Marketing Processes

in Developing

Latin American Societies

CHARLES C. SLATER

Past economic develop-ment efforts have over-emphasized productionproblems and neglectedmarketing problems. Thethesis of this article is thatmarketing "barriers" existwhich impede economicgrowth in developing LatinAmerican societies. The au-thor describes a systems ap-proach for inducing nationalmarket development andfacilitating economic prog-ress through selective re-forms.

Journal of Marketing, Vol. 32 (July.1968), pp. 60-66.

IN MANY underdeveloped areas of the world the lower two-thirdsof the income groups in most urban areas spend two-thirds or

more of their income on food. As much as half of this expenditureprovides assembly, processing (including the waste and loss in tran-sit), and distribution services to bring food from the rural areas tothe cities. Cities in Latin America are growing at explosive rates inmany underdeveloped areas as a result of migration from rural areasas well as population expansion within the cities. Yet, while thesecities expand, the marketing systems often remain ancient and ap-parently inefficient. Thus, it appears that the expenditure of oneof the largest "chunks" of disposable income in the urban areasof underdeveloped areas of Latin America is to be found in thefood marketing system and manufactured nonfood consumptiongoods marketing system serving large urban areas.

Scholars studying the role of marketing in development haveunderscored the need for interdisciplinary approaches.^ To date,however, relatively few large-scale systematic studies of marketing'srole in development have been conducted.- This paper offers a wayof describing internal marketing processes based on research donein Puerto Rico; La Paz, Bolivia; and Recife, Brazil.^

The proposition considered was that "barriers" exist along thechannels by which farm products reach consumers and, similarly,"barriers" inhibit market participants from increasing the supplyof farm inputs and nonfood consumption goods to rural areas. Studyof the marketing systems can identify ways in which selective re-forms can enhance market participation and lead to increased pro-duction and increased real income throughout the developing coun-tries. The paper attempts to relate the development problem tointernal market processes, then develops the relation of "barriers"to improved market performance, and finally presents a program toinduce internal market integration.

Internal National Market Processes

. The development process often consists of increasing the incomeof a region by utilizing the surplus agricultural product to create

Berthold F. Hoselitz and Wilbert E. Moore, editors. Industrializationand Society (Paris: UNESCO, 1963), p. 364.John R. Wish, Economic Development in Latin America: An Anno-tated Bibliography (New York: Praeger, 1965), particularly Chapter3, pp. 33-60.The results of these studies conducted at the Latin American MarketPlanning Center are expected to be published later this year. Alsosee Proceedings of the American Marketing Association (Fall, 1965),pp. 30-37. for a preliminary report of this research.

50

Marketing Processes in Developing Latin American Societies 51

specialized capital-intensive tools, primarily for usein the urban sector. Wyn Owen, for example, hasasked:

How can peasants be encouraged to producea cumulative surplus of food and fibers overand above their own consumption, and how canthis surplus largely be channeled to investmentactivity in the nonfarm sector without requiringin exchange an equivalent transfer of productivevalue to the farm sector ?*

Professor Owen also pointed out that, broadlyspeaking, there have been two models of develop-ment, the "Marx-Leninist" model and the "Mill-Marshallian" model. The former is characterizedby direct intervention of the state in productionplanning, in the imposition of a first claim upon theoutput, and finally, in the rationing of the surplusin order to foster selected urban development goals.The "Mill-Marshallian" model is characterized by afamily farm operating unit in which a large part ofthe output is exchanged for direct satisfaction ofthe producer's wants, as opposed to subsistence.These two ideal types of development models arerarely found in the pure state. Some degree of regu-lation hampers competition; also, market farmingexists in most socialist agricultural areas. Some areashave experimented first with one and then with theother of these models. Yugoslavia has shifted fromthe "Marx-Leninist" model back to the "Mill-Mar-shallian" model. As reported by Fleming and Sertic,a "profit oriented" Yugoslavian farm productionsystem has enabled the nation to achieve a domesticsaving rate of about 29% of the total social product.̂ ^

Owen concludes:

. . . in the developing countries the emphasisclearly should be placed, not on immediate equitybetween farm and non-fann incomes, but on themaximization of the growth rate in agricultureand the maximum immediate diversion of theresulting increments to the protection and sup-port of the emerging nonfarm sector and of thegenerally differentiated and interdependent fea-tures of a more highly developed economy. Thatis, the identified Mill-Marshallian model has beendescribed not primarily to show how agricul-ture tends to be an unduly exploited sector ineconomically advanced countries, but rather toidentify a. tested and relatively painless methodwhereby the inevitably "painful" or sacrificialprocess of domestic capital accumulation can beset in self-sustaining motion and progressivelyaccelerated in a traditional agrarian economy.

But, first must come the will and the wit toeffect those structural reforms which are neces-sary in most underdeveloped countries to con-dition the application of this method of ac-cumulation.^Walt W. Rostow probably has had the most in-

fluence in crystallizing understanding of the prob-lems of reforming the marketing institutionalstructures of developing economies. In his bookThe View from the Seventh Floor, Rostow sum-marized his notions on the national market develop-ment process. He suggests:

. . . that there are four major jobs that mustbe done, and they should be done simultaneouslyas part of a conscious national strategy, sharedby the public and private authorities. The fourelements are these: a build-up of agi-iculturalproductivity; a revolution in the marketing ofagricultural products in the cities; a shift ofindustry to the production of simple agriculturalequipment and consumers' goods for the massmarket; and a revolution in marketing methodsfor such cheap manufactured goods, especiallyin rural areas.'̂Rostow's thesis stresses that unless the dynamic

process is brought into operation, the transference ofresources can affect income distribution but haslittle gro^vth result. Without careful attention tothe exchange process, for example, little has beengained by some land reform projects, resettlementprograms, and colonization programs.^

The Critical Sequence to the InternalDevelopment Process

For the past two and one-half years a series ofstudies of the role of marketing in the development

* W. F. Owen, "The Double Developmental Squeeze onAgriculture," Amer^caii Economic Revieiv, Vol. LVI(March, 1966), pp. 43-44.

5 J. M. Fleming and V. R. Sertic, "The YugoslavicEconomic System," International Monetary Fund StaffPapers (July, 1962), pp. 202-223.

6 Same reference as footnote 4, p. 67.T W. W. Rostow, View from the Seventh Floor (New

York: Harper and Row, 1964), p. 136.8 "Factors Associated with Differences and Changes in

Agricultural Production in Underdeveloped Coun-tries." Development and Trade Analysis Division,U. S. Department of Agriculture (January, 1965).

• ABOUT THE AUTHOR. Charles C.Slater is at present Director of theLatin American Marketing Planning Cen-ter at Michigan State University. TheCenter is now engaged in large-scalestudies of internal marltet processes ofBolivia and Northeast Brazil. Full re-ports on these studies will be releasedapproximately one year from this pub-lication date. Dr. Slater is a Professorin the Marketing and Transportation

Administration Department, Graduate School of Business,Michigan State University. Previously he served as head ofArthur D. Little's Consumer Marketing Section and Vice Presi-dent of Supermarket Foods, a subsidiary of Omar, Inc.

He has contributed to various professional journals and hasserved as a consultant to business firms and government agencies.

52 Journal of Marketing, July, 1968

of San Juan, Puerto Rico; Recife, Brazil; and LaPaz, Bolivia as well as a series of other more limitedsurveys of market institutions in other Latin Ameri-can areas have been conducted. Based upon thesestudies, a process of inducing internal market de-velopment can be described as follows:

1. Map Market Channels

The first step of this process requires a carefulmapping of the essential flow of products throughchannels for important domestically produced foodproducts. This mapping is useful to describe thequantities, the grading, the processing, and han-dling contributions as well as costs and prices ateach step in the assembly and distribution cycle.Then as the products are observed moving throughthe market channel, the channel operators are in-duced to reveal the critical risks they see as thelimiting factors or "barriers" which inhibit theiraccepting responsibility for more products beingbrought through the market channel. Some ob-sei-vers have suggested that the key bai-riers arethe future price expectations; others seemingly areuncertain as to the level of demand relative to sup-ply in distant markets. In short, there appears tobe a lack of information about some marketing con-ditions and lack of insurance against market un-certainties. These market defects tend to minimizethe market exposure or risk the market channel op-erators are willing to tolerate, given the sometimesstringent limits of their capital resources.

Studies in Puerto Rico have revealed that themost favorable effects upon the output rates ofcommodities occur when the risks are reduced orspread back up the channel, starting at the retaillevel and working backward up the supply channel.When market risks are reduced, producers and dis-tributors seemingly are more willing to expand theiroutput."

It is relatively important to be assured that therisks along the channel are not removed "down"the market channel first (for example, producerfirst, then distributor), for the production responseswhich might occur would run into the still-existingmarket blocks further along the channel. Oncefrustrated, the producers and assembly market op-erators would then be very reluctant to expandoutput a second time after market failure the firsttime. Morton Paglin observed:

Since the farmer with a relatively large hold-ing can eke out a moderate income without thetrouble of hiring a high per cent of nonfamilylabor, or the risk of borrowing additional work-ing capital for other inputs associated with

intensive cultivation, he frequently seems toprefer the low-effort, low-risk, low-output pack-age to the higher-risk, higher-profit, higher-out-put combination. 1**

Mellor has described this preference for a minimumrisk production option as a "low aspiration" patternof behavior. ̂ ^

2. Institute Selected Market Reforms

The second step in the process of inducing internalnational market development is to inaugurate selectedmarket reforms that will begin to provide assur-ances of market demand for products starting withretailer and going back up to the producer. Whenmarket reforms have spread or reduced risks, thenadded capital and options to utilize technology thatwill yield greater output may be more welcomed byinnovators.

Again, it seems important at this stage to recog-nize innovators and to focus energies upon thesemore likely candidates for production and marketchannel expansion. In efforts to understand thedifferences in willingness to accept market risks,concepts of the diffusion of innovation developed byEverett Rogers and others can be useful.i- Thecritical finding from these efforts to understand thediffusion of innovation is that there seem to be ex-plainable and important differences in the rate ofadoption of marketing innovations by retailers aswell as others back up the commodity channel.^ ̂

3. Expand Market Channel Capacity toMatch Expanded Flow

The third event or step in the process is to adjustto the increased output that will likely enter themarket channels if efforts to minimize perceivedmarket risks have been successful. Thus, a secondgeneration of market channel reforms may involvecredit expansion and price supports to accommodatethe almost certain stresses that will be put on theexisting marketing system. Often storage andhandling facilities have to be expanded to match thehigher output—or at least indemnification provideduntil storage and handling facilities are expanded.

Often, legal reforms are needed as production ex-pands. For example, a turnover tax on value added

Kelly Max Harrison, "Agricultural Market Coordina-tion in the Economic Development of Puerto Rico"(Unpublished Ph.D. dissertation. Department ofAgricultural Economics, Michigan State University,1966), p. 112 ff.

If'Morton Paglin, "'Surplus' Agricultural Labor andDevelopment: Facts and Figures," American Eco-nomic Review, Vol. LV (September, 1965), pp. 815-o34.

11 John W. Mellor, "The Use and Productivity of FarmFamily Labor in Early Stages of Agricultural De-velopment," Joiu-nal of Farm Economics, Vol. 45(August, 1963), pp. 517-534.

12 Everett M. Rogers, Diffusion of Innovations (NewYork: Free Press of Glencoe, 1962).

13 John R. Wish, "Food Retailing in Economic Develop-ment: Puerto Rico 1950-1965" (Unpublished Ph.D.dissertation, Department of Marketing and Transpor-tation Administration, Michigan State University,1967), pp. 144-188.

Marketing Processes in Developing Latin American Societies 53

DescriteMarketChannels

DetermineMarket Risks

Induce SelectiveMarket Feforms

Increased Demandfor Non-food Con-sumDtion Goods

Increased FoodConsumDtioD

Reduce PerceivedMarket Risks

FOOD SECTOH

Retail Reform forReduced "but MoreStable Prices andHigher ProducerIncomes

Reduce DomesticProducer Risks

Provide Added Tech-nical and CapitalResources

Increase Out-put Brought toMarket

HOH-FOOD CONSUMP-TION GOODS SECTOR- I

Increased Supplyof Locally Pro-duced ConsumerGoods and FarmIncuts

Provide Added Tech-nical and CapitalResources

Market Expanding He-forms, Credit, PriceSupports, Legal Re-forms

FIGURE 1. Inducing internal national market development.

is applied in Brazil. In the state of Sao Paulo mar-keting cooperatives are usually taxed the full 15%,while small independent merchants sometimes sellcooperative members' output without paying fulltaxes. Thus, because of collection differences, a taxscheme is penalizing cooperative marketing programswhich are supported by other government programs.

The impact upon producers of the higher outputat lower prices is usually to increase their highergross, and often higher net, incomes. The lowerprices have to be understood as necessary for theexpansion of effective demand. The marketing ofmilk by producers in Puerto Rico is a case whereoutput expanded at lower but more stable prices thanproducers had reasonally achieved prior to the in-stallation of effective milk marketing programs.^*

4. Retailing Reforms to CreateMulti-Product Outlets with HighTurnover-Low Margin Operations

A critical step in the process of reform of agricul-ture and food channels must take place at the retaillevel. Most developing societies are characterizedby a multitude of small specialty merchants in publicmarkets, who often sell small amounts daily at lowmargin, but do little to encourage suppliers by offer-ing to buy large quantities of products of uniformquality at stable prices.

What appears to be needed are a few large multi-product merchants selling "lead" items at low mar-gins to gain traffic and then gain profits from sellingother, less frequently bought items at higher prices.Such large-scale retail operations need not cateronly to the upper-income families. There are a fewcases where such retail operations are affecting themarketing efficiency of communities.'^

5. Expansion in Demand Due to LoweredPrices and Greater Discretionary Income

Finally, if the process has been organized ap-propriately, the increased consumption of food inthe urban area yields higher levels of nutrition andproductive energies. Of equal importance are theincome elasticity effects. Robert D. Stevens foundthat in India the income elasticity for food wasapproximately 0.7.i'* Thus, while a larger stock offood at lower prices would induce increased consump-tion of food, it would also increase the discretionaryincome with the concomitant increases in demandfor nonfood items. Therefore, a parallel analysisand planning task is needed to foster expansion ofnonfood production and consumption based on a re-duction in the perceived market risks faced by mar-keters of the locally-processed nonfood consumergoods and farm inputs.

The cycle of events can be illustrated schematic-ally. (See Figure 1.) The task is one of identifying

!•* For a discussion of this problem of producer responseto changes in price levels see Kelly M. Harrison, "Ver-tical Coordinations and Selected Product Markets1950-1965," Robert Nason, editor, The Role of FoodMarketing in Economic Developrnent of Puerto Rico:A Seminar Summary (East Lansing: Latin AmericanStudies Center, 1966), pp. 55-66.

Same reference as footnote 13.Robert D. Stevens, The Elasticity of Food Consump-tion Associated With Changes in Income in Develop-ing Countries, Foreign Agricultural Economic ReportNo. 23, Economics Research Service (Washington:U. S. Department of Agriculture, 1965).

54 Journal of Marketing, July, 1968

MarketChannelStudies

IdentifyMarketingInstitutionReforms

T A S K S

SimulationAnalysis

PromoteMarketingInvestment

Cost-BenefitAppraisal

Improve MarketProcesses byInstitutionBuild-up orRetirement

F U N C T I O N S

Improvements at one point intime expose new opportunitiesfor marketing reforms

SuperviseCredit

InduceMarketDevelopment

FIGURE 2. Organization for continuing marketing development eflfort.

the appropriate sequence of risk reductions or "bar-rier" removals that will induce expansion of output.Price elasticity of demand will result in incomegains for the producing sector, while income elasti-city will result in increased discretionary income tofoster growth in the nonfood sectors of the economy.This description is, of course, an over-simplificationof the process. Quite likely, there are several dis-continuities and, in some situations, disfunctionalfeatures apparent in the kind of change outlinedabove. This description of market processes seemsuseful in understanding communities as varied asSan Juan, Recife, and La Paz. The barriers togrowth in income are, however, different in each ofthese communities, though the techniques of identi-fying them are similar. Three broad problem areasmay be encountered.

First, the lags in the diffusion of innovation canseriously reduce the effective response to the riskreductions fostered by the changes in the marketingsystem.'"^ Consumers and distributors, as well asproducers, have to adapt to changes in the marketingreforms.

Second, the transfer of resources as a result ofchanges in marketing institutions is neither auto-matic nor necessarily trouble-free. Of great impor-tance is the fact that the food marketing systemsof underdeveloped areas are usually very .labor-in-tensive, and most reforms reduce the proportion oflabor needed to carry forward the marketing tasks.Usually, the market people have few alternativeoccupational opportunities, and they are a vocal,urban group. Thus, marketing reforms may not

R. Vincent Farace, "A Tentative Conceptual and Re-search Framework for the Analysis of the EconomicExchange in Developing Countries," paper presentedto the International Communication Division, Associ-ation for Education in Journalism (Iowa: August 30,1966).

automatically receive a welcome from those now re-sponsible for the traditional marketing system. Itis, therefore, important to know: 1) the extent ofincreased consumption due to income effects; 2) theamount of discretionary income diverted to nonfoodconsumption expenditures as a result of the lower-priced but more plentiful foods; and 3) the extentand timing of displacement and unemploymentcaused by the marketing institutional reforms. Someof these market reforms can be expected to displacelabor, even though gross product changes may morethan offset the unemployment. Therefore, coordi-nated labor-absorbing activities may be needed asreforms are implemented.

A third problem is that the cycle of effects out-lined above requires the government to have someway to compare the costs and benefits that such adevelopment approach would entail. Without sucha basis for evaluation, competing priorities for de-velopment could break the cycle outlined above.For example, the short-term balance of paymentsproblem could very well induce high short-termpriorities to be placed upon export crops such assugar in the Northeast of Brazil. Against this shiftin resources must be weighed the import substitu-tion effects of greater domestic production of fannand nonfarm products that the efforts to expand in-ternal national markets would induce. Similarly,import tax structures may be such that needed equip-ment for fostering more stable domestic productionis denied entry on otherwise economically soundtei*ms.

Conclusions and Problems of Application

The development efforts of the past have over-stressed the production problems of development atthe expense of solving the various exchange prob-lems. This appears to be correcting itself to someextent. There also appear to be the beginnings of

Marketing Processes in Developing Latin American Societies 55

a theory of national market development, which isgenerally consistent with the observations of econo-mists—such as Owen, Paglin, and Rostow—whopoint out the need for new social and quantitativeresearch skills to deal with exchange institutionreforms. The interdisciplinary team approach ismaking some limited headway in making the theoryoperational. Finally, there is a growing recognitionthat a systems approach, utilizing computers to assistin simulating complex processes, may be needed toappraise costs and benefits of alternative develop-mental strategies.

The question of how to proceed becomes important,for there is as yet no sustaining tradition to imple-ment national marketing development. Internal na-tional market processes seemingly need to be institu-tionalized. The critical problem is how to utilizegovernment resources to foster the appropriate pri-vate sector growth. Here a page from the experienceof Puerto Rico might be helpful. A series of de-velopment agencies "fomented" change. Obser\'a-tions "ex post" suggest a pattern which could beinstalled as a continuing task-oriented program. Afour step program is shown in Figure 2.

The four steps can be described as follows:

1. Identify market development needs or oppor-tunities by sustained research into marketingchannels and the risks and bottlenecks seen byoperators.

2. The costs and benefits attributable to the new(or continued I marketing institutional reformscan be evaluated—possibly using a simulationmodel as part of the decision processes of gov-ernment and financial development officers.

3. For those projects that appear to have imme-diate merit, seek out and promote the partici-pation of potentially interested investors andentrepreneurs. Here a different set of skillsis needed because personnel evaluation andpromotional efforts are not usually part of themarketing researchers' skills.

4. Finally, if the progTam is launched, supervisedcredit can be an important tool to foster thedevelopment goals and insure that operators(at least those who are in debt to the develop-ment agency) follow the desired rules of busi-ness operation. It is useful to bear in mindthat some marketing institutions will need tobe "retired"—and the use of developmentfunds to "retire^" inefficient institutions maybe cheaper and faster than political techniques.

Internal market processes, described as outlined inthis paper, permit development planners to identifyspecific reforms to foster market integration. Fur-ther, this approach allows planners to foster privatesector development.

•MARKETING MEMO'

On Getting the Research Assignment . . .

The quality of the final research instrument depends very much on the quality ofthe interaction between the client and the research organization. The client shouldneither begin the discussion by taking the reins and saying, "Here is what we wantyou to do." nor by relinquishing them and saying, "Tell us what we need to know.What is needed is a creative interplay between the two participants. Assuming acertain level of professional competence, it is this joint way of looking at the problem,and this search for fresh ways to solve it, that makes the difference between animaginative and really useful study and a cut and dried amassing of routme statistics.

—Burns T. Roper, "The Most EffectiveWay to Do Research," The Public Pulse,No. 26 (April, 1968), excerpt from talkFebruary 12, 1968.