'South-south exchange can shorten innovation cycles and amplify impact': Q&A with IFC's Pallavi Shrivastava

In February 2015, the IFC and Intellecap released Corridors for Shared Prosperity to encourage and accelerate inclusive business transfer between India and Africa. The report builds a strong case for the promotion of south-south innovation exchange by analysing successful examples. We put some questions to Report lead and head of IFC's South Asia Inclusive Business Program, Pallavi Shrivastava, to get a deeper understanding of what successful south-south cooperation looks like.

‘Shared Prosperity’ strongly advocates for the inclusive business community as a whole to really get behind the idea of cross-border collaboration in the South. Can you explain why you feel south-south exchange is so beneficial and what opportunities currently exist for such exchange?

‘Corridors for shared prosperity’ is an attempt to showcase the opportunities and challenges associated with cross-border replication of inclusive business models and present a framework for effective replication. It acknowledges the fact that there are several similarities in the socio-economic contexts of India and other developing countries – especially those in South Asia and Sub-Saharan Africa and Inclusive businesses that thrive in one region can potentially be adapted and scaled to solve developmental chal­lenges in the other.

Cross-border replication is already happening. A host of inclusive businesses are seeking to scale by expanding their interventions to new regions in search of new markets and increase the scale of their impact. At the time of our study, we found over 20 such business models across agriculture, healthcare and renewable energy that have already transferred to countries in South Asia and Sub-Saharan Africa. At the same time, there are enough examples that failed to take off in a new market. The idea therefore is not so much to get behind but to support existing efforts by providing robust platforms to effectively scale up in a new geography, thereby reducing chances of failure in a new geography.

We believe that South-south exchange is beneficial because of two reasons: a) given the similar socio-economic contexts in both the regions, it is an effective tool for spreading proven business models to reach the underserved populations and b) it can shorten innovation cycles and amplify the impact of limited capital that flows into development of market-based approaches.

Opportunities exist in sectors such as Financial Inclusion, Agribusinesses, Health, and Renewable Energy as well as in specific formats such as technology transfer, expertise sharing, and trade in mass-market goods. An interesting case study that we looked at is of Manasa Agro, an Indian agri-enterprise that cultivates and processes lemon grass. Manasa expanded its operations to Malawi and Ghana through partnerships and found its biggest opportunity in those markets. Manasa’s Africa operations account for around 80 percent of its total revenues today. There are other similar examples across sectors.

Collaboration can happen in many ways, what are the different types of partnerships that you have seen emerge between inclusive businesses in different countries?

That’s true, there are many ways to collaborate and they depend on various underlying features of the inclusive business such as the business model, expansion objectives, organizational capacity and external dependencies. For example, product companies typically go for trade partnerships while service companies look for strategic alliances. There are other trade-offs. For example, trade partnerships and strategic alliances call for lesser investment but offer lesser degree of control. On the other hand, formats such as joint ventures offer higher degrees of control but also necessitate higher investments.

There are over six to seven different partnership and expansion formats that Inclusive businesses can select from. These include: Knowledge sharing, Trade partnership, Licensing, Franchising, Strategic Alliance, Joint Ventures and Acquisition. Aravind Eye Care and SELCO Solar chose to transfer to Africa by sharing knowledge and insights. Astonfield Solesa, a joint venture between Indian renewable energy firm Astonfield and Italian solar firm Solesa Group, created to capture the decentralised solar mini-grid market in India and East Africa through Joint Ventures. In our sample set, 50% enterprises chose to choose to start their own operations, given the diffi­culty they face in finding the right local partners and them preferring greater control over operations. Organizations such as Digital Green, Dimagi, Greenlight Planet, Novartis Arogya Parivar, and SKG Sangha set up their own wholly owned subsidiaries. In some cases the inclusive businesses have also entered a new geography in the form of public private partnerships with the Government but these have been very few.

Do you have an example of a south-south collaboration that has successfully scaled?

A good example would be Aravind Eye Care, the largest eye care provider in the world. It aims to eliminate needless blindness and provide quality eye care and provides standard quality of service to patients from across the economic spectrum. After successfully scaling its business model in India, it has expanded to 30 countries through knowledge transfer. Aravind has even set up an entity, LAICO, to implement knowledge transfer activities. It chose knowledge transfer and joint venture as transfer formats to scale impact and build local capacity in the new geographies. Presently LAICO is providing Knowledge transfer and consulting to over 300 hospitals in 30 countries.

Another example would be the Greenlight Planet that designs, manufactures and distributes affordable solar lamps targeted at low income off-grid households that has expanded through trade partnerships and setting up wholly owned subsidiaries. It has a manufacturing plant in China, and offices in India, Kenya and Uganda that focus on distribution. Its products are distributed to 35+ countries around the world. Currently it has Offices in India, China, U.S., Kenya and Uganda; distributes across 35+ countries.

We are also seeing interesting examples of Africa to India transfers such as Bridges International, the low cost, technology enabled, private school chain in Africa. After setting up close to 450 schools in Kenya and expanding in Uganda and Nigeria, it is now exploring expansion in India.

What are the key drivers for successful south-south cooperation?

One of the key drivers for a successful expansion is the need for a systematic approach and preparation. This involves laying out clear objectives and preferences, validating internal readiness, building internal capacity and understanding dependencies to be able to make informed choices around the timing, preparation, markets and replication formats. Nearly half of the cases evaluated were early stage ventures with less than four years vintage. They were able to succeed in difficult environments with small teams and limited funding because of planned enhancement of their management, financial and operational strengths. For example, SKG Sangha, which installs and maintains community-level biogas plants, built financial sustainability ahead of expansion by shifting its fundraising strategy to the sale of carbon credits.

Secondly, it’s important to adapt to local contexts. This means that businesses need to take effort to adapt their business model to local contexts and integrate with local communities. None of the successful businesses in our sample set employed a “lift-and-shift” approach in transfer. Some of the common adaptations include customising the product and service, shifting distribution strategies and/or deploying cost-cutting measures to counter the increased cost of doing business in a new market.

Thirdly, building strong local partnerships is a critical success driver. Partnerships are critical because they offer access to customers and market intelligence in short time-frames without requiring high investments. They also serve as a medium to create local identities for inclusive business models. In several African countries, local partners are necessary to register a business or acquire fixed assets such as land and real estate. The two broad types of partnerships observed were transaction-based commercial partnerships for sale of goods and services, and strategic collaborations with local firms to achieve common goals.

Finally, it’s choosing the right entry market and format. Some of the key considerations for inclusive business in a new market are: access to raw materials, presence of suppliers and distributors, competitive landscape, need for market building, type of customer segment, customer acquisition model, and need for customer financing etc. Businesses need to critically evaluate these to identify the right market for them. It is also advisable to adopt a sub-regional strategy instead of a specific country that helps drive business in neighbouring countries in the region. Choosing the right format for replication involves evaluating the risk, investment appe­tite, and degrees of operational control.

What are the main challenges to south-south cooperation?

There are several common challenges of doing business in developing countries that hamper set up and scale of inclusive businesses. These include:

a) Information gaps: Inclusive Businesses find themselves struggling with critical market information on the overall landscape, sector specific regulations, markets and consumer data to make informed decisions and choices.

b) Investment: Access to finance remains another critical challenge in cross-border expansion of inclusive businesses given the higher cost of doing business in new markets and effort required to establish the business model.

c) Implementation partners: Finding the right implementation partner is crucial for south-south exchange, however it is difficult especially in sectors such as agriculture, healthcare, and renewable energy, given the limited sector activity in these regions. This creates market entry barriers for Indian inclusive business models as they rely on firms that focus on specific activities such as transaction systems, distribution channels, marketing and communication, and small business support facilities.

That said, we are seeing constant improvement on the ground and through this report we suggest a few ways to overcome these challenges.

How easy is it for partners to overcome cultural differences?

Culture plays an important role in building and scaling a community focused inclusive business and is an important business driver. The culture varies from country to country and hence accounting these dependencies is critical to ensure long term sustainability of the business models.

It is also challenging to overcome the cultural differences. In fact, often challenges of cultural contexts may not even be readily visible until on-ground operations are initiated. The only way to overcome the cultural differences is by working closely with the local community and integrating the local context early on in the design process. One example that our report cites is of renewable energy company SKG Sangha, which installs household and community-level biogas plants, found that using red bricks for construction was a cultural taboo in some parts of Mali where it was working. The firm spotted this nuance early enough in the project and so avoided placing a procurement order for the “wrong colored” bricks.

In ‘Shared Prosperity’, more ‘structured support’ from key stakeholders is called for to facilitate cross-border collaboration, can you explain briefly what this means in practice? Also, have you seen much progress in this direction since writing the report?

Yes. Our hope in undertaking this work was to promote collaboration and transfer of knowledge across regions. Building on this momentum, different actors in the inclusive business ecosystem including donors, DFIs, foundations and corporates are seeing the opportunity for building a multi-stakeholder strategy to strengthen India-Africa collaboration and dialogue on Inclusive Business.

Last year, while discussing and promoting the work, we had garnered support from many stakeholders and I am confident that through constant interactions and initiatives, we will be able to jointly address the on ground challenges. This multi stakeholder approach is one example of a coordinated action between stakeholders that leverages each other’s strengths and resources and is needed to reach maximum impacts. Another can be that of government stepping on the regulations and creating enabling policies for recognition, scale and replication of inclusive businesses.