Links Between International Business and Poverty Reduction - Assignment Example

Business “Serving the World’s poor is good for business and good for the poorest people in the world”. Discuss. There has been varied definition of the word “serve”. To serve is, therefore, “to provide goods and services for customers; to be of assistance to promote the interest of, to aid.” (Murray, 2014). Business, on the other hand, is the process of exchanging goods and services for the sole purpose of making a profit. The world’s poor who comprise over 3 billion people, is a group of people who averagely survive on a dollar or less a day (World Bank, 2013). They do not enjoy the luxuries of this world but work so hard only to earn peanuts mostly. They are a group of the world’s population that businesses have decided to work with. Due to this, there has been a very long time discussion about serving the world’s poor. The argument is that is good business and good for the most unfortunate people in the world. It is, therefore, good for the company in various ways. To start, millions of new customers come into the global marketplace every year. Most of these clients are countries whose populations have been unfortunate for a very long time. Is some cases, they are still transitioning. The countries in this case are Brazil, India, China and of late South Africa. They are commonly referred to as the BRICS .In the league of new and emerging markets, the BRICS are not the only players. There are also third world countries from Africa, Asia, and Latin America. The countries are Nigeria, Kenya, Egypt, Angola, Mexico, Uruguay, Argentina and others (World Bank, 2013). When these countries enter the markets, they bring in a significant number of customers. They purchase a lot of things whose combined value makes good profits. The companies can even increase the prices to take advantage of the customer’s economic states (Murray, 2014). Second, doing business with the poor is good for companies because it enhances competition and innovation. The innovations are mainly in telecommunications, transport, food technology and others. Additionally, there is enhancement in competition on the production and delivery of the products, quality of the products and the costs involved. The ventures such as banks, fuel dealers, civil works companies and others compete for the deals and tenders that are present in the countries (London, 2011). The businesses strive to come up with new ideas and ways of offering their products. The products need to be of the better quality for the customers. This strive thus enhances competition among the businesses. It also improves their rating on the global marketplace hence positioning the best business partners at the levels at which they can be easily noticed by their potential and current customers in terms of quality, costs involved, and the overall reputation. (Polak & Warwick, 2013). Third, companies, which offer cheap prices for higher quality goods can reap big by doing business with this group at the base of the pyramid. Research shows that the poor spend more on most things than the middle class. Most of the products that they are ready to spend on are food, telecommunication services, and others. Business, that deal in these and are ready to make their prices slightly lower can rest assured of bigger returns when they do business with the developing world. They spend over 50% of their income on food alone thus being left with nothing to save. In Bangladesh for instance, in the remote villages, people spend 7% of their revenues on phone services. This percentage is much bigger than what individuals in the traditional markets do (Spillan, Virzi & Garita, 2014). It is because; most of the people live in the cities that are densely populated, and the number will increase in the future. It is, therefore, cheaper to deliver the goods and services to the people due to reduced transport costs for the products and services (London, 2011). These populations, as a group, also have a higher purchasing power and billions of dollars to spend. In Rio de Janeiro, for instance, the poor as a group, have a total purchasing power of over $1 billion which is $600 per person. This is the case in Johannesburg or Mumbai. If all the money the people at the base of the bottom own is brought together, it can be an enormous figure. This money is mostly never kept in the bank. It is always spent on goods and services. The investors or foreign companies can take the opportunity of this advantage and eventually reap big (Rangan,.et al, 2007). Furthermore, doing business in the developing world has the first mover advantage to the enterprise. This means that the company that is less recognized in its country of origin, can move to the foreign countries and be the first ones to set up a venture in the respective fields. People will quickly understand it and start doing business with thus building a brand. This approach is more advantageous to the first company than the ones that come later in the same industry or field. A successful first mover can, therefore, create a lot of partnerships with the locals than those who come later. Companies that plan to have businesses in foreign third world countries should therefore look for unique idea so that they utilize the first mover advantage (Spillan, Virzi & Garita, 2014). There is also a guaranteed access by the companies or businesses to capital in the emerging economies. The emergence of the new economies comes with a lot of new and untapped resources that is set up for grabs. These resources help in enhancement of domestic growth and also the expansion of the companies and their services. Due to this, emerging new capital can help breathe new life into the firms that have maximized on the use of the resources. The resources can be in terms of natural resources, human resources and the prevalence of political stability.(Tolentino, 2003). There is an increase in the embracement of information and communication technology and related products. There has been a misconception that the poor are unable to use the IT products (Clay, 2005). A study shows that most people in these areas are ready to learn, and even others are already adopting the technology and its products. For Instance, people in Bangladesh have not shown any difficulties in using GSM cell phones despite never before using any phones. In Kenya, the youth are from the slums are being trained on web designing while women in Indian coastal villages use satellite images to see the concentrations of schools of fish so that they direct their husbands to those regions (Lacey & Ilcan, 2011).The multinational company should take this as an advantage and produce their goods and services for these markets. They should rest assured that the response shall be different as earlier speculated. ICT companies need to embrace technology in the third world countries and shall be amazed at the response. They should not go to the notion about the poor people that they are unable to use them. This will help the companies in marketing their products to these people (Polak & Warwick, 2013). On the other hand, doing business is good for the poor. The poor also do receive a lot of benefits when they transact business with multinational companies. Some of these advantages are seen openly while others are not readily seen. The countries of these people are striving to ensure that they secure partnerships with large multinationals. The multinationals come with a lot of advantages and benefits to the locals and the economies of those countries as a whole (Polak & Warwick, 2013). To start, there is the guarantee of employment opportunities to the youths and the general populations in those countries. The companies come with large scales projects. Most of the employees of those companies are the people from the country itself with only a few specialized staff coming from the foreign countries. The employment opportunities lead to the generation of income to the people thus improving their living standards. With these possibilities, the people can earn at least $5 a day. This makes them operate above the poverty line (Spillan, Virzi & Garita, 2014. Second, to work with the people at the base of the pyramid, leads to the generation of revenue to the government. The revenue is generated by imposing taxes on the foreign multinational and ventures. Multinational companies and other businesses that do not follow the regulations set by the countries can also be fined due to it. Fines are mostly discouraged because they make investors shun these countries. The income found from the taxes is used in development projects and other beneficial practices of the companies (Rangan,.et al, 2007). Third, the companies, which do business in the developing countries can offer goods and services that are affordable to the customers (Lacey & Ilcan, 2011). The goods and services are offered at cheaper prices. This is in the spirit that most people purchase at lower prices and in higher volumes. The purchases are usually on a daily basis due to the fact most of the customers are casual laborers and earn on a daily basis. In some instances, the companies offer to provide goods and services on credit to the customers. They understand the fact that some customers, who are majorly casual laborers, earn on a bi-weekly basis, daily basis or monthly basis (Tolentino, 2003). In addition, the third world countries benefit from generation of foreign exchange. They tend to receive goods and services and exchange them with other products and services. The foreign exchange brings foreign currency, goods and services into the country. With the foreign exchange in the country, the countries can improve their GDP levels and per capita income. Most of them are trying to achieve the double-digit GDP percentage (Polak & Warwick, 2013). When multinationals establish branches in the developing countries, they can have the corporate social responsibility towards the community, government, employees and other stakeholders. They will have to bring back to the society as appreciation. This is through engagement in various infrastructural developments. The corporate social responsibility is majorly of importance especially to the community around basing on the fact that the majority are poor. The companies engage in construction of hospitals, roads, schools and general improvement of the livelihoods of the community (Clay, 2005).In addition, the companies can also get involved in environmental protection and sustainability among many practices. In the essence, such like practices prove to be of great importance to the poor (Rangan,.et al, 2007). Another benefit to the poor is the benefit they get from high-variety of products at cheaper prices. Companies and especially, multinational compete so as to gain the trust of the market. The market in this case is the third world countries. The market end up receiving the best goods and services at prices that are friendly to them basing on their economic conditions. This competition and eventual lower prices of the goods and services has been evidenced in some markets like Bangladesh, Kenya and others where telecommunications technology sees a good reception despite some pessimistic views that they may not be received well. Women in Bangladesh are currently using GSM cell phones despite never having used a phone before while, in Kenya, 60% of the youth own or have used a smartphone. This trend shows that if a lot of companies camp in these countries to do business, they will, therefore, be forced to reduce their prices due to the prevailing competition in quality and prices from their fellow industry players. This kind of business is beneficial to the people as they can now easily access the high-quality goods and services at cheaper and affordable prices (Yunus, 2010) Business with the people at the bottom of the pyramid makes the people also to have channels of income (Clay, 2005). They can sell their land to the multinationals so that they establish their plants in them. The people can use such income as capital for them to start their small-scale businesses. The businesses can grow very fast due to their networks on the ground and a better grasp of the area they do business in. Such businesses may eventually grow and develop into multinationals that also do business in that region. This idea has been actualized in some countries where the leading businesspeople in the private sector, started with humble beginnings (Tolentino, 2003). With the entry of international companies and other trading partners, the interior areas of the emerging markets can be opened up to the potential investors who have the capital but nowhere to invest it. They can invest in these areas thus helping in opening it to the outside world and at the same time assisting in developing the infrastructure within the areas. This way assists the people (Yunus, 2010). In conclusion, serving the world’s poor is of benefits to business as it assists in finding markets, increasing market share, expanding their customer base, finding and learning on how to overcome the new challenges and many others. On the other hand, it is good for the poor in several ways; first, that it opens up their thoughts and belief in certain things. Also, it enhances infrastructural development within the areas. The governments of the third world countries also benefit through foreign exchange. Finally, there is relief on the side of the government in terms of creation of job opportunities. In a nutshell, serving the poor is of mutual benefit for business and the poor. References Clay, J.,2005. Exploring the Links Between International Business and Poverty Reduction: A Case Study of Unilever in Indonesia. Ist ed. New York: Oxfam. Spillan, J. E.,Virzi, N.,Garita,M., 2014. Doing Business In Latin America: Challenges and Opportunities. 2nd ed. London: Routledge. Murray, G., 2014. Doing Business in China: The Last Great Market. 1st ed. London: Routledge. Polak,P.,Warwick,M., 2013. The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers. 1st ed. San Fransico: Berrett-Koehler Publishers. Lacey, A., Ilcan, S., 2011. Governing the Poor: Exercises of Poverty Reduction, Practices of Global Aid. 1st ed. Montreal: McGill-Queens Press London, T., 2011. Next Generation Business Strategies for the Base of the Pyramid: New Approaches for Building Mutual Value. 2nd ed. Upper Saddle River: FT Press. Tolentino, P. E., 2003. Technological Innovation and Third World Multinationals. 1st ed. London: Routledge. Rangan,V.K., Quelch, J. A.,Herrero, G., Barton, B., 2007. Business Solutions for the Global Poor: Creating Social and Economic Value. 2nd ed. Hoboken: John Wiley & Sons. World Bank., 2013.Measuring the Real Size of the World Economy: The Framework, Methodology, and Results of the International Comparison Program (ICP). 1st ed. New York: World Bank Publications Yunus, M., 2010. Building Social Business: The New Kind of Capitalism that Serves Humanitys Most Pressing Needs. 2nd ed. New York: PublicAffairs. Read More