Jun 30 2008
The Squeeze at the Base of the Pyramid
In our mission to get high-quality, low-cost eyeglasses to those at the base of the economic pyramid, VisionSpring encounters a myriad of constantly changing obstacles that pose challenges to attaining our goal of complete self-sustainability. The biggest challenge we currently face – and will certainly continue to face in the years to come — is the rising production costs weakening the purchasing power of our customers.
As the income gap between urban and rural communities in the developing world continues to grow, we must continue to find innovative ways of sourcing and distributing low-cost glasses to the poor.
Rising Production Costs
For low-cost, high-quality optical products, there is really nowhere to source but China. While we have considered producing glasses in the countries where we have programs, the price-to-quality ratio is simply nowhere near what China offers.
But right now in China, there are macroeconomic forces at work that are causing the price of products to go up significantly. This is due to a number of factors: the rising cost of raw materials, the rising cost of labor, and the devaluation of the dollar in relation to the Yuan. This has resulted in our overall cost of goods going up about 20% in the last six months alone.
Two Economies
Meanwhile, people living in rural India, Latin America, and West Africa and surviving on less than $3 or $4 a day — our target market — are not seeing a substantial change in their economic situations. The 8-10% increase in India’s GDP, for example, is mainly happening in places like Bangalore and Bombay, to people in what is called the “dollarized” economy. The purchasing power of those living in rural India has really not changed.
Another key issue is that in order for us to attract top managers and employees in places like Hyderabad, VisionSpring has to compete with multi-billion dollar companies. Since sales and marketing are the key skills we need to make our work a success, we are tapping into the same talent pool as these major corporations. The result is that we have to pay competitive salaries (albeit at a fraction of what our for-profit competitors offer) in order to attract experienced, intelligent, and creative people to our team.
Thus, on a unit basis, the cost of delivering our product to the poor is becoming significantly higher. And, at the end of the road, our customers, the poorest of the poor, have no additional power to pay. So it falls to us to cover these costs, and becomes harder for us as a social enterprise to reach sustainability.
Conclusion: It May be a Longer Road, But We Will Get There
This urban-rural divide can be seen all over the developing world, and poses one of the greatest challenges to social enterprise focusing on the rural poor.
While we foresaw this challenge from the beginning, we did not understand the full extent of it. Our initial estimates projected that VisionSpring would be fully sustainable on its own revenue within the next few years. Now, the reality of the market is such that we will have to continue working in a subsidized model for a somewhat longer time frame than we had originally hopes.
But there is light at the end of the tunnel.
I strongly believe that we can still scale to a level that will enable us to reach self-sustainability; it is simply going to require a larger volume of sales than we anticipated. Once we do reach this goal, the social and economic returns on our investments will be more than worth the extra time. The 689,000 pairs of glasses we project selling over the next five years will yield over $60 million in increased earnings – money that is going straight to narrowing the urban-rural gap.