Category Archives: For-Profit

TOMS Shoes: Good or Bad for Development

For most young people, TOMS Shoes represents the good in our generation. Although it is a for-profit company, most people place it in the inspirational camp of organizations such as Invisible Children and Charity: Water. Such organizations have galvanized our generation to believe that we are global citizens with an opportunity and responsibility to care for our neighbors in need.

In contrast, most of those who work in development see TOMS as a hindrance to development rather than the solution. Blogs such as “Good Intentions are not Enough” have argued that the TOMS One for One model unfairly outcompetes local businesses causing long term problems for development, while applying the model of doing things “for” those in need rather than “with” them.

In this post, I will focus on dismantling the ‘impediment to local business’ argument. I will attempt to give a balanced assessment of TOMS Shoes not over-glorifying them as the saviors to the world, but also not condemning them to the pits of bad-aid hell.

TOMS Shoes uses the One for One model, where a person buys a pair of shoes at double the price so that the second pair of shoes can be shipped off to a child in need in the developing world. From a marketing stand point, it is a fantastic model because it frames TOMS as a company that gives back, and gives individuals the chance to feel like they are making a difference by buying a pair of shoes. From the standpoint of the children receiving the shoes from TOMS, this is also a great model because they are getting shoes for free. From the standpoint of the local shoemaker, this model may be considered detrimental since TOMS gives the shoes for free, which may prevent their local business from competing.

However, does the import of free shoes from TOMS actually hurt businesses attempting to sell shoes in these poorer markets? It seems unlikely. TOMS claims in its Giving Report that it only donates shoes “where local businesses will not be negatively affected.” This may or may not be true, and the means by which it determines this is unclear, except that it does so through its ‘Giving Partners.’ Nonetheless, TOMS has donated over 1 million shoes to needy children. This may seem like a large number, but keep in mind that there are approximately 1.4 billion people living on less than $1.25 (PPP) per day. 1 million shoes only covers 0.07% of that population. As a result, it is unlikely that TOMS Shoes is hindering shoe sales in the world’s poorest countries.

Second, does the donation of shoes discourage people from purchasing shoes later? This is different from the first question in that it is asking about the mental switch in people who receive free shoes. Some have argued that receiving “handouts” results in those people wanting more handouts rather than making a later purchase. However, research suggests quite the opposite. In a study on the effect of receiving free mosquito nets on future purchases, Pascaline Dupas (2010) found that receiving a free mosquito net actually made people more likely buy them in the future. She argues that this is because people recognized the benefits of having mosquito nets and grew used to having them. Rather than getting used to handouts, they got used to mosquito nets. As a result, when the mosquito net wore out, they were more likely to buy another mosquito net than those who had not received a free mosquito net. Similarly, TOMS could actually be priming the market for shoe manufacturers in the developing countries where shoes are donated by getting children used to having shoes. In this sense, shoes manufacturers should be thanking TOMS.

As shown in these last two paragraphs, it seems unlikely that TOMS Shoes is actually hindering local business, and could possibly be having the opposite effect. That said, could the money be used better in other ways? Probably. But would as many people buy TOMS without the One for One model? Probably not, although that is up for discussion.

Ultimately, TOMS Shoes is a for-profit company that is putting shoes on children who need them to prevent the acquisition of infections and diseases (such as worms, which can be transmitted by stepping on infected fecal matter with a barefoot). Preventing diseases such as worms is critical the future development of children. In their research, Michael Kremer and Edward Miguel (2004) found that the prevention of worms leads to increased attendance to school, keeping children in school longer, and thus, producing longterm benefits for those children.

TOMS Shoes approach may not be the best in a plethora of ways, but it is absolutely making a positive contribution to world.

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