Market-based initiatives oblige private
firms and social organizations to
reconcile the relationship between
the formal and informal sectors.
the cooperative by subsidizing energy bills and by providing security for the two warehouses storing materials. The enterprise significantly altered perceptions
and social dynamics, created new jobs and raised peoples’ self-esteem.
Bridging the Labor Divide
One of the most significant aspects of
market-based initiatives is that they
oblige private firms and social organizations to reconcile the relationship
between the formal and informal sectors. The Colcerámica and EDC cases
show that these two spheres do not necessarily operate in structural contradiction. To bridge the gap, nevertheless, requires firms to adapt their organizations,
culture and operations to informal net works in order
to deliver value at the bottom-of-the-pyramid. While
these efforts may stretch the organizational culture
and practice of traditional private sector, for profit
companies, it is not impossible.
In turn, informal networks need to adapt to more
formal business methods to realize that value. For
example, local customers interacting with EDC had
to accept the need to formalize the payments through
electronic cards in exchange for reducing risks and
also accessing credit. In other words, “formalizing
the informal” was needed to deliver value.
In the case of Colcerámica, the company had to
adapt the structure of its sales force to the informal
reality of the local community and as a result become
more “informal” than similar sales forces operating
in “formal” markets throughout Colombia. In short,
both cases seem to suggest that development of a sustainable network can harmonize the otherwise difficult relationship between the formal and informal
sectors. This might be one of the most powerful outcomes from initiatives such as the ones we describe,
namely, building sustainable bridges between two
worlds that have usually been portrayed as inextricably opposed.
New enterprise networks for developing market-based initiatives with low-income groups can fill
the ever-present institutional voids in Latin America. Markets in low-income communities suffer from
high transactional costs that make it difficult for
entrepreneurs to flourish. However, the creation of
a functional network can allow both local entrepreneurs and the firms to engage in creative and productive activities. Companies seeking to develop
business with poor communities must be able to
understand different components of the interactions:
the types of relationships, membership and roles, key
players, and efficiency.
It would have been impossible for Colcerámica to
succeed without the support of female leaders and
solid community organizations. The role of Ashoka
was pivotal in helping overcome distrust and solve
collective action problems. Similarly, EDC would not
have been able to implement the cero marañas program without the participation of local leaders who
played a vital role in changing community behavior.
Electricity is perceived as a social right, but communities were willing to pay for it when they could realize
visible benefits. These new market-based interdependencies can therefore provide the institutional basis
for reducing transaction costs as well as decreasing
operation costs—and as a result help consolidate and
multiply these types of initiatives.
Another lesson is that the benefits have to be
perceived not just by individuals but by the community more broadly. Low-income citizens engage
in these market initiatives as consumers or suppliers because they often believe that they will bring
both individual and social returns. This is because
people living in the barrios perceive themselves not
exclusively as individuals but also as members of a
larger and more complex social group upon which
