The key to a market that is not there

If the film goes directly to the video without renting it in cinemas, this is usually a bad sign: the cause may be poor quality, poor reviews from critics or the creators’ insecurity about success. The release of a film immediately on a video carrier is traditionally considered a way to save face and move on. However, all this does not apply to the movie “Life in Shackles,” released in 1992 in a video in Nigeria, filmed by electronics seller Kenneth Nnebue.

Nnebue received a large batch of blank video cassettes and quickly realized that he could not sell them: why did Nigerians need empty cassettes? He decided to record something on them – he himself came up with a script, found a producer and director, and hired actors. It turned out a two-part thriller about a ruined businessman who is trying to regain his fortune with the help of witchcraft. This film was recorded on cassettes (there were no operating cinemas in Nigeria then). A tape with a budget of $ 12 thousand was distributed throughout Africa in hundreds of thousands of tapes and became the first sign of the new film industry in Nigeria – Nollywood.

Even 25 years ago no one knew about its existence, and today Nollywood produces 1,500 films a year, employs more than a million Nigerians and is estimated at $ 3.3 billion. In terms of film production, it competes with Hollywood and Bollywood. The film industry in Nigeria has attracted the attention of banks and other financial institutions – some even created entire departments involved in investment in the production of films. It is estimated that more than 50 film schools operate in the country. The government has established funds to teach cinema and finance new films; in Nigeria are beginning to actively fight piracy and protect copyrights. In 2018, Nigerian film festivals took place in New York and Toronto, and the comedy “Lionheart” was the first Nollywood movie purchased by Netflix.

How did it happen that a modest investment by an electronics seller who wanted to sell video cassettes as soon as possible led to the heyday of a multi-billion dollar industry in one of the world’s poorest countries, where less than 35% of homes are connected to electricity and only 20% of families have a TV? Perhaps Nollywood is just an amazing coincidence?

Hardly. Nollywood is just one example of how an industry can show phenomenal growth by creating a market from scratch in an unexpected place. Slowing growth of developing giants like Brazil, Russia, India and China is prompting investors, entrepreneurs and international companies to seek new territories. With great interest (and considerable fears), they are eyeing the so-called frontier or border economies, such as Nigeria, Pakistan, Botswana. But is it possible to discern the serious potential in poor countries with undeveloped infrastructure and institutions in the absence of data on market size and population willingness to pay?

It is important to understand what explains the success of some projects and the collapse of others. We believe that it is all about innovation — especially market-making innovations. They not only give a new impetus to the growth of companies, but also bring to life entire industries, which, in turn, support the border economy and ensure inclusive and sustainable development.

The power of market-making innovation

It is believed that before moving on to innovation and growth, society must develop infrastructure, a judicial and legislative system, financial markets, etc. We believe that innovation itself is the driving force behind the development of society. They help to find money for infrastructure, build institutions and reduce corruption. If, despite high business activity, the country is stagnating, its problem is probably not a lack of development, but a lack of innovation.

Market-forming innovations provide an especially reliable pillar for the economy. They differ in a number of common features. First, they provide many people with access to a product or service that was previously too expensive for them or was not available on the market. This gives a powerful impetus to the economic development of the region and benefits the innovator and entrepreneur.

Secondly, market-forming innovations are introduced through business models and value chains that ensure profitability before growth . Often this is achieved by transferring existing technology to another business model. When Kenneth Nnebue accidentally brought to life Nollywood, he not only opened up access to locally produced films to millions of Africans, but also integrated the existing technology (video tapes and VCRs) into a “non-prestigious” business model (film production immediately on video). Nnebue understood: if in Hollywood such a release of films would be considered at best an attempt to save a reputation, then in Nigeria it was the right strategy. If he had tried to copy Hollywood and build cinemas, his efforts would probably go to waste.

Thirdly, market-forming innovations are created by the local market for the local market – or, at least, taking into account its needs. This means that innovators must carefully study the features of this market and make the product simple and cheap enough for it. Of course, you can always benefit from the low cost of labor in the region – but market-forming innovations cannot be a means of generating profit from poverty. Moreover, over time (as innovation spreads), salaries begin to rise. This process is the opposite of a “downward race,” based on the abuse of low wages and often export-oriented products.

Fourth, market-forming innovations involve the creation of jobs for local residents , which positively affects the local economy. These jobs are created to serve the local market and cannot be easily transferred to other countries; These include, in particular, positions in the field of design, advertising, marketing, sales and distribution. In these areas, salaries are higher than in the field of raw materials extraction or in production, which uses unskilled labor and which can always be transferred to another region. Yes, Nigeria does not produce video equipment – but the film industry employs more than a million citizens of the country. And these jobs, unlike many created in Nigeria in recent decades, are quite stable.

Fifthly, market-forming innovations can be scaled . Since they make a product simpler and cheaper, making it affordable for many people, scaling becomes a natural part of the process. As popularity grew in different countries of the continent and in the African diasporas of other states, Nollywood created more and more jobs and contributed to the development of infrastructure, helping Nigeria strengthen public institutions. Thus, the potential effect of market-forming innovations is enormous both for companies and for countries as a whole.

Let us turn to two more similar innovations and try to figure out what factors contributed to their success.

Buying insurance is no more difficult than setting a ringtone

Richard Leftley, who worked in London insurance companies in the 1990s and early 2000s, once drew attention to two tables published in the annual statistical report of Swiss Re global reinsurance company. The first reflected the number of people who died as a result of natural disasters, and the places of their death, and the second – the amount of insurance payments. “I was struck by the mismatch between the lists,” recalls Leftley. – Most of the people died in countries such as Bangladesh, Pakistan and India. But these regions were not even represented in the overall payout statistics. ” He found this absurd: those who need insurance more than others are actually the least likely to be insured.


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