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What makes the market tick?

  • Published at 12:02 am September 19th, 2016
  • Last updated at 05:41 pm September 19th, 2016
What makes the market tick?

In today’s global economy, market practices that generate revenue at exponential rates and cater to large consumer profiles are what the manufacturing industry looks for. The explanation is simple -- companies want consumers with good credit and a steady income. It is a fool-proof plan for the industry to ensure constant sales with limited risks.

The fundamental idea that capitalism caters to the rich and not to the poor, backs this market system in every single operational way. In recent times, with the outbreak of small and medium enterprises, this orthodox marketing system did not seem to function in its set paradigm. The system was unable to compete with the institutionalised big market actors, with a dedicated customer base who saturated the market.

Thus, finding an alternative marketing solution to promote their products and entering the commercial sprint became the long-term feasible solution.

Inclusive business, or making markets work for the poor, became Adam Smith’s modern-day “invisible hand.” The market systems approach analyses functions of private markets and is the overarching approach to development, providing agencies and governments with the direction required to achieve large-scale, sustainable change in different contexts.

Also known as the M4P approach, this method proved to be successful in various sectors such as health systems (water, hygiene, and sanitation), education, agriculture in various parts of South America, Africa, and Asia.

While many will argue this to be a form of social business -- one can argue against this logic. Social businesses do not always have a strong profit incentive, and it largely emphasises on creating new enterprises and distribution channels, instead of utilising what is already there.

What the overarching M4P approach does is simply bend the fundamental concept of only catering to those who have steady capital. The strategy suggests adding a cluster of potential consumers who are relatively less commercial, but nonetheless with potential.

International Finance Corporation’s (IFC) studies have shown while multinational companies struggle breaking into the base of the economic pyramid (BoP), the success of local businesses has often been their dedicated focus to capture the attention of the grass-root.

Why does it work? It works because these consumers are not paranoid about changing to new products and therefore offers a longer product life cycle and potential scope for expanding markets to companies.

Take for an example, the Bangladeshi agriculture economy.

Inclusive business is ideally what will help Bangladesh to continue having a flourishing economy. While it allows the base of the economic pyramid to compete in the agricultural sector, it does not do so at the expense of any private sector company

World Bank’s latest findings state how agriculture has played a vital role in reducing poverty from 48.9% in 2000 to 31.5% in 2010. Furthermore, 87% of rural people had some part of their income dependent on agricultural activities. Specialists argue that Bangladesh needs to focus more on high value agriculture, such as fisheries -- to foster future growth and further reduce poverty.

The fisheries industry is an excellent example that illustrates how the agricultural economy is experiencing a more competitive environment, accelerated access to quality inputs and services, and a win-win business model for market actors. One of the largest fish-producing countries in the world, more than 43.5% of Bangladesh's fish production comes from aquaculture.

Private sector development organisations, such as Katalyst-Swisscontact, play a major role in motivating input companies in redesigning their marketing strategies. Katalyst argues that inclusion of the BoP’s is not something that is detrimental to the business, rather profitable because the accumulated revenue of these BoP’s can be potentially higher. Indirectly, it ensures improved quality of products, and the companies’ need to provide embedded services such as culture training programs, post-sales services, and demonstration of its use of products.

Penetrating these rural markets is not just a private sector success story, but a macro-economic achievement. By accessing a larger number of consumers to their existing portfolio of stakeholders, companies are experiencing a higher percentage of revenues, creating employment, and generating income for their end users.

Companies such as MM Ispahani Limited, NAAFCO Agrovet Limited, Eskayef Bangladesh Limited are some of the notable market players who have incorporated this approach and have been able to diversify their product portfolio and secure substantial increase in their company’s agri-business revenues.

This phenomenon is not a magical combination of solutions that can remain static over time. In order to attain the best market results, these companies must continue to refine the solutions that they have already incorporated into their business models, and implement it on the field.

Inclusive business is ideally what will help Bangladesh to continue having a flourishing economy. While it allows the base of the economic pyramid to compete in the agricultural sector, it does not do so at the expense of any private sector company.

It seeks to create a win-win situation for both parties generating profit. This approach will not only help create employment and scope of business for the ultra poor markets, but also motivate the private sector companies to keep up with the competition and expand its horizon into newer markets.

Farah K Iqbal is a Senior Business Consultant at Katalyst-Swisscontact.