How entrepreneurship transforms lives

By some estimates, half of the world's poor make a living as micro-entrepreneurs in developing countries.


Crucially, that imagined stereotype will usually place the entrepreneur in the developed world.

Yet in truth, only a tiny proportion of the world’s entrepreneurs operates in the world’s richest countries. The vast majority are in emerging markets, and, the data shows, desperately poor. By some estimates, half of the world's poor make a living as micro-entrepreneurs in developing countries.

Business thinking, such as that being carried out at the Deloitte Institute of Innovation and Entrepreneurship (DIIE) at London Business School (LBS), is helping these entrepreneurs. It can also be applied to the services they and their communities use, such as healthcare, to generate innovative practices that improve delivery. 

The combination of expertise in entrepreneurship and innovation is especially powerful in the context of solving social issues in emerging economies, where there are numerous challenges.   

In many cases, there is limited access to essential resources, such as finance, information, and basic business skills. Research can suggest the most effective ways to meet the various challenges – both by better understanding the business lives of these entrepreneurs, and by offering policy-makers, governments, NGOs and large corporations entrepreneurial solutions to solve poverty.

This is not typical territory for research in business schools. “Traditionally, students have thought of ‘businesses’ as being big businesses,” says Rajesh Chandy, who holds the Tony and Maureen Wheeler Chair in Entrepreneurship at LBS and oversees the Deloitte Institute project ‘Transforming lives through entrepreneurship’. “But the most common type of business on earth is the micro-business.  And business schools have not been very good at studying these sorts of businesses.”

There are very good reasons why multinational corporations can benefit from understanding the way that small-scale entrepreneurs operate and how they can be best helped: a company such as Procter & Gamble has more than 20 million businesses involved in distributing its products; these are its customers, and most are small-scale operations. Most of Nestlé’s cocoa suppliers are tiny businesses, as are most of its distributors in emerging markets. Helping these small-scale enterprises to survive is to everyone’s good. The relationship between multinational and micro-entrepreneur is symbiotic. Professor Chandy says: “Big businesses have a vested interest in making these things happen. For P&G to grow, it needs retailers who can stay in business, who can adopt new technologies and who can work more efficiently.”

But the work on micro-entrepreneurs is about more than helping multinationals sell more goods. Emerging economies have recently been growing more quickly than the developed world – itself a good reason to look at the businesses that play so important a role in those developing countries. Many countries in Asia, sub-Saharan Africa and parts of Latin America have been clocking annual growth rates of 6% or more. Emerging economies already account for more than half of global GDP.

“Too often, we have the wrong idea of what constitutes entrepreneurship. The Oxford English Dictionary defines an entrepreneur as a person who sets up a business or businesses, taking on financial risks in the hope of profit. In reality, in many cases, it’s simply what people do to survive. But they don’t live in a vacuum. We can make a difference,” says Professor Chandy.

Whereas most students may have aspired in the past to a career with a large multinational or in investment banking, there appears to have been a shift in approach.

Interestingly, students increasingly agree. They see business education as offering potential to tackle a broad variety of issues. “Whereas most students may have aspired in the past to a career with a large multinational or in investment banking, there appears to have been a shift in approach,” added Professor Chandy.

“Every conference that students organise now seems to include something on social issues. Perhaps there is a greater awareness of one’s own privileges, having lived or travelled in poorer countries.  Maybe for some, there is a sense of disillusionment with the way many businesses have conducted themselves and a dissonance with students’ ideals.” And, of course over the decades, there has been a profound change in the composition of the student population: whereas in the early days of LBS, virtually all the students were British, now more than 90% come from outside the UK.

Lara Berkowitz, Executive Director, Career Centre, at LBS says: “Students are increasingly citing social impact as an important consideration in choosing a career path. For some, this may affect their choice of job when they graduate. For example, we still have a lot of students who are passionate about finance and investing, but more and more they look for organisations that have an explicit focus on social impact.

“For others, it is reflected in their involvement in social impact projects while they are still at LBS. There has been a proliferation of clubs in this sphere such as the Net Impact Club and Impact Consulting Club.”

An education in social responsibility

Tim Gocher’s SEMBA2002 story is instructive. His career followed a well-trodden route – Deloitte and JP Morgan, then an Executive MBA at LBS. He went on to become managing director of an investment bank and co-founded a venture capital firm in New York.

But in 2003, Gocher found himself stranded in a remote village while on a trip to Nepal. It was his experience there that prompted him to set up the Dolma Development Fund, aiming to tackle poverty by investing in sustainable businesses and education in Nepal. Crucially, the expertise he had acquired while doing his MBA was key in making the project a success.

Gocher says: “LBS gave me all the skills needed to excel in the area of socially responsible investment. All businesses operate under a charter from society and the environment. Just as we must meet the mandates of shareholders and regulators, so all businesses must manage their relationship with society and the environment – just as they would with any other stakeholder. This is as much about fundamental risk management and enlightened self-interest, as morality. All business schools should provide students with tools and examples to ensure a symbiotic relationship with these stakeholders whose needs are too often ignored.”

LBS’s research endeavours to identify problems and solutions for businesses – especially the tiniest ones on the planet. Take one issue as an example: why do small businesses in emerging markets stay small?

Look at manufacturing businesses that have been established for 40 years. 

  • In the US, one of these firms would typically have more than seven times the number of employees of a company that had been going for five years or less
  • Across the border in Mexico, the ratio would be only two-to-one
  • In India, the workforce of the average 40-year-old manufacturer would be no bigger than a firm approaching its fifth birthday. 

The growth rates of such companies in emerging markets are pitiful compared to their brethren in more prosperous economies. Why should that be?

Of course, macro factors such as education, the robustness of legal systems and health may be important determinants. “But people may not have time to wait around for these things to be fixed,” says Professor Chandy. “In the meantime, there is an important task to be done at the micro level.” What bottlenecks can be identified and what solutions proposed?

LBS projects helping micro-entrepreneurs

The aim of the DIIE project is to collaborate with policymakers, business leaders and NGOs to bring about positive economic and social change, transforming lives through entrepreneurship. LBS seeks to act as a catalyst for partner organisations that can put solutions into effect as widely as possible. It aims to inform and influence a broad audience about the work being done, explaining the potential for significantly improving the lives of vast numbers of the world’s poorest people. 

Professor Chandy says: “There are huge opportunities for business schools to address the problems of the world’s  ‘other’ 99% of businesses – those beyond the large Western businesses that are the focus of most business research and teaching today.”

A number of projects carried out at LBS illustrate the type of work being done to help emerging economies.

One involves small businesses in Cape Town, South Africa. The key question it sought to answer was this: to what extent could micro-businesses benefit from gaining business skills? And which type of business training – in finance or marketing – would be more effective? The work was carried out by Stephen Anderson-Macdonald PHD2009 – formerly a PhD student at LBS and now a faculty member at Stanford University – with Rajesh Chandy and Bilal Zia, a senior economist at the World Bank. 

The Cape Town research showed how training in business skills can make a real difference to an enterprise’s potential to survive and grow – and gave pointers to help decide how funds for training should be allocated for greatest benefit.

second piece of research involved the pricing of crops in India. The work was carried out by Chris Parker PHD2007, formerly a PhD student at LBS and now a faculty member at Penn State University, and Kamalini Ramdas, Professor of Management Science and Operations and Nicos Savva, Associate Professor of Management Science and Operations, both at LBS.

It is already well established that increased availability of mobile phones can allow farmers and fishermen in emerging markets – typically self-employed entrepreneurs – to obtain information about the prices they can achieve for their produce. 

But this idea has been taken one stage further. Rather than simply relying on one-to-one calls and text messages to discover prices, farmers can opt to receive regular and more comprehensive information about what his or her crops will fetch at various locations.

The LBS research investigated how much of a difference such a service makes: does it make pricing more efficient?

The findings of this study are of more than academic interest – price information from local markets shared via daily text messages to farmers, reduces price dispersion and therefore reduces risk. Substantial sums are being invested in emerging economies to improve the efficiency of agricultural supply chains. Between 2003 and 2010, the World Bank put US$4.2 billion into improving information and communication technologies infrastructures in the developing world. Demonstrating the value of services that provide timely and reliable information on prices informs decisions about how money is best spent.

Two further research projects illustrate vividly how business thinking and research can be applied to issues in emerging economies. 

Jérémie Gallien, Associate Professor of Management Science and Operations at LBS had collaborated with large corporations on supply chain management: he applied his expertise to the distribution of drugs in Zambia.

This is a crucial issue. As long ago as 2009, the World Health Organisation pointed out that the quantities of vaccines and medicines supplied to countries facing health issues such as AIDS and malaria had improved; but distribution of those drugs had not. Hence people were dying unnecessarily, simply because their local health clinic had run out of supplies.

Professor Gallien and a team of researchers were able to use their supply chain expertise to identify why these “stock-outs” were occurring. They could recommend change that could improve patients’ chances of receiving timely treatment.

In neighbouring Mozambique, Elias Papaioannou, Associate Professor of Economics, at LBS is applying tools from network analysis and spatial econometrics to analyse the long-term effects of one of the worst legacies of the country’s civil war.

The war ended more than two decades ago, but still unexploded land mines litter parts of the country. Dr Papaioannou and Stelios Michalopoulos are examining the ways in which the presence of mines and other unexploded devices have affected patterns of development, trade and entrepreneurial activity. The work is also looking at the impact of recent mine-clearance activities.

Each of these projects focuses on very different enterprises and services in countries that are unalike in many respects. Yet they all demonstrate that business thinking drives positive social change: used in partnership with more traditional NGO and government projects, the impact can be remarkable.

“You can solve some of the world’s problems of poverty and growth by doing better business,” says Professor Chandy. These projects demonstrate that transforming lives through entrepreneurship has the potential to benefit hundreds of thousands of people.

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