Inclusive Business: Beyond Philanthropy

16 02 2012

There is no doubt that for the next 50 years poverty and climate change will still be the main problems facing humanity, which today affects more than 4 billion people.  Poverty itself is a matter of concern not only to governments, multilateral banks, NGOs, bilateral aid agencies, academia but increasingly also to the private sector.

The potential of unexplored markets and untapped opportunities sparks the interest of both multinational and local companies – not only for commercial reasons, but also for the sustainability of market mechanisms.

Michael Porter (Harvard University) described in “From Corporate Social Responsibility (CSR) to Creating Shared Value (CSV)”, the reasons why the private sector must consider social impact as a strategic element and source of potential competitive advantage. The Shared Value concept, arising from the company’s core business, features advantages for companies: i) it develops societies and favourable environments for the company, ii) it allows to explicitly identify the social dimension of the company’s value proposal, iii) it leverages and articulates common goals with governments, non-governmental organizations and other institutions, iv) it creates sustainable competitive advantages.

To create social impact, there are two options for companies: i) Community Investment and Corporate Philanthropy within the broader CSR concept, and ii) Creating Shared Value strategies (see Figure 1).  In the first category, philanthropic and charitable activities include actions, which are not connected to the core business or the value chain of the company, and therefore often become unsustainable over time.

Figure 1. Inclusive Business
The second category includes activities that create social or environmental value as part of the value chain of a company, that is, as part of the “core business” strategy. When, as a result of Shared Value, better economic opportunities for the low-income population segment are created, this concept is also known as “Inclusive Business”.

Inclusive business is a powerful model that introduces innovative ways to integrate low-income segments into the value chain of existing businesses. From 2006, SNV Netherlands Development Organisation, in alliance with the WBCSD, has successfully developed and pioneered the Inclusive Business (IB) approach as a comprehensive inclusive and sustainable market-based solution developed with the direct participation of the private sector stakeholders.

The Inclusive Business model is defined as entrepreneurial initiatives that allow the company to include the low-income communities into its value chain, generating a win-win situation for both the company and low-income communities. It creates growth, productivity, profits and new opportunities for the company, at the same time generating income and wealth for the low-income population, and finally a win for environment by introducing more sustainable practices and technologies, amongst others.
The low-income segments typically play one or more of four important roles in these inclusive business models:

·         Employees: competitive and skilled labour markets
·         Producers: quality, sustainable and loyal local supply chains
·         Distributors: new distribution networks, reaching new markets
·         Consumers: new markets for affordable basic goods and services, that have a positive impact on someone’s livelihood

Since 2006, SNV has implemented over 130 inclusive businesses in mobile banking, low-cost housing, agri-business (coffee, tea, spices, dairy, etc.), low cost pharmaceuticals, multi-level distribution networks, amongst others in Asia, Africa and Latin America. These endeavours have resulted, amongst others, in strengthened social license, increase in market share and profits (in some cases even up to 30% of the profits are generated by the inclusive business line), sustainable supply chains, and competitive labour force for companies; while more than 500,000 households have benefited with sustainable access to markets and improved livelihoods.
It is possible that the future CSR approach will move, step by step, from philanthropic CSR towards a more sustainable and inclusive business model applying a quantitative approach to value chains, measuring value created in the community – jobs, income, savings, improved livelihoods etc.

In the end, the objective is clear and concise, companies have an important role in social impact and poverty reduction, shaping markets and facilitating opportunities.  Overall, these opportunities ensure favourable business environments for the economy as whole and profitable opportunities for the companies despite the size, section and territorial location of the economic or entrepreneurial units.

Globally, the trend is irreversible as the strategies and actions of companies, business associations, governments, multilateral and bilateral organisations give signals to stimulate economic and social impact through inclusive business initiatives.
In Asia, Inclusive Business is gaining momentum as well. The Asian Development Bank (ADB), in partnership with SNV, is currently conducting a series of country studies to determine the feasibility for the establishment of Inclusive Business Investment Funds that would provide equity and/or debt investments to companies interested in conducting new inclusive business initiatives, or scaling up existing ones. The studies have been successfully conducted in Vietnam and Pakistan, and are currently implemented in Indonesia, Bangladesh, Philippines and India.

If you are working on a promising Inclusive Business model in one of these countries, and want to be included in the study, please get in touch with:

·         Javier Ayala at SNV for Vietnam, Indonesia, Laos, Cambodia, Bangladesh and Pakistan.
·         Lisette van Rhijn at CSR Asia for initiatives in the Philippines. 
This article was written by Javier Ayala,
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