21 May 2020

Editor's note: A version of this summary was provided by getAbstract.

In his last book, the late Clayton Christensen and his coauthors observed that the best of altruistic intentions — and billions of dollars in aid — haven’t lifted countries out of poverty. Instead, Christensen advocated market-creating innovation as the key to prosperity. Coauthors Karen Dillon and Efosa Ojomo discuss the role of innovators in developing economies.

The Prosperity Paradox describes the failures of typical development aid efforts to fight poverty and the effectiveness of market-creating innovations. Since its publication, emerging entrepreneurs and venture capitalists in low- and middle-income countries have been using Christensen's framework to make the case for opportunities to build prosperity.

Innovative entrepreneurs can create new markets even in dire circumstances. The explosion of mobile communications in the late 20th century illustrates how an innovation can create a market where none existed before. In the 1980s, consultants told AT&T’s decision makers to expect around 900,000 cellphones in the United States by 2000. Based on those figures, AT&T declined to invest — and missed out on a market that grew to more than 100 times that size.

In impoverished countries, an innovation can generate its own market and create significant opportunities. History shows that this can happen even where the possibility seems remote — for example, in environments that may appear hostile to innovation.

Supportive government plays a role, but innovators can do this work on their own. In many poor countries, governments lack the financial resources to tackle crucial challenges. But the history of Western countries shows that infrastructure — such as railroads and telegraphs — first developed through the efforts of innovators who were promoting their own innovations. Only later did the government step in to manage the infrastructure.

A mistaken view has taken hold: that governments should bear all the costs of building schools, hospitals, and transportation infrastructure. In poor countries, governments simply can’t afford to do this. And entrepreneurs have proven astonishingly resourceful in building the infrastructure, logistics, and other systems that they need. The mobile telecommunications sector bears this out: The sector is thriving in almost every impoverished country, thanks to the efforts of entrepreneurs who built it without government support. Supportive governments can accelerate innovators’ progress, but typically states come onto the scene to offer support only after an innovator has created a successful business model.

Western business leaders could assist — and benefit — by viewing nonconsumption as an opportunity. Business leaders in the West should realize, Christensen and his coauthors argue, that Europe and the United States once had business environments similar to those of low- and middle-income countries today. Nonconsumption in these countries represents an opportunity for companies to create new markets, enjoy substantial returns, and simultaneously improve many people’s lives. Western organizations shouldn’t attempt to transplant what works in their own countries into developing economies, but instead should become familiar with the environments there and seize existing opportunities in context.

Takeaways from the session:

  • Innovators can help lift communities out of poverty and profit along the way.
  • Innovative entrepreneurs can create new markets, even in dire circumstances.
  • Supportive government plays a role, but innovators can do this work on their own.
  • Western business leaders could assist — and benefit — by viewing nonconsumption as an opportunity.

Read the full article here.
This content was originally published by MIT Sloan Management Review. Original publishers retain all rights. It appears here for a limited time before automated archiving. By MIT Sloan Management Review

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