Liliana Calvo December 9, 2009
This model of doing business is based on the idea that if you are a company and you sell your products to poor people (people who live with less than $2.5 per day), without doing charity, you can improve your volume and therefore make profits. As we can read in the article of C.K. Prahalad and Hammond, “while individual incomes may be low, theaggregation buying power of poor communities is actually quite large”. Moreover this model can give to the firm a competitive advantage, because these markets are in the earliest stages and their growth can be extremely rapid. Challenges for the new project:
Adapt its model => Essilor needs to buy 1000 extra vans to reach 600’000 villages of India. Diversity of population => It needs staff that speak23 different languages and more than 400 dialects. Find local people to advertise camps=> Need local workers and volunteers that were members of local organizations. Find and retained skilled staff => the best technicians.
The better idea is to scale up the operation slowly.
First Essilor should try the operation with some villages that have the same language, becausethere is a big diversity in the population and each state is like a country. The other camps were done in villages with more than 5000 inhabitants in order to benefit from economies of scale. Therefore, Essilor needs to take villages with less than 5000 inhabitants but enough to guarantee that the investment make in the expert of the local language is amortized and to guarantee that the staff canwork in more than one village. Moreover if we begin with not so small villages the company will recover more quickly its investment (because it can sell more spectacles in each villages, because there is more population) and then can show to the headquarter the results. The idea to begin with small sample is good too, because if these tests are not conclusive. Essilor can stop its investment beforeto purchase too much vans and to recruit too much employees.
Furthermore in relation to the volunteers that are in the camp to promote the coming of the company. This is easier for the company to recruit people in bigger populations, because they have more probability to find somebody that agree to work for this project. The idea to test this operation in a sample first is a goodidea. Nevertheless we have also data from Asia that show (see appendix 4) that approximately 18% of the population use optical equipment in 2006. That implies that there is a big potential of growing in these communities. In fact, in this poor villages, people have neither never heard that spectacles can improve their vision nor never had the possibility, because of the huge costs, to go to thecity to buy spectacles. Finally the idea to test the operation in a small proportion of villages helps to minimize the risk. To conclude, Essilor needs to scale up the operation, but needs before to make a test with some vans to make sure of the results.
To evaluate the project, the first step for the Headquarter is to look at the simulation on the appendix and to tryto make some conclusions. First we have to look at the assumptions on appendix 1a. We have only one simulation with a standard case, meaning that we do not have a case with an optimistic perspective and an pessimistic one, that maybe could help the headquarter to drawn better conclusions. But we have some suggestions for the costs reduction and the revenues improvement.
If we look at therevenues and the expenses for the first year:
◦ ◦ ◦ ◦ Revenues: 2’090’400 Rs Expenses: 2’408’415 Rs Loss : 318’015Rs => the project is not profitable in the first year. This conclusion can sustain the comments made on the slides concerning the idea to test the project with some vans (i.e. 10 vans) before to initiate the whole project.
To go further in the demonstration we need to...
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