Social Enterprise Journal Emerald Article: Bangladesh's Rural Sales Program: Towards a scalable rural sales agent model for distributing socially beneficial goods to the poor Kevin McKague, Sarah Tinsley
Article information: To cite this document: Kevin McKague, Sarah Tinsley, (2012),"Bangladesh's Rural Sales Program: Towards a scalable rural sales agent model for distributing socially beneficial goods to the poor", Social Enterprise Journal, Vol. 8 Iss: 1 pp. 16 - 30 Permanent link to this document: http://dx.doi.org/10.1108/17508611211226566 Downloaded on: 23-05-2012 References: This document contains references to 28 other documents To copy this document: [email protected]
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Bangladesh’s Rural Sales Program Towards a scalable rural sales agent model for distributing socially beneficial goods to the poor Kevin McKague and Sarah Tinsley Schulich School of Business, York University, Toronto, Canada Abstract Purpose – In Bangladesh, 30 percent of the population lives beyond the “last mile” of traditional distribution networks and serving this rural low-income population with socially useful goods is a huge challenge. The purpose of this paper is to present one of the most innovative and successful cases of its kind in the world, a social enterprise rural distribution model originally developed by CARE Bangladesh and the Bata Shoe Company, to illustrate the possibility of combining market-based solutions to poverty with socially responsible business growth. Design/methodology/approach – This in-depth case study was developed over the course of three field visits to Bangladesh between November 2009 and September 2010 based on 25 face-to-face interviews with rural sales women, Bata employees and CARE staff as well as participant observation and review of project documents and media reports. Findings – The case provides insights into the origins, lessons learned and key success factors of viable rural sales agent distribution networks serving the poor. A key tension to be managed is keeping the costs of the network down while ensuring that every member is adequately incentivized. Social implications – The 3,000 women sales agents in rural Bangladesh engaged with the Rural Sales Program have benefited from earning viable incomes in contexts where opportunities for employment and empowerment of women are limited. Rural populations have gained affordable access to socially beneficial goods such as fortified foods, seeds, daily necessities and shoes. Companies have benefited from learning how to adapt their product offerings to meet the needs of low-income customers. Originality/value – Where rural sales initiatives elsewhere have faced challenges, this case is the first published account of the origins of how CARE, Bata, and other companies established a viable and scalable rural sales agent distribution network for the commercial benefit of companies and the economic and social benefit of poor women and their customers. Keywords Rural sales agents, Poverty alleviation, Distribution networks, Cross-sector partnerships, Women’s empowerment, Social enterprise, Bangladesh, Developing countries, Women workers Paper type Case study
Creating socially responsible distribution is essential for market-based solutions to poverty (Karnani, 2011, p. 131).
Introduction Despite decades of investment in traditional approaches to poverty alleviation by governments and aid agencies, 2.6 billion people still live on under US$2/day (Collins Social Enterprise Journal Vol. 8 No. 1, 2012 pp. 16-30 q Emerald Group Publishing Limited 1750-8614 DOI 10.1108/17508611211226566
The authors thank Sonja Bata, Doug Hearns, and M.A. Quader from Bata and Saif Al Rashid, Farouk Jiwa, Christian Pennotti, Jesse Moore, Phil Tanner and Nick Southern from CARE for their generosity in providing details about this case. Partial research funding from CARE is also gratefully acknowledged.
et al., 2009). With such limited income, poor individuals are severely constrained in their ability to meet basic human needs and restricted in their ability to contribute to their communities and live lives that they value. The stubborn persistence of global poverty in the face of existing development approaches has led to an increasing interest in social enterprise experiments to improve the lives of low-income individuals (Seelos and Mair, 2005, 2007). Many of these initiatives have been undertaken with the aim of developing “inclusive markets” (McKague et al., 2011) or economic opportunities and exchange relationships that allow for the greater participation and benefit of economically marginalized individuals in least developed countries (Mair et al., n.d.). More inclusive markets are needed as the poor are often excluded from market opportunities due to their remoteness from commercial centers of activity (Vachani and Smith, 2008), poor infrastructure (Dawar and Chattopadhyay, 2002) and low levels of income and literacy (Shukla and Bairiganjan, 2011). A recent survey and analysis of 677 market-based social enterprises in Africa and India with the potential to build more inclusive markets identified “dedicated direct sales agent networks that distribute socially beneficial goods to isolated communities” as one of three emerging business models that showed “promise of delivering social benefit at scale if key issues are addressed” (Kubzansky et al., 2011, p. 7). Previous analysis by Prahalad has similarly concluded that “innovations in distribution are as critical as products and process innovations.” However, Garrette and Karnani (2010, p. 30) caution that if market-based distribution innovations are to successfully contribute to poverty alleviation they must “provide socially beneficial products and services to the poor that genuinely improve the quality of their lives.” Low-income households in rural areas are often beyond the reach of traditional commercial distribution networks and lack affordable access to goods and services (Vachani and Smith, 2008). Viable door-to-door sales agent networks in rural areas are therefore a category of social enterprise business model that has the potential to generate social value in a number of ways. If developed at scale, they can generate sustainable sources of income for rural sales people who, especially in the case of women, may have few other employment options. Training of sales agents in basic numeracy and business skills also has beneficial spillover effects for other areas of their lives. Rural sales distribution networks can provide isolated community members with access to socially beneficial goods that may not otherwise be readily available. Door-to-door sales can be especially helpful in providing access for women consumers who may otherwise be restricted by custom from travelling to marketplaces. Companies cannot only broaden their reach to underserved customers, but also learn how to better meet their needs and preferences. For non-governmental organizations, the creation of social value through rural sales networks can be aligned with their missions to improve the lives of the poor. Although recent research in India and Africa concluded that door-to-door rural sales models “had yet to produce results viably and at scale” (Kubzansky et al., 2011, p. 89), the case of Bangladesh’s Rural Sales Program presented here reveals an innovative model that has been operating on a financially sustainable basis and is poised to reach significant scale in the country. The purpose of this case is therefore to add to our knowledge about how this promising new social enterprise business model can help make markets more inclusive and benefit the rural poor. This case can also make an important contribution to the discourse on social enterprise in Bangladesh, which Hackett (2010) argues is unique and not sufficiently recognized in mainstream social
Bangladesh’s Rural Sales Program 17
enterprise scholarship. Through an in-depth analysis of the Rural Sales Program, including the story of its origins, lessons learned from failures along the way, the operation of its business model and innovative partnership arrangements, this case seeks to contribute to our understanding of how inclusive markets and market-based approaches to poverty alleviation can be effectively achieved in the complex and challenging realities of life in rural areas of a least developed country. What follows is a case study of how CARE Bangladesh and the Bata Shoe Company initially created the Rural Sales Program to provide access to socially beneficial goods to remote villages, create income-generating opportunities for low-income rural women, and allow businesses to learn about and expand their sales into underserved rural markets. This case was developed in accordance with the guidance of Yin (2008) based on 25 face-to-face interviews with rural sales women and staff of CARE Bangladesh and Bata, as well as field observations and archival data gathered during three two-week research visits to Bangladesh between November 2009 and September 2010. The Rural Sales Program As of 2011, the Rural Sales Program includes 3,000 women sales agents, accounts for US$1 million in sales, and relies on a network of 100 wholesale distribution hubs and a range of products from several companies beyond Bata. Rural saleswomen are known as “Aparajitas” meaning “women who never accept defeat.” CARE selects, organizes and trains Aparajitas, supports entrepreneurs to manage distribution hubs, and negotiates prices, margins and product commissions with participating companies. CARE also closely monitors the financial sustainability of the entire distribution channel and intervenes where necessary to resolve problems and ensure maximum efficiencies and ongoing financial viability. Companies such as Bata are able to provide their products to customers they were previously unable to reach and make a contribution to poverty alleviation in the country. Jesmin Akhter, an Aparajita who has been working with the Rural Sales Program since 2009 summed up her experience to a visiting journalist this way, “I am proud: now I can afford good food, society has accepted me, my husband has accepted my work and I can send my child to school” (Hindstrom, 2011). The story of the origins of the Rural Sales Program begins with the two founding organizations, Bata Shoes and CARE Bangladesh. The Bata Shoe Company The T.&A. Bat’a Shoe Company (now Bata Brands SA) was founded in 1894 in Zlin, Czechoslovakia, by Tomas Bata, an eighth generation shoemaker. By harnessing mass production techniques, Bata was able to manufacture more affordable shoes more affordably and by the end of the 1930s had become the world’s leading footwear exporter, selling 60 million pairs of shoes a year in 30 countries (Bata, 1990; see also Cekota, 1968). Thomas J. Bata, the founder’s son, moved Bata’s center of operations to Canada to escape the gathering storm in Europe prior to the Second World World War. After the war, Bata saw the potential for new markets in the wave of newly independent nations and the company expanded its international presence in those countries. Unlike many companies that expanded into Africa, Asia and Latin America seeking cheap labour for export-oriented production, Bata invested with the idea to produce footwear for domestic consumption, where no more than 20 percent of production in each country would be exported. Between 1946 and 1960 Bata opened
25 new factories and 1,700 retail outlets around the world while production increased fourfold (Bata, 1990). In 2001, Thomas J. Bata handed over the reins of the company to his son Thomas G. Bata. With the company’s headquarters now in Switzerland, Bata remains a significant international player in footwear production and retail around the world, employing more than 50,000 people with production facilities in 20 countries and a retail presence in over 70 countries. Upon Tomas Bata’s sudden death in an airplane crash in 1932, a “moral testament” was found amongst his personal papers. It articulated his views that the business was not to be a source for personal profit, but rather a public trust, “contributing to the wealth and education of the nation” (Bata, 1990, p. 30). This corporate culture lives on in the company’s commitment to low-cost quality goods, its focus on providing value for customers, and attention to community development in the countries in which it operated. These factors made Bata a perfect fit for becoming a partner in the creation of what would become the Rural Sales Program in Bangladesh. Bata began business in Bangladesh in 1962, eventually building two manufacturing facilities in Tongi and Dhamrai. Today, these two plants have a combined total production capacity of approximately 110,000 pairs of shoes daily. Bata Bangladesh has approximately 75 percent of the formal market for footwear in Bangladesh, and sells over 30 million pairs annually with a turnover of 5 billion Taka (US$70 million) in 2009. The company owns and operates 257 retail outlets across Bangladesh as well as maintaining a network of 390 wholesalers and 533 dealer-owned stores. Though Bata has a strong foothold in the Bangladeshi market, the company is still unable to reach a significant percentage of the population. Bangladesh is a predominantly rural country, with an estimated 60 percent of consumers living outside urban centres. Even with its extensive distribution network, Bata Bangladesh estimates that it still cannot reach 30 percent of potential consumers. It is this problem of rural distribution combined with the company’s social values that prompted Bata to explore an innovative way of reaching rural populations. CARE Bangladesh CARE Bangladesh was established in 1955 as an independent member of the global federation of CARE organizations, which today operate in 72 countries. Initially, CARE Bangladesh (CARE) operated mainly as a food security and emergency relief organization. After Bangladeshi independence in 1971, CARE’s programmatic focus expanded to include development. The organization’s mission states: CARE Bangladesh amplifies the voices of the poor and the marginalized in ways that influence public opinion, development, and policy at all levels. This happens as knowledge drawn from our grass roots and global experience is channelled through purposeful relationships with civil society, government, and the private sector.
CARE Bangladesh is one of the largest development organizations in the country, employing 2,600 staff, the vast majority of whom are from local communities. Rural Sales Program History: the Rural Maintenance Program The Rural Maintenance Program (RMP) was a large development project launched in 1983, primarily funded by the Canadian International Development Agency and implemented by CARE Bangladesh in collaboration with CARE Canada. It was an
Bangladesh’s Rural Sales Program 19
innovative project for its time, which empowered women through vocational training and employment. The patriarchal and conservative expectations of women’s role in Bangladeshi society meant that only 4 percent of Bangladeshi women worked for a wage and those that did typically earned half of their male counterparts (Hindstrom, 2011). The program took rural Bangladeshi women and trained them to repair and maintain over 60,000 km of earthen roads in their rural communities. The women worked six days a week to ensure that these roads remained passable all year round. On their day off, the women were given literacy and numeracy training, as well as training in business skills. This project empowered local women through their ability to earn an income and gave them valuable skills. The fact that rural women were working in the formal sector maintaining valuable infrastructure raised their public profile, ultimately leading to a greater degree of freedom of movement and respect than they were previously afforded. As the Rural Maintenance Program began to wind down, the women formed themselves into groups of 10-20 members and began looking for new income generating opportunities. In 2004, CARE Canada published a strategy paper entitled Making Markets Work for the Poor: CARE Canada’s Strategy for Helping the Poor through Enterprise (CARE, 2004). It embraced what the NGO saw as a new wave of development, which focused on market-based approaches to poverty alleviation. By fostering a spirit of entrepreneurship and small business development, CARE began to explore how it could potentially play a role in helping the poor identify new opportunities for income generation and empower individuals to take ownership of their livelihoods. This model of development emphasized the importance of financial sustainability and self-reliance, the lack of which CARE saw as a major limitation of previous development approaches. A partnership is launched In 2004, these disparate strands: a socially aware shoe company with no way to sell to rural markets, a rural population with entrepreneurial training but no goods to sell, and an NGO that was looking to connect the poor with markets, all came together in the innovative Rural Sales Program. Instead of a meeting in a boardroom, the unlikely catalyst for this project was a rained out tennis match in the capital city of Dhaka. Dr Philip Tanner, Program Coordinator of the Rural Maintenance Program for CARE Bangladesh, was playing tennis at the Canadian Club. He happened to be playing Bernie Rhodes, the CEO of Bata Bangladesh when a sudden deluge of rain quickly ended their tennis match. They packed up their racquets and headed to the clubhouse. Generally, work was a taboo subject at the club, but as they waited out the storm, conversation naturally turned to their respective positions at CARE and Bata. They talked about doing business in Bangladesh, and the problems that Bata was having with rural distribution and sales. The company felt that it had saturated the urban markets, but still could not break into rural areas and villages. Tanner responded that CARE had the opposite problem – it had access to the rural areas, but the graduates of the Rural Maintenance Program had nothing to sell. A light bulb went on. That chance meeting turned into initial talks between CARE Bangladesh and Bata as both sides began to see the potential for a partnership between the two. CARE officials took Bata representatives to see the women’s groups in remote areas, and the
pieces for a pilot project based on a door-to-door sales model began to fall into place. It was decided that they would do a trial run with seven of the women’s groups in an area known to be a political hotbed. In a trial by fire, if the project could work in such a difficult environment, it should also work in the more stable areas of the country. One piece that did not easily fall into place was the funding. Market-based approaches were relatively new and profit was still a dirty word to many in the development world. Bata wanted to try the project, but initially viewed it more as a corporate social responsibility initiative and were not yet ready to invest a lot of money. After approaching a number of funders, who turned the project down, Tanner approached CARE Canada. It seemed like a good match considering that CARE Canada had been a partner in the Rural Maintenance Program, and was interested in exploring market-based approaches to development. Jesse Moore, the Director of Private Sector Development for CARE Canada, was eventually able to find financial support for the RSP pilot through a CDN$36,000 donation by a private Canadian foundation. Moore recalls, “We didn’t want the women’s activities to be subsidized. We wanted to make sure it would really work and be financially sustainable.” Initially, Tanner encountered some resistance from other development workers. There were a number of objections, including that it was too dangerous for the women, that shoes were an inappropriate item of sale for women, that bringing in Bata shoes would harm local enterprise, and that an NGO should not be engaging with the private sector. However, Tanner eventually won out. It may have helped his argument that the push for the project came from the women themselves. Tanner recalls the excitement generated in the first women’s group discussions: “We have been strong together under RMP and we can do what you are describing to us.” Visiting Bangladesh in August 2004 Moore observed: When I went out and we met with several hundred women, it became very clear to me that this was their demand rather than anything that CARE or Bata had been pushing.
The women were eager for the opportunity to increase their income, but moreover, they felt that the association with a respected and established business like Bata would give them a greater legitimacy that they had been fighting for. There was a sense that through their association with Bata, they would be taken seriously as entrepreneurs. Further, the women knew the rural population well, and they were convinced that there would be a market for good quality, reasonably priced shoes. Tanner, Moore and their teams recognized the women’s potential and took a chance. The Rural Sales Program pilot CARE Bangladesh and Bata signed the agreement to launch a six-month pilot project in October 2004. The Rural Sales Program pilot began in the region of Lalpur Upazila in the Natore District, a rural area of Bangladesh approximately 150 km north-west of Dhaka. It began with 49 women divided into seven groups. Bata allowed the women’s groups to have sole market access in the region for the duration of the project and did not issue any new licenses to other retailers in the area. The women would sell shoes door-to-door. Bata provided a sales package for the women containing a carrying bag, shoe catalogue, badge, a foot print to measure shoe size, and an umbrella for the rain and sun. Bata also sent managers out to provide sales training to the women. This training relationship between Bata and the women’s groups was instrumental in
Bangladesh’s Rural Sales Program 21
developing a close working relationship and stronger commitment from the company. CARE selected, organized and trained the sales women in accounting, customer relations, route mapping, negotiations and other business skills. A woman going door-to-door to sell products is unusual in Bangladesh, so CARE worked closely with the communities involved and organized village meetings to ease the Aparajitas’ entry into their new livelihood activities. Although incomes are low (at about one dollar a day on average), there is still a great demand for footwear in rural communities. In some areas, having proper footwear means protection from disease. Certain tropical diseases – such as hookworm – can be spread simply by walking barefoot through contaminated soil. Thus, shoes provide an important first line of defence. As well, many schools require shoes as part of the uniform, so having proper footwear can be the difference in a child’s access to education. Unfortunately, for many rural customers the only footwear available are low-quality shoes, that often break or wear out quickly in the demanding rural environment. From the very beginning CARE was committed to making the project work as a financially sustainable business enterprise. Instead of sending out seasoned development workers to do the training, Tanner instead sent out Saif-al Rashid and Bishwajit Kumar Paul, both of who had business backgrounds but no previous experience in development. When Rashid, who would go on to lead and grow RSP into what it is today, complained about his lack of knowledge of development principles, Tanner replied, “Think about all of this as a business. Forget about development projects and let’s treat this solely as a business.” It was radical thinking for the time. Learning and adaptation As the RSP trial period was coming to an end, an independent evaluation of the project helped to identify areas that needed to be changed. The first major finding was that the operational structure of the women’s groups was not very effective. There was a lot of politicking and infighting within the groups, which was leading to stagnation and Bata was having difficulties dealing with the groups. This led to the creation of a new system of entrepreneur-owned wholesale distribution hubs that was set-up around the country. Each distribution hub supplied approximately 30 sales women. Companies sold their products to the hubs at wholesale prices negotiated by CARE. Hub owners typically received a 3-5 percent commission on products with CARE retaining a 4-7 percent commission. The hubs were usually located in a town marketplace, and many hub owners also set-up a storefront to sell products directly to consumers in the town (see Figure 1). Hub owners were selected for both their business acumen as well as their commitment to the social mission of the project. Hub owners were eligible to receive additional business training from CARE including bookkeeping, inventory management and marketing. They also received a certain prestige and status that accompanied being an authorized seller of quality branded products, something which was previously rare in rural areas. The second area identified as a problem at the end of the pilot was the high attrition rate of Aparajitas. The pilot project started with 49 women, but at the end of the six-month trial period, only 26 women were still with the project continuously selling, and the average monthly income of the women was 444 Taka (US$6). The problem was that shoes are not an everyday purchase. It quickly became obvious that in order to
Bangladesh’s Rural Sales Program 23
Figure 1. Rural Sales Program distribution network
keep sales numbers and income up, the Rural Sales Program women needed additional products to add to their sales baskets. The women suggested that there was a market in the rural areas for high quality fast moving consumer goods (hygiene products, spices, etc.), and CARE began to negotiate with two companies, Unilever and Square. Unilever was experimenting with a similar sales program in Bangladesh, Joyta, which involved 1,000 women selling products door-to-door. As such, Unilever was open to talking and sharing lessons learned, however they did not want to be involved with Bata. It turned out that getting two private companies to work together with one NGO towards a common purpose was difficult and involved much negotiation. Eventually, an agreement was reached and in 2007 Unilever signed a contract for an expanded RSP model with 300 women selling both Unilever and Bata products. As predicted, sales did increase to an average of 700 Taka (US$10) per month, however this was still much lower than expected. This time, women’s ability to get to the hub seemed to be the major constraint. In many cases, the sales women simply could not afford the cost of transportation to the hubs. The issue of costly transportation was solved by hiring service people who were responsible for getting the inventory to the sales women, generally by bicycle. Two service people were hired by each hub at a cost of 3,000 Taka (US$40) per person, per month. Due to the increased cost for the hub, CARE successfully negotiated with the companies for revised commission margins, ultimately convincing them that this investment was necessary to make the distribution network sustainable. As part of the deal, in the case of hub expansion, CARE agreed to pay the cost of the service person for the first six months to help get the project going. This was made possible through commission revenues that CARE collected. The new addition to the distribution
network was a success, and six months after the hiring of service personnel, sales had increased sevenfold from 1 million Taka (US$15,000) to 7 million Taka (US$100,000). Women selling door-to-door may keep a small inventory of products in their sales bags or homes. They also take orders from catalogues, which is particularly the case with shoes. When an Aparajita has an order or needs additional supplies, she calls or texts the hub owner who dispatches a service person on a bicycle to deliver the product. These deliveries typically happen once or twice a week. The entire system is run on a for-profit basis to be financially sustainable and the commissions are structured to be as fair and competitive as possible while still allowing for growth and scale. The Aparajitas are guided by a “20-20-40” principle which gives them a target of visiting 20 households, selling 20 products and earning a commission of 40 Taka/day (US$0.56) for the days that they work. Each sales agent has her own route or territory comprising around 125 households (representing 600-1000) individuals, and typically earns between 400-1000 Taka/month (US$5-15) based on commissions of between 10-22 percent depending on the product and company. Benefits for Bata At first, the Rural Sales Program was treated as corporate social responsibility work by Bata. For the first year of the project, there was no one at Bata assigned to it full-time; duties were given to existing sales managers. However, things began to change when in January 2006, Bata brought in a new Managing Director, Doug Hearns. He recognized the program’s tremendous potential, not only from a business point-of-view, but also the positive impact it could have on public and government relations. He began to treat RSP as another facet of Bata’s retail channel in Bangladesh, personally presenting awards for top sellers and hub managers. “The thing I like about this program,” Hearns said, “is that it isn’t charity, it’s empowering somebody to make their own money.” Bata has also benefited from working with the Aparajitas on product design. The company initially thought that existing plastic thongs would be the most popular seller in rural markets. They were inexpensive and popular with low-income clients in urban areas. When this did not turn out to be the case, Bata engaged with the sales women and involved them as partners in new product design. The women told the company that people in rural markets prefer a shoe with a hard sole because of all the walking they do on rough and uneven ground. Bata also learned that rural customers are also willing to pay more for high quality goods. Bata has since created an entire catalogue for the rural market based on the input of the Aparajitas. Under Hearns’ guidance, RSP is treated as another part of Bata Bangladesh’s business. The project started with the sale of 18,000 pairs of shoes in 2005. By 2009, that number was 215,000. Even with the enormous growth in sales, the RSP is not a huge profit maker relative to the rest of the company. In 2009 the turnover from the program was 19,000,000 Taka (US$250,000) compared to 3.2 billion Taka (US$45 million) for the entire retail channel. Despite only accounting for approximately 0.59 percent of total turnover, the program has generated invaluable intangible benefits. This has included being first to market as a major brand in many rural areas, which tends to translate into long-term competitive advantage (Dawar and Chattopadhyay, 2002). Intangible benefits have also included the positive press that is created by award
ceremonies and international visitors. The project has also garnered international press attention in The Guardian (Hindstrom, 2011), Forbes (Bahree, 2010) and in the French media. The Rural Sales Program also has a positive spin-off effect for Bata’s relationships with government officials. Hearns comments, “It opens up a lot of doors because I think they see us in a different light than a lot of other companies. They see that these people are not here just to make money, they are responsible citizens and they are doing a lot to help particularly people who are poor.” Bata’s involvement with the Rural Sales Program has enhanced Bata’s reputation in Bangladesh with government and other stakeholders in ways that are difficult to quantify, but nevertheless offer business benefits. The path to scale The program grew rapidly from 49 women operating out of three hubs in 2005, to 3,000 sales women and 100 hubs in 2011, ultimately reaching 375,000 rural households. The Rural Sales Program opearates in 13 districts primarily in the southeast and northwest of the country and there are plans to expand operations to a further 18 districts. Overall, the RSP sold US$1 million worth of products in 2009 and has set a target of US$20 million in sales in 2011. There has also been a significant benefit to the women in terms of an increase in their incomes. When the program began in 2005, an Aparajita’s average income was 440 Taka (US$6) per month. By 2008, that had grown to 1,200 Taka (US$16), and it continues to rise with the addition of new products to sell. In order to accommodate the occasional cash shortage of their customers, Aparajitas can also accept payment in rice or other produce which they can trade for other products or turn into cash (Dolan and Scott, 2009). Rural Sales Program women no longer just sell Bata shoes and Unilever products. With the success of the project, other companies such as Square (toiletries, cosmetics, soap, cooking oil, snacks, spices), Lal Teer (seeds), Danone (yogurt), GrameenPhone (mobile phones) and BIC (pens) have all become involved, and there are ongoing talks with other companies such as d.light (solar lanterns). In many cases, companies work with the sales women and CARE to design products specifically for rural markets. Lalteer for instance, has designed summer and winter seed packages which are designed to provide all the vegetables needed for a household at a cost of 30 Taka (US$0.42). CARE is also exploring innovative ways of leveraging the distribution network created by the RSP. In 2007, CARE Bangladesh launched the Strengthening the Dairy Value Chain project with funding from the Bill & Melinda Gates Foundation with the objective of doubling the dairy related incomes of 35,000 smallholder farmers in the northwest of the country (McKague, 2011). The dairy project has teamed up with the Rural Sales Program to increase access to cattle feeds, veterinary medicines, and animal health services for dairy farming households through the development of a network of community dairy input shops serviced by the RSP distribution network. Now that a viable network has been established, some sales women are also beginning to sell goods that they make themselves or that are sourced from local communities, such as cookies, accessories and clothes (Bahree, 2010). In future, the Rural Sales Program’s network could be further leveraged to ultimately accommodate a greater two-way flow of products and services, so-called bidirectional distribution
Bangladesh’s Rural Sales Program 25
(Vachani and Smith, 2008), if larger companies were interested in sourcing agricultural or handicraft products as inputs to their supply chain. New joint venture with Danone In November 2009, Grameen-Danone began selling its nutritionally fortified yogurt through the RSP distribution channel. Initially, Danone had tried selling the yogurt through 250 of its own representatives, mainly women who were part of a Grameen Bank group (Yunus, 2010). However, Danone quickly came to the same conclusion as the RSP pilot project – that it is incredibly difficult for sales women to make a sustainable income with only one product to sell. Aparajitas are able to make a viable income because they sell a variety of different products, and they have successfully added yogurt to their product mix. A total of 55 RSP sales women are selling a total of 30,000 cups of Grameen-Danone yogurt per month through a pilot project that established a refrigeration cold chain operating out of two distribution hubs. The distribution network the Rural Sales Program has created has been so successful that it is being spun-off into a new joint venture social business with Danone as a major investor. With an investment of e600,000, Danone will have a 49 percent equity stake in the new venture with CARE retaining 51 percent ownership. The new venture will be named JITA, based on the sales agents who call themselves AparaJITAs – women who never accept defeat. The short- to medium-term vision JITA is to expand to a network of 400 wholesale distribution hubs throughout the country. This would mean wage employment for 800 service providers, incomes for over 12,000 Aparajita sales women, and access for more than 10 million rural households to a wide range of quality household, nutritional and communication products. With the consolidation of this next growth phase, JITA will be poised to extend its reach even further. As the system develops and reverse linkages are explored, this hub system of distribution could also provide 100,000 farmers and 1,000 small-scale manufacturing micro-entrepreneurs access to more profitable markets for their agricultural and artisanal outputs. Saif-al Rashid, one of the two managers initially hired to launch RSP and now its managing director, continues to draw on his business training to emphasize the financial sustainability of the network in an effort to effectively grow and reach greater scale. Contributions and lessons learned Although a number of similar door-to-door direct sales models exist around the world including Unilever’s Shakti program selling consumer goods in India (Rangan et al., 2007), Living Goods’ sales of basic health care products in Uganda (Kubzansky et al., 2011), Health Keepers’ sales of health goods in Ghana ( Jackson et al., 2008), Toyola’s sales of cook stoves in Ghana (Osei, 2010), VisionSpring’s sales of eyeglasses in Bangladesh, El Salvador, India and South Africa (London and Christiansen, 2011) and Natura’s sales of natural cosmetics in Colombia (Sua´rez Franco, 2010), an analysis of direct sales agent networks by the Monitor Group (Kubzansky et al., 2011, p. 129) found only “mixed” evidence of success from the existing models they studied in Africa and India. The Monitor study also concluded, however, that distribution of socially beneficial goods through a direct sales force was one of the most promising market-based social enterprise business models and “one to watch” with the potential to create value for the poor if organizations could get the details right (Kubzansky et al.,
2011, p. 129). Lessons from the Rural Sales Program in Bangladesh are, therefore, vitally important contributions to practical knowledge about this high potential social enterprise model. In this respect, the experience of the Rural Sales Program offers a number of important lessons. A fine balance The reason why rural areas are typically underserved is the high cost of establishing financially viable distribution networks where incomes are low and unpredictable, infrastructure is poor and unreliable, and people are disbursed around the countryside in small villages. The key challenge therefore is keeping the costs of the distribution network down while ensuring that everyone in the network – in this case the Aparajitas, hub owners, transporters, companies and CARE – earn enough money to keep them incentivized. Through trial and error over time, the Rural Sales Program has learned how to balance this fundamental tension in a number of ways as summarized below. Shared distribution network The Rural Sales Program not only offers a wide variety of products, but, importantly, further shares costs and increases revenues through the network by including multiple companies. This was initially a challenging task, as the negotiations with Unilever to share the initial network with Bata attest, and speaks to the potentially unique role that a third-party non-governmental organization can play in this case as a broker and intermediary to establish and oversee a shared network. Companies with limited product lines trying to develop proprietary channels face the daunting challenge of lower turnovers and higher costs, as CARE realized early on in its pilot with Bata and Danone has realized more recently. When Aparajitas can offer multiple products from multiple companies, it increases their sales volumes and incomes. This is an important driver of commission revenues flowing through all points in the distribution network. Having a wider variety of goods on offer through a network shared by multiple companies also ultimately provides rural customers with greater access to socially beneficial goods. The overall costs of the network are also kept down as hub owners and Aparajitas are engaged as independent entrepreneurs with low fixed and variable overhead costs. Assigning non-overlapping territories of sufficient size and initially building the network with sales of “pull” products that are already in demand also contribute to the financial sustainability of the network. Importance of wholesale distribution hubs The experience of the Rural Sales Program highlights that a critical piece to get right is the configuration of the distribution channel between the sales agents and companies. In the Bangladeshi context, this required creating a network of wholesale distribution hubs owned by independent entrepreneurs. It also required each hub owner to hire approximately two transporters to get goods to the Aparajitas. Having hub owners as independent entrepreneurs means that extra attention needs to be paid to network’s overall financial viability as hub owners incentives will be linked to the volume of goods that they can trade through the Aparajitas or sell through store fronts. CARE’s insistence on renegotiating margins with companies was essential to maintaining the right mix of financial incentives through every piece of the channel. Through constant
Bangladesh’s Rural Sales Program 27
trials, monitoring and adaptation, the Rural Sales Program was also able to determine the most efficient scale for the network: one hub owner with two transporters serving 30 Aparajitas. Build a financially sustainable platform first The Rural Sales Program’s experience suggests that the most important first step in increasing access to socially beneficial goods is to focus on building the financial sustainability of the network first. Once a rural distribution network is established and financially sustainable, it can be leveraged to increase access to types of socially beneficial goods that may be more expensive to sell and distribute. The Rural Sales Program initially kept costs of the network low by focusing on goods that were already in demand and did not require significant amounts of additional awareness-raising by the sales agents. This allowed training and advertising costs to be minimized. However, once the network is in place it is easier to add additional goods. These could include socially beneficial “push” products for which awareness may be low, such as birthing kits, fortified foods, solar lanterns or water purification treatments. Once a network is established it is also available to distribute additional goods such as feeds, medicines and other agricultural inputs. Conclusion Rural door-to-door sales distribution networks are a market-based social enterprise model with significant potential to create social value for underserved rural populations and much needed income generating opportunities for sales agents, especially women. They also provide business benefits to companies, including knowledge of how to tailor product offerings to the needs of low-income rural customers. However, many socially-oriented rural sales models are relatively new and are learning, in real time, about how to manage the social impact of their models while simultaneously pursuing the financial sustainability that will allow them to grow and maximize their impact. The case of the Rural Sales Program in Bangladesh, an innovative approach developed by CARE Bangladesh and several companies including Bata, has been developing its model since 2004. Lessons learned from its successes and challenges has much to offer other similar models, and contribute to more inclusive markets. Note 1. Research conducted by the Monitor Group included 407 market-based solutions to poverty reduction in Africa (see Kubzansky et al., 2011) and 270 in India (see Karamchandani et al., 2009). See also Karamchandani et al. (2011). References Bahree, M. (2010), “In Bangladesh women are taking a shopping network to the villages”, Forbes, October 12, available at: www.forbes.com/sites/meghabahree/2010/10/12/in-bangladeshwomen-are-taking-a-shopping-network-to-the-villages/ (accessed December 10, 2011). Bata, T.J. (1990), Bata: Shoemaker to the World, Stoddart, Toronto. CARE (2004), Making Markets Work for the Poor: CARE Canada’s Strategy for Helping the Poor Through Enterprise, CARE Canada, Ottawa.
Cekota, A. (1968), Entrepreneur Extraordinary, Edizioni Internazionali Sociali, Rome. Collins, D., Morduch, J., Rutherford, S. and Ruthven, O. (2009), Portfolios of the Poor: How the World’s Poor Live on $2 a Day, Princeton University Press, Princeton, NJ. Dawar, N. and Chattopadhyay, A. (2002), “Rethinking marketing programs for emerging markets”, Long Range Planning, Vol. 35 No. 5, pp. 457-74. Dolan, C. and Scott, L. (2009), “The future of retailing? The aparajitas of Bangladesh”, The Retail Digest, pp. 22-25 available at: http://edu.care.org/Documents/Aparajitas%20of% 20Bangladesh-%20Retail%20Digest%20Article.pdf (accessed December 10, 2011). Garrette, B. and Karnani, A. (2010), “Challenges in marketing socially useful goods to the poor”, California Management Review, Vol. 52 No. 4, pp. 1-19. Hacket, M.T. (2010), “Challenging social enterprise debates in Bangladesh”, Social Enterprise Journal, Vol. 6 No. 3, pp. 210-24. Hindstrom, H. (2011), “The ‘Avon Ladies’ of Bangladesh”, The Guardian, November 21, available at: www.guardian.co.uk/journalismcompetition/bangladesh-avon-ladies (accessed December 10, 2011). Jackson, A., Jackson, J., Quinn, M. and Rodriguez, Y. (2008), “Preventative health care at the village level in Ghana: a social franchising solution”, Brigham Young University, Provo, UT. Karamchandani, A., Kubzansky, M. and Frandano, P. (2009), Emerging Markets, Emerging Models: Market-Based Solutions to the Challenges of Global Poverty, Monitor Group, Cambridge, MA. Karamchandani, A., Kubzansky, M. and Lalwani, N. (2011), “Is the bottom of the pyramid really for you?”, Harvard Business Review, Vol. 89 No. 3, pp. 107-11. Karnani, A. (2011), Fighting Poverty Together, Palgrave Macmillan, New York, NY. Kubzansky, M., Cooper, A. and Barbary, V. (2011), Promise and Progress: Market-Based Solutions to Poverty in Africa, Monitor Group, Cambridge, MA. London, T. and Christiansen, M. (2011), “VisionSpring: a lens for growth at the base of the pyramid”, in Hamschmidt, J. and Pirson, M. (Eds), Case Studies in Social Entrepreneurship and Sustainability, Greenleaf, Sheffield. McKague, K. (2011), Private Sector Engagement and Inclusive Value Chain Development: A Study of Strengthening the Dairy Value Chain in Bangladesh, CARE International, London. McKague, K., Wheeler, D., Cash, C., Comeault, J. and Ray, E. (2011), “Introduction to the special issue on growing inclusive markets”, Journal of Enterprising Communities, Vol. 5 No. 1, pp. 5-10. Osei, R.D. (2010), “Toyola charcoal stove: improving the environment and health of the poor in Ghana”, Growing Inclusive Markets Case Study No. B095, United Nations Development Program, New York, NY, available at: www.growinginclusivemarkets.org/media/cases/ Ghana_Toyola_2010.pdf (accessed December 10, 2011). Rangan, V.K., Sehgal, D. and Rajan, R. (2007), “The complete business of serving the poor: insights from Unilever’s Project Shakti in India”, in Rangan, V.K., Quelch, J.A., Herrero, G. and Barton, B. (Eds), Business Solutions for the Global Poor: Creating Social and Economic Value, Jossey-Bass, San Francisco, CA, pp. 144-54. Seelos, C. and Mair, J. (2005), “Social entrepreneurship: creating new business models to serve the poor”, Business Horizons, Vol. 48 No. 3, pp. 241-6. Seelos, C. and Mair, J. (2007), “Profitable business models and market creation in the context of deep poverty: a strategic view”, Academy of Management Perspectives, Vol. 21 No. 4, pp. 49-63.
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Shukla, S. and Bairiganjan, S. (2011), The Base of Pyramid Distribution Challenge, Centre for Development Finance, Chennai. Vachani, S. and Smith, N.C. (2008), “Socially responsible distribution: distribution strategies for reaching the bottom of the pyramid”, California Management Review, Vol. 50 No. 2, pp. 52-84. Yin, R.K. (2008), Case Study Research: Design and Methods, Sage Publications, Thousand Oaks, CA. Yunus, M. (2010), Building Social Business, Public Affairs, New York, NY. Further reading Mair, J., Marti, I. and Ventresca, M.J. ((n.d.)), “Building inclusive markets in rural Bangladesh: how intermediaries work institutional voids”, Academy of Management Journal, to be published. Sua´rez Franco, C.F. (2010), “Natura: productive beauty”, Growing Inclusive Markets Case Study No. C114, United Nations Development Programme, Colombia, available at: http://cases. growinginclusivemarkets.org/documents/259 (accessed December 10, 2011). Corresponding author Kevin McKague can be contacted at: [email protected]
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