The Hidden Pitfalls of Inclusive Innovation

By Raghav Narsalay, Leandro Pongeluppe, & David Light

A few years ago, a large multinational corporation
developed a new food product
designed for low-income people in emerging
markets. The product was highly nutritious
and low-priced. To win the trust of people
in remote rural communities, the company recruited a sales force
of local women, who in turn developed recipes using the product
and helped teach community members how to prepare those dishes.
A yearlong trial confirmed the product’s potential: consumers
found it easy to use and less expensive than common alternatives.
Success seemed all but guaranteed. Read more

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A Model of Health

By Corey Binns

In 2013, Ratan Kunwar was
stirring a pot of lentils to feed
her family for dinner when
she knocked over the pot. It
fell onto her arms, chest, and abdomen.
Her skin was scalded and raw. Kunwar, a
28-year-old mother of two sons—a baby and
a three-year-old—lives in the Nepali village
of Mastamandu.
After the accident, she was
turned away from one hospital because she
couldn’t afford treatment, and she assumed
that she would endure her injuries forever.
Her arm itched and burned. At night, the
pain kept her awake. She had trouble farming,
cooking food, and washing clothes for
her family. She couldn’t comb her own hair.
She was unable to hold her baby.

Three months after the injury, Kunwar
arrived at a hospital run by a nonprofit organization
called Possible. The organization
posted Kunwar’s story on an affiliated crowdfunding
site, and before long people from
around the world had contributed enough
to pay for her skin-graft surgery. Since the
surgery, every aspect of Kunwar’s life has
improved. Most important, she can now hold
her infant son in her arms. “That’s a classic
example of why taking a comprehensive approach
to health care matters, because conditions
as simple as a burn or fracture can
destroy people’s lives,” says Mark Arnoldy,
cofounder and CEO of Possible.

Kunwar is one of more than 173,000
patients whom Possible (formerly Nyaya
Health) has helped treat since 2008. That
year, a trio of friends from the Yale School of
Medicine—Jason Andrews, Sanjay Basu, and
Duncan Maru—along with local clinicians,
started providing care out of a grain shed in
the Achham district of Nepal. At that time,
the people of Achham lived a 36-hour bus
ride away from a major health care center.

Today, Possible operates a sophisticated
health care delivery system that functions
on top of the Nepali government’s existing
infrastructure. The organization follows
a hub-and-spoke model: It runs a hospital
and a network of clinics, and it supports
them by managing a team of community
health workers. It treats patients who
suffer from a variety of maladies, and it
treats them free of charge. In addition,
Possible has built a referral program for
patients with complex care needs. “It’s a
model that’s neither private sector nor public
sector, but a combination of the two,”
says Arnoldy. Unlike some efforts to deliver
health care in developing countries,
moreover, the Possible model doesn’t have
a limited scope. “It’s not just for certain
conditions, like HIV or maternal health,”
Arnoldy notes. It is, he says, “a health care
system [like] we would expect to have here
in the United States.”

Hub and Spoke

Bayalpata Hospital serves as Possible’s hub
for clinical care and organizational operations.
The Nepali government built the
hospital in 1979 and then abandoned it for
30 years. Possible refurbished the crumbling
buildings and took over management
of the facility in 2009, and since then providers
there have treated more than 44,000
patients. Kunwar delivered her second baby
at Bayalpata.

Nepal offers an opportune setting in
which to build a delivery model based on
combining public and private resources.
The Nepali constitution includes a provision
that guarantees free health care for
patients who live in poverty. Each of Nepal’s
75 districts has its own public hospital, more
than 13,000 government-run clinics dot the
country’s rural landscape, and the government
maintains a network of 50,000 women
who act as community health volunteers.
Yet the Ministry of Health and Population
spends only about half its budget each year.
That’s because of gaps in the “absorptive
capacity of the government’s health care
system,” says Maru, who serves as chief
programs officer of Possible. “There’s a real
interest in public-private partnerships on
the part of politicians and the funders in
the Ministry of Health.”

Maru and other members of the Possible
team have worked with those officials to create
the Possible delivery framework. Amit
Aryal, a technical expert for the Ministry
of Health and Population, praises the comprehensiveness
of that framework. “In my
mind, [Possible is] really taking health care
to the people and not waiting for them to
come to the hospital,” says Aryal.

Accessing health care can be nearly impossible
for people in Nepal who live far from
cities. The average Nepali pregnant woman,
for example, will walk more than four hours
to deliver her baby in a hospital. To help remedy
that situation, Possible has transformed
six underperforming government clinics into
high-quality birthing centers. “If we’re going
to solve the access problem, we need to
get that [local clinic] tier of the health care
system working at a very high level of performance,”
Arnoldy says.

To improve primary and preventive
care, Possible is strengthening the government-managed cadre of community health
volunteers. That effort involves training
volunteers to encourage patients to visit
Possible facilities for follow-up care. It also
involves training volunteers to keep records
of all pregnancies and illnesses. In addition,
Possible has developed a network of
paid community health workers who track
health information and provide services at
the household level. It’s “the health care
system’s responsibility to reach out and
to make sure [that patients] continue to
be engaged in the system and are getting
the care they need,” Maru says.

The value of the hub-and-spoke model
is especially evident when it comes to treating
conditions such as neonatal jaundice.
Trained health workers who operate in clinics
and out in villages are able to screen infants
for that disease. “With [the Possible]
model, fewer infants will fall through the
cracks,” says Garrett Spiegel, a product manager
at D-Rev, a company that partners with
Possible to provide phototherapy and jaundice
management at Bayalpata Hospital.
Instead, he explains, properly diagnosed
infants are “brought in to the health center before the jaundice progresses to a level
where their brain is permanently damaged.”

Possible holds itself to a high standard of
care and applies rigorous evaluation to its
operations. “The way we measure our success
has changed, as the scale of operation
has grown,” says Arnoldy. Epidemiologists
from the Division of Global Health Equity
(DGHE) at Brigham and Women’s Hospital
in Boston work with Possible to track a variety
of performance indicators: the number
of days that surgical services are available to
patients, the percentage of chronic-disease
cases that community health workers treat,
and so forth. (Maru is a faculty researcher
at DGHE.)

Cost control is another goal that Possible
leaders take seriously. Their long-term aim
is to limit per-patient expenditures to less
than $50 per year, and so far they have kept
that figure to less than $20. By comparison,
annual per capita health care spending in
the United States comes to about $8,000.

Change and Challenge

In early 2014, Arnoldy led the organization
through a rebranding initiative that
resulted in a new website, a new logo, and
a new name. The original name—Nyaya
Health—was hard to spell, hard to pronounce,
and hard to promote. Over time,
the Nyaya brand had also become more and
more restrictive. “For us, this is about way
more than the name, look, feel, and colors,”
says Arnoldy. “Our team thought we had a
shrinking window of opportunity to communicate
why we exist and how our health
care model works. We had to make a move
before we got too big and [the old name]
became too cemented into the identity of
the organization.”

To continue growing under its own identity,
Possible has sought revenue from a broad
range of sources. At this stage, the organization
receives most of its funding from
donors such as the Good Works Institute,
Greatergood.org, and Rotary International.
But Arnoldy
foresees a time when the Nepali
government might become its largest funder.
In 2013, the government invested cash and in-kind contributions worth $270,000, up
from $110,000 in 2011. (That year, Possible
had annual revenues of about $1.25 million.)
Along with land, infrastructure, and other
forms of in-kind support, the government
has provided a large supply of pharmaceuticals
to Possible through the public-sector
supply chain. “We have a quickly growing
relationship on that front that makes us believe
that this is very much possible to do on
a large scale,” says Arnoldy.

In partnership with the crowdfunding
sites Watsi.org and Kangu.org, Possible has
also created an online medical referral network.
“Before this model, we had to turn
patients away,” says Arnoldy. Now when
patients come to Bayalpata Hospital
or to
a clinic with complex care needs, Possible
can tell their story on the Web, and anyone
with Internet access can then help
fund their care with a donation of $10 or
more. In December 2013, Possible received
a Sappi Ideas That Matter Award valued at
$43,000, and with that money it launched
CrowdFundHealth.org—a site that integrates
the Possible referral network with
the Watsi and Kangu sites. (In its first 14
weeks, CrowdFund Health raised enough
money to provide $112,000 worth of treatments
to 120 patients.)

Today, the most challenging aspect of
Arnoldy’s
job involves retaining qualified providers
who will work in less-than-hospitable
rural areas. Despite offering comfortable
staff housing, high salaries, and a supportive
management culture, leaders at Possible face
environmental and social barriers that hinder
long-term retention of senior staff members.
“And we don’t expect that [problem] to go
away anytime soon,” Arnoldy says.

Another challenge stems from the organization’s
reliance on government funding.
A new group of Nepali political leaders
could easily take that funding away. “We can’t
completely eliminate that risk, the same way
we can’t eliminate the risk that a large-scale
philanthropic funder might do that someday,”
Arnoldy says. “We’ve tried to mitigate
that risk—not by being too big to fail, but by
being too influential to fail.”

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Get Rid of the Grid?

By Pepukaye Bardouille & Dirk Muench

Consider this all-too-plausible
scenario: You are visiting a
small rural village somewhere
in sub-Saharan Africa. The sun
has just disappeared behind the horizon. To
your left, kids run from a dusty, makeshift
soccer field toward the simple houses—most
of them built of nothing but wood and
soil—where they live. It is pleasant now, and
you enjoy a light breeze. But just 15 minutes
later, it is dark. Night has fallen, and all you
hear are muffled voices and some indistinct
animal sounds. You wait for the lights to go
on, wait for the village to re-appear from
the night, but nothing happens. In the darkness,
you feel uneasy. Then, suddenly, your
iPhone 5 rings.

In 2005, just 5 percent of sub-Saharan
Africans had a mobile telephone. In 2014,
less than 10 years later, mobile network operators
(MNOs) boast more than 250 million
unique subscribers (30 percent of the total
population), employ more than 3 million
people, and generate revenues of more than
$20 billion per year. Over the same period,
meanwhile, the number of household electricity
connections in the region has barely
kept up with population growth. Indeed,
only about 30 percent of the population has
a connection to the electrical grid.

Over the past six years, according to
a 2013 report, companies in the mobile
phone sector in sub-Saharan Africa have
attracted roughly $44 billion in commercial
capital. Over the same period, companies
that provide energy services to households
in the region have attracted less than
$100 million in capital, and less than
25 percent of that amount has come from
commercial investors. That disparity is all
the more surprising given the size of this
potential market. There are 125 million
energy-poor households (corresponding
to more than 550 million people) in sub-Saharan Africa, and last year they spent
an estimated $20 billion on meeting their
basic energy needs (through the purchase
of kerosene and batteries).

Together with other people in the international
development and impact
investment
communities, we have worked
for many years to identify ways to provide
basic energy services to the millions of off-grid
households that still exist in emerging
markets. One rural electrification initiative
after another has raised people’s hopes,
and one after another, they have either
failed to grow or failed, period.
National
electric grid expansion has not kept up
with population growth; retail sales of
solar equipment (such as portable lanterns
and roof-mounted home systems) have
increased
dramatically but still have a market
penetration of less than 5 percent; and
even the best mini-grid projects have not
managed to scale up in a meaningful way.
It often seems as if there are more conferences
and reports about access to energy
than there are electrified villages in all of
sub-Saharan Africa.

At some point in 2012, we realized that
this situation is poised to change. There is a
real chance to expand energy access as fast
as MNOs were able to expand mobile phone
access. The vehicle for doing so, we believe,
is a model called the distributed energy service
company, or DESCO.

Put simply, we see in the DESCO model
the potential to provide rural households
and small businesses with a better service
than they currently have, for less money
than they currently pay, and to do so while
generating attractive wages for employees,
opportunities for entrepreneurs, and
financial
returns for investors. It’s possible
to provide households with enough energy
for basic appliances—LED lights, mobile
phones, television and radio sets, and even
small productive equipment, such as a sewing
machine or a refrigerator—for a fee that
is lower than their current
expense for kerosene and for
the batteries that they use
for flashlights. And any business
that can offer a better
service for less, while making
a profit as well, is a business
with potential.

Flipping a Switch

DESCOs don’t sell products
for cash as a distributor of energy
access products would.
Rather, they install electricity-generating assets—such
as a rooftop solar
system
or a connection to a microgrid—at
dwellings and small
businesses and then collect
payments from customers.
Those payments might occur
on an ongoing
basis (as in a lease model) or until a customer
has effectively purchased an asset (as in a
rent-to-own model). In any event, a DESCO
operates much like a utility company.

Unlike a typical utility, however, a
DESCO focuses not on selling as much electricity
as possible, but on providing customers
with the services that they want—electric
light; a way to charge their mobile
phone; the ability to use a radio, a TV, or
a personal computer—at a price that they
are willing to pay. The logic of the DESCO
model works along the following lines: Customers
currently spend $10 per month to
light their homes with a couple of kerosene
lamps. A DESCO might offer those users unlimited
light from four LED light bulbs, plus
an outlet to charge their mobile phone, for
$7 per month. It’s a great deal for customers,
and it’s good business for the DESCO.

This is a big market to capture: In sub-Saharan Africa, households collectively
spend more than $10 billion every year
on lighting alone. What’s more, DESCOs
don’t need to create demand for a new offering;
they need only shift the spending
that energy-poor customers already lavish
on inferior services. So why haven’t people
adopted the DESCO model on a large scale
before now?

The big change that has transformed
the situation over the past five years is the
proliferation of mobile phone services. Consider
how a DESCO operates: The company
installs numerous small, inexpensive village
grids, or numerous solar home systems in
rural areas, and customers pay for services
in small amounts over time. For this business
to be profitable, the DESCO needs to
minimize its costs for maintenance, customer
service, and payment collection.
Leveraging mobile services—mobile data
to manage the assets and create an incentive
to pay, and mobile payment technology
to monetize the assets cost-effectively—will
enable DESCOs to keep their costs at a sustainable
level.

Moving Out of the Dark

Demand for electricity certainly exists, and
the DESCO model has great potential. Leading
companies such as M-Kopa Solar (Kenya),
Off.Grid:Electric (Tanzania), and Mera Gao
Power
(India) have started to accelerate
their customer acquisition rates. Prominent
early-stage venture capital firms (Khosla
Ventures
, Vulcan Capital) and strategic
investors (Solar
City
, Schneider Electric)
have begun to enter this emerging sector.
But there are important obstacles that block
expansion of the DESCO model.

The DESCO sector is in its infancy. In
sub-Saharan Africa, there about a dozen
companies that pursue the DESCO model.
The largest of them (M-Kopa) has about
75,000 customers; the entire sector serves
fewer than 250,000 households. (Remember:The
region is home to more than
125 million households without access to
energy
services.) And, to our knowledge,
none of the companies that are pursuing
a DESCO model has yet reached a true
break-even point—let alone profitability.
To reach a meaningful scale, the DESCO
sector needs to attract support from several
important entities.

In the near term, the sector needs entrepreneurs
who recognize the potential
of the DESCO model and who are ready
to adapt it to markets such as sub-Saharan
Africa. The sector also needs risk-tolerant
capital—capital that ranges from grant
funding to commercial venture financing. Equally important, the sector needs skilled
investors who can manage that capital and
work with entrepreneurs as they grow their
businesses. In the medium term (one to two
years from now), the sector will need institutional
investors who are willing to fund
the capital-intensive DESCO model in the
same way—with debt capital—that they
supported the microfinance sector after it
graduated from a nonprofit activity into a
robust commercial endeavor.

Before investors will deploy serious capital,
however, governments need to revamp
their approach to regulating energy services
for people without access to a national grid.
Regulators need to shift away from setting
universal rate structures that apply to all
energy providers. Those rate structures
protect customers from utilities that operate
as a monopoly. But in a market where
competition exists—and the DESCO sector
is such a market—regulators should enable
customers to make their own choice.

In particular, regulators need to recognize
that pricing for DESCO services functions
in a way that is fundamentally different
from how pricing works in a traditional,
grid-based utility system. Recall the example
that we used earlier: A DESCO charges
$7 per month for the use of four LED lights,
together with mobile phone charging. Because
of recent gains in energy efficiency,
the DESCO uses only about one kilowatt-hour
per month to deliver that service. So if
regulators mandate a rate of (say) 30 cents
per kilowatt-hour, they reduce the revenue
of the DESCO by more than 90 percent. In
effect, they make it impossible for DESCOs
to operate. As a result, customers will have
no option but to continue paying $10 per
month for kerosene light.

Ten years ago, building a business around
mobile phone services in sub-Saharan Africa
seemed like a crazy idea. By comparison,
the idea of building a business around the
DESCO model seems obvious—so much so
that, in our view, it’s only a matter of time
before people in every African household
will use a DESCO service to charge their
mobile phone at home.

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Global Problem Solving Without the Globaloney

By Pankaj Ghemawat

There is widespread belief not just that
globalization is on the rise, but that it is already (close to) complete. Fed by books such as
Thomas Friedman’s The World is Flat, and by heightened awareness of truly global problems
such as climate change, large numbers of people believe that many, if not most, of
today’s social and environmental problems are the result of global trends and that their
solutions must also be global in nature. I refer to such overstatements about the extent
of globalization as “globaloney.”

Consider a few examples of globaloney. The French guess that immigrants make up
24 percent of France’s population—three times the actual level. British air travelers guess
that international air transport accounts for more than 20 percent of energy-related
greenhouse gas emissions—10 times the actual level. And Americans guess that foreign
aid accounts for more than 30 percent of the US federal budget—30 times the actual level!

Globaloney doesn’t plague just the general populace—it also infects
leaders of nonprofit, business, government, and multilateral
organizations. When I polled an assembly of the national envoys to
the World Trade Organization, an overwhelming majority agreed
with Friedman’s characterization of the world as flat—even though
it raised existential questions about what they were doing in Geneva.

Globaloney has many negative consequences. It obscures the
potential gains from additional globalization, swells fears about its
adverse consequences, and causes companies to adopt strategies
of “bigger and blander.”1 It also induces organizations and groups
of organizations of all kinds to put undue emphasis on global solutions
to social and environmental problems that should instead be
tackled at a regional, national, or even local level. This misplaced
emphasis matters because it overstretches our limited capacity for
true “global problem solving” when it matters.

Consider, for instance, the Rio process orchestrated by the United
Nations. It began amid much optimism with the 1992 Earth Summit,
but has proven to be a colossal disappointment. Why has it largely
failed? In addition to three treaties—on climate change, biodiversity,
and desertification (which a review 20 years later in Nature graded with
an “F”2)—the Earth Summit resulted in Agenda 21, an “action plan”
that covered an astounding 27 program areas and 116 individual issues
such as promoting sustainable development through trade, providing
adequate financial resources to developing countries, meeting primary
health care needs, and providing adequate shelter for all. Were they
all appropriate subjects for a global conclave? By my reckoning, action
primarily at the global level was invoked for only two of the 116
issues. Of the remaining, one-third resulted in calls for action primarily
at the local level, another one-third for action at the local and
global levels, and the remainder for action at the regional level as well.
This classification, although subjective, is suggestive. It reminds us
that not everything needs international coordination—and that even
when international coordination is required, sub-global approaches
(between only two nations, for example) may make more sense.

The other obvious problem with the Rio process was that the deliberations
at the Earth Summit involved 172 governments and 2,400
representatives of nongovernmental organizations (NGOs)—not to
mention the 17,000 attendees at the parallel NGO Global Forum,
which was accorded consultative status. And Rio+20 (the follow-on
to the Earth Summit that took place in 2012) saw a further explosion
in the number of NGOs participating. More than three times
as many NGOs were officially involved, along with many more representatives
from the business and investor communities.

There were some definite attractions to bringing civil society into
the picture to supplement traditional government-to-government
interactions, but the dismal results remind us that broad participation
doesn’t guarantee that problems will actually be solved.

Global Designs

To better understand how to differentiate between global and sub-global
issues, and to pursue programs that are sized appropriately
to the problem and the solution, I’ve devised five design principles,
which I call the Five Ds: devolution, distance-sensitivity, distance-directedness,
distinctive-competence, and de-biasing.

The first principle, devolution, emphasizes that not everything
needs international coordination. It is based on the fact that most social and commercial interactions are only 10 to 20 percent globalized.
Only a few interactions cross the 30 percent mark—and
even that threshold still embodies a huge amount of “home bias.”
The fact that most international flows occur between countries
that are near each other geographically suggests the distance-sensitivity
principle: Even if international coordination is required, high
levels of distance-sensitivity typically favor sub-global approaches
focusing on regions or sub-regions. Remapping the world in terms of
multiple forms of distance (economic, cultural, and administrative,
along with geographic) reveals the power of the distance-directedness
principle in guiding choices about the locus of activity or operation
(“where”), which activities to perform (“what”), and ways to organize
to get them done effectively (“how”).

Realism about the general difficulties of cross-border operations
and the management challenges confronting nonprofits, in particular,
underlines the usefulness of the distinctive-competence principle:
ask not only whether something is worth doing, but also if you, your
organization, or your network are or can become capable of doing
it well. And finally, remembering that most individuals are still
quite distrustful of foreigners leads to the de-biasing principle: the
importance of deliberately building cross-border trust by reducing
home bias due to ignorance or prejudice.

Adhering to the Five Ds might not only have improved the outcomes
of the Rio process, they also hold the potential to (re)direct
and improve social initiatives. Consider a social innovation that has
stirred up considerable interest recently: global solutions networks
(GSNs), defined by author Don Tapscott as consisting of “diverse
stakeholders, organized to address a global problem, making use of
transnational networking, and with membership and governance that
are self-organized.”3 The emergence of GSNs, which now number
well into the hundreds if not thousands, is often extolled in glowing
terms. (Examples of GSNs include knowledge and policy networks
like the International Competition Network, advocacy and watchdog
networks like Human Rights Watch, governance networks like the
Internet Corporation for Assigned Names and Numbers, and operational
and delivery networks like the Red Cross.) And the potential
for GSNs is indeed enhanced by the growing connectivity afforded by
the Internet—the enabler emphasized by Tapscott—and the explosive
growth of what Ashoka founder Bill Drayton calls the citizen sector.4

Before we get carried away with the prospects for GSNs, it is worth
remembering that global conditions are in many respects more challenging
today than they were when the Rio process was launched in
1992. Then, the world economy was growing rapidly, globalization
was increasing, and the easing of Cold War tensions raised hopes of
a real shift away from war and conflict and toward development and
sustainability. Today, economic conditions are generally bleaker in
advanced economies, and even faster-growing emerging economies (such as China, India, and Brazil) have experienced slumps in their
growth rates. Globalization itself, after surging through 2007, faltered
in the wake of the financial crisis.5 And ongoing threats to global stability
and cooperation include regional economic crises such as those
in the Eurozone; increases in income inequality in many countries and
of xenophobia in some; continued trade imbalances; talk of currency
wars and uncertainty about the dollar’s future as the world’s reserve
currency; the growing obsolescence of multilateral institutions, many
of which were set up in the aftermath of World War II; and geopolitical
tensions in regions such as the South China Sea and Ukraine.

Against this backdrop, the notion of self-organizing GSNs spontaneously
generating solutions to global problems of the sort wrestled with
at Rio appears to be a triumph of hope over experience. At least some
other scholars who have looked at GSNs have come to similar conclusions.6 Nevertheless, GSNs do exist, and organizations are tackling
social and environmental problems at a global scale. The Five Ds are
meant to provide guidance for these organizations that is grounded in
what research has revealed about globalization and the responses to it.

The Devolution Principle

Not all the issues raised at Rio required the powers of global problem
solving (as opposed to global exhortation). Many of them could
be better handled at the regional, national, or local level. But there
seems to be a tendency to attach the handle “global” to issues for no
other reason than to give them extra emphasis. Given the limits on
our capacity for global governance, cutting back on such globaloney
is one way to concentrate that capacity where it really matters.

Let’s look at some relevant evidence—at data measuring the
levels of internationalization of activities that can take place either
domestically or across borders. (See “Internationalization
Levels” at right.) It turns out that the international component
of these activities represents a small
fraction—typically less than 20 percent
and often less than 10 percent—of the total. Only for a few—mostly
financial7—variables do internationalization
levels exceed 30 percent—and
even that threshold still embodies a
huge amount of home bias.

Actual levels of globalization are
much lower than the levels one would
expect to see if the world were flat
(which would typically be 85 percent
or more). They are also significantly
lower than most people’s intuitions. In
an online survey that Harvard Business
Review conducted for me, respondents
pegged international phone calls at 29
percent of the total, immigrants at 22
percent of the world’s population, and
foreign direct investment at 32 percent
of total capital formation—an average
estimate of 27 percent, more than five
times the actual average.9 (CEOs, interestingly
enough, overestimated by
a factor of nearly seven!)

A common counterargument to my point is that even if the extent
of globalization is small today, a borderless world may be just
around the corner. Looking back in history, however, reveals that
the changes that have occurred are rather mixed. The percentage
of the world’s population composed of immigrants is the same now
as it was in 1910. And some of the pre-financial crisis measures of
cross-border financial flows are comparable to earlier peaks more
than 100 years ago. Because financial flows actually dropped significantly
in the aftermath of the financial crisis, it is probably more
accurate to describe the current trend as increasing fragmentation,
not increasing integration.

Proponents of a flat world often point to the Internet and, more
broadly, to the fact that in the last few decades the cost of communication
has plummeted and the richness of what can be transmitted
has exploded “in a way that changes everything.” But the portion of
Internet traffic that crosses international borders is actually about 17
percent—five times as high as telephone calls, but far below the level
one would expect in a flat world. Similarly, an estimated 16 percent
of people’s friends on Facebook are foreign,10 as are 25 percent of
the people that individuals follow on Twitter.11 Just because we are
able to befriend anyone living anywhere on Facebook doesn’t mean
that we will—there is an important distinction between potential
connectivity and actual connectedness.

All of these data suggest that the agenda for global problem solving
can be simplified by deemphasizing areas where the critical phenomena
unfold mainly at a local or national level. The environmental
externalities caused by pollution provide an interesting example.
For distance-sensitive pollutants that stay more or less within national
borders—most ground and water pollution—local solutions
are generally appropriate. Pollutants that cross national borders to a
significant extent—usually airborne ones—are the ones that require
cross-border cooperation.

The growth and sustainability of cities
provides another, somewhat different
example. It may make sense to build a
knowledge network to share information
on, say, sustainable cities around
the world, and even to build an advocacy
network to engage in cross-border lobbying
for more enlightened urbanism, but
those are limited functions that don’t require
much coordination across borders.

The broader point is that a problem
needs to be more than globally widespread
to be a candidate for global solutions
that go beyond simple information-sharing.
Requiring some coordination of
responses across borders, rather than
simply sharing information about different
types of possible responses, is
the acid test for global problem solving.
Hence the devolution principle: Not every
global problem needs coordination
across national borders, and many issues
are, in fact, tackled most effectively at the
national or local level.

The Distance-Sensitivity Principle

If the devolution principle was about determining which issues should
be coordinated internationally and which should be addressed at the
local or national level, the distance-sensitivity principle is about how
best to structure what does make it onto the international agenda.
This principle is predicated on the law of distance—the observation
that the lion’s share of international interactions takes place
between countries that are close to each other rather than far apart.
What this implies is that many “international” issues are actually
regional ones and not truly global.

The distance-sensitivity principle can be illustrated by extending
the earlier discussion of pollution. Airborne pollutants can range across
borders, but in very different ways. Acid rain, for example, tends to
have a regional footprint, accounting for the success of intra-regional
initiatives such as cooperation between the United States and Canada
(most notably, their 1991 Air Quality Agreement), which has helped reduce
North American acid rain by 65 percent since 1976. In contrast,
carbon dioxide emissions that cause global warming have an unusually
low distance-sensitivity and, therefore, warrant a fully global focus.

It is not just pollutants that obey the law of distance. Distance-sensitivity
also applies to the voluntary international interactions
that are more commonly studied in the context of globalization:
trade in products and services, flows of capital, migrations of people,
and flows of information. Instead of being randomly distributed,
these flows often have a regional structure.

Germany, for example, is known for its manufacturing prowess
and its ability to export its products around the world, but the bulk of
its trade occurs within Europe, particularly with its immediate neighbors.
About 60 percent of Germany’s exports go to other EU countries.
Within Europe, there are also significant variations: Germany
represents a particularly high share of Austria, Switzerland, the Czech
Republic, and Hungary’s overall imports. (See “German Exports”
below.) Those countries are close to Germany not only geographically and linguistically, but also historically:
Apart from Switzerland,
these countries, along with Germany,
constituted the Holy Roman
Empire circa 1500.

Similar patterns are evident
for other kinds of international
interactions. Sixty percent of
German banks’ foreign lending
is to the rest of Europe—which
also accounts for 70 to 85 percent
of Germany’s foreign direct investment,
portfolio equity holdings,
international phone calls,
and international tourist arrivals.
There are good reasons why
the Eurozone crisis is, despite its
potential global ramifications,
mostly being handled in Europe.

Europe is more integrated
than most continents, but similar
patterns exist in other parts of
the world. If we look at the world
as a whole, 53 percent of merchandise trade, 52 percent of foreign direct
investment, 51 percent of international telephone calls, and 49
percent of international migration all take place within rather than
between roughly continent-sized regions12 The high average level of
regionalization suggests that many issues that require international
coordination might be best addressed at the regional rather than the
global level. And geography isn’t the only possible basis for distinguishing
between the near abroad and the far abroad. Others include cultural
ties, political alignment, and degree of economic development.

The Distance-Directedness Principle

The distance-directedness principle also relies on the law of distance,
but shifts the focus from devising the global problem-solving agenda
to shedding light on what the actors involved in it should do. The
most interesting research in this area are the studies that use “gravity”
models to investigate the factors underlying the law of distance,
particularly concerning trade. Gravity models in international economics
link interactions between countries to the product of their
economic masses, divided by some composite measure of distance.
Gravity models not only help us understand why, for instance, the
US-Canadian trading relationship is the largest in the world; they also
explain, in a statistical sense, two-thirds or more of all the variation
in bilateral trade intensities between all possible pairs of countries.

Distance, however, is not simply measured in miles. For example,
the geographical distance between the United States and England may
be substantial, but the two countries’ shared linguistic, cultural, and
historical heritage supplies important bridges that narrow the gap. The
CAGE Distance Framework posits that “distance” includes multiple
dimensions—cultural, administrative (or political), geographic, and
economic (CAGE). And whereas there are many differences between
countries, the seven variables highlighted in red in the table explain
70 to 90 percent of the variation in country-to-country flows of trade,
capital, people, and information.13 (See “CAGE Distance Framework” below.) To illustrate the usefulness of the CAGE Distance Framework,
consider some of the questions that businesses have found it helpful
in answering—many of which can be adapted to the social sector.

Where? | Where a business originates affects what countries it should
expand to—and that answer usually isn’t “everywhere.” In 2004, of
all US companies that had foreign operations, the largest fraction operated
in just one foreign country, the median number in two, and 95
percent in fewer than two dozen. As fully global action is unlikely to be
warranted in the short run, do social-sector initiatives take adequate
account of where they are from (for such things as administration
and donors) and of relevant experience sets in deciding where to go
next? Take, for example, an issue facing Worldreader.org, a nonprofit
that aims to bring e-books to African schoolchildren: Which African
market(s) should it focus on first? Its founders, a Briton and an American
then based in Barcelona, chose Ghana because Anglophone Africa
seemed the most natural target, Ghana’s public administration was
reputed to be relatively clean and efficient, and time-zone proximity
to Barcelona would likely simplify coordination.

What? | Businesses also seem more inclined to recognize that their
strategies in the countries in which they operate must respond in
some way to international differences. That said, they often fail to
consider the full range of strategy levers for dealing with the differences
that matter the most in their industries: most broadly, using
multiple levers and sub-levers of adaptation to adjust to differences;
aggregating across countries to (partially) overcome differences;
and arbitraging to exploit (selected) differences. Consider some
analogues for social sector initiatives: Does a family-planning initiative
targeting poor, strife-torn, traditional societies, which often
have high gender inequality and fertility rates, make adequate allowance
for effective approaches in male-dominated societies? Can the Grameen Foundation, the hugely successful pioneer of microlending
in Bangladesh, identify important common social needs that
cut across or aggregate segments in poor countries that it can effectively
help meet? Some degree of confidence that it can do so
should underpin its expansion into nearly three dozen additional
countries. And arbitrage or targeting differences along selected
dimensions raises important issues ranging from building low-cost
but adequate delivery structures for very-low-income countries to
questions about the focus of social-sector initiatives on extreme
deprivation, as opposed to on some other area for improvement.

How? | Some businesses also understand that their ability to address
cross-country differences depends not only on the objective
distances to be traversed, but also on their internal capabilities for
dealing with them. Businesses and social enterprises should consider
the following questions before expanding: Do the critical people in
your organization understand how global we actually are, or have they
fallen prey to globaloney? Do they have a framework for understanding
the underlying differences between countries—and differences in
differences—that underlie limited levels of cross-border integration?
Are they housed in one location or dominated by one nationality? Are
they involved in cross-border projects and networks, and, ideally,
have they ever been rotated abroad? Are they prepared to engage in
the debate about the social consequences of globalization in general
and your organization’s particular involvement in it?

The Distinctive-Competence Principle

The distinctive-competence principle extends the where, what,
and how questions, to ask whether a particular social enterprise is
best positioned to pursue a particular global problem-solving opportunity—or would the cause be served better by joining up with
an existing organization or network, or
letting some other organization pursue
it? The distinctive-competence principle
emphasizes that individuals or organizations
that are considering entering or
expanding in the social sector need to ask
themselves whether their involvement
would lead to creating significantly more
total value than would happen otherwise.
The corollary is that organizations
should ideally account for the opportunity
costs of donors’ resources, even if
those resources are contributed free.

Most social enterprises do not measure
their performance by undertaking
this sort of cost-benefit analysis. But
the approach does merit more attention.
Industrial organization economics
indicates that at least in the absence of
product differentiation, there is a tendency
for an excessive number of companies
to enter a market simply to take
business away from existing companies
without growing the market or providing
any other particular benefit to society.14
These effects might be aggravated in the social sector by “messianic complexes” that could lead to even more
entrants than in the for-profit benchmark.15 The good news is that
in the social sector, it seems reasonable (or, at least, more reasonable
than in the private sector) to ask players to internalize the social costs
of their entry or expansion. Another implication of this line of reasoning
is that initiatives that add to variety, whether in means or ends,
are generally more deserving of grace than initiatives that simply pile
additional resources onto established, relatively well-funded efforts.

To be a bit less stringent and a bit more practical, a social enterprise
might not be the best in the world at what it does or aims to
do, but it does have to be—or have plans to become—pretty good
in the relevant respects. Without those plans, the adage by Kenneth
Andrews, who wrote the classic text on business strategy, applies:
“Opportunism without competence is a path to fairyland.”16

To better understand these ideas, consider again the example of
Worldreader.org. Its two founders focused their nonprofit on education
because they had backgrounds in the field, and on e-books because one
had connections in high-tech. This knowledge and these connections
increased the odds of being able to do something special within the
zone of distinctive-competence rather than outside it. But they also
set up a clear evaluation mechanism by hiring MIT Professor Esther
Duflo to help design and analyze their first field trials. And because
Worldreader.org was designed to be an operational and delivery network,
it clearly did require the development of some significant organizational
capabilities, as well as a structure to house them in, rather
than an attempt to “organize without an organization.”

The De-Biasing Principle

The final principle—de-biasing—shifts the focus from governments,
NGOs, and businesses to individuals. It recognizes that distrust of
foreigners is rampant, reducing cross-border interactions and imposing
constraints on global problem solving. To counter this bias it is
important to build cross-border trust. To figure out what might be
done in this regard, it is best to start with some data—in this case,
concerning the extent to which citizens of various European countries
reported trusting their co-citizens and others.

Close to 50 percent of respondents to the 1996 “Eurobarometer”
survey reported trusting their fellow citizens “a lot,” but only 20
percent reported trusting citizens of the other 16 European Union
countries “a lot,” and just over 10 percent reported trusting citizens
of other countries “a lot.” There is some variation by country (Italians
report trusting the Swiss more than they trust other Italians), but on
average, nationals of EU countries express “a lot” of trust twice as
often in co-nationals as in nationals of other “nearby” EU countries,
and four times as often compared to nationals of countries that are
farther away. These data from the EU are indicative of what researchers
have found in other parts of the world. Scholars have concluded
that trust falls as the populations of any two countries grow more
different in their languages, religions, genes, body types, geographic
distance, and incomes, and if they have a more extensive history of
wars.17 This differential distrust of foreigners is estimated to have big
effects. Statistical studies suggest that moving from lower to higher
levels of bilateral trust can increase trade, direct investment, portfolio
investment, and venture capital investment by 100 percent or more,
even after controlling for other characteristics of the two countries.18

Fear of foreigners, particularly the ones who are most “foreign,” is compounded by the constraints that cross-cultural mistrust imposes
on attempts to reduce other kinds of barriers to international flows.
Consider some additional examples from Western Europe—a region
where nationalism has recently been more or less held in check, where
countries have pursued formal administrative integration to an extent
unparalleled in other regions, and where education levels are generally
high. Despite this context, cultural fears have loomed very large as
economic pressures have mounted. Much of the surging protectionist
and, especially, anti-immigrant sentiment has not just nationalistic
but cultural roots. The economic case for large-scale immigration
into Europe is clear; most of the fears around immigrants have to
do with cultural fears more than ostensibly economic dimensions.

In figuring out how to build trust, it is also useful to note that much
cross-cultural mistrust seems to be rooted in cultural insecurities. A
survey of 47 countries around the world indicates a strong positive
correlation between perceiving one’s own culture to be superior and
perceiving it to need protection. The list is headed by India, where 93
percent of respondents agreed that their culture was superior and 92
percent agreed that it needed to be protected. India is followed by Indonesia,
Tanzania, and Bangladesh. In contrast, the bottom of the list
is occupied by Sweden, where only 21 percent of respondents agreed
that their culture was superior and 29 percent that it needed protection.
Interestingly, Swedes are highly trusted as well as trusting, illustrating
a more general pattern across the countries included in both
surveys: Countries that feel the least superior and defensive about
their own cultures also tend to be the most trusting—and trusted.

In keeping with the distance-directedness principle, the challenge
of building cross-border trust is likely to be different in, say,
the Netherlands and Nepal, not the least because the former is already
more than one hundred times as connected with the rest of
the world than is the latter. But both countries do present challenges.
Think of the success in the Netherlands, traditionally a haven of
tolerance, of Geert Wilders’s wildly misnamed Freedom Party, with
its anti-immigrant and now Europhobic posturing.

Research on the determinants of cultural chauvinism and related
fears does identify some apparent commonalities across countries—
and some broad paths forward. Higher education levels in a country
cause levels of nationalism and suspicion of outsiders to decrease.
The extent to which an individual participates in the network of
global economic, social, and cultural relations and of inclusive social
identification with the world community seems important. Traveling
and living abroad seems to broaden individuals’ perspectives.
And scholars have found that security of property rights and the
rule of law are prerequisites for trust to emerge, rather than what
they often seem: vital substitutes for trust.

On the basis of these findings, several concrete steps for building
trust and reducing excess cultural fear can be undertaken. These
steps include more education; monitoring of negativism in the media
and in political discourse; encouraging more interpersonal contacts
across cultures and ensuring that they are as pleasant as possible;
and building a cosmopolitan global social identity. One might also
try to build cross-cultural understanding between countries in which
economic potential exists, but political and cultural relationships
are strained (such as India and Pakistan or Israel and Palestine); to
prioritize support for the rule of law; and to encourage the private
sector to become involved in building bridges between cultures.

Implications for Global Problem-Solving Leaders

Focus the agenda for global problem solving. | The devolution and distance-sensitivity principles offer systematic advice on how to set—and,
in particular, limit—the agenda for global problem solving. Individuals
and organizations should analyze the extent of globalization and the
distance-sensitivity of the problems they wish to address. Calculate
the percentage of the relevant activity that takes place domestically
versus internationally and the percentage of the international component
that crosses regional boundaries. Even if a similar problem
appears in many countries, if it requires little coordination across
borders, most of the effort expended toward solving it should be local,
national, or regional, rather than global. Limiting truly global efforts
to the problems that really demand them can help us make better
use of our still very limited bandwidth for worldwide cooperation.

Select and structure initiatives so as to add value. | The distance-directedness
and distinctive-competence principles look at some of
the same observations about limited globalization and considerable
distance-sensitivity from the perspective of the organizational actors
involved in global problem solving. Distance-directedness supplies
guidance about the where, what, and how of an organization’s pursuit
of its mission across borders, and distinctive-competence about the
more basic existential question of whether it is a good instrument
for that pursuit. A starting point for operationalizing these two
principles is to use the CAGE Distance Framework to understand
that where you are coming from affects where you might want to
try to contribute and what kinds of adaptation to cross-country differences
might be required. Having applied the framework to get a
more realistic sense of the border-crossing and distance-bridging
challenges your effort faces, ask whether your organization or network
is really the right one to pursue a particular opportunity—or
whether it is better pursued through other means.

Work on improving people’s attitudes towards globalization. | The
de-biasing principle goes even more micro, emphasizing that individuals’
attitudes toward globalization and foreigners in particular
constrain both the global agenda and what organizational actors
can hope to accomplish within it. Somewhere within global problem
solving we must find room to consider educational initiatives that
aim to shape people’s attitudes—by connecting them better with the
systematic evidence about the extent, patterns, and consequences
of globalization, as well as with each other.

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Perceptions of success of a social entrepreneurship initiative: a cross-cultural management approach

m4s0n501

Perceptions of success of a social entrepreneurship initiative: a cross-cultural management approach
Kristina Henricson Briggs
International Journal of Social Entrepreneurship and Innovation, Vol. 3, No. 2 (2014) pp. 122 – 136
Entrepreneurship is often linked to economic growth and is increasingly popular as a tool for economic development. However, entrepreneurship and cross-cultural management in Africa is still an under researched area. This paper aims to contribute to the understanding of how different perceptions of a fruitful project are a key aspect in the management of social entrepreneurship projects. It reports on a Swedish social entrepreneurship initiative in Uganda which was longitudinally studied from 2007 to 2010. Data was collected during field studies and interviews. The conclusion points at the fact that the interpretation of the results is influenced by the cross-cultural management perspective of the interpreter and easily follows the same ethnocentric pattern that we try to avoid when formulating projects. Those findings could be applied in similar projects anywhere in the world.

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Collaborative entrepreneurship and the fostering of entrepreneurialism in developing countries

Collaborative entrepreneurship and the fostering of entrepreneurialism in developing countries
Vanessa Ratten
International Journal of Social Entrepreneurship and Innovation, Vol. 3, No. 2 (2014) pp. 137 – 149
The purpose of this paper is to consider collaborative entrepreneurship and its relevance to entrepreneurialism in developing countries. The paper provides some background to the role of collaboration in society including how individuals, businesses and organisations interact with governments to encourage economic and society activity in developing country economies. Read more

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