A responsible profit from the war on malaria
Wednesday, October 26, 2005
?Business is for profit, and profit is for a purpose,? he says. ?This makes business sustainable and profit responsible.?
When he was 19, Mikkel Vestergaard Frandsen left school, went hitchhiking and wound up in Cairo, where he met a couple of Nigerian wheeler dealers.
They told him about some ?easy business? importing trucks, but he eventually decided he would be better off without partners. So Mr Frandsen began his business life by striking out alone in Africa, importing trucks to Lagos until the 1993 military coup sent him scurrying back to his family company in Denmark.
Something about the experience stuck, and on his return Mr Frandsen transformed Vestergaard Frandsen, a 50-year-old family enterprise that started out in labour clothing, into a designer of high-tech bed-nets and emergency sheeting, f?ted by economist ?Jeffrey Sachs as the front line against Africa?s biggest killer, malaria.
One of its products, an insecticide-treated net called Permanet that kills mosquitos on impact and lasts for three to four years without needing to be re-treated, is one of only two nets endorsed by the World Health Organisation. It was deemed exciting enough to feature in an exhibition at New York?s Museum of Modern Art (MoMA) on modern design and risk.
As the world gears up to double aid to developing countries and leaders promise to halve poverty by 2015, Mr Frandsen finds himself in a potentially very profitable place as one of the pioneers of a new global industry.
In addition, the young Dane sees himself as part of a growing group of entrepreneurs who see no contradiction between making money and doing good.
?Business is for profit, and profit is for a purpose,? he says. ?This makes business sustainable and profit responsible.?
Mr Frandsen?s father had in the past dealt with United Nations groups and non- governmental organisations by selling a stockpile of Swedish fabric, which had been hidden in the mountains during the cold war, as emergency blankets. The son decided it was ?a great fit between the family business and what I wanted to do?. In the dark days of Rwanda?s genocide, they quickly sold off that fabric to UN agencies and NGOs. These clients also proved more reliable than selling directly to the continent. ?Debt collection is certainly a lot easier with the Red Cross in the UK,? says Mr Frandsen.
With the initial stockpile gone, he started working with blankets out of India, and built strategic warehouses in Nairobi, Dubai and Gibraltar so he could service crises as soon as they happened. By the mid 1990s, the ?little operation we started in the back of the warehouse had outgrown the family business?.
Mr Frandsen moved to Nairobi to build his Africa operation. He moved into mosquito nets in 1994, at first buying them out of Thailand. But as the 1990s progressed, the world started getting smaller because of the internet, and Vestergaard Frandsen had a struggle on its hands. Indian, Pakistani and Chinese manufacturers started to bid directly on NGO tenders, making it much tougher to compete.
As competition for the emergency industry grew, two basic choices emerged: make your product cheaper, or better. ?Everybody else was picking the cost leadership route,? Mr Frandsen says, so he decided to differentiate through innovation. ?For us this was the obvious route because there was no one there. People start becoming bright when they are squeezed, with their backs against the wall.?
The company invested heavily in research and development and pursued tighter integration with its licensed production facilities for disease control nets in Vietnam, where its nets are still made. ?The ideas we came up with were basically the two featured at MoMA: a branded product portfolio for malaria control in development settings [Permanet]; and a branded product for malaria control in the acute phase of a complex emergency [Zerofly plastic ?sheeting].?
His decision was spurred by a number of developments. In the late 1990s, the ?Roll Back Malaria? campaign began pushing its way on to the international agenda, and a number of NGOs and UN health officials were looking for partnerships with the private sector. The WHO held a seminar bringing private and public sector players together. Mr Frandsen recalls there were a lot of people there, allowing him to handpick an expert team. ?We were the people with the in-depth knowledge of the textile platform to use this on, we had the money and the logistical background, and we had the production set-up in Vietnam,? he says.
But he says the first half of this decade was still a struggle because getting the WHO stamp of approval crucial to winning contracts took longer than expected. ?We had spent a fortune on developing this [technology] ? millions of dollars ? and we did not get the WHO as fast as we wanted.
?You apply, submit products for them to test, and then it goes through three phases: lab trial, small scale field trial, then a large scale field trial where the product is handled by unskilled ?people, gets dirty and ?mistreated.?
The situation improved quickly once the WHO approval finally arrived. Demand for long-lasting bed-nets began rising, and the Swiss-based Global Fund foundation to fight malaria, Aids and tuberculosis was taking shape. Africa began laying down clear anti-malaria targets, and the world came together on a set of Millennium Development Goals to halve poverty by 2015. Mr Sachs? Millennium Project has also called on governments to support ?quick wins? to cut poverty, including the massive disbursement of bed-nets.
There are three models of selling the bed-nets. The first is taking direct donations, from aid agencies. Then there is the relatively new method of ?social marketing?, in which a company teams up with an aid organisation to market a product and the recipients pay only part of the cost. Vestergaard Frandsen has been a pioneer in this field. Finally, as countries become richer, direct marketing takes place.
At present, the first route to market accounts for more than half of Vestergaard Frandsen?s business, with social and commercial marketing constituting the rest. Mr Frandsen says it will eventually be the other way round.
The potential market is huge. If everyone who needed one already had a net today (clearly not the case), the annual replenishment rate would be ?in the neighbourhood of 30-50m nets per year in Sub-Saharan Africa?. Most important, says Mr Frandsen, ?we have proved to others this is business; that has made a number of very strong companies invest in this?.
The crucial thing to remember, he adds, is that profit is a key tool but not the ultimate goal. ?We are business people, but this is not capitalism in its purest form. The profit is for a ?purpose.?
AN ENTREPRENEUR?S??TIPS
?? Do not do it for the money. ?If you think that being self-employed is about fast cars and a flashy address, think again. Most things one can be passionate about are not money-related. And when you do start having success, stay hungry.?
?? Establish common goals. ?Vestergaard is trying to achieve this by aligning our corporate strategy with the Millennium Development Goals; it then puts this into action by investing in the developing world and in life-saving products, then by scaling up to meet the MDG goals.?
?? Be passionate about what you do and take risks. ?But passion and risk have to be in the right ratio, otherwise it is a recipe for disaster.?
?? A company is no better than its most recent innovation. ?Innovation in Vestergaard is based on the combination of creative thinking and systems thinking. We call it ?imagineering?. For us the perfect private-public partnership in innovation is in shared systems thinking.?
?? Business is for profit and profit is for a purpose. ?This makes business sustainable and profit responsible.?
(Via PSD Blog)
