Food companies look at a new business model for developing countries

In an interview with MIT SMR, Paul Murphy, CEO of Valid Nutrition, spoke with Nina Kruschwitz, editor of the sustainability content initiative at MIT Sloan Management Review to discuss how for-profit companies partnering with NGOs to treat and prevent childhood malnutrition can find opportunity at the bottom of the pyramid. Here's an edited excerpt from that interview:

Tell us about your experience in trying to partner with large corporations.

We believe that a business-led approach is imperative to make a meaningful impact in the area of malnutrition. Even if the public/private sector-NGO-charity type of approach was much better funded, there’s absolutely no way they could ever effectively reach as many people as need help.

But most of those people are being reached by consumer goods businesses in many shapes or forms, although not with the sort of products that are actually needed. So you can buy biscuits and carbonated drinks in most countries in the most remote villages and stalls, but can you buy a fortified nutritional snack, let alone at an affordable price? No, and that’s really where we think there is an opportunity.

We know that a lot of these for-profit food businesses recognize that there is a market opportunity at the bottom of the pyramid, in two senses. First, because there’s a huge number of people. And second, because they understand the massive long-term benefits of providing highly nutritious products to consumers at the bottom of the pyramid, particularly in the critical first 1,000 days of a child’s life.

Those are both strong forces. So what are the barriers?

The big barrier to corporations getting involved is that in order to make suitable products available, which they have the experience and capability to do, they have to sacrifice some of the conventional margin expectations they would have in more developed markets. They are being asked to effectively take a hit on margin in return for long-term gains. Some of them realize that they need to do it outside of their conventional business model, but many just fall back on corporate social responsibility programs, which tend to have minimal strategic or long-term impact.

The other barrier is that many companies that have dipped their toe into this area in the past have been castigated by sections within the highly conservative public-sector-NGO-not-for-profits mindset, where many have a clear view that no private enterprise company should be making profit from the poor. That’s something that we have a completely different view on. We think that a business-led approach is imperative and we think that making profits is acceptable — and necessary for sustainability — provided that it’s done within defined parameters. To have a blanket rejection of profit is, we believe, incredibly short-sighted.

This article is adapted from “Changing Business Models to Change the World”  by Nina Kruschwitz, which was published by MIT Sloan Management Review in June 2012.  This interview is part of MIT SMR’s research and content theme, Sustainability & Innovation.  The complete interview is available at http://mitsmr.com/OyghDK.

Copyright © Massachusetts Institute of Technology, 2012. All rights reserved.