers and elicits loyalty. One customer, when asked whether she enquires about the price of a product she is buying from the neighborhood retailer, wondered aloud how he would feel because he helps by providing credit in time of need. In fact, when customers begin to purchase regularly at an outlet, they may tend to stop checking prices even when they are capable of doing so. A number of factors lead to loyalty to specific outlets, primary among them being credit received in times of need. In a world of geographic proximity, patronage of a different store when owing money to a specific store may not be viable. The fear of needing credit in times of hardship in the future is a strong motivator. The balance between purchases at a large reseller versus a neighborhood retailer, while triggered by income, involves other complexities. Loyalty to neighborhood retailers is also influenced by credit, which represents help in time of need and a hold over the customer, and by the need to patronize and encourage a local business. The retail shop owner provides more customized service than the large reseller in some respects. Purchase patterns are not just due to income management but also due to consumption management. Buying things in larger quantities may

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not be preferable when consumption may have to be restricted to a minimum down the road. Interviewer: Now, you buy from a shop in bulk. Suppose you wish to return anything, would that shop accept it? Do they know who you are? Kavitha (female, 38 years, 5th grade education): Yes, they know. This is the shop where we buy always. Suppose we don’t want an item or an item is missed in the supplied provision, we go and ask, and they would give (the item) though we don’t show the bill. It is a trusted shop. Interviewer 2: So, you say that every month, first you used to buy from the large reseller. Instead, if you buy the same from the local shop owner (neighborhood retailer), he will get some income. Now, he loses that income (because you visit the large reseller). Would he not be concerned about this? Kavitha: He would ask. I would tell him that I bought the items that were not available with him from the large reseller. He would tell us, ‘‘Okay you buy few there and few here.’’ Interviewer 2: OK, you are aware that Rs. 1 is the difference in the price between the two shops and you are the ultimate loser, y suppose you buy from the wholesale shop, you can save Rs. 100 or Rs. 150 in a month. Perhaps y Why don’t you go and buy there? Kavitha: Sir, we don’t have money, money won’t be available. He (husband) gives me the money daily. I save from this and buy y from the nearest shop y

Here, the buyer balances purchases between the large reseller and the neighborhood retailer, essentially providing some business for each. Daily income is a major constraint in buying at the large reseller, which requires having sufficient money but can lead to savings in prices paid. Because of an established relationship, the seller is responsive to needs, returns, and refunds, adjusting his supplies based on feedback from customers. Whereas urban areas are characterized by a plethora of stores, lack of mobility makes the neighborhood store a central part of individuals’ economic relationships. In a rural setting, access is severely restricted and a larger nearby town may be miles away with few modes of transportation. Retailers or mobile vendors may charge sizably higher prices due to transportation costs of buying from larger towns.

Installment Plans for Bigger-Ticket Items Occasional purchases of somewhat big-ticket items are made through installment plans. Individual sellers buy clothing and small appliances (big-ticket items in this context) from retail or wholesale outlets and sell on

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an installment plan, thus enabling customers to procure products beyond their immediate means, although at very high interest rates. Companies offer much lower interest rates, but only for much bigger purchases such as televisions. Thus, the installment seller, often a member of the same community, offers a product and service that caters to the needs of the community. The low-income, low-literate marketplace studied here in some ways reflects a truly free marketplace with seller and buyer exerting balancing influences. A number of community-based services include installment plans for relatively more expensive items. Individuals offer schemes to buy relatively expensive products, such as large vessels, through installments with monthly payments over many months. What constitutes bigger ticket items is, of course, relative. Products like clothing could be bought through installments. Mixies, cookers, and chairs may also be bought through installments. Interviewer: What are the items you have purchased in installments? Badri (husband, 37 years, 5th grade education): (Clothing for women). Sivakami (wife, 30 years, no formal education): We have bought articles and simple (clothing for men) and saris. Interviewer: Have you bought (clothing) in installment and are these items up to the standard? Sivakami: We don’t know that it is of good standard but we buy it. Badri: But due to the circumstances we buy. We cannot pay in full since we have to meet daily expenditure and hence, we will pay Rs. 5 or Rs. 10 daily and clear the account. Interviewer: But the quality is not so good? Sivakami: No. Badri: These clothes have been bought through this way. We cannot pay the price in full. In a shop, a good (men’s clothing) costs Rs. 70 but we cannot pay the price in full. We cannot save that amount, and if we do, there will be some (other) expenditure to be met. Interviewer: Do you return the (clothing for men) bought in installment if the color goes away? Badri: They will not take it back sir. Interviewer: What will you do? Sivakami: We will reduce Rs. 10 Interviewer: So you will say that the color is fading and reduce the amount of payment? y Interviewer 2: Have you ever said that you will not wear such clothes bought in installment?

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Even though products are of lower quality, the installment plan enables low-income individuals to buy them. Installment plans, even for relatively inexpensive products such as clothing or small appliances, are common and make purchases affordable while also forcing individuals to save appropriately to make payments. With defective products, adjustment is made in the price. In some cases, the buyers may just stop paying. Buying on installment often leads to poorer quality products. Using a fictitious example, a ‘‘Malathi’’ stove may be a reputed product. However, a ‘‘Malanthi’’ (emphasis added) stove is not as good but may be sold as the former. Lowliterate customers who match patterns rather than read are susceptible to such tactics. Interviewer: Where do you buy this and how do you buy? Kala (female, 8th grade education): Mostly I buy in installments. To buy in the shop is very difficult. Rarely, I buy from the shop. Even saris, the sari merchant brings it to my house and sells. y Hence I will buy a sari once or twice in a year. For children, I will buy a sari once or twice in year. For children, I will buy new clothes. My elder son will buy me once and another time I will buy once. He is also doing business, so he will also buy on installment in the shop itself where the merchant’s sells. He buys it from them and pays it on daily collection. He will bring and give it once. Another time I will buy once. Interviewer: How do you buy in installment? Kala: y I know that the price is high. But if I go and buy a sari directly it will be Rs. 100. I know that price. But they will sell it for Rs. 150. If they sell it for this price, they charge only Rs. 25 per month from me. Interviewer: Is it the shop which sells for Rs. 100? Kala: No. Interviewer: Is it a separate shop? Kala: They buy it from the shop and sell it in our house itself. They bring it in a heap to our house. They can bring about 50 saris. We will select whatever we need and take it. They will give a card and every month on a fixed date when they visit, we should pay the cash on this stipulated date to them. They will mark on the card given to us indicating that we paid for that month.

This is another example of an installment scheme. Community-based services may have mutual advantages, reducing cheating by buyers and sellers.

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CHARACTERISTICS OF PRODUCT AND MARKET INTERACTIONS Some important characteristics stemming from the product and market interactions of individuals as customers described earlier are discussed here.

Uncertainty, Complexity, and Lack of Control One of the most important factors to understand in gaining insight into the subsistence marketplace is uncertainty and lack of control over many aspects of day-to-day life, whether it is the quality or quantity of water or the availability of electricity. This of course follows directly from being resource poor; with very few resources, the poor have little control over the basic amenities that may be taken for granted by people in higher strata of society. Overlying these issues is the level of complexity in a variety of realms of day-to-day life that distinguishes a transitional context such as India from Western societies. Basic services, such as transportation, are subject to greater variation in India compared to the West. The level of complexity in a number of domains is very high due to the number of variables involved, the interactions among these variables, and the considerable uncertainty and variation experienced on these variables. Complexity is inherent in meeting basic necessities such as food preparation from generic ingredients, which, in turn, is dependent on uncontrollable factors such as quantity and quality of water and quality of generic ingredients.

One-on-One Interactions Perhaps the most striking characteristic of the marketplace in subsistence contexts is the network-rich, 1–1 interactional nature, such as the 1–1 relationship between buyers and sellers. This leads to accountability and service considerations on the part of the seller. The environment is characterized by continuous interaction between buyer and seller. The seller knows buyer preferences and there is continuous communication. Price and quantity are negotiated, installments are not paid, prices are adjusted for personal circumstances to the advantage of both the buyer and the seller, and community-based service providers balance buyer and seller needs, enforce contracts, and are aware of specific needs and purchasing power.

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Credit and help in times of need lead to strong relationships between buyer and seller. Creditworthiness is determined by the retailer (or by the individual seller for installment purchases or the moneylender for loans). This system is, in some ways, more sophisticated than complex customer databases. Retailers offer additional ‘‘services’’ such as credit purchases to people in need. In turn, retailers keep accounts and may overcharge for credit purchases without explicitly informing the customer, although this practice is usually implicitly known. Retailers also provide the service of securely keeping customers’ savings in return for a charge (for example, a 10% negative interest). Customized service and product returns are often the norm, sometimes an almost customer-level democracy in action, in which accountability is expected or demanded at the grass-roots level. Shopkeepers may respond to feisty behavior from customers with better treatment. Small numbers in terms of customers and local ownership, direct interaction, and powerful word of mouth are all pertinent factors. Direct feedback on products leads to appropriate stocking decisions by sellers. Large resellers deliver products to some regular customers and accept product returns from them. Savings schemes reflect the 1–1 interactional marketplace and are characterized by a sense of community. As discussed, several services are offered that address community needs, such as resellers going door to door to sell products on affordable installment plans, although at extremely high interest rates. Buying on installment may sometimes lead to poorer quality products. Customers may always have the power to stop payments for poor products. Refusal to pay subsequent installments for a defective product is one form of redress. Word of mouth is very strong, whether between customers or between customers and sellers. Irrespective of financial constraints, certain traditions regarding death, marriage, or religious ceremonies are usually maintained, often by borrowing money if necessary. A salient motive here is to avoid being spoken ill of. Maintenance of tradition even in dire financial circumstances follows from the centrality of 1–1 interactions. Medical doctors are identified and assessed for effectiveness, with loyalty usually following. One-on-one interactions include patients asking their doctors to check filled prescriptions from pharmacies for accuracy.

Make or Buy Decisions A key aspect of customer interactions is the make-or-buy decision or the make-or-buy-or-forego decision. The make-or-buy decision applies in several

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realms, such as visiting a hotel, or making ingredients, such as powders for cooking. The make option is cheaper, allowing customization even across family members (e.g., making cooking powders with different ingredients depending on age). Interviewer: So you grind these items. What is the difference in going to the shop for purchasing these items and grinding them? Badri (37 years, 5th grade education): If we buy these items it will not be good. It will not be hot and it will be different. These items are adulterated. I buy chili and (type of spice) powder from the shop and give it for grinding, which is good for health and also very tasty. Interviewer: What we make in the house is good for health? Badri: It is good for health. Interviewer: What is the price when we buy it outside versus when we prepare at home? Badri: In the shop the item will be less but when we prepare in the house it will be more and the quality will also be good. Interviewer: When we make the item in the house, it will be costly? Badri: It will be clean.

This is another example of a make-or-buy decision. Here, the make decision is considered to be costlier, yet to provide more benefits. Interviewer: Is it OK? Do you prepare anything at home which is needed for cooking anything? Mythili (female, 40 years, 4th grade education): I would make it (chili powder). Interviewer: Would you grind it yourself? Mythili: Yes, for chili. Interviewer: You buy all ingredients and y? Mythili: We would grind at a machine (flour mill). Interviewer: Why are you not buying at shops? Mythili: We even get stomach pain because of it. We don’t know what they are mixing in the shop with the chili powder. y Last month, the chili powder was over. We all had stomach pain because we ate the food prepared with the powder bought at the shop. Interviewer: It was not good? Mythili: It was not at all good y I don’t know why. We don’t know what they are mixing and doing. They are talking about (leading brand), it causes stomach pain.

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MADHUBALAN VISWANATHAN Stomach pain for everyone in our house. So, we always buy chilis and grind it first whether we have anything else or not. Last month, it was the end of the month, I had no money. Since I bought it in the shop, it was happening like that. Interviewer: OK. Is there any price difference between the chili powder bought in the shop and grinding powder in the machine yourselves? Mythili: y It would be little more (quantity) than buying the powder at the shop. The price would be less too. y If you spend Rs. 100, now the price of chili is high. Suppose you spend Rs. 100 or Rs. 150, it could be used for three months freely. Money could be saved and the item too would be a quality one. We grind it under our supervision. It would be clean and good for everything.

The make-or-buy decision is also related to the idea of consuming natural foods rather than something in a packet that may contain contaminants. In fact, hand-ground spices may be preferred even to using a grinder or over packaged foods, which may not be fresh. Small packages may also lead to wastage during transfer, another reason cited for the make option. The make option is more difficult when women work outside the house, leading to more of the buy option. The forego option is, of course, pervasive in many realms, such as in rationing or foregoing medicine and treatment for illnesses.

Transactional Fluidity Another striking aspect in this context is the nature of transactions in terms of their fluidity. Pure exchange is not necessarily of the arms-length variety. The transaction is often fluid, price and quantity are negotiated, installments are not paid, prices are adjusted for personal circumstances to both buyer’s and seller’s advantage, and community-based service providers balance buyer and seller needs, enforce contracts, and are aware of specific needs and purchasing power. Even weighing of products may differ depending on the negotiated price, with deliberate variations in the way the scale is balanced and the chain links are held (sometimes, weighing pans may be of different weight). If the negotiated price is low, then customers may be shortchanged in the weighing. As one seller said, when a relatively low price was negotiated for three pounds of grapes but the amount seemed to be less by half a pound when weighed elsewhere, ‘‘That is the weighing you will get for that price!!’’ Accurate weighing may occur when full price is given. Sellers clearly differentiate products by quality, and price accordingly. Thus, buyers have clear expectations for prices.

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GENERAL DISCUSSION Summary Researchers and practitioners alike have begun to focus attention on the role of businesses in subsistence marketplaces (Prahalad, 2005; Hart, 2005). Literate, relatively resource-rich researchers and managers need to understand the assortment of products that individuals in subsistence contexts consume and the nature of their interactions with the marketplace. This paper summarizes the types of product and market interactions that characterize subsistence marketplaces in urban and rural South India. The purpose here is not to assert that these detailed descriptions generalize to other subsistence settings, but to describe subsistence contexts and interactions between individuals and marketplaces and thereby distill more abstract characteristics that are endemic to these marketplaces. The set of products purchased by the subsistence customer can be organized into several categories (Fig. 1). At the surface level, this list does not seem very different from the needs of individuals in other segments of society. But underlying this surface similarity is affordability, with a very narrow range of product options being accessible to subsistence customers and trade-offs between what the more affluent customer would consider necessities having to be made when crises arise. In terms of a hierarchy of needs (Maslow, 1970), ‘‘lower-level needs,’’ i.e., physiological needs, of course, take precedence, along with safety needs, but social, self-esteem, and self-actualization needs are vitally important to individuals in subsistence contexts. Our categorization of needs is at a level appropriate for examining relationships with products and markets. However, needs can be categorized at a number of levels of abstraction to cover social and self-esteem needs. In the constant trade-off between various needs that is the daily reality for individuals living in subsistence, product and market interactions center around physiological and safety needs. Moreover, the tenuousness of life circumstances creates a complex web of interdependencies and interactions between buyers and sellers and may lead to loyalty to the neighborhood retailers who are not the low-cost option. Several characteristics of these marketplace interactions are noteworthy, including the 1–1 nature of the environment and the fluidity of transactions. Bigger-ticket items may include clothing, large utensils, jewelry, appliances, and financial services. Many of the services are offered through community-based service providers. The broad context in which the product and market interactions occur is one of uncertainty in basic infrastructure, services, and income and lack of

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control over many aspects of daily life. As discussed, the complexity of life domains can be very high due to the number of variables involved, the interactions among these variables, and the considerable uncertainty of and variation experienced with these variables. In this larger context, product and market interactions are characterized by a network-rich, 1–1 interactional environment, which, coupled with product complexity, may lead to experiential evaluation of products and stores. Decisions on which retailers to patronize are closely intertwined with product decisions; often, the two are inseparable. Also important is the make-or-buy (or forego) decision. At a broader level, adaptive strategies in response to adverse conditions require extraordinary adjustments in daily life, and metrics for rationality rooted in relatively resource-rich environments need to be revised for subsistence contexts.

Implications for Future Research Research in the social sciences has focused predominantly on relatively resource-rich and literate contexts, limiting their relevance to subsistence contexts. Nevertheless, there are a number of ways in which existing theories can be extended and modified to capture the phenomena described in subsistence contexts. A few examples are presented here for illustrative purposes to highlight the potential for future research. One such stream of research relates to the nature of exchanges, which have been categorized into reciprocal exchange, based on ‘‘informally enforced agreements to give goods, services, information, or money in exchange for future compensation in kind’’ (Kranton, 1996, p. 830), and market exchange, which ‘‘takes place among anonymous agents who use money as a medium of exchange’’ (p. 833). Kranton notes that reciprocal exchanges are prevalent in developing contexts. In his analysis he notes that reciprocal exchanges occur when anonymous markets are small or when goods are heterogeneous and when people do not expect to interact frequently. Our data suggest that reciprocal exchanges in a subsistence context seem to occur for a variety of reasons, such as the need to establish ongoing relationships to shield from financial crises when living in subsistence and the interdependence among individuals living in subsistence. The fundamental psychological impetus here stems from the extreme uncertainty and adverse conditions that warrant longer-term relationships to establish trust, to multiply purchase volume, and to tide through bad times. Molm (2001) distinguished between negotiated exchange, involving a

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joint decision process about the terms of exchange, and reciprocal exchange, in which each actor’s contributions are separate and not negotiated. The long-term relationship between an individual in a subsistence context and the neighborhood retail storeowner resembles such reciprocal exchange in a number of ways. In the context of social exchanges, the relationships between behaviors and outcomes have been categorized as being independent, dependent, or interdependent (Michaels and Wiggins, 1976). Our data also suggest that many relationships in subsistence contexts are defined by interdependence among individuals living in subsistence, as reflected in financial alternatives such as chit funds. Temporally, transactions can be independent or serially dependent, with reciprocal transactions assuming the latter. Such continuing relationships have been argued to be characterized by the use of influence and the emergence of elements such as trust (Molm, 1994), which we found to be central among our informants. The 1–1 interactional marketplace emphasizes the importance of social relationships and social capital in these settings. These contexts are, of course, resource poor, but can be network rich. They may be relatively rich in social capital, the institutions, relationships, attitudes, and values governing interactions among people and contributing to economic and social development (Coleman, 1988; Iyer, Kiston, & Toh, 2005). A number of cultural and societal factors may give rise to a strongly networked society in subsistence marketplaces. The lack of resources and heightened sense of insecurity leads to dense interdependence between individuals in subsistence markets. The subsistence marketplace reflects a unique context in which word of mouth and one-to-one relationships take a center stage. The network structure in which the individuals seek their identity in conjunction with their affiliation with others makes this context unique. The roles of different types of social capital in enabling marketplace exchanges in subsistence contexts need to be studied.

Implications for Practice The picture of product and market interactions painted here has a number of implications for business practice, a few of which are discussed for illustrative purposes. At the broadest level, the importance of approaching such markets with the perspective of truly understanding the lives and needs of individuals living in subsistence is paramount. Lacking such broad understanding, product and market development is not likely to be successful. Many items in the small set of products that subsistence customers can

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afford are vital in serving very basic needs. The prioritization of these needs in their translation into purchase decisions occurs in the most adverse of circumstances. Therefore, business practice should focus on a deep understanding of needs and the conditions in which they arise. Understanding of the interplay and complex trade-offs between needs, products, markets, and finances is essential. A number of areas of business practice, such as distribution and promotion, need to be contemplated in light of the market interactions of subsistence customers. In these 1–1 interactional marketplaces, small retailers and, to a lesser extent, larger resellers have developed customer relationships and are knowledgeable about a number of pertinent issues such as creditworthiness, individual preferences, and purchase habits. Approaches to distribution have to take into account the local dynamics in a variety of small urban neighborhoods and rural areas, each with its own unique characteristics. The role of 1–1 selling in market interactions also needs to be understood. This is not the realm of one-size-fits-all approaches, but rather the diametrical opposite. Product design has to take into consideration how a number of variables interact with one another in settings characterized for the customer by uncertainty and lack of control. A classic example of the complexity inherent here is in cooking the staple food, rice, which is subject to the vagaries of water quality, generic variations in rice, and so forth. Promotional efforts have to take into account the strong word of mouth and the 1–1 interactions that characterize these markets. In a sense, subsistence markets represent a unique mix of the old and the new, in terms of available products and information. The old is represented by some of the products and markets that individuals interact with. The new is represented by such products as cell phones that leapfrog the need for landlines in infrastructure-poor subsistence settings and access to information about the outside world through television and other sources. Promotional strategies need to be designed with full understanding of the nuances of subsistence contexts in terms of the knowledge that customers possess. Pricing has to be guided by the overwhelming importance of the narrow band of affordability within which individuals function, as well as a willingness to pay more for acceptable quality, particularly for such core products as staple food. In conclusion, our goal has been to describe the product and market interactions of individuals in urban and rural subsistence contexts in South India. Such marketplaces, which lie across literacy and resource barriers,

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have largely been ignored by research in the social sciences. Although our study is not intended to generalize across the diverse subsistence contexts across the world, our goal was to provide a window into one such context as a starting point to highlight key issues for research and practice.

NOTES 1. A variety of sources of information suggest that alcohol addiction and accompanying by-products characterize a sizable proportion of families. When males that are addicted to alcohol are also the primary breadwinners, they often give a small proportion of their income (if any) to their wives to run the family while using most of the money for alcohol. Some males with an alcohol problem may just not go to work. 2. Many individuals live on (i) encroached private lands without land titles, not eligible to get basic amenities; (ii) encroachments on roadsides, canal boundaries, or government wastelands treated as unauthorized habitat by governmental authorities; or (iii) the same land as in (ii) that government authorities have subsequently deemed as authorized habitat by including locations under special schemes, developing minimum infrastructures, and providing minimum facilities such as electricity, water, and sanitation. Whenever the government does not allow individuals to live in a specific location and eviction is necessitated, the government may provide alternative settlement in exceptional cases. The first two categories suffer from basic infrastructure problems in terms of electricity, sanitation, and water. 3. Differences between urban and rural settings are significant and briefly mentioned throughout the paper. Many of the people we interviewed in urban areas had migrated from villages to the big city. Rural settings are indeed striking in the lack of economic opportunity. Some who grow up in villages have experience from working in fields and from observing or participating in exchanges. The village often appears to be a place with strong human relationships and social support, despite severe economic adversity and lack of easy access to goods and services. The city in comparison can initially be viewed as being harsh and frightening, in several realms, including the economic. A woman who migrates from a village after marriage may be trained for a year or so by a relative, often even staying in the same household and observing how to manage a household and buy products. Such a transitional arrangement appears to be an effective training ground for independently managing a household in an urban area. 4. Whereas there are no consultation charges in government hospitals, fees may be charged for X-rays and other special tests. 5. Jewels are particularly useful in this regard. Consumers purchase jewelry in good economic times and pawn them in time of need. This is discussed in more detail below. 6. The term ‘‘wholesaler’’ may be somewhat misleading in that such outlets may be larger stores that resell to retailers and sell directly to end users, hence, our use of the term ‘‘large reseller.’’

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ACKNOWLEDGMENTS The author thanks S. Gajendiran and R. Venkatesan for their research support, C. K. Prahalad and Jose Antonio Rosa for their helpful comments, and Avinish Chaturvedi and Roland Gau for their helpful comments and assistance in the development of this chapter.

REFERENCES Coleman, J. S. (1988). Social capital in the creation of human capital. American Journal of Sociology, 94(Supplement), S95–S120. Hart, S. (2005). Capitalism at the crossroads: The unlimited business opportunities in solving the world’s most difficult problems. Upper Saddle River, NJ: Wharton School Publishing. Iyer, S., Kiston, M., & Toh, B. (2005). Social capital, economic growth and regional development. Regional Studies, 39(8), 1015–1040. Kranton, R. E. (1996). Reciprocal exchange: A self sustaining system. The American Economic Review, 86(4), 830–851. Maslow, A. (1970). Motivation and personality. New York: Harper and Row. Michaels, J. W., & Wiggins, J. A. (1976). Effects of mutual dependency asymmetry on social exchange. Sociometry, 39, 368–376. Molm, L. D. (1994). Dependence and risk: Transforming the structure of social exchange in the eye of the beholder. Social Psychology Quarterly, 57(3), 163–176. Molm, L. D. (2001). Theories of social exchange and exchange networks. In: G. Ritzer & B. Smart (Eds), The Handbook of Social Theory. London, England: Sage. Narayan, D., & Petesch, P. (2000). Voices of the poor: From many lands. New York: Oxford University Press. Prahalad, C. K. (2005). The fortune at the bottom of the pyramid. Upper Saddle River, NJ: Wharton School Publishing. Rutherford, S. (2000). The poor and their money. India: OUP. Sen, A. K. (1992). Inequality reexamined. Cambridge, MA: Harvard University Press. Viswanathan, M., Gajendiran, S., & Venkatesan, R. (2007). Enabling consumer and entrepreneurial literacy in subsistence marketplaces: A research-based approach to educational programs. The Netherlands: Springer.

APPENDIX: OVERVIEW OF ISSUES COVERED IN INTERVIEWS This listing is intended to illustrate the nature of issues covered. Rather than use the list in a structured form, the interview was a conversation in which interviewers made an effort to cover the issues listed but were not constrained by them in terms of content or sequencing.

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SAMPLE OF QUESTIONS AND SEQUENCING FOR BUYER INTERVIEWS Shopping Describe your last trip to the grocery store.  Why do you go to that store?  What did you buy?  What do you buy often? What other stores do you go to? How do you choose between buying from a large reseller and buying from a neighborhood retailer? How do you shop for products? Describe how you decided to buy a specific product/brand.  (Specific follow-up questions)  Do you look for price?  Do you look for other attributes?  How do you abstract across price and size?  How do you assess value?  How do you assess quality?  How do you assess customer service?  How do you use numerical information on packages?  What does MRP (maximum retail price) mean? (Repeat process for packaged goods, cover multiple brands. Repeat process for various categories  Rice  Cooking powders  Soap  Clothes  Meat  Vegetables  Medicine/doctor  Leisure – restaurant/theaters/TV/festivals) How do you decide on making versus buying for some of the products discussed? How do you prepare a shopping list? Describe a good bargain. Describe the most expensive thing you bought. Describe ads that you know of:  Describe ones you like.  Describe ones you dislike.

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 Describe an ad that made you buy.  What do you think of this ad (ad shown)? Do you seek people’s advice?  Do you seek the advice of your children?  Do you seek the advice of your spouse?  Do you seek the advice of others?

Budgeting Provide details of monthly expenses. Provide example of situations without money. Describe what you do when you run out of money. Describe buying in installment. What is the quality of the product? What is the interest you pay on loans? Have you reneged on payments? What are your unnecessary expenses? What are your unanticipated expenses? What are your ways of saving?

Attitude toward businesses Are you treated differently? Are you treated rudely? Describe situations when you were treated badly. Have you been cheated? What are some things you do to protect yourself? Describe others you know and problems they have faced (e.g., rudeness, cheating). Describe any other experiences in shops that you can remember that we might find interesting. What could shops and advertisers do to make things easier for you? What is your attitude toward foreign companies? What is your attitude toward high technology?

Literacy What are some things about your own skills that frustrate you when shopping? Have you taken an adult education class? How has it helped?

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How has your shopping improved? Provide an example of a bad decision. What did you learn?

Local NGO Compare the NGO to a bank in terms of financial services. What does it do well? What can it do better? Why do some people not participate and benefit from its services?

Adapting Name a product you are very knowledgeable about. How do you buy that product? Name a product you are less knowledgeable about. How do you buy that product? How do you decide to buy products? Do you change how you decide depending on what you buy? How? How did you learn how to decide? Give examples of bad decisions and how it helped you learn.

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A FAMILY SYSTEMS INTERPRETATION OF HOW SUBSISTENCE CONSUMERS MANAGE: THE CASE OF SOUTH AFRICA$ Julie A. Ruth and Rachel Oakley Hsiung ABSTRACT How do people with few material resources manage their consumption lives? We address this question by investigating the consumption practices and processes of 27 subsistence consumers in South Africa. These individuals are economically active, underserved consumers who either had in the past or have today few resources in terms of income, employment, and education; most of these consumer–informants grew up in and/ or live in urban townships populated by poor black South Africans.

$

This research was funded in part by support provided to the first author through the School of Business Dean’s Discretionary Fund for Research and Travel and the Provost’s Teaching Excellence Award at Rutgers University – Camden. This chapter is dedicated to the learners, teachers, staff, governing body, and families associated with Kalksteenfontein Primary School in Kalksteenfontein, Cape Town, South Africa. We share with them a love of and commitment to education for all children in South Africa.

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 59–87 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20003-8

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Our interpretation is based on family systems theory and centers on analyses showing that subsistence consumers enact strategies to cope with the chronic stress of resource allocation needs for the family that outpace resource generation. The repertoire of strategies includes: (1) adhering to resource generation opportunities, (2) accessing new resources, (3) talking to family members, (4) trying and striving, (5) sacrificing, and (6) risking. These strategies are discussed in light of family systems theory, consumer behavior research, and marketing to subsistence consumers. How do people with few material resources manage their consumption lives? How do subsistence consumers who are ‘‘active [but] underserved’’ by the market (Prahalad, 2005, p. xiii) move toward well-being, or the opportunity to ‘‘lead the kind of lives they value’’ (Sen, 1999, p. 24)? We address these research questions by investigating consumption practices and processes of subsistence consumers in urban South Africa. For most of the 20th century, and especially 1948–1990, the apartheid system of government denied South Africans of color1 the right to vote, the right to live where they wished, and other freedoms affecting nearly every facet of life. Laws and customs of apartheid (‘‘separateness’’) endorsed and enforced separation based on categories defining people by race: black, coloured (mixed race), Indian, or white.2 With limits on education, employment, and wages and other ‘‘deprivations of freedom’’ (Sen, 1999, p. 15), the apartheid system forced many South Africans of color, and most black South Africans, to the bottom of the resource ‘‘pyramid’’ in society (see Prahalad, 2005). Although apartheid was dismantled in the early 1990s, its legacies are evident today. In 2005 the unemployment rate among economically active white South Africans was 5.1%, whereas the comparable rate among blacks was 31.5%, 22.4% for coloureds, and 15.8% for Indians (Statistics South Africa, 2005). Further, 65% of South African homes do not have access to one or more basic services such as adequate housing, education, drinking water, or sanitation (South Africa Human Development Report, 2003). As Moen and Wethington (1992) observe, macrolevel structural forces such as unemployment and lack of basic services constrain the repertoire of adaptations available to those coping with their effects. In this light, South Africa provides an apt context to investigate how consumers in subsistence markets cope with challenges they face. In addition, investigating this topic in a society in flux such as South Africa may provide access to perceptions

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and experiences that are present but less accessible to other subsistence consumer–informants. With these issues in mind, we began with the a priori research question, ‘‘How do subsistence individuals in South Africa manage their consumption lives?’’ As our research progressed, we refined this question to be, ‘‘How do subsistence families manage their consumption lives?’’ We made this shift in research focus because we found that consumption concerns of subsistence consumers center on family rather than individual wants and needs. We also found evidence that consumption decisions in this setting affect individual members, interpersonal relationships between family members, and the wellbeing of the entire family. Accordingly, we situate our research conceptually within family systems theory. Summarized by Cox and Paley (1997), the theory posits that families, such as a mother and her children, coordinate activities in interdependent ways. Family systems theory accounts for a mix of the individual level and interpersonal levels of analysis by recognizing that individuals are embedded within interrelationships among family members, which in turn are embedded within extended family, community, and society networks. An interdependent dynamic exists in families when concerns and activities of one family member affect the thoughts, feelings, and actions of another member during interpersonal interaction; that dynamic can also spread and reverberate to other levels of the family system. This dynamic is ongoing as individuals engage in day-to-day activities while acknowledging and acting on longer-term individual and jointly determined family concerns. Although the highly interactive and joint nature of family consumption has long been recognized (see Davis, 1976), Commuri and Gentry (2000) observe that theories appropriate to individuals still characterize much of family research today. Thus, family systems theory offers a potentially rich extension to extant family consumer research because it focuses on the highly interactive and joint nature of families and further connects families to extended kinship networks, the community, and society.

METHOD This study is part of a larger one in which interviews were conducted with 80 South Africans regarding consumption lifestyles in apartheid and postapartheid times (see Ruth, 2006). The research was conducted from 2003 to 2005 in large and medium urban centers in South Africa.

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Informants A subset of 27 interviews is the corpus of data for this study. The informants are ‘‘active, underserved’’ consumers (Prahalad, 2005, p. xiii) who had in the past, or have today, few resources in terms of employment, education, and/ or income; most grew up in and/or live in townships populated by black South Africans. These informants are consistent with South Africa’s ‘‘Emerging Consumers’’ who ‘‘are poor but get by’’ (Burgess, 2003, p. 165). The informants do not encompass those who are economically inactive or live agrarian lifestyles. Table 1 summarizes characteristics and circumstances of the informants, who are referred to by pseudonyms. Interviewers and Interview Procedures Interviews were conducted by the first author (white, female, 40s) and a graduate assistant (African-American, female, 30s) trained in interview research methods. Informants were recruited by either the first author or a marketing research firm. Informants received remuneration or a token of appreciation for participating. Interviews were conducted in private homes, community centers, offices, or public meeting places and typically lasted 1 hour. Interviews were conducted in English, with occasional translation assistance from Xhosa or Zulu to English. Interviews began with conversation to establish rapport and elicit background information on place of birth, residence, family status, and life experiences. Interviews proceeded in a semistructured fashion, covering aspects of lifestyle and consumption practices in apartheid and postapartheid times. Interviews were recorded and then transcribed for analysis. Analysis The analysis was interpretive and involved reading and rereading the text to derive theoretical insight on consumption practices among subsistence consumers. During this process, our research focus shifted from individuals to families and how they manage consumption.

INTERPRETATION Our interpretation begins by contextualizing the consumption landscape of subsistence consumers in South Africa, highlighting two key consumption

Demographic Profiles of Consumer–Informants.

Pseudonym

Sex

Race

Age

Family Status

Current Employment

Bulelani Butana Donovan Isaac Joan John Kehla Leah Mandisi Mary Mbuyisa Mfone Mkhangeli Ndeya Noziga Nokwazi Nomsa Pumla Rashieda Ron Shirley Sibongile Thobeka Thoko Toppie Zola Zolile

Male Male Male Male Female Male Male Female Male Female Male Male Male Male Female Female Female Female Female Male Female Female Female Female Male Male Male

Black Black Black Black Black Black Black Black Black Black Black Black Black Black Black Black Black Black Coloured Black White Black Black Black Black Black Black

50s 40s 40s 40s 40s 20s 40s 30s 50s 30s 30s 20s 30s 40s 40s 40s 50s 50s 30s 50s 50s 30s 40s 40s 30s 50s 20s

Married father of three children Father of three children Married father of three children Married father of four children Single mother of three children Single, no children mentioned Single, no children mentioned Single mother of one child Married father of two children Separated mother of three children Single, no children Single, no children Father of one child Married father of three children Married mother of four children Married mother of two children Single mother of one child Single mother of three children Married mother of three children Not known Divorced mother of three children Single mother of one child Married mother of three children Single mother of two children Single, no children mentioned Single, no children mentioned Single, no children

Unemployed Unemployed; occasional work Laid off and unable to find work Temporary, part-time road safety instructor Community liaison Pottery artist Part-time community organizer Laundry worker Housing organizer Recycling worker Music production assistant Ceramic artist Unemployed Teacher Mailroom clerk Teacher Nurse Self-employed as florist Laid off and unable to find work Teacher Debt collection assistant AIDS volunteer Teacher and guidance counselor Teacher Unemployed Political organizer Part-time food service worker

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Table 1.

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decisions faced by them. We then illuminate a repertoire of strategies enacted in managing consumption in this context. Consumption Priorities for Subsistence Consumers Although informants’ discussions were wide ranging, two consumption domains are central concerns for subsistence consumers in South Africa: obtaining adequate housing for the family and high-quality education for children. Table 2 summarizes apartheid and post-apartheid era consumption environments for these concerns and consumers’ beliefs about them (see Thompson, 1990 for more on apartheid policies and their effect on quality of life). First, living conditions are a central concern for subsistence consumers. During the apartheid era, where and how one lived was highly constrained. For example, with the passage of the Group Areas Act of 1950, people of color were forcibly removed from areas reserved for whites and relocated to townships (‘‘locations’’) segregated by race. Quality of housing in townships and informal ‘‘squatter’’ settlements was poor. Today, quality of housing varies across residential areas, which are still largely segregated by race. Although strides have been made since the end of apartheid to offer basic housing to the subsistence market, many still live in crowded homes without running water, electricity, or adequate building materials. Mary is a mother of three children who earns modest wages as a recycling worker. She lives in a shack in a crowded informal settlement where families cook with paraffin. A cooking fire in one shack can spread within minutes across the entire area, putting Mary’s family and other families at risk. We are four [people] in that shack. Two rooms. The other side for cooking and food; the other side separated from, for sleeping. So it’s not good for me and my family to stay like that. No water. No flushing toilets. The water is very far away from me, so if a fire comes, no help, you see? Like Sunday morning, there was a big fire, very big. I think 50 shacks were burned y I would like to live myself freely, because we’re not free now in the shack. Because any time the fire comes, no matter, midnight y when we are sleeping, I say to the children, ‘‘Wake up! Wake up! Wake up! (clapping of hands) Fire is coming!’’ [ y If I had a house the children] will be so happy! They will be so happy y The first day [when I have a house] I will call the people to clap their hands and make a chorus, to pray to God! I will be very happy.

Second, South Africans pay annual school fees for children to attend public schools. Because families see high-quality education as an investment in a better quality of life for the next generation (Anderson, Case, & Lam, 2001), many subsistence families struggle to pay for more expensive, higher-quality

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Table 2.

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Central Consumption Concerns of Subsistence Consumers in South Africa.

Consumption Concern

Apartheid Era Consumption Environment

Post-apartheid Era Consumption Environment

Housing: obtaining adequate housing for the family

Housing was highly constrained by race-based laws and policies. For example, with passage of the Group Areas Act in 1950, South Africans of color were forcibly removed from racially diverse town centers to townships (‘‘locations,’’ ‘‘areas’’) segregated by race. Housing quality and community character differed widely by residential area.

Education: obtaining quality primary, secondary, and tertiary schooling for family members

Education was highly constrained by race-based laws and policies. School enrollment required payment of annual fees. ‘‘Learners’’ attended school in their segregated residential area. Educational opportunities and education quality were inferior for people of color, especially black South Africans.

Although there is greater choice, legacies of apartheid constrain housing opportunities. While some families move to more desirable, expensive residential areas (e.g., a black family moves to an area previously reserved for whites), residential areas remain largely organized by race. Housing quality and community character differ widely by residential area. Although there is greater choice, legacies of apartheid remain. Accessing high-quality educational opportunities requires paying high annual school fees, which is difficult for subsistence consumers. There is a widespread belief that quality differences persist by school location (i.e., a proxy for race).

schools that were off-limits in the apartheid era due to restrictions based on race. Mandisi is a housing organizer and is the married father of three children: We used to study at the [township] location but now they [his children can] study in town, with Indians, coloureds, whites, everything in the same classes y [The township schools have] no value, no value. Grade 10 there [in town] and Grade 10 [in the township] does not even come close y . [In town] they’ve got good-quality teachers. Good facilities. Teachers who care, who prepare their lessons y . They’ve got everything. You see, even they’ve got computers there. They’ve got no computers here y . That’s why

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Resources must be generated to satisfy these two key consumption concerns. Family systems, consumer behavior, and economic theories incorporate notions of resource generation and resource allocation into how families and households manage consumption (Voydanoff, 1990; Davis, 1976; Commuri & Gentry, 2005; Becker, 1981). Resource generation involves both material (e.g., wages) and nonmaterial (e.g., time) assets that are brought into the family. Resource allocation refers to ‘‘the flow and management of resources from the point at which they enter the household to the point at which they are expended’’ (Commuri & Gentry, 2005, p. 186). Families’ subsistence needs are met when the inflow of resources meets, but does not exceed, the outflow needed to provide basics such as food, shelter, and education. Our analyses show South African subsistence consumers explicitly and inextricably link resource generation and resource allocation, as these families have few economic resources with which to satisfy basic consumption needs. Many individuals are under- or unemployed, including Butana, a 42-year-old father of three children who has been unemployed for a number of years. It’s everybody’s problem. Unemployment y . Because here [in the township], nobody’s working now. And you must pay electric. You must pay all these things, to go to school y . [Before] I was self-employed because I was selling clothing here at home. But there’s no business y . No income again. But we survive.

As such, subsistence consumers have resources that are at or below what is needed to provide shelter, education for children, and other basics such as food. How do they manage consumption under these circumstances?

Managing Through a Repertoire of Coping Strategies Analysis of the experiences of subsistence consumers reveals that the everlooming gap between resource generation and resource allocation creates stress and calls for strategies to cope with ongoing adverse or worsened conditions for the family. Strategies ‘‘are the actions families devise for coping with, if not overcoming, the challenges of living, and for achieving goals in the face of structural barriers’’ (Moen & Wethington, 1992, p. 234). Fig. 1 visually depicts and Table 3 summarizes six coping strategies we found were used by subsistence consumers to adapt to the possible shortfall

A Family Systems Interpretation of How Subsistence Consumers Manage

Fig. 1.

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How Families Manage Consumption Under Subsistence Conditions.

in resources available to allocate toward basic needs for the family. The repertoire of coping strategies includes (1) adhering to resource generation opportunities, (2) accessing new resources, (3) talking to family members, (4) trying and striving, (5) sacrificing, and (6) risking. Table 3 summarizes characteristics associated with these strategies, including precipitating conditions, who enacts the strategy, the challenge to overcome, whether the strategy involves resource generation or allocation, and the strategy’s effects on individual and family well-being. As these strategies are enacted, meanings within the family are created and changed. We present each strategy separately for ease of presentation, but note that strategies are sometimes used together or contemporaneously. Italicized portions of verbatim quotes indicate the coping strategy and/or family systems qualities associated with the strategy.

Adhering to Resource Generation Opportunities Voydanoff (1990) finds that resource allocation, and family economic wellbeing stemming from it, is tied to the number of earners and amount of income they bring into the family. Partly due to awareness of unemployment rates in the country, subsistence consumers adhere to, or remain in, resource generation opportunities despite the negative qualities associated with them, such as the job being unstable, outside of one’s field of training, or

Repertoire of Coping Strategies Used by Subsistence Families in Managing Consumption. Precipitating Condition

Who Enacts the Strategy

Challenge to Overcome or Achievement to be Accomplished

Resource Generation or Resource Allocation Strategy

Effects on Individual and Family Wellbeing

Adhering to resourcegeneration opportunities: Wage earner remains in current employment, even if negative

Ongoing struggle based on macrolevel structural constraints (i.e., high unemployment)

Wage earner in subsistence family

Attempting to retain material support for self and the family

Resource generation strategy

Accessing new resources: Gaining resources from new sources within or outside of the family

Change in family’s circumstances (e.g., death of parent) involving loss of material or nonmaterial resources within the family

Parent or caregiver and/or substitutes ‘‘stand in’’ to play roles not being played by those typically assigned to those roles

Attempting to replace lost material and/or social support for the family

Resource generation strategy involving material and/or social support

Talking to family members: Communicating and sharing information about circumstances and constraints affecting the family

Many varied circumstances elicit talking

Parent or caregiver; sometimes children enact the strategy to challenge or reassure parent/ caregiver

Attempting to reframe situation for acceptance of challenges and constraints facing the family

A coping strategy that does not require material resources

Individual-level stress and negative emotions such as fear of loss of employment; family economic well-being is maintained Changes the thoughts, feelings, actions of newly responsible party (i.e., fear, resignation); reorganization of family unit and/or role responsibilities Solidifies family relations; accomplishes socialization

JULIE A. RUTH AND RACHEL OAKLEY HSIUNG

Strategy and Description

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Table 3.

Wants and needs in family are going unmet

Typically parent or caregiver

Attempting to generate resources to address wants and needs in the family and ensure future well-being

Resource generation and resource allocation are involved, even if not successful

Sacrificing: Choosing between two alternatives when choice entails forgoing something for the sake of obtaining something of value for other(s) Risking: Choosing between potentially hazardous alternatives, each associated with a high probability of negative outcome(s)

Wants and needs of a family member or family unit are going unmet

Typically parent or caregiver for benefit of child/ children

Attempting to meet family member(s)’ unmet wants and needs or advance opportunity for member(s) in the family

Reallocation strategy that shifts resources from family member(s) to family member(s)

Family or members are exposed to vulnerabilities; situation may approach crisis stage; few options left to choose from

Parent, caregiver, and/or family

Attempting to preserve individual and family wellbeing

Resource allocation strategy decision

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Can communicate an attempt to carry out role responsibilities to improve individual and family wellbeing; can communicate caring within interpersonal relationships and the family unit; can accomplish consumer socialization Individual(s) who sacrifices can feel a loss and/or positive about doing something for someone else; well-being of beneficiary(ies) may be advanced Increased or decreased individual and/or family well-being; increased wellbeing is not ensured; may expose individuals and family to new vulnerabilities

A Family Systems Interpretation of How Subsistence Consumers Manage

Trying and striving: Making an effort to meet current needs and vying to accomplish something of greater benefit to the family or its members

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unpleasant. Zolile’s employment is limited to occasional work as it becomes available. Yes, it’s not very stable. It’s sort of like a part-time job. The people that I know are in the industry so I get calls [and the caller describes a one-time catering job and says] ‘‘Come, let’s do a big function.’’ y But anyway, I’m not working full time y . It seems like I’m stuck with it, so to say y . People are so despairing because of being without a job. I’ve never had formal employment. I’ve been part-time employed all the time y . That’s my struggle y . If I don’t get up I won’t have food on the table. I have to go to work to get some food.

Employment instability and employment uncertainty contribute to economic distress and stress (Voydanoff, 1990), which are evident in the experience of subsistence consumers. Moreover, these wage earners relate their own, individual-level uncertainty about work to concern for their families. The interdependent nature of adhering to employment is reflected by Shirley, a 48-year-old divorced mother of three teens. She was unemployed for 12 years and the family was on the brink of homelessness before she secured a job as a debt collector. I’m a debtor’s clerk. If you don’t pay the account, I’ll phone you and ask you why. It’s a terrible job. I hate it y . I don’t like my job, but I have to work. For me to leave y to get a job, it’s difficult, especially here in South Africa y . So I just stick it out y . It’s horrible because I’m too soft for that job y . I’m stupid if I leave it y . If I said I don’t want to do this, I’m not going to do it, then I’m stupid. I’m not thinking of my kids y . At the end of the day, you’re going home to those kids.

Adhering to resource generation opportunities is consistent with how people cope with stress; as Hobfall (1998) acknowledges, their first efforts are to preserve resources they already have and to guard against resource loss or diminishment. Additionally, adhering to employment is highly interdependent because the decision to stay, and its accompanying resource generation, affects many family members currently and, in the case of children’s education, in the future.

Accessing New Resources Subsistence families sometimes find themselves in changed resource generation circumstances when events occur, such as death of a family member, separation or divorce from a wage-earning partner, or loss of employment. Such transition events (Cox & Paley, 1997; Voydanoff, 1990) are stressful and precipitate a need to access replacement resources. We observe that these new resources are of one of two forms: (1) material support such as

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financial resources or a home or (2) nonmaterial social support such as time and role substitutions for people who are absent. For example, when asked how she ‘‘got by’’ after her divorce and during 12 years of unemployment, Shirley indicated that her parents provided material assistance, saying: ‘‘My parents were both still alive [then]. They’re gone now y . So the kids have had very little. I mean the eldest one, I would say he had the most because my parents were alive.’’ Such material support is consistent with Stack and Burton’s (1993) observation that various forms of human, social, and economic capital in the kinship network are assets that can be strategically (re)deployed across existing family system boundaries (i.e., from her parent’s family system to Shirley’s), representing an interdependent strategy for coping with stress (Hobfall, 1998). Zola demonstrates that when a family member is absent, both material resources and nonmaterial role substitutions often flow into the family. Now a 50-year-old part-time political organizer, as a younger man Zola was on a pathway to establishing his own career and household when his sister died. He stepped in as a substitute parent for his nieces and nephews. I couldn’t finish my studies because of financial problems. My mother was not working, my father couldn’t manage the financial strain y . So I started to look at a career, which helped me to [pay for] study y . When my sister passed away, I decided that was enough for myself because I was an older one to them [his sister’s children], and they needed to go back to school and there was no money to go back to school y . What were they going to do? They would go and steal in the township, you know? [My sister] was never married y . I have to take responsibility. That’s the way I grew up. Difficult times. Difficult times.

As Zola transitions from a more distant kin role (i.e., uncle) to a parent-like role, his relationships with the children become more direct. Family structure is fluid because boundaries are reshaped as members enter and exit the family unit. Accessing new resources in ways that reshape the family unit is consistent with what Moen and Wethington (1992) call ‘‘adaptive self-organization’’ of the family system. That is, stressful events prompt transitions such that subsistence consumers engage in ‘‘psychological reconstructions of the relationship between people’’ (Duck, West, & Acitelli, 1997, p. 4), and family systems boundaries are redefined.

Talking to Family Members Talking is a nonmaterial coping strategy for addressing ‘‘the regulation of emotions and meanings associated with economic distress’’ (Voydanoff, 1990, p. 1107). Talking works in different ways. For example, talking can

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help modify emotional reactions elicited by stressful events such as gaps between resource generation and allocation needs. Talking also can serve as social support when guidance is communicated about dealing with, and changing, these stressful events (Heller & Rook, 1997). As such, talking can be a resource for family members and also a mechanism of information flow and transmission of norms and values (Parke et al., 2006). When viewed individually, talking can alleviate negatives of stressful events through (re)appraisal processes, consistent with Lazarus (1991). For example, Mary talks to her children to provide information that will permit their reappraisal of the situation away from anger. You see, ever since I separated from my husband, I never get any help from him, so my children know that if Mama says, ‘‘No money for clothing. [There’s] no money.’’ They know that. Although they are looking very angry to understand but I sit down and teach them.

Additionally, talking serves the interpersonal function of maintaining and sustaining relationships among family members, such that talking can be described as relating itself (Duck, 1994). The talking between family members can create and change the meaning of consumption decisions to make them more palatable, thereby reducing stress within family relationships. At the same time, talking can reinforce family members’ sense of self-worth, feelings of belonging, and feelings of a shared purpose, all of which help to collectively buffer them from stress (Simpson & Tran, 2006). Although parents typically initiate talk, we also observe that children in subsistence families sometimes engage in talk to comment on situations in which resource generation falls short of wants and needs, as described by Shirley: I mean any child, especially at that age, they want the branded names. I can’t afford that. I earn too little money to buy them y . I can’t do that y . So I just go and buy the cheaper brand. They look alike. I mean they accept it. I mean my eldest one [does] not because my mom spoiled him. [When his grandparents were alive if] he wanted that 600 Rand [item] he’d get it. But y my other two [will say] ‘‘Mommy, no, it’s too much money [to get the name-brand sneakers]. Just get that one. It costs 50 Rand.’’ And they’ll be happy with that. So there’s a lot of conflict between them y between the two [older siblings].

Resource allocation can also be addressed through talking and result in communication about consumption skills and values. Leah is a 34-year-old laundry worker and single parent. She describes her daughter’s consumption desires and says of her daughter that: She likes nice things. She was dreaming y . She likes clothes, and she likes brand [name] clothes. She likes that y . She likes to buy a name brand y [but it’s] very difficult because it is too expensive y . Yes, it is too expensive. She doesn’t want to go to cheaper

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shops. I said to her she must mix it y . She realizes because I gave her the money. I didn’t go to buy for her. I gave her the money so she knows.

Consumer socialization is a ‘‘process by which young people acquire skills, knowledge, and attitudes relevant to their functioning as consumers in the marketplace’’ (Ward, 1974, p. 2). It occurs primarily through children interacting with parents or those in parental roles. In addition to talking, by providing her daughter with the means and opportunity to enact resource decisions, Leah makes her daughter’s active learning an integral part of the consumer socialization process. Both talking and deciding represent a direct, active, intergenerational transmission of consumption skills of the sort identified by Viswanathan, Childers, and Moore (2000), which may help children develop abilities to deal with current resource challenges as well as future ones. Donovan’s experience illustrates how talking functions as a resource and also the toll exacted when it is not available in the coping repertoire. He is the father of three children: two sons with his wife and a daughter born to another mother. Donovan tries to support both families, but reports the mothers hate each other and his wife will not let him or his sons talk about the other family. The difficulty of supporting two families is exacerbated by being unemployed for 2 years; Donovan reports his marriage is suffering and believes he is failing his children. There was hatred between the two mothers. It makes it impossible to be able to interact with my daughter. That worries me a lot. If I want to do something for my daughter, it’s like I have to steal my own money to do something for her. Because I cannot say, ‘‘Okay, my wife, my daughter needs these things and I want to do it for her.’’ I cannot do that. Even when I was working, I couldn’t do that. I had to do it behind her back because y she didn’t want it to happen y . It got so ugly y . I’m even scared to go and visit her. She will expect me to give her some pocket money and I can’t. It’s so ugly, but I love her very much y . It’s my life. I can’t run away from it. [But] I always believe that if I talk about it, maybe things will be different. If there’s somebody who’s listening to it, things may be different.

Donovan cannot relieve his distress about his daughter by talking with his wife or by suggesting reallocation of the family’s resources to meet his daughter’s needs. Moreover, he is afraid to see his daughter because she might ask him directly for financial help, which he cannot provide.

Trying and Striving We observe that subsistence consumers engage in trying and striving as a means of coping with adverse circumstances affecting the family: primarily

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the need to balance resource generation and resource allocation. According to Bagozzi and Dholakia (1999), striving is the formation of a goal intention targeted toward a particular outcome, and trying is the instrumental behavioral act that is executed to work toward an intended goal. Subsistence consumers set interdependent goals, such as obtaining high-quality education or a treat for children, and then engage in subordinate goal behaviors in the attempt to satisfy them. For example, Mary states that her children request treats and that she occasionally tries to satisfy these requests, telling her children, ‘‘If I haven’t got the money to buy the chips [at] this time, then I will try to get them, maybe the end of the day.’’ Interdependence is evident because the tryer/striver is not necessarily the only or main beneficiary; others in the family are implicated. Isaac is the father of four children, and he is striving to provide a good education for his children. Not only does his temporary part-time job as a road safety instructor create employment uncertainty and stress for him, but adhering to this resource generation opportunity also entails the stress of being separated from the family as he travels to far-away communities for his job. It did affect me. The first week [on the job] I was at Umngazi for the week, and I said, ‘‘No, no, no, no! I think I [should] drive back to my home now. I just want to see my wife and my children!’’ y I even phoned them [saying,] ‘‘No, no, no, I can’t stay here!’’ [But] it was an opportunity because it was a job y . There are four children [and] I just need something for them y It’s not enough for them. For me it’s not enough. Things are expensive. They y must have transport to go to school and new things. So I even [told] my wife last year to go back to school [to improve her job chances] because they must have something y . I think that they [will be] successful now. I think so because I’m pushing, I’m pushing. And thanks God, nobody wants to be a doctor anyway y it’s not quite so expensive.

Isaac engages in trying behavior as he starts his new job, electing to continue with it despite the pain of being away from his family. He exhibits trying and striving by ‘‘pushing’’ himself and his children. His wife’s return to school also demonstrates trying and striving, providing further evidence of interdependence because she takes on a new role – student – that requires resources allocated in the short term to help achieve a more distant, long-term, and interdependent goal of enhancing educational opportunities for the children. Interdependence is evidenced when Isaac acknowledges, and is relieved by the fact that, at least the children’s career goals do not include even larger resource allocation needs (i.e., costs associated with studying medicine), which eases the stress he feels about resource generation both now and in the future.

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Trying entails behaviors undertaken in the present to realize goals that may or may not be articulated and are typically abstract and distant, thereby implying an effort to balance current and future resource generation with resource allocation needs. To the extent that trying and striving are discussed within the family and to the extent that trying behavior is observable by family members, this coping strategy may communicate a message that effort is being expended to improve family well-being. Pumla is a 50-year-old mother of three children: I am a single parent now y . I am suffering, because really she [a daughter has] got a father, but he doesn’t want to give us money y . If we want money, he won’t give anything. Nothing. I push myself [in managing] this flower business y . My kids, sometimes they ask me, ‘‘Why are you always so busy? You get nothing from this [florist business]?’’ [I say], ‘‘One time you will be in the struggle [and will know] that your mother has done something.’’ y I get money and I pay the school fees and pay everything – the bus fare and [for] some food to eat at home. We must get something to eat at home. I am trying all my best. My children know [and think], ‘‘My mother is struggling for us.’’

Even if not successful in generating resources, this strategy can communicate that role responsibilities are being carried out to improve individual and family well-being. Although trying itself can be stressful, the message communicated by these efforts can dampen negative emotions through reappraisals of the situation. Trying and striving involve reciprocity when family members receive the trying and striving message, evaluate it, and return the message that the lesson has (or has not) been learned. According to Heller and Rook (1997), positive reception of this message affirms the role performance of the family member who is trying.

Sacrificing According to Cox and Paley (1997), families can engage in ‘‘adaptive self-stabilization’’ to compensate for changing conditions in the environment. They do so by making coordinated adjustments in the internal workings of the family system. One form of adaptive self-stabilization is sacrificing, by which coordination occurs as one family member ‘‘does without’’ to advance the satisfaction of wants or needs of another family member, making it a highly interdependent coping strategy. Drawing on gift-giving literature, we understand sacrifice to involve selfless generosity in the shift of money, time, or effort resources (Belk, 1993). Sacrificing communicates caring and validates the importance of the relationship. Shirley

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routinely puts aside her own (possible) wants and needs in favor of her children: Shirley (S): I love anything the kids do. I’ll die for those kids. Interviewer (I): y How about for yourself? If you could do something for yourself. S: I never do anything for myself. I always put my kids first. I: y But if you did? S: I wouldn’t know! I wouldn’t know! I don’t know, probably filling our house with groceries, knowing me. If I’d got money, I’d do that.

When two positively valued alternatives are present, investment in children often takes precedence over others’ wants and needs because of the drive for children to have a better chance in life. These considerations are consistent with the value placed on intergenerational mobility described by Moen and Wethington (1992). Usually an adult makes sacrifice decisions and does so by trading off benefits that would accrue to the self to advance the wellbeing of children. As such, sacrificing is a combination of resource generation and resource allocation, since resources are freed up and allocated anew, as exemplified by Pumla. I know also myself. I know where I come from, because I come from a poor family. I mustn’t think of myself. I must also think for the other. Then I get also the blessing y . We got something for our children. I paid all my children’s school fees. I was happy. I don’t care to even buy myself clothes because I wanted to give to my children.

Sacrifices such as Pumla’s are interdependent because her sacrificing benefits other family members, and her selfless generosity and expression of love strengthen relationships with her children. Accordingly, Pumla’s description of sacrificing illuminates how consumption decisions and effects reverberate throughout family systems, in multiple and sometimes offsetting ways. Multiple senses of well-being coexist at the individual, relationship, and family levels of analysis. Consistent with Netting, Wilk, and Arnould (1984) and Cox and Paley (1992), these different levels of analysis within the family are not mere summations of each other. From a family perspective, by investing in her children’s future, the well-being of the whole family is enhanced. Risking In contrast to sacrificing, the risking strategy occurs when resource allocation decisions have high probabilities of negative outcomes. The risking

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strategy is consistent with Mandel’s (2003) conceptualization of risk as involving the severity of an outcome and the probability of that outcome occurring. Also consistent with Thompson (2005), we observe that risk associated with a particular alternative is difficult to assess, unfolds over time, and can be judged differently by different social agents. Still, at the heart of risking is the notion that, as Sameroff (1983) has shown, actions taken to adapt to challenges sometimes open up families to a new set of life vulnerabilities that go beyond those associated with difficulty navigating marketplace settings (cf. Baker, Gentry, & Rittenburg, 2005). Thoko is a 48-year-old single mother of two school-aged children. She faces a consumption decision about where to live, choosing between two alternatives with high probabilities of negative outcomes: remaining in her mother’s unsafe and unhealthy home versus moving to a safer home that risks financial ruin because of the high mortgage cost. I’m paying too much for the bond [mortgage] y [plus] I have to pay for [school fees for two children]. Sometimes I have to borrow some money from the bank or from the loaners to cover it. Oh, firstly, it was stressful because I was getting [paid] little. I had to pay for the house and I was left with nothing, and I have to do something for my kids y like buying groceries and other things y . Before the bond, I was staying at home [in her mother’s house]. So since I’ve got kids of my own I decided to look for shelter, so they could be free. I wanted them to grow under my own control and by that time there was unrest in the township y so I had to take them away from that y . And we were living in this fourroomed house. More especially my little boy was not safe, because sometimes they [the gangs] used to come and say, ‘‘Hey, you’re a man now. Let’s go and do something outside!’’ y Sometimes they want the boy to identify himself, but it was very dangerous y . Once you identify yourself [with one group] it means you are in danger y . Sometimes you will be killed. At one stage, my neighbor y was shot dead y . That’s why I decided now to move to the suburb y . [Before] it was packed, with double bunkers and beds. Maybe two were on top, two per bed, you know? It was unhealthy. The one bedroom was for our kids and the other bedroom was for [the adults]. So now we were also packed there and my two brothers were sleeping in the sitting room on the couch y . So it was unhealthy y . It was not safe at all. I was [and am] stressed financially y . [My children] were frustrated y because they were fond of the friends [in the township].

To achieve a sense of safety for her family, Thoko elects to move from the crowded, unsafe, environment of her mother’s home. Moving to the suburb elicits individual-level stress for Thoko. Moreover, her children are initially unhappy because of the loss of township friends, and Thoko faces the possibility of financial ruin. Shirley also chooses between two risky consumption alternatives: remaining virtually homeless by continuing to live in a camper caravan versus moving to a home in a dangerous area. Because she cannot afford the home

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on her own, she elects to partner with a man for whom she shows little enthusiasm, which involves vulnerability beyond the consumption domain. We had to take whatever we could get because we were living in a caravan for a couple of months. So we had to take this house. But it’s in the middle of the dagga [marijuana], the smoking, the drug area. And my kids are that age, so you live in fear every day that your kids are going to come home and they’re also doing it. If I could get there, I would, [to] a decent area y . We are living with a guy at the moment. We are sharing the house [rent]. [Back then] we didn’t have a place to stay so we borrowed a caravan y and we lived out of this caravan for three, four months. In winter. It was not nice y . [The kids felt] humiliated y . It’s not private, it’s too crowded. It was very uncomfortable. But they [the children] survived y . We’ve always been short. We’ve never had everything.

The probability of negative outcomes highlights the precariousness of subsistence consumers who, by definition, have few or no economic reserves to buffer them if the gamble fails. When the family situation approaches a crisis stage – such as being on the brink of homelessness – we observe that risking strategies are undertaken because there are few other alternatives. As Gottman (1991) notes, when families are pushed beyond critical thresholds – as is likely with risking strategies – a cascade of effects can occur. Without any offsetting reserves to temper possible negative outcomes, a family’s losses tend to accelerate and shared stress can increase (Hobfall, 1998).

DISCUSSION Prahalad and Hammonton (2002, p. 54) suggest that multinational corporations should create the equivalent of the Peace Corps, so that ‘‘young managers spend a couple of formative years in bottom-of-the-pyramid [subsistence] markets [to] open their eyes to the promise and the realities of doing business there.’’ Our research provides a theoretically based management primer on the sociocultural and economic marketplace realities faced by consumers in subsistence markets and the coping strategies they enact as they manage their lives. Our research shows subsistence consumers manage in part by attending to, and attempting to satisfy, family-level rather than individual wants and needs. That is, consumer–informants’ key concerns are interpersonally rather intrapersonally defined and are coupled with largely interpersonally based strategies enacted within family systems to best cope with meeting today’s immediate needs for survival while also advancing the family’s intergenerational mobility aspirations. Our research also illuminates dynamic qualities across individual, interpersonal, and family levels and accounts for how subsistence families access

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support across an extended kinship network. We find that subsistence families rely not only on material support but also on nonmaterial support in the form of assurance, relationship validation, and emotion management stemming from (re)appraisals of the situations they face. Subsistence consumers accomplish these things through a repertoire of coping strategies illuminated through our interpretation. We now discuss these results in light of generalizability to all subsistence consumers and to families in general, the extent to which these coping strategies actually improve well-being, guidance for firms targeting subsistence consumers, and implications for consumer research.

Further Insights on Subsistence Consumers and Families One can ask the extent to which these results reflect all subsistence consumers rather than those in South Africa. On the one hand, it can be argued that apartheid was a uniquely pervasive and invasive system limiting opportunities for a majority of South Africans for generations and that apartheid’s legacies make South Africa a unique consumption landscape. On the other hand, many of the structural forces stemming from apartheid – such as high unemployment and inadequate basic services – are common to many subsistence markets. In addition, the explicit and inextricable link between employment and family well-being is likely shared among subsistence consumers around the world who are operating in money-based marketplaces. Still, it is important to recognize two aspects of our findings that may play out differently in other markets. First, as shown by Burgess and Nyajeka (2005), national cultures differ in embeddedness, or the degree to which social relations are valued. Afolayan (2004) observes that South African values embody honoring and maintaining social relations and kinship ties, and so socially based coping strategies may be more prominent among South African consumers compared to other cultures. Second, although we did not observe evidence of children in subsistence families being sent to work, other cultures may place a higher value on children working and earning rather than gaining education as a means to increase family well-being. One can also ask to what extent these results reflect coping strategies employed by all families, not just those in subsistence settings. To address this question one can examine the conditions that precipitate use of the strategies we observe. For example, these consumers adhere to resource

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generation opportunities because, with the prospect of resources falling short of basic needs, families in subsistence settings are aware that they cannot reduce expenditures further. In contrast, those faced with a one-time or new disruption in earnings can attempt to reduce expenditures, as was reported regarding families affected by Hurricane Katrina (Liu et al., 2006) and families at the onset of the Depression (Elder, 1974). Moreover, while families with greater resources could do so, they will not find it necessary to choose options that have high probabilities of negative outcomes, as reflected in the risking coping strategy. Families with greater resources may have savings and disposable income, both of which can be tapped to use consumption itself as a mechanism to alleviate stress as Pavia and Mason (2004) found with breast cancer patients. In addition, accessing new resources from an extended kinship network may occur in families with greater resources, but the flow of resources may occur through voluntary mechanisms rather than necessity or obligation (e.g., grandparents offer voluntary gifts to grandchildren to shift resources from one generation to another). Although all families have the potential to transition family members between roles, fluid family structures and shifting role fulfillment may characterize subsistence families more than others. Burton, Allison, and Obeidallah (1995), for example, find that adolescent and parental roles overlap more in economically disadvantaged minority families in the United States than in other families. Stone (1979) finds families in more compared to less economically advantaged societies are seen, and see themselves, as more autonomous and with fewer kinship claims and responsibilities across family systems boundaries. On the other hand, strategies such as talking, trying and striving, and sacrificing are likely enacted by all families. Yet, it is important to recognize that talking and trying and striving do not require material resources to be enacted or successful. As such, they may be important in the coping strategy repertoire of families facing economic resource constraints. Indeed, talk may be a ‘‘free’’ but highly valued strategy that could be considered to be in unlimited supply.

Coping Strategies versus Strategy Effectiveness As Moen (1982) points out, it is important to recognize the difference between coping and effectiveness, as coping represents actions taken, whereas effectiveness involves evaluation of the success of those actions in addressing

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a problem. As Hareven (1991) notes, strategies that are adopted may or may not reflect the wishes of family members and may not represent an improvement in well-being for individual members or the family as a whole. For example, in sacrificing, the beneficiary may not perceive and value that benefit. Trying may not actually yield additional resources, or one family member may be trying and striving but that message may not be received or valued by other family members. Even strategies that move families forward in positive trajectories may have negative aspects associated with them (e.g., adhering to a disliked job), and their success is not guaranteed. Strategies such as accessing new resources or risking financial stability may create new vulnerabilities. For example, a move from a township to a previously all-white suburb may involve loss of an important and valued social network, as expressed by Thobeka, a 41-year-old teacher and married mother of three children, who made such a move: Township life is so nice y . If you’ve got your relatives and they come to visit you [in the suburbs] and they say, ‘‘This place is boring.’’ Because everything is happening [in the township]! People in the township share whatever they have and they like helping each other. If I don’t have salt in my house I can’t go to a neighbor [here in the suburb] and ask [for some salt], but in the township we always do that y . It’s that life.

In addition, sometimes a desired strategy may be blocked from use. Recalling Donovan, he would like to talk but his wife does not want to do so. As Blechman (1991) notes, sharing thoughts and feelings with a listener who shows interest is an emotionally soothing process; ineffective or nonexistent communication breeds stressful relational climates, which is borne out by Donovan’s assessment that his marriage is in trouble. Marketing to Subsistence Consumers Subsistence consumers need products and services that enhance not only individual but also family well-being. Thus, innovative offerings that truly address basic wants and needs – such as affordable housing and quality education for children – would be welcome. In addition, because they are struggling to maintain resource levels, any product that helps subsistence families spend less to meet basic needs would in theory free up funds for satisfying other needs. For example, during the apartheid era, retailing strategy was largely geared to meet needs of the white minority (see Ruth, 2007). As formal-sector retailers accelerate their entry into or nearer to residential areas populated by the ‘‘Emerging Consumer’’ market (Burgess,

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2003), transportation costs for subsistence consumers may be reduced, which in turn may facilitate resource allocation shifts toward other concerns such as children’s education. Further, products benefiting families or communities rather than individuals may be appropriate (e.g., computeror car-share programs). Marketing communications could also recognize the interdependence of subsistence consumers, linking products to benefits accruing not just to the individual but to the family as well. In addition, marketers would be wise to recognize that subsistence consumers are not necessarily choosing between two similar alternatives – such as School A versus School B for the child – but rather choosing between disparate alternatives such as food versus a safe home. Whereas consumer marketers targeting affluent consumers may typically consider competition to be within product category, a company targeting subsistence consumers should think differently about the ‘‘competition’’ that consumers are considering during decision making. In line with Johnson (1986), linking the firm’s offering to an abstract benefit – increased family well-being – may be a mechanism for communicating value among such noncomparable choices.

How Research on Subsistence Consumers Can Enhance Consumer Research Our study highlights intriguing areas for consumer research, including family decision making, the relationship between work and consumption, and other phenomena – such as materialism and trying – that may be revisited in light of their social foundations. Renewing Family Research Although many have pointed out that the joint nature of families distinguishes them from individual consumers, that joint nature has been difficult to capture. As Commuri and Gentry (2000) observe, few consumer studies have examined families as part of an interdependent, ongoing, and dynamic social system. Our research demonstrates just how joint and densely interpersonal family consumption decision processes are for subsistence families and, we suspect, all families. Our interpretation illuminates family functioning as a dynamic system that is a rich amalgam of the individual and the highly interpersonal as families adapt to ever-changing conditions. As recent research attests (e.g., Rindfleisch, Burroughs, & Denton, 1997; Commuri & Gentry, 2005) American families are shifting away from

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the two-parent family structure prominent in earlier research and toward a broader array including single-parent families, blended families, and those headed by cohabitating couples. Although our informants were not recruited to represent a wide range of family structures, the mix was quite diverse, with roughly half being single, a third married, and the rest either separated or divorced or their status was not mentioned. Our results show that subsistence consumers’ family structures are fluid, with reorganizations occurring in response to major transitions such as death of a wage earner or sudden unemployment. Although fluid family structure may be more prevalent among families facing prolonged periods of unemployment and those with little savings, our results suggest that a productive direction for future research is to consider whether a similarly broad array of American families demonstrates similarly fluid family structures along with use of a similar repertoire of coping strategies. Expanding Research on Work and Consumption Aside from notable exceptions (e.g., Alwitt, 1996; Hill, 1991, 2001; Hill & Stamey, 1990; Holt, 1998), consumer research typically assumes individuals have economic resources to allocate toward satisfying wants and needs, minimizing possible links between resource generation and allocation choices. Yet, consistent with Commuri and Gentry’s (2005) study of middleand upper-class wives and husbands, we observe that resource generation and resource allocation are inextricably linked in decision making among subsistence consumers. As such, there is an opportunity to address the multifaceted and perhaps profound relationships between consumption and resource generation in the form of work. Although some research has examined aspects of the work–consumption relationship – such as Tian and Belk’s (2005) study of consumers’ possessions displayed in office settings or Wooten’s (1995) research showing that consumption decisions are affected by the presence of coworkers versus family and friends – consumer research has generally overlooked issues central to the bidirectional relationship between work and consumption. For example, future research should examine how resource generation supports and constrains identity projects, how consumption enables achievement of work-related goals and accomplishments, and how consumption is affected by work. Incorporating Social Views of Consumer Phenomena As we have seen, decision making among subsistence consumers is largely interpersonal rather than intrapersonal, underscoring the need to embrace social views of consumer behavior. For example, our results suggest it

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could be productive to reconsider two concepts – materialism and trying – as social phenomena. Regarding materialism, Rindfleisch et al. (1997) relate a family member’s materialism to individual well-being. As we find, particularly with sacrificing, well-being can be considered simultaneously for individuals and the family as a whole and can even serve as a family goal to be strived for over time. Our study illuminates interpersonal dynamics of well-being, suggesting that family well-being complements the more individual sense of well-being as described by Rindfleisch et al. (1997). Future research can explore how materialism relates to this wider sense of well-being, which might shed light on the role of socialization in, and the transmission of, notions of family well-being. Similarly, our interpretation suggests that the largely intrapersonal framework of goal setting and striving developed by Bagozzi and Dholakia (1999) could be extended by addressing social conditions that precipitate trying and striving, the effects trying and striving have on interpersonal relations, how families engage in trying and striving, and whether and how family systems develop around joint goals.

LIMITATIONS AND CONCLUSION Our research was limited to subsistence consumers in urban settings of South Africa and did not address those living agrarian subsistence lifestyles. Also, as Moen and Wethington (1992) observe, it is open to question whether families themselves view as strategies the actions we have labeled in this way. Although we call for research embracing a social perspective, an interview with an individual family member represents only one view of family dynamics. So, to be truly social in nature, the perspectives and experiences of other family members should be acknowledged and incorporated directly into the research method. Still, the concept of coping strategies underscores the notion that, in the face of macrolevel structural forces like high unemployment, subsistence consumers are active in choices shaping family life. This study of South African consumers has illuminated family dynamics, coping strategies, and consumption practices of families in subsistence conditions, and future research should be extended to such consumers and families in other parts of the world.

NOTES 1. Following Henderson, Williams, Grantham, and Lwin (1999), people of color is used to describe nonwhites.

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2. During the apartheid era, South Africans were identified and labeled according to physical traits associated with race such as skin, hair, and eye color. The term race is still commonly used in South Africa and by South Africans. The term race rather than ethnicity will be used throughout (see also Grier & Deshpande´, 2001).

ACKNOWLEDGMENTS The first author appreciates assistance provided by Bridget Britton, Natalie Cox, Susan King, Cal Maradonna, Gayle Porter, and the many individuals who transcribed hours and hours of interviews. The authors appreciate helpful comments provided by Suraj Commuri, Cele Otnes, Jose´ Antonio Rosa, Madhu Viswanathan, and the participants of the Conference on Product and Market Development in Subsistence Markets at the University of Illinois – Chicago.

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POTENTIAL VULNERABILITIES OF U.S. SUBSISTENCE CONSUMERS TO PERSUASIVE MARKETING COMMUNICATIONS Jerome D. Williams, William J. Qualls and Nakeisha Ferguson ABSTRACT A significant share of U.S. subsistence consumers is both poor and functionally low-literate. A key question that marketers and public policy makers must ask is how vulnerable these consumers are to the persuasiveness of marketing communications. We address this question by identifying who subsistence consumers in the United States are likely to be, exploring what it means to be vulnerable, with an emphasis on cognitive vulnerability; examining two theoretical frameworks for analyzing subsistence consumer vulnerability (elaboration likelihood model and persuasion knowledge model); and offering several propositions incorporating the select cognitive constructs of self-esteem, locus of control, and powerlessness.

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 89–110 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20004-X

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INTRODUCTION On a global scale, consumers at the lower socioeconomic levels, often referred to as subsistence markets, or sometimes as those at the ‘‘bottom of the pyramid’’ (Prahalad & Hammond, 2002), typically have been neglected by both marketing practitioners and academicians. The same can be said about subsistence consumers in the United States. As noted by Andreasen (1993), in the past, contributions by the academic community have been limited in attempting to understand issues related to the disadvantaged consumer, and there has been a lack of persistence in researching problems that do not lend themselves to easy solutions. A significant share of U.S. subsistence consumers is both poor and functionally low-literate. (Note: We prefer to use the term ‘‘low-literate’’ throughout this chapter, as opposed to the more widely used term ‘‘illiterate.’’) For example, according to the latest U.S. Census data, the official poverty rate in 2005 was 12.6%, with 37 million Americans living in poverty (U.S. Census Bureau, 2006). Additionally, 45–50% of the U.S. population is classed as functionally low-literate, scoring in the lowest two levels of literacy function tested (Adkins & Ozanne, 2005). A key question that marketers must ask is: How vulnerable are U.S. subsistence consumers to the persuasiveness of marketing communications? In this chapter, we will analyze to what extent U.S. subsistence consumers are more susceptible to persuasive marketing communications and hence more vulnerable to aggressive marketers who may wish to tap into the market potential of this segment and perhaps exploit these consumers. Given the already existing plight of subsistence consumers due to lower income and literacy levels, it is important to understand whether increased marketing attention will further exacerbate the problems these consumers already face. We first identify who subsistence consumers in the United States are likely to be, with an emphasis on race/ethnicity and literacy. We next address a core concept in regard to subsistence consumers, namely, vulnerability. We identify various kinds of vulnerability, with a focus on cognitive vulnerability. We also discuss the two dominant schools of thought in viewing consumers as following either the ‘‘competent’’ or the ‘‘vulnerable’’ consumer model. We then examine two theoretical frameworks for analyzing vulnerability, namely, the elaboration likelihood model (ELM) and the persuasion knowledge model (PKM). We end by offering a number of propositions, which incorporate select cognitive constructs such as self-esteem, locus of control, and powerlessness, to advance our understanding of subsistence consumers’ susceptibility, and we conclude with comments on where we go from here.

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WHO ARE SUBSISTENCE CONSUMERS IN THE UNITED STATES? Subsistence Consumers and Race/Ethnicity When identifying subsistence consumers in the United States, it becomes difficult to disentangle this from a discussion of racial/ethnic minority consumers, particularly African Americans and Hispanics. This is because the demographic characteristics of subsistence consumers are highly correlated with the demographic characteristics of these consumer segments. For example, in terms of education, racial/ethnic minority consumers generally are likely to have finished fewer years of school. Additionally, they are more likely to be geographically limited in their consumer experiences and have fewer opportunities for a variety of shopping experiences. All of these factors, in addition to their lack of financial resources and, for some, use of a primary language other than English (e.g., disadvantaged Hispanics), limit their opportunities as consumers. More specifically regarding income, we know that income disparities continue to exist and that African American households have the lowest median income of all racial/ethnic groups. Their 2003 median income was about $30,000, which was 62% of the median for non-Hispanic White households (approximately $48,000), compared to $33,000 for Hispanic households and $55,500 for Asian households (U.S. Census Bureau, 2005). Additionally, according to U.S. Census data for the distribution of income for African American and White/non-Hispanic households, 36% of African American households have an income below $20,000, compared to 19% for White/non-Hispanic households (DemographicsNow, 2006). Given that racial/ethnic minorities are overrepresented at the subsistence level, practitioners and academics should be particularly concerned about the degree to which these segments may be more vulnerable than the general population in coping with persuasive marketing communications. However, we also should express two caveats in making assumptions about the potential vulnerabilities of subsistence consumers to persuasive marketing communications and the association with racial/ethnic minority segments. First, it should be noted that racial/ethnic minorities do not constitute the majority of the poor in the United States. There are more White than African American or Hispanic people in the United States in the low-income category, due to the fact that Whites represent the majority of the population; however, ethnic minority consumers are disproportionately represented among the poor. This suggests that whatever concerns

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practitioners and academics may have regarding vulnerabilities of racial/ ethnic minority consumers also should be considered for the vast number of White consumers at the subsistence level. Second, we wish to dispel the notion that when speaking about racial/ ethnic minority consumers at the subsistence level, we are attempting to capture, categorize, and describe the behavior of all members of these racial/ ethnic groups. For example, U.S. Census data for the distribution of income for Black and White/non-Hispanic households also indicates that 27% of Black households are in the $50,000 and above category (DemographicsNow, 2006). In fact, there is evidence that the response to marketing communications of higher income African American consumers may be more similar to that of higher income Whites than to lower-income African Americans (Williams & Qualls, 1989).

Subsistence Consumers and Literacy Although functionally low-literate consumers do not constitute the majority of poor people in the United States, they are disproportionately represented among the poor. Wallendorf (2001) notes that there continues to be a sharp divide in functional literacy rates along ethnic, racial, and socioeconomic lines (Guthrie & Metsala, in Wagner, Venezky, & Street, 1999; Kirsch, Jungeblut, Jenkins, & Kolstad, 1993). African American and Hispanic adults are more likely than are White adults to perform in the lowest two literacy levels. However, when analyzing literacy and how it affects susceptibility to persuasive marketing communications, it is important to note that there may be some key differences in conceptions of ‘‘marketplace literacy.’’ What we assume about the limitations of low levels of literacy in navigating a newspaper may not apply to the limitations of literacy in navigating the marketplace and processing marketing communications. Ozanne, Adkins, and Sandlin (2005) argue that functional approaches to literacy and consumer education lack an understanding of how adult literacy learners operate in the marketplace. These programs make assumptions about the deficits of adult literacy learners as consumers and prescribe a range of solutions to fix these ‘‘needs,’’ but with little understanding of how adult literacy learners make consumer decisions and without acknowledging what learners already know about successfully negotiating the consumer world. Their research shows that academic literacy is not necessarily an indicator of marketplace empowerment and, conversely, lack of academic literacy does not necessarily mean an inability to negotiate complex marketplace encounters.

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Viswanathan, Rosa, and Harris (2005) point out that the language and numeracy skills required of consumers in a Central American rural village are different from those required of a consumer in New York City and, in fact, suggest that the New York consumer may be less functionally literate in a rural shopping context than a Central American villager on Fifth Avenue. Viswanathan et al. (2005), in their research on functionally lowliterate consumers, considered the implications of having customers whose literacy and numeracy skills do not match what current marketing practices take for granted. They found that functionally low-literate consumers display cognitive predilections, decision rules and tradeoffs, and coping behaviors distinct from those of literate consumers. As noted earlier, 45–50% of the American public is functionally lowliterate. However, despite these statistics, a substantial majority of consumers appear to be marketplace literate and therefore reasonably capable of navigating markets. Ringold (2005) suggests that, for some, direct experience and informal sources of information (e.g., family, peers, media) are sufficient to cultivate reasonable marketplace navigation. Hence, being functionally low-literate may not be as much of a liability in susceptibility to persuasive communications as is commonly assumed. It is important to recognize that in specific contexts, ‘‘functional lowliteracy’’ may be a liability in navigating the marketplace and in responsiveness to persuasive marketing communications. We can cite one specific context in which this may apply, namely, making effective health care choices. For example, Wallendorf (2001, p. 509) states: Clearly, the 46 percent of U.S. adults who are functionally illiterate are challenged to read labels to buy foods appropriate for common health conditions (e.g., low sodium for hypertension, low saturated fat for heart disease, calcium and folic acid during pregnancy). They are also challenged to read over-the-counter and prescription medication package inserts whose average readability is at a grade-10 level (Rudd et al., in Comings, Garner, & Smith, 2000, as cited by Wallendorf, 2001).

Certainly it is possible that the ‘‘marketplace literacy’’ skills acquired to navigate various shopping contexts may not provide the same efficacy in responding to marketing communications regarding various health remedies and claims in making proper health choices. In sum, we actually know very little about the potential vulnerabilities of U.S. subsistence consumers in terms of how literacy impacts their susceptibility to persuasive marketing communications. For racial/ethnic minorities, this is particularly true. The limited number of studies in consumer research dealing with literacy tends to focus on the general population, without little assessment of racial/ethnic minority subsegments. This lack of

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inclusiveness of subsistence minority consumers in consumer research on literacy means that we must make conjectures related to minority consumers based on the constructs, theories, and models developed from subjects who are nonminorities or who at least are not identified as minorities in the study sample descriptions. Therefore, there is a pressing need to capture the behavior of low-literate, racial/ethnic minority consumers, just as there is a pressing need for consumer research in general on racial/ethnic minority consumers (see Williams, Lee, & Henderson, 2007(forthcoming)).

SUBSISTENCE CONSUMERS AND VULNERABILITY One of the most critical factors in understanding the susceptibility of subsistence consumers to persuasive marketing communications is identifying what we mean by ‘‘vulnerability.’’ There has been a tendency by many researchers to associate vulnerability with certain demographic characteristics. For example, Smith and Cooper-Martin (1997) note that critics of target marketing tend to emphasize certain demographic characteristics generally perceived to be associated with vulnerability. In their study on target marketing, they focus on the demographic characteristics of ethnicity, domicile, low levels of education, and income as indicators of vulnerability. However, Baker, Gentry, and Rittenburg (2005) suggest that equating demographic characteristics with consumer vulnerability is a misapplication of the construct. They further argue that defining vulnerability on the basis of who experiences it may create discrepancies between what Smith and Cooper-Martin (1997) referred to as actual versus perceived vulnerability. There are many definitions of vulnerability offered in the literature, many of which we outline below. The problem we see with most of these definitions is that they are not context-specific. They are designed to cover a multitude of situations and contexts, when, in fact, the definition of vulnerability for one context may not be appropriate for another. For this chapter, we specifically are interested in the context of persuasive marketing communications. As such, we are more interested in how consumers process messages and whether their status as a subsistence consumer puts them in a more vulnerable position in terms of the persuasiveness of these marketing communications messages. This shifts the emphasis for our context to cognitive vulnerability, as opposed to other types of vulnerabilities described below, which may be more appropriate for other contexts. We advocate a focus on ‘‘cognitive vulnerability’’ as the key to understanding subsistence market consumers’ susceptibility to persuasive marketing

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communications. This is very much related to our earlier discussion about their ability to navigate the marketplace, including the processing of marketing communications. Subsistence consumers may not have high functional illiteracy based on other contexts, but such skills may not be as relevant in a marketplace context. Earlier conceptualizations of vulnerability tended to display an inadequate grasp of the construct, as noted by Smith and CooperMartin (1997). For example, Baker et al. (2005) have developed a definition and model in which consumer vulnerability is multidimensional and, as we advocate, is context-specific. They clarify that multiple and simultaneous internal and external factors contribute to consumer experiences of vulnerability, and most relevant to marketers’ attitudes toward subsistence market consumers is the focus on treating consumers as they wish to be treated, not as well-meaning others think they should be treated. We now provide selected conceptualizations of vulnerability by other scholars, noting where these conceptualizations point to cognitive vulnerability, which we advocate. Most of these conceptualizations are based on previous delineations by Baker et al. (2005) and Smith and Cooper-Martin (1997).

Some Previous Conceptualizations of Vulnerability and Their Relationship to Cognitive Vulnerability Ringold (1995, p. 584) defined vulnerable consumers as individuals who have ‘‘diminished capacity to understand the role of advertising, product effects, or both.’’ She notes that being young, female, and of certain racial/ ethnic groups is typically associated with diminished capacity. Her emphasis on ‘‘diminished capacity’’ comes close to our emphasis on ‘‘cognitive vulnerability.’’ Smith and Cooper-Martin (1997, p. 4) built on previous research to develop their definition of vulnerable consumers as ‘‘those who are more susceptible to economic, physical, or psychological harm in, or as a result of, economic transactions because of characteristics that limit their ability to maximize their utility and well-being.’’ They operationalized vulnerability as ‘‘a demographic characteristic generally perceived to limit the consumer’s ability to maximize utility and well-being in economic transactions’’ (Smith & Cooper-Martin, 1997, p. 6). In their conceptualization, the demographic characteristics associated with vulnerability are race/ethnicity and education. However, their focus on ‘‘characteristics that limit the consumer’s ability’’ is related to our emphasis on cognitive vulnerability. Additionally, we should note that Smith and Cooper-Martin (1997) indicate that, in

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addition to the demographic factors associated with vulnerability, a variety of other variables also can limit the consumer, such as low cognitive ability, asymmetry of information, and restricted mobility. Some scholars, in conceptualizing vulnerability, have focused on characteristics or limitations within the individual, while others have focused on external conditions and/or some interaction between internal and external factors. Hill (2001) focused on external factors in observing that vulnerability for people who are poor is created by lack of access to goods and services. In contrast, Pen˜aloza (1995) focused on both internal and external factors, noting that vulnerability for consumers with immigrant status comes from internal factors, such as language ability, literacy, experience in the marketplace, and consumer goals, and external factors, such as stigmatization, subordination, and segregation in the marketplace. Our cognitive vulnerability approach focuses more on internal factors. Andreasen and Manning (1990, p. 13) refer to ‘‘those who are at a disadvantage in exchange relationships where that disadvantage is attributable to characteristics that are largely not controllable by them at the time of transaction.’’ We would suggest that the ‘‘cognitive’’ ability of the consumer is a characteristic that is not controllable by the consumer at the time of transaction. Similarly, Morgan, Schuler, and Stoltman (1995, p. 267) suggest that vulnerability is conceived as ‘‘unusually susceptible y small groups of consumers who have idiosyncratic reactions to products that are otherwise harmless when used by most people.’’ Their expanded typology of vulnerability includes ‘‘physical competency’’ (e.g., hearing disabilities associated with aging), ‘‘mental competency’’ (e.g., dyslexia), and ‘‘level of sophistication’’ (e.g., low socioeconomic background), as well as physical hypersensitivities (Morgan et al., 1995, p. 273–274). Our cognitive vulnerability approach would fall under their ‘‘mental competency’’ domain. Brenkert (1998) maintains that the vulnerable are not simply ‘‘disadvantaged’’ people who suffer inequalities in the marketplace relative to other consumers (e.g., the poor, immigrants, the elderly, children, racial and ethnic minorities, and the physically handicapped). Rather, according to Brenkert (1998), vulnerability is based on several types of limitations, including physical, cognitive, motivational, and social. Groups with cognitive vulnerability would include young children, the elderly, and the uneducated. Although our approach to cognitive vulnerability would agree that many of the very young, the elderly, and the uneducated would be characterized as cognitively vulnerable, we would stop short of saying that all individuals in these segments are cognitively vulnerable.

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Kim and Geistfeld (2005) observe that older consumers are the largest group of fraud victims with respect to frequency and financial costs. Similarly, Benet, Pitts, and LaTour (1993, p. 46) refer to the elderly as a ‘‘vulnerable group, more susceptible to unscrupulous business practices than younger groups.’’ Within the elderly group, those exhibiting higher vulnerability tended to be older, less educated, African American/Hispanic, living in rural areas, unemployed, without a spouse, and with fewer children living nearby. In our analysis of the susceptibility of subsistence market consumers to persuasive marketing communications, we argue that cognitive vulnerability should be the focal point in assessing to what degree such consumers are able to cope with persuasive marketing communications.

Two Schools of Thoughts on Vulnerability of Subsistence Consumers There are two schools of thought that may be useful in helping us to understand better the susceptibility and vulnerability of subsistence consumers to persuasive communications. One school of thought (‘‘vulnerable consumer model’’) contends that subsistence market consumers are vulnerable to certain marketing practices (Alwitt & Donley, 1996; Korzenny, McClure, & Rzttki, 1990; Moore, Williams, & Qualls, 1996). Researchers have been critical of target marketing practices that may take advantage of the vulnerability of certain segments of society (Scott, Denniston, & Magruder, 1992), and this viewpoint has resulted in actions to protect disadvantaged low-income and functionally low-literate consumers. For example, criticism of target marketing has resulted in a call for restrictions on billboard advertising because some studies have suggested a higher proportion of alcohol and tobacco billboard advertising in low- and middle-income areas than in higherincome zip code areas (e.g., Lee & Callcott, 1994; Distilling the truth about alcohol ads, 1992). This line of reasoning would suggest that vulnerable consumers would not have the same cognitive capacity as more advantaged consumers to process persuasive marketing communications. Under this vulnerable consumer model, it is assumed that more advantaged consumers have certain cognitive skills that allow them to navigate the marketplace in a more competent fashion. Typically, the vulnerable consumer model has been applied to persuasive marketing communications of alcohol and tobacco products, especially to lowincome and ethnic-minority consumers (Moore et al., 1996). Because

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lower-income and racial/ethnic minority communities suffer disproportionately from diabetes and obesity, conditions that are aggravated by the calories, fats, and sugars in fast foods and soft drinks (Maxwell & Jacobson, 1992), there is increasing attention being given to how vulnerable these communities may be to food and beverage messages. There is also a competing school of thought (‘‘competent consumer model,’’ Ringold, 1995) that suggests that it is possible that subsistence consumers may have acquired excellent skills to cope with certain kinds of marketing communications and are sophisticated in their awareness of persuasive communication tactics. This school of thought posits that poor people are very sensitive to the value received for their meager dollars and, as such, should be motivated to respond appropriately to persuasive marketing communications. There is an abundance of evidence to suggest that low-income shoppers are, in fact, quite sophisticated in their interactions in the marketplace and quite capable of coping with the persuasive efforts of marketers. For example, research has shown that the shopping lifestyles of low-income consumers from ethnic communities embrace shopping for bargains, and they indicate a greater tendency to embrace bargaining as part of their shopping lifestyle than is the case for Anglo samples (Wilkes & Valencia, 1986). Some researchers have observed that, although some individual members of the population who are poor may be less well equipped to navigate the marketplace, there is no clear empirical basis on which to characterize the poor in general as vulnerable consumers (Ringold, 1995). Although studies indicate that the poor might have a differential response to mass media (Korzenny et al., 1990), there have been few, if any, studies to substantiate the greater vulnerability of these market segments to advertising influence. For example, Stewart and Rice (1992) acknowledge that, although certain individuals are more or less vulnerable to marketing communications or other persuasive communications, there is no evidence to suggest that such vulnerability is associated with income and literacy. This school of thought supports the contention that poor people are not at a disadvantage with respect to marketing communications (Ringold, 1995; Stewart & Rice, 1992). Another reason that low-income individuals may have acquired excellent skills to cope with certain kinds of marketing communications is that they tend to watch more television than does the general population, particularly during the day. They also rely more on in-store displays and, we suspect, on word-of-mouth communications from people they know and from salespeople (Alwitt & Donley, 1996).

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Two Theoretical Frameworks for Analyzing Subsistence Consumer Vulnerability For researchers seeking a theoretical framework in which to examine the susceptibility of subsistence market consumers to persuasive marketing communications, we offer below a brief discussion of how the ELM and the PKM can be applied to increase our understanding of this issue.

ELM and Subsistence Consumers ELM encompasses several theories of attitude formation/change that explain how people respond to persuasive communications under a variety of conditions (Petty & Cacioppo, 1986). According to the ELM, individuals motivated to process a message will attend to, elaborate on, and be persuaded by key message arguments, while those lacking in motivation will attend to and are mostly persuaded by nonmessage cues that are peripheral to the primary argument(s). One of the most relevant studies that demonstrates how ELM can be used as a framework to understand better the susceptibility of subsistence market consumers to persuasive marketing communications is that of Langenderfer and Shimp (2001), who discuss consumer vulnerability using a theory of visceral influences on persuasion. The degree of elaboration (message-relevant thinking) is determined by the motivation of the message recipient to pay attention to the message, as opposed to the less message-relevant peripheral clues. As they note, more (less) motivated individuals will engage in more (less) elaboration. From our cognitive vulnerability perspective motivation has such effects only if the message recipient has the opportunity and ability to attend to and comprehend the message. In other words, a subsistence market consumer who is cognitively vulnerable will be more likely to pay attention to peripheral cues, such as the scammer’s physical appearance, speech pattern, style of dress, and so on, in persuasive marketing communications and less likely to engage in message-relevant processing. Consistent with ELM theory, Langenderfer and Shimp (2001) argue that motivation is expected to correlate negatively with scamming vulnerability. Similarly, we could argue that the motivation of a subsistence market consumer should also be expected to correlate negatively with cognitive vulnerability. With cognitive resources devoted to reward attention, people under visceral influence are more likely to ignore the nuances of the transaction and fail to decode the scam cues that a cooler, more cognitive

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evaluation might uncover. Similarly, one might argue that the indigent condition of many subsistent level consumers might rob them of certain cognitive resources needed to process persuasive marketing communications that they otherwise might see as an attempt to exploit them if they were astute ‘‘marketplace literate’’ consumers. Langenderfer and Shimp (2001) point to survey data by the Better Business Bureau that indicate that the prototypical scam victim as someone who is elderly, socially isolated, and poor. In addition to age-related variables, three personality factors – gullibility, consumer susceptibility to interpersonal influence (CSII), and skepticism – also seem to be likely moderators of scamming vulnerability. From our cognitive vulnerability perspective, it seems these same factors of gullibility, CSII, and skepticism also might be moderators of the susceptibility of subsistence-level consumers to persuasive marketing communications.

PKM and Subsistence Consumers Literacy in its most basic form, and ‘‘marketplace literacy’’ in particular, can affect a consumer’s method of coping with persuasive marketing communications. The PKM framework offers one approach to the intractable problem of assessing the ability of ‘‘cognitively vulnerable’’ consumers who live at a subsistence level to cope with persuasive marketing communications. PKM suggests that people’s knowledge of persuasion attempts influences their response to the attempt. Within the model, ‘‘targets’’ are the people whom the persuasion attempt is meant to reach, and ‘‘agent’’ refers to whomever the target perceives is responsible for making the persuasion attempt. For the purpose of this discussion, subsistence market consumers are the targets, agents are the perceived persuaders (e.g., a salesperson or marketing organization), and ‘‘attempt’’ is the marketing communications message. According to Friestad and Wright (1994, p. 1), ‘‘one of a consumer’s primary tasks is to interpret and cope with marketers’ sales presentations and advertising.’’ Wallendorf (2001) discusses literacy and notes that the cognitive processes that consumers use to interpret and respond to persuasion attempts are of long-standing interest to consumer researchers. In her analysis, Wallendorf (2001) expresses concern about the moderating roles of literacy levels and financial access on the interpretation and processing of persuasive messages. As such, are low-literate consumers more vulnerable in the marketplace because their cognitive capacity is sufficiently low to

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preclude their use of persuasion knowledge to draw higher-order inferences about possible ulterior motives of salespeople or to correct invalid inferences? We believe that PKM can provide insight into the coping processes of these consumers, as a means to respond to these questions. Wallendorf (2001) suggests that the cognitive by-products of reading imply that literacy has a significant impact on responses to persuasion. For example, higher levels of literacy may impact levels of persuasion knowledge, cognitive resources for encoding product information, and reliance on visual heuristics in response to low motivation to process cognitively demanding text (Wallendorf, 2001). Whereas many marketing communications may reflect sincere and diagnostic information to help the consumer make optimal choices, we also recognize that there are marketing communications that reflect ulterior motives, based purely on making a profit through the manipulation of choices or the use of deception or exploitation. PKM provides a framework for better understanding marketing communications from the perspective of the subsistence consumer’s welfare, i.e., understanding the degree to which consumers are required to be able to discount persuasion attempts that may be driven by ulterior motives. Bosmans and Warlop (2005) show that, although people are able to discount manipulative persuasion attempts, even small reductions in processing resources result in decreased criticism and skepticism. They also observed this decreased skepticism in situations in which the ulterior motive was extremely salient, hence suggesting that the ability of consumers to cope with these deceptive attempts is often overstated in the persuasion knowledge literature. Determining the degree to which this might apply to subsistence consumers is one way of applying the PKM framework to understand better the susceptibility of subsistence consumers to persuasive marketing communications. Ringold (2005), in her discussion of vulnerability, points out that one of the consumer’s primary tasks is to interpret and cope with marketers’ sales presentations and advertising. Additionally, a number of authors demonstrate that consumers do ‘‘cope’’ with persuasion attempts, exhibiting what could be called ‘‘a healthy skepticism’’ toward advertising (Obermiller & Spangenberg, 1998, 2000). Calfee and Ringold (1994), as cited in Ringold (2005), found that 6 decades of survey data consistently indicate that approximately 70% of consumers think that advertising is often untruthful and seeks to persuade people to buy things they do not want, but nonetheless provides valuable information. Ringold (2005) also notes that, with remarkable consistency, consumers find that advertising’s benefits outweigh its shortcomings. Obermiller and Spangenberg (2000) argued that deviations

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in either direction – too much or too little skepticism – are harmful, i.e., the totally disbelieving consumer ignores useful information in the marketplace, while the totally gullible consumer falls prey to exaggeration and deception. Whereas Calfee and Ringold’s (1994) findings suggest that the majority of the American public strikes this reasonable balance, PKM can be used to assess the degree to which this is true of subsistence market consumers.

PROPOSITIONS ABOUT SUBSISTENCE CONSUMER VULNERABILITY Alwitt, Qualls, and Williams (1996) investigated a number of propositions related to the susceptibility of vulnerable consumers to persuasive communication, many of which can be related to subsistence consumers. We discuss below several of those propositions that are particularly relevant for this discussion on vulnerability. As discussed above, researchers have observed that, whereas some groups of individuals are less well equipped to navigate the marketplace, there is no clear empirical basis on which to characterize subsistence consumers as more vulnerable, considering our focus on cognitive vulnerability. In fact, there is evidence that some subsistence consumers have acquired effective skills in coping with specific types of marketing communications because they might be more alert to scams and possible prejudicial treatment. Therefore, the issue of vulnerability and subsistence consumers remains an empirical one, resulting in the first two propositions we present for further research: P1. Subsistence consumers are more cognitively vulnerable than nonsubsistence consumers due to the fact that they are more easily influenced by persuasive marketing communications compared to nonsubsistence consumers. P2. Subsistence consumers are more cognitively vulnerable than nonsubsistence consumers due to the fact that they respond more easily to mass media compared to nonsubsistence consumers. A number of psychological constructs may influence the degree to which subsistence consumers can cope with persuasive marketing communications. Alwitt et al. (1996) proposed a number of psychological factors, including the degree of powerlessness, self-esteem, and locus of control, that researchers perceive as key constructs influencing vulnerable populations’ susceptibility to persuasive communications. These three constructs are explored in the

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propositions below. Because the degree of power perceived to be possessed by the consumer is critical in understanding how the subsistence consumer might react to marketing communications, we will begin our discussion with powerlessness and then consider self-esteem and locus of control.

Powerlessness Fiske, Morling, and Stevens (1996) summarize a number of studies that support the idea that powerless people use different coping techniques compared to more powerful people. Because subsistence consumers are likely to consider themselves powerless, the conclusions of Fiske et al. (1996) offer a basis for investigating hypotheses about how subsistence consumers might cope with marketing communications. Two of their (Fiske et al., 1996) conclusions are particularly relevant to how subsistence consumers might cope with marketing communications. The first conclusion is: ‘‘When personal control and competence are threatened by the experience of task powerlessness, people try to be accurate about powerful others in an attempt to restore their competence and control’’ (Fiske et al., 1996, p. 122). This suggests that subsistence consumers may be more competent in their evaluations of marketing communications, especially those by powerful brands. When a company spends a lot of money on marketing communications for a brand, one of the expected results is that consumers will perceive the brand to be a powerful category leader because its promotion expenditures imply that it has resources to support such a popular and effective brand. Numerous studies support the role of advertising expenditures in enhancing brand perceptions, including the ability of a brand to charge a higher price (e.g., Couretas, 1985; Homer, 1995). Based on this (Fiske et al., 1996) conclusion, we developed the following proposition: P3. Subsistence consumers are less cognitively vulnerable than nonsubsistence consumers to the persuasiveness of marketing communications because they try to have more accurate perceptions about powerful marketers in an attempt to restore their competence and control, resulting in being better able to evaluate sources of marketing communications. The second conclusion of interest is: ‘‘When a powerful group is in charge and people lack personal control, they align themselves with the powerful in-group to feel vicarious social power’’ (Fiske et al., 1996, p. 122). This suggests a reason for the preference of powerless people for heavily advertised brands. National brands tend to be more heavily advertised, and

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although previous research is mixed (Mulhern & Williams, 1994), there is research that suggests that minority consumers tend to display preference for national rather than generic or store brands (Alwitt & Donley, 1996; Deloitte & Touche, 1990). Hence, we offer the following proposition: P4. Subsistence consumers are more cognitively vulnerable than nonsubsistence consumers to the persuasiveness of national brand marketing communications because they will want to align themselves with powerful marketers to feel vicarious social power, hence resulting in a higher likelihood of favoring familiar and heavily advertised brands. Self-Esteem In the 1960s and 1970s, the poor were reported to perceive themselves as relatively deprived, manipulated externally, powerless, and alienated (see Andreasen, 1975). One personality characteristic associated with powerlessness is low self-esteem. If one assumes that, in the aggregate, subsistence consumers have low self-esteem, they will react differently to marketing communications than will other consumers. McGuire (1968) postulated that high self-esteem recipients of a message are more likely to pay attention to and understand the message, but because they hold their attitudes with high certainty and confidence, are less likely to yield to a persuasive message (Eagly & Chaiken, 1993). In a meta-analysis of self-esteem and influenceability, Rhodes and Wood (1992, p. 156) conclude that people with moderate levels of self-esteem are most influenceable because ‘‘recipients low in self-esteem have difficulty receiving the message; those high in self-esteem tend not to yield.’’ These meta-analysis results are consistent with McGuire’s model. In addition, Rhodes and Wood (1992) conclude that, compared to individuals with high self-esteem, low self-esteem recipients of messages are more likely to conform, that is, to agree with an opinion, regardless of its cognitive supporting arguments. However, compared to people with a moderate level of self-esteem, recipients of messages who have low self-esteem are less influenceable and less subject to conformity by a message. Based on this reasoning, the following two propositions are presented: P5. Subsistence consumers, assumed to have lower self-esteem, are more cognitively vulnerable than nonsubsistence consumers to the persuasiveness of marketing communications because they are more likely to yield to a persuasive message than are nonsubsistence consumers, assumed to have higher self-esteem.

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P6. Subsistence consumers, assumed to have lower self-esteem, are more cognitively vulnerable than nonsubsistence consumers to the persuasiveness of marketing communications because they more likely to agree with an opinion that has no cognitive supporting arguments than are nonsubsistence consumers, assumed to have higher self-esteem. We should note that, in examining the concept of self-esteem, we recognize that researchers are not in full agreement regarding how these constructs relate to ethnic minorities, who are overrepresented among subsistence consumers. For example, Cross (1991) argues that many of the problems associated with building African American self-esteem have been misdirected and suggests that the studies from the 1930s and 1940s on African Americans and self-esteem are severely flawed. For example, many of the studies used inappropriate experimental stimuli and methodologies, such as asking African American to make choices between Black and White dolls at a time when White dolls were the accepted norm and Black dolls were a novelty. Because most of the more contemporary work on Black self-esteem can be traced back to these studies, we recognize the need for caution in making assumptions about self-esteem among ethnic minorities and similarly about self-esteem among subsistence consumers.

Locus of Control Another personality characteristic associated with powerlessness is external locus of control (Lefcourt, 1982, 1992). People who are externally controlled attribute the outcomes of their actions to external influences such as luck, chance, fate, or powerful others. People who are internally controlled attribute the outcomes of their actions to their own behavior. A key concern with regard to the relevance of locus of control to persuasion is whether powerless people tend to have an external locus of control. Despite the widely held and cited assertions within the academic literature that African Americans and people of low socioeconomic status tend to have an external locus of control, there are voices of dissent. Banks, Ward, McQuater, and DeBritto (1991) argue that there is little evidence that African Americans show an external locus of control. Based on an analysis of 39 studies, they conclude that, in contrast to previous assertions, African Americans have an internal locus of control. However, relative to the White population, particularly White males, their locus of control is less internal.

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Lefcourt (1982) reviewed research that people with an external locus of control are more likely to conform than those with an internal locus of control and are more compliant or subject to influence by others, particularly those in authority or who have higher status or prestige. For example, externally controlled people may be more persuaded than are internally controlled people by the credibility of the source (Chebat, Filiatrault, & Perrien, 1990). In contrast, internally controlled individuals can be persuaded, but they appear to be more selective in the ways in which they can be persuaded. For example, internally controlled people are less likely to be persuaded by the status of the persuader or minimally supported arguments. They are also less subject to appeals to conformity. Cognitive activity associated with external locus of control has implications for how powerless people may cope with marketing communications. Those with an internal locus of control tend to seek out information (Lefcourt, 1982) and ask more questions. Lefcourt (1982, p. 65) concludes that internals are ‘‘more apt to recognize the pertinence of information for their purposes,’’ which suggests that internals are more likely to counterargue marketing communications. In general, it is possible that people with an external locus of control are more persuadable by advertising that has less content and more rhetoric. That is, they are more influenced by marketing communications that emphasize how the message is presented more than the message content itself. Therefore, we offer these remaining two propositions: P7. Subsistence consumers, assumed to have an external locus of control, are more cognitively vulnerable than nonsubsistence consumers to the persuasiveness of marketing communications because they are more compliant or more subject to influence by marketers perceived to be in authority, more influenced by communications with minimally supportive arguments in the mass media, more influenced by communications that contain more rhetoric than content, and are less likely to counterargue a message than are nonsubsistence consumers, assumed to have an internal locus of control. P8. Subsistence consumers, assumed to have an external locus of control, are more cognitively vulnerable than nonsubsistence consumers to the persuasiveness of marketing communications because they are more subject to conformity appeals, resulting in the acceptance of sources or presenters similar to themselves, than are nonsubsistence consumers, assumed to have an internal locus of control.

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CONCLUSION We have attempted to provide an analysis of issues related to ‘‘vulnerable’’ U.S. consumers who live at a subsistence level and the extent to which they are more susceptible to persuasive marketing communications and have a lesser ability to cope with persuasive messages. This discussion aims to generate interest among the academic community in making a contribution to this area. Whether or not future research determines that U.S. consumers at the subsistence level are more or less capable of dealing with persuasive marketing communications than is the general population, the fact remains that they are still ‘‘disadvantaged consumers’’ based on other criteria. Even if it is demonstrated that they are just as capable of coping with marketing communications, they still have to deal with the exploitative and unscrupulous practices of some marketers, which put them at a disadvantage in the marketplace. However, we believe that academic contributions in this area can play a significant role in shifting the balance toward better understanding of consumers at the subsistence market level and providing assistance and protection in the marketplace when needed. Extant theories and models of consumer behavior should be expanded to take into account subsistence and functionally low-literate consumers. Fortunately, we are beginning to see some pioneering work that assesses how subsistence and low-literate consumers operate in the marketplace, e.g., Viswanathan et al. (2005) and Ozanne et al. (2005). Nevertheless, there is a need to advance further our understanding of the psychological constructs and theoretical approaches to marketing communications that relate to subsistence consumers and vulnerabilities. Such an understanding could lead to more effective public policy interventions that affect marketers on the supply side, as well as better educated consumers, through public service campaigns and self-help programs on the demand side. Ultimately, research in this area should help marketers become more effective in serving the subsistence consumer segment of the marketplace by becoming more sensitive to their needs.

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Kirsch, I. S., Jungeblut, A., Jenkins, L., & Kolstad, A. (1993). Adult literacy in America. Washington, DC: National Center for Education Statistics. U.S. Department of Education (http://nccs.ed.gov/naal/naa192/). Korzenny, F., McClure, J., & Rzttki, B. (1990). Ethnicity, communication, and drugs. Journal of Drug Issues, 20, 87–98. Langenderfer, J., & Shimp, T. A. (2001). Consumer vulnerability to scams, swindles, and fraud: A new theory of visceral influences on persuasion. Psychology & Marketing, 18(7), 763–783. Lee, W. N., & Callcott, M. F. (1994). Billboard advertising: A comparison of vice products across ethnic groups. Journal of Business Research, 30, 85–94. Lefcourt, H. M. (1982). Locus of control: Current trends in theory and research (2nd ed.). Hillsdale, NJ: Erlbaum. Lefcourt, H. M. (1992). Durability and impact of the locus of control concept. Psychological Bulletin, 112, 411–414. Maxwell, B., & Jacobson, M. (1992). Marketing disease to Hispanics: The selling of alcohol, tobacco, and junk foods. Washington, DC: Center for Science in the Public Interest. McGuire, W. J. (1968). Personality and susceptibility to social influence. In: E. F. Borgetta & W. W. Lambert (Eds), Handbook of personality theory and research (pp. 1130–1187). Chicago: Rand McNally. Moore, D., Williams, J. D., & Qualls, W. J. (1996). Target marketing of tobacco and alcohol related products to ethnic minority groups in the US. Ethnicity and Disease, 6(1, 2), 83–98. Morgan, F. W., Schuler, D. K., & Stoltman, J. J. (1995). A framework for examining the legal status of vulnerable consumers. Journal of Public Policy & Marketing, 14(Fall), 267–277. Mulhern, F. J., & Williams, J. D. (1994). A comparative analysis of shopping behavior in Hispanic and non-Hispanic areas. Journal of Retailing, 70(3), 231–251. Obermiller, C., & Spangenberg, E. R. (1998). Development of a scale to assess consumer skepticism toward advertising. Journal of Consumer Psychology, 7(2), 159–186. Obermiller, C., & Spangenberg, E. R. (2000). On the origin and distinctness of skepticism toward advertising. Marketing Letters, 11(4), 311–322. Ozanne, J. L., Adkins, N. R., & Sandlin, J. A. (2005). Shopping for power: How adult literacy learners negotiate the marketplace. Adult Education Quarterly, 5(4), 251–268. Pen˜aloza, L. (1995). Immigrant consumers: Marketing and public policy considerations in the global economy. Journal of Public Policy and Marketing, 14(Fall), 83–94. Petty, R. E., & Cacioppo, J. T. (1986). Communication and persuasion: Central and peripheral routes to attitude change. New York: Springer. Prahalad, C. K., & Hammond, A. (2002). Serving the world’s poor profitably. Harvard Business Review, September, 48–57. Rhodes, N., & Wood, W. (1992). Self-esteem and intelligence affect influenceability: The mediating role of message reception. Psychological Bulletin, 111, 156–171. Ringold, D. J. (1995). Social criticisms of target marketing. American Behavioral Scientist, 38(4), 578–592. Ringold, D. J. (2005). Vulnerability in the marketplace: Concepts, caveats, and possible solutions. Journal of Macromarketing, 25(2), 202–214. Scott, B. M., Denniston, R. W., & Magruder, K. M. (1992). Alcohol advertising in the African American community. Journal of Drug Issues, 22, 455–469. Smith, N. C., & Cooper-Martin, E. (1997). Role of product harm and consumer vulnerability. Journal of Marketing, 61(July), 1–20.

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Stewart, D. W., & Rice, R. (1992). Integrated marketing: New technologies, non-traditional media, and nonmedia promotion in the marketing of alcoholic beverages. Working paper. Washington, DC: National Institute on Alcohol Abuse and Alcoholism Working Group on the Effects of the Mass Media on the Use and Abuse of Alcohol. U.S. Census Bureau. (2005). Income, poverty, and health insurance coverage in the United States: 2004. Current Population Reports No. P60-229 Washington, DC: DeNavas-Walt, C., Proctor, B. D. and Lee, C. H. U.S. Census Bureau. (2006). http://www.census.gov/hhes/www/poverty/poverty.html, retrieved November 25. Viswanathan, M., Rosa, J. A., & Harris, J. E. (2005). Decision making and coping of functionally illiterate consumers and some implications for marketing management. Journal of Marketing, 69(1), 15–31. Wagner, D., Venezky, R., & Street, B. (Eds.) (1999). Literacy: An international handbook. Boulder, CO: Westview. Wallendorf, M. (2001). Literally literacy. Journal of Consumer Research, 27(4), 505–511. Wilkes, R. E., & Valencia, H. (1986). Shopping-related characteristics of Mexican-Americans and Blacks. Psychology and Marketing, 3(4), 247–259. Williams, J. D., Lee, W., & Henderson, G. R. (2007). Multicultural issues in consumer psychology research. In: C. P. Haugtvedt, P. Herr & F. Kardes (Eds), Handbook of consumer psychology. Hillsdale, NJ: Lawrence Erlbaum Associates, Inc (forthcoming). Williams, J. D., & Qualls, W. J. (1989). Middle-class Black consumers and intensity of ethnic identification. Psychology and Marketing, 6(4), 263–286.

UNDERSTANDING SUBSISTENCE MARKETPLACES: EXPLORING THE CONTRIBUTIONS OF PARTICIPATORY ACTION RESEARCH Julie L. Ozanne and Bige Saatcioglu ABSTRACT This chapter presents an overview of participatory action research and explores how this approach can inform the study of subsistence marketplaces. The diverse historical roots of action research are traced from Kurt Lewin’s research on workplace democracy and Paulo Freire’s conceptual ideas forged from working with low-literate peasants. We illustrate the potential of action research approaches by exploring in detail a more contemporary form of action research, participatory rural appraisal, and we show the usefulness of this approach to understanding consumer well-being in resource-poor areas. Special emphasis is given to the discussion of the methodology of this popular form of action research and its various applications.

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 111–132 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20005-1

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INTRODUCTION AND DEFINITION This chapter introduces participatory action research and explores its potential methodological contribution to the study of subsistence markets. In 1970, action research was a relatively marginal and unknown research approach. Today, this approach has an international audience, and different strains of action research are flourishing across a range of climates and social terrains. In fact, at least 32 schools of action research have emerged worldwide in response to different local realities (Borda, 2001). Many variants of action research exist: organizational action research (Lewin, 1946, 1948), action science (Argyris, Putnam, & Smith, 1985; Argyris & Schon, 1974), participatory action research (Whyte, 1991), participatory research (Freire, 1970), participatory rural appraisal (PRA) (Chambers, 1997), feminist participatory research (Maguire, 1987), and communitybased action research (Stringer, 1999), to name a few. Reason and Bradbury (2001, p. 1) offer a general definition of participatory action research as ‘‘a participatory, democratic process concerned with developing practical knowing in the pursuit of worthwhile human purposes.’’ Intuitively, participatory action research privileges the type of knowledge we regularly generate in our daily lives (Hall, 2001). For example, while few marketing academics have formal training in the field of education, many are accomplished educators and teachers. Forged over years of practice, they can articulate coherent philosophies of teaching based upon careful observation of successful and unsuccessful classroom interactions, reflection and analysis over why some practices fail or succeed, and improvisation to form new teaching practices. After years and even decades of this trial-and-error approach (based on an action–reflection–action cycle), a good teacher develops many effective methods and theories-in-use. A top–down bureaucratic imposition of someone else’s teaching approach, even using a well-accepted theorist such as Dewey or Vygotsky, would be offensive to a seasoned educator because it denies the value of our hardearned, bottom–up understandings forged in the local realities of educating business students. Similarly, participatory action researchers assume that all people, not just university-trained academics, possess these experiencebased, local insights. Participatory action research builds a different research approach that privileges the capacity of all people to reflect upon, analyze, and shape their social worlds. Whereas the differences among some of these approaches are significant, participatory researchers share three general commitments (Greenwood & Levin, 1998). This approach is an intensive, engaged, and critically reflexive1

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form of research that seeks to contribute to the development of new knowledge and theories. Action researchers seek to understand the immediate practical concerns of a community via the voices of community members and then formulate a plan of action that aims to promote social change to improve the well-being of the local people (Kemmis & McTaggert, 1990). This research is more relevant because the people who are involved in the social problem become active participants in the entire research process, which includes defining the problem, collecting and analyzing data, and reporting the findings. Finally, this approach seeks to generate practical knowledge that can contribute to the well-being of the research participants through theoretically informed action (McTaggart, 1997). Action researchers generally affirm Foucault’s (1980) notion of power as pervading all spheres of social relations. Power is not possessed; rather it is exercised through a variety of forms and relations: ‘‘Power reaches into the very grain of individuals, touches their bodies and inserts itself into their actions and attitudes, their discourses, learning processes and everyday lives’’ (p. 39). Similarly, rather than viewing power traditionally as the power of one person over another, Hayward (1998, p. 12) defines power ‘‘as social boundaries that, together, define the field of action for all actors’’ and freedom as ‘‘the possibility to act upon the boundaries that constrain and enable social action.’’ Yet society currently supports a monopoly on the production of knowledge by a few select academicians who exert undue influence over the boundaries of what is possible. Therefore, participatory action researchers are also committed to the democratization of knowledge production by developing methods that facilitate the recovery of indigenous knowledge and the participation of more people in the production and dissemination of knowledge (Gaventa & Cornwall, 2001). The research process is conceptualized as a way for researchers and participants to work collectively on the boundaries of what is possible to enable social action that improves well-being. This critical impulse of action research is particularly valuable for the study of the social problems found in subsistence marketplaces (e.g., poverty, illiteracy, hunger, and illness). First, participatory action research is committed to studying social problems that represent complex local realities. Subsistence consumers exist in a multifaceted web of economic, social, and cultural factors that deserve deep scrutiny. Second, by giving greater ownership of the research process to the local people being studied, participatory action researchers increase the trust and cooperation of the locals who might otherwise be unwilling to share their problems. Finally, participatory action research seeks to make visible the competencies and practical

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knowledge of the community members. This critical and practical knowledge is vital in understanding social realities, exploring the multiple factors that influence social issues, and finding practical solutions. Although participatory action researchers avoid basing their approach to social problems on academic theories alone, they do seek to integrate local knowledge with theoretical insights. Therefore, an emancipatory approach to social change is sought through a more systematic and scientific inquiry leading to practical action.

WHY ENGAGE IN PARTICIPATORY ACTION RESEARCH? Action researchers practice in such diverse fields as economic development, applied anthropology, organizational change, nursing, education, and agriculture (Reason & Bradbury, 2001). In contrast to the North American tendency to value the knowledge of experts derived from the use of ‘‘scientific’’ methods, these approaches seek to acknowledge, preserve, and use the indigenous knowledge of local people. For example, during the Green Revolution, when Western agricultural technologies were transferred to small farmers in Latin America, the limitations of Western approaches became clear. Farmers who failed to adopt the Western technologies were first assumed to be obstinate and resistant to change. Upon deeper examination, the local practices of these ‘‘stubborn’’ farmers were often more successful than the ‘‘scientific’’ approaches (Whyte, 1991). Even simple, commonsense routines, such as the Western practice of planting seeds in straight rows, conflicted with local practices of spreading seeds randomly – a technique based on farmers’ local observations of mice expeditiously feasting upon those seeds planted in neat rows (Porter, Bryant, & Thompson, 1991). Similarly, after years of many unsuccessful attempts at economic development, the World Bank began experimenting with approaches that included the voices of the local people (Chambers, 1997). Since the late 1990s, the World Bank has required participatory methods in its development assistant programs initiated by ‘‘donor agencies’’ (Swantz, Ndedya, & Mwajuma, 2001). In fact, the United Nations Development Programme states that ‘‘people’s participation is now widely recognized as a basic operational principle of development programmes and projects’’ (UNDP, 2006, p. 1). A widespread belief exists that participation leads to more effective and sustainable programs. Given the cross-disciplinary growth of action research,

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as well as its prominence in economic development, a careful assessment of these approaches is needed. Specifically, this chapter will introduce and critique PRA, which is one popular form of participatory action research. In the next section, Kurt Lewin’s action research on workplace democracy is briefly reviewed because this research provides the foundation for much of the participatory action research undertaken in North America. In contrast, Paulo Freire’s radical pedagogy, based on teaching low-literate peasants to read and write, is reviewed because it is the philosophical foundation for much of the participatory action research work done in southern, developing nations. Finally, a specific version of participatory action research rooted in Freirean philosophy is presented: PRA research. The work of Robert Chambers (1997), who first articulated this approach, is reviewed. PRA provides some innovative methods and ideas for researching people who possess limited alphabetic literacy yet have refined visual and social understandings of their world. Moreover, this approach has evolved into a widely successful approach for teaching adult literacy across the globe (see Archer, 1998).

Kurt Lewin and Workplace Democracy The origin of action research is widely attributed to the social psychologist Kurt Lewin, who sought both to understand and to foster social change.2 Reacting against Taylor’s ideas of scientific management and centralized control, Lewin advocated the benefits of worker democracy and developed a research approach that involved the active participation of workers who are affected by specific workplace problems (Adelman, 1997). For example, he conducted field experiments in factory settings and demonstrated higher productivity when workers participated in decision making rather than when supervisors managed by decree (Lewin, 1948). Lewin’s ideas were further developed by the work of his students in the Tavistock Institute and also informed the Ford Teaching Project and the Norwegian Industrial Democracy Project.3 Probably the best contemporary example of action research that still preserves this emancipatory impulse is Davydd Greenwood’s work on the Mondragon cooperatives (Greenwood et al., 1992; see also Greenwood & Levin, 1998 for a detailed articulation of this approach). Contemporary action researchers are indebted to Lewin for his focus on the researcher, not as detached, but as engaged in solving concrete practical problems through the involvement of participants. Moreover, he stressed

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that the value of theory lies in its ability to guide practice, which is the most important vindication of a theory (Adelman, 1997). Although many of Lewin’s ideas are still popular, such as worker participation and quality control circles, they have been largely co-opted in the pursuit of organizational efficiency. Most researchers have forgotten that the original emancipatory intent of these ideas was to foster sustainable learning competencies and greater worker control over their environment (Greenwood & Levin, 1998). Lewin’s action theory continues to be popular among organizational change and development theories but has moved away from its origins by focusing on controlled experiments and manipulating variables rather than on authentic worker empowerment (Levin, 1999). Reducing employees’ problems to a few measurable, standardized, and controllable variables stands in sharp contrast with the underlying notion of participatory action research, which is to generate authentic, multiple, socially constructed, and dynamic realities of the workers. Research inspired by Paulo Freire’s (1970) work, discussed in the next section, focuses upon the power of education to help citizens transform their community, distinct from focusing on worker empowerment within formal organizations. Freire’s work extends beyond an interest in developing people’s learning capacities and seeks to develop critical consciousness of their potential for social action.

Paulo Freire and Participatory Action Research in Adult Education The first wave of contemporary action research rose concurrently among researchers in different developing countries who were working with some of the most impoverished people on earth. Many researchers struggled to apply the university-based methods of social inquiry in locales where tremendous social and economic inequities existed. These methods proved inadequate to address the complex and pressing problems of grossly underprivileged people (for example, see the problems of survey research discussed under ‘‘Participatory Rural Appraisal’’). Thus, they began to develop ‘‘new’’ methods (Borda, 2001). Most famous is Paulo Freire’s work and the publishing of The Pedagogy of the Oppressed (1970). But researchers were developing approaches in parallel, like Hall’s and Swantz’s work in Tanzania or Tandon’s work in India (these early works were often unpublished and are discussed in Hall, 2001; Swantz et al., 2001; Tandon, 1989). Key formative events in this movement include the special issue on participatory research in Convergence (1975)4 and the 1976 First World Assembly

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of the International Council for Adult Education (Rahman & Fals-Borda, 1998). (While no comprehensive history of action research exists, the historical context can be gleaned from Borda, 2001; Hall, 1997, 2001.) Freire’s philosophy of a liberatory education arose from his experiences educating low-literate peasants in Brazil and Chile to read and write (Freire, 1970, 1974). He saw traditional schooling as reinforcing the status quo and sought a liberatory education that would inspire people to change the world. Traditional schooling encourages students to respect authority, demonstrate discipline, and generally display good work habits, which helps them fit into a social world that is given and leaves power relations unexamined. This traditional form of education purports neutrality but actually supports the given social hierarchy, which contributes to the continued marginalization of women, minorities, and the impoverished because it leaves existing social inequities intact. Freire argues that a ‘‘culture of silence,’’ similar to Gramsci’s notion of hegemony (Gramsci, 1971), pervades because these marginal groups lack voice and agency in political processes (Gaventa & Cornwall, 2001). Moreover, these groups internalize the dominant groups’ negative images of themselves, as is the case when low-literate individuals feel shame over their failure to achieve literacy. Freire suggests schooling perpetuates the culture of silence by encouraging the passive reception of knowledge by docile students; he calls this the ‘‘banking approach to education’’ because teachers make knowledge deposits into receptive students. Here, teachers suffer from ‘‘narration sickness,’’ as do the students. In contrast, Freire advocates a ‘‘problem-posing’’ approach to education. He seeks to foster the active appropriation of knowledge by curious and engaged students through the process of ‘‘conscientization’’ (Freire, 1970). This is a process of self-awareness in which one no longer sees oneself as an object responding to the world, but as a subject who can change the world. People must first break through the myths and self-deceptions that contribute to their social passivity. While the awareness of the self as an active subject is an important first step, only in acting does one practice freedom and become fully human (Freire, 1970). In Adkins and Ozanne’s (2005) work on low-literate consumers, adult learners reflect on their literacy within peer groups and gain a better understanding of themselves as having value despite their nascent literacy skills. Adult learners expressed the power of this moment of conscientization as a ‘‘door opening up’’ and even more dramatically as feeling ‘‘human’’ and existing: ‘‘I am.’’ From this fieldwork, ‘‘Mary’s’’ story demonstrates the type of action that can emerge from an awareness of one’s

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self as an active agent. A fellow adult literacy student, Jim, despite his repeated protests, received a promotion due to his diligent work habits. Jim’s low-literacy skills became apparent in his new position and he was subsequently fired. Mary held vigil for 4 days outside the office of Jim’s boss until he agreed to see her and she successfully argued for the restoration of Jim’s previous job by appealing to the idea of fairness. In liberatory education, the consequences of one’s actions – Mary’s ability to use the idea of fairness to help her friend – are then the object of critical reflection and provide the basis for new actions. Participatory action research borrows a number of ideas from Freire. First, the experiences and the social context of the people are a crucial context for learning. Second, people learn with others, such as in peer circles of learning. This process includes intense debate and dialogue and the critical analysis of these experiences from which new understandings arise. But these understandings must then inform practice: ‘‘without practice there is no knowledge’’ (Horton & Freire, 1990, p. 98). The new social actions taken become the basis for additional critical reflection and extensions of knowledge (i.e., praxis). One cannot bestow such understanding on another person because in doing so you reinforce a power relationship of knower and receiver. If freedom is the ability to act as a subject in one’s social world, then it must be asserted by the individual (Freire, 1974). The Highlander Research and Education Center’s role in the Civil Rights movement in the United States is an excellent demonstration of these four points. Started by Miles Horton, Highlander is an adult education center and resource for grassroots movements for social justice. During the Civil Rights movement, illiteracy was high in the black South and stood as a significant obstacle to expanding civil rights; potential black voters had to pass the voter registration requirement exam to vote. Citizenship schools arose in response and volunteer teachers, who were all black, were trained at Highlander, which advocated a peer-to-peer, democratic learning approach. Approximately 100,000 African Americans improved their literacy and registered to vote in Citizenship Schools (Lewis, 2001). Students attending these schools were motivated by a desire to vote and affirm their rights, and thus the Declaration of Human Rights became a meaningful text around which the students debated over personally relevant issues, such as dignity and fairness, and collectively forged new understandings of the text that extended their personal experiences. For example, in one workshop, workers who were striking brought an old hymn they sang on the picket line and transformed the words to express the political goals they sought: the now famous song ‘‘We Shall Overcome’’ rallied people in the Civil Rights

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movement. Other groups in the movement took the song and created new verses to better reflect the local issues and meanings relevant to them (Lewis, 2001). This brief overview traces the philosophical debt owed by action researchers to Paulo Freire, but such a summary cannot capture the richness of his work and readers are referred to some of his more significant texts (Freire, 1970, 1972, 1974). Chambers’ (1997) PRA is discussed next, as it builds on Freirean ideas5 but creatively extends these ideas on doing research with marginalized people. Consistent with Chambers work, scholars and practitioners working in this domain are contributing to social change programs in subsistence marketplaces: Gaventa and Lewis’s (1991) work on improving the rural economy and grassroots development in Appalachia, Archer’s (1995) fusion of Freirean concepts with visual methods borrowed from PRA to deal with illiteracy in Uganda, and Ssembatya, Coghlan, Lumala, and Kituusibua’s (1995) research on identifying and addressing local sexual practices that put people at risk for HIV infection in Uganda, to name a few.

PARTICIPATORY RURAL APPRAISAL Background Researchers in rural economic development in the past two decades have grown increasingly receptive to new methodological approaches due, in part, to a wealth of failed development programs and the waste of billions of dollars in economic aid (Porter et al., 1991). They are particularly concerned with systemic errors in economic development. For example, in past development approaches, the key decision-makers were usually outside experts, who were centrally located, were far removed from rural realities, and often relied on secondary data. Even when field visits occurred, the senior and most powerful staffers were treated as ‘‘development tourists’’ and exposed to only the best villages, the most successful sites, and the most compliant local farmers. The most desperate people with the greatest problems were often invisible (Mukherjee, 1993). The preferred method was usually a survey in which outsider categories were used to define local realities. This reductionist method led to a loss of the local complexity and diversity. The survey results were analyzed and interpreted off-site and tended to reconfirm the beliefs of their creators. This process was also costly, and time-intensive, and findings often arrived late

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Table 1. Comparison of Traditional and PRA Development Approaches. Extractive Research Researcher relationship

– Expert – Controls, dominates – Imposes his or her reality

Locals’ research relationship Social reality

– Responder

General research approach Method

Control, analysis, and ownership of data

– Universal, reductionist, standard, static, controllable – Top–down – Data gathering – Develop questionnaire based on a priori concepts – Conduct survey – Remove and analyze data – Report findings

– The outside researcher

Participatory Rural Appraisal – Facilitator, committed participant – Listens, learns – Enables people to express their reality – Active knower, researcher – Local, complex, diverse, dynamic, unpredictable – – – –

– – – –

Bottom–up Data sharing Develop rapport and trust Listen and encourage exploration of locally defined problems Help understand, select, use, and improvise methods Help analyze Creative local dissemination The local people

Developed from Chambers (1997), Whose Reality Counts?

(see Table 1). It is not surprising that the survey findings generated regularly had little to do with the daily realities of the people. Countless examples exist of implementation of centrally formulated plans that are unresponsive to the local realities, such as the promotion of planting seeds that are high in both yield and disease resistance but grow bitter-tasting plants (Chambers, 1997) and the creation of wheeled tool carriers that failed to meet the needs of the farmers (Starkey, 1988); for example, after years of development and significant investment to create these wheeled tool carriers, they were rejected by the farmers, who needed cheaper, lighter, and more maneuverable tools (Chambers, 1997). Nevertheless, from these ashes arose an innovative set of new methods of research. Called Rapid Rural Appraisal, this approach involved on-site interaction with local people, who used group-based visual methods to describe and analyze their local realities. These visual methods allowed farmers

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to demonstrate sometimes surprising skills, such as identifying weather patterns missed by professionals (Chambers, 1997). However, this information was then fed back to development agencies to inform policies and programs. PRA arose after Rapid Rural Appraisal but embedded many of the same visual techniques into a different research methodology aimed to broaden indigenous people’s participation in decision making. PRA arose, in part, due to the realization that mere methods of participation do not translate into local empowerment and more self-critical analysis was needed (Guijt & Cornwall, 1995).

Overview of the Methodology PRA is ‘‘a family of approaches and methods to enable rural people to share, enhance, and analyze their knowledge of life and conditions, to plan and to act’’ (Chambers, 1994, p. 953). PRA draws insights from many traditions. From participatory action research, such as Paulo Freire’s work, it assumes low-literate peasants have untapped capacities and researchers should act as facilitators to help people recover their critical capacities. From applied anthropology, PRA borrows insights such as the importance of developing good research rapport, the view of field methods as flexible tools rather than strict research protocols, and the belief in the value of local indigenous knowledge. From Rapid Rural Appraisal, PRA researchers borrowed and further developed group-based visual methods (for a more complete history of PRA see Chambers, 1997). While PRA emerged from the practical experiences of people working in development activities, it is still theoretically driven (Scoones, 1995). However, theory emerges in a never-ending spiral of experience, reflection, learning, and action (Stringer, 1999). PRA is amazingly robust and has been adapted to problems ranging from land management to domestic violence, and it has been used by a wide range of people and professionals and has even spread beyond its rural roots into urban applications (Scoones, 1995). In contrast to the traditional approach to rural development that extracted data from localities with little indigenous feedback, PRA gives the reins of the research process to the community. In this model, the researcher is a facilitator who must first develop rapport and earn the trust of the local community (see Table 1). This approach assumes local people are best positioned to identify and explore their problems. Not only do the participants define the research problem, they also are ideally provided with a toolbox of visual methods and can select the method most consistent with

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their local conditions. The researcher helps people understand various methods and use relevant methods, and the participants even develop and improve upon methods at times. Thus, the role of the researcher is to initiate the process rather than extract data. For example, action research has an over 30-year history in Tanzania and was used by local fishing villages to explore the problem of diminished marine catches. People divided into groups and discussed the problems. These problems were then written onto cards and placed in large matrices on the ground. People then ranked the problems (as well as their causes) by distributing seeds across the cards. The exercise involved discussions and debates, as well as mobility maps that captured the increasing distance fishermen had to travel to secure catches. Dynamite fishing, done by young men who lacked gear, emerged as the central problem. Moreover, this problem was particularly hard on women. Because of reduced catches, men were now fishing with boats and nets near the waters traditionally used by women who waded into these waters. Women were losing income and an important food source. This research expanded across villages and revealed deeper social fissures such as government officials giving tacit approval of this practice through their lack of action. One of the positive outcomes was the creation of a video by villagers that documented the problem and eventually initiated legal changes (see Swantz et al., 2001, for the complete story).

Key Features of PRA and Applications PRA rejects the blitzkrieg research approach of rural development tourism that relies heavily on surveys. These approaches are extractive in their removal of the data from the community, erroneous in their reliance on the conceptual categories of outsiders, and biased in their exclusion of some of the most disadvantaged people and inclusion of people who are often the most advantaged. PRA also rejects the anthropological approach of participant observation, despite borrowing heavily from this approach. Researchers who employ participant observation techniques tend to believe that quality insights require years of residency in the community, and a danger exists that ‘‘total immersion’’ might lead to overgeneralizing from a particular setting (Chambers, 1983). Furthermore, this approach is also extractive since the findings are usually written up and published in academic outlets without direct benefit to the local community (Chambers, 1997). Like the ethnographer, PRA researchers believe that establishing rapport and trust is a necessary condition to doing good research. Early in the study,

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the development of good relationships is essential. This relationship building includes being transparent, treating people with respect and humility, and taking time to get to know people. However, in contrast to multiyear participant observation, PRA assumes that these insights can be gained through intense work over several months. In addition, visual methods are used by the people to express, organize, and analyze their understanding of their local realities. Good PRA research is iterative; the outputs of the methods are reexamined and expanded as informants are given time to reflect upon their creations. Good PRA is also sensitive to the local social context and this understanding must be used in the application of these methods, such as noting the importance of gender patterns of fishing in the Tanzanian case. For example, one of the most popular methods is visual mapping, in which some characteristic of the community, such as poverty or wealth, is mapped by the people (see Fig. 1). These maps are used in subsequent meetings and are further discussed and refined. Thus, the application of these methods requires a range of skills in observation, communication, negotiation, and conflict management. The skilled application of this technique requires enough immersion in the community to understand social differences that might require the creation of multiple maps due to differences in gender, caste, religion, age, or ethnicity. Consequently, this detailed examination of variability within the local community itself facilitates a holistic assessment of the situation, which is particularly crucial when the solution to the local problem must be compatible with different perspectives. For example, Hinton’s (1995) work on refugee camps found that the more educated members of the camps perceived local concepts as inferior and preferred ‘‘scientific’’ concepts. Obviously, if local understandings are to be explored, the educated members must engage in mapmaking separate from others. Moreover, these techniques can uncover social tensions and conflicts and the researcher must be skilled in productively managing these tensions. Finally, the mapmaking skills and the maps stay in the community. As locals participate in these methods, they gain confidence in their ability to use these methods, have greater control, and explore new understandings of themselves collectively, and ideally this research encourages new social actions. This methodological approach is grounded on the assumption that all people are competent.6 All people have great capacities for observing, sensemaking, and analyzing and these capacities can be shared through visual techniques such as mapping, modeling, diagramming, sequencing, sorting, comparing, or counting. In fact, Chambers (1997) makes a cogent case for the superiority of rural indigenous people’s perceptual maps. Next, three

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Fig. 1. Resource Map. (With Permission, this Map was Taken from Neela Mukherjee (2002), Participatory Learning and Action with 100 Field Methods, New Delhi: Concept Publishing.)

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examples of innovative visual techniques are presented to highlight their generative potential. Social Mapping Physical and social mapping is a popular and adaptable method (Mascarenhas & Prem Kumar, 1991). Visual maps of the community can be made to express family structure, health profiles, well-being, domestic violence, material wealth, illness, social status, and so forth. The map is often created on the ground using local materials. The ground is a democratic space in which people can gather around the map to give input. Unlike paper, which privileges the literate, the ground is familiar and requires less eye contact, which makes it easier for people with lower status to participate. In addition, the ground is large, free, and easy to revise. A social map of a village is based on emic, local knowledge (as opposed to the etic categories of the researcher). The creation and editing of the map are open participatory processes done by the people and for the people. Rather than emphasizing measurement of the exact level of poverty, for example, the social map encourages social comparisons, such as what underlies different forms of poverty. These social maps are collective and represent the iterative, cumulative, and shared understandings of the group. Any person can add detail, suggest deletions, debate features, or correct the ;map. We tend to focus on a narrow notion of textual literacy, but visual literacy includes an understanding of pictures, map, diagrams, and so forth. Whereas maps and pictures from outsiders may be confusing or require cultural context, people can grasp the maps they create for themselves. Moreover, the visual maps are inclusive because people can participate regardless of their age, gender, race, caste, or literacy skills (Bhattacharjee, 2001). Fishbowl Technique The ‘‘fishbowl’’ technique was developed to deal with sensitive communications between different groups in a relatively safe forum (Gordon, 2004). In one study on sexuality, men and women were separated and generated all the questions they wanted to ask the other group. Then two concentric circles were formed with women sitting facing forward in the inner circle and the men sitting behind them in an outer circle. The facilitator asked the women the men’s questions and the group of women discussed these questions without interruption from the men. Positions were reversed and then the groups were brought together to discuss what they learned and how they would apply it. This technique was combined with visual maps of the body

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to encourage intimate and detailed discussions (see Fig. 2 for an example of body maps). This technique generated insights into sexual pleasure and intimacy, and 6 months later, informal discussions with participants yielded reports of safer and more enjoyable sex with their partners (Gordon & Cornwall, 2004). Whereas the use of social maps is the most prevalent method, countless other visual techniques exist and are limited only by one’s imagination, such as the development of calendars (e.g., to depict and articulate work loads, food scarcity, income sources, or illness patterns), matrices (e.g., severity of illnesses and types of action taken, the types of credit and different credit sources, or the types and amounts of work across a day), and diagrams (e.g., rituals across life stages or by social location), to name a few. The visual methods are used to explore the local realities and can be adapted for local differences, as when a fishing community develops calendars of catches, maps of the sea, matrices of tools, timelines to track historical changes in fishing, and analyses of risks by accidents faced (Archer & Cottingham, 1996b). Seasonal Calendars Seasonal calendars have been generated to track cycles and patterns of use and availability of certain products and services within a particular community over a 12-month period (Roos & Mohatle, 1998). By showing cyclical variations on a monthly or seasonal basis, these calendars have proven to be very useful in helping local people prepare for major seasonal changes such as rain distribution, soil moisture, availability of crops, and animal fodder (Chambers, 1994). Over the past decade, researchers focusing on HIV prevention studies in Africa made a unique use of seasonal calendars. Specifically, a team of researchers employed seasonal calendars to assess HIV risk factors threatening community members in rural Uganda (Ssembatya et al., 1995). In this study, a group of local people were asked to draw seasonal calendars on the ground to identify and discuss risks of malaria and diarrhea across the year. After they transferred the chart to the paper, the participants were asked to discuss the results. Knowledgeable community members asserted that these two diseases were related to the amount of sunshine or rain, which surprised many others because they had thought that these diseases were caused by certain foods that were available during particular times of the year. Then, the facilitator asked the group whether HIV transmission was season-related. An elderly village person said that it was and the facilitator added another row to the chart and asked the

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Fig. 2. Body Map. (For the Use of this Picture, We Thank David Krut Project, NYC, David Krut Publishing South Africa, and Centre for Social Science Research, ASRU.)

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group to indicate the prevalence of AIDS in each month of the year. The group rated the months of June, July, and August as the times when HIV transmission was the highest. After a long discussion, it became clear that the participants associated HIV transmission with harvesting times for coffee, beans, and maize. During these months the men of the village had more disposable money for alcohol and often engaged in sex with several partners. This exercise yielded valuable information and helped the community members advance different solutions to this problem, such as taking precautions, not seeking additional sexual partners, and collectively seeking to protect one another.

Strengths and Weakness of PRA In this final section, the strengths of this approach are contrasted against some of the dangers posed. First, these visual, group-based methods are rich, flexible, and locally adaptable. These approaches clearly can generate rich insights into the life worlds of less literate people. However, the popular spread of these methods has led to significant problems such as poor training, the use of the data-gathering approaches being divorced from the goals of empowerment, and swift entrance and exit from the field, to name a few. These problems are likely to increase as the methods grow in popularity and are made requirements in economic development proposals. Ironically, participatory action research emerged in reaction against top–down, blueprint approaches and now this approach is being systematized in response to bureaucratic demands. The result is that many PRA approaches are participative in name only. Routinization is replacing reflection, innovation, openness, and flexibility (Guijt & Cornwall, 1995). Second, PRA results in people learning new methods that remain in the community. For example, in one case, women used the social maps in which they had been trained to track violence against women and plan social action based on emergent patterns (Chambers, 1997). But these tools are not neutral and we should be circumspect about what new forms of literacy are being transferred. Even something as simple as a pie chart has implicit cultural assumptions. Moreover, methods such as the use of matrices make assumptions about one’s ability to locate social items in unambiguous relationship to one another, which is a very Western view (Robinson-Pant, 1995). Finally, PRA research has led to people’s awareness of their capabilities and inspired positive social action. However, PRA interventions often lead

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to rising expectations and the promise of social change. It is far easier to generate people’s ideas and encourage analyses than it is to guide social change. More theoretically sophisticated understandings of power and change are needed. When social change is not forthcoming, frustration and alienation may arise. The skills needed to facilitate these methods are not the same skills needed to facilitate social action (see Shah, Shah, & Meera, 1995, for a dramatic example of the dangers of unskilled intervention). To the extent that researchers focus exclusively on PRA methods, without concurrent attention to social and power relations, poor insights are likely to result. Without a good understanding of leadership patterns, gender relations, and social networks, PRA cannot be effective (Mosse, 1995). Nevertheless, PRA represents a flexible, innovative set of methods and a rich set of empirical applications. It is a site from which much theoretical insight remains to be developed, particularly in the context of subsistence marketplaces where local people lack economic, social, and cultural resources yet possess indigenous knowledge and capabilities representing the physical and social realities of their surroundings.

NOTES 1. Critically reflexive research refers to a research process that encourages respondents to reflect on their experiences, behaviors, and capabilities. This type of research stimulates thinking, facilitates analysis, and helps in the development of sustainable actions to deal with social issues faced by the respondents. 2. Altrichter and Gstettner (1997) argue that the term action research was used within the German-speaking academic community as early as 1913. They suggest that the social philosopher J. L. Moreno is the true originator of action research, with his commitment to research participants being co-researchers and his emphasis on field research using participant observation and the goal of improving society. 3. The Ford Teaching Project is part of a curriculum development and reform program initiated in the 1970s in the UK, which focused on a participative ‘‘inquiry/ discovery approach to teaching’’ (Zeichner, 2001, p. 275). It emphasized teacher– student interactions in the classroom while refusing a standardized approach to education. The Norwegian Industrial Democracy Project represents a series of projects undertaken in Norway to investigate sociotechnical work designs and their implementation in the workplace. It focuses on understanding the relationship between social structures, technical frameworks, and relational networks (Pasmore, 2001). 4. Convergence is an academic journal published by International Council for Adult Education in Toronto. 5. Archer and Cottingham (1996a) note conflicts between Chamber’s view of local culture as a positive force as opposed to Freire’s view that culture is part of the problem and these local understandings need to be transcended. Chamber’s view on

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the value of knowledge is decidedly less hierarchical and he clearly trusts people’s ability to form meaningful social action based on their own experiences. 6. We would like to offer a cautionary note; it is easier to make this assumption than it is to live it. Literacy is a taken-for-granted state of being that mediates our experience of reality. Thus, it can stretch one’s incredulity when working with people who lack these skills—how do they cope? We encourage researchers to adopt the approach in the field of actively seeking out the talents and capacities of locals as a way to mitigate this potentially pervasive bias.

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Freire, P. (1972). Cultural action for freedom. Harmondsworth, England: Penguin. Freire, P. (1974). Education for critical consciousness. London: Continuum. Gaventa, J., & Cornwall, A. (2001). Power and knowledge. In: P. Reason & H. Bradbury (Eds), Handbook of action research (pp. 71–82). Thousand Oaks, CA: Sage Publications. Gaventa, J., & Lewis, H. (1991). Participatory education and grassroots development: the case of rural Appalachia. International Institute for Environment and Development Gatekeeper Series, No. 25. Gordon, G. (2004). Fishbowl. Participatory Learning and Action, 50, 200–201. Gordon, G., & Cornwall, A. (2004). Participation in sexual and reproductive well-being and rights. Participatory Learning and Action, 50, 73–80. Gramsci, A. (1971). Selections from the prison notebooks. London: Lawrence and Wishart. Greenwood, D. J., & Levin, M. (1998). Introduction to action research. Thousand Oaks, CA: Sage Publications. Greenwood, D. J., et al. (1992). Industrial democracy as process: Participatory action research in the Fagor Cooperative Group of Mondragon. Assen-Maastricht: Van Grocum. Guijt, I., & Cornwall, A. (1995). Critical reflections on the practice of PRA. Participatory Learning and Action, 24, 2–7. Hall, B. L. (1997). Looking back, looking forward: Reflections on the origins of the International Participatory Research Network and the Participatory Research Group in Toronto, Canada. Paper prepared for the midwest research to practice conference in adult, continuing and community education. Michigan State University, East Lansing, Michigan. Available online at http://www.canr.msu.edu/dept/aee/research/hallpr.htm Hall, B. L. (2001). I wish there were a poem of practices of participatory research. In: P. Reason & H. Bradbury (Eds), Handbook of action research (pp. 171–178). Thousand Oaks, CA: Sage Publications. Hayward, C. R. (1998). De-facing power. Polity, 31(1), 1–22. Hinton, R. (1995). Trades in different worlds: Listening to refugee voices. Participatory Learning and Action, 24, 21–26. Horton, M., & Freire, P. (1990). We make the road by walking: Conversations on education and social change. Philadelphia, PA: Temple University Press. Kemmis, S., & McTaggert, R. (1990). The action research planner. Geelong: Deakin University Press. Lewin, K. (1946). Action research and minority problems. Journal of Social Issues, 2(4), 34–46. Lewin, K. (1948). Resolving social conflicts. New York: Harper and Rowe. Lewis, H. M. (2001). Participatory research and education for social change: Highlander research and education center. In: P. Reason & H. Bradbury (Eds), Handbook of action research (pp. 262–268). Thousand Oaks, CA: Sage Publications. Levin, M. (1999). Action research paradigms. In: D. Greenwood (Ed.), Action research: From practice to writing in an international action research development program (pp. 25–37). Amsterdam: John Benjamins. Maguire, P. (1987). Doing participatory research: A feminist approach. Amherst: Center for International Education, University of Massachusetts. Mascarenhas, J., & Prem Kumar, P. D. (1991). Participatory mapping and modeling: User’s notes. RRA Notes, 12, 9–20. McTaggart, R. (1997). Guiding principles for participatory action research. In: R. McTaggart (Ed.), Participatory action research (pp. 25–44). Albany, NY: State University of New York Press.

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IMPACT OF ENTREPRENEURSHIP DEVELOPMENT THROUGH CORPORATE INTERVENTIONS: AN ASSESSMENT OF THE CASE OF HLL’S PROJECT SHAKTI M. J. Xavier, J. Raja and S. Usha Nandhini ABSTRACT This paper assesses the impact of a pioneering and unique initiative by Hindustan Lever Ltd, the Indian subsidiary of Unilever Ltd through its Project Shakti program. The study used qualitative interviews of women microentrepreneurs participating in this program about personal and occupational issues. Our analysis suggested several themes such as entrepreneurial development, economic empowerment, and social empowerment.

Businesses have been focusing attention on the bottom of the pyramid and the notion that they can simultaneously profit and reduce poverty (Prahalad, 2005). This paper assesses the impact of a pioneering and unique initiative by Hindustan Lever Ltd, the Indian subsidiary of Unilever Ltd

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 135–149 r 2007 Published by Elsevier Ltd. ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20006-3

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through its Project Shakti program. The project provides microenterprise opportunities for women by enabling them to be direct-to-home distributors of Hindustan Lever Ltd in rural markets. These women entrepreneurs are members of self-help groups formed for microfinance activities by local nongovernmental organizations. The ‘‘Shakti Ammas’’ (‘‘Shakti’’ means strength in Sanskrit and ‘‘Amma’’ means mother in native languages of southern India), as these women are referred to, work as brand ambassadors (Banga, 2004), selling the products directly to homes in villages. This study aims to understand the impact of the Shakti program. Following a description of the Shakti program, our methods and findings are discussed.

PROJECT SHAKTI Hindustan Lever Ltd links up with the self-help groups to access the markets in rural areas of India and also to sell its products to markets at the bottom of the pyramid in these areas. The project operates in an area comprising a population of 500 million in 500,000 villages in India. Fig. 1 indicates the positioning of Project Shakti. The objectives of Project Shakti are twofold: to improve the incomes of rural people by providing them with economic opportunities and to improve their standard of living by educating them about health and hygiene. Microenterprise opportunities are provided to women from self-help groups to operate as ‘‘rural direct-to-home’’ sales distributors of Hindustan Lever Ltd. High Business Potential

Rural Distributors

Direct Coverage

Inaccessible Market

Accessible Market Space for Project Shakti 500000 villages and 500 mn popln

Indirect Coverage

Low Business Potential

Fig. 1.

Positioning of Project Shakti (Adapted from Rangan & Rajan, 2006).

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In one sense, these members get to become active partners of a multinational company. Villages with a population of about 2000–3000 are selected. The stage of development of self-help groups, the proximity to rural distributors, and the population are some factors taken into account by the company when selecting a village. The company assesses its prospective contribution toward wealth creation in the village and also toward the development of health and hygiene of the villagers. Fig. 2 highlights the key players in Project Shakti and their linkages. After selection of a village, personnel from Hindustan Lever Ltd approach nongovernmental organizations and village administrators. They present the business concept to the self-help group members during the monthly meeting organized by the nongovernmental organization. Interested members submit applications indicating their willingness to take up Shakti dealership. The Shakti Amma, alternatively referred to as the Shakti dealer in this article, is appointed based on criteria such as her ability to count, read, and write and subjective factors such as enthusiasm and enterprise. Subsequent

Non governmental organizations

Self help groups

Shakti Ammas

Hindustan Lever Limited

Fig. 2.

Rural retailers and homes

The Key Players in Project Shakti.

Banks

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to appointment, Hindustan Lever Ltd maintains direct contact with the Shakti Amma. Hindustan Lever Ltd vouches for Shakti Ammas with banks at an informal level for credit needs. The Shakti Amma makes sales by visiting homes and retail outlets in villages. No more than one Shakti entrepreneur is appointed per village. The Shakti dealer places initial orders worth Rs. 15,0001 and makes payment for her purchases up front. Her initial investment is funded through her own funds, or by borrowing from the group or sometimes from a bank, or even by a combination of these sources. She becomes the principal customer of Hindustan Lever Ltd by making her purchase. The stocks are delivered at her doorstep by the stockist. Each Shakti Amma covers a service area that includes her village and also about three to five neighboring villages, termed satellite villages, each with population in the range of 1000–2000. The Shakti Amma sells the products to two distinct channels: to retailers and to households in her village and in satellite villages. The Shakti Amma chronicles her visits in a register provided by the company and maintains a record of the purchases made by the households and the retailers. This enables her to keep track of the volumes and the requirements of the households. She also maintains a record of the rural sales promoter’s visit to her home. The rural sales promoter is appointed to coach the Shakti Amma to target new customers and also pursue opportunities for sales to homes and retailers. He or she also coordinates supplies from the rural stockist to the Shakti dealer. The Shakti dealer, upon her appointment, organizes a ‘‘Shakti Day’’ in the village. The products of the company to be sold by her are displayed. The villagers who visit the exhibition are given free gifts worth Rs. 10 (the gifts are usually a combination of the company’s products). Occasionally, events such as quizzes about company products and advertisements are conducted. The event is a way for the Shakti entrepreneur to inform the residents of the village that she has been awarded Shakti dealership. Shakti Day helps her not only to market her services, but also to gain social identity. The public is made aware of the product variety she has to offer. The number of visitors on Shakti Day is usually in the range of 50–100. A Shakti Amma averages sales in the range of Rs. 10,000 to Rs. 15,000 per month. Her earnings differ based on whom she sells to. This is because the margin on sales to households versus retail outlets differs, with margins of 11% versus 3% of the volume sold, respectively. Over and above this, she may have additional earnings because of special schemes offered by the company from time to time. Overall, her gains are between 5 and 12% on the sales.

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METHOD In the current research, we draw on qualitative research methods that are interpretative and naturalistic (Denzin & Lincoln, 1998). Narrative analysis is used in this study. A narrative is both a theory and a methodology for interpreting lived experiences captured in stories. The concepts of explaining and understanding have been used for interpretation. As noted by Ricoeur (1981), to explain is to ‘‘uncover,’’ through a structural analysis, the internal relations of a text, while to understand is to find the meaning of a text. The concept of interpretation includes both understanding and explanation. The study was conducted in the homes of the informants, a social setting most comfortable to rural women. Some of the interviews were conducted in the presence of rural sales promoters, whereas others were conducted in their absence. The researchers observed that the informants were comfortable with the rural sales promoters and that there was mutual rapport. When interviews were conducted in the absence of the rural sales promoter, the researchers sought subsequent clarifications from the rural sales promoter by contacting him or her. The interviews ranged from 30 to 90 min, the average time being about an hour. The informants were randomly chosen from different districts of Tamil Nadu, a state in the southern part of India, where Project Shakti has been in operation for about 3 years. Informants varied in age from 25 to 48 years. The education levels of these women ranged from first grade to high school. The Shakti Ammas chosen were those who had been associated with Project Shakti for a minimum period of 1 year and had been members of self-help groups for a period of at least 2 years. This period was considered adequate for experiential learning among the informants to have taken place. Informants were encouraged to speak freely. They were asked to describe their family background, lifestyles, and daily routines. The researchers broadly guided the process through questions about the informants’ association with Project Shakti, sales generated, and the changes they had experienced as a result of their association with the project at the individual level, the household level, and the community level. The researchers asked specific probing questions about important decisions that had to be made by the entrepreneurs. Shakti Ammas were asked to describe how they related their actions to the community they lived in and about the attitude of the Shakti Ammas toward social aspects of the community. Interviews were audiotaped and transcribed. According to Guba and Lincoln (1998, p. 211) constructivism aims to understand and reconstruct

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Themes on the Major Dimensions.

Table 1.

A. Entrepreneurial development (i) Initiation a. Familial support b. First venture c. Synergy with existing businesses (ii) Role identification a. Engaging others in business b. Serving neighbors as customers (iii) Recognition of entrepreneurial skills a. Awareness of new products b. Awareness of high-quality products (iv) Fulfillment of dreams B. Economic empowerment (i) Development of functional skills (ii) Economic independence C. Social empowerment (i) Networking (ii) Self-confidence (iii) Community leadership

the ideas that people, including the researchers, hold and thus helps in achieving dimensions and interpretations. The themes that emerged from the interviews were listed out. Responses were at first obtained from 10 Shakti Ammas. Subsequently, two more Shakti Ammas were included in the sample and no new themes emerged from their interviews. Themes were classified into three major domains, namely, entrepreneurial development, economic empowerment, and social empowerment (see Table 1).

FINDINGS Entrepreneurial Development Entrepreneurial development includes the informant’s initiation into the project, role identification, recognition of entrepreneurial skills, and fulfillment of dreams. The following section illustrates these aspects.

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Initiation The factors that triggered the Shakti Ammas to participate in Project Shakti include familial support, the opportunity for a first venture into business, and synergy with existing businesses. Familial Support. Women in India have traditionally been identified with the role of housekeeping. Their spouses and family members would not normally entertain the idea of their engaging in activities outside of the house. They have to obtain the consent of their family members before pursuing an activity on their own. The pressure on them to fulfill their role as housewives is high. Women typically need support from family members to pursue additional roles beyond housekeeping. Several informants stated that their association with Project Shakti was possible because of the support they received from their family members. The quotes below are indicative of familial support: Mangayarkarasi2 (38): I was never allowed to step out of my house, not even allowed to cross the threshold of my house. Suddenly, things have changed y . When I am busy with the household work and customers drop by my house to buy some products, my husband services them and accounts for the same. Ponnammal (30): My husband got my bicycle repaired for me so that I can move around with ease and visit other villages, with the products. On weekends, come 7 o’clock in the morning, I set out on my bicycle to do door-to-door sales in my village and the neighboring villages. My father-in-law tends to the goats and in my absence takes care of my children y but for him, I might not have been able to do this stretch. Nagalakshmi (43): We do not have bus facilities in our village. My son accompanies me twice a week – on a working day before he goes to school and on Sundays – by bringing the products on his bicycle. If I have to go by myself, I get to carry only a few items in a bag. But for him, I will have had to make it on foot lugging the stocks. Now I am able to service both homes and retail outlets around here. Dhanalakshmi (25): My brother-in-law introduced me to Project Shakti. My family arranged for financing my initial stock purchase. Jeeva (32): My husband drops me off on his two-wheeler in the neighboring village. He comes to pick me up after a couple of hours y buses here are rare.

First Venture. Shakti Ammas ranged from pessimistic to optimistic when discussing their first attempt at entrepreneurship. They were not fully aware of the market themselves at the beginning, pointing to the learning that happened along the way. Ilayarasi (48): I was afraid I would not be able to take up the business, but then decided I would take the plunge. I did not know much initially y I stocked high-value items and

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found no takers for these products. In due course, I began to stock small-sized packs y my customers can afford only such items. The maximum price of an item in my stocks does not exceed half a dollar. Pushpa (39): I always looked forward to taking up some activity like this y making it on my own y so when an opportunity came in the form of Shakti dealership, I simply took it. The rural sales promoters followed up closely with me and guided me along. The ‘‘hand holding’’ made me feel that I would not be let down and I embarked on my first venture.

Synergy. Microenterprises were run either by the individual informants or by the self-help group to which the informant belonged. Spouses of some of the informants were engaged in microenterprise activity. Engagement with Project Shakti added value by providing synergy to their existing microenterprise activities. Mary (42): I make snacks and tea. My husband takes them to a nearby factory. He sells them to the workers at the factory. Every week he carries some of the products of Hindustan Lever Ltd there and sells them. Dhanalakshmi (25): These are not perishable. Hence I find it easier to stock them and am not under any great pressure to dispose off them y . Unlike vegetables I sell in the petty shop. Mala (35): I display the products of the company in my petty shop and am able to generate volumes. The ranges of products I sell now have increased. Banumathi (33): I sell candles along with the products of Hindustan Lever Ltd. It appears that I get to hit two birds with one stone.

Role Identification The informants identify themselves as providers of income and employment to others in the village. Some of them have been engaging their family members and self-help group members as partners and sharing earnings with them either on the basis of commission or on margins on actual volumes sold. On the one hand, while some informants took on the role of income providers, others chose not to engage anyone else in the business, the latter often being resolute in their stance because it would mean lowered revenues for themselves. They took efforts to walk the extra mile themselves and garner sales. These ambitious microentrepreneurs wanted to maintain a personal rapport with their customers and be masters unto themselves. Some informants take pleasure in serving their neighbors not as sales personnel but in their role as social workers.

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Engaging Others in Business. The Shakti Ammas engaged others in business to be able to reach out to their customers. The following quotes reflect the actions they take in this regard. Pushpa: One of the self-help group members takes the products to her workplace and I give her a small commission on the sales. Ilayarasi: I engage my brother and pay him a commission for the volume of sales he generates. Banumathi: I have employed a teenage girl for Rs. 200 per month to take the products on her bicycle and sell them to the satellite villages.

Serving Neighbors as Customers. The following quotes reflect the involvement and identification of the Shakti Ammas in their activity. Mangayarkarasi: I don’t regard myself as a sales girl y I feel I am into social service for my neighbors. In fact, I never felt let down when my neighbors turned me down initially. I approached them twice, thrice over y then they would not say ‘‘No.’’ Now they are happy customers of mine. Mary: My neighbors look forward to my visits. On certain days, when I get late, they keep wondering why I did not come. They enquire with each other saying, ‘‘Mary Akka (‘‘Akka’’ means elder sister in Tamil and Telugu, native languages of southern India) has not come today.’’

Recognition of Entrepreneurial Skills The Shakti Amma’s association with the company provides a form of recognition for her entrepreneurial skills. The television advertisements provide additional reinforcement for her association. Awareness of New Products. The Shakti Amma is recognized for introducing new products as demonstrated in the following quotes: Mala: People related that the products I was selling were advertised on television and they readily accepted them. They would come to me enquiring about the latest product launches y I show them the pamphlets and tell them of the product features. I have been encouraged by the fact that all this gives me good business. Jeeva: I sell jams, shampoos, soaps, and cosmetics. Small children come and ask for sachets of jams. Youngsters come to me for the latest and I keep supplies ready. Moreover I take time off to explain the features of new products. Ilayarasi: I wish to get people to sample the chapattis (Indian bread) made of Annapurna atta (‘‘Annapurna’’ is a brand name of a product and ‘‘atta’’ means flour in Hindi, the national language of India). I am going to have a product demonstration. That should help them see the difference.

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Awareness of High-quality Products. The informants related that they were instrumental in creating awareness of the quality of products such as iodized salt, detergents that do not damage the skin, personal care products, and also processed food, which has longer shelf life. The villagers had become more conscious of the quality of products, thanks to the product demonstrations and explanations they gave. This is illustrated in the following quotes: Nagalakshmi: Nowadays, people have started asking for iodized salt only. Initially it was not so. Annapurna atta is relatively costlier than local brands. It is about Rs. 23 a kilogram while others sell at Rs. 18 a kilogram. In time now, they have become convinced of its quality. They say they prefer it to the other brands because it can be stored for long periods of time. Mala: I have demonstrated the poor quality of local brands and deter my neighbors from buying them. I set out early on Monday mornings before the local soap makers visit our village; I make the supplies of the company’s products to the households and the retailers. This way I pose a barrier to the sale of inferior products.

Fulfillment of Dreams To many, the opportunity offered by Project Shakti to become an entrepreneur has been one of fulfilling a dream. Informants related that they had always wanted to be engaged in some form of entrepreneurship and when the opportunity came knocking, they took it. Mala: I was a salaried employee in a textile unit. I always wanted to be an entrepreneur. I did not want to look up to anyone y I wanted to be independently in charge. I have been seeing my dreams coming true ever since I agreed to take up Shakti dealership. I have been increasing volumes and reinvesting my profits. I was invited to New Delhi, the capital of the country, for my high achievements as an honor by the company. Ponnammal: My association with Hindustan Lever Ltd has brought about radical changes in me and I feel indebted to the company. I am seeing in me the new person I had always wanted to become. I wish to grow with this business. I don’t think I would ever give up.

Economic Empowerment Empowerment in the developmental context has been referred to as giving somebody more control over his or her own life or the situation he or she is in (Palier, 2005). Ranadive (2005) discusses the concept of empowerment on the basis of ‘‘spaces’’ individuals occupy. Empowerment happens when ‘‘spaces’’ expand, thereby allowing a person the freedom to do what he or she intends to do. Our findings suggest that entrepreneurial development can lead to

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economic and social empowerment. The following paragraphs illustrate the themes relating to economic empowerment. Entrepreneurial development enables Shakti Ammas to become economically empowered through development of functional skills and through economic independence. Development of Functional Skills There were a number of informants who related that they had developed functional skills. We use the activity of borrowing to illustrate this issue. The women have been exposed to the concept of small savings through self-help groups. However, maintaining an account with the bank was an activity that most of them had not been exposed to. Usually, only the leader of the group was familiar with banking operations. In cases in which Shakti Ammas resorted to borrowing from a bank for their initial investment, we observed that they were familiar with bank-related procedures. This familiarity enabled them to learn about various schemes offered by the bank. They also quoted having a good rapport with the bank personnel, which made them think of banks whenever they needed additional borrowing. Issues reflecting economic empowerment included access to formal sources of lending such as a bank, progressive borrowing, and increased income. Nagalakshmi: Since I am now actively engaged in business, I schedule my repayments in order. Further I have come to realize that banks give me the best rates. I do not think of borrowing from other sources. Ilayarasi: I had never known about bank borrowing. Now I go to a bank for timely needs. I also advocate my neighbors to resort to maintaining an account with a bank. Banumathi: Sometimes I go for a higher level of stocks and for this, I go for higher borrowings. I stock more in anticipation of demand and also when discount schemes are announced. These are times when my timely repayments have helped in development of faith and I avail of increased loans.

Economic Independence Informants reported having acquired a sense of economic independence because of the opportunity the Shakti dealership offered to them for earnings. The following quotes illustrate this point: Ilayarasi: It is a profitable business. I go door to door to take advantage of increased profits. The more efforts I put into it, I have come to realize ... the more gains I reap. I had to do with my husband’s restricted means. Now, I do not feel constrained.

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Mary: I realize I am indirectly increasing my income; I keep track of the schemes and avail of the discount schemes the company offers. Nowadays, I seem to be having money with me at all times. I am not strapped for cash.

Social Empowerment Social empowerment was reflected in a number of ways at the individual and societal levels. Social empowerment was evidenced through greater mobility as a result of running the Shakti dealership and the opportunity to network. Networking Dhanalakshmi: I go door to door and to other villages for sales. I attend meetings in town, which is about 20 kilometers away from my village. I go to the bank y I must know what is going on around. If I stay at home I remain cut off from the rest of the world. Mangayarkarasi: I meet with other Shakti Ammas at meetings and learn of their ambitions. I also have come to know of other people’s activities and have gotten inspired. I am going to put my son in a college in town after completing school.

Self-confidence The Shakti Ammas related that their confidence had greatly improved and that their outlook had changed. Banumathi: I am more confident a person. My own dogmas are changing y I find myself taking charge when situations demand. Ilayarasi: I have gained public voice. I raise questions on a lot of issues relating to old practices and fight against discrimination of caste and gender. I think women should take on more responsibilities.

Community Leadership Informants complete training programs periodically organized by the company. This has sensitized them to the needs of society and inspired them to contribute. The company has an alliance with Arvind Eye Hospital for conducting ‘‘eye camps’’ in rural areas. Shakti Ammas have been encouraged to organize eye camps in their villages and advise people to make use of the camps. Informants also stated that they have been encouraged to take up leadership positions. Ponnammal: Hospital services are poor and the last medical camp was conducted 6 years ago. I always wanted to help the situation. Very recently, I organized an eye camp, at the

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initiative of Hindustan Lever Ltd, by a prominent eye hospital in my village and had the satisfaction of serving the people of our community as well as the neighborhood community. My father-in-law was a beneficiary too. Mala: People look up to me at village level meetings and I have no problems in taking on additional welfare activities. I am the leader of a Ladies wing of a political party.

INTEGRATED MODEL OF THE IMPACT OF PROJECT SHAKTI Fig. 3 represents an integrated model of the impact of Project Shakti. It indicates the three major dimensions that were generated from the analysis. The model also illustrates the linkages among the three dimensions, such as entrepreneurial development leading to economic development and social empowerment and economic empowerment leading to social empowerment.

I) Initiation a. Familial support b. First venture c. Synergy with existing business

A II) Role Identification a. Engaging others in business b. Serving neighbours

Entrepreneurial development

III) Recognition of entrepreneurial skill a. Awareness of new products b. Awareness of high quality products IV) Fulfillment of dreams

B Economic empowerment

I) Development of functional skills

II) Economic independence

C I) Networking

Social empowerment

II) Self confidence

III) Community leadership

Fig. 3.

Integrated Model of the Impact of Project Shakti.

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CONCLUSION AND LIMITATIONS The findings indicate that Project Shakti has had an impact in terms of entrepreneurial development, economic empowerment, and social empowerment. From the corporation’s perspective, the project enables profits as well as social good. Other related organizations in the microfinance segment such as nongovernmental organizations, banks, and microfinance institutions may also be viewed as the beneficiaries of the project. In the context of the rural poor, emphasis should be given to providing opportunities for employment. Identifying suitable opportunities and training to promote employment has been a constant challenge faced not only by the funding organizations, but also by other organizations such as nongovernmental organizations, microfinance institutions, and governmental institutions. The promotion of entrepreneurship, however, figures high on the agenda of several initiatives for overall development. In this regard, Project Shakti, an intervention from the corporate sector, should be recognized as a stimulus for empowerment. The project has provided an opportunity for individuals to pursue entrepreneurship. The intervention has many facets, including promotion of microenterprise and provision of products of good quality to rural communities, which have so far been excluded because of lack of recognition of their needs and also skepticism about their ability to pay. Just as Hindustan Lever Ltd superimposed its intervention based on the strengths of the self-help groups, the strengths imbibed by the Shakti Ammas through Project Shakti could be a useful platform for other purposeful interventions. The Shakti Ammas could be a valuable channel for Hindustan Lever Ltd to scale up its operations. The same channel could be useful to any other organization with a philosophy of overall economic and social development. A limitation of our study is that the informants, though randomly chosen, could have been ones who have innate qualities of entrepreneurship. Their responses, therefore, could have been positive and optimistic. This limitation could be overcome by obtaining structured responses through survey methods. However, qualitative research was well suited to the purpose of providing in-depth insights into the phenomenon. Though caution was exercised in drawing out the themes and subsequently making conclusions, our biases could have influenced our findings. The differences in backgrounds in terms of literacy and income between informants and researchers are relevant factors in this regard.

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NOTES 1. The approximate equivalent of US $1 is Rs. 45. 2. Names of individuals have been changed to protect identity. The figure in parentheses indicates the age of the individual.

ACKNOWLEDGMENTS The authors acknowledge the support given by Mr. Vijay Sharma, Head, Project Shakti, Hindustan Lever Ltd, India; Mr. M. Shaktivel, Regional Sales Manager, Rural New Ventures – HLL Project Shakti, Hindustan Lever Ltd, India; and his team in Tamil Nadu comprising the sales officers, the team leaders, and the rural sales promoters for the study. The encouragement from Mr. C. Rajmohan, the previous sales officer, Rural New Ventures – South, Hindustan Lever Ltd, deserves special mention.

REFERENCES Banga M. S. (2004). Chairman – HLL. Text of speech delivered at the Company’s Annual General Meeting, Mumbai on June 29, 2004. The Economic Times, June 30. Denzin, N. K., & Lincoln, Y. S. (Eds). (1998). Strategies of qualitative inquiry. Sage, Thousand Oaks, CA. Guba, E. G., & Lincoln, Y. (1998). Competing paradigms in qualitative research. In: N. K. Denzin & Y. S. Lincoln (Eds), The landscape of qualitative research, theories and issues. Thousand Oaks, CA: Sage. Palier, J. (2005). Defining the concept of empowerment through experiences in India. In: I. Guerin & J. Palier (Eds), Microfinance challenges: Empowerment or disempowerment of the poor? (pp. 35–53). Pondicherry: French Insititute of Pondicherry. Prahalad, C. K. (2005). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Singapore: Pearson Education. Ranadive, J. D. (2005). Can microfinance empower women? In: I. Guerin & J. Palier (Eds), Microfinance challenges: Empowerment or disempowerment of the poor (pp. 113–120). Pondicherry: French Insititute of Pondicherry. Rangan, V. K., & Rajan, R. (2006). Unilever in India: Hindustan Lever’s Project Shakti – marketing FMCG to the rural consumer. Harvard Business Review, 9, 505–556. Ricoeur, P. (1981). What is a text? Explanation and understanding. In: J. B. Thompson (Ed.), Hermeneutics and the human sciences (pp. 145–164). Cambridge, MA: Cambridge University Press.

PARTICIPATORY RESEARCH METHODS FOR SUBSISTENCE CONSUMERS Edward McKenzie Abbey and Sharmin Attaran INTRODUCTION Most of the people in the world are poor, so if we knew the economics of being poor we would know much of the economics that really matters. T.W. Schultz, Nobel Prize Lecture 1980

Most poverty is caused by social discrimination and the unequal power distribution that serves to exclude those without power from participating in decisions that affect their lives. To break this ‘‘culture of silence’’ of the poor, we argue for a change in attitudes, relationships, and capacities of researchers focused on subsistence consumers that gives a voice to the poor. This requires an approach that defines the role of the researcher as an agent of social change who engages with marginalized people to strengthen their community’s capacity for development. Causes of poverty include the abuse of power and failure of governments to establish policies and institutions that can equitably distribute resources and opportunities among their populations. This is often due to institutional ignorance of the microeconomics of the poor. Development researchers and organizations are only beginning to learn how to work with the poor, rather

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than for the poor. Our paper explains practices that enhance the existing resources and capacities of the poor, with special attention to microfinance. Over 4 billion poor people in the world live outside regulated systems, are subject to exploitation, and lack opportunities to participate effectively in society. The poor own $9 trillion in ‘‘dead capital,’’ assets that cannot be leveraged to create wealth (de Soto, 2000). While this accumulated number is huge, poor families manage their lives on pennies a day. To illustrate this point, one of the authors, Abbey, had a discussion with clients of a microfinance institution (MFI), SafeSave, in Dhaka, Bangladesh. Accompanied by SafeSave staff, Abbey talked to an elderly couple, who were slum dwellers in Dhaka, whose daily income was derived from their work breaking bricks into small pieces. The following is an excerpt from their conversation: Abbey: Husband: Abbey: Husband: Abbey: Wife: SS rep: Wife: SS rep: Husband:

How much do you need to live on each day – for the five of you in the house? We need 50 Taka ($1.11). How much do you earn in your work breaking bricks? Usually about 35 Taka ($0.78) But in your passbook it says you save 5 Taka ($0.11) most days! How can you do that? Why? What do you mean? He means if you need 50 Taka a day but you get only 35, then how do you manage? We go hungry. What else could we do? What does he say we should do? But he wants to know why you save. For our future. Everyone needs to think about their future. Don’t we have a daughter and two grandchildren?

The interview shows that many impoverished individuals barely make enough money to survive, yet they realize that they must save for their family and future. How to study such individuals by truly understanding their pressing situations is the focus of this chapter. With the growing needs of impoverished people around the world, there must be ways in which their needs can be studied and applied efficiently to a program that will aid in their betterment. In this chapter, we argue for why it is important to study subsistence consumers and for why new methods for research on subsistence consumers are necessary. We also explore the participatory methodological

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contributions to the study of subsistence consumers. Methods will be discussed that can be used to research subsistence consumers to help researchers get at the core of their problems and find ways to help alleviate poverty issues, and examples of their application will be given. Although these methods are not all inclusive, we hope to show that it is only with the help and participation of those in need that a better method of poverty alleviation and microfinance will develop and flourish in such devastated areas of the world. Finally, we describe in some detail an organization that has used participatory research successfully in the pursuit of alleviating poverty.

WHY DO WE NEED RESEARCH ON SUBSISTENCE CONSUMERS? Left to their own devices, the poor tend to rely on conservative survival strategies to earn and manage their money. New research methods are needed to study subsistence consumers so that financial and other services are accessible to poor clients. For commercial institutions to learn how to tap the market of the poor, they need to increase their understanding of consumer behavior in the informal sector. People in subsistent areas need ways in which they earn and save money for ‘‘life cycle events,’’ which are times in their lives in which they need more than just small sums of money. Examples of such events are when a loved one dies and a funeral needs to take place or when a daughter must be wed and a dowry is custom. In Guatemala in 1995, a female member of a village bank was interviewed by Abbey, who asked how she used her $100 loan. She explained that she had a roadside food stand, and she used part of the loan to buy eggs daily. Previously, she received credit from the egg supplier; every morning she received $10 in eggs and in the evening paid the supplier $10.50. Now she said she could save $0.50 daily by paying for the eggs when she received them. She was asked what she estimated to be her daily ‘‘profit’’ from her business, and she said on an average about $5. Therefore, her use of the loan increased her daily income by 10%. She said that paying the 3% monthly interest rate to the village bank, considered excessive by some, was no problem. This example shows how subsistence consumers can benefit from microfinance programs if they are properly established in a community. However, because of general ignorance of the microeconomics of the poor, many

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well-intentioned development programs are misdirected and ineffective. This is often due to outsiders, professionals, and donors, who make the wrong assumptions about the behavior of the poor and then provide inappropriate solutions. A microfinance researcher and practitioner who recognized the needs and understood the financial behavior of the poor is Rutherford (2000). His research has looked at how the poorest people in Asia and Africa manage their money. He lists three options that they have when they need a sum of money that is greater than what they have in hand: they go without, they sell a valued asset (often below market cost), or they access savings or a loan. The first two are the most common practices, but the last is the most preferred. Rutherford (2000) shows that without access to formal services, the poor use a myriad of informal devices to save and borrow money, which are illustrated in Fig. 1. As the figure shows, poor people in all regions of the world use informal mechanisms such as those listed below to finance their needs:  borrowing from family and friends;  local money lenders who charge exorbitant interest rates;  ROSCAs, rotating savings and credit associations, a ubiquitous practice of a group of 10–20 people who create a weekly pool of funds, which is given to a different member of the group each week;  supplier credit;  savings through purchase of excess assets (e.g., gold, goats); Informal Finance

Savings and credit services extended by individuals or groups to others

Savings, credit and insurance services within membership groups eg. RoSCAs and burial funds Deposit collectors

Non-profit lenders eg. kith, kin and neighbors

Intermittent for-profit lenders eg. traders

Fig. 1.

Regular for-profit lenders eg. traders, moneylenders and pawnbrokers

Major Types of Informal Finance.

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 savings guards, trusted local people who will keep the savings of clients for a fee; and  savings in mud banks, bamboo, jars. Few outside organizations bother to consider these indigenous practices and, instead, design services from their own perspective. In the 1950s, realizing that the poor did not have access to financial services, development strategies began to include subsidized credit with the conventional wisdom that the poor could not afford to pay market interest rates. The programs all failed. In the 1970s and 1980s microcredit models, mostly based on group lending, began to show signs of success for institutional development, though services were limited and only the upper poor were reached. Through the 1990s, MFIs demonstrated that the poor were good clients, they could save as well as manage loans, and they could pay interest rates sufficient to cover institutional costs. Still, according to The World Bank Consultative Group to assist the poor, over 1 billion poor people do not have access to services that meet their needs. This is due to institutional weaknesses: most microfinance is managed by nonprofit organizations that are unskilled in commercial services and services are unregulated, loan products are institutionally focused and management is weak, and donors who oversee the programs are technically ignorant. Successful development interventions need to address the problem of asymmetric knowledge and understand poor clients’ capacities, demand, and needs. There are several possible problems that can arise when performing research on subsistence consumers. Research on subsistence consumers should be a group activity, but in situations in which people with varying power, status, influence, and languages come together to work on community concerns, the idea of participation becomes problematic (McTaggart, 1991). Programs and policies developed on the basis of research done on impoverished communities, instead of by them, can lead to ‘‘co-option of people into the research, development, and dissemination approach invented by a coalition of policy makers and social scientists whose primary interest is in maintaining control’’ (McTaggart, 1991, p. 172). Outside researchers do not dominate the changes in the communities; ‘‘they facilitate, sit down, listen, and learn. Outsiders do not impose their own reality; they encourage and enable local people to express their own’’ (Chambers, 1997, p. 103). The changes made to communities must not be impositions, but agreed-upon steps taken by the researchers and communities working together under a common cause.

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It is also possible for researchers to create a biased study. The researcher is usually from a different class and country so it is very difficult for the researcher to leave bias behind. The researcher may write a questionnaire in the United States for a group of poor farmers in Nigeria. Without a system of communication between the poor and the researcher that can reduce the amount of bias, the questionnaires may not address the real problems of the people in need of a solution. It may also be difficult for the researcher to ask the correct questions or the questions that matter since the researcher has not lived in the same situation as the poor being studied. As Chambers (1997) suggests, what is not asked about is not discovered and cannot be a part of the analysis. What is found in the data is limited to what is asked in the questionnaire; therefore, it is critical that the appropriate questions be asked and the appropriate knowledge be gained before trying to assess any problems. In the past there have been many attempts to study impoverished communities. Many problems and mistakes, such as those explained above, have yielded little progress and it is time now to look for new ways to research the poor and understand their situations. Researchers cannot assume that their own Western attitudes, ideas, and concerns are applicable to people in impoverished areas who live outside the regulated system, are subject to exploitation, and lack opportunities to participate effectively in society. Individual cultures have different needs and require individual attention; and who better to help explain their problems than the local people under investigation themselves? Participatory methods have shown that they can be beneficial and efficient in helping impoverished communities around the world.

WHY PARTICIPATORY RESEARCH? Participatory research allows people to learn from and with each other about themselves and the social conditions affecting their community. There are many terms for participatory research, from ‘‘action-oriented research’’ (Park, 1999) to ‘‘participatory action research’’ (Whyte, 1991). The term ‘‘participatory research’’ has its origins in Tanzania, where a group of development workers from North America and Scandinavia coined the term over 30 years ago (Hall, 1991). The term is intended to signify that the research these development workers were collecting relied on people’s participation in the communities being researched, both in gathering information about the community problems and in implementing solutions

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(Park, 1999). This was quite different from the way previous development workers operated, as outside experts who extracted knowledge from communities and then developed preconceived solutions to their problems based on predetermined social science-based methodologies. Fundamental to human rights is the right to participate and the right to choose for oneself. Researchers should have a good conceptual understanding of rights and democratic principles and how these could be applied to strengthen communities. Researchers should be agents of change, who introduce participatory methods that engage the most marginalized members of a community in collective analysis of their situation and consider opportunities for behavior change. Participatory research involves recognizing the rights of those whom the research concerns, enabling people to set their own agendas for research and development and so giving them ownership over the process (Cornwall & Jewkes, 1995). Institutions committed to economic development of the poor should first be convinced of the innate capacity of the poor to participate as clients in profitable business. Next, they need to interact with the poor so that mutual learning is elicited among clients, especially from the poorest, and the institution. Participatory methods help researchers empathize with the poor and help the poor to be a part of their own solutions. Participatory methods help outside development agents facilitate community discussions in which the poor analyze their situation and plan actions to identify local resources, prioritize problems, and diagnose their causes and identify options to address common issues. Through participatory techniques, an organization can incorporate local capacity building and sustainability into program interventions, as the poor are given skills and the opportunity to address their own issues. Outside development agents gain understanding of the local knowledge and practices so they can design programs that meet the demands of the community, including the poorest and most marginalized. Participatory research contains elements of collaborative research (Reason, 1998), which can be characterized as people learning from and with each other about themselves and the social conditions affecting their community. According to Park (1999), there are several steps in conducting participatory research. First, the research must begin by assessing the problems of the people. These problems can range from material deprivation, to deteriorating social relations, to political disenfranchisement (Park, 1999). Participatory research encourages people to come together to deal with their many and often urgent needs. The participatory researcher acts as a catalyst for the community to come together and engage in solving its problems.

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The researcher must be familiar with the situation of the community and be dedicated to being involved in and acquainted with the lives of its members. The researcher must then assess the community’s needs through available sources of information. The researcher must gain an understanding of the pressing problems of the community for the project to begin. The project that unfolds is the community’s, and it is the researcher who joins and participates as a partner taking on various roles, ranging from community organizer, to facilitator of meetings, to research coordinator, to a resource for technical and material assistance (Park, 1999). It is important that the community feel involved during the project as much as possible. Once the communal feeling has been created, the group can collectively decide what research questions should be asked and what methods of data collection and analysis to use. The participatory researcher can share the available research skills and options with the community, and provide training if necessary, so that the community can be a partner in the research (Park, 1999). As Park (1999, p. 3) notes, ‘‘if carried out with respect and trust, this collaborative approach results in research procedures that are appropriate for meeting the community’s multifaceted needs, as well as satisfying methodological requirements.’’ The following are examples of participatory tools that can help an institution create a mutual learning relationship with poor communities. These research techniques can contribute to the effectiveness of development interventions while preserving the dignity and special circumstances of impoverished individuals. There are several participatory methods presented here that can help yield a more cohesive picture of how to develop proper research methods to aid in the study of subsistence consumers. Although there is a significant difference between the methods, all focus on engaging the impoverished in solving their own problems.

METHODS FOR PARTICIPATORY RESEARCH Participatory Rural Appraisal Participatory rural appraisal (PRA) is a method to enable local people to share, enhance, and analyze their knowledge of life and conditions using visuals such as mapping and diagramming (Chambers, 1997). PRA tries to resolve the problems with research bias on subsistence consumers through learning with outsiders (Chambers, 1997). The outside researcher facilitates discussion with the poor by listening and learning from the local people.

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Immersion

Evaluation

Implementation & Monitoring

Situation Assessment

Planning

Resource Mobilization

Fig. 2. Participatory Project Cycle, Derived from Participatory Rural Appraisal Methods Promoted by Robert Chambers (1997). A Community Facilitator Works through the Cycle to Help Community Groups Analyze and Plan Collective Action.

Upon gaining knowledge from the local people, researchers can share methods that the local people can use to appraise, analyze, plan, take action, monitor, and evaluate their problems (Chambers, 1997). PRA is an empowering process for the local people that enables them to self-critique their own situation, while the researcher can help facilitate the process in which a resolution can be found (Fig. 2). As seen in Fig. 2, the model of a project cycle is useful for organizing facilitation processes that guide interaction between field staff, children, and their families. A program strategy is made up of many projects that take place over a long period while levels of participation evolve. Projects depend on collective action from marginalized members of the community. The first step, immersion, is the continuous face-to-face process of building relationships and mutual learning between community organizers and the children, families, and community, based on mutual trust and respect. Situation assessment encompasses the critical reflection by the community people on their own circumstances, issues, causes, interests, and responsibilities. Using PRA and other interactive facilitation techniques, community workers can help a community increase its confidence and analytical capacity to come together for collective action. Planning is the crucial phase in which the community decides what actions it will take to address its identified issues. All community issues should be analyzed in terms of their root causes and linked to regional and national issues. Alternative activities should be considered, and outside stakeholders should present programs they consider to be opportunities for addressing community interests. As well as addressing the content of the issues, the

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priority needs to be on how the community organization will be strengthened and contribute to improving quality of life. Resource mobilization is the organization of human, material, and financial resources for community collective action. This step involves identifying local, regional, national, and international sources of support and funding. The next stage, implementation and monitoring, involves the orchestration of human, technical, financial, and material resources over time in response to an established plan. Community ownership and participation can be strengthened through implementation of activities that successfully address local issues. Monitoring by systematically observing, assessing, and analyzing these activities will improve both the quality and the transparency of the activities. Since the community development approach requires community ownership and participation, the approach requires the final step, evaluation, by the community itself. This community defined the program objectives at the beginning and it is logical that the ownership of the information, process, and results of evaluation remain with the community and is utilized by its members. The phases of the project cycle follow in sequential order, but steps and actions are flexible and should be naturally adapted to the local situation. An outside facilitator should keep a focus on the overall objective of community empowerment so that activities within each phase are not completed mechanically but are adapted to local capacity. With success, the projects will generate enthusiasm for expanding work that mobilizes larger numbers of people in the community.

Participatory Wealth Ranking Even the poorest communities have a range of power and economic levels among the population, and the poorest have significantly different needs compared to the upper poor. Participatory wealth ranking (PWR) is a process of identifying the wealth, poverty, and vulnerability of households in consultation with members of the community itself. The method is simple: a committee of representatives from all sections of a community is selected and they work with a map, which contains all the households. They write the family names of all households on cards and sort the cards by relative wealth and resources into three to five categories, whose criteria they decide. Typically there is a ‘‘rich’’ category of landowners, a ‘‘middle class’’ category, and then one to three upper poor, poor, and ultra-poor groups. For the different groups, the committee identifies common characteristics: land

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Table 1.

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A Typical PWR Process in a South African Village Arrived at the Following Categories.

A Wealthy Two parents Few children Abundant food Nice house Land and vehicle High income

B

C

D

E

Moderate

Poor

Very Poor

Chronic Poor

Two parents Few children Regular food Solid house Some land Regular job

One or two parents Some children Food limited Rent house Some education Low job or pension

Working widow Many children Irregular food Poor house No education Manual labor

Single parent Many children Insufficient food No fixed house No education No assets or work

ownership, house materials, family size and composition, education level, assets, etc. A typical PWR process in a South African village arrived at the categories shown in Table 1. While PWR can be validated with other wealth-ranking methods that promote institutional targeting, its main benefit is that it raises community consciousness to promote service for all members of the community. Those who have facilitated such ranking exercises have found them easy and usually report high correlations between the ranking given by different informants or groups (Chambers, 1997). A team from the Christian Medical College, Vellore, South India, has compared a formal questionnaire survey with wealth ranking for identifying the rural poor. The researchers concluded that the questionnaire survey using outsiders’ ‘‘professional’’ classifications were only 57% accurate, while the classifications made by the community were 97% accurate in identifying the economic levels of households (Rajaratnam, Gamesan, Helen, Babu, & Rajaratname, 1993). Therefore, allowing community members, instead of outside researchers, to determine the situation of people in their community has resulted in a better representation of the different groups and thus a better understanding of the plight of the poor and their needs.

Financial Diaries Once the poorest families have been identified, a technique for understanding how they manage their money is called Financial Diaries. This is a systematic process of routinely interviewing poor families over a period of

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Table 2.

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MFI Share in the Formation of Sums, by Category of Use.

For life cycle use For emergency use For opportunities MFI share %

Poorest Households

Upper-Poor Households

Near-Poor Households

278 191 41 46

167 96 12 59

70 35 6 29

7

16

9

MFI Share %

6 3 23

time and recording the different ways they generate, spend, borrow, and save money. In his research with Financial Diaries, Stuart Rutherford defines three categories of events that require a lump sum of money beyond what a poor family generates in daily income:  Life cycle: predictable events such as marriages, baptisms, school fees.  Emergency: sicknesses, accidents, disasters.  Opportunities: investment in income generating or assets. Table 2 summarizes Rutherford’s assumptions on expenditures of households in Dhaka, Bangladesh, slums. Rutherford’s data show that the ‘‘poorest’’ spend relatively more money for life cycle events than on opportunities compared to the ‘‘near poor.’’ All levels show that the greatest financial needs are for consumption rather than income-generating activities. Most financing is informal, as MFIs provide only about 10% of the microfinance services that poor people need (and this is in a country that is a world leader in microfinance). While most upper and near poor are clients of MFIs, the services they receive are very limited so informal devices are used to complement their needs. The main activities for MFI funding are opportunities, since many MFIs restrict loan use to income-generating activities. Through Financial Diaries, one sees how institutional services are not meeting client demands. Financial Diaries also prove that not all levels of poor spend money on the same things. It is very important to allow the community members to take account of their own spending and needs to find the differences between individuals. A near-poor member of the community may have very different needs compared to the poorest household, and using Financial Diaries can help researchers bring these differences to light. There cannot be a mass approach to helping the poor finance their lives. Each case must be studied individually to uncover the needs of every member.

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Internal Learning System Another method that uses community and personal participation of the poor is the Internal Learning System (ILS). According to Noponen (2002), the ILS is a participatory impact assessment and planning system for NGO development programs. ILS is a medium for working with illiterate poor through pictorial scenes of their lives that promote analysis for decisions on their money management or income-generating activities over a long period of time. Professional Assistance for Development Action (PRADAN), an NGO, has adapted ILS in India. PRADAN uses ILS to generate participatory analysis of crop production and loan use in their microcredit programs with poor women. They present women’s groups with discussion points around the use of credit to generate group analysis of loan requests. The techniques used help groups learn how to monitor their internal loan behavior, while the outside institution learns of the capacity of the groups to use funds. Poor illiterate women use pictures to represent an ‘‘impact indicator’’ to keep records of change in their lives over time. The results of these diaries are used to create a quantitative and qualitative panel dataset that contains information on changes in participant’s lives with periodic summary assessment intervals over a multiyear period. One of the strengths of using ILS is that all participants affected are involved in every aspect of the process. There are five levels in the process, which include collecting data, assessing change, analyzing causes of change or troubleshooting, planning and training, and documenting, sharing, and reinforcing program values. Each participant is involved at each level as she reflects upon her findings, makes plans, and documents experiences in her diary. Noponen (2002) finds that ILS is flexible, as the structure, content, and processes can be shaped to the needs, human resource capacities, and financial constraints of different organizations. ILS levels can even be skipped depending on program structure and needs. ILS creates a database in which the quantitative data can be analyzed by group characteristics. Long-term analysis can occur, including analysis of women’s lives and whether their welfare and empowerment levels are increasing over time. The data can also be analyzed on a cross-sectional basis by age or number of loans received. The progress and results of the ILS method can be analyzed to determine what methods are successful over time for particular groups with certain characteristics. The ILS process focuses on what is working and what is not working, for whom, and why (Noponen, 2002). Members can compare their own results with those of

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other group members while exploring factors that make one individual more successful than others. It is critical to take into account individual or family-specific differences that may occur and use other participatory methods to uncover these idiosyncrasies (Noponen, 2002). However, the ILS method in combination with participatory methods can be used to overcome any strengths or weaknesses of the methods. Some participatory methods use one-time events for research without follow-up or long-term analysis. Using the ILS method allows results of exercises to be preserved so that group members can revisit and reflect upon them as change occurs in their lives. ILS techniques have also been used by PRADAN to reduce the time and level of facilitation required in carrying out standard PRA/PLA techniques (Noponen, 2002). ILS balances the learning needs of participants and program staff to create quantitative and qualitative information for improving the lives of the poor and enhancing the level of participation by all parties.

SUCCESSFUL MFIs WITH THE POOR: THE CASE OF PLAN Institutions that have learned to work with the poor have developed models based on factors such as:    

outdoor banking; loans without collateral; a large client base as individual profit margins are small; cost recovery interest rates that produce business plans that lead to the sustainability of MFIs;  development of social capital, within communities and with MFIs; and  strengthening local capacities, understanding indigenous knowledge and practice. Moreover, successful MFIs in the world have developed methods that fall mostly into the following categories:     

Grameen bank and replicas, self-help groups (India), village banks (Latin America), village savings and loan associations (Africa), and cooperatives and credit unions.

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All of the above, except for cooperatives, work with group models that develop social capital. Membership cooperatives also focus on the social benefits of ‘‘cooperation’’ as responsible members. Successful MFIs place priority on knowing their clients, building a relationship among them, and establishing a relationship of continuing learning. In Bangladesh, innovative MFIs are developing products and services that reach the poorest. Plan, an MFI, has a vision, mission, and program that focus on increasing the capacity of poor children and their families to participate effectively in meeting their needs and benefiting from society. Plan works with communities to identify cases of low-quality services, and programs are designed to increase community participation and mobilize local resources to improve services. Plan also works with local institutions to improve their management, controls, and efficiency for sustainable service. Emrul Hasan, Plan Bangladesh’s Microfinance Advisor, has described two steps in development of the MFIs. First, the barriers to the poor population’s accessing MFI services were analyzed, as shown in Table 3. Next, a process of mutual learning with the poor was developed to design services that meet their needs, as shown in Table 4. With Plan’s partner institutions, CTS, DSK, and POPI, microfinance services were designed with common features: daily collection of savings and loan repayment, individual client service, flexible terms for products, and small management teams consisting branch manger, accountant, data processor, computerized information systems, and collectors hired from the village. Table 3.

How the Barriers were Addressed by Plan Partner MFIs: CTS, DSK, POPI.

Barriers

How Do Plan’s Partners Address Them?

Fragile, fluctuating source of income

   

Joint liability

 Serve clients individually and all clients are treated equally  No group formation for financial services delivery and open for everyone

Supply-driven progressive loan disbursement

 Loan products are not mandatory and savings only is possible  Demand-driven loan product: clients can choose their loan size and repayment schedules according to their capacity and requirement

Flexible repayment and savings system on a daily basis No fixed payment Voluntary savings with withdrawal facilities Customized financial products

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Table 4. Microfinance Program Features for Chronic and Extreme Poor. Features

Plan’s MF Partners: CTS, DSK, POPI

Poverty targeting

Plan’s partners target the chronic and extreme poor through PWR exercise with the community. Special focus is given to reach the chronically and extremely poor people so that these groups can have access to diverse financial services to meet their different financial needs and to cope up with vulnerability.

Participatory product development process

A highly participatory process to design appropriate products for the target clients. The process starts with participatory market research conducted by a group representing the extremely poor households to understand their lives, livelihoods, and poverty dynamics and to learn their demand for and supply of microfinance services. Findings are shared on a mass level and analysis is done with the clients and potential clients. Finalization of the products is done through rigorous consultation and cost/benefit analysis. To understand how effectively the products are serving the needs of the extreme poor, periodic review is done through continuous action research, documentation, performance monitoring, and Financial Diaries’ data.

Account opening and members

Clients are recruited as individuals: there is no group formation and no cross guaranteeing of loans. There are therefore no meetings. Clients may be men, women, or children, though children may borrow only if they are at least 15 years of age.

Interface between partners and their clients

Partners’ bank workers, known as collectors, are responsible for visiting each of their clients once a day, 6 days a week. These collectors are hired from the community. A collector is encouraged to work with about 120–150 clients in the rural area and 200–220 in the urban area. All financial transactions between partner organizations and the client take place on the clients’ doorsteps. Branch manager at branch level disburses loans. Product rules specify the timing and value of withdrawals and loans and the charging or paying of interest. This means that employees have no discretion over whether a client may borrow and thus helps to prevent ‘‘rent-seeking’’ behavior by employees.

Savings

Simple saving accounts in which clients may save as much as they like and when they like, at the daily visits by collectors, are available. There are longer-term savings or bond accounts on which clients may earn interest.

Note: Features all adaptations of the urban MFI, SafeSave, in Bangladesh.

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Table 5. Client Outreach by MFIs: Total Households in Three Poverty Categories. Category

C – Poor

D – Extreme Poor

E – Chronic Poor

Total

Covered

%

Total

Covered

%

Total

Covered

%

CTS DSK POPI

6,457 5,909 3,520

4,786 3,415 2,298

74 58 65

10,206 4,674 6,328

9,443 2,596 3,062

93 56 48

1,421 1,994 744

940 1,119 329

66 56 44

Total

15,886

10,499

66

21,208

15,101

71

4,159

2,388

57

Note: Plan Bangladesh.

To monitor the MFIs’ outreach to the poorest, each maintains the results of PWR in its market area communities. Table 5 shows the extent to which MFIs have enlisted clients from the ranks of the poor. CTS achieved the highest level of client coverage as CTS collectors stress savings accounts and outreach to the poorest families. DSK was less successful with outreach and recognized that an obstacle for the poorest was high loan interest rates. While DSK was quickly becoming institutionally sustainable, they were not reaching their target population so they lowered their loan interest rates and created incentives for collectors to attract clients from the poorest. This case shows how the poor deal with very small amounts of income but with high percentages of interest, rate of return, or loss. The poor have high demand for financial services, and they understand the usefulness of financial services to create wealth and provide for their basic needs. Because the poor live and work outside formal systems, they are left to informal survival devices. Institutions do not generally distinguish the poorest from the nonpoor, so services are usually designed on the demands of middleclass clients. Using participatory methods such as the ones mentioned in this chapter, MFIs and researchers can learn to cooperate with people from all levels of poverty to build programs that cater to individual community needs.

DISCUSSION AND CONCLUSIONS Poverty can be seen as a set of conditions that prevents people from having hope-filled lives and effective futures. We must be sensitive to the issues of

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hunger, vulnerability, and victimization and the general cycle of poverty that a large population faces. Many development and financial institutions fail to work effectively with the poor for several reasons:  lack of commitment or mechanisms to identify the poorest;  lack of understanding of the poor, so services do not meet their needs; and  inappropriate methods that bring research bias into the study of impoverished local communities. Local issues of poverty are caused at the macrolevel, nationally and internationally. Therefore, program strategies need to be designed to start with local issues of the poor and offer solutions that link them to national causes. The research process must start with communities, who, together with researchers and development workers, analyze local problems and link them to national constraints and prejudices. The participatory process is promoted by outside agents, either researcher or development worker, both of whom can practice the processes but with different objectives. As it pertains to the separation of researcher and practitioner, this boundary is not always clear in the world of applied research, especially when it comes to research among subsistence consumers. The researcher usually remains an outside observer of the process, while a development worker must be immersed within the community. The challenge for academicians interested in subsistence consumer issues is to conduct research in subsistence settings, using methodologies that empower their respondents (such as PRA) while remaining detached from the phenomenon. The researcher extracts information to analyze against criteria of a program or hypothesis. Similarly, the development worker with experience of successful interventions from beyond the community may act as an objective observer and then make recommendations to the community similar to those emanating from research. A development worker has the aim of improving the socioeconomic status of a community by facilitating community analysis to raise consciousness and promote action. The development worker can bring outside ideas that can be adapted by communities to promote collective action for change. The researcher can have this development objective of promoting local understanding of the research process and come close to the objective of the development worker. The researcher may remain alongside the development worker as the methods are used to extract information about the needs of the subsistence consumer. The researcher can measure impact, while the development worker takes action on the findings.

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Regardless of the amount of separation between the two groups, they must come together for open discussion to challenge, reinterpret, and refute ideas to improve the knowledge base and come to better understanding of how best to aid poor communities. Activities can be identified that enhance indigenous knowledge and practices and strengthen community capacity to mobilize local resources. Participatory methods can help bridge the gap between outside researchers, development institutions, and the impoverished communities they are trying to help. Because participatory research involves the community being studied in the research process, factors such as cultural differences, gender issues, power imbalance in the community and family, and many other community issues should be taken into account. The poor have varying needs and participatory methods can help researchers seek to understand and efficiently solve the right problems. Ultimately, participatory research is about respecting and understanding the people with and for whom researchers work. It is about developing a realization that local people are knowledgeable and that they, together with researchers and development workers, can work toward analyses and solutions.

REFERENCES Chambers, R. (1997). Whose reality counts? Putting the first last. Southampton Row, London: Intermediate Technology Publications. Cornwall, A., & Jewkes, R. (1995). What is participatory research? Social Science and Medicine, 41(12), 1667–1676. De Soto, H. (2000). The mystery of capital: Why capitalism triumphs in the west and fails everywhere else. New York: Random House. Hall, B. (1991). Personal contact of Park, Peter (1999). People, knowledge, and change in participatory research. Management Learning, 30(2), 141–157. McTaggart, R. (1991). Principles for participatory action research. Adult Education Quarterly, 41(3), 168–187. Noponen, H. (2002). The internal learning system: A tool for microfinance and livelihoods interventions. Development Bulletin, 57, 106–110. Park, P. (1999). People, knowledge, and change in participatory research. Management Learning, 30(2), 141–157. Rajaratnam, J., Gamesan, C., Helen, T., Babu, N., & Rajaratname, A. (1993). Validating the wealth ranking of PRA and formal survey in identifying the rural poor. Vellore, Tamil Nadu: RUHSA Department, Christian Medical College and Hospital. Reason, P. (1998). The co-operative inquiry group. In: P. Reason (Ed.), Human inquiry in action. Developments in new paradigm research. Newbury Park, CA: Sage. Rutherford, S. (2000). The poor and their money. New York: Oxford University Press. Whyte, W. F. (1991). Participatory action research. Newbury Park, CA: Sage.

MICROCREDIT THROUGH THE FEMINIST LENS: TOWARD A MORE EQUITABLE APPROACH TO SOCIAL ENTREPRENEURSHIP Ina Freeman and Nancy Higginson ABSTRACT Microcredit programs, which provide unsecured credit to individuals or groups, have often been viewed within the development field as a panacea for empowering women in developing countries and improving their families’ socioeconomic status. Some of these programs, such as the Grameen Bank in Bangladesh, have made great strides toward improving the living conditions for the poorest of the poor. However, the beneficial outcomes of many of these programs to participants, and especially women, are often constrained by local cultural values/traditions and the imposition of masculine business models derived from the developed world’s conceptualization of capitalism. In this paper, we explore some of the root causes of the inability of many microcredit programs to deliver on their expected benefits, specifically to women borrowers in developing countries. We focus on universal shortcomings of microcredit programs that impede the success of all borrowers and on gender-specific shortcomings that negatively impact women borrowers. We highlight these shortcomings with the use of examples

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from our own experiences with microcredit programs in developing countries. Based on our critique, the final section of the paper presents five key recommendations for improving the structure and delivery of microcredit programs targeted at women in developing countries that recognize their unique needs and opportunities.

INTRODUCTION Much has been made of the link between gender inequities and constraints to economic growth and poverty reduction in developing countries by development agencies, governments, and grass roots organizations (World Bank, 2002). The disproportionately high representation of women in lowpaying jobs in the informal market sector and the resultant lack of access to productive assets, credit, and pensions (Avirgan, Bivens, & Gammage, 2005) are often cited as evidence of gender inequities in the development process. An urgent call for immediate action to address this imbalance, issued by a recent World Bank-hosted conference on the topic, attests to the substantial inequalities that still exist for 50% of our global population (World Bank, 2006a). World Bank President Paul Wolfowitz, speaking at the event, put this ‘‘call to gender equality’’ in perspective when he said, ‘‘No country can expect to progress if half its population is held back from achieving what they’re capable of y . All they [women] need is the opportunity. It is time we do everything we can to help them get it’’ (World Bank, 2006a). Based on the belief that women are typically the most engaged in ensuring family survival within the vast majority of sociocultural groups (Michel, 1991), development priorities have been recast in recent years in an attempt to integrate women as full partners in the development process. These efforts, which have often been referred to as ‘‘gender mainstreaming,’’1 have encompassed high-level policies and strategies, billions of dollars in funding and technical assistance, focused projects, and international dialog devoted to enhancing the role of, and outcomes for, women and their families in socioeconomic development. Over the past decade, entrepreneurship-based strategies have become a cornerstone of many of these development initiatives. Recognizing the contributions that village- or community-based business enterprises can make in achieving (and sustaining) a brighter future for the poorest of the poor, microcredit (or microfinancing) programs and projects have become common throughout the developing world. Microcredit programs targeted specifically at women – either individually or in groups – have been strongly

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promoted, sometimes as a panacea, for meeting the (dual) goals of empowering women and lifting them (and their families) out of poverty. According to current United Nations estimates, women in developing countries now manage and operate 70–80% of all small businesses (World Bank, 2006a), and microcredit programs are strongly promoted to this population. Unquestionably, the growing popularity of microcredit indicates that these programs have achieved some success in improving socioeconomic conditions for families in many areas of the world. Many microcredit programs, however, have been plagued by systemic shortcomings in their structure and their delivery, failing to meet both the program administrators’ and the beneficiaries’ expectations. For example, some businesses established under the auspices of development-supported microcredit programs have not survived the transition to self-sustaining enterprises once the aid dollars and technical assistance were removed and the participants left to their own devices. In other cases, local cultural traditions and imperatives have prevented women from being full participants (and beneficiaries) in the program. The personal debt incurred under such initiatives, however, is not as easily forgotten. In this paper, we examine the unmet needs of women borrowers participating in community-based microcredit programs in developing countries. Specifically, we explore the impact of cultural values and traditions and masculine business models on the design, delivery, and outcomes of microcredit programs for women participants. We begin the paper with a brief description of microcredit, followed by a discussion of the universal and the gender-specific factors impeding women’s ability to access and utilize microcredit effectively, noting examples to highlight these shortcomings. The final section of the paper presents a set of recommendations that are sensitive to, and accommodate, the unique circumstances and needs of women borrowers participating in microcredit programs. It is hoped that the outcomes will be full integration of women into the entrepreneurship process and greater socioeconomic advancement for them and their families by maximizing the programs’ benefits.

OVERVIEW OF MICROCREDIT PROGRAMS Microcredit refers to the practice of lending small amounts of money to unsecured borrowers who would otherwise be unable to access the funds necessary to establish a small-scale business enterprise. Loans range in size

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from as little as US $20 to several hundred dollars; the average microcredit loan is approximately US $200. The funds may be used for a variety of purposes, including capital investments, training, acquisition of raw materials for production, working capital, and marketing the output. Microcredit programs recognize that although the poorest of the poor lack traditional forms of equity, their talents and skills represent valuable entrepreneurship assets (Lucas, 2001). This entrepreneurial capital – which is sometimes referred to as a fourth factor of production by economists (Hirschman, 1958; Baumol, 1968) – provides the collateral for loans that are extended through partnerships between community-based nongovernmental organizations (NGOs) and commercial banks (Isern & Porteous, 2005). The NGOs are able to offer insights into the socioeconomic needs of program recipients and the means to fulfill them at the village or community level, while the banks provide financial resources and lending expertise. Microcredit programs emerged in the 1990s as the most recent answer to combating poverty in the less developed countries of the world. After decades of technical assistance and millions of dollars for infrastructure improvements and basic needs such as health care and clean water had failed to make a significant improvement in living conditions, the development focus shifted to entrepreneurship as an engine of socioeconomic growth. According to World Bank estimates, by 1995 there were over 900 lending institutions in 101 nations supporting microcredit as a means to encourage business development (Paxton, 1995). The enduring appeal of this development strategy was seen 10 years later when the United Nations named 2005 as the International Year of Microcredit (The International Year of Microcredit, 2005). While microcredit has been extended to both males and females, as individuals or in groups, many programs have been targeted specifically at groups of women. Recognizing the central role that women play in the well-being of families, development organizations have singled them out to receive group- or community-based microcredit to integrate them more fully as economic participants in society. The women use these funds for income-generating activities, ranging from handicrafts and sewing/tailoring to rice processing and chicken rearing, that allow them to capitalize on their existing knowledge and skill sets. Microcredit programs targeted at women are typically based on four guiding principles (Mayoux, 1999): i. programs must be self-sustaining, with program costs recovered from interest rates on the loans;

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ii. they must target poverty reduction, focusing on consumption and production within a business environment; iii. small amounts of subsidy are permissible; and iv. credit is extended to enhance gender equality and women’s human rights as an entry point to their economic and sociopolitical empowerment. Otero and Rhyne (1994) detail the microcredit movement that has led to the current self-sustainability paradigm, highlighting the advantages of women borrowers and group-based loans to lenders vis-a`-vis the security of their investments. First, women have a greater propensity to repay their loan; repayment rates for women borrowers in microcredit programs range from 95 to 99%. Women therefore become a preferred target from a lender’s recovery perspective. Second, lending to groups has the dual advantages of both decreasing the financial costs associated with loan administration and increasing repayment rates due to the peer-pressure element. Groups tend to self-police repayment by individual members. The group-based approach to lending is especially appealing to women, whose social nature tends toward collective enterprises. One of the most successful group-based microcredit programs targeting women is the Grameen Bank, which was first introduced in rural Bangladesh in 1976. The program was founded by Professor Muhammad Yunus, a Bangladeshi with a Ph.D. in economics from Vanderbilt University, after a devastating famine in his home country in 1974. His vision of extending small loans to groups so they could produce goods for sale in the local markets helped alleviate the widespread rural poverty and allowed the people to recover from the famine with some dignity. In 1983 the Bangladeshi legislature declared the program to be an independent bank. One of the most distinguishing features of the Grameen Bank (2006) is that its borrowers, 96% of whom are women, own 94% of its equity (www.grameen-info.org/ bank. October 1, 2006). Today, there are over 2,100 Grameen Bank branches throughout Bangladesh and its lending model has been replicated in 43+ other impoverished countries in the developing world. Groups of women (typically numbering five) receive an average loan of US $200. The members of the group then determine how the money will be used. If one member defaults on her loan, the whole group is denied further credit, resulting in repayment rates of 98–99%. Some indicators of the program’s success include families being able to send all school-aged children to school, all household members having three meals a day, access to clean drinking water, and the ability to repay the loan. Professor Yunus’ vision of ‘‘taking the bank to the people

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who need it most’’ was recognized at the highest level in October 2006 when the Grameen Bank and its founder were awarded the Nobel Peace Prize.

UNIVERSAL SHORTCOMINGS OF MICROCREDIT PROGRAMS Although there have been some success stories in the use of microcredit in developing countries, numerous studies argue that many of these programs do not meet their own goals (Arinaitwe, 2006) of reducing poverty, providing help to those who need it the most, and developing sustainable microfinance solutions (Gootnick, 2003). In fact, Hulme (2003) concludes that the self-sustaining paradigm that drives these programs serves to exclude the very people that are in greatest need of their benefits. The United Nations’ Secretary-General has noted that the programs as they are currently structured may not be effective for the poorest of the poor (United Nations Department of Public Information, 1998) in part because of high interest rates relative to the income generated, fragile or rudimentary administrative structures, and the programs’ short-term economic perspectives. Inconsistencies in Program Delivery One of the most common criticisms of microcredit programs is inconsistencies in the manner in which they are extended (or offered) and administered between marketplaces or even within one marketplace (Lucas, 2001). These inconsistencies, which are often driven by vested interests and local power structures (and struggles), result in uneven opportunities between borrowers, confusion among borrowers, and higher risks for some borrowers relative to others. They serve to open the door to a two-tier (or more) system of lending; that is, borrowers that are ‘‘connected’’ locally and possess political power receive favorable consideration from the programs. For example, the caste system remains a dominant social structure in some Indian communities. Borrowers from lower castes who are in much greater need and more worthy of program benefits (perhaps possessing a superior business idea) may be denied access to the same level of service as those from higher castes due to deeply entrenched beliefs about their status. In other cases, the poorest people in the village, who are generally illiterate, may simply not understand how to deal with the bureaucratic mazes that frequently characterize these programs and their ancillary institutions.

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The negative outcomes of inequitable access to microcredit programs and their affiliated business and government institutions are threefold. First, the borrowers that face restricted access are likely to withdraw from the program and become further disadvantaged and alienated within the community. They may lose resources previously diverted to their business idea while attempting to take advantage of the microcredit program. Second, the programs themselves lose the time (and other resources) invested in the enterprise prior to the borrowers’ withdrawal. Finally, communities miss out on opportunities for sustainable business enterprises that could provide long-term socioeconomic benefits for the area.

Short-Term Planning Horizon Many microcredit programs are also constrained by the short-term planning horizons that characterize a substantial number of initiatives supported by development organizations. Programs that are supported by funding and technical assistance from international development agencies (countryspecific ones, such as USAID, and multilateral ones, such as the World Bank and the Asian Development Bank) are beholden to the priorities and agendas of those organizations.2 While assistance may be provided only after thorough analysis and planning and with the best of intentions, international agencies must also answer to their home-country constituencies, whose priorities may shift as policies and people in decision-making roles change. Hence, as new country administrators/managers come into the picture, new directions may be imposed on existing programs – or worse, support for programs may be eliminated. Both types of actions can be detrimental to existing creditors. Further, the United Nations has noted that in general, donor-driven programs result in waste and are not as effective as recipient-driven programs. Moreover, a focus on short-term planning is not limited to international development agencies. At the local level, program managers also become consumed with meeting the short-term demands of those higher up the chain of command. Those in positions of power often insist on being able to publicize immediate and highly visible results from their efforts, instead of making the long-term interests of their programs and borrowers the priority. The outcome for the microcredit programs is an ad hoc approach to administration and delivery that undermines the potential of the programs to utilize their resources fully and help those they are targeting.

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Lack of Local Infrastructure A universal constraint to improving living conditions in developing countries is the lack of infrastructure such as transportation systems, distribution channels, and communication technology – all essential elements in supporting business transactions. Although billions of dollars were spent by donor agencies in the second half of the 20th century on improvements throughout the developing world, many regions still suffer from inadequate infrastructure. For example, roads and bridges may have been built without taking into account their long-term maintenance needs. As the infrastructure depreciates, it becomes unusable because the local communities do not have the financial and/or human capital necessary to maintain it. In other instances, donor-funded projects are started but not finished because the funds dry up, key technical advisors withdraw from the project, or similar factors, leaving conditions worse than before they were started. Business transactions in rural areas are especially impeded by inadequate transportation systems that limit the ability of people to move their products to larger markets, where they have the greatest potential for maximizing the price they receive and hence their profits. These problems are often compounded by frequent natural disasters, such as flooding and cyclones, with the end result being communities trapped in never-ending cycles of trying to rebuild infrastructure with inadequate resources. In addition, many microenterprise owners lack even the most basic of communication services, limiting their access to important and timely market information and distribution channels and hence their ability to engage in fair trade with middlemen and end-users. In short, the lack of communication facilities renders them almost powerless in the marketplace. Many microcredit programs have failed to take into account the transportation and communications infrastructure that is needed to support successful businesses at the local level.

GENDER-SPECIFIC SHORTCOMINGS OF MICROCREDIT PROGRAMS The previous section has highlighted some of the universal shortcomings of microcredit programs that affect all borrowers. There are a number of additional constraints on microcredit programs whose impacts are felt primarily by women borrowers. In particular, we contend that the current

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Inconsistencies in program delivery

Cultural and social values/traditions Women borrowers in communitybased microcredit programs

Home/business conflicts

Lack of recognition of women and their value

Lack of local infrastructure Gender-specific shortcomings

High interest rates relative to income generated

Universal shortcomings

Fig. 1.

Shortcomings of Microcredit Programs.

business models that are used in many microcredit programs do not create frameworks that are consistent with the participatory needs of communitybased enterprises owned and managed by women. Fig. 1 illustrates the shortcomings of microcredit programs, with the outer ring representing the universal shortcomings and the inner ring, the gender-specific ones. The women borrowers, who are impacted by these shortcomings, are at the center of the model. Chesbrough, Ahern, Finn, and Guerraz (2006) note that successful businesses in developing nations are generally predicated on a business model that is ideally suited to the country rather than to the introduction of a product. These business models incorporate the cultural and social elements of the country while also taking the time to build a value network of local companies – a necessary component in the long-term alleviation of poverty and preservation of the environment (Peredo & Chrisman, 2006). This strategy takes into account the benefit of collective thinking to encourage the network’s growth by encouraging individual growth using best practices, including low-cost financing, distribution channels, dealership incentives, and purchaser value – infrastructure elements that are present in the developed world but are frequently absent or flawed in the developing world. An understanding of the developing world’s socioeconomic environments is mandatory (Peterson, 1988) for effectively structuring programs designed

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to encourage women’s entrepreneurial enterprises. These environments incorporate not only the women’s interactions, but also the interactions within their communities and their significant others (Cornwall, 1998), mandating a holistic solution that incorporates a broader base than is found in most current microcredit programs. The next four subsections discuss the key gender-based shortcomings of many existing microcredit programs that constrain women’s participation in these programs and their ability to realize their benefits fully.

Local Cultural and Social Values/Traditions Gender-based inequities are often rooted in the pervasive influences of colonial and cultural traditions (Ibie, 1992) that may be encoded within the communities’ legal system and/or in its social capital. For example, the Sharia’h law that provides the legal code in Islamic nations dictates that women’s inheritances must be less than those of their male counterparts; within the Jewish tradition, only men can sue for a get (termination of the marriage contract). These cultural traditions, and the attitudes they engender, serve to restrict women’s access to economic resources and also their standing within their communities. With regard to restricted access to financial resources, cutbacks in funding by developed countries for key gender-based programs3 have also contributed to sustaining the inequities between men and women in many countries, given the tendency to favor men when resources become scarce. The World Bank (2006a, 2006b) Social Capital Task Force describes the adverse impacts of adherence to social norms and practices on women entrepreneurs as analogous to breakdowns or shortcomings in ‘‘social capital,’’ where the latter is defined as outcomes of socialization traditions in a community. Women’s creative growth and expression, both of which are important precursors to entrepreneurial success, may be inhibited by demands placed on them by the community for adherence to strict conservative social practices. Hence, the community’s social capital impedes women’s successful use of microcredit because they are denied entrance to markets by a value system that keeps women in the submissive, nondominant, and capability-handicapped roles of ‘‘homemaker,’’ ‘‘wife,’’ ‘‘mother,’’ and ‘‘dependent’’ rather than as financial contributors to the family and the society. Women who are participating in microcredit programs are also frequently embedded within a group of like-minded community members. Within the

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group structure, individual women may be subjected to the pressures placed on them by their colleagues and the community, potentially making these loans detrimental to the participants while being beneficial to the lenders. For example, there may be tremendous social pressure to repay the loan from a set income, regardless of where the funds were used and how successful the enterprise was. Mayoux (2001) further discusses the problem of social and household dominance by men. Although women may be the microcredit recipients and hence responsible for generating the income from their enterprise, the males in the home often control how the money is used. Women who attempt to assert themselves may face escalating domestic tensions and even violence as retribution, as the men feel threatened by the women’s newfound confidence in speaking up (Pankhurst, 2002). Within one conservative community in northwest Bangladesh, for example, the men used the income from their wives’ business enterprises for their own enjoyment – visiting the local tea stalls, gambling, etc. When the wives protested, some were met with beatings and public humiliation. In these cases, not only are the potential benefits from the microcredit program not realized, but the women’s home situations deteriorate. A plausible conclusion from these arguments is that microcredit programs may deal with economic issues, but many do not deal with the root causes of poverty and vulnerability of women, thus offering at best a short-term solution to an entrenched sociocultural problem.

Imposition of Masculine Business Models and Their Associated Hierarchies Many of today’s commercial enterprises in developed and developing countries alike are founded on a masculine business model, in which organizations are hierarchical and decision making tends to be top–down. Here, the locus of power within the organization is concentrated at the top and lines of authority are clearly delineated. This structure, while highly effective for many of our large, Western corporations, does not support the communityoriented, group-based philosophy of microcredit programs targeted at women. Rather, it largely serves to entrench the hierarchical power structure of the economic elites and/or of those possessing political power. Under this scenario, poor women, who often are illiterate and lacking power in the community, are left out of the planning and decision-making processes that are critical to their enterprises’ success (Lucas, 2001). For example, the structure of the groups is frequently mandated by the program

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authorities rather than through self-formation, weakening or obliterating existing community support frameworks and local conventions (Peredo & Chrisman, 2006) and potentially resulting in worsened conditions if the programs are terminated or collapse (Cornwall, 1998). Further, the individualism that characterizes US business culture, in which many of the corporations that engage in microloans are based (Peterson, 1988), is logically found in these programs in the developing world, even though individualism is often not part of the culture of those countries. Also, despite the fact that small business is frequently touted as a source of economic development, the contributions made by small businesses in developing countries are not equal to expectations for numerous reasons (Arinaitwe, 2006), not the least of which are the inability to access infrastructure resources that are found only in established communities and the lack of planning upon which successful businesses are built. The lack of planning has often resulted in loans that are too small to produce any improvement for the borrower, leading to the liquidation of essential preowned assets and a further decline in the borrower’s financial situation (Giri, 2006).

Lack of Recognition of the Unique Needs of Women in Balancing Home and Business Responsibilities The imposition of predominantly masculine business models is closely linked to the shortcomings of microcredit programs in recognizing the unique needs of women in balancing their home and business responsibilities. Mayoux (2001) identifies conflicts and time pressures between women’s traditional responsibilities in the home for unpaid domestic work and participation in microcredit programs as one of the most pressing problems related to women’s entrepreneurship. The implications extend to both the demands on their time and the financial outcomes of the programs. In some instances, programs have decreased the net family income while increasing the women’s responsibilities, thus negating the positives of the program (Brett, 2006). The family income may be reduced by having to repay the loan, regardless of the status of the business. For example, women are expected to repay the loan even in cases of illness and lack of familial support structures for operating the businesses or if the husband or other male family member takes the money and leaves her unable to continue with the enterprise’s activities. These dynamics may also exacerbate the challenges of managing shifting household power relationships (Brett, 2006), including husbands and/or

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other family members (most often parents) forcibly borrowing money from the women’s business (Goetz & Gupta, 1996). The low power status of women in many developing nations forces the woman to take a loan with limited input into the use of the money. Alternatively, if the woman is unable to repay the loan the situation reinforces the dependency of the female upon the male provider and his exploitation of her. Gill (2000) argues that the transfer of wealth through the microloan process as it currently exists is from the poor to the wealthy, founded on the Western conceptualization of ‘‘doing good,’’ not on the participants’ actual living conditions.

Lack of Recognition of Women’s Contributions and Value to Communities Several studies on gender mainstreaming have shown that women’s contributions to economic and social development are often overlooked and undervalued (Lucas, 2001), serving to reinforce stereotypical attitudes toward women as being powerless, ignorant, and held to subservient roles defined by traditional practices (Mohanty, 1991; Johnson-Odim, 1991). Failures by government and international agencies to collect complete and/or accurate data on gender issues have further impeded the full integration of women into development initiatives. Overall, the result has been low levels of education and health care, thereby perpetuating cycles of poverty and powerlessness for women (Nesbitt, 2006). These cycles exacerbate asymmetric opportunities for men and women in many countries. Poorly executed microfinancing schemes can perpetuate such misconceptions about women and the resulting inequities, by setting up women to fail and later holding up such instances of failure as examples of women’s inferiority and lack of abilities.

RECOMMENDATIONS To address the gender-specific shortcomings of microcredit programs and improve their outcomes for women and their families in the developing world, we recommend changes to microcredit programs in the following areas: (1) training for program lenders, (2) working within local institutions, (3) lending to groups, (4) mentoring and advisory services for the women, and (5) education and support services. The recommendations are shown in Fig. 2.

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1. Train program lenders - at the local level - culture - gender - local governance - political structures

2. Work within local institutions - religious - kinship networks - governments - business networks Micro-credit programs targeted at women - empowering women - improving the living conditions for them and their

3. Loan to groups - respect women’s collectivist nature - complement individual loan programs

4. Mentoring and advisory services - understand traditional business models - respect innovative models - select right mentors/advisors 5. Education & support services - education for loan recipients and their spouses & families - separate groups for men and women

Fig. 2.

Recommendations for Improving Microcredit Programs for Women.

Training for Program Lenders To ensure that the programs are structured in accordance with the norms and values of the community, we recommend training lenders on the culture and gender issues prevalent in the community where the program

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is lodged or targeted. This training should incorporate the challenges and consequences of the gender roles that are predominant in the community, including the restriction of available time for women due to their traditional household and caregiving roles and responsibilities, the lack of recognition of women’s contributions and therefore their value within the community, and the degree of individualism or collectivism that is prevalent in the community. The training team would include both women and men who are respected in, and knowledgeable about, the community to ensure the veracity of the content of the training and the methods proposed. A second area of training for the lenders is the local governance standards and political institutions as they affect women’s everyday lives. The application of laws and standards will vary by community and by nation according to the local power structures. Although the program must meet the national laws, the community’s standards of behavior and law implementation are equally important for the success of the program. In training the lenders, the criteria for making the loans and the terms of repayment should be modified in accordance with the individual needs and abilities of the community whenever possible. The training will assist the lenders in recognizing that women’s natural proclivity to form social groups may be limited only by the social norms and community traditions. For example, in communities divided by social class, ethnic, or religious traditions, the lenders may determine that separate programs will better facilitate all members of the community. This structuring of different collectives may be a solution for microcredit programs operating in India, Japan, and other cultures that have a class structure wherein those in the lowest class are not adequately served in other collectives.

Working within Local Institutions Microcredit programs should also be designed to work harmoniously within existing local institutions, including mechanisms of social order and cooperation such as kinship networks, religious doctrine, and government rules and regulations. By utilizing the community’s cultural institutions, the programs will be deemed to be less disruptive to existing social structures and hence more readily accepted by community members. This should lead to more widespread community and family support for program participants, with the ultimate outcome being greater success in their microenterprises.

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For this to occur, program administrators and lenders will need a comprehensive understanding of existing local institutions within the microcredit program network. A report of the Subcommittee for the Eradication of Poverty (2003), prepared for the United Nations Department of Economic and Social Affairs, cited an understanding of local institutions as critical to the success of any intervention. As this report notes, understanding these networks is necessary to assist women in improving their standard of living as well as in overcoming some of the aloofness, mistrust, and corruption found in local governing and authoritative bodies. For example, Muslim women represent the largest number of microcredit loan recipients globally (Varner, 2006). Many Muslim women in developing countries practice purdah (or veiling), a cultural tradition that limits women to specific roles in their society. These roles are deeply ingrained in the psyche of the people and cannot change without an understanding of the benefits of the microcredit program to the families in the community. Lending institutions therefore need to take this practice into account when designing program for those communities or risk further alienating or isolating the women from their communities, to the detriment of both the community and the women involved.

Lending to Groups We recommend developing microcredit programs to accommodate groups of women engaged in one business venture that can also operate in conjunction with programs for individual microcredit loans. Given women’s collectivist and social nature, the group structure will conform to societal norms. For lenders, groups of women offer additional monetary security because a group is less likely to default than an individual. Also, groups have many of the advantages upon which the microcredit program is based, including the easy access to social capital and group strengths and capabilities. Complementing such training, the women may need some training in group processes to avoid free-rider and tragedy of the commons effects in their groups. With the success of many microcredit programs in raising the profile of women to become opinion leaders in their villages (Maxima, 2005), the group approach shows great promise as an entry point for beginning the long process of equalizing gender rights. The improvement of women’s

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rights is a derivative of the enhancement of social returns as required for continued funding by many governments (Panel 5, 2005). As demonstrated by the drive of the World Bank to coordinate all aspects of the financial sector to ensure development and growth (Panel 1, 2005), there is strength in groups that cannot be accessed on an individual basis. This group strength may be leveraged for added community benefits such as greater employment opportunities and monetary return by funding them to form larger enterprises.

Mentoring and Advisory Services for the Women Mentoring and business support of microcredit loan recipients should be provided by people who are familiar with both the traditional business models and the more innovative ones that incorporate an inclusive perspective of human rights. Because most enterprises will reside within the traditional business environment, creative mentoring will assist women to understand how to work successfully within the traditional models and hierarchies while at the same time developing strategies that are responsive to their unique needs. Operating microcredit programs in a way that is acceptable to the traditions of the community, as well as challenging the traditional business models, will enhance the longevity of the program and provide an opportunity for the participants to become fully participating citizens in the community. There are two keys to success here: (1) selecting the right people to serve as mentors and advisors and (2) finding the best match between mentors/ advisors and loan recipients. Important characteristics of the mentors and advisors include an understanding of, and success in, operating a microenterprise within the local cultural setting; an open mind and tolerance for new ideas; respect for the notion of expanding women’s roles in society; a solid network of connections within the local community; and political clout at the local level. To the extent possible, mentors/advisors can be chosen from the local community or surrounding region to leverage their indigenous knowledge. Expatriate advisors can also serve a useful role in introducing new ideas for innovative business models. Finding a solid match between mentors/advisors and loan recipients can be accomplished only after a thorough needs assessment of the recipient and an inventory of the mentors’/advisors’ skills and knowledge. This process can most successfully be accomplished at the local level.

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Education and Support Services Our final recommendation is to provide education and support for both the loan recipients and their male partners concerning the intent and operations of the loan programs. The intent of the educational efforts is to elucidate the potential positive results of the program, such as opportunities for a higher disposable income and improved living conditions and educational opportunities for the family if the woman’s business is successful. The support could include separate groups: one for the male partners and other male relatives of the women participants and the other for the women themselves. This approach was used very successfully in southern Sri Lanka, where the separation of men and women in support groups facilitated both parties’ openness in asking questions and challenging concepts. As men learn to accept and eventually celebrate women’s efforts, the community may be able to develop business models that are better suited to all members of the community and the nation. Further, women’s wellentrenched social networks may inspire more creative and effective business models and methods, further enhancing the profitability of the families as well as the programs. For example, as noted in studies from Africa (Dickerson, 2006) and Bangladesh (Goetz & Gupta, 1996), money earned by women in the microenterprise may need to be hidden from the women’s husbands or male relatives to feed the families. In borrowing money from banks staffed primarily by males and living in societies wherein men control the families (Neff, 1996), progress demands that men become partners. Groups designed to educate and support men in understanding the potential benefits of microcredit programs for women and their families would facilitate the progress. Benefits highlighted might include, but are not limited to, improved school attendance, reduced infant/child mortality, increased maternal health, and access to the free market (Coleman, 2005). Working as a member of the team, men might be encouraged to brighten their own and their families’ futures through using the microcredit program accessed by their wives and female relatives.

CONCLUDING THOUGHTS Much of the praise bestowed on microcredit as a concept, and on many of the nation-specific initiatives it has engendered, is well deserved. It seems safe to assert that microcredit is a significant improvement over antiquated imperialistic practices and quite possibly the most significant breakthrough

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of the past 2 decades in the war against global poverty. Based on our research, it also seems safe to conclude that the job is only half finished and that there is considerable room for improvement. The targeting of women for microcredit programs is based on only one or two aspects of the feminine profile, such as high motivation to care for the family and a deeply felt desire to be good and accepted members of their communities. This perspective ignores many other important factors, such as power inequities, social norms that can set the women up to be exploited when they acquire liquid assets, and proclivities toward communal and collectivist values that would be better serviced by processes and policies different from those best suited to individualist societies and male-informed business models. We strongly believe that these design and delivery shortfalls are at best limiting the effectiveness of microcredit programs and at worst producing damaging outcomes for many clients. Most important, we believe that these problems can be addressed by more thoughtful planning and implementation of microcredit initiatives – planning and implementation that take the totality of women’s issues into account.

NOTES 1. The United Nations Economic and Social Council defines gender mainstreaming as ‘‘the process of assessing the implications for women and men of any planned action, including legislation, policies or programmes, in any area and at all levels y. The ultimate goal of mainstreaming is to achieve gender equality’’ (International Labor Organization, 2002: accessed July 2006). 2. The World Bank estimates that approximately 60% of the funding for microenterprise finance institutions comes from the donor community (World Bank, 1999). 3. In 2006, the United States held back US $34 million of promised funding to the United Nations Population Fund, money that would have helped advance the interests of women around the world in the areas of reproductive health and sociopolitical rights.

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Brett, J. A. (2006). ‘‘We sacrifice and eat less.’’ The structural complexities of microfinance participation. Human Organization, 65(1), 8–19. Chesbrough, H., Ahern, S., Finn, M., & Guerraz, S. (2006). Business models for technology in the developing world: The role of non-governmental organizations. California Management Review, 48(3), 46–61. Coleman, I. (2005). Defending micro-finance. Fletcher forum of world affair, Winter. Retrieved October 2006 from http://www.cfr.org/publication/7774/defending_microfinance.html? jsessionid=8c0cdfdc4fbeef6177d6a582d8913f54 Cornwall, J. R. (1998). The entrepreneur as a building block for community. Journal of Developmental Entrepreneurship, 3(2), 141–148. Dickerson, C. M. (2006). Sex and capital: What they tell us about ourselves? Retrieved October 2006 from http://new.stjohns.edu/media/3/dd1ea3f061fb49a6af4f616190b094b1.pdf Gill, L. (2000). Teetering on the rim: Global restructuring, daily life, and the armed retreat of the Bolivian state. New York, NY: Columbia University Press. Giri, P. (2006). Micro and rural finance in Nepal: Lack of conducive environment, Peace Journal, Independent e-magazine, 22. Cited July 2006. URL: http://peacejournalism.com/ ReadArticle.asp?ArticleID=7239 Goetz, A. M., & Gupta, R. S. (1996). Who takes the credit? Gender, power, and control over loan use in rural credit programs in Bangladesh. World Development, 24(1), 45–63. Gootnick, D. B. (2003). Microenterprise development: USAID’s program has met some goals; Annual reporting has limitations: GAO-04-171. GAO Reports 11/17/2003, pp. 1–74. Grameen Bank. (2006). Grameen Bank at a Glance. www.grameen-info.org/bank. Accessed October 1, 2006. Hirschman, A. O. (1958). The strategy of economic development. New Haven, CT: Yale University Press. Hulme, D. (2003). Thinking ‘small’ and the understanding of poverty: Mymana and Mofizul’s story. Institute for Development Policy and Management, Working Paper No. 22. Ibie, N. (1992). Media/cultural imperialism and Nigerian women: Whose culture, which imperialism? Journal of Social Development in Africa, 7, 39–52. International Labor Organization. (2002). Definition of gender mainstreaming. Cited 13 July 2006. URL: http://www.ilo.org/public/english/bureau/gender/newsite2002/about/defin.htm Isern, J., & Porteous, D. (2005). Commercial banks and microfinance: Evolving models of success, CGAP Focus Note, 28. Cited July 2006. URL: http://www.cgap.org/portal/ binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/Documents/ FocusNote_27.pdf Johnson-Odim, C. (1991). Common themes, different context: Third world women and feminism. In: C. Mohanty, A. Russo & L. Torres (Eds), Third world women and the politics of feminism. Bloomington, IN: Indiana University Press. Lucas, E. (2001). Social development strategies of a non-governmental grassroots women’s organization in Nigeria. International Journal of Social Welfare, 10, 185–193. Maxima, HRH Princess. (2005). Keynote speech at get involved conference – November 2005. Retrieved October 2006 from http://www.yearofmicrocredit.org/pages/getinvolved/ getinvolved_forum2005.asp Mayoux, L. (1999). Micro finance and the empowerment of women: A review of key issues. Accessed May 2006. URL: http://www.ilo.org/public/english/employment/finance/ download/wpap23.pdf

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Mayoux, L. (2001). Tackling the down side: Social capital, women’s empowerment and micro finance in Cameroon. Development and Change, 32, 421–450. Michel, A. (1991). African women, development and the North-South relationship. In: M. Dalla Costa & G. Dalla Costa (Eds), Paying the price: Women and the politics of international economic strategy. London: Zed Books. Mohanty, C. (1991). Cartographies of struggle. In: C. Mohanty, A. Russo & L. Torres (Eds), Third world women and the politics of feminism. Bloomington, IN: Indiana University Press. Neff, G. (1996). Microcredit, microresults. Left business observer #74, October, 1996. Retrieved October 2006 from http://www.leftbusinessobserver.com/Micro.html Nesbitt, T. (2006). What’s the matter with social class? Adult Education Quarterly, 56(3), 171–187. Otero, M., & Rhyne, E. (Eds). (1994). The new world of microenterprise finance: Building healthy financial institutions for the poor. London, England: IT Publications. Panel 1. (2005). Get involved conference. November. Retrieved October 2006 from http:// www.yearofmicrocredit.org/pages/getinvolved/getinvolved_forum2005.asp Panel 5. (2005). Get involved conference. November. Retrieved October 2006 from http:// www.yearofmicrocredit.org/pages/getinvolved/getinvolved_forum2005.asp Pankhurst, H. (2002). Passing the buck? Money literacy and alternatives to credit and savings schemes. Gender and Development, 10(3), 10–21. Paxton, J. (1995). Sustainable banking with the poor: A worldwide inventory of microfinance institutions. Washington, DC: World Bank. Peredo, A. M., & Chrisman, J. J. (2006). Toward a theory of community-based enterprise. Academy of Management Review, 31(2), 309–328. Peterson, R. (1988). Understanding and encouraging entrepreneurship internationally. Journal of Small Business Management, 26(2), 1–8. Sub-Committee for the Eradication of Poverty. (2003). Best practices in poverty eradication: Case studies from the field. Retrieved October 2006 from http://www.ngocongo.org/files/ report.pdf The International Year of Microcredit. (2005). Accessed February 2006. URL: http:// www.yearofmicrocredit.org/pages/whyayear/whyayear_learnaboutyear.asp United Nations Department of Public Information. (1998). The role of microcredit in the fight against poverty, United Nations Department of Public Information – DP1/2011. Cited June 2006. URL: http://www.un.org/rights/poverty/poverty2.htm Varner, L. (2006). Micro-loans: Giving the poor a choice, The seattle times, 2 August 2006. Retrieved September 2006 from http://seattletimes.nwsource.com/html/opinion/ 2003168496_lynne02 World Bank. (1999). The World Bank and microenterprise finance: From concept to practice, (November 15, 1999). Report No. 19895. World Bank. (2002). Integrating gender into the World Bank’s work: A strategy for action, 2002. Washington, DC: World Bank (January). World Bank. (2006a). Gender equality – The forgotten millennium development goal. World Bank, Washington, DC. Accessed February 2006. URL: http://web.worldbank.org World Bank. (2006b). World Bank (Social Capital Web Site), Accessed May 2006. URL: http:// web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSOCIALDEVELOPMENT/ EXTTSOCIALCAPITAL/0,,menuPK:401021pagePK:149018piPK:149093theSite PK:401015,00.html

MARKETING IN SUBSISTENCE MARKETS: INNOVATION THROUGH DECENTRALIZATION AND EXTERNALIZATION Robin Ritchie and Srinivas Sridharan ABSTRACT Billions of people around the world live in subsistence conditions. While this has traditionally been treated as a humanitarian challenge, it also represents a business opportunity. Academic research has yet to explore this notion adequately, particularly from the perspective of marketing. In this chapter, we draw on social capital theory to show how rich social ties in otherwise poor populations constitute assets that can be leveraged for the benefit of firms and consumers alike. Building on these ideas, we contend that a decentralized and externalized marketing structure should be more effective in subsistence contexts. Implications for research and practice are discussed.

Firms pursuing growth have a variety of options: expand margins by cutting costs or raising prices; increase sales by attracting new customers, stemming defections, or boosting product use; or broaden scope by expanding product

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 195–214 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20009-9

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lines, occupying more of the value chain, or entering new geographic markets. Yet with traditional markets increasingly saturated by competition, many firms find themselves struggling to find attractive avenues for expansion. Given the challenge of such an environment, subsistence markets – i.e., those that comprise the 3 billion people at the so-called ‘‘bottom of the pyramid’’ – present firms with a new and underexplored opportunity (Prahalad, 2005). Of course, there is at least one fundamental and compelling reason the potential of subsistence markets has not been tapped: firms have yet to find ways to serve them profitably. Despite being composed of vast numbers of consumers, subsistence markets present many challenges, including limited household buying power, inefficient distribution networks, and a lack of reliable information on which to base offers of credit. To date, market-based approaches for serving the needs of these consumers have been few in number and small in scale – circumstances that have left these individuals to be sustained largely by the efforts of governments and charitable organizations. In this chapter, we propose an approach to marketing that will enable firms to serve these consumers profitably in the long run. Our work differs from previous efforts in at least two respects. First, where existing studies of business approaches to subsistence markets have consisted primarily of descriptions of successful ventures, we propose a framework that is both prescriptive and relatively context-free. Second, where previous efforts have been inspired by observation of management practice, our ideas are grounded in two streams of research: the theory of social capital and formal analyses of the organization of marketing activity. Our theorybased approach enables us to offer general recommendations to firms, along with testable propositions by which our ideas can be validated and/or amended. The basic logic of our work is as follows. While lacking in resources, many subsistence markets possess a healthy supply of ‘‘social capital’’ – the cumulative investment of time, reputation, and effort in interpersonal relationships made by members of a community. Yet despite widespread agreement among scholars that social capital is an asset that can be leveraged for economic gain (see Iyer, Kitson, & Toh, 2005, for an overview), its potential as a marketing resource has never been formally considered. Given the limited success of existing approaches to addressing the needs of subsistence markets, it seems useful to evaluate social capital from a marketer’s perspective and consider how it might be employed by communities and the firms that seek to serve them.

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A defining characteristic of social capital is that it is embedded in, and hence inseparable from, the community from which it arises. As a result, firms seeking to leverage social capital cannot simply acquire it as they might conventional assets, but must gain access to it via relationships with community members. To realize fully the potential of social capital, then, a business must find local partners and give them the freedom to make and implement decisions that utilize their local knowledge, reputation, and relationships. This implies that key marketing functions need to be decentralized and, more often than not, performed by individuals who are not direct employees of the firm. In the course of this chapter, we demonstrate how such a move has the potential to enhance the ability of firms to serve subsistence markets profitably. Our work is organized as follows. We begin with a brief overview of existing approaches to subsistence marketplaces and an assessment of the research need. Next, we introduce the concept of social capital and discuss how the theory of social capital offers a useful starting point for developing innovative approaches to marketing to subsistence marketplaces. We then go on to review analyses of the organization of marketing activities, discuss relevant implications of social capital theory, and offer an integrative model for firms that seek to serve subsistence markets. This is followed by testable propositions that flow from our model, along with consideration of the development of a ‘‘decentralization index’’ to aid in empirical validation of our ideas. Finally, we conclude with a discussion of the contributions and limitations of our work and of promising future research directions.

CURRENT APPROACHES AND THE NEED FOR RESEARCH Academic research on business approaches to subsistence markets is promising, but nascent. Spanning disciplines that include strategy, marketing, international business, and sustainable development, it has tackled such topics as the reconceptualization of subsistence markets as opportunities (Prahalad, 2005), market entry strategies for multinational corporations (London & Hart, 2004), marketing mix strategies (Dawar & Chattopadhyay, 2002), and clustering strategies for government-led economic development (Arnould & Mohr, 2005). Broadly speaking, researchers have taken one of four perspectives: macroeconomic, corporate strategy level, marketing strategy level, and consumer level.

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The macroeconomic research stream has focused primarily on finding ways to stimulate economic growth in subsistence markets, inspired by ‘‘big picture’’ analyses of poor countries by developmental economists (e.g., Narayan & Pritchett, 2000). Scholars have emphasized the potential of market clusters (Arnould & Mohr, 2005) and sustainable local enterprise networks (Wheeler et al., 2005) as catalysts for growth. Corporate strategists, in contrast, have focused on identifying optimal modes for participation of multinational corporations in subsistence markets. The primary thrust of their work has been to examine the appropriateness of the dominant transnational business model for subsistence markets (London & Hart, 2004) and identify specific organizational capabilities that are critical in such markets, such as learning (London & Hart, 2004) and innovation (Hart & Christensen, 2002). The final two streams – marketing strategy and consumer-level analyses – have developed interdependently. Together, they have begun to identify optimal marketing strategies to reach subsistence markets, based on aspects of consumer behavior that are either unique to these markets (Dawar & Chattopadhyay, 2002) or similar to behavior in developed economies (Prahalad, 2005). The majority of these efforts, however, share a common underlying assumption that the basic challenge is to overcome the ‘‘problems’’ associated with serving subsistence markets (see Arnold & Quelch, 1998). Analogously, managers have, by and large, responded to subsistence markets with approaches whose core objective is to sidestep or overcome perceived limitations of these markets. This seems reasonable because the challenges in subsistence markets are not trivial. Yet it has also had very limited success in enabling firms to satisfy the unmet needs of subsistence market consumers. We contend that it is time for a new approach – one that recognizes the opportunities presented by these markets and develops marketing approaches accordingly. As London and Hart (2004) recently noted, strategies that leverage the strengths of a market tend to outperform those that focus on overcoming weaknesses. Our work has two key objectives. The first is to identify resources that are present in subsistence markets, but which have been underutilized as a means of either lowering the cost or increasing potential revenues from serving these consumers. The second, more fundamental, goal is to develop marketing systems that will enhance consumers’ capacity to consume by building their ability to generate income and wealth. Such a system should not only leverage existing local resources to extract profit, but also benefit the local societies that firms are endeavoring to serve (e.g., Mosse, 2006). We contend that this latter goal is, in fact, the more critical one. In any case, it is

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certainly an area in which research has failed to provide adequate guidance to firms. With these goals in mind, we draw upon social capital theory to focus attention on the idea of social resources as assets in subsistence markets and outline a marketing approach that regards firms not merely as suppliers of goods and services but as part of a larger production–consumption system. Such an approach encourages firms to find ways to sell products that not only address immediate needs and wants, but also help consumers become producers themselves. This represents a rather different point of view and thus contributes meaningfully to the evolving discussion of how firms can successfully meet the needs of emerging markets.

SUBSISTENCE MARKETS AND SOCIAL CAPITAL Our first goal in developing a new marketing approach for subsistence markets was to identify underappreciated and underutilized resources that might provide a basis for serving these consumers better. Subsistence markets are, by definition, lacking in traditional resources. However, they are often characterized by strong interpersonal relationships between individuals, as well as high levels of local knowledge among individuals that live in and constitute these markets (Viswanathan, 2007). The challenge, then, is to determine how these resources might be leveraged. To do this, firms need a lens that allows them to see how and among whom these relationships are formed and the nature of the elements they comprise. Although many different perspectives are possible, the most promising – and perhaps the best developed – is the theory of social capital. The richness of this theory allows us to leverage its ideas in a variety of ways. In this section, we begin by analyzing the different forms of social capital and the implications of each for firms in subsistence markets. We then go on to examine social capital as a resource and consider reasons it is likely to constitute a useful resource for firms.

Forms of Social Capital and Implications for Marketing The notion of social capital has been examined at various levels of social aggregation, from higher-order entities such as a community down to a personal relationship between individuals. According to Coleman’s (1988) typology, it can take at least four different forms: norms, obligations,

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trustworthiness, and information conduits. Although interrelated, each of these constitutes a distinctive version of the phenomenon, with its own unique role. We address each below. 1. Norms. Social norms are rules that encourage certain behaviors and discourage others through the collective administration of rewards and sanctions. They constitute the most widely distributed form of social capital in that they are, by definition, embraced and applied by the majority of members in a community. From a marketer’s standpoint, social norms can constitute a very useful resource. For example, a norm of agreeableness could facilitate product sampling unencumbered by the usual consumer skepticism, while one of ingratiation could make it easier to conduct doorto-door sales. Norms can also be useful in guiding other elements of the marketing program. For example, a norm of risk sharing might suggest use of a contractual clause in which groups of consumers are jointly responsible for the costs and benefits of a product. However, norms can be as fragile as they are powerful, because, while they facilitate some behaviors, they constrain others (Coleman, 1988). For example, a village norm of attending public gatherings might facilitate consumer exposure to product promotions, but constrain responsiveness to customized product pitches. It is useful to note that all relationships in a community contribute to the formation of social norms (see Fig. 1). 2. Obligations. Social obligations constitute a second form of social capital and serve particularly to facilitate reciprocating behaviors. They consist of the subset of interpersonal relationships in which one actor has performed a yet-to-be-requited favor for another and, as such, constitute a critical form of social tie. Coleman (1988) conceives of obligations as a credit slip held by one social actor (A) for future performance by another (B). Assuming wise relationship investments on the part of A, such credit slips are roughly analogous to possessing financial capital and thus provide an opportunity for economic value exchange (see Fig. 1). From a marketing standpoint, social obligations can be useful resources to draw from, regardless of their source. However, they are potentially most useful if the marketing activity can be aligned meaningfully with the domain in which the obligation was originally created. For example, a public utility could more effectively implement the collection of utility bills in a community through local individuals who have helped residents of the community considerably in the process of obtaining electricity or water for their homes in the first place. 3. Trustworthiness. Trustworthiness can be regarded as an implicit guarantee that obligations will be repaid (Coleman, 1988) and describes

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Norms

Obligations

All relationships in a community contribute to formation of norms.

Only a subset of relationships provide economic value. Actors possessing greater number of outstanding obligations figure in these fewer relationships.

Trustworthiness

Information

A further subset of all relationships involving obligation are likely characterized by trustworthiness.

Within theset of trustworthy relationships, a final subset is characterized by meaningful information-sharing.

Fig. 1.

Dimensions of Social Capital: Implications for Marketing Relationships.

relationships in which favors are generally returned even in the absence of monitoring or penalties for noncompliance. It thus serves to put boundary conditions around the usefulness of obligations as a productive marketing resource (see Fig. 1). In other words, even if the number of outstanding obligations is the same, individuals engaged in relationships that are more trustworthy have a higher likelihood of facilitating successful marketing exchanges. 4. Information sharing. A final important form of social capital is the potential for information sharing that is sometimes realized within trustbased relationships (Coleman, 1988). This is the most intimate form of social capital, and it reflects the powerful data-gathering function that interpersonal connections can facilitate (see Fig. 1). Its usefulness to marketers is rooted in the well-known idea that acquisition and transmission of information are costly to organizations (e.g., Teece, 1977). Social relations in a

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community can facilitate effective and efficient exchange of marketing information by removing traditional impediments such as information asymmetry and insufficient receiver attention. Such relations would be useful to transfer marketer-initiated information to customers as well as customerinitiated feedback to marketers.

Social Capital as a Resource Social capital theory has several interesting implications for firms. The first is the notion that social capital constitutes a ‘‘resource’’ that can be used for productive purposes. This provides the foundation for the argument that firms can look to leverage social capital to promote consumption and economic activity. A second, which distinguishes it from other forms of capital, is that social capital facilitates production without being consumed in the process (Coleman, 1988). Because it resides in interpersonal relationships, social capital continues to exist as long as the relationships do and undergoes modification only as the nature of the relationships changes. Third, and finally, is the idea that social capital can be formed and sustained without an explicit focus on economic objectives. In fact, Coleman (1988) goes so far as to suggest that it is best developed without an overt economic motive, calling social capital ‘‘a structure with history and continuity that give it an independent effect on the functioning of economic systems.’’ These aspects of social capital provide important clues as to why it may be a useful resource for firms seeking to serve a market and further suggest that it is likely to provide value in almost any environment. This latter point is evidenced by the success of network-based marketing (Hill, Provost, & Volinsky, 2006) to promote video games among teenagers in the United States, which leverages social capital to great effect. Indeed, the success of these initiatives provides a counterpoint to the high failure rates of new products in the United States, which attests to the power of social capital (Putnam, 1995). Nevertheless, there is good reason to believe that social capital is particularly useful in the context of engaging subsistence markets. First, social capital has been shown to be a powerful catalyst for productive activity in economies that are governed primarily by cultural norms, rather than formal institutions (Mosse, 2006) – a characterization that often applies to subsistence markets. Second, although poor markets lack other forms of capital, most possess some level of social capital. In the absence of other forms of capital, social capital thus becomes a particularly useful resource. Third, for social capital to be created, there must be some degree

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of ‘‘social closure’’ – i.e., a social structure in which all actors are somehow interconnected and interdependent (Coleman, 1988). The limited mobility and insular nature of poor communities means that this is something that many subsistence markets readily possess.1 Because everyone knows everyone else, sets of actors can combine to provide collective sanctions or rewards, leading to the emergence of social norms and social capital. Hence, it can be argued that social relations found in subsistence communities are particularly conducive to the formation of social capital.

A NEW APPROACH TO MARKETING ORGANIZATION While the previous section highlighted a number of general implications of social capital for marketers, we focus here on specific ramifications of social capital theory for marketing structure in subsistence markets – i.e., how marketing programs are organized, planned, controlled, and owned. This is of central importance to managers, since research has shown that these elements all constitute critical determinants of firm performance (Ruekert, Walker, & Roering, 1985; Workman, Homburg, & Gruner, 1998). Careful consideration of social capital theory suggests that marketing activities should be decentralized and externalized to leverage social capital available in subsistence markets. As we will argue, gaining access to local social relationships and information should enable firms to both boost revenues and lower costs in the short to medium run, while also increasing the community’s productivity and attractiveness as a market in the long-run. Decentralization and externalization constitute a clear and radical departure from the traditional hierarchy that has long characterized marketing organizations in developed markets. However, they are consistent with the ‘‘networked organization’’ framework recently advanced by such authors as Achrol and Kotler (1999). Because both represent central ideas in this paper, we define what is meant by these terms. Decentralized marketing relates particularly to the locus of marketing decision making and implementation. Specifically, it means shifting product design, distribution, pricing policy, and sales and promotional decisions further down the value chain so that these occur closer to the customer and thus respond more directly to their needs and feedback. This is critical in subsistence markets, in which social capital endows local individuals with

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superior access to other local customers and knowledge about customer needs, preferences, and abilities to pay. Externalized marketing speaks to whether the task is to be performed internally or externally with regard to the firm. Specifically, it means forming marketing partnerships with local individuals and allowing these local partners to make marketing decisions independently. Because social capital is critical, the firm might be tempted to try and internalize this asset by hiring these individuals as employees. Ironically, however, this would have the effect of harming the social capital the firm sought to acquire, both because it would undermine the credibility of the individual in his/her community and because social capital is most valuable when it is based on a broad range of relationships of various kinds and with various other individuals (Fukuyama, 2001).

Advantages of Decentralization and Externalization In several ways, social capital theory suggests that decentralization and externalization hold the promise of greater efficiency and enhanced effectiveness. From an efficiency point of view, for instance, high levels of social capital can greatly reduce transaction costs by eliminating the need for formal contracts and improving transaction terms, such as credit terms and delivery schedules. Because these benefits are available only within a specific ‘‘radius of trust’’ (Fukuyama, 2001) – i.e., among individuals who know each other and are somewhat interdependent – decentralized marketing is necessary to take advantage of it. As for effectiveness, by providing access to detailed knowledge about individual customers and the community at large, social capital enables firms to improve their responsiveness to subsistence markets. Closeness to the market in terms of both distance and time allows products and services to be tailored on a real-time basis in response to specific and ever-changing market conditions. A decentralized, externalized system that relies on a network of local partners is also attractive because it is highly adaptable. Each partner in a decentralized system can generally be assumed to be well informed about local conditions, knowledgeable about the individual customers with whom he or she deals, and able to design attractive and enforceable contract terms. Finally, a decentralized/externalized system provides an additional set of long-run benefits. Shifting production out to the market itself enhances the wealth of consumers and thus their attractiveness as a market. This view of production and consumption as part of a single system is consistent with the

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more holistic approach to marketing that has gained increasing currency in recent years (e.g., Achrol & Kotler, 1999).

Structure of the System and Roles of Actors In this section, we clearly spell out the characteristics of our proposed decentralized/externalized marketing (DEM) system. In particular, because we contend that social capital forms the basis upon which more effective marketing exchanges can take place between firms and subsistence consumers (see Fig. 2), it seems important to specify the precise role that social capital must play. A key aspect of the system is the interface between the focal firm and the consumers, the effectiveness of which depends on its ability to facilitate a symbiotic relationship – i.e., one in which both firm and consumer benefit from, as well as give to, each other. Apart from other unique things that each party gives or takes, we contend that each party can contribute social capital to enhance the marketing relationship. In the previous section, we demonstrated how social capital is a resource that is possessed by subsistence communities, but which firms can access. However, what close-knit communities possess is usually social capital of a particular kind – namely, bonding social capital (Iyer et al., 2005). This type resides in the dense, strong links formed between people within the community. Firms can benefit from this by gaining access to a unique network of trusted relationships and to the deep customer knowledge that comes from such relationships. Conversely, a focal firm can provide bridging social capital – its ability to link disparate social networks (see Fig. 2 for a visual representation of the qualitative difference between these two types of links). Strong bonds within a group in many cases may hinder the ability of group members to trust and work effectively with members of other groups (Fukuyama, 2001) and, consequently, on a more macrolevel hinder economic growth (Olson, 1982). Organizations, on the other hand, are especially proficient in the skills of coordination and communication and embody considerable knowledge about the execution of these skills (Kogut & Zander, 2003). When interacting with several disparate local communities, these skills enable firms to facilitate sharing of information, technology and ideas and reduce conflict between communities. Such action leads to the establishment of bridging social capital, also described in previous influential work as ‘‘cross-cutting social ties’’ or ‘‘weak ties’’ (Granovetter, 1973). These weak ties can enable the flow of new ideas and knowledge required for innovation.

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COMMUNITY ‘A’ (Village, Local neighborhood, or Ethnic community)

FOCAL FIRM

C

FIRM

C

ASSN

COMMUNITY ‘B’ (Village, Local neighborhood, or Ethnic community)

ENTR

Bridging Social Capital (Weak Ties)

C

Fig. 2.

C

Bonding Social Capital (Strong Ties)

FAM

FIRM

Local firm

ASSN

Local association

FAM ENTR

Local family Local entrepreneur

A Decentralized and Externalized Marketing System for Subsistence Markets.

Thus in the DEM system of marketing to subsistence markets, focal firms can play a value-adding role by engaging small businesses and individuals within their value chain. This can contribute to economic growth by encouraging the formation of business relationships that cross normal social and community boundaries. For instance, groups of entrepreneurs engaged as final assemblers and vendors for a firm’s products may evolve into an interfirm network (see Achrol & Kotler, 1999) whose business dealings transcend the original purpose of their relationship. Such relationships result in enhanced wealth for the host community, which in turn can make a subsistence community a more attractive market for the firm.

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Although our ideas are, in several respects, at odds with current business practice, it should be noted that they are broadly consistent with ideas from the marketing organization literature. Ruekert et al. (1985), for instance, have proposed that extrafirm marketing task allocation is more optimal where intrafirm skills are limited or when numerous competitive suppliers abound. In the subsistence market context, both upstream and downstream marketing channel partners do abound, and firms do have limitations in the arena of bonding social capital. Similarly, they also propose that when marketing tasks are nonroutine, are hard to assess, and occur within rapidly changing environments, highly centralized decision-making structures are not optimal. Marketing to subsistence consumers imparts all of these characteristics to marketing tasks, as the tasks have to be adapted to needs and capacities to consume that are at best volatile, in addition to being embedded in highly charged social contexts. Yet our ideas also serve to advance this body of literature by adding a prescriptive model to the existing milieu of largely descriptive research.

OPERATIONALIZATION AND RESEARCH PROPOSITIONS Several portions of our proposed DEM marketing system reside at a level of analysis for which empirical work is not feasible. However, we believe is important for conceptual work to be validated whenever possible. With that in mind, we offer a number of suggestions for ways that elements of our model can be tested and our ideas further refined. A central variable in our model is, of course, social capital. Social scientists have adopted various approaches to measure this construct, depending on the focal level of analysis and the particular nuance being explored. In a well-designed study, Narayan and Pritchett (2000) measured villagelevel social capital in Tanzania and India using a survey methodology executed through face-to-face interviews. Marketing research could emulate such efforts and successfully measure social capital using survey-based approaches in subsistence communities. Measurement itself could be done at the level of individual consumers, households, or entire communities. It would be prudent to conduct research starting from the lowest level of analysis – i.e., the individual consumer – and then aspire to assessing higher levels of social capital.

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A second critical variable is the degree of decentralization of a firm’s marketing activities. Since this variable has not previously been measured, it seems reasonable to propose the creation of a ‘‘decentralization index’’ that firms could use to assess their level of decentralization. The overall notion would be that firm performance in subsistence markets would be higher at higher levels of decentralization and especially so in markets in which social capital was especially high. Decentralization is not a yes/no dichotomy, however, and would thus need to be a continuous measure. A decentralization index would presumably be a composite measure of the various elements of the marketing mix (product, price, place, promotion), in which the score potentially gets ‘‘bonus points’’ for the interactive effect of decentralization of multiple elements of marketing strategy. A dependent variable that would provide validation of the usefulness of the DEM model is the marketing performance of the firm. This could be measured along several different domains, including revenues, profitability, penetration of marketing communication, and incidence of repeat purchase. An initial approach might be to construct a similar composite measure that includes multiple dimensions of marketing performance. While, in a strict sense, it should be expected that the decentralization of various facets of marketing activities would affect the various individual performance dimensions differently, a simple initial test could ascertain whether the score on the decentralization index affects this composite measure of performance. Based on the above, we propose the following three basic theoretical propositions for empirical testing: P1. The more decentralized the organization of marketing activities of a firm, the more positive its marketing performance will be in subsistence markets. P2a. The positive impact of decentralized marketing organization on marketing performance in subsistence markets will be moderated by the extent of bonding social capital in the targeted local community – the higher the bonding social capital, the stronger the relationship. P2b. The positive impact of decentralized marketing on marketing performance in subsistence markets will be moderated by the extent of bridging social capital the firm is able to generate – the higher the bridging social capital, the stronger the relationship.

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CONCLUSION Given the widespread market saturation in developed markets in most product contexts, it makes sense to look toward the 3 billion subsistence consumers of the world in search of business returns. At the same time, from a developmental perspective, these individuals live in conditions of dire and urgent poverty, making it important for the broader economic system to do a better job of addressing their needs. The ideas proposed in this paper provide a mechanism to serve these two objectives simultaneously. Specifically, our notion of a decentralized/externalized marketing model equips marketers with a means of enhancing marketing performance by targeting subsistence consumers while simultaneously enabling them to impact the welfare of communities both socially and economically. The value of such work becomes apparent when one considers that the above two objectives have mostly been seen as separate and incompatible and thus unable to coexist. Only recently have authors begun to point out that these objectives can be pursued together, employing the same strategy (e.g., Prahalad, 2005). Our work continues in this spirit and offers marketers a fresh viewpoint to consider while engaging subsistence markets. Our notion of decentralized marketing is not a radically new one. Although not typically discussed in a marketing context, decentralization as a concept applied to business activities is well established (Govindarajan, 1986). What is new about our ideas is the integration of social capital theory with the proposal of a locally embedded marketing system. While existing work on decentralization emphasizes the ‘‘efficiency’’ achievable using decentralized decision making, it does not identify conditions needed to ensure the ‘‘effectiveness’’ of such a mechanism. In the present paper, we address that gap by observing that the effectiveness of a decentralized mechanism depends critically on the social capital available locally. This is a less obvious and less well understood point, but a critical one. An example helps to illustrate this point. As Womack and Jones (1991) observed a decade ago, modern production practices all over the world have entailed decentralized production management, pushing the responsibility of many critical decisions down to the factory floor. While this may promote efficiency, it may be severely detrimental to organizations that do not have adequate reserves of social capital on the factory floor. This was borne out in the case of General Motors between 1996 and 1998, when the company experienced chaos on the factory floor, having empowered its lowest level employees to make critical decisions while possessing an environment lacking smooth relationships between workers and supervisors. Our discussion

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of social capital as a theoretical foundation on which to base a decentralized marketing strategy is thus an important distinguishing aspect of this paper.

Contributions to Theory As noted previously, a key theoretical contribution of our work is its introduction of the notion of social capital as a theoretical lens through which to assess how marketing activities should be organized in organizations. Based on an integrative review of research conducted on this topic in such diverse domains as economics, sociology, political science, and anthropology, we draw out aspects of social capital that are relevant to marketing, thus making an important theoretical contribution to the literature. To our knowledge, ours is the first paper that explicitly examines the theoretical relevance of social capital for marketing. Our work also makes a substantive contribution to the marketing literature by suggesting a new approach to organizing marketing activities when serving subsistence markets. A significant body of research within marketing emphasizes the importance of organizational issues in marketing success (for a review, see Workman et al., 1998). However, existing studies of subsistence marketing provide few guidelines as to how firms operating in these markets ought to organize their marketing activities. By making a case for decentralized and externalized marketing on the part of marketers, we attempt to do so. Furthermore, our contention that the marketing exchange partners in the system (subsistence consumers and firms) complement each other by contributing two types of social capital (bonding and bridging social capital, respectively) represents a new and intriguing notion for practitioners and scholars to consider.

Implications for Managers Our research also offers a number of useful ideas for marketing managers seeking to establish brand and product presence in subsistence markets. First, it alerts managers to a key facet of subsistence communities – social capital – that is distinctive and potentially productive, yet largely overlooked. Marketing strategies centered on leveraging this asset could experience higher success rates in subsistence markets than those that are centered on overcoming widely perceived hurdles. Second, our work offers managers a specific framework – decentralized, externalized marketing – to

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guide their ground-level marketing decisions. This has the potential to lead firms to explore meaningful partnerships with local entities, including domestic firms, local entrepreneurs, and local consumers in ways not widely used otherwise. Finally, we believe that these implications are relevant to a broad range of profit-seeking firms, including multinational corporations seeking to target less affluent sectors of markets in developing countries, large indigenous firms looking to defend their business against foreign competitors, and small local firms seeking to survive and add value in their local economies. Although contingencies must eventually be built into any theory of business, we believe that the relative context independence of our ideas provides a useful point at which to jump start managerial interest in subsistence markets from a wide variety of market participants.

Macrolevel Implications In addition to ideas of interest to managers of for-profit firms, our work has important macrolevel implications. Most importantly, our framework suggests ways that marketing can help to eliminate global poverty. By proposing that firms view subsistence markets as opportunities and treat the poor as consumers rather than mere wards of charity, we identify a potentially powerful means of generating wealth in poor communities. Although this notion could be tarred with the same charges that have been leveled against globalization – that it injures indigenous cultures and threatens long-standing traditions (Fukuyama, 2001) – we would point out that firms that contribute bridging social capital are, by definition, giving back to the communities they serve. This subtlety is not trivial. It is known that traditional societies that remain poor, despite strong internal bonds, have fewer opportunities to establish weak ties across their subsegments and thus face reduced information exchange and innovation (Fukuyama, 2001). Hence, firms that make contributions to bridging social capital are facilitating economic well-being. Moreover, bridging social capital has been shown to reduce the distrust and intolerance – and even violence – that members of some traditional societies direct toward outgroups (for a brief review, see Fukuyama, 2001). Finally, it has been found that socially suboptimal norms can persist for long periods of time in some traditional societies (Fukuyama, 2001) due to socialization that is based more on habit than on reason. In such cases, the infusion of market forces via a system that works through local relationships, rather than against them, has considerable potential to inspire meaningful positive social change.

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Limitations As with all research, our work has its limitations. First, there are obvious downsides to decentralization per se. Applied to the context of subsistence markets, it has the potential to produce several negative effects. In the absence of effective control and oversight, decentralized marketing could (a) worsen product and service delivery, owing to resource problems at a local level; (b) create inequalities among customer segments, due to a lack of common standards; and/or (c) create new tensions while solving others (e.g., corruption may start to play a bigger role). Our model does not discuss these possible disadvantages and does not explicitly account for them. Future work will need to be more explicit. Second, there could be other ways, apart from adapting marketing organizational structure, by which a firm might leverage the social capital of subsistence markets to enhance performance. Social capital might help to shape the direction and scope of the firm, over the long term, and how it seeks to develop competitive advantage. It might also help to drive organizational culture, by influencing the values and norms espoused by the organization and the way in which the organization interacts with customers, suppliers, and others. These avenues of influence may prove to be more influential of marketing performance than adapting marketing structure. Our work does not include a comparative analysis of alternative organizational responses to the challenges of subsistence marketing and is thus limited in this regard.

Directions for Future Research An important direction for future research is the empirical validation of the propositions we make in this paper. Our earlier suggestions for operationalization of key variables may help in this regard. It would take a carefully designed research study to creatively and appropriately measure social capital, delineate between its two types (bonding and bridging), and link it to the decentralization–performance relationship. Moreover, marketing performance can be assessed on a number of dimensions, and careful consideration is needed to conclude which dimensions are most relevant to be assessed as dependent variables in this model. Second, future research should consider the role of variables that we have not explicitly considered in our model. Such studies would enable model refinement through the introduction of additional predictors, moderators, and mediators. For instance, although

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we indirectly address the role of human capital by alluding to the marketing roles that individuals in local communities can play, this needs more explicit consideration. Similarly, the role of organizational culture could be explored in the model; specifically, the interplay (or the lack thereof) between the dominant culture of the firm and that of the targeted subsistence market could emerge an important variable impacting success. Finally, although our ideas reflect the importance of the role played by individual consumers in subsistence communities, our model is not explicitly at the individual consumer level of analysis. In the spirit of developing a deep understanding of the nature of individuals in low-income markets, future research should pay more attention to the individual level of analysis.

NOTES 1. Because of their lower economic status, subsistence communities are usually isolated from the broader spheres of social and economic activity, thereby lowering the incidence of open loops in the community. Also because of impoverished conditions, as part of coping with poverty, such communities abound in favors that friends and acquaintances do for one another (Hannerz, 1969). This enhances the frequency and intensity of connections, further contributing to social closure.

REFERENCES Achrol, R. S., & Kotler, P. (1999). Marketing in the network economy. Journal of Marketing, 63(special issue), 146–163. Arnold, D. J., & Quelch, J. A. (1998). New strategies in emerging markets. Sloan Management Review, 40(1), 7–20. Arnould, E. J., & Mohr, J. (2005). Dynamic transformations for base of the pyramid market clusters. Journal of the Academy of Marketing Science, 33(3), 254–274. Coleman, J. S. (1988). Social capital in the creation of human capital. American Journal of Sociology, 94(Supplement), S95–S120. Dawar, N., & Chattopadhyay, A. (2002). Rethinking marketing programs for emerging markets. Long Range Planning, 35, 457–474. Fukuyama, F. (2001). Social capital, civil society, and development. Third World Quarterly, 22(1), 7–20. Govindarajan, V. (1986). Decentralization, strategy, and effectiveness of strategic business units in multibusiness organizations. Academy of Management Review, 11(4), 844–856. Granovetter, M. (1973). The strength of weak ties. American Journal of Sociology, 78, 1360–1380. Hannerz, U. (1969). Soulside: Inquiries into ghetto culture and communities. New York: Columbia University Press.

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Hart, S. L., & Christensen, C. M. (2002). The great leap: Driving innovation from the base of the pyramid. MIT Sloan Management Review, 44(1), 51–56. Hill, S., Provost, F., & Volinsky, C. (2006). Network-based marketing: Identifying likely adopters via consumer networks. Statistical Science, 21(2), 256–276. Iyer, S., Kitson, M., & Toh, B. (2005). Social capital, economic growth and regional development. Regional Studies, 39(8), 1015–1040. Kogut, B., & Zander, U. (2003). Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies, 34, 516–529. London, T., & Hart, S. L. (2004). Reinventing strategies for emerging markets: Beyond the transnational model. Journal of International Business Studies, 35(5), 350–370. Mosse, D. (2006). Collective action, common property, and social capital in South India: An anthropological commentary. Economic Development and Cultural Change, 54(3), 695–724. Narayan, D., & Pritchett, L. (2000). Social capital: Evidence and implications. In: P. Dasgupta & I. Serageldin (Eds), Social capital: A multi-faceted perspective (pp. 269–295). Washington, DC: World Bank. Olson, M. (1982). The rise and decline of nations: Economic growth, stagflation, and social rigidities. New Haven, CT: Yale University Press. Prahalad, C. K. (2005). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Upper Saddle River, NJ: Wharton School Publishing. Putnam, R. D. (1995). Bowling alone: America’s declining social capital. Journal of Democracy, 6(1), 65–78. Ruekert, R. W., Walker, O. C., Jr., & Roering, K. J. (1985). The organization of marketing activities: A contingency theory of structure and performance. Journal of Marketing, 49(1), 13–25. Teece, D. (1977). Technology transfer by multinational corporations: The resource cost of transferring technological know-how. Economic Journal, 87(346), 242–261. Viswanathan, M. (2007). Understanding product and market interactions in subsistence marketplaces: A study in South India. In: J. Rosa & M. Viswanathan (Eds), Product and market development for subsistence marketplaces: Consumption and entrepreneurship beyond literacy and resource barriers. Advances in International Management Series, J. Cheng & M. Hitt (Series Eds). Oxford: Elsevier. Wheeler, D., McKague, K., Thomson, J., Davies, R., Medaye, J., & Prada, M. (2005). Creative sustainable local enterprise networks. MIT Sloan Management Review, 47(1), 33–40. Womack, J. P., & Jones, D. T. (1991). The machine that changed the world: The story of lean production. New York: Harper Perennial. Workman, J. P., Homburg, C., & Gruner, K. (1998). Marketing organization: An integrative framework of dimensions and determinants. Journal of Marketing, 62(3), 21–41.

MARKET ORIENTATION AND PERFORMANCE IN LOW-INCOME COUNTRIES: THE CASE OF ZIMBABWEAN RETAILERS Steven Michael Burgess and Pfavai Nyajeka ABSTRACT This study examines the effects of market orientation on the performance of retail outlets in Zimbabwe, a low-income country (LIC). LIC retailers operate at the nexus of subsistence marketplaces and the market economy. Socioeconomic, cultural and regulative institutions are more dynamic and differ substantially from the industrialized West. This provides an interesting context in which to test the generalizability of market orientation theory. A covariance structure model of the hypothesized relations indicates that market orientation improves performance. Reward systems have a positive effect on market orientation and a positive indirect effect on performance through market orientation. However, consistent with the characteristics of Zimbabwe, which are not unexpected in the LIC institutional context, interdepartmental conflict, centralization, and formalization do not have significant effects on market orientation. The results suggest that the market orientation–performance link generalizes but that some antecedents of market orientation identified in previous research may not apply in LICs.

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INTRODUCTION If we could observe a typical exchange taking place in a subsistence marketplace, it probably would be in a low-income country (LIC). The participants would be motivated to engage in subsistence trade for varied reasons. Some would be motivated by poverty and the fruits of low human development (i.e., health care, education, literacy, numeracy), others by more appropriate product benefits and sources of satisfaction unavailable in the market economy. Subsistence trading would hone their marketplace skills and shape their expectations for exchanges in the market economy, in which they also would trade, whether in an Amazon rainforest, a Niger desert, or an Indian urban locale (e.g., Arnould & Mohr, 2005; Godoy, Reyes-Garcı´ a, & Huanca, 2005). In this chapter, we focus on retailers serving such consumers in Zimbabwe. Although LIC retail opportunities do not receive much attention from researchers, they should. LICs are large, youthful, fast-growing, and unsaturated markets that are worth hundreds of billions of dollars annually and appear to be benefiting more from globalization than other countries (Garrett, 2004; Prahalad, 2005). LICs also can serve as learning laboratories in which firms experiment with disruptive innovations that target consumers with basic needs (i.e., ‘‘overshot consumers’’) at the nexus of subsistence and formal marketplaces (Hart & Christensen, 2002). Firms such as Body Shop and Unilever find that LIC operations not only are profitable but also assist in global stakeholder and reputational management by demonstrating socially responsive behavior that helps alleviate poverty (e.g., Clement, 2005; Greenley, Hooley, & Rudd, 2005). While these characteristics spur interest in LICs, they also illustrate substantial differences between LICs and other countries that pose questions for researchers and practitioners. Some of the more interesting questions concern the generalizability of theories about structure, strategic orientation, and performance. The beneficial effect of market orientation on performance (e.g., sales, market share, profitability) is among the most consistently confirmed relations in the marketing literature (recently meta-analyzed by Cano, Carrillat, & Jaramillo, 2004; Kirca, Jayachandaran, & Bearden, 2005). However, prior research has been conducted primarily in high-income countries (HICs) and emerging markets and service industries feature prominently in the handful of disconfirming studies. It is not clear why this is the case but cultural priorities typical in LICs may play a role (Kirca et al., 2005). The organizational antecedents of market orientation (e.g., reward systems; attitudes toward risk, centralization, and formalization; levels of interdepartmental

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conflict) also are not well researched in LICs. Accordingly, there are many calls for market orientation research in LICs (e.g., Kuada & Buatsi, 2005). This chapter addresses two important questions: does market orientation improve performance in the Zimbabwe retail industry and, if so, how can firms implement it there? In our work, we distinguish LICs from other so-called ‘‘base-of-the-pyramid’’ countries (see the Appendix, Fig. A.1, Table A.1). Our distinction is made conveniently but illustrates important differences between LICs and emergent consumer markets (ECMs) that are implied in prior research (e.g., Deshpande´ & Farley, 2004). In the following sections, we identify some typical characteristics of the LIC institutional context and differentiate LICs from HICs and other emerging markets. We then review the literature, draw hypotheses, and provide details of our research method. Finally, we report and discuss our results.

THE LIC CONTEXT Zimbabwe is in many respects a typical LIC (see World Bank, 2005). Poverty is widespread and subsistence lifestyles are common, with 64% of the population earning less than the international poverty line of $2 per day. Annual per capita GNP is near the LIC mean, nominally (viz., $480 vs. $450), and when adjusted for purchasing power parity to the United States (viz., $2,180 vs. $2,190). When its first nonracial government was elected, Zimbabwe looked likely to avoid the social, political, and economic turbulence that many LICs experience. However, more than a decade of rapid 5–10% annual economic growth stagnated in the late 1990s, after the government instituted a second economic adjustment program that was meant to stimulate free markets (see Chitiyo, 2000). As a result, successes such as the 90% literacy rate now pale compared to a life expectancy at birth of only 39 years, due primarily to the high incidence of HIV/AIDS and high infant and child mortality. Before the age of 5, 123 of every 1,000 children will die, which is near the mean for LICs (see Table A.2). This ‘‘snapshot’’ of Zimbabwe obscures one of the most important distinguishing characteristics of LICs: extreme within-country diversity. Zimbabwe’s Gini index, a measure of deviation in household income from a perfectly equal distribution, is one of the world’s highest (World Bank, 2005). LICs typically are dual economies in which an ‘‘elite’’ segment (comprising a relatively educated, affluent, and urban market segment that is 5–10% of the population) lives amidst a ‘‘mass market’’ segment (comprising a low-income, subsistence segment located primarily in rural areas

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and impoverished urban areas), with few middle-income consumers ‘‘in-between’’ (cf. Batra, 1999). Many elite consumers began life as members of mass-market households and have made incredible social and economic transitions in their lifetimes. Many retailers in LICs develop strategies to identify and respond to the needs of both segments. Elite consumers demonstrate sophisticated consumption tendencies. Access to global media and travel exposes them to Western culture and products. Even when maintaining traditional cultural value priorities, they often prefer Western goods and lifestyles and respond well to new products and global marketing programs that have been minimally adapted (Alden, Steenkamp, & Batra, 1999). Although they comprise a small part of the population, the elite often are a substantial market in their own right. In comparison, marketing programs directed at mass-market consumers typically require substantial adaptation, due to their more severe resource limitations (e.g., money, literacy, numeracy, product knowledge), participation in subsistence trading, preference for more basic products, use of other mediums of exchange (e.g., barter), and endorsement of cultural and religious institutions that differ from those of the West. In principle, institutional context is an important consideration in any study, especially when it differs from the context in which previous research has been conducted (Burgess & Steenkamp, 2006). Institutions are ‘‘the most enduring features of social life y giving ‘solidity’ [to social systems] across time and space’’ (Giddens, 1984, p. 24) and are an important consideration in any study. Expanding on previous work by sociologists and institutional economists, Burgess and Steenkamp (2006) recently distinguished three distinct but interrelated ‘‘pillars of institutions’’ that provide structure to society, albeit in different ways – the socioeconomic, regulative, and cultural systems. The socioeconomic system comprises macroeconomic and demographic characteristics, levels of within-country diversity, and dynamics caused by rapid social, political, and economic change. The regulative system involves the capacity to establish formal rules, inspect society members’ conformity to them, and if necessary, impose sanctions. It includes the presence and efficacy of regulatory institutions and the associated legal systems that exist to ensure stability, order, and continuity of societies and social institutions and governance. The cultural system represents culturally supported beliefs, attitudes, habits, norms, and behaviors. It ensures that external cultural frameworks shape internal interpretive processes and shared understanding. Social theorists have identified each of these systems as a vital ingredient of a country’s institutional context (e.g., Scott, 2001). Although LICs may not share every characteristic to which we refer due to

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idiosyncratic development influences, we can sketch common institutional influences in the LIC context. LIC socioeconomic systems are characterized by extreme poverty and low human development. Some 50–70% of LIC consumers are subsistence consumers living below the international poverty line of US $2 per day (UNDP, 2004). LICs have the world’s lowest median age, life expectancy, disposable income, formal education, literacy, and numeracy. Unemployment is high. Typically, less than 10% of the population has access to well-developed infrastructure and living standards that are similar to those of HICs, which compares to 20–50% in ECMs. Consumers typically use mass transit and spend 2–4 h traveling each way to work, walking to and from mass-transit hubs at each end of the trip. They conserve limited cash resources and ease the physical demands of transit by shopping daily, buying in small quantities, and using retailers located near mass-transit hubs. Accordingly, national consumption in LICs focuses on elements of human development (e.g., health care, food security, education, transportation). Human development increases rapidly as per capita gross domestic product increases (see Appendix, Fig. A.1). LIC regulative systems typically lack developed free market systems or liberalized formal trading environments. Legal systems typically are complex. Business activities that require governmental or other third party approvals typically require navigation of multiple layers of government and organizational structures and reliance on personal relationship networks (e.g., Walters & Samiee, 2003). Corruption and bribery may be entrenched, distorting competition and limiting consumer choice (Transparency International, 2006); however, regulative systems are undergoing rapid institutional changes toward marketization (Hoskisson, Eden, Lau, & Wright, 2000). LIC cultural systems are high in cultural embeddedness, cultural hierarchy, and uncertainty avoidance (Hofstede, 2001; Schwartz, 2004). In our work we focus on cultural embeddedness and hierarchy, which are high in LICs (Schwartz, 2004), as opposed to Hofstede’s individualism–collectivism and power–distance dimensions, which have resulted in puzzling findings and become controversial (e.g., Bond, 2002; Leung, Bhagat, Buchan, Erez, & Gibson, 2005; Oyserman, Coon, & Kemmelmeier, 2002; Triandis, 1993). In societies high in cultural embeddedness, people are viewed as entities embedded in the collectivity of their social relations. They derive meaning in life mainly from social and relational identities, striving toward group goals, and participating in a shared way of life. They place importance on social order, respect for tradition and elders, reciprocation of favors, security, wisdom, and obedience. Schwartz’s (2004) autonomy–embeddedness

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dimension and Hofstede’s individualism–collectivism dimension overlap to an extent and concern relations between the individual and the collective and contrast autonomous and interdependent views of life (Schwartz, 2004). Autonomy–embeddedness places openness to change in opposition to maintenance of the status quo, which individualism–collectivism does not. This is important because rapid political and economic change is a distinguishing characteristic of LICs (Hoskisson et al., 2000). Cultural hierarchy emphasizes reliance on hierarchical systems of ascribed roles to ensure responsible behavior. Socialization processes encourage people to accept the legitimacy of the unequal distribution of power, roles, and resources that are associated with role identities. Authority, humility, and social power are important values (Schwartz et al., 2001). Schwartz’s (2004) egalitarianism–hierarchy dimension and Hofstede’s power–distance dimension both concern legitimizing social inequality. However, whereas power–distance refers to fear of authority and acceptance of inequality by people in less powerful social positions, egalitarianism–hierarchy focuses on the organization of relations in societies so responsible, cooperative behavior is ensured and tasks are completed. This is much more closely aligned to our desire to illustrate how national cultures in LICs might affect employee behavior within market-oriented firms. Cultural psychologists contend that Schwartz’ work is based on a better measurement scale. Societies high in uncertainty avoidance emphasize reliance on rules, norms, and structured interactions to reduce unpredictability in life (Hofstede, 2001). People prefer to have formalized rules, procedures, and laws that can be applied within the context of the varied situations in their daily lives (House, Hanges, Javidan, Dorfman, & Gupta, 2004). Social order, predictability, precision, reliability, stability, and consistency are important values. Thus, retailers, their employees, and the consumers they serve in LICs are motivated by complex factors, which include subsistence trade. Per capita income is only one of many variables that motivate their behavior in such fast-changing and complex environments and determine the appropriateness of marketing strategies. As these institutional influences vary considerably from the industrialized, Western contexts in which market orientation theory has been developed, it is not clear that these theories generalize to LICs.

LITERATURE REVIEW The market orientation literature is influenced by two fundamentally similar theoretical perspectives (Cadogan & Diamantopoulos, 1995). The

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philosophical–cultural perspective concentrates on aspects of organizational culture that encourage market-oriented behaviors, such as customer orientation, competitor orientation, and interfunctional coordination (e.g., Narver & Slater, 1990; Deshpande´, Farley, & Webster, 1993). The behavioral perspective emphasizes organizational behaviors directed toward acquiring, disseminating, and responding to market intelligence (Kohli & Jaworski, 1990). Ruekert (1992) proposes that market orientation is an interfunctional, organization-wide strategic activity that is rooted at the strategic business unit level and focused on acquiring and using information about customers, competitors, and the environment to develop and implement strategies that meet customer needs and desires, with the purpose of achieving superior financial results. Kohli and Jaworski’s (1990) MARKOR and Narver and Slater’s (1990) MKTOR scales have been used most often to operationalize market orientation, but many other scales have been employed effectively (see Kirca et al., 2005). In the present research, we use Ruekert’s (1992) scale because it captures philosophical–cultural and behavioral elements of market orientation and is particularly well suited to research among retailers, due to its focus on market orientation at the business unit or retail branch level. In the next section, we proceed to draw the formal hypotheses that we will test in our research. Fig. 1 depicts these hypothesized structural relations. Ruekert (1992) proposed that market orientation comprises factors: (a) collection and use of information, (b) development of market-oriented strategies, and (c) implementation and execution of market-oriented strategies. We refer to these three factors as insight, intent, and interaction.

MARKET ORIENTATION AND PERFORMANCE Although reported effects of market orientation on performance have been weaker in emerging markets and service industries (of which retail is a subset) and LICs feature disproportionately in the handful of studies that have not confirmed this theorized link, there are practical and theoretical reasons market orientation should affect the performance of Zimbabwe retailers, as it has in the majority of studies in LICs. Practically, Zimbabwe retailers operate in a context that is characterized by rapid change, extreme diversity, and complexity in socioeconomic, regulative, and cultural institutions. Although LICs are severely impoverished, money is not the sole determinant of consumer choice. To illustrate this, as Zimbabwe retail consumer data were not available, we analyzed archival

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Reward structures

Willingness to take risks

Insight

Intent

Interaction

H2

H3 Market orientation

Internal conflict H4

Centralization H5

Formalization

Fig. 1.

H6

H1

Performance measure

Conceptual Model of Structural Relations. Note: Three performance measures are tested, see text.

retail banking data collected in Botswana, Lesotho, Namibia, and Swaziland by FinMark Trust (2003) and compared our results to those of the United Kingdom (Devlin, 2002) where possible (see Table 1). The importance of branch location and opening hours is similar across Africa and the United Kingdom. Bank charges and fees are more important in Africa, but so are other elements of the marketing mix, such as personal service and flexibility in transactions. In fact, personal service is more important than bank fees and charges in two African countries, perhaps due to low product knowledge in these markets (FinMark Trust, 2003). Africans identify waiting in queues for service, perceived insecurity during ATM transactions, requirements for minimum balances, and difficulty using the basic technologies African banks employ (e.g., thumbprint scanners, ATMs) as disadvantages of dealing with retail banks. When asked the best way to save money, they do not rate banks substantially higher than burial societies, which are subsistence groups that save together to provide for burial expenses of members (see FinMark Trust, 2003). The results suggest that market-oriented retail

Consumer Attitudes toward Retail Bankers in Southern Africa and the United Kingdom.

National population with bank accounts Main considerations when choosing a bank y Branch location Opening time Bank charges and fees Personal service Flexibility in transactions Disadvantages of dealing with banks y Having to stand in queues waiting to be served They force me to keep a minimum balance Technology difficult to use ATM machines not always safe Having to fill in forms Best way to save Bank Informal sector burial society Estimate of national population that has a bank account

Botswana n ¼ 530

Lesotho n ¼ 534

Namibia n ¼ 810

Swaziland n ¼ 604

85%

61%

64%

52%

46% 5% 50% 43% 34%

35% 5% 45% 18% 8%

43% 10% 20% 27% 15%

23% 3% 28% 37% 8%

0% 54% 47% 40% 15%

76% 77% 69% 85% 40%

44% 37% 25% 40% 9%

62% 66% 42% 41% 29%

3.9 3.7 85%

4.2 3.5 61%

4.5 4.4 64%

4.3 3.6 52%

UK N ¼ 6,700

29.4% o1% o1% o1% o1%

Market Orientation and Performance in Low-Income Countries

Table 1.

Source: FinMark Trust (2003), except UK data (Devlin, 2002). Reported are mean proportions of total sample, except for ‘‘Best way to save’’ (which is the mean rating on a five-point scale, in which 1 ¼ poor and 5 ¼ excellent).

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bankers would be more likely to attract consumers in these African emerging markets. Theoretically, three recent reviews provide strong evidence that the market orientation–performance relationship is robust. In a meta-analysis of more than 200 effect sizes, Kirca et al. (2005) find that the effects of market orientation on performance are strongly positive, although somewhat weaker in emerging markets and service industries (Kirca et al., 2005). The meta-analysis of Cano et al. (2004) found that the effects of market orientation on performance are not moderated by national culture, GDP per capita, or human development and are stronger in service firms than in manufacturing firms. However, only three of the 53 studies they examined were located in LICs and they theorized that LIC cultural priorities would increase the positive impact of market orientation on performance. This is consistent with Deshpande´ and Farley’s (2004) assertion that the effects of market orientation on performance should be highest in LIC markets, because the adoption of market orientation is in its early stages in those countries, and with the finding of Yilmaz, Alpkan, and Ergun (2005) that collectivism has a positive impact on customer and learning orientations. Thus, we hypothesize that: H1. Market orientation has a positive effect on the business performance of Zimbabwe retailers.

ANTECEDENTS OF MARKET ORIENTATION It is widely assumed that managers can improve market orientation by emphasizing market-oriented attitudes, behaviors, and reward systems; tolerating acceptable risk; communicating effectively; embracing change; and providing opportunities for staff advancement while avoiding formalization, centralization, and interdepartmental conflict (Kirca et al., 2005). Our study assesses the effects of five theorized market-orientation antecedents identified by Jaworski and Kohli (1993): reward systems, risk attitudes, interdepartmental conflict, formalization, and centralization (see Fig. 1). In our work, we pay particular attention to the influence of the LIC cultural system, which has an important influence on the socioeconomic and regulative systems in LICs due to globalization and rapid change (Triandis, 2006). Nakata and Sivakumar (2001) contend that cultural values are so important as to affect the interpretation, adoption, and implementation of market orientation. Employees in cultures high in autonomy and

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egalitarianism are more likely to interpret the marketing concept as implying nondifferentiation and equal treatment, whereas in LICs, cultures emphasize hierarchy and embeddedness and employees are more likely to interpret the marketing concept as understanding and satisfying customers through segmentation and differential treatment (Nakata & Sivakumar, 2001). Research shows that when employees’ cultural values fit with corporate strategies, business performance is enhanced (e.g., Newman & Nollen, 1996). Accordingly, given the very different cultural context, we expect that it will have an important positive influence in LICs.

Market-Oriented Reward Systems Market-oriented reward systems refers to employee performance and evaluation systems that focus on market-based measures of performance. Market-oriented reward systems increase market orientation (and thereby performance) by rewarding employees for objective outcomes (e.g., market share or customer satisfaction survey results) and behaviors (e.g., speed of customer service, effective handling of customer complaints, or calls on new prospects) that relate to long-term results (Kohli & Jaworski, 1990; Ruekert, 1992). Reward systems have a consistent and strong positive effect on market orientation (Kirca et al., 2005), including in LIC retail contexts (Huddleston & Good, 1999) and African LICs (e.g., Chelariu, Ouattarra, & Dadzie, 2002; Kuada & Buatsi, 2005). The socioeconomic context (e.g., large extended families, widespread poverty, unemployment) emphasizes the need for breadwinners to seek financial rewards. Rewards also assist in confirming social identity and status when identity is embedded in hierarchical social structures and input high social value (Milton & Westphal, 2005). Consequently, we hypothesize that: H2. Market-oriented reward systems have a positive effect on the market orientation of Zimbabwe retailers. Willingness to Take Risks Willingness to take risks refers to top management’s willingness to run the high risk of failure that is required to engage in market-oriented behaviors such as introducing new products (Jaworski & Kohli, 1993). Risk taking is intrinsic to innovation and is related to a firm’s knowledge creation capability (e.g., Rogers, 1995). Jaworski and Kohli (1993) proposed that risk

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aversion depresses market orientation by discouraging the development and implementation of strategies and the acceptance of reasonable risks. Thus, the theory holds that managers who ‘‘play it safe’’ discourage market orientation by requiring unreasonable assurances of success prior to selecting and implementing strategies. Risk is a multidimensional construct that comprises perceptions of outcome uncertainty, outcome likelihood, and potential outcome range (Sitkin & Pablo, 1992). Risk perceptions are affected by top management’s homogeneity, problem framing, and previous experience in related situations, organizational control systems, and social influences, such as organizational risk, culture, and top management risk orientation (Sitkin & Pablo, 1992). The core activities of market orientation – gaining insight into the needs of customers and other stakeholders, building shared intent about appropriate strategies, and effectively interacting with customers, stakeholders, and the external partners whose participation is critical to implementing strategies and future learning (Burgess, 2003) – entail transaction costs and risks (Narayanan & Fahey, 2005). LIC managers typically are more riskaverse due to high uncertainty avoidance (e.g., Hofstede, 2001). Thus, when management in LICs are willing to take risks, it should have a strong effect on market orientation (e.g., Kuada & Buatsi, 2005). This is consistent with findings that top management attitudes toward risk in Coˆte d’Ivoire positively affect acquisition of marketing-relevant information (Chelariu, Ouattarra, & Dadzie, 2002). Firms with senior managers who are more willing to accept risks should be more likely to obtain information asymmetries that can be exploited for market orientation (e.g., Di Gregorio, 2005). Thus, due to the important role of leaders in cultures emphasizing hierarchy and the tendencies for risk avoidance in LICs, we expect that: H3. Willingness to take risks has a positive effect on the market orientation of Zimbabwe retailers. Interdepartmental Conflict Interdepartmental conflict refers to disagreements and struggles for control between functional areas of the firm. Jaworski and Kohli (1993) hypothesized that it reduces market orientation by hindering information flow and cross-functional cooperation. High cultural embeddedness and hierarchy in LICs encourage people to work responsibly and cooperatively within hierarchical structures to achieve group goals, thereby minimizing conflict and

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channeling disagreements to preserve communication and cooperation (Schwartz, 2004). Where hierarchy and embeddedness are high, interdepartmental conflicts are discouraged and disputes typically are mediated by senior managers (Smith, Dugan, Peterson, & Leung, 1998). Two types of intergroup conflict affect organizations: relationship conflict and task conflict (Polzer, Milton, & Swann, 2002). Relationship conflict emerges from interpersonal incompatibility. It produces frustration, annoyance, and tension; reduces information sharing; and causes employees to disengage psychologically and physically from a firm. Cultural embeddedness accentuates role identities and status and makes group (departmental) boundaries more distinctive and less permeable (cf. Ashforth & Mael, 1989). This suggests that cultural expectations for embeddedness and hierarchy in LICs may help reduce relationship conflict by increasing intergroup connectedness and emphasizing relations between people in structurally equivalent roles (cf. Milton & Westphal, 2005). Task conflict emerges when goals differ, interests are threatened, or ambiguity exists in departmental or role boundaries, authority levels, or responsibility. High task conflict adversely affects marketing strategy development by stifling cross-functional cooperation (Atuahene-Gima & Murray, 2004). However, moderate task conflict can be beneficial in LICs, helping employees understand environmental complexity, recognize problems, and identify more solutions (Polzer et al., 2002). This effect may be strongest in cultures high in embeddedness (Atuahene-Gima & Murray, 2004). The number of departments within an organization appears to be much less important than their connectedness and levels of conflict (Jaworski & Kohli, 1993). Conflict can enhance interdepartmental connectedness and improve team dynamics by strengthening cohesiveness and task orientation when organizations face external threats (Kuada & Buatsi, 2005). The meta-analysis of Kirca et al. (2005) confirmed the bivariate relations of interdepartmental conflict and market orientation, but no effect was observed when multivariate antecedent relations were assessed. Interdepartmental connectedness, top management emphasis, and reward systems had the strongest effects on market orientation, suggesting that these may counter the detrimental effects of interdepartmental conflict on market orientation. This is consistent with Cano et al. (2004), who argued that cultural embeddedness and hierarchy should have a beneficial effect on organizational structures, processes, and information sharing, so that interdepartmental conflict would be minimized and not have a negative effect on market orientation. Therefore, consistent with the results of meta-analyses

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by Kirca et al. (2005) and Cano et al. (2004), we expect that interdepartmental conflict has no effect on market orientation. However, given its prominence, we test the hypothesis that: H4. Interdepartmental conflict has a negative effect on the market orientation of Zimbabwe retailers. Formalization Jaworski and Kohli (1993) define formalization as the degree to which articulated rules and regulations in an organization define roles, authority relations, communication, norms, sanctions, and procedures and the severity with which rules are enforced. Jaworski and Kohli (1993) theorized that formalization would have two effects on market orientation. First, it would inhibit market orientation by enmeshing people in rules and procedures that discourage acquiring and sharing information and participating in developing market-oriented policies and procedures. Second, it would encourage implementing market-oriented strategies. However, Jaworski and Kohli (1993) were unable to confirm the hypothesized links and neither could Kirca et al. (2005) in their meta-analysis. Jaworski and Kohli (1993) suggest that the nature of formal rules, rather than their existence, may impact on market orientation. The hypothesized negative effects of formalization on market orientation derive from its incompatibility with cultural autonomy and egalitarianism in HICs (Agarwal, 1993). However, Zimbabwe emphasizes the opposing cultural priorities of embeddedness and hierarchy and, more importantly, uncertainty avoidance. People in high uncertainty avoidance cultures prefer formalized rules to structure work activities and corporate governance practices, as laws are one way of reducing uncertainty (Hofstede, 2001). This manifests in clearly-stated and widely-understood plans, policies, procedures, rules, and systems that help employees reduce uncertainty and cope with their discomfort with unknown situations (Newman & Nollen, 1996). Cultural hierarchy and embeddedness reinforce a reliance on rules to prescribe and proscribe roles and behaviors within hierarchical structures (Schwartz, 2004). Accordingly, people in LICs prefer to rely on written rules in working relations (Licht, Goldschmidt, & Schwartz, 2005; Smith et al., 1998). It follows that formalization is not incompatible with LIC cultural priorities. Thus, the presumed rationale underlying the hypothesized negative effects of formalization on market orientation does not obtain in LICs.

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Previous research, though scant, supports this contention. Kuada and Buatsi (2005) did not find significant links between formalization and market orientation in Coˆte d’Ivoire or Ghana. In a study of US and Indian salespeople, Agarwal (1993) found that hypothesized relations generally emerged for the United States but that the effect sizes for two types of formalization (job codification and rule observation) on three outcomes related to market orientation (role ambiguity, role conflict, and organizational commitment) were zero in six (i.e., 2
3) tests. Furthermore, metaanalysis of the effects of formalization on market orientation suggests that the effects are not statistically different from zero (Kirca et al., 2005). Thus, notwithstanding the prominence of formalization in market orientation theory, the balance of evidence suggests that formalization has no effect on market orientation in LICs. However, given its prominence, we test the hypothesis that: H5. Formalization has a negative effect on the market orientation of Zimbabwe retailers. Centralization Centralization refers to concentration of decision-making authority and responsibility in the organization and is maximized when one person makes all the decisions. Jaworski and Kohli (1993) theorized that centralization aids implementation but hinders market orientation by reducing intelligence generation, dissemination, and response design. Jaworski and Kohli (1993) found that centralization negatively impacts on market orientation, which was confirmed when bivariate relations were tested across studies by Kirca et al. (2005) but not when centralization was included in a multivariate analysis of antecedents on market orientation. Kirca et al. (2005) posited that reward systems and interdepartmental connectedness may counter the negative effects of centralization on market orientation by ensuring contact among employees and fostering information flow. National culture shapes organizational form, culture, and practices; acceptance of leaders; and preferences for their behavior (House et al., 2004). The hypothesized negative effects of centralization on market orientation obtain from assumed incompatibility between centralized authority and a subordinate’s desire to act autonomously and be treated like an equal. However, the LIC institutional context typically departs from these assumptions. People in cultures that emphasize embeddedness and hierarchy are more willing to subordinate their own goals to those of others to engage in

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market-oriented behaviors (Cano et al., 2004). They view hierarchical systems of ascribed roles as a preferred way to organize work and ensure responsible behavior, believing that people must be induced to consider the welfare of others, coordinate with them, and manage their social interdependencies (Schwartz, 1999). The resulting within-country diversity in socioeconomic characteristics (e.g., wealth, formal education) impacts on self-categorization and shapes expectations for individual responsibility and independent actions within cooperative work relations (Chatman & Spataro, 2005). Organizations tend to create structures that concentrate and centralize authority in LICs, which is compatible with the institutional context (Hofstede, 2001; Newbury & Yakova, 2006). People may develop stronger affective bonds with organizations and departmental groups than in HICs, although their organizational commitment and citizenship behavior may be a form of reciprocity to a superior with whom they hold high-quality interpersonal relations, rather than to a work organization (e.g., Tsui, Schoonhoven, & Meyer, 2004). They prefer to work in teams but do not like participative leadership styles (House et al., 2004). Middle managers and subordinates primarily seek vertical guidance and avoid guidance from coworkers or specialists, unless it is validated by vertical sources (Smith, Peterson, & Schwartz, 2002). For instance, in a study of 47 countries, Zimbabwean middle managers relied on vertical information sources more than managers in all but three countries (viz., Uganda, Kenya, and Indonesia, Smith et al., 2002). Hierarchy is expected in LICs. Centralization has been prominent in market orientation theory but its hypothesized negative effects were not observed when theorized antecedent relations were assessed using rigorous multivariate meta-analysis techniques (Kirca et al., 2005). Embeddedness within organizational structures, preferences for hierarchy, and reward systems, common characteristics in LICs, potentially counter its negative effects on market orientation. Moreover, there is no reason to expect that it will lead to employee discomfort or negatively impact on productivity when cultures emphasize hierarchy and embeddedness (Nakata & Sivakumar, 2001), which is common in LICs. Consequently, the balance of evidence suggests that centralization will not affect market orientation in Zimbabwe, primarily because it is consistent with expectations that obtain in the LIC context. Nevertheless, given its prominence in the market orientation literature, we test the hypothesis that: H6. Centralization has a negative effect on the market orientation of Zimbabwe retailers.

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METHODOLOGY Sample A black Zimbabwean female, who is a native of Harare, administered the survey, constructed the sampling frame, and conducted all the interviews. The sample comprised Harare retailers participating in the apparel, automotive parts, electronics, footwear, furniture, sporting goods, and supermarket sectors. Because the Retail Association of Zimbabwe does not keep a database of Zimbabwean retailers and no other source could be identified, a modified snowball sampling frame was constructed. A list of potential participants was compiled from telephone and business directories and located on a map. Each site was visited to classify the retail outlet (nature of business and size) and request assistance in locating other potential participants. Retailers with fewer than 10 employees were excluded from the study. Generally, these were small, independently owned outlets with retailers conducting business in the informal sector from premises of less than 50 m2. None had a business telephone number or membership in the Retail Association of Zimbabwe and many lacked permanent facilities. The final list of retailers was coded geographically and assigned random numbers, which were used to select 100 participants. The participating retailers appear to be reasonably representative of the defined universe. Detailed sample characteristics are reported in Table A.3. The informants were the most senior managers at participating outlets. Although they had various titles (e.g., general manager, branch manager, owner, sales/marketing manager), all were responsible for sales and marketing in their operations. Their job responsibilities commonly included customer and employee relations, sales/marketing strategy implementation, setting and controlling budgets, and day-to-day operational management. The informants had extensive experience in their retail outlets (i.e., 3–5 years, 68%; 10 years or longer, 19%). All informants had more than a year’s experience in their outlet except for one who had 8 months experience but was allowed to participate because of the extensive knowledge he had of historic operations due to exceptional record keeping in the outlet and extensive briefings by his predecessor. Two interviews were conducted in the 75 outlets where qualified managers were available. Managers from separate customer-facing divisions/departments/SBUs were interviewed when separate units existed and the administrator determined that the managers were qualified to participate. The final sample consisted of 161 managers after dropping 14 managers whose

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comments or ‘‘don’t know’’ answers indicated that they really were not qualified to participate (despite indicating otherwise before and during the interviews).

Measures and Procedure The most senior manager at each retail outlet was contacted to explain the purpose of the study and ascertain the potential informant’s level of responsibility, willingness to participate, and access to necessary information, along with making an appointment to conduct the interview. Informants completed a paper and pencil questionnaire in English. To reduce response biases (e.g., ‘‘I can answer any question’’ bias, acquiescence bias, see van de Vijver & Leung, 1997), informants were given an opportunity to answer ‘‘don’t know or does not apply to me’’ to every question. Informants could record additional comments in a six-line open response box after each scale. Initially, the original wording was used for all scales, which were measured on a five-point Likert scale (strongly disagree ¼ 1 to strongly agree ¼ 5). An additional ‘‘don’t know or does not apply to me’’ column was coded as nonresponse. Market orientation was measured using Ruekert’s (1992) three-dimensional, 23-item market orientation scale. The first dimension concerns information acquisition, analysis, and dissemination (referred to as ‘‘insight’’ hereafter). The second dimension concerns strategic decision making, market investment, and market-oriented strategies (‘‘intent’’). The third dimension concerns strategy implementation and market-oriented customer interaction policies (‘‘interaction’’). Reward systems, attitudes toward risk, interdepartmental conflict, formalization, and centralization were measured using Jaworski and Kohli’s (1993) scales. A space was provided for the interviewer to capture noteworthy comments made by informants while completing each section of the questionnaire. The four questions about business performance were measured on a twopoint scale (yes/no), with an additional ‘‘don’t know’’ column added. Performance questions were worded so that the content of the items was defined objectively but the measurement unit was defined subjectively to encourage response and minimize method bias and method variance (see Ketokivi & Schroeder, 2004). Ideally, performance would be measured using objective financial records (see Hanssens, Parsons, & Schultz, 2001, especially Chapter 3), as subjective measures may lead to higher correlations between market orientation and performance due to common methods variance

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(see Kirca et al., 2005). However, as Deshpande´ and Farley (1999) note, although informants in emerging markets are more reticent to report objective financial results, and financial records often are less transparent, managers at the operational level often are best placed to provide performance information. Moreover, subjective measures of performance dominate the market orientation literature and have been shown to be significantly related to objective measures of performance. The reliability and validity of responses to performance questions may be compromised when informants are providing information about their own unit’s performance. To minimize this bias, informants were told that the ‘‘information will be used for the purposes of advancing knowledge’’ and that their responses would be ‘‘held in strictest confidence.’’ Informants indicated that reliable performance information was on hand prior to the interviews and again in the first question of the business performance section of the questionnaire. Informants who indicated that reliable performance information was unavailable were included in scale reliability and validity tests but were dropped from other analyses. Informants who answered ‘‘don’t know’’ to any performance question were dropped from that analysis. The questionnaire was pretested with a sample 20 informants from the target population. As a result, as number of wording changes were made to ensure meaning equivalence with previous international studies. Three items intended to measure strategy implementation focused on tasks that are not undertaken at retail branch level in Zimbabwe; ‘‘bidding projects,’’ ‘‘writing contracts,’’ and ‘‘creating terms of sale’’ were dropped, leaving 52 items in the final questionnaire (see the Appendix, Table A.4).

Scale Reliabilities and Validities Scale reliabilities and validities were assessed using the confirmatory factor analysis (CFA) approach (Steenkamp & van Trijp, 1991). Separate CFAs were conducted on the antecedent and market orientation scales (see Table 2). The market orientation scale fit the hypothesized second-order structure well, but item 12 (‘‘In our organization, beating the competition is more important than financial performance’’) was problematic (standardized factor loading ¼ 0.26). It is possible that language such as ‘‘beating the competition’’ is too abrupt for cultures high on embeddedness. Item 12 is one of three items that focus on competitors in the seven-item intent subscale. We judged that dropping the item would not alter the measurement of

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Table 2.

Market orientation Original 3-factor model Exclude item 12 Antecedents Original 5-factor model Exclude items 35, 39, and 46

Summary of Measurement Model Results. w2

df

p

RMSEA

ECVI

Comparative Fit Index

Tucker– Lewis Index

214.64

149

0.00

0.052

1.85

0.98

0.97

187.88

132

0.00

0.051

1.66

0.98

0.98

724.11

367

0.00

0.078

5.38

0.87

0.86

509.56

289

0.00

0.069

3.96

0.91

0.90

Note: See text. RMSEA, root mean square error of approximation; ECVI, expected crossvalidation index.

the latent variable and it was dropped. Model fit improved marginally (Dw2 ¼ 26.76, 17 df, p ¼ 0.062), as indicated by the root mean square error of approximation (RMSEA), the Tucker–Lewis index (TLI), and the expected cross-validation index (ECVI). The standardized loadings were statistically significant for all items and exceeded 0.50 for all but two items, suggesting convergent validity. The antecedent scale did not fit the hypothesized five-factor model well. The items ‘‘It is very normal to protect one’s departmental turf in this store,’’ ‘‘A lot of the time, tension is high when members of several departments get together,’’ and ‘‘People in this store are allowed to do almost as they please’’ had unacceptable loadings, standardized residuals, and modification indices. Perhaps these items appear terse in a highembeddedness culture. The items were dropped, which did not appear to impact on the meaning of the latent variable (Dw2 ¼ 214.55, 78 df, pr0.001. RMSEA, TLI, and ECVI were improved. The standardized loadings of the remaining items on the intended latent variables were statistically significant and exceeded 0.50 for all but six of the 28 variables, suggesting convergent validity. Discriminant validity was assessed by constructing a 95% confidence interval around the correlation coefficients between the latent variables. None of the 10 confidence intervals included 1.0, supporting the discriminant validity of the five factors. Reliability was assessed for all subscales using Cronbach’s a and exceeded 0.60 in all cases (see Table 3).

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Table 3. Univariate Statistics for Summated Scales. Variable Insight Intent Interaction Reward systems Risk, attitudes toward Interdepartmental conflict Formalization Centralization Profits versus past year Profits versus competitors Market share trend, 5 years

Coefficient a

Mean

Standard Deviation

n

0.87 0.81 0.64 0.76 0.66 0.63 0.83 0.77

3.05 2.72 3.23 2.42 2.25 2.86 2.30 3.30 3.40 3.45 3.37

0.88 0.84 0.87 0.76 0.67 0.87 0.87 0.90 0.49 0.50 0.49

161 161 161 161 161 161 161 161 114 85 89

RESULTS The means and standard deviations for the three components of market orientation, reward systems, risk attitudes, interdepartmental conflict, formalization, and centralization, are reported in Table 3. The mean for centralization is the highest for all variables. On average, informants report moderate levels of market orientation for all three dimensions of the scale; this is not uncommon in LICs and there is substantial variation in responses, with relatively high standard deviations on all variables.

Testing the Hypothesized Model Model Specification and Fit The hypothesized relations were tested using covariance structure analysis (see Fig. 1). The model includes the five hypothesized antecedents of market orientation; Ruekert’s (1992) three-component, second-order factor market orientation construct; and measures of business performance. Three separate measures of performance were used: profitability relative to the previous year, profitability relative to competitors, and 5-year market share performance trend. The structural model was tested for each performance measure individually due to different sample sizes for the respective performance measures. The small sample size and large number of items required that each latent variable be measured by a single indicator variable

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(‘‘data parcel’’), which was constructed by taking the mean of the net items for each scale and setting the error variance to a level appropriate to its coefficient alpha reliability. Data parceling produces less biased estimates of structural parameters and better fitting solutions when items have a unidimensional structure (Little, Cunningham, Shahar, & Widaman, 2002; see Steenkamp, Batra, & Alden, 2003 for similar practice). Table 4 reports model fit for the hypothesized model of antecedents and market orientation relations (including all 161 informants) and the three additional models that include performance variables (118 informants could reliably respond to at least one performance question). The hypothesized models have a good fit to the data. The probability of the w2 indices suggests a good fit (p>0.10). As an index of model fit in covariance structure models, w2 increases as the model’s correspondence to the data decreases, causing Kline (2005, p. 135) to call it a ‘‘badness of fit’’ index. RMSEA is r0.05, suggesting a relatively high probability of a close fit to the hypothesized structure. The comparative fit index and Tucker–Lewis index, both E1.00, indicate a very close fit to the data (see Kline, 2005). Market Orientation and Performance As noted earlier, not all informants answered the performance questions. The hypothesized relations between market orientation and business performance were tested in three separate covariance structure models. The results are reported in the first three columns of Table 5. H1 is supported; market orientation has statistically significant (pr0.001) positive direct relations with all three performance measures. The standardized path coefficients are in the range 0.35 (for 5-year market share trend) to 0.42 Table 4.

Summary of Model Fit Indicators. Indicators for Each Structural Model

Profits versus past year (n ¼ 114) w2 df p RMSEA CFI TLI

25.86 18 >0.10 0.06 0.98 0.95

Profits versus Market share trend, competitors (n ¼ 85) 5 years (n ¼ 89)

15.69 18 >0.61 0.00 1.00 1.02

17.79 18 >0.47 0.00 1.00 1.00

Market orientation (n ¼ 161) 14.33 10 >0.15 0.05 0.99 0.98

Dependent Variable

Independent Variable

Parameter Estimates for Each Structural Model Profits versus past year (n ¼ 114)

Profits versus competitors (n ¼ 85)

Market share trend, 5 years (n ¼ 89)

Market orientation (n ¼ 161)

0.61a 0.15 0.06 0.01 0.02

0.65a 0.06 0.16 0.13 0.06

0.60a 0.19 0.09 0.04 0.05

0.53a 0.10 0.21 0.05 0.06 0.93b 0.91a 0.80a

Antecedents Market orientation Market orientation Market orientation Market orientation Market orientation

Reward systems Risk, attitudes toward Interdepartmental conflict Formalization Centralization

Market orientation Insight Intent Interaction

Market orientation Market orientation Market orientation

0.95b 0.98a 0.67a

0.98b 0.94a 0.63a

0.98b 0.97a 0.71a

Performance consequences: Profits versus past year Profits versus competitors Market share trend, 5 years

Market orientation Market orientation Market orientation

0.42a – –

– 0.42a –

– – 0.35a

– – –

Market Orientation and Performance in Low-Income Countries

Table 5. Summary of Structural Relations.

Note: Standardized parameter estimates are reported. a po0.001. b Path fixed to unity to identify model.

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(for profits relative to the previous year and competitors), suggesting a large effect. These compare to the findings of Kirca et al. for the bivariate relations of market orientation with market share (0.31) and profit (0.27) and are consistent with Cano et al.’s (2004) and Deshpande´ and Farley’s (2004) assertions that market orientation could have a stronger effect in emerging markets. Antecedents of Market Orientation The hypotheses concerning the antecedent relations were tested in a covariance structure model in which the performance measures were omitted, so that the responses of all informants could be analyzed. Reward systems (H2) have substantive and statistically significant (po0.001) positive relations with market orientation (standardized coefficient 0.53), an effect that is stronger in the three models including performance consequences (viz., 0.60–0.65) and exceeds the effect size (0.41) reported by Kirca et al. (2005). The risk attitudes (H3) and market orientation did not have the expected relation, although the parameter estimate is in the hypothesized direction. As hypothesized, conflict (H4), formalization (H5), and centralization (H6) were disconfirmed and these are not related to market orientation (p>0.05). Although not hypothesized in the present research and not reported in detail here, as noted earlier, Jaworski and Kohli (1993) hypothesized that formalization and centralization would impact negatively on information acquisition and sharing and positively with implementation. We assessed separately the effects of formalization and centralization on insight, intent, and interaction (i.e., six effects) and none of these were significant (pZ0.33 in all cases).

DISCUSSION AND MANAGERIAL IMPLICATIONS Retailers in LICs operate at the nexus of subsistence trade and the formal market economy. In the 1990s, Quelch and Austin (1993) observed that firms fail to compete in Africa at their own peril. By this they meant that LICs are attractive markets for appropriate products and sources of new competition that even Fortune 100 multinationals should not ignore. Today, we know that LICs are important markets for basic infrastructure (e.g., roads, schools, hospitals), staples (food, consumer packaged goods, medicines), early life-stage products (e.g., baby products, children’s clothing, education products, toys), and many other products. Furthermore, they are important environments in which to learn about overshot customers,

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develop low-cost alternative business models, and respond to stakeholder expectations for socially responsible behavior. This study examined the market orientation and performance of retailers in Zimbabwe, a LIC undergoing substantial sociopolitical and economic stress. A set of hypotheses was derived after considering distinctive common characteristics of the LIC institutional context, especially national culture. The results indicate that Zimbabwean retailers report moderate levels of market orientation, reliance on market-oriented reward systems, willingness to take risks, interdepartmental conflict, formalization, and centralization. They vary considerably in these organizational characteristics and this produces meaningful and theoretically predictable results that have important theoretical and practical implications. Theoretically, we find that market orientation theory generalized to this LIC context insofar as reward systems relate to market orientation and market orientation relates to performance. Equally important, we find that boundary conditions are suggested by the present study. As hypothesized, market orientation theory did not generalize with respect to the theoretically expected relations of market orientation with interdepartmental conflict, formalization, and centralization in HICs. This is consistent with the multivariate analysis of Kirca et al. (2005), suggesting that reward systems and interdepartmental connectedness (encouraged by LIC cultural priorities but not tested in this research) may help overcome the detrimental influence of these constructs on market orientation. Although the results concerning the hypothesized effects of willingness to take risks on market orientation were not confirmed, these were in the hypothesized direction and may be revealed in future research. The results help us advance toward a contingency theory on market orientation in LICs. The LIC institutional context (socioeconomic, regulative, and cultural) shapes consumer preferences for market-oriented behaviors and employee preferences to engage in them, suggesting potential boundary conditions for market orientation theory in LICs. Although the socioeconomic and regulative pillars probably get more attention from international marketers in practice (Burgess & Steenkamp, 2006), the results suggest that deeply rooted cultural institutions – which affect how consumers and employees see themselves, their interrelations, and their rights and responsibilities in exchange and employment situations – have important consequences for market orientation, its antecedents, and its consequences. Practically, these results suggest the importance of understanding the influences of within-country diversity on market orientation in LICs. The elite segment aspires to global brands and preferences and often responds to

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marketing strategies used elsewhere, albeit with minor adaptations (Steenkamp et al., 2003). Greater adaptation is required to appeal to the larger, less affluent mass-market segment due to their constrained financial resources, low literacy and numeracy skills, and greater preference for family and group decision making about purchases. Moreover, it is reasonable to expect that the noted embeddedness and cultural hierarchy effects on market orientation within retailers will also influence how mass-market consumers are treated in retail establishments and how they respond to different types of marketing activities (e.g., relationship management, customer service). This distinction is an important consideration when developing market-oriented strategies. A stakeholder approach to market orientation may be particularly appropriate in LICs, especially when consumers have needs but insufficient financial resources. This can happen at the consumer level (e.g., medicine, food, education) or national level (e.g., large infrastructure purchases, roads, hospitals, telecommunications). A stakeholder approach helps firms identify and focus marketing activities on ultimate consumers and the government agencies, foreign donors, and other nongovernmental donors who will pay on their behalf. In practice, exploratory research often reveals situational factors that influence purchase and consumption behavior in LICs. Although consumers have financial constraints, for example, they are rich in time and community support. Time-saving goods have almost no appeal in this context, whereas television, radio, sporting events, and other time-using goods do. Innovative business plans, such as Aravind Eye Hospitals’ use of the time resources of patients’ close family and community relations (Prahalad, 2005), suggest that the subsistence marketplace provides a rich laboratory to examine new business models that lower financial prices by allowing subsistence consumers to draw on other resources. The nature and content of human interactions are an important and often forgotten element in marketing plans. It is vitally important to create organizational structures and processes that encourage widespread participation in learning about LIC consumers, supply-chain members, and other stakeholders. If employees are reticent to contradict superiors or existing policies due to preferences for cultural hierarchy, presenting them with research findings and asking for anonymous comments often creates a ‘‘safe environment’’ in which people feel comfortable in expressing new ideas and points of view. Whatever approach is taken, it is important that participants feel that their opinions are valued and that the resulting knowledge is easily accessible within and across LICs. Efforts to identify intermarket segments

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and develop appropriate strategies will benefit when LIC teams are involved in the analysis.

RECOMMENDATIONS FOR FUTURE RESEARCH The current research is limited to one industry in one LIC. All LICs are not alike and there is much work to be done. Kirca et al. (2005) call for market orientation research to focus on explicating its relations to performance and on its implementation. There is a need to understand how the distinctive socioeconomic, cultural, and regulative characteristics of LIC contexts impact on market orientation and its antecedents and consequences at the level of consumers, firms, and countries/regions. Given that market-oriented behaviors, especially innovation, entail risk and transaction costs and that the LIC context emphasizes uncertainty avoidance, the finding that risk attitudes do not affect market orientation is surprising. Three avenues for research are immediately evident. First, there is a need to understand how LIC managers and management teams perceive the risks and transaction costs of market-oriented behaviors. How do they assess the potential range of outcomes, the likelihood of success and failure, and the uncertainties of outcomes when contemplating market-oriented behaviors? Does this differ from elsewhere? Second, there is a need to understand how top management teams use previous experience and individual/group competencies to frame problems, shape control systems, and manage risk. The impact of LIC institutions outside the firm on risk perceptions, management, and control also needs to be understood. Research is needed to explore the complex interrelations of market orientation antecedents and the impact of these on market orientation and performance. Work must now look more deeply into types of centralization, formalization, and other organizational structure effects on market orientation in LICs. Qualitative research into the nature and content of interdepartmental connectedness and conflict management also is needed. These results suggest that the moderating effect of turbulence on the market orientation–performance link may be subject to boundary conditions in LICs. During the 5 years preceding fieldwork, Zimbabwe retailers experienced severe turbulence in the currency exchange rate, from government intervention in the economy (e.g., two structural adjustment programs, currency and import restrictions, high luxury goods taxes), from natural disasters (e.g., a protracted drought and crop failures, the HIV/AIDS pandemic), and from social and political unrest (e.g., the invasion of farms and businesses by

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‘‘war veterans’’), yet the market orientation–performance effects reported were relatively large compared to the range of correlations reported by Kirca et al. (2005). This suggests that the relative direction of turbulence (increasing/decreasing/stable) may influence market orientation as much or more than perceived nominal levels. This may be true for antecedents of market orientation, as well. At the consumer level, market orientation theory has not devoted meaningful attention to differences in final consumers of business-to-business marketers or consumer marketers. Consequently, the impact of consumer characteristics on preferences for market-oriented business practices and firm performance is not well understood. The 80–90% of LIC populations that are members of the mass-market segment have received almost no attention. More research is needed before we can attribute radical business model innovations, such as those of Aravind Eye Hospitals and n-Logue in India (Prahalad, 2005), to market-oriented thinking. The role of consumers must be better understood. More research also is needed before we can identify characteristics, such as low human development (high unemployment, low product knowledge, low financial resources/high temporal resources) or cultural embeddedness (extended family structure, respect for older persons), as boundary conditions for market-orientation theory. The effects of rapid change on elite consumers also demand attention. Although elite lifestyles seem similar to their Western counterparts, many of these consumers have transited from mass-market lifestyles in less than the span of a generation and have participated in subsistence trade and exchange relations that include barter and other nonfinancial forms of exchange. These characteristics may shape preferences for market-oriented practices (Burgess, Battersby, Gebhardt, & Steven, 2005). Substantial diversity exists within the two prototypical segments and research that explicates this diversity should be particularly welcomed.

ACKNOWLEDGMENTS We thank Jose Antonio Rosa, Jan-Benedict E.M. Steenkamp, Maha Golestaneh, Janine Everson, and the anonymous reviewers for comments that improved this chapter. We also thank Ross Rizley, Susan Keane, and the MSI reviewers for comments on an earlier version of the paper that was published by the Marketing Science Institute as Burgess and Nyajeka (2006), Market orientation and performance at the ‘‘base of the pyramid’’:

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The case of Zimbabwean retailers (Report 06–104). In: S. Keane (Ed.), MSI Reports (pp. 89–115). Cambridge, MA: Marketing Science Institute.

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APPENDIX There are many country classification schemes. In one popular scheme, the World Bank (2005) classifies countries into four groups based on gross national income (GNI, viz., low income, $765 or less; lower middle income, $766–3,035; upper middle income, $3,036–9,385; and high income, $9,386 or more). In another popular scheme, the United Nations (UNDP, 2004) identifies three country groups based on their Human Development Index (HDI; low, o.50, medium, .50o.80, and highZ.80). The HDI is a composite measure of three basic dimensions of human development: a long and healthy life (as measured by life expectancy at birth); knowledge (adult literacy and the combined gross enrolment ratio for primary, secondary and tertiary schools); and a decent standard of living (Gross Domestic Product, GDP, per capita in US dollar purchasing power parity) and thus captures elements of institutional development. Marketers should remember that GDP excludes remittances from other countries, which can be 30–40% of GNI in LICs (Mahajan & Banga, 2006). We conveniently define two broad types of emerging markets to make our discussion tractable. Low-income countries (LICs) comprise (a) all World Bank ‘‘low-income’’ countries plus (b) all countries classified as ‘‘mediumincome’’ by the World Bank and also as ‘‘low human development’’ by the UNDP (see Table A.1). We call all other ‘‘medium human development’’ countries emergent consumer markets (ECMs). Levels of human and infrastructural development are higher in ECMs and the elite segment (see p. 219) often comprises more than 20% of the population. The scale of differences between LICs and ECMs often exceeds the scale of differences between ECMs and high-income countries (HICs), see Figure A.1.

United Nations Human Development Index

Market Orientation and Performance in Low-Income Countries

0.9

Emergent consumer markets

0.7

0.5

Low-income countries 0.3

0.1 0

10000

20000

30000

Gross Domestic Product per capita (PPP)

The Two Types of Emerging Markets.

249

Fig. A.1.

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STEVEN MICHAEL BURGESS AND PFAVAI NYAJEKA

Table A.1.

Selected Low-Income Countries.

Bangladesh Benin

Ethiopia Gambia

Bhutan Burkina Faso Burundi Cambodia Cameroon Central African Republic Chad Comoros

Ghana Guinea Guinea-Bissau Haiti India Kenya

Congo Dem. Rep. of the Congo Coˆte d’Ivoire Eritrea

Kyrgyzstan Lao People’s Dem. Rep. Lesotho Madagascar Malawi Mali

Mauritania Rep. of Moldova Mongolia Mozambique Nepal Nicaragua Niger Nigeria Pakistan Papua New Guinea Rwanda Sa˜o Tome´ and Principe Senegal Sierra Leone

Solomon Islands Sudan Tajikistan U. Rep. of Tanzania Togo Uganda Uzbekistan Viet Nam Yemen Zambia Zimbabwe.

Source: See UNDP (2004). Italics added to highlight countries that have achieved middle human development.

Market Orientation Studies Conducted in Emergent Consumer Markets and LICs.

Study

Sample

Significant Main Effects of Market Orientation on Performance (pr0.05)?

Ukraine

221

Deshpande´ and Farley (2002) Golden, Johnson, and Smith (1995) Grewal and Tansuhaj (2001) Hooley et al. (2000)

China Russia

309 200

No – performance relative to major competitors (sales volume, market share, ROI) Yes – performance relative to major competitors (profit, cash flow) Yes – profits, size, growth, share Direct effects not measured

Thailand Hungary, Poland, Slovenia

120 1396

Hooley et al. (2003)

Hungary, Poland, Slovenia

1619

Kaynak and Kara (2004)

China

179

Liu, Luo, and Shi (2003)

China

304

Loubser (2000)

South Africa

Emergent consumer markets Akimova (2000)

Country

51

Yes – performance after crisis (negative effects) Yes – ROI, performance relative to budget, past year, and competitors Yes – ROI, performance relative to budget, past year, and competitors No – ROI past 3 years Yes – performance past 3 years (sales, revenue growth, and market share) Yes – nonfinancial performance (marketing program dynamism) No – growth in market capitalization, growth in total assets, growth in equity, ROA, growth in sales and price earnings ratio Yes – ROE

Market Orientation and Performance in Low-Income Countries

Table A.2.

251

Study

China

Sample

193 32

Czech Republic, Malaysia, Philippines, Brazil, Mexico, Venezuela China

215

Sin, Tse, Yau, Chow, and Lee (2005)

China, Hong Kong

266

Sin, Tse, Yau, Chow, and Lee (2003)

China, Hong Kong

464

Sin et al. (2000)

China

210

Tse, Sin, Yau, Lee, and Cho (2003) Zhou, Gao, Yang, and Zhou (2005)

China

573

China

180

Qu and Ennew (2003)

Significant Main Effects of Market Orientation on Performance (pr0.05)? Yes – financial, market, and corporate social performance (multi-item scales) Yes – business performance

Yes – sales growth, ROE, industry-specific performance (multi-item scale) No – overall performance (multi-item scale), China and Hong Kong manufacturers, China service industry Yes – Hong Kong service industry Yes – overall performance, customer retention, ROI, sales growth and market share, except market share in China No – market share and ROI Yes – overall performance, customer retention, sales growth Yes – current and future business performance (multiitem scale) Yes – nonfinancial performance (job satisfaction, organizational commitment, confidence in future performance)

STEVEN MICHAEL BURGESS AND PFAVAI NYAJEKA

Luk, Yau, Tse, Sin, and Chow (2005) Nakata (2002)

Country

(Continued ).

252

Table A.2.

Subramanian and Gopalakrishna (2001)

Ghana India, China, Vietnam

79

Zimbabwe India Indonesia

146 138 159

India

162

No – ROI, sales growth Yes – overall performance and DFW performance scale items No – return on assets Yes – ROI, customer retention Yes – financial, nonfinancial performance (multi-item scales) Yes – growth in overall revenue, ROCE, success of new products and services, ability to retain customers, success in controlling expenses

Note: ROE, return on equity; ROI, return on investment; DFW, Deshpande´, Farley, and Webster; ROA, return on assets; ROCE, return on capital employed.

Market Orientation and Performance in Low-Income Countries

LICs Appiah-Adu (1998) Deshpande´, Farley, and Webster (1996) Mavondo (1999) Singh (2003) Soehadi, Hart, and Tagg (2001)

253

Retail Sector

Total a

Detailed Sample Characteristics.

Number

Sizea

Type Chain store retailers (%)

Independent retailers (%)

Small (%)

Medium (%)

Large (%)

14

43

57

14

57

29

15

60

40

53

33

13

13

69

31

77

23

0

13

62

38

85

15

0

14

57

43

21

71

8

14

86

14

93

7

0

17

29

71

59

41

0

100

57

43

57

36

7

Classified according to number of employees: small (11–30), medium (31–100), large (over 100).

STEVEN MICHAEL BURGESS AND PFAVAI NYAJEKA

Automotive parts (automotive accessories, auto parts, auto spares – retailers that sell automotive parts to the general public) Clothing retailers (fashion stores/boutiques – retailers that sell men’s, women’s, and children’s clothes to the general public) Electronics (electronic equipment sales, electronic spares, electrical appliances, electrical accessories – retailers who sell electrical goods to consumers) Footwear (footwear specialists – retailers who sell men’s, women’s, and children’s shoes to the general public) Furniture (furniture shops and dealers that sell furniture to the general public) Sporting goods and apparel (sports equipment and sports shops – retailers that sell sports goods to the general public) Supermarkets (grocery stores that sell food and fast-moving consumer packaged goods to consumers)

254

Table A.3.

Market Orientation and Performance in Low-Income Countries

Table A.4. 1. 2. 3. 4. 5. 6.

255

Questionnaire Items.

We listen to what our customers have to say. We use the information we have on customers to improve quality. The organization’s objectives are based customers’ needs. The customer information we have is used to develop strategy. We use market research information in managing our products. In our organization, market research is used to divide markets into groups. 7. We obtain ideas from customers to improve our products. 8. Our people who deal with customers have information on customers and competitors. 9. Within this organization, we decide on strategies after reviewing market research. 10. We develop specific plans for target market segments (groups). 11. We have the money, time, skill, and other resources we need to improve our position in the market. 12. In our organization, beating the competition is more important than financial performance. 13. The prices we charge are determined by how much a product is worth to the customer. 14. We focus on markets where we have competitive strength. 15. We are prepared to invest in order to improve our position in the market. 16. Customers and their needs are a more important part of our planning than products or product groups. 17. We keep the promises we make to customers. 18. We respond to customer needs when quoting prices or bidding projects. 19. When we write contracts we make sure we are responding to customer needs. 20. We respond to customer needs in creating terms of sale. 21. Our credit policies take customer needs into account. 22. We make sure we deliver on time to take care of customer needs. 23. A salesperson’s pay is based almost entirely on what he or she sells in this store. 24. We use customer surveys for evaluating our salespeople. 25. Regardless of your department, you get recognized for finding ways to stay ahead of our competitors. 26. The better customers rate our service in surveys, the more that senior managers get paid.

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Table A.4. (Continued ). 27. You get rewarded formally (i.e., pay raise, promotion) if you consistently provide good market information. 28. The relationships our people build with customers are used to measure our salespeople’s performance. 29. Top managers in this store like to ‘‘play it safe.’’ 30. Top managers see occasional new product failures as being normal. 31. Top managers in this store like to take big financial risks. 32. Top managers here encourage the development of innovative strategies, even though they know some will fail. 33. Here, top managers like to implement plans only if they are very certain that they will work. 34. Top managers in this store believe that higher financial risks are worth taking for higher rewards. 35. It is very normal to protect one’s departmental turf in this store. 36. Employees from different departments feel that they have similar goals with other departments. 37. People in different departments don’t get along very well here. 38. There is little or no interdepartmental conflict in this store. 39. A lot of the time tension is high when members of several departments get together. 40. Most departments in this store get along well with each other. 41. You are always being checked on to see if you break any rules. 42. If you are the one doing the work, usually you can do it any way you like. 43. I feel that I am my own boss in most matters regarding my work. 44. People here feel as though they are constantly being watched to see that they obey all the rules. 45. Most employees here make their own rules on the job. 46. People in this store are allowed to do almost as they please. 47. Even small matters have to be referred to someone higher up for a final answer. 48. I have to ask my boss before I do almost anything. 49. Any decision I make has to have my boss’s approval. 50. Employees here can do little before a supervisor approves of a decision. 51. If I wanted to make my own decision I would be quickly discouraged here.

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257

Table A.4. (Continued ). 52. Is there reliable data available on company profits in the industry in which you do business? 53. Have your profits, relative to competitors’, increased over the last year? 54. Has the store’s profit increased when compared to last year’s? 55. Has the store’s market share increased over the past 5 years?

UNILEVER’S BUSINESS IN INDIA’S SUBSISTENCE ECONOMIES Rohithari Rajan ABSTRACT This paper argues that corporate efforts to serve subsistence economies must be integrated rather than disparate. Focusing on the efforts of Unilever’s Indian subsidiary, the paper draws out four key lessons for businesses in low-income regions – availability, branding, convergence, and development. Four Unilever case studies are used to demonstrate how Unilever built on existing strengths, integrating diverse interventions to create Shakti, a unique pro-poor business model. The paper then analyzes the impact of the business intervention on the poor, calling for a wider convergence and cooperation between the private and the development sectors.

1. BUSINESS IN SUBSISTENCE ECONOMIES: UNILEVER IN INDIA That subsistence economies account for a significant proportion of the world’s population is well documented. The idea that these economies can be viewed as a business opportunity rather than exclusively as a developmental challenge made its first appearance in a paper authored by Prahalad Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 259–277 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20011-7

259

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and Hart (2002). The response of the private sector to the notion that the poor can be a business opportunity tends to range between two extremes. At one end are those who argue that the mere existence of billions of people living on a few dollars a day does not necessarily answer the following questions:
Can the poor afford to pay for our products?
Are the poor willing to pay for this product?
Do the benefits of selling to the poor outweigh the additional costs incurred in being able to do so? The answers to these questions are not to be found in generic prescriptions. They will vary by region and industry, by the degree of poverty in a given market, by the regulatory environment, and by a host of other circumstances. Nevertheless, at the other end of the spectrum are companies that have been in the business of selling to the poor, building brands in subsistence economies long before it became fashionable to talk of consumers at the base of the pyramid. This paper focuses on the approach of one such organization. Hindustan Lever Ltd (HLL) is the Indian subsidiary of the global consumer goods giant Unilever. HLL has been one of the largest private sector organizations in India for over 50 years and is a market leader in a wide range of product categories. The story of HLL’s initiatives in addressing low-income consumers in India is specific and localized in that it is restricted to one industry and to one country. There are, however, four key lessons that HLL’s experience offers to those interested in understanding or replicating its success in subsistence markets – the lessons of availability, branding, convergence, and development. This paper begins by describing Hindustan Lever and then presents a background of the Indian FMCG (fast-moving consumer goods, as opposed to consumer durables) market. It describes the initiatives implemented by HLL to address low-income consumers in this market, also highlighting the different functions that came together in these initiatives. The paper argues that while each specific initiative might be viewed independently as a pricing, sales, branding, or packaging idea, its success lies in the way it builds on the strengths of other initiatives, in turn laying the foundation for the next. Finally, this paper seeks to examine the impact of HLL’s efforts in selling to the poor on the poor. The idea that selling to the poor can contribute to poverty alleviation, or that poverty can be eradicated profitably, naturally appeals to all sectors of society – government, corporate, academic, and civil. However, there has been little research to examine exactly how,

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in what circumstances, and to what extent selling to the poor can impact poverty. This paper seeks to present the arguments for one such selling intervention, recognizing even as it does so the case for more in-depth research.

2. HINDUSTAN LEVER Hindustan Lever Ltd is the Indian subsidiary of Unilever, one of the world’s largest FMCG companies. It was formally incorporated in 1956, with 10% Indian equity. Unilever holds 51.5% of the company’s stock, domestic and foreign institutional investors hold a little more than 14%, while the remainder is held by the Indian public (Hindustan Lever Ltd, 2005). HLL’s turnover in 2005 was approximately US $2.7 billion, with net margins of 12% resulting in a net income of about US $319 million (Hindustan Lever Ltd, 2005).1 Globally, Unilever’s turnover in 2005 had been US $49.4 billion, with net income at US $5 billion and net margins about 10% (Unilever, 2005).2 Throughout its history in the country, HLL has aggressively sought market leadership across the price spectrum in a wide range of categories, including personal products, laundry, foods, and beverages. It has consistently been the market leader in most of the categories it competes in and enjoys an aggregate market share estimated to be between 40 and 45% of the market for packaged consumer products in India (Rangan & Rajan, 2005). HLL’s success in achieving these shares and maintaining them consistently for over 5 decades has built on a number of sources of competitive advantage. In its early years, its multinational lineage gave it an edge over its rivals by enabling HLL to access superior technology. The Unilever heritage also meant that HLL was born with brands already familiar to the Indian consumer – Sunlight soap was first imported into India as early as 1888. Through the years, HLL launched or strengthened a number of Unilever brands in India, including Pears and Lifebuoy (personal wash) and Surf (laundry). Some other large multinational brands such as Ponds (skin products), Lipton (tea), Brooke Bond (tea), and Bestfoods (a range of food products) were already well established in India before they came to HLL through Unilever acquisitions. In addition to brand equity, HLL also scored over its competition through superior marketing know-how. Another source of competitive advantage was HLL’s sales and distribution system. As in many emerging economies, the Indian FMCG market differs from more well-developed Western markets in that the retail

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structures are not consolidated. Nearly 7 million distinct retail outlets in India stock FMCG. For manufacturers such as HLL, each of these outlets is an individual customer (Rangan, Sehgal, & Rajan, 2006). This makes the role of sales and distribution critical in the ability of a large company to ensure that its products are available in far-flung retail outlets. Over the years, HLL built up a vast distribution network spanning approximately 4,000 stockists who purchase stocks from HLL and then sell to retail and wholesale stores in their neighborhoods. Newer rivals were unable to match up to this distribution in part because HLL had established a lead of many years over them, but also because the sheer width of categories HLL operated in gave it economies of scale that new competitors, or those operating in far fewer categories, were unable to match.

3. SUBSISTENCE MARKETPLACES IN INDIA Definitions and measurements of poverty are neither easy nor unambiguous. Most definitions hinge upon the level of income or consumption of individuals and use as reference a ‘‘poverty line,’’ with populations that lie below the line being considered poor. Most countries use a national poverty line to define the poor constituents of their populations, but these poverty lines do not make for easy international comparisons. As a metric, the World Bank uses the International Dollar, equivalent to US $1.08 measured in 1993 prices converted using purchasing power parity rates. The $1.08 standard was chosen to be equal to the median of the 10 lowest poverty lines among a set of low-income countries. The World Bank’s definition of the extreme poor covers populations with average daily consumption expenditure of less than $1.08, while those who live on between $1.08 and $2.15 a day are considered the moderate poor.3 Over 80% of India’s population of 1.1 billion lives on less than $2 a day. Of this number, approximately 360 million Indians live on less than a dollar a day (World Development Report, 2006). Moreover, nearly 795 million Indians live in rural India, and the average rural per capita income is about 44% of its urban counterpart (Rangan et al., 2006). One in eight people on this planet lives in an Indian village. Rural India covers a population comparable to North and South America put together. Moreover, this vast population is scattered across more than 638,000 villages, with nearly 90% of them populated by less than 2,000 people each (Kashyap, 2004). Rural India is home to three times as many people as urban India. And yet, it accounts for only approximately 50% of the Indian FMCG market

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(Rangan et al., 2006). In other words, if the per capita consumption of consumer products in rural India were to rise to urban Indian levels, it would double the entire market. Exciting as that opportunity is, three sets of challenges must be overcome before it can be realized (Rangan et al., 2006). These are the challenges of reach, communication, and influence. The fragmented nature of rural markets, coupled with poor infrastructure, complicates the logistics of ensuring that products are available in retail stores in each remote village. Poor literacy and imperfect television penetration restrict the effectiveness of conventional advertising media – literacy in rural India is less than 60%, compared to 80% in urban India (Census of India, 2001). Over 112 million rural households do not own a television, and even in those that do, viewership is not guaranteed because the supply of electricity is inconsistent. These factors complicate the task of communicating with rural audiences. Finally, low category usage and awareness in subsistence markets ensure that for marketers merely to build their brands is inadequate – they need to induce habit change and effect greater usage of the category itself.

4. FOUR CASE STUDIES To a consumer goods company, what matters is not exactly how many people live on exactly how many dollars per day, but how many people are excluded from its products’ consumer set (or, in other words, do not have the capacity to consume the products should they wish to) and why. There could be many reasons for this exclusion – lack of purchasing power, lack of awareness of the product or its attributes, misconceptions (or knowledge) of negative attributes of the product, absence of need or perceived absence of need, unavailability of product, and so on. Arguably, it is in the interests of the company to bring these barriers down. The task of eliminating exclusion by bringing down barriers is, of course, easier to state in a paper than to translate into growth rates. However, it is helpful to rephrase the problem and to focus not on eliminating all barriers to consumption. Instead, it might be more productive to focus on the barriers that exclude the consumer at the margin. Throughout its history in India, HLL has done so, progressively bringing more and more consumers excluded at the margins into the mainstream ‘‘market segments.’’ The barriers that create exclusion are complex and multidimensional, and therefore the solutions that have brought them down have had to be innovative and varied.

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This section presents four short case studies, each of which helped Hindustan Lever grow its business by reaching out to consumers who had, until then, been excluded from the consumption opportunity that HLL offered to the rest of India. These particular examples have been chosen because each of them was an unconventional solution to a unique problem. The first example is a packaging innovation, the second documents innovations in distribution, the third is a product and brand innovation, and finally, the fourth is an innovation in communication. The first two examples contribute to enhancing availability and accessibility, while the third and fourth case studies demonstrate branding effectiveness in subsistence economies.

4.1. Case 1: Packaging Innovation – Sachets Perhaps the most important barrier to consumption in subsistence marketplaces is the ability to pay. However, very often price itself is not the only affordability constraint that consumers face. In particular, HLL realized that two other constraints were creating barriers to consumption. One of these was the hesitation to try – consumers were unwilling to spend significant amounts of money on product categories they were not familiar with. A number of marketers have recognized that this hesitation must be addressed and that, in addressing it, they must identify and gain the endorsement of key influencers. In the case of consumer products in rural India, these influencers could include opinion leaders such as locally elected village council members (panchayat), local school teachers or medical practitioners, and the village retailers, who in turn are influenced by wholesalers in larger towns in making their stocking decisions. The second constraint was liquidity. Low-income regions, especially rural low-income regions, are characterized by informal barter economies. In such economies, the absence of cash in hand does not necessarily imply poverty, but it does exclude consumers from participating in the formal economy. Laborers who are paid by the day face a similar exclusion – their ability to participate in the formal economy is almost entirely dependent on the cash in their possession at a given moment, and this is not only low in absolute terms, it varies from day to day. It is difficult to imagine such consumers trying to purchase a product sold only in quantities required for 30 or more usage occasions. Consumers who could afford to pay for one or two usage occasions would needlessly be excluded from the opportunity. Recognizing that the packaging of products to suit a large number of occasions was excluding a large segment of potential consumers, HLL began

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selling products for progressively fewer usage occasions, eventually extending the concept to single-serve sachets. The impact of this single-serve revolution was the most visible in the shampoo category (sachets account for nearly 70% of the category in India), but HLL continues to sell a number of its products in low-usage packs – including toothpaste, cream, tea, and talcum powder. The sachet idea is powerful in itself, but much of its success is also due to the way HLL aligned itself to optimize the benefit of low-usage packs. The sachet example is often used to highlight that low-income consumers pay more for products than their more affluent counterparts, because it seems intuitive that consumers who buy a large bottle of shampoo would be paying less per unit than those who buy a sachet. This is not always true. In a number of product categories, HLL has frequently employed base of the pyramid (BOP)-friendly pricing – so that the product costs less per unit when consumed in sachets! Trade margins too are often higher on sachets, which gives wholesale outlets an incentive to influence village retailers aggressively into purchasing them. Moreover, sachets are typically sold in tightly packaged bundles that take up very little space, making it easier for retailers to purchase them in feeder towns and carry them back into villages. Finally, once unpacked they take the form of bright, colorful strips that can be hung at the storefront, thus creating point-of-sale visibility. The sachet principle has since been adopted in a number of other industries as well. One adaptation is that of prepaid cellular phone cards that are sold in tiny denominations. It can be argued that these products are not always consumed by those who conform to one or the other definition of poverty. What is important, however, is that they are consumed by those who would, in the absence of the offering, have been excluded from the opportunity to consume.

4.2. Case 2: Distribution Innovations Where affordability constraints have been resolved or minimized, accessibility constraints form the most important barrier to consumption opportunity. HLL has always enjoyed a significant competitive advantage over its rivals by ensuring that its products are accessible by far more potential consumers. Of the 7 million outlets in India that stock FMCG, HLL directly serves 1 million, including a large and unorganized wholesale channel that ensures even wider distribution of its products.

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Fig. 1 illustrates HLL’s basic distribution model. From points of manufacture located in different parts of the country, stocks are shipped to central warehouses and from there, they are sold to stockists. Stockists purchase stocks from HLL and then distribute them to trade, consisting of retail and wholesale, in specified geographies. A crucial link in this chain is the stockist. This link is HLL’s primary customer and one with whom the company has to build a strong relationship. HLL must choose its stockists with care, identifying people who have business experience and some standing in the geography they shall serve. Once it has appointed a stockist, HLL must ensure that the stockist earns an acceptable return on investment. This task is owned by HLL’s field force, a vast team trained to help the stockists run their businesses more effectively. Predictably, the challenge of accessibility is the steepest in rural markets. The model presented in Fig. 1 depends on there being sufficient business potential. Because rural India consists of widely scattered hamlets, each inhabited by few people, and because the per capita consumption or even awareness of many of HLL’s product categories is far lower in these hamlets than in urban India, the business potential in individual hamlets is often too low to justify the business model presented in Fig. 1. The challenges of rural distribution are easily illustrated along two axes, as shown in Fig. 2 (Rangan & Rajan, 2005). The horizontal axis represents turnover per market and forms the viability challenge described above. India’s villages are remote and often rendered inaccessible by poor infrastructure. Even if HLL were to appoint a stockist in these markets, it would find it difficult to deliver the requisite volumes as frequently as required. This gives rise to the vertical axis, which represents the ease with

Manufacture

Warehousing

Fig. 1.

Retail / Wholesale

Stockist

The Basic Distribution Chain.

Accessible Indirect

Direct

Streamline

Inaccessible Low T/O

Fig. 2.

High T/O

The Twin Challenges of Rural Distribution.

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which the markets can be accessed and forms the accessibility challenge for HLL. HLL’s approach to these challenges differs by the quadrants described in Fig. 2. The northeast quadrant of the figure represents markets that are sufficiently accessible and are characterized by business potential high enough to justify the business model described in Fig. 1. In these markets, HLL appoints stockists and trains them to distribute the products they purchase. Markets in the northwest quadrant represent accessible hamlets where the business opportunity is too low to justify the appointment of a stockist. HLL serves these markets indirectly, getting an established stockist from a neighboring town to deliver stocks to retailers in these markets once a week or every fortnight. In the southeast quadrant, market turnovers are relatively high, but not high enough to justify the incremental costs HLL would incur in accessing them. For these markets, HLL created the Streamline model – established stockists, typically in district hubs, sell stocks to designated substockists or star-sellers in remote markets, and these star-sellers then sell to retailers in smaller markets near them. Through these interventions, HLL was again able to reach consumers at the margin – consumers who had been excluded from consumption opportunity due to lack of product availability. These interventions, however, enabled HLL to cover only 16% of the villages in India. The southwest quadrant continued to be a vast distribution challenge representing over half a million villages.

4.3. Case 3: Product and Brand Innovation – Wheel In 1969, an entrepreneur in western India launched a low-cost detergent powder called Nirma. The brand was priced at about half of the price of the cheapest available brand at the time. In the prevalent regulatory environment, Nirma benefited from government licensing, excise rebates, and a small-scale industry status. Through a shrewd mix of very competitive pricing, effective advertising, and penetrative distribution through the wholesale channel, Nirma grew rapidly. By creating a low-priced detergent, Nirma had created a new category – it gained market share in laundry. HLL responded to the competition by launching a low-priced detergent powder called Wheel. The Wheel story demonstrates the importance of brand proposition in subsistence markets, the importance of product innovation to meet the specific needs of consumers in these markets, and finally,

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the value that a large multinational corporation was able to generate by fundamentally reorienting its business model and operations to target low-income consumers. Nirma’s early success was founded on its price and its brand proposition. Product quality was clearly inferior to that of Surf, the reigning HLL laundry brand in the early 1980s. Nirma contained no active detergent, whitener, perfume, or softener. In contrast, the Wheel formulation was based on a lower oil-to-water ratio and has been steadily improved over the years. The brand proposition too, has evolved with the product, staying in tune with the aspirations and needs of the consumers it targets.4 Based on findings that a large proportion of Nirma users complained that the product was harsh on their hands, HLL modified the Wheel proposition, creating and owning a ‘‘safe on the hand’’ platform. Over the years, as consumer preferences and the options available in the mass-market category grew, the Wheel proposition changed, moving from safe on hands to ‘‘great performance, with less effort.’’ In line with consumer aspirations, Wheel was reformulated and launched with speckles, something consumers associated with premium laundry offerings. Wheel has grown rapidly, in sales as well as in brand equity. In 2003, it was among the top 10 in the Economic Times’ Brand Equity Survey of the Most Valuable Brands in India and ranked 21 in the Brand Equity Survey of the Most Trusted Brands in India. In volume and in value, the Wheel franchise is the largest laundry franchise in the country, crossing Rs. 10,000 million in 2005.

4.4. Case 4: Innovation in Communication – Lifebuoy Every year, nearly 3 million children die of diarrhea in developing countries. These deaths are easily preventable – the use of soap in hand washing could reduce these deaths by half, and the use of soap accompanied by adequate sanitation could almost eradicate diarrheal disease (World Bank, The Water and Sanitation Program, & The London School of Hygiene and Tropical Medicine, 2000). In India, diarrhea kills 600,000 children under the age of 5.5 The overwhelming bulk of these deaths occur in low-income, predominantly rural regions. HLL recognized that many consumers in rural India did not use soap in part because they believed ‘‘visible clean’’ to be clean enough. There was therefore a social need to communicate the importance of using soap. This objective would, of course, be beneficial to the business as well – HLL

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is the market leader in the personal wash category and stood to gain a significant proportion of growth in the market. Lifebuoy is among HLL’s strongest brands India. It is one of the world’s best-selling brands of soap, and its brand proposition is founded on killing germs. Inducing habit change in favor of soap usage on the grounds of health was directly in line with the Lifebuoy brand proposition, but in achieving this objective HLL faced the communication challenge described earlier. Conventional media were of limited effectiveness in regions characterized by low literacy and even lower television reach. In 2002, HLL launched Lifebuoy Swasthya Chetana, a unique direct contact rural communication and health education initiative that sought to communicate the importance of using soap – particularly after defecation, before preparation or consumption of food, and before feeding children. Under the Lifebuoy Swasthya Chetna program, health workers visit villages across rural India, conducting school contact programs as well as interacting with the general population. They use an innovative glow-germ demonstration kit to show schoolchildren and others that washing hands with water alone is not adequate even though the hands may look clean. Using a variety of interactive and engaging educational material, the Lifebuoy Swasthya Chetna teams visit each village several times. Since 2002, the Lifebuoy Swasthya Chetna program has covered over 28,000 villages in eight states, reaching over 80 million people. Studies commissioned by the organization demonstrate that there has been a positive change in the use of soap for hand washing in regions where the Lifebuoy Swasthya Chetna program was implemented.

5. CONVERGENCE The case studies described in the previous section demonstrate different ways in which HLL built its business in subsistence economies. These interventions succeeded in very large measure because rather than being oneoff experiments limited to one region or brand, they reinforced one another. Wheel was sold through sachets as well as in larger packs and reached markets riding the streamline or the indirect coverage models. Lifebuoy Swasthya Chetna built awareness and induced habit change in markets where innovative distribution models addressed accessibility constraints even as packaging innovations addressed affordability constraints. These cases present an overriding lesson for marketing to a subsistence economy. In successful base-of-pyramid business models, there is a

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convergence of what conventional marketing often sees as distinct roles or functions. The roles of advertising medium, sales channel, after-sale customer support, product installation, even brand ambassador, all come together in the form of an all-critical last mile. A conventional approach that presumes that these roles must necessarily be played by distinct entities often suggests that marketing to consumers in subsistence economies would be nonviable simply because of the costs involved. On the other hand, an approach that recognizes the convergence potential of these roles can not only bring down costs that make the difference between nonviable and profitable, it can also result in a business model that is more effective in subsistence economies. One such example is that of HLL’s Project Shakti and the Shakti entrepreneur who, as the last mile, reflects the power of convergence. Project Shakti6 was first tried out in December 2000, in a remote district in south India. Today, Shakti is a great example of not only how the convergence mentioned above translates into action, but also of the importance of the last mile. For HLL, this last mile has an unexpected profile. To begin with, she is a woman. Throughout its history, HLL has had a nearexclusively male field force, managed in the early years by a predominantly male sales management team. This sales force sells through all-male stockists who employ salesmen to service retail and wholesale customers who, too, are invariably male. And this elaborate male sales system sells products that are purchased primarily and consumed largely by women. In contrast, the last mile in Shakti lives in villages populated, on average, by less than 2000 people. These are villages too small to feature in HLL’s indirect coverage or streamline distribution models. The typical last mile is a mother of two and in her early 30s. She is barely literate, again a stark departure from HLL’s usual practice of requiring members of its sales force to possess college degrees.

5.1. The Shakti Entrepreneur Program Shakti works through three interventions that have been well described in literature.7 At the very heart of the idea is the Shakti entrepreneur program. Underprivileged rural women from some of India’s smallest and most remote villages are appointed Shakti entrepreneurs and trained to manage small businesses. HLL helps these women raise capital, often from microfinance institutions, and trains them to manage it. The entrepreneurs invest the capital in HLL’s products, which the nearest stockist supplies to them at

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their doorstep. They then sell these products to homes and to retailers in clusters of two to five villages. A typical Shakti entrepreneur sells about $2,800 worth of products in a year. The Shakti entrepreneur network numbers over 30,000 and will be 100,000 strong by 2010. But the program’s impact on HLL is far more important than the immediate sales. Fig. 2 represents HLL’s rural sales system in a matrix. With the three kinds of rural distribution programs described above, HLL was able to reach 100,000 villages. That is an impressive number and gave HLL significant competitive advantage, but it amounted to less than 20% of the villages in India. Since its inception in late 2000, Shakti has already doubled HLL’s direct rural reach, and plans are in place to reach 600 million people in 500,000 villages by 2010 – enabling HLL to serve directly nearly every village in the country. Moreover, Shakti entrepreneurs sell directly to consumers as well as to the retailers in their village. This makes Shakti perhaps the world’s largest sustained rural home-tohome program. Every month, Shakti entrepreneurs personally sell to more than 2 million homes in rural India, building brands and categories.

5.2. The Shakti Vani Program The second intervention under the Shakti initiative is called Shakti Vani.8 Under this program, HLL recruits underprivileged women other than the Shakti entrepreneurs and trains them to communicate in remote villages. Vanis receive specially designed communication material, including flip charts, interactive games, and prerecorded cassettes. They are trained to use this material to engage rural audiences and spread awareness of best practices in health and hygiene. Each Vani visits one village a day, covering a cycle of about 50 villages and then regrouping with other Vanis in a central location for additional material and training, before revisiting the villages in her journey plan. The Vani program has covered nearly 30,000 villages and is ongoing in a number of regions within India. For HLL, the benefits of the program are clear. By spreading awareness of health and hygiene practices the Vani seeks to improve the quality of life in rural India. But in doing so, she also generates demand for HLL’s product categories, just as the Lifebuoy Swasthya Chetna induces habit change while building business for the brand. In fact, the Shakti entrepreneur program and the Shakti Vani program together create a unique blend of communication backed by availability. The Vani program is a one-to-many communication channel through which the Vani explains why community,

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personal, or oral hygiene practices or product categories such as soap or iodized salt should be used. Building on this, the Shakti entrepreneur program is a one-to-one channel through which the Shakti entrepreneur goes directly to the consumer’s home with specific brands, garnering immediate sales.

5.3. The iShakti Community Portal Building on these interventions comes the third – iShakti. This intervention seeks to apply leading edge technology to the challenges of rural marketing and communications. The iShakti intervention is a community portal that empowers rural society by creating access to relevant information. Desktop computers equipped with the iShakti software (developed by Unilever Corporate Research in the United Kingdom) are installed in the home of the Shakti entrepreneur. Consumers in the village are invited to attend training sessions that help them understand how iShakti can help them. Users on iShakti can access information on a variety of content areas, including education, employment, agriculture, health, grooming, and entertainment. They can also post queries on any of these subjects and have them answered by experts. All areas within the iShakti site are accompanied by voice-over in Telugu, the vernacular in the region, so that low literacy poses no barrier to usage. Moreover, the entire content is housed on the hard disk, to minimize dependence on unreliable Internet connections. Once every 2 days, the iShakti kiosk operator uses a simple dial-up connection to synchronize with a central server. Through a synchronization process of about 2–5 min, content on the iShakti kiosk is updated, even as usage data are collated. The portal is based on a dialog-interactive technology that adapts itself to user preferences.9 Users need to register and gain a login ID. During the registration process, users answer questions that include their consumption preferences. Thereafter, every time users log in, they are asked three questions. Thus, the portal builds its understanding of each user through every interaction. Once scaled up, iShakti offers HLL a tantalizing opportunity not only to customize its communication, but also to interact in a two-way channel with a target audience that conventional media cannot reach. For instance, HLL can program the system such that if a user of a competitive brand of toothpaste logs in, he or she receives an offer to try one of HLL’s brands at a discount or free. Alternatively, if a user on iShakti does not use shampoo

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at all, the system could present a short audiovisual commercial explaining how the product could be of benefit to the consumer. Currently in a pilot stage, the iShakti initiative has been rolled out across 1,000 kiosks in one state in India, in partnership with the state government’s rural e-governance initiative. The results of an MR study conducted by HLL during the initial iShakti pilot illustrate the impact that iShakti can have. In the villages in which iShakti was installed, the study found that there was at least one registered user in four of five households and that each kiosk received about 30 visitors per day, in villages populated by about 2,000. Once again, the success of iShakti depends on how it builds upon the other interventions. The three Shakti interventions in particular work in tandem – the Shakti entrepreneur builds sales one-to-one; the iShakti portal builds consumer understanding, brands, and categories in a customized consumer interaction; and the Vani program induces habit change in a oneto-many format. Because the iShakti portal is housed in the home of the Shakti entrepreneur, usage of the portal also helps the entrepreneur build rapport with potential and existing customers.

6. ANOTHER CONVERGENCE – DEVELOPMENT The previous section presented Shakti as a convergence among the various elements of marketing. This section focuses on a different convergence that tends to occur in successful business models that operate in subsistence economies – the convergence of business and social impact. The most visible manifestation of this convergence is the Shakti entrepreneur herself. Shakti is a business initiative that broke even in 2004, its third complete year of operations. In districts where it has been operational for some time, it accounts for up to 20% of HLL’s rural business and for a much higher share of growth. But these numbers are founded on the income that the Shakti entrepreneurs earn. The average Shakti entrepreneur earns $16 per month. Because Shakti entrepreneurs come from low-income households, this amount often doubles the household income. Moreover, the average Shakti entrepreneur spends only a few hours a week on the Shakti enterprise and so does not need to sacrifice other activities when she becomes a Shakti entrepreneur. HLL faced a high degree of entrepreneur attrition in the early years of the program. It realized that the chief cause of attrition was the absence of clear recruitment norms. Very often, women would choose to become Shakti entrepreneurs simply because they liked the idea of being associated with a

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company as large and well known as HLL. These women would later lose interest in managing the business and would drop out. A number of entrepreneurs also opted out of the program once they realized they were expected to sell products door to door, because they felt it compromised their social status. As HLL scaled up the program, it gained a better understanding of who the ‘‘right’’ Shakti entrepreneur was likely to be. Today, the Shakti field force includes a team dedicated exclusively to recruiting entrepreneurs. Members of this team are trained to choose among potential Shakti entrepreneurs across states in which Shakti is scaling up its operations. A number of Shakti entrepreneurs also discontinued operations because their expectations were not met. Shakti entrepreneurs earn $16 per month on average, but this rarely happens in the first few months after appointment, as the entrepreneur settles into her new role. HLL found that the bulk of its attrition happened within the first 3 months of recruitment. It responded to these challenges by creating an extensive training and recognition program. Shakti entrepreneurs form groups of up to 25, and a resource person is assigned to each group. Every Shakti entrepreneur is visited by this resource person at least once every fortnight. Resource personnel are trained to mentor entrepreneurs, helping them increase their incomes. In addition, all entrepreneurs in a district come together once every quarter to share experiences with one another and to attend central training sessions organized by HLL. These efforts have significantly reduced entrepreneur attrition. While the reductions in entrepreneur attrition are desirable for the business, in the process of appointing underprivileged women as entrepreneurs, training them to manage a business, and helping them significantly increase the incomes of their families, HLL achieves considerable social impact. Shakti entrepreneurs achieve economic and social empowerment in traditionally male-dominated societies and begin to take on roles of leadership within their community. Another aspect of the social impact of the Shakti entrepreneur program lies in the availability it creates. Through Shakti, villagers have the option of consuming some of India’s most popular brands of everyday consumer products. More to the point, they are guaranteed that the products they consume are genuine. Counterfeits account for a large share of the packaged consumer products market in India and are the strongest in low-income regions where on the one hand genuine products are often not available and, on the other, even if they are, consumers are often unable to distinguish the fake from the real. A third aspect of social impact lies in the message that the Vani program distributes – building community and personal hygiene as well as health in rural communities.

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Finally, there is the social impact of iShakti. The different content areas empower rural communities by creating access to information. Moreover, the unique dialogue-interactive technology on which iShakti is based facilitates two-way interaction with consumers, enabling them to get quick answers to crucial questions on a variety of subjects. These subjects are not restricted to the categories in which HLL markets its own products – instead, HLL has attempted to cover all categories of interest to consumers in subsistence economies. For instance, a farmer seeking information on what pesticides to use when faced with a specific problem can log onto the agricultural section on iShakti and find the information sought. In case the information is not available on the site, the farmer can pose a query and come back a day later to find an answer waiting for him. In addition, at each iShakti kiosk, some time of the day is specially earmarked for use by the women of the village. A number of kiosks are also used to help children of the village learn to use computers. As with the other interventions in Shakti, iShakti too exhibits a blend of business and social impact. It creates a unique, customized communication medium for HLL to understand and engage with its consumers, even as it creates access to relevant information and to opportunity for rural communities. The iShakti kiosks become not only the repositories of information not readily available anywhere else, but also centers where members of the community collect to share experiences and views.

7. CONCLUSION This paper began by posing questions crucial to marketing in subsistence economies – are the poor able and willing to buy products and is there profit to be made in marketing to them. Unilever’s experiences in India offer some answers to these questions. The poor can indeed be viewed as a market opportunity, but business models successful in marketing to the poor tend to cover four elements – availability, branding, convergence, and development. In most subsistence economies, availability is the first, and the most crucial, deal breaker. As the examples of the sachet and the various sales distribution models showed, availability is affected by pricing, or other affordability constraints, as well as by distribution or logistical constraints. While availability is by far the most important necessary condition for a marketing model to work in subsistence economies, it is by no means sufficient. The Wheel and Lifebuoy case studies demonstrate the importance of innovation in brand building. Both case studies are stories of successful

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business models founded on consumer understanding. In the case of Wheel, HLL designed a product that met the specific needs of low-income consumers – superior cleaning power, more foam, a better fragrance, all delivered at a low price, accompanied by a lower effort–output ratio and the absence of adverse effects on the skin. In the case of Lifebuoy, HLL recognized that consumers perceived visible clean to be safe and created a unique consumer education model. The Shakti initiative demonstrates the importance of convergence in low-income markets. Traditionally distinct roles tend to come together in subsistence economies, and marketers would do well to build on that phenomenon. This section also demonstrated how a successful and innovative business model such as Shakti can be viewed as the latest in a series of evolving business initiatives targeting subsistence economies. Much of Shakti’s success lies in the way it has been built on prior successes, and therein lies a lesson. For a company to sell successfully to the poor, an eagerness to change business models fundamentally may not be as effective as an openness to adapt what must be changed, but to extract the most from existing strengths, keeping incremental costs down. Shakti succeeds not because it changed existing business models, but because it built on existing strengths, benefiting from HLL’s other innovations – in packaging, pricing, branding, distribution, and other spheres. Naturally, businesses that sell to the poor impact low-income communities. In the case of Shakti, this impact takes the form of additional income and social empowerment for the Shakti entrepreneur, availability of genuine products of everyday use for her customers, and the spread of information on a variety of subjects, for the rural community. This paper does not seek to suggest that selling to the poor will be the one all-encompassing solution to poverty. But it does suggest that in selling to the poor, the private sector has an opportunity to contribute to their development and economic progress. In helping private enterprises optimize the social impact of their business operations, and in leveraging the skills and strengths of private sector business interventions in subsistence economies to deliver development goods and services, the development sector can enhance its own reach and serve its own objectives.

NOTES 1. In Indian rupees (INR), HLL’s turnover was 119.8 billion, and net income was 14.1 billion (1 USD ¼ INR 44.12, average exchange rate for 2005, oanda.com).

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2. Unilever’s turnover was 39,672 million euros, and net income was 3,975 million euros. (1 Euro ¼ 1.25 USD, average exchange rate for 2005, oanda.com). 3. From http://unstats.un.org/unsd/cdb/cdb_dict_xrxx.asp?def_code=429. See also Chen and Ravallion (2000). 4. For a more detailed story, see http://www.superbrandsindia.com/superbrands 2003/wheel/index.htm 5. See http://www.unilever.com/ourbrands/healthyliving/havenofearwithlifebuoy. asp 6. Shakti is a Sanskrit word, meaning strength. 7. For an operational description of how Shakti came into being and how the model works, see Rangan and Rajan (2005). See also http://www.hllshakti.com 8. Vani means speech or voice and is often used as a name for women. 9. For an understanding of the technology that makes iShakti works, see Patel, Bataveljic, Lisboa, Hawkins, and Rajan (2006).

REFERENCES Census of India. (2001). Government of India, India. Chen, S., & Ravallion, M. (2000). How did the world’s poorest fare in the 1990s? Working Paper number 2409. Washington, DC: World Bank. Hindustan Lever Ltd. (2005). Annual Report. http://www.hll.com/investor/annual_report_ 2005.asp Kashyap, P. (2004). Selling to the Hinterland. In: The Businessworld Marketing Whitebook. Patel, S., Bataveljic, O., Lisboa, P. J., Hawkins, C., & Rajan, R. (2006). iShakti – Crossing the digital divide in India. Working paper. Prahalad, C. K., & Hart, S. (2002). The fortune at the bottom of the pyramid; strategy+business. http://www.digitaldividend.org/pdf/bottompyramid.pdf Rangan, K., & Rajan, R. (2005). Unilever in India: Hindustan Lever’s Project Shakti – Marketing FMCG to the rural consumer. Boston, MA: Harvard Business School case study. Rangan, K., Sehgal, D., & Rajan, R. (2006). The complex business of serving the poor in India: Insights from Unilever’s Project Shakti in India. In: K. Rangan, J. Quelch, G. Herrero & B. Barton (Eds), Business solutions for the global poor: Creating social and economic value. San Francisco: Jossey-Bass. Unilever. (2005). Annual report. http://www.unilever.com/Images/2005_Annual_Report_ English_tcm13-35752.pdf World Bank, The Water and Sanitation Program, & The London School of Hygiene and Tropical Medicine. (2000) Sanitation and hygiene: Unleashing the power of the market. Draft proposal to forge public–private partnerships in selected developing countries. http://www.globalhandwashing.org/Publications/hand_concept.pdf

TOWARD MORE RESPONSIVE ORGANIZATIONS: OPENNESS TO CHANGE AND CULTURE PRESERVATION IN SUBSISTENCE AND DEVELOPING ECONOMIES Charles M. Wood ABSTRACT Adoption of innovations by the people of a nation typically contributes to its economic development. Cultural resistance to new products and technologies sometimes hinders widespread adoption. The resulting tension may result in a number of outcomes within a society. This paper uses behavioral theory in organizations and the economic development literature to explore ways in which local cultures in subsistence economies negotiate the adoption of innovations. Propensity to adopt innovations and resistance to cultural change are two dimensions that are proposed to impact the strategies that societies use to balance the competing interests of economic development and cultural integrity. Secondary data are used to explore the general relationship between various types of IT investment and economic development across a variety of nations, and a taxonomy is offered as a framework for future research.

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 281–296 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20012-9

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INTRODUCTION Much of the research in marketing has focused on helping organizations based in major world economies address the unique challenges of developing and implementing effective business strategies around the world. The resulting stream of research has yielded a number of frameworks to guide multinational enterprises (MNEs) as they conduct business globally (e.g., Xu & Shenkar, 2002; Luo, 2005). However, subsistence and emerging economies represent a vital component of the future of global trade (Czinkota et al., 2004), with few studies in the marketing literature having examined developing countries and fewer having considered the perspective of the developing nation rather than that of Western nations. In this spirit, this paper examines an understudied topic that is important to economic development around the globe. It is proposed that the relentless development and spread of new technological innovations is accelerating and magnifying a tension between local cultural norms and the Westernstyle business practices and consumer behaviors that are conducive to successful international business operations. This accelerated pace has put pressure on both the social context and the economic infrastructure in subsistence and developing economies to adapt and evolve more rapidly than in the past and has resulted in unusual organizational structures that represent a blend of the local culture with Western, market-type business processes. A simple innovation such as the plank canoe, for example, transformed many ancient subsistence societies (Arnold & Bernard, 2005). Food acquisition, transportation, exchange, and social integration were dramatically changed with the introduction of this simple advancement. Another example comes from Japan, where after the Meiji Restoration of 1868, traditional Japanese practices were integrated with Western technology. This hybrid approach was symbolized by the slogan ‘‘Wa-kon Yo-sai,’’ which means ‘‘Japanese spirit and Western ability’’ (Morishima, 1982, p. 23). Building upon these and other benchmark examples, we will draw upon organizational theory and research in technology transfer in an exploratory effort to understand this phenomenon. In a more recent context, Alexander and Alexander (2000) found that as the Javanese woodworking industry developed, they preferred not to abandon completely their previous systems and cultural practices in favor of new ones. Instead, they developed organizational types that were a unique combination of ‘‘kinship and contract.’’ This organizational form was better suited to their environment and has since given a local, indigenous industry the ability to compete successfully with vertically integrated transnational factories.

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Specifically, this paper explores how local culture responds to the pressure to adopt innovations and creates organizational environments and structures that are adapted for trade processes in developing nations. Because naturally emerging structures are likely to be more efficient and adaptive than those imposed from the outside, the bases for their development are examined for clues regarding the reasons for their emergence. This paper also offers a taxonomy of the types of organizational structures that have been naturally emerging as local cultural norms are negotiated with the demands of innovations in subsistence and developing economies. The paper begins by emphasizing the importance of developing nations within the larger global economy. Then the relationship between innovation adoption and economic development is demonstrated using secondary data. The tension between two opposing forces, innovation adoption and resistance to cultural change, is discussed and adaptive outcomes are proposed. Finally, a summary framework is advanced, and propositions and future research are offered.

THE IMPORTANCE OF DEVELOPING NATIONS In the late 1990s, speaking at the Group of Seven Brussels Conference, South African Executive Deputy President Thabo Mbeki reminded the developed world that half of the people in the world have never made a telephone call (Fleming, 1996). When the richest and the poorest regions of the world are compared, a number of substantial ‘‘gaps’’ appear in life expectancy, gender equity, economic and political stability, access to markets, and general quality of life. These gaps are often chronic and have been attributed to a general lack of access to resources, which results in low levels of individual ‘‘capabilities’’ (Sen, 1999). Rich and poor countries also differ in their access to and use of information technology (IT), and this gap appears to be growing, particularly among the underrepresented (UNDP, 2000). The developing world is vitally important to global enterprise and product consumption. Emerging economies represent 80% of the world’s population and 75% of trade growth. Four billion people make up the bottom of the global income pyramid (less than $1,500 per year), and the number is expected to be 6 billion by 2040 (Czinkota et al., 2004). However, the majority of extant frameworks, strategies, and paradigms in marketing have not given sufficient consideration to developing nations. There is a need for more research that consistently examines developments in this emerging area.

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ECONOMIC DEVELOPMENT AND ADOPTION OF INNOVATIONS Previous research has demonstrated that new technologies are effective means by which subsistence economies can improve societal well-being and accelerate economic development. Studies conducted in China, Nigeria, and South Africa have revealed a host of economic and social benefits that innovation and improved business practices provide to developing nations (Yusuf & Schindehutte, 2000; Luiz, 2002; Wood, 2004; Yang, 2004). The United Nations Development Program (UNDP) (2000) has established a number of initiatives for developing nations that include technical education, technical training, e-entrepreneurship, and e-commerce for development. As the Nobel Prize-winning economist Amartya Sen stated: ‘‘It can be argued that poverty is not a matter of low well-being, but of the inability to pursue well-being precisely because of the lack of economic means’’ (Sen, 1992, p. 110). Sen (1999) further described poverty as an issue of low ‘‘capabilities’’ and ‘‘functionings’’ and advocates the use of growthmediated processes. The technology transfer literature supports the idea that adoption of new technology is an important way that the poor can achieve sustainable development. The UNDP (2000) confirms that ‘‘[i]nformation and communications technology has become an indispensable tool in the fight against world poverty.’’

LEAPFROGGING The technology transfer literature asserts that as technology becomes less expensive over its life cycle, opportunities for developing nations to ‘‘leapfrog’’ arise. For example, some nations that have had poor infrastructure for traditional phone system technology have in recent years been able to leap ahead directly to cellular phone technology, without ever having had to invest in the land phone line technology. In its 1998 Human Development Report, the United Nations argued in favor of helping developing nations jump a few steps. ‘‘If poor countries can leapfrog in both consumption patterns and production technologies, they can accelerate consumption growth and human development without the huge costs of environmental damage’’ (Canada & the World Backgrounder, 2000, p. 16). The ability of developing nations to host modern business operations successfully is dependent in part upon their investments in information technology or their willingness to allow MNEs to make these investments.

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Economic Forces that Move Subsistence Economies to Adopt New Technologies We first examine the pressures of economic development that move a nation to adopt new technologies and innovations from other nations. A positive and significant relationship between a country’s investment in IT and its level of economic development is expected. To explore this proposition, secondary data from the most populous nations of the world were analyzed (Sources: www.cia.gov, 2007; UNDP, 2001, 2002). The dataset included economic and IT data on a total of 48 nations: the top 10 most populous nations in Eastern Europe, Asia, Africa, and South America; the top five in Central America/the Caribbean; and the three major nations of North America. The list included countries such as Russia, Turkey, India, Pakistan, Nigeria, Egypt, Ethiopia, Congo, Mexico, Guatemala, Cuba, and Brazil (appropriate data on China were not available). The most populous nations were chosen because they represent a significant portion of the total population and involve both developed and developing economies. Separate multiple regression equations were used to assess the relationship between three types of IT investment (number of PCs per 1,000 people, number of phone lines per 1,000 people, and number of Internet service providers (ISPs)) on three dependent variables: GDP per capita, GDP growth rate, and total exports. Population of the nation was included as a control variable. Because the issue of gender equity has been highlighted by several studies as being an important factor in a nation’s economic development, we include it as a control variable also (e.g., Pavlic et al., 2000; UNESCO, 2002). The Gender Development Index (GDI) is the United Nation’s reported score, assigned to nations based on achieved levels of gender equity. Analyses are shown in Table 1. The first regression indicates that the only IT variable that is significantly associated with GDP per capita is the number of PCs per 1,000 people (t ¼ 7.52, po0.001). The second regression reveals that the number of phone lines per 1,000 people is significantly related to GDP growth rate (t ¼ 2.23, po0.05). The last regression shows that total exports are significantly related to two IT variables: the number of PCs per 1,000 people (t ¼ 4.10, po0.001) and the number of ISPs (t ¼ 5.94, po0.001). Bivariate correlations were also run between the measures. One interesting finding regarding the noneconomic variable of gender equity (GDI) is shown in Table 2. Prior research suggests that gender inequities tend to be more pronounced in poorer nations (Pavlic et al., 2000; UNESCO, 2002). GDP per capita was negatively and significantly correlated with gender equity score. That is, countries with lower GDI scores (which indicate a

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Table 1.

Regression Analyses Results.

Unstandardized Coefficients

Standardized Coefficients

Standard Error

b

T

Sig.

1,316.684 12.621 1.419 6.468 3.644 0.425


0.223 0.014 0.729 0.113
0.017

5.364
3.850 0.421 7.515 1.377
0.255

0.000 0.001 0.677 0.000 0.179 0.801

3.789 0.036 0.004 0.019 0.011 0.001

0.885 0.096
0.263 0.881 0.036


2.597 3.192 0.605
0.567 2.232 0.114

0.014 0.003 0.549 0.575 0.033 0.910

Dependent variable: Total exports ($ millions) (Constant) 18,747.896 28,529.800 GDI score
175.132 269.035 Population 61.375 30.279 PCs per 1,000 565.881 138.029 Phone lines per 1,000
71.057 78.695 ISPs 53.895 9.075


0.051 0.089 0.527
0.100 0.519

0.657
0.651 2.027 4.100
0.903 5.939

0.516 0.520 0.052 0.000 0.374 0.000

b Dependent variable: GDP per capita (Constant) 7,062.693 GDIa score
48.595 Population 0.597 PCs per 1,000 48.612 Phone lines per 1,000 5.019 ISPs
0.108 Dependent variable: GDP growth rate (Constant)
9.842 GDI score 0.115 Population 2.492  10
3 PCs per 1,000
1.064  10
2 Phone lines per 1,000 2.359  10
2 ISPs 1.414  10
4

a

Gender Development Index.

better gender opportunity balance) tended to exhibit higher GDP per capita. However, gender equity score and GDP growth rate had a positive correlation of 0.278 (p ¼ 0.074). That is, the countries with the highest growth rates in GDP tend to be the countries that have a greater imbalance in gender opportunity. One possible explanation is that the countries exhibiting the highest GDP growth rates are among the least developed in the world, and although percentage growth rates are high, dollar amounts are relatively low. Such conflicting findings suggest that the relationship between gender equity and economic development deserves additional research attention. To assess the level of technology adoption in a nation, the United Nation’s Technology Achievement Index (TAI) was used. The TAI is a composite score that measures a nation’s overall technology-related activity and growth and focuses on how well the country as a whole is participating in creating

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Table 2. Correlation of Economic Indicators with Gender Equity Score.

GDI score

a

GDP per Capita

GDP Growth Rate

Exports ($millions)


0.789

0.278


0.509

Sources: CIA World Factbook (www.cia.gov), UN Human Development Report (UNDP, 2001, 2002). a GDI, Gender Development Index. GDI reflects the inequalities between men and women in life expectancy, literacy rate, and estimated earned income. Worldwide score is used (higher numbers mean more inequality).  Correlation is significant at the 0.01 level (two-tailed).  Correlation is significant at the 0.10 level (two-tailed).

and diffusing technology. It measures several specific items to assess a country’s overall achievements in the following areas: creation of technology, diffusion of recent innovations, diffusion of old innovations, and human skills. A country’s TAI can be used as a surrogate measure of the speed of IT diffusion throughout the population.

RESISTANCE TO CHANGE The often present force that opposes technology adoption in developing nations is the drive to maintain the integrity and continuity of its unique cultural identity. All cultures must adapt to the presence of new technologies, new ideologies, and changing political realities in the outside environment. Adaptation strategies include retaining, revitalizing, elaborating, and reinventing the traditions that are being pressured to change (Lepowsky, 1991). Governments in developing countries have a number of noneconomic goals and demands that impact the relationship of the host country with MNE subsidiaries: protection of local culture, health, education, gender equity, etc. Depending on the strength of the government’s resolve on these issues, a MNE’s activities may be perceived as conflicting with these national goals. A rich literature has developed over the years regarding the ‘‘cultural imperialism’’ of more developed nations over less developed nations. This complaint is primarily focused on the United States, but has also been directed at other nations, such as Korea, because of its influence on aspects of culture in Southeast Asia, and China, because of its policies toward Tibet (Schiller, 1976; Baughn & Buchanan, 2001; Cowen, 2002; Galeota, 2004; Hilton, 2005; Doobo, 2006). Responding to such external influences, many developing countries are increasingly concerned with the erosion of their local cultural practices in favor

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of Western culture. They believe that new technologies and products may be accelerating the conflict between their local culture and Western influence, as people gain greater access to the World Wide Web and exposure to outside cultural influences. In this vein, some countries have attempted to take advantage of the benefits of the Internet while at the same time resisting homogenization forces through the protection and development of their own cultural identity (highlighting their cultural distinctiveness, heritage, and diversity). One example of active resistance to external cultural influence can be seen in China, which has invested heavily in its own version of the Internet (‘‘national information infrastructure’’), while tightly restricting access to the World Wide Web (Tan et al., 1997).

ADAPTATION While some nations actively resist change, others adapt to and/or adopt outside materials and influences more readily. A phenomenon known as ‘‘creolization,’’ for example, occurs when foreign influences are absorbed, integrated, and reinvented within local cultural practices and meanings (Solomon, 2007). The results of creolization are often surprising and at times bizarre:  India – traditional music is blended with rap and reggae to create a unique new musical style that has been dubbed ‘‘Indipop;’’  Mexico – peanut butter and jelly are spread on tortillas;  Africa – a marriage between a Swazi princess and a Zulu king was accompanied by a band playing ‘‘The Sound of Music;’’  New Guinea – tribesmen have placed Chivas Regal wrappers on their drums and have worn Pentel pens instead of nosebones (Arnould & Wilk, 1984).

ORGANIC ORGANIZATIONAL STRUCTURES IN SUBSISTENCE ECONOMIES An aspect of performance in the global consumption environment is reflected in the idea that effective groups are those that adapt themselves to the environment in which they operate. ‘‘Classical management emphasizes efficiency, uniformity, control, predictability, and economies of scale y . The emerging economy on the other hand, rewards agility, innovation, and vitality y attributes based on an organic model’’ (Youngblood, 2000, p. 4). Research streams based on three classic works address the adaptation of organizations. First, the work on mechanistic–organic organizational

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structures conducted by Burns and Stalker (1961) suggested that organic structures were much more prevalent in dynamic environments, whereas mechanistic structures were more common in stable environments. Because organic structures are more flexible, they are more likely to adapt to and succeed in volatile environments. Second, Galbraith (1977) argued that organizations can deal effectively with dynamic environments by decentralizing or by enhancing their vertical information systems. Decentralization shortens communication channels, which facilitates rapid response, and when performed by a MNE across a number of countries, it provides local operations with the flexibility that is needed to operate effectively in each nation’s unique environment. Vertical information systems (often based on information and communications technology) ensure rapid and accurate transmission up the communication channels in a centralized organization, which also facilitates rapid response. Therefore, either alternative can be an effective way to cope with dynamic conditions. Third, Lawrence and Lorsch (1967) found that certain portions of an organization’s structure will differentiate themselves to match corresponding portions of the environment. Miles and Snow (1978) proposed that organizational structures should be designed to match environmental characteristics. Later theories also found that organizations performed better when there was a ‘‘fit’’ between the design of the organization and the attributes of the environment (e.g., Venkatraman, 1989). Based on the above discussion, an organization’s structure will be formed in keeping with the culture in which it resides. Because subsistence and developing economies have business environments that are less stable, the more adaptive and flexible organizational structures are likely to form. Combined with the speed of change associated with modern technologies, the resulting structures may take unusual forms, but they are likely to be well suited to succeed in the unique environment of that nation. It is proposed that hybrid organizations are likely to become a more important part of the global business landscape as technology adoption continues. In this line of thought, Zenger and Hesterly (1997) have identified a ‘‘swelling middle’’ that is growing within the continuum of market structures and traditional hierarchical structures. Smaller, more flexible, entrepreneurial firms are increasingly becoming leaders in various markets (Birch, 1987), including developing countries (Kaarst-Brown, 2003). A new organizational paradigm has been emerging in recent years that views technology as having an important positive influence on enabling organizational change and building community/trust (Adler, 2001). Choice of the technology introduced should be matched to the cultural context of the nation.

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PROPOSED TAXONOMY Based on the literature reviewed above, two dimensions are proposed to be important influences on the type of organizational structure that is most likely to emerge in a developing country. This framework is depicted in Fig. 1. The first dimension is a nation’s overarching resistance to cultural change from outside influences. This is proposed to be primarily a function of the perceived richness, depth, and strength of a nation’s individual culture. According to Witkowski (2005), greater resistance to the penetration of popular culture is likely among smaller countries and indigenous peoples. Large societies are better able to maintain distinct identities because they are more regionally diverse. The second dimension is a nation’s propensity to adopt and diffuse innovations within its people, for which we use the TAI as a surrogate for exploratory purposes. The four resulting organizational types represent the interaction of the two dimensions. Each of the four organizational types is discussed, with emphasis given to the new, hybrid organizational forms. In general, if technology adoption occurs slowly within a subsistence economy, any changes to organizational structures and processes are likely to be minimal or implemented slowly. When this situation is coupled with high resistance to cultural change, local residents and organizations will be likely to maintain the status quo regarding their operations. When slow diffusion is combined with low resistance to cultural change, organizations are more likely to gradually assimilate themselves to outside, new types of organization and operations. When an innovation is adopted rapidly throughout the population in a subsistence economy, more substantive changes to business operations are likely to occur. When fast diffusion is coupled with low resistance to cultural change, we would expect individuals and cooperatives to be more likely to adopt and adapt to the new practices. When fast diffusion occurs in nations with high resistance to cultural change, more dramatic, hybrid outcomes are possible.

Propensity to adopt innovations (TAI score) High High Resistance to cultural change Low

Fig. 1.

Low

New, hybrid forms

Status quo

Rapid change

Gradual assimilation

Organizational Structures in Developing Countries.

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ADAPTIVE HYBRID FORMS OF COMMERCIAL ENTERPRISE When resistance to cultural change is high, traditional practices and behavioral norms brace to meet new technological and market forces. The result may be the formation of intriguing new organizational types. Societal organizations may adapt into new ‘‘hybrid’’ structures that embrace both the traditional and the new ways. This is possible because many innovations and new practices can be implemented by cultures around the globe within the context of their own paradigms. If the societies are willing, these innovations allow nations to rapidly leapfrog, catch up, and engage in their own versions of enterprise without having to adopt the ‘‘Western’’ culture or model on a wholesale basis. The results are sometimes unique hybrid practices and types of social organization, such as those described earlier among the Javanese woodworking industry and in the industrialization of Japan. We would expect these adaptive hybrids to develop differently from country to country due to religious and cultural factors. For example, research on Thailand’s attempted synthesis of market processes with Buddhist themes highlights the tensions as well as the possibilities (Niffenegger et al., 2003). Other nations with Buddhist influence are likely to have similar tensions and adaptive outcomes. Collectivist cultures emphasize the welfare of the larger community over the welfare of the individual and have been shown to have a strong influence on a range of organizational and individual behaviors (Lim et al., 2004; Laroche et al., 2005; Erdogan & Liden, 2006). Developing nations with a collectivist culture are likely to place greater emphasis on corporate social responsibility than countries with more individualistic cultures. Subsistence and developing economies are finding the need to adapt themselves as they adapt to new ideas and innovations. They have the opportunity to increase growth while keeping an eye on cultural deterioration. The result of integrating market progress under the norms, values, and guidelines of local cultures is accelerated by technological innovation and is embodied in interesting and unique hybrid organizational forms that are likely to be better adapted to their operating environment. The proposed framework suggests some propositions that can be explored in future research. P1. The more rapid the rate of innovation diffusion in a developing nation, the more likely that unique new adaptive forms of commercial organizations will form.

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P2. Adaptive forms of business organizations will perform better than those from the traditional local culture and those imposed from the outside.

DISCUSSION What does the adoption of innovations in subsistence economies mean for MNEs? There are three major implications that deal with the need for new measures of success, segmentation, and adaptation. First, competitive advantage may be achievable with a better understanding of these processes and outcomes. Companies could use intermarket segmentation based on the proposed taxonomy, identifying nations with similar responses to innovation and new practices. For example, a set of nations with high TAI scores and a record of openness to change (‘‘rapid change’’) could be selected for launch of innovative new products with a more global tactical approach. MNEs may also be able to employ an effective segmentation strategy based upon the similar ways that cultures have embraced innovations, such as the TAI score or Hofstede’s (1984) uncertainty avoidance dimension of culture. Another implication may be in the ability of MNE subsidiaries to adapt in order to complement the existing organizations in the country. From the developing nations’ perspective, tactics that are sensitive to local culture’s emerging organizational forms will be more effective, and these may be more receptive to global themes that reflect similar adaptations across countries. Second, although the metrics used to evaluate the health and success of MNEs are well established, in the context of a rapidly emerging developing world, additional performance measures may be needed. For example, a stakeholder model of performance includes the perspective of all the parties affected by the presence and activities of an MNE in the various countries where it operates. In developing countries, this would include the MNE’s contribution to the nation’s broader goals. For example, a firm could take more care considering its impact on and ‘‘fit’’ with local culture practices, treatment of employees of the company, improvements in gender equity, effects on the local environment, enhancements to infrastructure, and overall economic growth. Third, adaptation/localization remains an important aspect of MNE strategy, but the nature of the adaptation may need to be more sensitive to how the target nations have responded to innovation in the past. MNEs should continue to seek to understand the unique characteristics and responses of these global customers and the unique environments in which their subsidiaries operate.

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Schramm (2004) has asserted that entrepreneurship can thrive in any country and that the Western business model is often not well suited to developing nations. This paper has built upon this idea and suggested that the nature of the businesses that form and the end results of entrepreneurship are likely to differ according to the culture in which they operate. It should be noted that there are many different models and adaptations of market systems in the most developed nations of the world (e.g., consider Singapore, Finland, Japan, South Africa, and the Czech Republic). A general pattern of adaptation that is likely to emerge on a regional basis may follow the path, outcome, and model of the most developed nation in the region. For example, economies formerly under central planning are much more likely to follow the path of Poland or the Czech Republic than that of South Korea or Chile. In this vein, due to regional cultural similarities we may find a trend in the direction of an Asian version of business as China joins Japan as a dominant global economy. As the global melting pot of developing nations emerges – accelerated by IT – new approaches to operating businesses will continue to arise. In the end, perhaps the organizational structures, strategies, and processes that will be in greatest need of adapting will be those of the MNEs.

INVESTMENT IN SUBSISTENCE ECONOMIES According to Daniels (1999), foreign direct investment in subsistence and developing economies may be characterized as shallow or deep integration. Shallow integration is asset absorbing, and it exploits a country’s existing assets rather than building them up or improving them (Dyker, 1999). Deep integration is asset creating, and it changes the existing pattern of assets to extend the underlying pattern of comparative advantage, leading to export activity. This concept is captured in a statement by the United Nations: ‘‘By creating a basic capacity to operate imported technology, countries can progress, climbing the rungs of the ladder, by learning to duplicate, to adapt to their own needs and, finally, to innovate’’ (UNDP, 1999, p. 61). Research by Radosevic (1999) has shown that shallow integration tends to produce marginalization and dependence, and deep integration provides a springboard for sustained growth in capacities and competitiveness. Obviously, many companies are hesitant about making large investments in technology in subsistence economies. One creative alternative used among development agencies is ‘‘minitechnology transfer,’’ which involves placing mentors in a developing nation to serve as consultants and sending tutors for short periods of time to enhance technical capability (Ekholm, 1988).

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A full examination of the phenomena and processes discussed in this paper would require extensive data collection in the field in several nations. The secondary data that were used do provide some insight into the relationships between key variables, but cannot tell the complete story. A promising area of future research could compare and contrast how the source of funding for technology transfer and adoption (e.g., internal government funding, internal nongovernmental agencies, external nongovernmental agencies, private investment and entrepreneurship, and multinational enterprises) impacts the resulting organizational structures. Another area of future research could involve primary data collection in a number of cultures to assess the strength and validity of the theories and taxonomies developed. It is also likely that lag effects are present between the time a technology is adopted and implemented in a nation and the impacts on GDP, business practices, and gender issues are manifested. Future research should consider longitudinal data collection and models that account for lagged effects of technology adoption.

REFERENCES Adler, P. S. (2001). Market, hierarchy, and trust: The knowledge economy and the future of capitalism. Organization Science, 12(March–April), 215–234. Alexander, J., & Alexander, P. (2000). From kinship to contract? Production chains in the Javanese woodworking industries. Human Organization, 59(Spring), 106–116. Arnold, J. E., & Bernard, J. (2005). Negotiating the coasts: Status and the evolution of boat technology in California. World Archaeology, 37(March), 109–131. Arnould, E. J., & Wilk, R. B. (1984). Why do the natives wear Adidas?. Advances in Consumer Research, 11(1), 748–752. Baughn, C. C., & Buchanan, M. A. (2001). Cultural protectionism. Business Horizons, 44(Nov/ Dec), 5–15. Birch, D. L. (1987). Job creation in America. New York: Free Press. Burns, T., & Stalker, G. M. (1961). The management of innovation. London: Tavistock Publications. Canada & the World Backgrounder. (2000). Stacked deck. 65(6), 16–20 (May). Cowen, T. (2002). Creative destruction: How globalization is changing the world’s cultures. Princeton, NJ: Princeton University Press. Czinkota, M. R., Ronkainen, I. A., & Donath, B. (2004). Mastering global markets. Mason, OH: Thomson South-Western. Daniels, P. (1999). Economic gains from technology-intensive trade: An empirical assessment. Cambridge Journal of Economics, 23(4), 427–447. Doobo, S. (2006). Hybridity and the rise of Korean popular culture in Asia. Media, Culture & Society, 28(Jan), 25–44. Dyker, D. A. (1999). Foreign direct investment in the former communist world: A key vehicle for technological upgrading?. Innovation: The European Journal of Social Sciences, 12(September), 345–352.

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Ekholm, E. L. (1988). Transferring technology to developing nations. Engineering Management International, 5(April), 45–52. Erdogan, B., & Liden, R. (2006). Collectivism as a moderator of responses to organizational justice: Implications for leader-member exchange and ingratiation. Journal of Organizational Behavior, 27(Feb), 1–17. Fleming, J. (1996). Poor nations leapfrog to future via new technologies. Christian Science Monitor, 88(124), 1. Galbraith, J. R. (1977). Organization design. Reading, MA: Addison-Wesley Publishing. Galeota, J. (2004). Cultural imperialism: An American tradition. Humanist, 64(May/Jun), 22–46. Hilton, I. (2005). Will Tibet’s culture simply fade away?. New Statesman, 134(4720), 27. Hofstede, G. H. (1984). Culture’s consequences, international differences in work-related values. Beverly Hills, CA: Sage. Kaarst-Brown, M. L. (2003). Doing business in paradise: How small, information intensive firms cope with uncertain infrastructure in a developing island nation. Journal of Global Information Management, 11(4), 37–57. Laroche, M., Kalamas, M., & Cleveland, M. (2005). ‘I’ versus ‘we’: How individualists and collectivists use information sources to formulate theft service expectations. International Marketing Review, 22(3), 279–308. Lawrence, P. R., & Lorsch, J. W. (1967). Organization and environment. Boston, MA: Boston Division of Research, Graduate School of Business Administration, Harvard University. Lepowsky, M. (1991). The way of the ancestors: Custom, innovation, and resistance. Ethnology, 30(July), 217–235. Lim, K. H., Leung, K., Ling Sia, C., & Lee, M. (2004). Is eCommerce boundary-less? Effects of individualism–collectivism and uncertainty avoidance on Internet shopping. Journal of International Business Studies, 35(Nov), 545–559. Luiz, J. (2002). Small business development, entrepreneurship and expanding the business sector in a developing economy: The case of South Africa. Journal of Applied Business Research, 18(Spring), 53–68. Luo, Y. (2005). Toward competition within a multinational enterprise: A perspective from foreign subsidiaries. Journal of World Business, 40(Feb), 71–90. Miles, R. E., & Snow, C. C. (1978). Organisational strategy, structure and process. New York: McGraw Hill. Morishima, M. (1982). Why has Japan ‘succeeded’? Western technology and the Japanese ethos. Cambridge, UK: Cambridge University Press. Niffenegger, P., Kulviwat, S., & Engchanil, N. (2003). The cultural challenges to adopting a capitalist economic model in modern Thailand. Proceedings of society for marketing advances. pp. 118–119. Pavlic, B., Ruprecht, L., & Sam-Vargas, S. (2000). Gender equality and equity: A summary review of UNESCO’s accomplishments since the Fourth World Conference on Women, United Nations UNESCO Report. Radosevic, S. (1999). Alliances and emerging patterns of technological integration and marginalization of central and eastern Europe with the global economy. In: D. Dyker (Ed.), Foreign direct investment and technology transfer in the former Soviet Union. Cheltenham: Edward Elgar. Schiller, H. I. (1976). Communication and cultural domination. White Plains, NY: International Arts and Sciences Press.

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Schramm, C. J. (2004). Building entrepreneurial economies. Foreign Affairs, 83(July/August), 104–115. Sen, A. (1992). Inequality reexamined. Cambridge, MA: Harvard University Press. Sen, A. (1999). Commodities and capabilities. Oxford, UK: Oxford University Press. Solomon, M. (2007). Consumer behavior: Buying, having, and being (7th ed.). Upper Saddle River, NJ: Pearson/Prentice-Hall. Tan, Z., Mueller, M., & Foster, W. (1997). China’s new Internet regulations: Two steps forward, one step back. Communications of the ACM, 40(December), 11–16. UNDP. (1999). Human development report. United Nations Development Program (http://www.undp.org/). UNDP. (2000). Human development report. United Nations Development Program (http://www.undp.org/). UNDP. (2001). Human development report. United Nations Development Program (http:// www.undp.org/). UNDP. (2002). Human development report. United Nations Development Program (http:// www.undp.org/). UNESCO. (2002). Mainstreaming the needs of women. UNESCO United Nations Report. Venkatraman, N. (1989). The concept of fit in strategy research: Toward verbal and statistical correspondence. Academy of Management Review, 14, 423–444. Witkowski, T. H. (2005). Antiglobal challenges to marketing in developing countries: Exploring the ideological divide. Journal of Public Policy & Marketing, 24(Spring), 7–23. Wood, C. M. (2004). Marketing and e-commerce as tools of development in the Asia-Pacific region: A dual path. International Marketing Review, 21(3), 301–320. www.cia.gov (2007). The CIAWorld Factbook. Xu, D., & Shenkar, O. (2002). Institutional distance and the multinational enterprise. Academy of Management Review, 27(Oct), 608–618. Yang, K. (2004). Institutional holes and entrepreneurship in China. Sociological Review, 52(August), 371–389. Youngblood, M. D. (2000). Winning cultures for the new economy. Strategy and Leadership, 28(6), 4–9. Yusuf, A., & Schindehutte, M. (2000). Exploring entrepreneurship in a declining economy. Journal of Developmental Entrepreneurship, 5(April), 41–56. Zenger, T. R., & Hesterly, W. S. (1997). The disaggregation of corporations: Selective intervention, high-powered incentives, and molecular units. Organizational Science, 8(3), 209–222.

CONSUMPTION AND ENVIRONMENTAL DEGRADATION: A LONG-TERM VIEW Kanwalroop Kathy Dhanda and Ronald Paul Hill ABSTRACT This chapter develops and examines a model of the relationship between consumption and environmental degradation, using per capita gross domestic product (GDP) as the proxy for consumer behavior and per capita carbon dioxide emissions as the indicator of pollution. The time paths of emissions and consumption are modeled within a dynamic framework representative of ever-changing global economic and social conditions, and the result is expressed as an optimization problem from which Hamiltonian conditions are derived. Optimal control theory can be used to solve problems in dynamic economic analysis, and the Hamiltonian approach is one way of solving this class of problems. These conditions are analyzed through the use of a phase diagram, and the empirical section of the chapter reveals the relationship between CO2 emissions and GDP values for the aggregate of 148 nation states studied by the United Nations, as well as for developed, developing, and underdeveloped countries as classified by the United Nations. The results of our analysis are not encouraging unless significant changes are made to the policies of leading nations, and the chapter closes with a discussion

Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 297–317 r 2007 Published by Elsevier Ltd. ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20013-0

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of alternative policy paths that may ease the identified trends in environmental degradation.

OPENING REMARKS The Western material culture presents the world’s citizens with an unlimited supply of desirable goods and services. As Ozanne, Hill, and Wright (1998, p. 185) state, ‘‘Open any glossy magazine, and see pictures of sumptuous foods, beautiful people, glamorous fashions, and possessions too many to mention. Turn to any television channel, and an unending series of consumption images pulse before the eyes.’’ This onslaught of product information has helped spawn the recent move toward globalization, which has changed peoples and cultures and resulted in common consumer market segments around the world (Alden, Steenkamp, & Batra, 1999); most believing they can partake in this ‘‘land of freedom in which everyone can be a consumer’’ (Slater, 1997, p. 27). Consumer quality of life has indeed improved substantially and the United Nations notes: ‘‘Living standards have risen to enable hundreds of millions to enjoy housing with hot water and cold, warmth and electricity, transport to and from work – with time for leisure and sports, vacations and other activities beyond anything imagined at the start of this century’’ (UNDP, 1998, p. 1). These advances in consumer lifestyles, however, have not been evenly distributed, with a strong north/south and east/west bias (see Adrangi, Dhanda, & Hill, 2004). Information gathered and summarized by the UN Development Programme (UNDP, 1998) shows that the 20% of citizens who are fortunate enough to reside in the wealthiest nations consume more than 85% of private goods and services, yet their counterparts, the 20% at the bottom of the economic hierarchy, exist on about 1% of this treasure trove. Additionally, the Human Development Index (HDI), which measures the quality of life of a country’s citizenry on three consumption dimensions – longevity, knowledge, and standard of living – reveals that just about one-third of global consumers, or nearly 2 billion people, live under conditions of low human development, with the most dire conditions in subSaharan Africa and South Asia (Hill & Adrangi, 1999). These and other statistics overwhelmingly point out that consumption and its positive consequences are not equitably distributed, a point also made by other authors in this volume. We now focus our attention on a negative outcome of consumption – environmental degradation – and show that it also is not

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equitably distributed and that the nations that could be doing more because of their higher levels of consumption to reduce the burden of degradation on others are not doing so. As Dhanda (1999, p. 258) states: ‘‘y the world’s dominant consumers are concentrated in the industrialized West, where high levels of consumption are matched with serious environmental damage. For example, the United States boasts one of the highest living standards in the world, as well as per capita carbon dioxide emissions that are uppermost across all countries.’’

Consumption and the Environment Inequalities in consumption opportunities among nation states, cultures, and regions have caused massive estrangement, unrest, and instability (see Hill & Dhanda, 1999). Udombana (2000, p. 753) aptly submits: ‘‘Four fifths of the world’s population can no longer accept that the remaining fifth should continue to build its wealth on their poverty.’’ This belief resonates with the analyses of the UNDP (1997, 1998, 2001) in their Human Development Reports series, which demonstrates that affluent countries have the largest gains from production and consumption and that poorer countries must endure the negative externalities. Such criticisms are larger than scholarly apprehension concerning the harmful outcomes of the broader material world to include unintended consequences that lead to serious environmental destruction (Borgmann, 2000). This paradigm considers all aspects of the consumer behavior process – including production, usage, and disposal – and their impact on the larger ecology that reverberates across the planet no matter where the original consumption occurred. Ger (1997, p. 112) expresses these sentiments well: ‘‘Consumption and production patterns of affluent countries are responsible for most transboundary problems, such as ozone layer depletion, ocean pollution, and chemicalization of the habitat.’’ Carbon dioxide (CO2), which is a by-product of energy usage for individual and business purposes, is arguably the worst culprit among the principal sources of environmental destruction because of its links to global warming and climate changes. The ever-expanding demand for fossil fuels for such consumption has risen by a factor of 5 since 1950, and harmful emissions of carbon dioxide have increased by a factor of 4 on an annual basis as a consequence (UNDP, 1998). If our burning of fossil fuels continues to expand at this rate, CO2 emissions will climb nearly one-half again in the early part of the millennium. The present level of emissions exceeds

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the capability of the world’s ecosystem to neutralize these toxins, which is exacerbated by the continuing elimination of forests and vegetation in key regions of the world.

Research Objective We examine the relationship between consumption and environmentharming carbon dioxide emissions as a negative outcome of consumption. Previous research on this topic often has employed the environmental Kuznets curve, which argues that income (a prerequisite for consumption) and pollution covary positively until the country attains a certain degree of affluence, and they covary negatively beyond that level of prosperity (Dasgupta, Laplante, Wang, & Wheeler, 2002; Yandle, Vijayaraghavan, & Bhattarai, 2002). Some researchers found inconclusive results with the same methodology, however, suggesting a need for additional study to clarify the exact nature of this association (Copeland & Taylor, 1995). Further refinement and exploration of a model that emphasizes consumption may be a significant next option in this important research stream (see Adrangi et al., 2004). Our model formulation requires that consumption be represented by gross domestic product (GDP) per capita and transformed into U.S. dollars based on the purchasing power parity of a country’s legal tender. For consistency, CO2 is presented in per capita form. Data reliability and usability were determined by the UNDP through its 124 field offices around the globe that completed almost 6,000 individual studies (Hill & Adrangi, 1999). Other NGOs cooperating in the data collection and assimilation include a number of UN-based agencies and the World Bank as well as the Carbon Dioxide Information Analysis Center. The following section of the chapter, along with Appendices A and B, provides our model along with an analysis and current results. Consistent with Adrangi et al. (2004), the time paths of emissions and consumption are presented within a dynamic framework as an optimization problem. The empirical findings reveal the relationship between CO2 emissions and GDP values across UN-designated countries. GDP and the emissions data were extracted from the UNSTATS database. These data are categorized into three groupings – developed, developing, and less developed – as determined by UN evaluation. Regression analyses are performed on each of these categories to look at the steady-state path of nation states within them. The

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chapter ends with a discussion of sustainable consumption that has important policy implications for subsistence markets.

MODEL DISCUSSION AND FINDINGS Working from the derivations detailed in Appendices A and B, we arrive at a diagrammatic representation of our steady-state model. Fig. 1 is the phase diagram, showing the time paths for E and m. In the following discussion we analyze time paths with varying levels of emission. Of interest are countries with low and high emission levels. Both low- and high-emission starting statuses could lead to steady-state equilibrium, to higher emission levels, and/or to lower levels of emission. The steady state for emissions and consumption depends on the positions of E0 ¼ 0 and C0 ¼ 0. There is no guarantee that the resulting steady state is ideal at any given time, due to the initial assumptions of the model and the reality of a dynamic marketplace and updated research data. For instance, the optimal paths that seemed attainable 20 or 30 years ago are not deemed optimal given the recent information regarding the ozone layer or the consumption of fossil fuels. Several models are presented to examine the existing steady-state path of consumption and emissions. The objective is to see if the international data corroborate any of the steady-state paths of consumption/emissions. Fig. 1 indicates that matters of emissions and sustainable growth/consumption require continuous dialogue across nations. The figure also shows that countries on the lower rungs of emission and consumption (Quadrant IV) could develop along paths that lead to the steady-state equilibrium or away from it. To ensure that nations remain on the path toward a steady state, justified by the latest scientific data, nations must have ongoing interactions. This may be considered a theoretical foundation for international conferences on the issue. All countries – advanced, developing, and less developed – contribute to the problematic emission levels. Fig. 1 reveals that every country could deviate from the steady state toward higher and presumably unsustainable levels of emission. For instance, a low-emission nation state located in Quadrant IV could (potentially) move toward higher emission levels if the path of growth is not carefully determined. Further, advanced nations in Quadrant I or II could be on a consumption path away from the steady state and toward higher levels of emission. The repercussion is that sustainable

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E*

m

E

O

E′=0

I II IV

m′=0 III

Fig. 1. Phase Diagram Depicting Time Paths for E and m. Note: In the graph, a steady state exists if the two loci cross. The positions of the two loci and, thus, the steady-state equilibrium are determined by three parameters, r, b, and a. For example, if r increases m becomes less negative, i.e., m0 ¼ 0 shifts up. The upward shift in m0 ¼ 0 means that E* rises. The rate of consumption at the steady state is determined by the constraint E0 ¼ ac
bE. By setting E0 ¼ 0, E ¼ ac/b. The upshot is that with increasing r, C rises as well with increases in E*. Similarly, changes in b and a will change the position of the steady state. The phase diagram shows the time paths for both E and m. In the following discussion we analyze time paths with varying levels of emission. Of particular interest are situations with low and high emission levels. Both low- and high-emission starting statuses could lead to steady-state equilibrium, to higher emission levels, and/or to lower levels of emission. This is where policy decisions by various governments play an important role in forming the paths of nations regarding emissions. The steady state for emissions and consumption depends on the positions of E0 ¼ 0 and m0 ¼ 0. Thus, there is no guarantee that the resulting steady state is necessarily ideal at any given time. Note that mo0 indicates a negative marginal value. Thus, m may be interpreted as the marginal pollution cost. This phase diagram also corresponds to the Kuznets curve. For example, in the second quadrant, nations face high levels of emissions, perhaps because of advanced industrialization and high GDP. These nations may be able to reduce emissions through cleaner and more advanced production technology. The fourth quadrant depicts a symmetric case. In this quadrant, a nation with low emissions and low GDP is shown to move toward more economic development and higher external costs of pollution. A nation, perhaps a developing one like China, incurs rising pollution costs and rising effluent emissions in its move toward economic development. Ironically, at emission levels closer to E*, nations are more likely to move in either direction (i.e., to higher or lower emissions). The first and the third quadrants present these situations. For example, in the first quadrant emissions are rising as a nation improves its GDP, while in the third quadrant a nation curtails pollution at the cost of decreasing GDP.

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emission levels and steady-state equilibria are possible only if the entirety of the global community agrees to a dialogue regarding sustainable consumption and emission standards.

Analysis and Findings For our purposes, two models of the relationship between consumption and emissions, with consumption as a function of GDP levels, were estimated. The two empirical equations for emissions are E ¼ a þ b GDP þ u

(1)

log E ¼ log a þ b log GDP þ log u

(2)

where u denotes the error term. Eqs. (1) and (2) were estimated using the entire aggregated sample as well as sample subsets for less-developed nations, developing nations, and developed/industrialized nations. The objective was to determine the sign of the coefficient b for nations at various stages of economic development. Although these estimations do not correspond exactly to our results from the phase diagram, they do suggest tendencies of dynamic paths for emissions over time. For example, a positive b shows that emissions are moving toward a steady state that may exceed the environmental carrying capacity. A negative b would indicate that emissions are actually decreasing and this would correspond with Quadrant III in the phase diagram. Table 1 presents the estimation results of Eq. (1) for all 148 nations, across all available years (1990–2002), and pooled data for all nations and years. The b coefficients are highly significant and consistently positive for all years as well as for the pooled data. These findings indicate that emissions are positively correlated with GDP levels of nations. The values of the coefficient of determination for all years further indicate that an inevitable side effect of economic growth is effluent levels of emission and environmental damage. Estimation results from Eq. (2) are shown in Table 2. These verify the findings reported in Table 1. We chose an alternative logarithmic function to linearize the data and overcome violations to the homoscedasticity assumption. However, the empirical results remain robust even under an alternative formulation of the functional relationship between emissions and GDP levels.

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Table 1. Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Pooled

Estimation Results of Eq. (1): E ¼ a+b GDP+u. a

35.81 (1.52) 36.83 (1.57) 36.02 (1.53) 35.10 (1.45) 33.68 (1.41) 35.71 (1.43) 36.55 (1.43) 35.01 (1.38) 34.90 (1.41) 34.74 (1.40) 34.07 (0.32) 34.42 (1.40) 33.25 (1.37) 35.66 (5.28)

R2

b
10

7.35  10 (18.37) 7.25  10
10 (18.29) 7.17  10
10 (18.57) 7.25  10
10 (18.60) 7.16  10
10 (19.15) 7.04  10
10 (18.47) 7.02  10
10 (18.58) 6.93  10
10 (19.26) 6.75  10
10 (19.84) 6.66  10
10 (20.27) 6.62  1010 (20.59) 6.54  10
10 (20.87) 6.48  10
10 (21.38) 6.88  10
10 (70.31)

F

0.70

337.54

0.70

334.48

0.70

344.79

0.70

345.89

0.72

366.75

0.70

341.18

0.70

345.03

0.72

370.93

0.73

393.52

0.74

410.81

0.74

423.76

0.75

435.54

0.76

456.92

0.72

4,943.76

The t statistics are reported in parentheses.  Significant at 1% level.

The global policy implications of the information provided in Tables 1 and 2 are very revealing. As nations achieve consumption levels and economic growth, they face a rising threat of ecological deterioration. In Fig. 1 terms, we can assume that different stages of economic growth place nations in different quadrants of the phase diagram. Thus, depending on domestic environmental policies, continued economic growth may move a nation away from sustainable steady-state equilibrium over time. Further investigation of the relationship between economic growth, consumption, and emissions involved separating countries into subsamples of low, medium, and high development. Countries in the high human

Consumption and Environmental Degradation

Table 2. Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Pooled

305

Estimation Results of Eq. (2): log E ¼ log a+b log GDP+log u. a
8.46 (
20.83)
8.38 (
19.88)
8.15 (
19.08)
8.12 (
19.72)
8.16 (
20.46)
8.11 (
20.76)
8.19 (
21.15)
8.13 (
21.25)
8.09 (
21.06)
8.08 (
21.30)
8.09 (
21.60)
8.14 (
22.00)
8.17 (
22.12)
8.17 (
75.44)

b 0.95 (23.95) 0.94 (22.90) 0.92 (22.08) 0.92 (22.84) 0.92 (23.67) 0.92 (24.08) 0.93 (24.54) 0.92 (24.72) 0.92 (24.54) 0.91 (24.83) 0.91 (25.19) 0.92 (25.65) 0.92 (25.78) 0.92 (87.55)

R2

F

0.80

573.74

0.78

524.33

0.77

487.35

0.78

521.74

0.79

560.50

0.80

580.01

0.81

602.08

0.81

611.00

0.81

602.02

0.80

616.43

0.81

634.48

0.82

658.02

0.82

664.68

0.80

7,665.16

The t statistics are reported in parentheses.  Significant at 1% level.

development category have an HDI value of 0.800 and above, countries in the medium development category have an HDI between 0.500 and 0.799, and countries in the low human development category have an HDI of less than 0.500 (UNDP, 2001). Our objective was to determine whether any category of nations is reducing environmental damage through a more sustainable steady state of consumption and emissions, as would be expected under the Kuznets’ perspective on consumption and environmental degradation. For our analyses, a negative sign of coefficient b would indicate that at some stage of economic growth nations allocate more resources for

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KANWALROOP KATHY DHANDA AND RONALD PAUL HILL

Table 3.

Estimation Results of Eq. (1): E ¼ a+b GDP+u.

Category Low Medium High

a

b


3.48 (
4.23)
19.57 (
2.48)
32.77 (
3.33)


9

1.33  10 (32.29) 2.73  10
9 (50.16) 6.66  10
10 (81.28)

R2

F

0.79

1,042.91

0.73

2,516.24

0.91

6,605.73

The t statistics are reported in parentheses.  Significant at 1% level.  Significant at 5% level.

Table 4. Estimation results of Eq. (2): log E ¼ log a+b log GDP+log u. a

b

R2

F


9.98 (
30.47)
8.90 (
53.52)
7.27 (
47.80)

1.08 (31.91) 1.01 (61.32) 0.83 (59.13)

0.78

1,018.32

0.80

3,760.30

0.85

3,496.88

a

b

g

R2

F

60.257 (8.63)

5.42  10
10 (21.62)

0.0 (0.0)

0.73

2,540

Category Low Medium High

Pooled Quadratic

The t statistics are reported in parentheses.

 Significant at 1% level.

environmental protection. Inferences also may be gleaned from the magnitude of the b coefficient. Tables 3 and 4 also supply estimation results necessary for this part of the analysis. Both tables indicate that the b coefficients are highly significant and positive. Therefore, at all stages of economic development, nations appear to be moving toward higher steady-state equilibrium levels of emissions and GDP over time. This finding is consistent with our phase diagram’s Quadrant I of Fig. 1, in which economic development entails further degrading of environmental quality. It suggests that nation states across all levels of affluence as captured by HDI are behaving in similar manners

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307

and that the more developed and affluent countries that should be operating in other quadrants of Fig. 1 are failing to do so. In addition, the countries in Quadrants I and IV are also moving toward higher emissions as their GDP numbers grow. The results do not point toward any country actually reducing its emissions over time, as would be the case in Quadrant III. Table 4 presents the estimation results of Eq. (2). According to these estimates, the highest contributors to emissions in the process of expanding consumption are countries in the low-development category (for example, Pakistan and Nigeria). This is followed by the medium-development category of nations (for example, China and Venezuela). The lowest contributors are the countries in the high-development category (Norway and United States). To test the Kuznets theory, we also estimate the quadratic relationship between effluent emissions and GDP, expressed as E ¼ a þ b GDP þ g GDP2

(3)

A statistically significant and positive g would support the Kuznets curve. As can be seen from Table 4, however, the intercept and the b coefficients are statistically significant, and the coefficient of the quadratic term, also statistically significant, is 0. This result contradicts the traditional parabola shape of the Kuznets curve. What is apparent from our results is that emissions are rising over all the countries, irrespective of their development stage. The results of Eq. (2) are also presented in Table 4. Since Eq. (2) is a log function, the b coefficient represents a percentage change in emissions divided by a percentage change in GDP. However, the significant positive b coefficients for all three categories of development – low, medium, and high – indicate that all nations contribute significantly and positively to the emissions. This is yet another econometric result that disproves the Kuznets curve. It is common knowledge that low-GDP nations have lower emissions standards. Furthermore, capital investments in emission controls and in the development of more environmentally friendly machinery and vehicles are also scarce. However, in this sample, the nations in the medium- and highdevelopment categories are also significant contributors to emissions. This is true of countries like China and India (both medium-HDI nations), where the environment is constantly degraded since the resources are aimed at fulfilling the ever-burgeoning need for industrialization. For the nations in the high-HDI category, the overall emissions remain high. One explanation

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is that despite the efforts of the wealthy nations, the overall emissions are compounded by the ever-increasing number of automobiles. In the highHDI category, the United States is by far the largest contributor. Its CO2 emissions are about a quarter of the total world’s emissions and most of these emissions are generated by the burning of fossil fuels and the production of cement (UNDP, 2001, p. 200).

CONCLUSIONS AND PUBLIC POLICY IMPLICATIONS Summary of Findings Theoretical models of the association between consumption as GDP and environmental degradation as carbon dioxide emissions were developed and examined. The models were expressed as a dynamic optimization problem that yields a set of differential equations for sustainable consumption and pollution. The graphic solution to these differential equations shows that countries may take paths to a steady state that result in greater levels of emission as consumption increases. The empirical section tested the relationship between CO2 emissions and GDP across countries as well as within the UN categories of developed, developing, and less-developed nations. Results show that rising GDP levels produce more environmental damage through greater CO2 emissions. However, countries at all levels of development produce emissions that are not sustainable for the long run. In our sample of data, the Kuznets relationship between GDP and emissions did not hold true. This suggests that an increase in GDP leads to more environmental degradation, which has been observed over all the nations in various levels of development. Subsistence Marketplace Discussion Our data show that subsistence and developed-economy consumers are contributing at roughly similar levels to environmental degradation through their consumption, despite the fact that those in developed economies have standards of living so high that it would be possible for them to alter consumption to safeguard the environment while still retaining healthy and affluent life conditions. Subsistence consumers, therefore, cannot count on their more affluent neighbors to help carry the burden of environmental

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safekeeping until such a time as all consumers have achieved minimal levels of life quality. In fact, if we consider that the affluent are only 20% of the world’s population while producing almost equal levels of environment destroying CO2, subsistence consumers might conclude that their more affluent neighbors are working against them in this endeavor, since they produce higher levels of degradation per capita. Our field supports the individualistic proposition that consumption is a personal decision that should have little external interference (Crane, 2000). Shultz and Holbrook (1999, p. 218) call this problem the commons dilemma, ‘‘a phenomenon in which the members of a social group face choices in which selfish, individualistic, or uncooperative decisions, though seeming more rational by virtue of short-term benefits to separate players, produce undesirable long-term consequences for the group as a whole.’’ Such a position, of course, fails to recognize the impact of externalities on the broader world, such as the damage to our environment discussed in this chapter, and may be an extreme characterization of developed-economy consumers. Current thinking supports the idea of more sustainable consumption (see Borgmann, 2000), and market-based practices could play a key role in their development and proliferation (Prothero & Fitchett, 2000). Advocacy groups and regulatory agencies now realize the power of the market to support environmental protection. For instance, the UNDP (1998) promoted self-regulation through public disclosure of industrial pollution, allowing marketers to use control and reduction of CO2 as a competitive advantage. Eco-labeling and social labeling also can be used to alert consumers to the cumulative impact of their choices on the larger climate. Finally, consumer groups in developed countries advocate a truth-inadvertising set-aside, requiring polluting companies to contribute to an educational fund to alert the citizenry to the externalities of their combined consumption. These strategies may have the desired effect, but our results and those of other research (i.e., see Leigh, 2006; Sandbrook, 1994) suggest that their cumulative results may fall short of ensuring a steady-state path of consumption and pollution. Even with the best of intentions we find that consumers in industrialized economies are contributing to environmental degradation and by implication robbing subsistence consumers of the opportunities they seek and possibly deserve. With Dhanda (1999, p. 258), therefore, we recommend the development of ‘‘policy options designed to reduce such environmental degradation based on the belief that pollution is a residual discommodity that is created concurrently with a valued commodity.’’ Dhanda recommends command and control policies that compel

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polluters to use the best abatement technology available, environmental taxes that recognize the true costs of goods and services through higher prices, and marketable pollution permits to place an upper limit on pollutants. These are but examples of policy initiatives that would help move consumers in Quadrant I to other quadrants, reduce their current emissions and the environment-degrading outcomes of their consumption, and ultimately set examples for the 4 billion subsistence consumers who will continue to degrade the environment unless they see better practices in use. Our results also suggest the need for a global solution that goes beyond the developed world and takes into account the meager resources and constraints of developing and less-developed nations. One possibility is the full implementation of the 1997 Kyoto Protocol, which resulted from a highly publicized international conference. Under this accord, industrialized countries agreed to reduce carbon dioxide emissions by more than 5% by 2012 (Hayami, 2000). While no targets were established for developing or lessdeveloped countries, developed nations could meet their targets by supporting emission-reduction programs in these less-affluent nations. Our intent is not to advocate any one currently possible solution (although we strongly believe that implementing some would be very beneficial). We hope, instead, to illustrate that subsistence consumers not only are carrying the burden of low opportunity to gain resources and improve their lives through consumption, as eloquently argued by others in this book, but also are being robbed of the possibility to advance because consumers in developed economies are failing to contribute more to environmental safeguarding than they are consuming.

ACKNOWLEDGMENTS The authors thank Professor Madhu Viswanathan for organizing the Subsistence Marketplaces Conferences in which this chapter was presented. Also, we thank Professor Bahram Adrangi at the University of Portland for his role as an econometric consultant.

REFERENCES Adrangi, B., Dhanda, K., & Hill, R. P. (2004). A model of consumption and environmental degradation: Making the case for sustainable consumer behavior. Journal of Human Development, 5(November), 417–432.

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Alden, D. L., Steenkamp, J. B. E. M., & Batra, R. (1999). Brand positioning through advertising in Asia, North America, and Europe: The role of global consumer culture. Journal of Marketing, 63(January), 75–87. Borgmann, A. (2000). The moral complexion of consumption. Journal of Consumer Research, 26(March), 418–422. Copeland, B. R., & Taylor, M. S. (1995). Trade and the environment: A partial synthesis. American Journal of Agricultural Economics, 77(August), 765–771. Crane, A. (2000). Marketing and the natural environment: What role for morality. Journal of Macromarketing, 20(December), 144–154. Dasgupta, S., Laplante, B., Wang, H., & Wheeler, D. (2002). Confronting the environmental Kuznets curve. Journal of Economic Perspectives, 16(Winter), 147–168. Dhanda, K. K. (1999). A market-based solution to acid rain: The case of the sulfur dioxide trading program. Journal of Public Policy and Marketing, 18(Fall), 258–264. Forester, B. A. (1973). Optimal consumption planning in a polluted environment. Economic Record, 49, 534–545. Ger, G. (1997). Human development and humane consumption: Well-being beyond the good life. Journal of Public Policy and Marketing, 16(1), 110–125. Hayami, Y. (2000). From confrontation to cooperation on the conservation of global environment. Asian Economic Journal, 14(2), 109–122. Hill, R. P., & Adrangi, B. (1999). Global poverty and the United Nations. Journal of Public Policy and Marketing, 18(Fall), 135–146. Hill, R. P., & Dhanda, K. K. (1999). Gender inequity and quality of life: A macromarketing perspective. Journal of Macromarketing, 19(December), 140–152. Lambert, P. J. (1985). Advanced mathematics for economists: Static and dynamic optimization. UK: Basil Blackwell. Leigh, R. (2006). Cutting the ‘Gordian knot’ in climate change policy. Energy Policy, 34(6), 655–658. Ozanne, J. L., Hill, R. P., & Wright, N. D. (1998). ‘‘Juvenile delinquents’ use of consumption as cultural resistance: Implications for juvenile reform programs and public policy. Journal of Public Policy and Marketing, 17(Fall), 185–196. Prothero, A., & Fitchett, J. A. (2000). Greening capitalism: Opportunities for a green commodity. Journal of Macromarketing, 20(June), 46–55. Sandbrook, R. (1994). The world environment. Environmental Management and Health, 5(3), 33–35. Shultz, C. J., & Holbrook, M. B. (1999). Marketing and the tragedy of the commons: A synthesis, commentary, and analysis for action. Journal of Public Policy and Marketing, 18(Fall), 218–229. Slater, D. (1997). Consumer culture and modernity. Cambridge, UK: Polity Press. Udombana, N. J. (2000). The Third World and the right to development: Agenda for the next millennium. Human Rights Quarterly, 22(August), 753–787. UNDP (1997). Human development report 1997: Human development to eradicate poverty. New York: Oxford University Press. UNDP (1998). Human development report 1998: Changing today’s consumption patterns for tomorrow’s human development. New York: Oxford University Press. UNDP (2001). Human development report 2001: Making new technologies work for human development. New York: Oxford University Press. Yandle, B., Vijayaraghavan, M., & Bhattarai, M. (2002). The environmental Kuznets curve: A primer. PERC Research Study, 02–1, 1–24.

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APPENDIX A. HAMILTONIAN OPTIMIZATION PROBLEM A primary assumption of our model is that consumers derive utility from consumption while also causing pollution, and the model concentrates on the trade-off between aggregate consumer behavior and degradation. The dilemma for researchers, countries, and regulatory agencies is to determine optimal consumption that considers the interaction of this trade-off. The model is consistent with Lambert (cf. 1985) in that the production– consumption trade-off is contained within an optimal control theory format. However, we see utility as multivariate and a function of consumption and emissions. In his seminal paper, Forester (1973) examined a similar problem using the Pontryagin Maximum Principle to solve for the optimal solution. The optimization problem is expressed as Z T max e
rt U½CðtÞ
EðtÞdt C

0

subject to E_ ¼ aC
bE Eð0Þ ¼ E 0 ; EðtÞ  E T ; 0  t  T The objective is to maximize future utility discounted at rate r (constant exponential) where C(t) is the function for consumption over time and E(t) describes the function for emissions over time. The first constraint is that the change in emissions over time is a function of consumption and emissions. This constraint identifies the time path of the state variable, which is required for the existence of an optimal solution. This is a plausible condition for the time path, which shows that the rate of change in emissions must decrease with rising emission levels if the terminal level of emissions is to be finite. The second constraint involves the end-point conditions that govern the time path for the build-up of emissions. Alternatively, the Hamiltonian problem can be expressed as H ¼ e
rt m½ f ðCÞ
gðEÞ þ lðaC
bEÞ The next step derives the conditions that solve the optimization problem. Following the standard assumption that f(C) and g(E) are concave and linear, respectively, the Hamiltonian conditions are necessary and sufficient

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313

for the solution to the optimization problem above. The derivations are further detailed in Appendix B and lead to the following differential equation for the state variable: Z T U 0 ½FðsÞ f 0 ½CðsÞ ¼ a e
ðbþrÞðt
sÞ U 0 ½FðtÞg0 ½EðtÞdt S

This equation is complex and cumbersome to interpret. Therefore, a simplifying assumption is made in the next subsection to improve its interpretability.

Steady-State Path and Diagrammatic Analysis ^ and the opThe Hamiltonian conditions establish the optimal control uðtÞ ^ timal path for the state variable xðtÞ; which is e^ðtÞ: These conditions also ^ determine the co-state variable lðtÞ; which is the marginal valuation at the ^ along the optimal path. These moment of planning the state variable xðtÞ conditions also yield the current marginal valuation denoted by m(t). For our model, a simplifying assumption is needed since simultaneous equations forE 0 and m0 cannot easily be derived. The optimization problem contains a present value integral to be maximized. l(s) denotes the marginal valuation at the moment of planning of the state variable at time t ¼ s. This variable provides the effect at time t ¼ s discounted back to time t ¼ 0. However, it is more intuitive and appropriate to work with the current marginal valuation, denoted by m(s). This variable m(s) is obtained by taking l(s) forward from t ¼ 0 to t ¼ s: mðsÞ ¼ ers lðsÞ

(A.1)

m0 ðsÞ ¼ rers lðsÞ þ l0 ðsÞers

(A.2)

The first derivative yields

Substituting the value for Eq. (A.1) into Eq. (A.2) yields m0 ðsÞ
mr ¼ ers l0 ðsÞ

(A.3)

This Eq. (A.3) gives the differential for the co-state variable l (refer to Eq. (B.3) in Appendix B) of the Hamiltonian optimization, which is shown in terms of m by combining it with the differential equation satisfied by m(t).

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From Eqs. (B.2) and (B.3) in Appendix B and Eq. (A.3) above, we get U 0 ðFÞf 0 ðCÞ þ ma ¼ 0

(A.4)

U 0 ðFÞg0 ðEÞ þ mðb þ rÞ ¼ m0

(A.5)

From Eq. (B.4) in Appendix B, we get E 0 ¼ aC
bE

(A.6)

aC ¼ E 0 þ bE

(A.7)

E 0 þ bE a

(A.8)

C¼

If U(C) is linear, then U0 (C) ¼ 1. Plug Eq. (A.8) into Eq (A.4) to get f0




E 0 þ bE a

 ¼
ma

(A.9)

If U(C) is linear, then U0 (C) ¼ 1 and Eq. (A.5) takes the form m0 ¼ ðb þ rÞm þ g0 ðEÞ

(A.10)

APPENDIX B. OPTIMIZATION DETAIL The optimization problem when expressed in a Hamiltonian form is as follows: Z T max e
rt U½CðtÞ
EðtÞdt C

0

subject to E_ ¼ aC
bE Eð0Þ ¼ E 0 ; EðtÞ  E T ; 0  t  T

Consumption and Environmental Degradation

Alternatively, this Hamiltonian form may be expressed as Z T max e
rt U½ f ðCÞ
gðEÞdt C

0

subject to E 0 ¼ aC
bE Eð0Þ ¼ E 0 ; EðtÞ  E T ; 0  t  T

Using the Hamiltonian Conditions to Solve Problems The optimization problem has the following Lagrangean function: Z T   L¼ uðCðtÞ
EðtÞÞ þ lðtÞ E_
ðaC
bEÞ dt 0

The Hamiltonian for the optimal control is therefore written as H ¼ e
rt u½CðtÞ
EðtÞ þ lðaC
bEÞ In general terms, given an optimization problem in the form Z T max f ðt; x; uÞdt u

0

subject to x0 ¼ gðt; x; uÞ xð0Þ ¼ x0 and with an end-point condition of xðTÞ ¼ xT the Hamiltonian conditions are F¼

@H @u

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KANWALROOP KATHY DHANDA AND RONALD PAUL HILL


l0 ¼

@H @x

x0 ¼

@H @l

plus a transversality condition. For the problem at hand, the control variable U is C and state variable X is E. Hence, the Hamiltonian conditions can be derived as follows: H : e
rt U½ f ðCÞ
gðEÞ þ lðaC
bEÞ

(B.1)

@H ¼ 0 ) e
rt U 0 ðFÞf 0 ðCÞ þ la ¼ 0 @C

(B.2)

@H ¼
l0 ) e
rt U 0 ðFÞg0 ðEÞ þ lb ¼ l0 @E

(B.3)

E0 ¼

@H ) aC
bE ¼ E 0 @l

lðTÞ  0; lðTÞ ½E T
EðTÞ ¼ 0

ðthe transversality conditionÞ

(B.4)

(B.5)

Derivation of the Optimal Path Refer to Eq. (B.3): e
rt U 0 ðFÞg0 ðEÞ þ lb ¼ l0 e
rt U 0 ðFÞg0 ðEÞ ¼ l0
lb l0
lb ¼ e
rt U 0 ðFÞg0 ðEÞ

ðB:6Þ

Multiply both sides by integrating factor e
bt to obtain ðl0
lbÞe
bt ¼

d ½le
bt  ¼ e
ðbþrÞt U 0 ðFÞg0 ðEÞ dt

(B.7)

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317

Integrating from time t ¼ s to t ¼ T yields Z T
lðsÞe
bT þ lðTÞe
bs ¼ e
ðbþrÞt U 0 ðFÞg0 ðEÞdt

(B.8)

S

If EðtÞaE T then lðTÞ ¼ 0 from the transversality condition, and the first term disappears. Since the emissions are not reaching the end-point state, it follows that the shadow price, l(T), is 0. Multiply both sides by eðbþrÞs : Z T mðsÞ ¼
e
ðbþrÞðt
sÞ U 0 ðFÞg0 ðEÞdt (B.9) S

Z mðsÞ ¼


T

e S


ðbþrÞðt
sÞ

  @U dt @E

(B.10)

Now refer to Eq. (B.2): e
rt U 0 ðFÞf 0 ðCÞ þ la ¼ 0

(B.11)

Multiply both sides by ert : U 0 ðFÞf 0 ðCÞ þ ma ¼ 0 Substitute for m from Eq. (B.10): Z T U 0 ½FðsÞ f 0 ½CðsÞ ¼ a e
ðbþrÞðt
sÞ U 0 ½FðtÞg0 ½EðtÞdt S

Eq. (B.13) gives the differential equation for the state variable.

(B.12)

(B.13)

MARKET DISINTERMEDIATION AND PRODUCER VALUE CAPTURE: THE CASE OF FAIR TRADE COFFEE IN NICARAGUA, PERU, AND GUATEMALA Eric J. Arnould, Alejandro Plastina and Dwayne Ball ABSTRACT Does participation in Fair Trade (FT) coffee marketing deliver added value to small-scale producers in developing countries? Is FT fair to producers as promised? The present study adopts a survey methodology designed to measure a combination of socioeconomic impact indicators as well as measures particular to the FT coffee-growing and marketing experience. We surveyed over 1,200 small-scale coffee producers in Nicaragua, Peru, and Guatemala, of which about two-thirds participate in coffee marketing schemes sponsored by TransFair USA. The study reports selected results related to production, marketing, material quality of life, education, health, and general well-being. Results show that producers participating in TransFair USA-supported FT cooperatives are indeed capturing more value than nonparticipants. This benefit transfer translates into modest but measurable improvements in quality of life, health, education, material comforts, social participation, technical and social Product and Market Development for Subsistence Marketplaces Advances in International Management, Volume 20, 319–340 Copyright r 2007 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1571-5027/doi:10.1016/S1571-5027(07)20014-2

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assistance, and even sustainable agricultural practices. Consumers can have confidence that the FT scheme works. Retailers may be assured that by selling FT coffee they can defend the position that they are participating in a social change campaign.

Does participation in Fair Trade (FT) coffee marketing deliver added value to small-scale producers in developing countries? Is FT fair to producers as promised (Marshland & de Vaal, 2002)? The answers to these questions are critical to at least two stakeholder groups. The answers are meaningful for small-scale agricultural producers whose livelihoods and well-being are affected by their adherence to the certification norms that make them eligible to participate in FT’s cooperative pricing schemes. The answers are also crucial to the continued credibility of the value proposition that differentiates FT products in the consumer marketplace of developed countries; and thus it is of interest to consumers of fairly traded products who are fuelling dramatic growth in this category and to the retailers who offer them (Grolleau & BenAbid, 2001; NCAUSA, 2005; The Economist, 2006). TransFair USA was awarded a grant by the Tinker Foundation in the year 2003 to study the impact of FT practices on coffee producers with small productive units in the Latin American region. The Agribusiness program at the University of Nebraska initiated the study under agreement with TransFair USA. The study was implemented in 2004–2005. Three countries with significant FT marketing through TransFair USA were selected for the study: Nicaragua, Peru, and Guatemala. This study documents for each country significant differences in production and marketing practices, material quality of life, literacy and education, health indicators, and development opportunities between FT and non-FT coffee producers, as a result of differences in producer prices paid to FT and non-FT producers. Before turning to a discussion of method and results, we present a brief description of the FT business model. FT comprises a number of elements. First, it is a sourcing strategy primarily for agricultural commodities produced in tropical or subtropical developing countries, such as coffee, chocolate, tea, bananas, and sugar. The sourcing is undertaken by a loose international confederation of nonprofit organizations, one of which (TransFair USA) commissioned this report. Second, the core of the sourcing strategy is market disintermediation. FT organizations, in other words, seek to reduce the layers of middlemen between producers in the developing world and consumers in the developed world by handling a number of logistics and product certification functions.

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Third, the reason for undertaking this strategy is to move value shares up the market channel so that poor producers in developing countries receive a greater share of the purchase price consumers ultimately pay for their products (Johnston, 2002). Setting floor producer prices at a fixed percentage above average global market prices achieves this. If prices rise well above average norms, producers should reap a windfall; if they fall below them, they are protected from volatile price downturns. As a result, TransFair USA claims an additional US $67 million has been transferred to participating farmers since 1999 through their marketing channels. Fourth, FT often represents a social change mechanism because pricing schemes are implemented through local cooperatives that are supposed to deliver technical and social assistance to members in areas ranging from sustainable agriculture practices to women’s programs (Crowell, 1997; Murray, Raynolds, & Taylor, 2003; Strong, 1997). Downstream, FT may be thought of as a meaningful way to differentiate products at the retail level, and adding fairly traded products to the merchandise mix may be thought of as a retail positioning strategy (Littrell & Dickson, 1998; Nicholls, 2002; Welford, Meaton, & Young, 2003). Some 100 million pounds of FT coffee have been certified since 1999, and FT coffee is the fastest growing segment of the US coffee market. FT coffee sales have been growing at a rate of 67% a year compared to 12% growth for organic coffee according to the National Coffee Association (2005). TransFair reports a 60% retail location growth from 2003 to 2004 and observes that fairly traded coffee products can now be found in over 35,000 retail locations in the United States. While awareness of FT coffee is relatively low among US consumers (15% vs. 52% for organic coffee), awareness translates at a higher rate into sales than organic (50% vs. 25%; NCAUSA, 2005). In the United Kingdom, FT is even more developed than in the United States in terms of product diversity. Over 1,500 FT products can be currently purchased in the United Kingdom, including clothing (Dickson and Littrell, 1998) and sporting goods, and scores of towns and villages subscribe to a fair trading certification scheme (for details see www.fairtrade.org.uk). Finally, FT may be considered a self-taxing scheme for concerned consumers who basically agree to pay higher prices in return for the promise that producers in developing countries will benefit directly (Bird & Hughes, 1997; Young & Welford, 2002). In other words, this is a way for consumers in developed countries to finance social assistance to producers in developing countries.

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METHOD We chose a survey methodology designed to capture a combination of socioeconomic indicators as well as measures particular to the FT coffee growing and marketing experience for this study. This choice was dictated by our belief that key audiences (e.g., international funding agencies, managers, management academics) more easily accept the generalizability of the results of this type of study than of those produced through ethnographic techniques, case study methodologies, and journalistic reports that predominate in the existing literature on the impact of FT (MacDonald, 2006; Nicholls & Opal, 2005; Parrish, Luzadis, & Bentley, 2005; Raynolds, Murray, & Taylor, 2004; Ronchi, 2002). The population under study includes coffee producers and their families whose productive units are small and are thus FT certifiable (1–3 hectares of coffee production per adult over the age of 18 living in the household) and who are currently producing coffee in traditional coffee areas under homogeneous environmental and social conditions. The two types of farmers surveyed include FT-certified farmers, who meet the additional criteria of at least 3 years of participation in FT cooperatives and affiliation with cooperatives with consistent sales of at least 30% of their production to FT cooperative buyers, and non-FT independent farmers, who may or may not be affiliated with other cooperative entities. Owing to a misunderstanding in the Peru effort, field workers sought to identify cooperatives with a maximum (instead of a minimum) of 30% of their sales through the FT system. We choose to report results from the Peruvian data because we still find some relevant differences among FT members and nonmembers. We drew stratified random cluster samples from the specified target populations in the three countries. On the assumption that cooperative size might affect the impact of FT participation, cooperatives were stratified by size of the membership, and comparative communities were selected through adjacency sampling. In the first stage, cooperatives were selected by simple random sampling from the strata in which they were classified. In the second stage, coffee producers were selected by simple random sampling from within each cooperative, using as the sampling frame a recent list of all producers in each cooperative (cooperative census data). Farmers from adjacent communities were selected by random sampling from the area adjacent to the cooperative under analysis subject to strictures of local geography and infrastructure development (no sampling frame was available in Nicaragua or Guatemala). While we cannot claim that our sample selection matches ideals outlined in methodological textbooks, we feel

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Table 1. Sample Size in Each Country. Country

Peru Nicaragua Guatemala Total

Fair Trade

Nonmembers

Total

Small co-ops

Medium co-ops

Large co-ops

FT total

30 57 64

117 70 85

130 212 116

277 339 265

125 123 140

402 462 405

151

272

458

881

388

1,269

certain that standard sources of systematic error have been minimized if not eliminated. In total, we questioned over 1,200 heads of household in the three countries, two-thirds of whom were FT participants (Table 1). The questionnaire was designed in Spanish, and except for a few questions that were modified to accommodate country specificities (i.e., local currency, units of land area, schooling characteristics, sustainable agricultural practices), the same set of questions was implemented in the three locations. The questionnaire consisted of four sections. The first section focused on the production and marketing processes. The second section focused on the local living conditions and a self-assessment of producers’ well-being. The third section focused on household members’ education. The last section inquired about the health condition of family members and their access to professional health care.

FINDINGS We report highlights from the data that illustrate clearly the influence of FT initiatives, given that space limitations prohibit the reporting of all results for every country. Unreported data are patterned similar to what is presented, and there are no patterns in the data that contradict the overall arguments that follow. The data were not aggregated across countries because pooling the data and running analyses that consider each location as a random variable does not change the overall results. Even if it might add some robustness to the conclusions (in the sense that they could be generalized to all FT producers were location indeed a random variable), it would not really change the overall conclusions drawn from the countrylevel data.

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Comparability Only in Guatemala, as shown in Table 2, was there a significant difference between FT and nonmember household size. FT households supported one more member on average than nonmember households. In Peru, the mean age of the household head among non-FT-member producers is about 3.8 years greater than the corresponding age among FT members (Table 3). In Nicaragua, there is no significant difference in this demographic variable among members and nonmembers. Finally, the mean age of the household head is 3.6 years lower for non-FT-member producers than for FT members in Guatemala. Mean differences are small, however, and all household heads may be considered of middle age, since the Central Intelligence Agency (CIA) (2006) estimates a 70-year life expectancy for these countries (World Fact Book; https://www.cia.gov/cia/publications/ factbook/rankorder/2102rank.html). Overall, demographic indicators suggest we were comparing similar units between the FT and the non-FT groups. That is, we were including comparable households that differed primarily in membership status. Results from all three countries indicate significant differences in the indicators of interest (e.g., production factors, quality of life) between FT and non-FT farmers, and all in the direction we should expect if FT initiatives work for the benefit of producers as intended. In other words, in each of the

Table 2. Mean Number of People per Household. Country Peru Nicaragua Guatemala

FT Members

Nonmembers

Equal Mean t Test

4.14 5.54 6.10

4.20 5.65 5.37

0.292 0.481 23.269

 po0.05.

Table 3. Country Peru Nicaragua Guatemala  po0.05.

Mean Age of the Household Head.

FT Members

Nonmembers

Equal Mean t Test

51.94 44.29 47.12

55.73 43.78 43.51

2.686 0.349 18.98

Market Disintermediation and Producer Value Capture

325

domains of impact, significant positive differences for FT participating farmers were detected.

Production and Marketing FT households generally plant slightly larger area than nonmember households, as shown in Table 4. FT households generally report selling more coffee and receiving higher prices and incomes than non-FT households, as suggested in Tables 5 and 6, although small-cooperative members’ incomes lagged in Nicaragua (see Fig. 1). In Peru FT participants sold more and received higher prices for coffee than nonparticipants. Interestingly, in Nicaragua, analysis including only women from FT cooperatives shows that women claim that they have received significantly higher prices than men for two types of coffee, and women achieved price parity elsewhere. In Guatemala, FT members sold more coffee and, as Table 4. Mean Coffee Area (1 Hectaresffi2.26 Acres). FT Members

Nonmembers

Significance Test

Peru Nicaragua

2.36 2.68

1.44 1.3

Guatemala

1.11

1.03

t ¼ 5.621; df ¼ 399, p ¼ 0.000 ANOVA sum of squares ¼ 24.853; df ¼ 1; mean square ¼ 24.853 F ¼ 9.946; p ¼ 0.002 t ¼ 12.115, df ¼ 6438.71, p ¼ 0.000

 Nonmembers and members of the three sizes of co-ops were compared.

Table 5.

Coffee Traded Volumes, Quintals (1 Quintalffi50 kg). FT Members

Nonmembers

Significance Test

26.7

17.6

Nicaragua

20–30

10–20

Guatemala

25.7

23.5

t ¼ 7.762, df ¼ 396, po0.000; with equal variances assumed ANOVA sum of squares ¼ 177.443; df ¼ 1; mean square ¼ 177.443; F ¼ 22.611; p ¼ 0.000 t ¼ 9.819, df ¼ 8389.48, p ¼ 0.000

Peru

 Nonmembers and members of the three sizes of co-ops were compared.

326

Table 6.

ERIC J. ARNOULD ET AL.

Mean Price for APO per Quintal 2004 (in Local Currency).

Country Peru Nicaragua Guatemala

FT Members

Nonmembers

Equal Mean t Test

180.50 47.20 737.00

143.50 25.40 619.00

13.02 17.7 65.14

 po0.05.

8 7 6 5 4 3 2 NonMembers

Fig. 1.

Small Coop.

Medium Coop.

Big Coop.

Price per Quintal: Nicaragua.

shown in Table 6, earned more than nonmembers. However, between 2004 and 2005, nonmembers claim to have experienced a greater increase in their coffee incomes than FT coop members. This suggests market prices may be aligning with FT prices in this country. In Guatemala, data suggest that a female FT cooperative member is more likely to benefit from better coffee prices than a male nonmember although she may not receive prices equivalent to those of male FT cooperative members, as shown in Fig. 2. Gender discrimination in prices is forbidden in TransFair USA rules, and we have no explanation for these gender-differentiated results. In terms of agriculturally sustainable practices in Nicaragua, a higher, statistically significant proportion of FT members claim to have increased shade-grown coffee production over the past 3 years than non-FT members.

Market Disintermediation and Producer Value Capture

Fig. 2.

327

Estimated Marginal Means of Price per Quintal 2005 (in Quetzals).

This pattern was not repeated elsewhere. Across groups in Guatemala, more than 50% claim to have increased their share of shade-grown coffee over the past 3 years. In Peru about 40% of both groups have increased their production of shade-grown coffee and none has increased production of nonshade-grown coffee. In Guatemala, organic fertilizer use and sustainable practices employing crop residue were reported to be higher among Guatemalan FT participants than nonparticipants, as shown in Table 7. FT members in Guatemala also reported use of a broader variety of agricultural inputs than did non-FT cooperative members. We did not measure these practices in the other countries. We use the Kruskall–Wallis (K–W) nonparametric statistical test to examine rank equivalence across the two populations. If the null hypothesis is true, the distribution of ranks between samples should be equal; if it is false; the ranks will be differently distributed and the average rank will also be different. This statistic is appropriate for use with ordinal data. The logic of using the K–W test in this case is that we are analyzing two samples from different populations (FT members and nonmembers), independent of one another, and we are trying to determine if the observed data from both samples could be considered as being two samples from the same population. That is, our null hypothesis is that both samples come from the same

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Table 7. Use of Sustainable Agricultural Practices in Guatemala. FT Co-op Members

Nonmembers

K–W w2 ¼ 122.603; df ¼ 1; p ¼ 0.000

Fertilizer Use No use Synthetic fertilizer Organic fertilizer Mixture of fertilizers Others Total

15.5 0.9 79.1 4.6 0 100.0

41.4 12.9 31.4 13.6 0.7 100.0 K–W w2 ¼ 41.351; df ¼ 1; p ¼ 0.000

Crop residue use None Natural treatment Use in the plot Chemical treatment Total

18.6 14.4 66.8 0.2 100.00

32.9 5.0 62.1 100.00 K–W w2 ¼ 430.110; df ¼ 1; p ¼ 0.000

Fungicide use No Yes Not sure Increase in shadegrown coffee No Yes Not sure/do not know

Significance Tests

94.0 5.6 0.3 100.0

98.6 1.4 0 100.0 K–W w2 ¼ 6.668; df ¼ 1; p ¼ 0.010

40.26 52.5 7.24

43.39 50 6.61

population with respect to the distribution of the variables of interest. In this case this translates into ‘‘there is no membership effect,’’ or the fact that one sample was taken from FT cooperative members and the other from nonmembers has no effect on the observed values, since membership generates no effect on the variable under analysis. Of course, proponents of the value of FT systems like TransFair USA and consumers who voluntarily self-tax to pay for fairly traded products like coffee would like to discover that we are able to reject the null hypothesis in favor of the argument that the samples come from two different populations. Further, they would like to find that FT cooperative members score more highly on a number of socioeconomic indicators of well-being. In this case, the fact that the

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329

populations differ, everything else constant, may be due to the existence of an ‘‘FT membership effect.’’

Material Quality of Life Household level impacts in terms of material standards of living are variable across countries and across groups. In Nicaragua everyone’s home has a dirt floor; in Guatemala, most FT participants’ homes have cement or tile floors in contrast to the dirt floors of nonmembers. In Nicaragua, a slightly higher proportion of FT cooperative members compared to nonmembers have pure drinking water directly available. In Peru, the proportion of nonparticipants whose drinking water comes from an unprotected source is almost three times higher than the corresponding proportion of FT cooperative participants. Access to water through a potable communal source is by far the most frequently reported among FT cooperative members in Guatemala. In Peru, twice as many FT participants as nonparticipants have added a room to their house in the past 3 years, although only a quarter of respondents have done so. Guatemalan FT members are also more likely to have added a room than nonmembers. This indicator differs from the Nicaraguan case, in which no such difference was reported. In Guatemala, FT households generally have access to electricity, which is not true among FT members elsewhere, and not true among non-FT-member households in Guatemala (74% vs. 43%). In Nicaragua, as in Guatemala, while few have purchased new TVs in the past 3 years, more FT members than nonmembers have done so.

Literacy and Education Table 8 shows findings for literacy in Nicaragua and Peru. In Nicaragua, a higher proportion of FT cooperative members enjoy basic literacy than in the non-FT-member group but we found no significant differences in school attendance of children across all age categories or by gender between the two groups. In Peru, for all categories of educational attainment except university attendance, FT participation is not a significant predictor of attainment. FT member households have higher reported levels of educational attainment and aspiration than nonmember households in Guatemala; indeed their attainment is higher than in other countries as shown in Table 9.

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Table 8.

Level of Literacy of Family Members (%). Peru

Illiterate Incomplete primary school Complete primary school Incomplete secondary school Complete secondary school Technical University graduate Not sure/no answer Total K–W value

Table 9.

Nicaragua

FT Members

Nonmembers

FT Members

Nonmembers

7.10 25.68 9.47 23.86 25.14 3.83 0.36 4.55 100

8.60 24.08 7.74 21.66 24.78 6.41 2.74 3.99 100

9.10 61.04 11.67 11.01 2.04 0.73 1.71 1.71 100

8.10 69.14 9.48 7.41 1.38 1.21 0.52 2.76 100

0.214

0.153

Family Members Years of Completed School (%) – Guatemala.

1–2 years 3–4 years 5–6 years 7–8 years 9–10 years 11–12 years 13–14 years 15–16 years 17–18 years 19+ years Total Mean number of years Equal mean t test

FT Members

Nonmembers

27.80 24.97 23.00 6.77 7.38 8.36 0.74 0.49 0.49

29.17 29.17 30.73 1.56 2.60 3.39 1.04 0.52 1.56 0.26 100.00 4.95

100.00 5.49 2.688, po0.05

Nicaraguan FT cooperative members tend to have a higher level of educational attainment than nonmembers (w2 ¼ 7.924; df ¼ 1; p ¼ 0.005; Yates’ continuity correction w2 ¼ 7.619; df ¼ 1; p ¼ 0.006). A higher proportion of children 10–15 years of age from among FT cooperative members are currently studying compared to the nonmember group. For these comparison groups, both nonparametric tests of median equality reject the equality of the medians.

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331

In Peru, FT cooperative participation significantly and positively influences whether children in the range of 10–11 years of age are currently studying, negatively for those between 14 and 15 years of age, and positively for those between 20 and 21 years of age. Nominal logit regressions (results summarized in Table 10) suggest that youth, male gender, and other indicators of wealth are the primary factors affecting survey participants’ educational attainments and aspirations. FT cooperative participation has some positive impact on school attendance among some categories of children and on some categories of educational aspiration. In Guatemala, which we studied last among our three countries, we used a slightly different data collection procedure that inquired about years of completed school. This facilitated comparison of FT and nonmember groups using simple parametric statistics. Guatemalan FT cooperative members have completed an average of 5.49 years of school as opposed to 4.95 years of schooling among non-FT-cooperative members (t ¼ 2.668; df ¼ 781.168; two-tailed p ¼ 0.008; K–W w2 ¼ 6.475; df ¼ 1; p ¼ 0.011). Sixty-three percent of Guatemalan FT cooperative member household members surveyed are currently in school compared to 50% of non-FTcooperative members surveyed (K–W w2 ¼ 21.487; df ¼ 1; p ¼ 0.000; median test w2 ¼ 21.503; df ¼ 1; p ¼ 0.000). Regarding educational aspiration, the modal or most frequent response among nonmembers of FT

Table 10.

Logit Nominal Regression for Educational Aspiration. Model Fitting Criteria

Likelihood Ratio Tests

Model Intercept only Final

2 log likelihood 646.933 558.961

w2

df

Sig.

87.972

10

0.000

2 log likelihood of reduced model 558.961 576.544 574.949 577.608 575.462 572.515

w2 0.000 17.583 15.987 18.647 16.501 13.554

df 0 2 2 2 2 2

Sig.

Effect Intercept Age Max. education Number of fincas Education TF membership

0.000 0.000 0.000 0.000 0.001

Note: The w2 statistic is the difference in 2 log likelihoods between the final model and a reduced model. The reduced model is formed by omitting an effect from the final model. The null hypothesis is that all parameters of that effect are 0; fincas is a farm.

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cooperatives is that they desire household members to achieve a schooling level equivalent to incomplete primary school. The modal response among FT cooperative members is that they desire household members to complete secondary school (K–W w2 ¼ 22.75; df ¼ 1; p ¼ 0.000).

Health Indicators In Nicaragua, across illnesses such as colds and fevers or diarrhea, a higher percentage of ill children received medical treatment in the FT member group than in the nonmember group. Other differences may not have been significant. However, we did find some significant differences in patterns of treatment seeking between FT cooperative members and nonmembers as shown in Table 11. These comparisons are only between those afflicted; in many cases the rate of affliction is relatively low. Only 25% of FT cooperative members and 34% of non-FT members, for example, claimed that someone in the household suffered from malaria during the previous year. In Peru, the comparisons of the incidence of disease and patterns of treatment seeking are equivocal. In other words, there is no strong pattern favoring an implication of FT participation in treatment. A higher percentage of FT members than nonmembers received medical attention for colds and fevers. Some statistical tests suggest different patterns of illness between the two groups, with the FT cooperative participants suffering somewhat less. Table 11. Illness

Dengue fever

Diarrhea

Malaria

Respiratory illness

Patterns of Treatment Seeking for Illness in Nicaragua. % of Afflicted Nicaraguans Seeking Treatment 88.2% from the FT members group vs. 43.8% from the nonmembers group 88.6 from the FT members group vs. 55.4% from the nonmembers group 81.4% from the FT members group vs. 52.4% from the nonmembers group 83.7% from the FT members group vs. 49.3% from the nonmembers group

Significance Tests w2 ¼ 64.103; df ¼ 1; p ¼ 0.000

w2 ¼ 49.325; df ¼ 1; p ¼ 0.000

w2 ¼ 32.341; df ¼ 1; p ¼ 0.000

w2 ¼ 103.229; df ¼ 1; p ¼ 0.000

Market Disintermediation and Producer Value Capture

Table 12. Illness

Patterns of Treatment Seeking for Illness in Guatemala. % of Guatemalans Seeking Treatment

Anemia

35.5% of FT co-op members vs. 12.5% nonmembers

Colds and fevers

27.7% of FT co-op members vs. 16.5% of nonmembers

Diarrhea

18.5% of FT co-op members vs. 10% of nonmembers (incidents reported by 75.2% of non-FT-member households vs. 35.2% of FT member households) 35.2% of FT members vs. 30.2% of nonmembers (low overall incidence) 36.4% of FT co-op members vs. 20.4% of nonmembers

Malaria

Respiratory infections

333

Significance Tests K–W w2 ¼ 1375.707; df ¼ 1; p ¼ 0.000; median test w2 ¼ 1375.755; df ¼ 1; p ¼ 0.000 K–W w2 ¼ 1416.18; df ¼ 1; p ¼ 0.000; median test w2 ¼ 1416.192; df ¼ 1; p ¼ 0.000 K–W w2 ¼ 782.894; df ¼ 1; p ¼ 0.000; median test w2 ¼ 782.902; df ¼ 1; p ¼ 0.000

K-W w2 ¼ 13.393; df ¼ 1; p ¼ 0.000; median test w2 ¼ 13.395; df ¼ 1; p ¼ 0.000 K-W w2 ¼ 1441.048; df ¼ 1; p ¼ 0.000; median test w2 ¼ 1441.068; df ¼ 1; p ¼ 0.000

In Guatemala, across all classes of illness FT cooperative members report lower incidents of disease in their households and higher use of professional health services than non-FT-cooperative members, as suggested in Table 12.

Development Opportunities Farmers generally report positive impacts of participation in FT cooperatives on technical assistance across countries. FT cooperative members also report higher levels of social participation compared to nonmembers, except in Peru, where non-FT-participating respondents report they are active in local affairs. In no country do many non-FT-participating farmers report receiving much technical or social assistance from local government services. In Guatemala and Nicaragua, cooperative members report receiving some support for health, education, and social programs from the cooperatives, while nonmembers report lower levels of aid from local government, as shown in Tables 13 and 14. In Table 13, we report the number of responses above and below the median split. Those falling above the median are in the ‘‘no assistance’’ group; those below are in the ‘‘assistance received’’ group. In Table 14, we again use the K–W test to examine rank equivalence across

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Table 13.

Receipt of Assistance in Technical and Social Programs: Nicaraguaa.

Area of Support

FT Co-op Members

Nonmembers

Social programs

>Median rMedian

84 247

83 37

Technical assistance

>Median rMedian

27 309

106 16

Price negotiations

>Median rMedian

5 331

113 6

Better housing

>Median rMedian

96 240

113 8

a

Significance Tests Median w2 ¼ 72.424; df ¼ 1; asymp sig. ¼ 0.000 Median w2 ¼ 270.04; df ¼ 1; asymp sig. ¼ 0.000 Median w2 ¼ 399.695; df ¼ 1; asymp sig. ¼ 0.000 Median w2 ¼ 150.599; df ¼ 1; asymp sig. ¼ 0.000

Median split where 1 ¼ yes, 2 ¼ no.

Table 14.

Receipt of Assistance in Technical and Social Programs: Guatemala.

Area of Support

FT Co-op Members

Nonmembers

FT co-op

Local government

Education

43.4%

39.4%

Health care

40%

18%

Social programs

27%

18%

Technical assistance

80.7%

5.8%

Price negotiations

79.3%

11.3%

Significance Tests

K–W w2 ¼ 31.032; df ¼ 1; p ¼ 0.000 K–W w2 ¼ 1245.932; df ¼ 1; p ¼ 0.000 K–W w2 ¼ 299.016; df ¼ 1; p ¼ 0.000 K–W w2 ¼ 16671.416; df ¼ 1; p ¼ 0.000 K–W w2 ¼ 6591.239; df ¼ 1; p ¼ 0.000

the two populations. In Peru, nonparticipants reported more local government support for social programs than did cooperative members. Although the data suggest that FT support to cooperatives translates into positive attitudes toward cooperative intervention in social life, the impact of FT on perceived quality of life is more mixed. As shown in Tables 15 and 16,

Market Disintermediation and Producer Value Capture

Table 15.

335

Three-Year Trend in Well-being.

FT Co-op Members (%)

Nonmembers (%)

Significance Tests

Better

Same

Worse

Better

Same

Worse

77

20

3

41

30

29

K–W w2 ¼ 64.6; df ¼ 1; p ¼ 0.000

14

47

39

6

36

58

Median w2 ¼ 13.111; df ¼ 1; p ¼ 0.000

27

41

31

16

76

6

K–W w2 ¼ 180.059; df ¼ 1; p ¼ 0.000

Nicaragua

Peru

Guatemala

Table 16. FT Co-op Members (%)

Three-Year Trend in Income. Nonmembers (%)

Significance Tests

Higher

Lower

Higher

Lower

62

11

45

25

K–W w2 ¼ 6.163. df ¼ 1, p ¼ 0.013

14

46

6

65

Median w2 ¼ 2.927; df ¼ 1; p ¼ 0.087; not significantly different

30

31

19

6

Nicaragua

Peru

Guatemala K–W w2 ¼ 2294.235; df ¼ 1; p ¼ 0.000

FT cooperative members in Nicaragua claim that both income and wellbeing have improved over the past 3 years. In Peru, FT participants claim that their overall welfare has not improved over the past 3 years; however, non-FT participants indicate that their welfare has worsened. More FT members than nonmembers also claim to be holding their own. Thus, at a minimum, and consistent with the conservative nature of the sample drawn in Peru (maximum of 20% sales through FT system), FT participation may act as a shock absorber, buffering members from other sources of stress in

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their lives. More than a quarter of Guatemalan FT cooperative members indicated that they were better off compared to their situation 3 years earlier, and less than one-fifth of nonmembers concurred with this assessment of well-being. Still, 31% of Guatemalan FT members said their situation had worsened compared to only 6% of nonmembers, while three-quarters of nonparticipants detected no difference in their circumstances. The absence of dramatic improvements in perceived quality of life among FT members in Guatemala may be due to the combined effects on attitudes of a narrowing of price differences paid by FT and open market sources and the then recent devastation provoked by Hurricane Stan.

DISCUSSION In addition to a consistent pattern of results across countries, one thing inspires confidence in the data contained in the country reports, even if it also suggests that we exercise modesty in claims about the local positive impacts of FT. What inspires confidence is finding that the data do not portray FT participation as a panacea or utopian solution to the problems of farming households in developing countries throughout Latin America. The influence results are mixed and indicative of the many other factors that can shape the lives of subsistence producers. There is little doubt that across the three countries, FT-participating farmers are better paid for their coffee than nonparticipating farmers. But in Guatemala, for example, some FT farmers claim that FT prices have stagnated relative to those paid by private buyers. In addition, a number of well-being indicators showed little difference between FT and non-FT farmers. Very few people in our sample, for example, admitted to having monetary savings of any kind or a relationship with a banking institution. Moreover, most people enjoyed limited access to health care even if FT-participating farmers enjoyed a little more access than nonparticipating farmers. For many of our respondents, participation in an FT cooperative acts as a life preserver, a shock absorber, or a buffer against the effects of the volatility that global market capitalism visits on poor producers in developing countries. It is a safety net, but given current pricing levels, production regimes, and farm sizes, FT coffee alone is not the solution to the problems of the rural poor. It is, however, a small step in the right direction and a practice that should continue to be encouraged by governments, NGOs, other policy-makers and -shapers, and consumers in developed economies.

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The results of this study should be interpreted with some care. First, the stratification sampling procedure we used is appropriate for this type of impact assessment, especially since we had lists of all associated member producers in the countries studied, and we were able to draw samples properly in advance of conducting the field research. The probability of inclusion of each observation collected, however, varies depending on the actual procedures followed at each step of the sampling procedure. It is difficult to control the sampling procedures followed at the level of individual interviewers’ choices made in the field. Thus, if our assumptions about the sampling procedures followed in each location and by each interviewer differ from the ones actually used, our results may be biased, with no a priori direction proposed. Second, this is a cross-sectional study, meaning it is a snapshot frozen in time. As such it contains little meaningful trend data. In other words, informants’ self-reports of trends should be treated as opinion data, rather than veridical claims about the direction of change in FT- and nonFT-affiliated communities. Trends can be assessed only by the comparison of data collected in this study with comparable data collected at later points in time and through similar means in the three countries. Third, in general the results represent correlational measures rather than causal measures. In other words, if we state that FT farmers express greater optimism about the future than non-FT farmers we cannot conclude that FT membership causes greater optimism, only that greater optimism is associated with membership in FT coffee marketing schemes. The data do not allow us to exclude other possible reasons for this greater optimism, such as the possibility that farmers with more optimistic dispositions are disproportionately inclined to participate in FT cooperatives. Similarly, if we show that FT farmers enjoy greater access to electricity or piped water, we cannot conclude from these data that this was because of investments by FT cooperatives or FT farmers themselves due to their higher incomes. They may have enjoyed better access prior to joining the FT movement, or the local government may have provided these services for reasons unrelated to FT. That being said, a consistent pattern of favorable results does suggest that FT participation and well-being are somehow related, and all things being equal, FT participation is generally in farmers’ best interests. One final limitation is that this study applies only to fairly traded coffee and only to the Latin American experience in three countries and only to Fair Trade coffee sourced by TransFair USA. We cannot extrapolate these results to other fairly traded agricultural commodities such as tea, sugar, and bananas, and we cannot extrapolate the results to experiences in Africa

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or South Asia or to experiences of other FT organizations, for instance. By the same token, we have no reason to doubt the results would be similar in other FT market channels (see, for example, Parrish et al., 2005 on Tanzania and Murray et al., 2003 on El Salvador, Mexico, and Guatemala), but we refrain from commenting on situations elsewhere in the world. In the aftermath of this descriptive study, future data collection should be structured around particular hypotheses to be tested. For example, if one was interested in producer incomes or in adherence to sustainable agricultural practices, then one could collect income and agricultural practice data and see how these were related to FT participation and data collected on the type of coffee produced, regime under which it is grown (shaded area/ nonshaded), fertilizer use, irrigation, highest level of education within the household, prices received, volume sold, etc. Some specific lessons learned might guide future data collection as well. Our field interviewers were opportunistic in their choice of who to interview within each household. In future studies, we recommend that interviews be taken only from the producer in charge of the family and in charge of the coffee production. We also recommend that producers not be asked to comment retrospectively on average yields, volumes, prices, or income. Most people do not know how to assess an average measure, and this may be particularly the case among populations that are poorly educated. Further, it might be advisable to reduce the number of questions about health status. For example, it might be better to ask how many family members have been sick with (list of diseases) during the past year, if there was a need for medical attention, and if they were able to obtain medical attention. Moreover, when medical attention was not available interviewers should ask for an explanation, such as ‘‘could not afford it’’ or ‘‘no physicians in the area.’’ A similar simplification of questions about education might also be proposed. Finally, although quality of life measures are widely used, it might be advisable for subsequent research to avoid collecting data on producers’ perceptions about what lies ahead for them, given that it is a highly subjective measure.

CONCLUSION Results from a three-country survey of the effects of the market channel disintermediation and the effort to transfer value up the value chain to producers via price supports show that producers participating in TransFair-supported FT cooperatives are indeed capturing more value than

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nonparticipants. These survey results are consistent with case study results reported from El Salvador, Guatemala, Mexico, Nicaragua, and Tanzania (Bacon, 2005; Parrish et al., 2005; Raynolds et al., 2004; Taylor, Murray, & Raynolds, 2005). This benefit transfer translates into modest but measurable improvements in quality of life, health, education, material comforts, social participation, technical and social assistance, and even sustainable agricultural practices, which suggests that producers may be assured that participation in FT schemes is a good idea for them. Moreover, it means that consumers who self-tax by paying higher retail prices to transfer value to producers can have confidence that the schemes work as promoted. They are participating in a fairly represented ethical retailing program. Finally, it means that roasters, coffee houses, and other retailers can state with confidence that by agreeing to sell FT coffee they are participating in a social change campaign that delivers concrete benefits to small-scale producers in developing countries in Latin America.

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