Follow the Money

In the race to access new global opportunities, foreign investment has saturated most of the easily accessible parts of developing countries. In Business on the Edge, we argue that the frontlines—areas that are isolated, impoverished, and frequently lawless—represent the next great round of globalization.

Given the challenges of conflict and poverty associated with this terrain, it is unsurprising that businesses have largely overlooked these complex, far-off places. However, these areas are full of possibilities. The 1.4 billion people who live and work in frontline environments generate over $20 trillion of annual economic activity. Their vast untapped potential takes the form of abundant natural resources and young growing populations desperate to work to create a better future. For companies looking to expand their geographical footprint, there is real money to be made in the frontlines. But it will not be business as usual.

It’s not just that the rules of the game are different, it is a different game. In order to play, organizations need to acquire different skills and strategies.

The most immediate challenge is the dearth of data to inform strategic decision-making. In more established markets, companies have industry analysis reports, benchmarks, market research. In the frontlines, however, information is hard to come by. Organizations must devise ways to collect their own intel.

This means hitting the ground and connecting with a wide range of local actors, many of whom businesses might be unfamiliar with. Each interview, informal discussion, and market interaction provides another gem of insight.

With diligent effort and pragmatic data gathering, any value chain can be mapped, no matter how opaque the industry as you’ll see in our story below.—Viva Ona Bartkus and Emily S. Block

* * *

On both of our desks, amid photos of our loved ones, sits a framed image of a circle of feet adorned with a variety of footwear, from flip flops to heels. These feet belong to fourteen survivors of child sex trafficking whom we met in a safe house in the Philippines. We were there in 2016 at the invitation of World Vision, a Christian child-focused humanitarian organization, to help them extend their work to combat the trafficking of children into the sex trade. We keep the photo on our desks to remind us of both the resilient spirit of those girls and the value that business perspectives can have in changing lives. Indeed, following their footsteps on the terrible journey they had taken from their villages to eventual safety reflects the heart of the Business on the Frontlines process—which always begins by following the money.

Every year, more than twenty million people around the world are caught in the web of human trafficking. Well over half are forced into the sex industry through fraud or coercion, nearly a quarter of them children. The Philippines, in particular, is a global hot spot for child sex trafficking—UNICEF estimates between sixty thousand and a hundred thousand children are trafficked there annually. Like in other remittance-based economies, many poor Filipinos from the countryside travel elsewhere for work. It can be nearly impossible for a family to recognize a trafficker posing as a recruiter for legitimate domestic work who will then entrap and force their child into the brothels in Manila or on tourist islands.

This project represented a significant departure from the agriculture- and resource-based market creation initiatives on which we had built our reputation for success. Although we are used to interacting with unsavory actors, thinking of human trafficking as a business problem raised eyebrows even among those who knew our work well. In fact, we were unsure how we might respond when coming face to face with the modern slavery happening every day around the world. However, we believed that looking at this devastating problem through the lens of business principles and processes might add a new perspective and generate the seeds of innovative interventions. Fortunately, we found an equally forward-looking partner in World Vision Philippines and its national director then, Josaias “Jody” Dela Cruz.

With his youthful energy, a penchant for Jollibee burgers, and lovely tenor voice singing at the karaoke bar, Jody’s cheerful and welcoming manner belied his more than twenty years of deep, committed service to those children forgotten and abandoned by Filipino society. Whether it be to find homes for street children or reduce dangerous child labor practices, Jody prioritized World Vision programs that would help the most vulnerable children live their lives to the fullest. World Vision, the largest nonprofit in the Philippines has been serving there since 1955, with programs supporting 1.5 million children every year.

As part of our predeparture preparation, and with the help from the team at World Vision, we surveyed the multiple existing programs across Filipino NGOs designed to fight sex trafficking. It became immediately apparent that these programs focused almost exclusively on prevention or rehabilitation. Prevention efforts consisted primarily of social media campaigns aimed at increasing public awareness of the tactics of recruiters. Rehabilitation programs helped survivors find safe homes, work, and a new life for victims lucky enough to escape. However, there were no interventions focused on anything that happened between the initial recruitment and the rare rescue, and as a result, our understanding of what happened to trafficking victims during this time was a black box. This was notable from a business perspective, as the value chain through which an organization goes from “acquisition of raw materials” to “sales of end products” is often complex and vulnerable. Of course, we do not perceive children as products or commodities. But sex trafficking, as horrific as it is, is a business, and the criminal syndicates engaging in it certainly see children that way. Our process suggests that using value chain analysis and mapping the revenues and costs at each step is at the heart of our ability to examine any economic system. In this case, our objective was to disrupt it.

We investigated part of the revenue side of the value chain from our US living rooms, as international tourists are an important customer segment in the Filipino sex industry. Posing as potential clients, we approached travel agencies inquiring about different options for sex holidays. One afternoon, two men in gray suits unexpectedly showed up on the doorstep of one of our students’ apartments. After a number of frantic phone calls, our team sat down to explain the purpose of our research with what turned out to be two FBI agents sent to investigate the red flags triggered by our extensive activity on the dark web. Despite being flagged by the authorities, these exploratory efforts were invaluable, as they provided us with a baseline for the revenue associated with child prostitution. Moreover, even businesses with good intentions must be mindful of inadvertently crossing the line into legal jeopardy as they explore frontline opportunities.

Once in the Philippines, our team checked these revenue estimates by inquiring at massage parlors and brothels, some of which were hidden in plain sight in ordinary-looking shopping malls and others we found in dark corners of the red light districts in Manila and on the island of Cebu. We talked to everyone who might give us their perspective, including clients, prostitutes, pimps, madams, and hotel concierges. We even interviewed a number of off-duty police officers working second jobs as security for the brothels. We learned that the price for a trafficked child was about $20 per hour and $60–$100 per night, based on the types of sex acts and the age of the child. Occasionally, the police would barge in and arrest the children, but they have a great deal of incentive to look the other way for a bribe of about $300.

On the supply side, we traced the journey of a trafficked young person from beginning to end, noting the costs and risks for traffickers at each step. This involved more than eighty interviews with social workers, health officials, lawyers, prosecutors, government officials, anti-trafficking and humanitarian NGOs, doctors, and staff from the International Justice Mission and the International Labor Organization. Next, we conducted focus groups with survivors in safe homes, all of which helped our team draw a detailed picture of how the industry works.

The value chain breaks down this way: Recruiters, often women who were previously trafficked themselves, go to remote villages to procure children, especially young girls, by offering families $30 per child with the promise of remittances. Even though they know trusting a recruiter is risky, the lack of meaningful opportunities leaves many impoverished girls and their families willing to take the risk for a better life for the whole family. The recruiters are paid $50 per child. Groups of three to five children are moved by bus or ferry to Manila, Cebu, or other large prostitution centers. Travel costs for the group are approximately $200, the largest expense being bribes for not having the paperwork required for travel within the Philippines. Thus, the upfront, one-time investment for recruitment and transportation is about $150 per child.

Once a child reaches their destination, a new set of costs emerge associated with holding children at a brothel. They include the expected line items of housing, food, hygiene, and clothing, as well as a supply of illegal drugs, as addiction makes it easier to control trafficked children. These costs total to between $700 and $800 per year. Additional operational costs, like the cut of the profits that goes to pimps, the salaries for security guards, and bribes to local police amount to an additional $2,000 per year.

Let us pause and reflect on the tragedy here. These are innocent victims. Mostly young women already facing poverty. Often relying on the kindness of strangers and a hope for a better life, they are ensnared, imprisoned, and treated like disposable commodities. The horror really hit home while listening to the youngest victim in a safe house who, at the time, was the same age as Viva’s daughter, Ava—nine.

Human traffickers can earn between US$3,000 and US$10,000 a year on a trafficked child, between 20 percent and over three times more than the average per capita GDP in the Philippines. With acquisition costs under $200 and annual operational costs at about $2,800, there is the potential for thousands of dollars of profit a year, all of which goes into the pockets of criminals.

However, once we understood the value chain, we could identify its weak points. By asking questions and listening to the diversity of voices and stories we were gathering, to our surprise, the weakest link appeared to be the pimps—the (mostly) men who worked in red light districts negotiating with customers and bribing police. As we interviewed them, inquiring about their lives without judgment, we learned that many worked second jobs to earn enough to pay for necessities and school fees for their own children. Most were in debt to more powerful criminals, mainly because of drug addiction or gambling, and were stuck in a never-ending cycle of debt. Our proposal was to focus on enticing them away from their current positions by connecting them with jobs in the shipping, fishing, and booming construction industry.

When we presented our suggestions to World Vision staff, silence descended upon the meeting room. Many initially balked at the idea of developing programming that would assist pimps to find alternative employment. World Vision staff see themselves as a child-focused advocacy and humanitarian organization and couldn’t fathom rewarding those who had exploited children with well-paying jobs. But after their initial shock wore off, Jody not only led a disciplined process in which the staff weighed the various ethical and moral issues but also ultimately concluded, “Let’s try it.” Based on his brave leadership, World Vision decided that programs to redirect pimps were a pragmatic approach to undermining the system of traffickers. Staff members reached out to their contacts at maritime and construction companies, and together they designed programs to hire former pimps into fishing and building trades.

We are not suggesting that we found a solution to the global challenge of sex trafficking. Any long-term, comprehensive solution will require a multipronged effort including enforcing existing anti-trafficking laws, economic development in impoverished rural areas, and cultural change that values women and girls. Further, any gains are likely to be only temporary, as there are many actors waiting in the wings to take the place of the pimps that World Vision successfully draws into legitimate employment. However, from the perspective of our partner, any opportunity to disrupt a value chain in a particular location is useful as it slows down an operation, thereby creating a window for other interventions to prevent recruitment and rescue enslaved children.

This initiative clearly demonstrates that incorporating business principles can contribute novel insights to some of the world’s toughest problems that have long been the purview of humanitarian organizations and governments. Our intention is not to transform NGOs into market actors or to imply that humanitarian problems are only business problems. However, by increasing the diversity of people working on a problem and including their perspectives into the conversation, new and innovative solutions can emerge to address entrenched challenges.

This approach works best when combined with the vast expertise of the professionals already working on the issue. Research on diversity has routinely demonstrated that bringing together people of different national backgrounds and functional perspectives results in improved creativity. In the Philippines, we didn’t just bring together a business perspective with that of our NGO partner; we also elevated the often ignored voices of the pimps, prostitutes, and police officers who constituted and participated in the system of trafficking. It was only through considering the diversity of their experiences and interests that we were able to reframe the problem in a way that none of us could have done alone.

However, the mere presence of diverse perspectives is not enough to generate innovation. Our work with World Vision would not have been possible if we had not invested in building an effective work process that integrated our skills with our partners’ existing capabilities. Leaning on their strategic flexibility and deep situational expertise not only facilitated the generation of ideas but also fostered our partner’s willingness to act upon them. By working closely together and leveraging our diverse strengths, we reshaped how World Vision combats trafficking in the Philippines. Further, effectively applying our “follow-the-money” process to this heinous criminal operation reaffirmed our confidence in our approach. Indeed, business principles and tools can become invaluable in helping to solve some of the world’s toughest problems.