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04/24/2012

Reflection

I’m sitting at the airport in Nairobi waiting for my plane thinking back to the beginning of our class or even the beginning of our trip.  I’ve seen and learned so much over the course of two short weeks it’s hard to choose what stands out most.  I guess considering the title of the course, it would be best to reflect on sustainable social impact. At the very core of our studies and trip we focused on two topics that have come into vogue in the recent years, sustainability and social impact but the irony is that these popular concepts have no clear definition even for many of the individuals involved in the field.  I won’t attempt to define these terms nor can I offer an absolute answer but after this trip I can attest to the importance of the social enterprise and the courage and generosity of human spirit.  The challenges facing sustainable social impact in East Africa are grand but I’m happy to report with complete confidence that there is hope.

We saw a diversity of projects and companies run by; ambitious, smart and dedicated individuals from around the world and all of their work are having an impact.  Whether they are sustainable or not I know without a doubt that this very day they are improving the lives of those who are struggling.  And best of all those organizations that do sustain themselves over the long run will provide a road maps for other business men and woman to follow. 

My hopes for this course were to learn but I am walking away with much more.  My eyes have been opened to challenges in the developing world and the inequalities that need to be addressed.  I am walking away inspired with a feeling of responsibility to improve my community and the world.  I also now have a new set of knowledge and tools I learned from; seeing new part of the world, witnessing firsthand the challenges of social development, working with Makao and being exposed to a variety of organizations in Kenya and Africa.  And finally I am walking away with power interactions with the wonderful individuals who are committing their lives to social enterprise in East Africa and meeting the individuals who are being impacted by their work.  I will also take away relationships with classmates, professors and school administrators that can only be formed by traveling together and will hopefully last well beyond my time at Sloan.   It’s been a special trip!

 

 

 

Banana beer

Sitting at lunch we were reflecting on some of our company visits and what we would do different and who we would work with when the conversation quickly changed to, if you had to start a company between now and the end of summer what would it be and why.  First we started with could you live in Kigali and my immediate answer was yes but I would need a big opportunity which I defined as growth potential and financial and social runway.  My idea was a commercial banana beer company for the following reasons:

  • Agriculture productivity
  • Educational opportunities
  • Bottom of the pyramid impact
  • Local employment and reinvestment
  • Domestic market demand
  • Industrialization
  • Export with no import

Let’s do some back of the envelope math.  Rwanda has roughly 10 million people, 50% of which are of drink, they have a disproportionately large number of youth which we learned from the minister of youth during our meeting with government officials and the Rwandan development bank.  Of the 5 million of age drinkers, half are men who from my observation at road side stores and restaurants drink more than women so let’s assume half of them drink which is 1.25 million and only 25 percent of women drink banana beer which is .625 million in total making the market size 1.875 million.  Let’s assume the average person drinks twice a week and on average consumes 2 beers so 4 beers a week times 52 weeks a year give us 208 beers a year per person.  208 beers a year times 1.875 million is just shy of 400,000,000 beers a year. 

The most popular local beers such as Tuskers are priced at a range from less than a dollar to thre dollars which I am assuming is a retail marked up 20%.  So if on average a beer costs $2 retail which is $1.6 wholesale and the average wholesale beer has a net income margin of 7% then I am assuming is profit of $0.12.  However my business would not have the advantage of economies of scale so I am going to discount the net income margin by 60% which would give me profit of $0.07 per drink.  If I multiply $0.07 times the annual beer consumption of 4 million then we have an annual net income of roughly 25 million all of which I would reinvest in the company, mostly the employees and capacity. 

These numbers seem large so I am going to assume the beer drinking population and consumption is the most inaccurate number but even if it is ten percent of that number, $2 million dollars would be a substantial economic investment in the country and who doesn’t like banana beer!

 

 

Reflections on Sustainable enterprise

One of the aspects I enjoyed most about our trip was contrast.  There were two particular contrasts which I want to focus on, Kenya vs Rwanda and for-profit vs non-profit.   As is turns out there is some overlap and interesting connections between the two.

Our course focused on the opportunities and challenges of sustainable social enterprise in East Africa.  We visited a variety of organization in Kenya and Rwanda with a particular focus on the agricultural, educational, and micro finance industries.  In addition we also met with government officials, including the prime minister of Kenya, Raila Odinga, to understand the role government plays in facilitating development especially for the bottom of the pyramid.

Kenya is a country with vast natural and human resources but has struggled to capitalize on these advantages the way other developing countries have.  From my observations the reason for this is twofold; first the low density of population in rural areas makes infrastructure development uneconomical and therefore unfeasible.  Secondly, it seems that the government is unproductively bureaucratic and corrupt mostly serving their self interest and those who the governments need help the least. 

Contrasting this, Rwanda seems to be the complete opposite of Kenya. The country has incredible infrastructure as a matter of fact maybe the best infrastructure I have seen in a developing country of its wealth class anywhere in the world.  Most of the infrastructure has been funded by foreign investment, particularly the Chinese, but it was impressive to see the rate at which the country is growing.  Rwanda is one of the fasted growing countries in the world beating their own internal development targets such as per capita GDP and in just a few short years have gone from completely foreign funded to now producing over 50% of the annual budget through tax revenue.  In addition to the infrastructure the country has a loved and although controversial in some regards a extremely effective government which cares for the interest of all its citizens’. 

These two main differences in Kenya and Rwanda, infrastructure and government, have created distinctly different value propositions for incoming businesses.  While Kenya has a large capital city, a population four times the size of Rwanda, a port, and natural resources, my sense is that despite the geographic and demographic challenges, foreigners would rather do business in Rwanda because government cooperation and the speed and quality of development.

In addition to seeing the geopolitical differences between the two countries we also saw the business strategy differences of organizations in both the countries.  We visited pure non for profit models, for profit models and blends of both and within those categories we studied micro finance, micro grants, education, technology, and agricultural businesses but for simplicity sake I am going to focus on for profit vs non profit.  The question is, in a developing third world economy which business structure has greater potential at creating sustainable social impact and why? 

To me, the answer is clear.  I believe to generate the greatest magnitude of economic value the for-profit model is far more effective.  The reason for this, first and for most I believe that the for-profit models operated in a manner that would allow for growth and eventually because they do not depend on continuous donor funding a more sustainable business.    I thought Rwanda Trade company in Kigali or Bridge International in Nairobi are great examples of for profit business models with social impact. 

Bridge provides education to the lowest income populations in Kenya so it is clear to see their social impact.  However the point I want to make is the for-profit model which they operate under is the key driver in their growth and therefore the key driver in the scale of their impact.  On the other hand Rwanda trade company isn’t growing at the same scale but they are collaborating with and educating farmers and perhaps most important of all are creating jobs, setting the precedence for fair labor practices, and reinvesting in their business which will create the greatest economic impact to the community in the long run. 

All work is good work so I don’t want to point out the negatives or drawbacks of the non for profit model but in general my impression was the variety of motivations behind for-profit models created better business with greater runways which in my mind is a more effective vehicle for sustainable social impact. 

 

 

 

Departure

Three days before we leave for Nairobi and begin the “tour” portion of the study tour.  Most of all I’m looking forward to experiencing in person the things we’ve learned during the semester through; lectures, discussions and readings. 

We begin our trip in Nairobi where will work two full business days with our host companies.  Our class has been split into several teams of three students to work with a variety of social businesses on different consulting projects.  My group has been selected and paired with company called Makao Mashinani Housing Microfinance. http://www.makaomashinani.co.ke/index.php. Our group was paired with Makao based on out skills and professional experience in variety of areas from non-profit to marketing and finance.

Makao was incubated by the K-Rep Group and has now spun out to operate independently. Originally we set out to create a gap analysis but after many discussions we ultimately decided the most beneficial project for both Makoa and our team would be to assist with fundraising and preparing an investor presentation.

Our first day in Nairobi we will be accompanying Luke, our host company contact and Makao CFO, to visit a potential investor.  The timing is tight and I assumed we will be exhausted from the jet lag but I’m sure the adrenaline will get us across the finish line.  The next day we will spend the morning at the Makao we will have a work session and meet other members of the Makao team.  In the afternoon we will visit some project sights which should be fantastic. 

After the two days of consulting work our entire class will spend our days visiting organizations to learn more about social impact in east Africa and getting first hand exposure to the challenges and opportunities.  

Can’t wait to get started!

 

 

04/21/2012

Precious Memories in Safari

We've stayed three nights in Safari during the weekend. It was my first time to be in Safari. It was amazing to see animals that close!!

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This is a lion! The king of safari. It was interesting to see how much proud they look. They weren't afraid of anything.

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This is a giraffe. It is more gentle and calm.

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They are zebras, my favorite! You'll be really surprised if you see them real. Their stripe pattern is much more beautiful than you may expect!

It's good to see all the photos again. I cannot forget this trip forever!

 

What I got from East Africa Study Tour

Looking back my two weeks in Africa, I can’t avoid thinking that I am so blessed.

First, I got a very clear answer for the direction for my career. I have had a sense of responsibility toward the world and I was struggling to connect my professional life to this. I was very much satisfied with my previous job but I was always questioned myself if it is the right thing to do considering that it is not fulfilling my desire to do something for social impact. However, during the trip, I realized that I can always make social impact at any work place – even at my previous company – and I started to respect the point that different people can make different kinds of social impact at different levels in different kinds of career path. I will come back to my previous company and work on project to strategize its Corporate Social Responsibility and develop more practical action plans, feeling free from the burden, which I used to have, of getting into non-profit sector or being a social entrepreneur.

Secondly, I got a business idea. My first impression on Kenya was that the country itself looks like a treasure chest. I saw lots of business opportunity, and people are all entrepreneurial.  I felt a strong desire from my deep heart that I want to run my business here. After thinking about several items, I concluded that I take the globalization project of my family business and open the office in Nairobi. My family business is a middle-scale sales & operation business of construction vehicles and we only operate it in South Korea so far. The market size in South Korea is limited but it is getting more saturated, so my dad was thinking to reduce the size of business in the future. However, looking at the dynamic movement in Kenya, I was convinced that there are still a lot more opportunities in the global world and I decided to take this project. Of course, I need to study more on the market and to be very prudent on figuring out what is opportunity and threat, but I am willing to go through this process. It will be another fun project during my MBA life.

Thirdly, I got a lot of good friends and memories with them. It was something unique experience that we spend two weeks all days and nights together in such an unfamiliar environment. So, we got very closer, shared each others’ interests and backgrounds, and discussed on the everlasting topic of “social enterprise.” It was fun, memorable, and valuable. We still get together for dinner and drinks. I would definitely count this study tour as one of most memorable events during my MBA life.

Continue reading "What I got from East Africa Study Tour" »

Changing My Perspective on Social Enterprise

When I first joined the study tour, I believed that Social Enterprise can be something really helpful to break through current donation based non-profit organizations’ problems of not being sustainable. I thought that donation-based company or organization cannot survive at the end and that for-profit business model is necessary even for 100% socially driven companies – and I believed this “for-profit” businesses, which aim to make social impact, are called Social Enterprise. I hoped it could tremendously contribute to local economic development by teaching local people how to fish rather than just by feeding them.

However, the first three days of my trip were enough to ruin all my very positive images and expectations on social enterprise. Most of the companies that we visited were not making any positive profit yet and majority of their business model was not even profit driven, meaning that their product or services are not competitive in the market. They are saying that they are for-profit business but they are not fully following market mechanism, meaning that they are not providing their products or services at the equilibrium of demand and supply. For example, “Kick Start,” the farming machine company needs to compete with the alternative solution which provides better products (engine driven vs. hands driven) with slightly higher prices. All of social entrepreneurs there started their business with a very divine purpose to help local people’s lives but this very good motivation sort of restricts their product solution because it should be very affordable. Either it has worse quality than the alternatives or it restricts the size of the market because some people - I assume that it would be majority – would like to spend a little bit more for better quality product. In most cases, people are not able to pay full amount of money for any products anyway regardless of social entrepreneurs’ divine intention to provide the most affordable products; they need financing anyway. Putting a little of exaggeration, there is no “affordable” products from local people’s perspective. Most of the products are way beyond people’s two-or-three-month income.

Slightly shifting a gear, from the perspective of “innovation,” I had an impression that social entrepreneurs are moving the world backward. People out there in other continents are making products better, quicker, and cheaper but Social Entrepreneurs are pulling this trend backward by providing hand-made and labor-intensive products or services as compared to automated machine-driven and high-quality products. I believe that innovative products from outside of Africa will catch up the backward looking products pretty soon by lowering price at higher quality. Given the fact that the only benefit of this old-fashioned product is price, what if very innovative good quality products catch up their prices by innovation, what should the very divine social entrepreneurs do?

Interestingly, however, 100% profit driven company, which is not socially driven, - but try to communicate that they are built on social responsibility - was making even bigger impact than so-called social enterprise. For example, Rwanda Trading Company, which is a coffee wholesaler in Rwanda, purchases coffee beans at a good price, processes them with western machines and technologies, and sells them to global coffee manufacturers, making a lot of profits. They make social impact not by their products but by their internal processes in sense of providing jobs to many of local people and of training them with advanced skills and processes. It is meaningful for this company to transfer westernized business system including HR, employee welfare, and training into Africa – it should be certainly called impact. Looking at what they are doing, I felt that they could be another kind of example of Social Enterprise even though their vision is not totally socially driven.

To summarize, below I tried to classify different types of social enterprise into three categories.

  1. A company whose vision is totally socially driven but whose business model does not 100% fit into market mechanism, most likely not making enough profits
  2. A company whose business model 100% fits into market mechanism but whose vision is not totally socially driven, most likely making enough profits

I think each one has pros and cons and I’m sure that each one can make impact at a certain level. It is totally up to individual which one to pursue as an entrepreneur. If someone would feel terrible by not making enough money doing socially meaningful work, they should go for the second category; if someone would feel so much fulfilled by the impact that they can make even though they cannot make enough money, they can go for the first category. The bottom line is, however, we can always make social impact regardless of what types of business that we are working on, so we rather need to explore how we can make social impact additionally on top of what we are doing at current business to think what a good model is for making social impact. Efforts to enhance employee welfare, to put Corporate Social Responsibility into execution, and to spread the advanced business models into emerging market could be good examples.

Third category, that I would like to propose, is in line with this approach that anyone can make social impact as well as make lots of money. It is a company that perfectly maximizes two different values, social impact and profit, not sacrificing each other.

3. A company which is built on social responsibility but whose business model perfectly fits into market mechanism – or even advance the market by innovative models, most likely making a lot of profits

I’ve seen a perfect example in Kenya, which is called Bridge. It provides better quality education in their primary schools but with 25% lower price. Currently, they run 75 schools and they believe profits come from scales. So, based on their business plan, they can go through break-even point by the year 2014, when they build 850 schools. They are funding from private investors who expect same level of returns on their investments as those in other for-profit businesses. It shows a very obvious contrast with what I’ve seen in other social enterprises; they were rather relying on donation-like investments, which do not require any returns to investors. In this case, it is hard to attract investors, making entrepreneurs to rely on personal connection and to spend more time on attracting investors than making their business more efficient and competitive. I personally admire the management team at Bridge a lot because they spent very long time (6-7 years) of their lives to find out market opportunities and build sustainable business model before they started their businesses, – showing a big contrast again with a lot of other social enterprises that spend 1-2 years on these - and they fully utilize their knowledge and skills that they got from prestigious education to do all of these – some of them were MBAs. I think they can be a great role model for elite groups like MBAs who want to be entrepreneurs who make social impact. Hope this case inspires, challenges, and encourages many people, especially my colleague MBAs, to start to think what they can do for social responsibility with what they have.

Continue reading "Changing My Perspective on Social Enterprise" »

Always adventurer and backpacker

When I look back the trip, I realized it was a really eye opening experience for me, a "study tour" in many regards

Things I learned and few remained questions for me. 

1. Forprofit Vs. nonprofit organization. what is more effective? where should we go? 

2. Big corporate's CSR(Corporate Social Rexponsibility) Vs. Social entreprneurship 

3. So, where am I: What can I contribute here and what I really want to do?

4. Now, I can feel comfortable anywhere in the world. Assian, white, European, Latin, Black people. Compared to myself 10 years ago, what a long way gone.

5. Everything made is China. Here in Africa, I've learned how much Chinca has grown up and this seems amazing.

6. Mobile money. This is amazing how technology people's everyday life here.

7. Rwandan's govern driven devleopment model Vs Kenya's entrepreneual culture. what would bring a sustainable growth?

8. English as an official language : what are benefits and costs?

9. Korea's foreign aid: now we became a country that can help others. My country becomes a only country that now help the others from the one who used to receive the international aid 30-40 years ago. How can we pay back and what role I can play there?

 

The picture below is me in Masai Mara and it cocludes the theme of the trip to me: Always looking forward a adventure, learning, in a complete strange but beautiful world. 

 

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04/20/2012

Humanity Failure

The Rwandan Genocide was the 1994 mass murder of an estimated 800,000 people in Rwanda. Over the course of approximately 100 days, over 500,000 ~ 1,000,000 people, as much as 20% of the country’s population, were killed. It was the culmination of longstanding ethnic competition and tensions between the minority Tutsi, who had controlled power for centuries, and the majority Hutu peoples, who had come to power in the rebellion of 1959–62 and overthrown the Tutsi monarchy.

In 1990, the Rwandan Patriotic Front (RPF), a rebel group composed mostly of Tutsi refugees, invaded northern Rwanda from Uganda in an attempt to defeat the Hutu-led government. They began the Rwandan Civil War, fought between the Hutu regime, with support from France and Uganda. In response, many Hutu gravitated toward the Hutu Powerideology, with the prompting of state-controlled and independent Rwandan media. As an ideology, Hutu Power asserted that the Tutsi intended to enslave the Hutu and must be resisted at all costs. Continuing ethnic strife resulted in the rebels' displacing large numbers of Hutu in the north, plus periodic localized Hutu killings of Tutsi in the south. International pressure on the Hutu-led government of Juvénal Habyarimana resulted in a cease-fire in 1993.

The assassination of Habyarimana in April 1994 set off a violent reaction, during which Hutu groups conducted mass killings of Tutsis (and also pro-peace Hutus, who were portrayed as "traitors" and "collaborationists"). The genocide was supported and coordinated by the national government as well as by local military and civil officials and mass media. Alongside the military, primary responsibility for the killings themselves rests with two Hutu militias that had been organized for this purpose by political parties: the Interahamwe and the Impuzamugambi, although once the genocide was underway a great number of Hutu civilians took part in the murders.

 

We visited "one of many" memorial centers in Rwanda and it made all of us speechless.

 

 

Putting pictures reminds me of Susan Sontag's "Regarding pain of others" arguing that showing violent photos from Africa nourishes our prejudice on "underdeveloped" Africa so I'll just link some good articles here. 

Susan Sontag: http://www.amazon.co.uk/Regarding-Pain-Others-Susan-Sontag/dp/0141012374

Survivor story: http://www.kigalimemorialcentre.org/old/survivors/valentine.html

http://www.kigalimemorialcentre.org/old/survivors/anne-marie.html

 

Too many question unanswered through the trip : what makes this humanity failure? 

 

On Social Enterprises...

Can a business model be financially sustainable while generating social impact?

My answer is yes. Such a business model can exist if you define your target customers and product/services and create income stream in an economically affordable way.

One question would be what if the two values – social impact and financial health, conflicts. Which you prioritize over the other? One example would be Rwanda Trading Company, whose ultimate purpose is profit making. I think it is true that the local coffee producer and exporter contributes to improving Rwandan people’s lives through employment of local people, financing processing facility for coffee farmers, and paying tax to the government. However, the social impact is not embedded in its mission. Thus there is always risk of sacrificing social impact for profits. Social enterprise, on the contrary, put the first priority in achieving social impact. The business strategy and management tools and resulting profits are just means to an end to solve social issues. In this sense, Rwanda Trading Company is not a social enterprise. To be a for-profit social enterprise, social cause must be embedded in its mission and the decision making process.

Other question would be how innovative model a social enterprise can introduce to the customer segments and causes that are traditionally regarded as difficult to fit a for-profit model. How to serve the poorest of the poor is included in this question. There are a couple of ways to do this:

  • Combination of for-profit business and nonprofit activities. An example is conservation of national park (People pay fee to enter a limited area of a park. The fees are used to conserve the rest of the park). How different is the for-profit activity from non-profit varies.
  • Serve customers of different level of affordability or price-sensitivity. Aravind Eye Hospital in India and Fred Outa Foundation’s school in Kenya(currently being developed) are the examples.
  • Design so that customers who have been considered to be too poor to afford a produce/service can now able to pay. This can be done through innovation in tools (e.g. financing tools), product development, and communication with customers. Makao’s incremental housing construction is one example.

One more interesting aspect about social enterprise is how to draw an exit strategy. Since the ultimate goal of a social enterprise is to solve a specific problem, it is ideal if the organization eventually becomes unnecessary to the society. It is not good to create a dependent relationship between the organization and clients. Indigo Africa envisions its exit from its current role after local cooperatives are empowered enough to negotiate with their buyers and lead product development by themselves. I hope having this kind of proactive exit attitude continues to affect how Indigo Africa design its service and train cooperative members.

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