Ok, here’s a challenge: Go sell and deliver your product into the most remote, rural areas of East Africa where transportation infrastructure is underdeveloped at best (but most likely non-existent) and the average income is less than $2 USD per day. Wait, there’s also a catch: you need to be profitable.
This has come to be known as the “last-mile” or “last kilometer” distribution challenge for the base of the pyramid (BoP). Nearly anyone who has tried to do business in many parts of Africa or India has had to take it on and it is the challenge currently facing us at GCS Tanzania. The most common difficulty in serving these markets comes down to simple economics: the cost and effort required to send people and product to these communities far too often exceeds the income generated from sales.
A conventional wisdom has emerged that the best way to tackle this problem is by recruiting the villagers themselves as sales agents or “village level entrepreneurs” (VLEs). Encouraged by examples like Hindustan Unilever’s Project Shakti in India, companies have adopted this approach hoping not only to build a profitable sales and distribution channel for themselves but also to create a stable and viable source of income for the villagers. When successful, these networks can result in a long lasting mutually beneficial arrangement for everyone involved.
This is the approach that we’ve decided to take on in Tanzania in the form of the “GCS Rafiki network” (“Rafiki” is the Swahili word for “friend”). For now, it is being used exclusively for the sale and distribution of solar lights and chargers, but the network itself is being developed for the future dissemination of innovative technologies of all kinds.
The more immediate goal, however, is to prove (primarily to ourselves) that it can be a profitable and self-sustaining sales channel. Of course, nothing worthwhile comes easily and as expected there are a number of daunting challenges involved, any one of which could easily sink the entire project. Among the more salient at the moment (and in no particular order):
- Infrastructure and logistics: Less than 15% of the roads in Tanzania are paved (and those that are are mostly in urban areas) making it costly and challenging to go to these areas on a regular basis. There is also no postal delivery service as we know it in Western countries. How do we deliver product, monitor sales, and collect payment reliably and effectively under these conditions?
- Entrepreneur recruitment: The success of the network depends entirely on the recruitment and success of the individual entrepreneurs. The challenge is not only to recruit good people and get them started as quickly as possible, but also to ensure that the ones who are already active continue to meet their targets and be successful.
- Customer buying power: At retail prices ranging from $12 – 40 USD, even a basic solar light represents a significant chunk of monthly income for our typical customer. Does it provide enough value to the customer to justify the expense? If so, how do we best demonstrate and communicate that value? How do we empower our VLEs to communicate that value?
- Entrepreneur financing: Like our target customers, newly recruited village entrepreneurs will have very few, if any, assets. In most cases they will not even qualify for microcredit loans. Do we consign them goods or extend them credit ourselves? If so, what is the risk to our company and how do we manage it?
- Incentive structure: This can be tough to get right in any business, let alone in the context of a different culture than your own. Get this one wrong, however, and things can really backfire on you. Understanding the people who are working for you and what motivates them to be successful is absolutely imperative.
- Risk management: A significant amount of cash and product must change hands in the process – most of the time through people we do not know and will never meet. Risk can never be eliminated, but how do we keep it to a minimum?
This post is intended as the first in a series describing the efforts to address some of these challenges and to share what we learn along the way. Future posts will go into more depth on these and other topics.
Comments are always appreciated!
10 thoughts on “The GCS Rafiki project: A “last mile” distribution network for rural Africa”
Good update. Seems like you have enough challenges for the coming months. At the same time it sounds like this is a great learning opportunity for you, working and experiencing how business is done at the bottom of the pyramid. Keep up the good work.
Quite informative. I’m so please to see you’re determination in tempting innocent tribesmen into becoming capitalist pigs. Brings a warm feeling to my heart. -Satan
Great update, glad you are taking the challenge in stride! Keep it up!!!
I see that this is a big chunk of available income for the region, how does that impact their well being from a nutritional and health perspective? What is their buying priority for solar power comparing to basic needs, foods, medicine, mosquito nets, chlorine…. 😉 Will a building trend to buy solar power shift the order of priorities for these communities? just some thought that come to mind.
Thanks Jose, and in fact that’s a great question. Solar lights in particular have been successful in these communities because that are not seen as an additional expense but rather as replacing an existing one. Currently, most of these households are using kerosene lamps at an estimated cost of anywhere from $25-100 USD per year – about $120-500 over 5 years (not to mention the fire hazard and noxious fumes). Many are also spending a premium for mobile phone charging services in their villages. A solar light, on the other hand, is a one-time investment of $5-50 USD, is many times brighter (and safer) than a kerosene lamp, and generally lasts for 5 years or longer. There’s a good article on this on cnn.com: http://edition.cnn.com/2012/01/10/tech/innovation/solar-powered-led-lamps
Curious about the viability of piggy backing on the rural taxi network for product shipping to remote locations. Mobile technology for package tracking and delivery verification seems plausible. I can image that a package could be checked in with a taxi driver in the capital, handed off to another driver in a remote town, then handed off again to a driver going to a remote village. At each stage the package tracked and the registered driver is compensated.
Hi Jim, thanks for the comment (and apologies for the slow response, been traveling). Great points, I know one thing we did take advantage of in Tanzania was the “dala-dala” (mini bus) network to get out to some of the remote areas, but even this didn’t address everywhere we wanted to be. As for the mobile technology, I agree that I think this is a very ripe area for innovation. There are a number of startups out there already trying to address various parts of the problem but no one that I have come across so far has nailed the whole thing yet.
Are you familiar with Logistimo? They appear to have developed interesting last mile mobile technology on an SAS model. Who are the startups you mentioned? I am working on a residential solar lighting project in Togo, West Africa and the supply chain logisitics are a challenge. Lots of value in figuring this out.
Hi Jim, Logistimo is a new one to me thanks for the tip! Let me email you offline about the other startups.