Exploring Global Business Challenges from Multiple Perspectives - Case Study Example

Number of words: 1,350

Table of contents

Subtitles Page #

• Introduction

3

• Main Body

4

• Conclusions

6

• Appendix

8

• References List

9

• Introduction

At the onset, people have a well-defined notion of the meaning of innovation. The concept of innovation has been widely researched and many definitions of the term are well provided and documented (Shaver, 2014). A good definition of innovation is that it is a process where a conceptualized idea is eventually transformed into a valuable product or service for consumers which likewise enables the generation of sustainable profits for the originating organization (Carlson & Wilmot, 2006). Concurrently, there are different kinds of innovations which include business innovation, social innovation, as well as pure social innovation.

According to Pol & Ville (2009), business innovation is the process where ideas are created with the aim of gaining profits. In a study written by Sawhney, et al. (2006), business innovation is defined as the conception of value for consumers by an organization through tranformation of any one or more dimensions of current business systems, or enabling the establishment of new systems. Moreover, business innovation allegedly involves either technological or organizational innovations and is allegedly protected by intellectual property rights (Pol & Ville, 2009). On the other hand, the concept of social innovation was deemed to be widely encompassing and generalized that no specific or accurate definition of the term was aptly provided. As mentioned, social innovation apparently implies that the “new idea has the potential to improve either the quality or the quantity of life” (Pol & Ville, 2009, p. 881). The examples of social innovation include improved educational structures or facilities, better healthcare, as well as improved environmental quality. Finally, pure social innovation is described as innovations that not profit driven and therefore are enabled by institutions through subsidies (Borzaga & Bodini, 2012).

After describing the concepts surrounding the types of innovation, it could be deduced that microfinance falls under the bifocal innovation or a cross-over between social innovation and business innovation. As defined, microfinance is a set of financial services provided to the poor to enable them to avail of low cost credit. As such, it is a business innovation since profit is an objective for lending loans; while it is also a social innovation for enabling the poor to have a chance to improve the quality of life from the proceeds of the loan which would be used for productive purposes.

• Main Body
• What is the collateral effect of microfinance on child labour? Explain carefully.

First of all, it was asserted that parents actually make the decision regarding children staying at home, going to school, or working (Blume & Breyer, 2011). Accordingly, microfinance could have positive or negative effects on child labour depending on the factors that apparently influence the participation of children to work. The child labor determinants and microfinance entry points are shown in Appendix 1. The factors that contribute to the need for children to work include: poverty, lack of access to basic services, variability and vulnerability of access to livelihood, access, cost and quality of education, as well as socio-cultural norms and attitudes regarding children’s need to work (Blume & Breyer, 2011). It could be deduced that microfinance could positively impact child labour since the granting of credit could actually reduce families’ reliance of seeking the assistance of children to earn a living. However, on the contrary, there are negative impact on child labour especially when parents who availed of microcredit would deem it more appropriate and reliable to use their children in generating productive assets to pay off the loan. As emphasized, there were instances where child labour was deemed to be resorted to when adult labour is not affordable, as well as when people, especially parents, who availed of microfinance credits, find contracting other labourers as not feasible due to trust issues. As such, these parents or borrowers would prefer to use their children to work or undertake much needed household chores so that their time could be spent on working towards repaying the microfinance credit (Blume & Breyer, 2011).

• Brief discussion of microfinance using the principal-agent framework. In particular,

(1) Who is the principal? By virtue of the principal-agent framework, the principal is the top management of the microfinance organization (de Aghion, et al., 2007). However, technically speaking, the principal could be private investors who are the main sources of funds to be lent out to the borrowers.

(2) Who is the agent? The agents are the loan officers or field staffs (de Aghion, et al., 2007). Concurrently, the agents could also be the microfinance units, agencies or conduits who serve as the vehicle for lending out the funds to the borrowers.

(3) What is the principal agent problem that can occur? The principal-agent problem that can occur in a microfinance context using the framework is the conflict in roles and responsibilities to meet defined objectives. As noted, the framework focuses various challenges that managers or the principal could encounter with agents or personnel to whom essential responsibilities were duly delegated. Among the issues encountered include inability to actually monitor the activities of the agents while they are in the field, inability to appropriately match performance to the outcome (thereby making it also difficult to provide performance incentives) (de Aghion, et al., 2007). Likewise, the lack of regulation and monitoring appears as the problem in the principal agent framework (YouTube, 2011; YouTube, 2013). If and when the principal are the investors or the sources of funds, there would be apparent problems if they stipulate interest rates that are exorbinant and not within the realm of microlending mechanisms, as understood or promoted by the agents.

• What is the social responsibility challenge micro-financiers should meet? The social responsibility challenge that micro-financiers should meet is the provision of credit that would be used by the poor in the most productive manner with a reasonable amount of profit or return on investment. As such, appropriate monitoring, transparency, and regulations need to be enforced and put into place to ensure that the poor are indeed assisted to avail of access to low interest credit which could be used for productive purposes and enable the poor to uplift their well-being and quality of life.
• Conclusions
• Is microfinance creating a world without poverty?

If microfinance is appropriately legislated with appropriate monitoring and governance from financial policymakers and regulators, microfinance could indeed assist in finding appropriate livelihood for the poor to lift them eventually out of poverty levels.

• What is the main lesson that you have derived from the video by Hugh Sinclair?

The main lesson derived from the video by Hugh Sinclair is that for microfinance to work, investors and lenders should assume appropriate sense of corporate responsibility to avoid overcharging the poor in interest rates. There should be transparency in microfinance transactions with appropriate governance and legislative regulations that would control and monitor the rates that are being charged for the credit loaned to the poor.

• Suppose that your objective as a policymaker in your native country is to alleviate poverty and that you have only two mutually exclusive choices:

Choice 1: Use innovation (social innovation or business innovation or both); and

Choice 2: Taxing the rich and redistribute to the poor?

As a policymaker, if the objective is to alleviate poverty, I would choose the first choice, use innovation through a combination of social and business innovation, much like microfinance, but with stricter governance and regulation in the provision of interest rates, as well as in monitoring access to credit, repayment, and effective utilization of the proceeds of the credit. There should always be a checking mechanism and a transparency aspect that would ensure that funds from willing public or private investors would be utilized in the most effective manner.

Taxing the rich would generate needs funds but the mechanism for redistributing the funds to the poor would be open for corruption if no legislations or clear-cut policies on poverty alleviation would be enacted. It should be emphasized that the goal is to alleviate poverty, distribution of funds with no explicit regulations on how the funds would be used would not be effective in achieving the defined goal.

Appendix 1: Child Labour Determinants and Microfinance Entry Points

Source: Blume & Breyer, 2011, p. 9