Inclusive Business – The next frontier for corporate responsibility

Corporate Citizenship’s Anne Stubert argues that inclusive business is the way forward for today’s sustainable businesses.

In an increasingly competitive world, public and stakeholder expectations of businesses’ roles within the societies in which they operate continue to rise. Today’s global companies are increasingly judged on the actual social and economic value they spread through their core business activities. As such, leading multinationals have started to recognise the powerful potential of Inclusive Business models.

The term ‘inclusive business’ is widely defined as profitable core business activity that expands opportunities for poor, marginalised and disadvantaged groups. These business models engage the marginalised as employees, suppliers, distributors or consumers. As such, inclusive business is not philanthropy, rather it is a business model based on mutual profit. Examples include companies developing products and services targeting under-served markets (for example Vodafone’s successful mobile banking service M-PESA initially developed to address the problem of financial inclusion in developing countries), to local sourcing and procurement models, and innovative distribution and sales models engaging local entrepreneurs.

In our latest report ‘Inclusive Business – The Next Frontier for Corporate Responsibility’(June 2012), we have analysed a number of multinational companies’ inclusive business models in emerging and developing markets. We have focused on business models across the entire value chain, from product innovation, to sourcing and production through to distribution and market place. The report sheds light on the motivations and drivers behind various business models, the role of partnerships, financing models and the core challenges of profitability and scalability.

As an integral part of the research project, we conducted interviews with a broad range of multinationals such as SABMiller, Heineken and Interface, and intermediaries like the International Finance Corporation (IFC). The in-depth interviews offered unique insights into the experiences of companies already using inclusive business models to grow in emerging and developing economies.

An interesting example is the global brewer Heineken, which is expanding its model of local sourcing across Africa. The company set up a local sourcing initiative in Sierra Leone in 2005, following a request by the country’s president to involve more local farmers in the sourcing as a way to increase local economic opportunities. Heineken explains that the drivers for the initiative were both economic and social: the company wanted to ensure a stable supply chain (taking into account exchange rates, import costs etc.), at the same time improving the positive impact in the communities in which they operate, as it strengthens the license to operate.

Another example is the food and beverage giant PepsiCo, which in September 2011 launched the initiative Enterprise EthioPEA, together with the UN agency World Food Programme (WFP) and US Agency for International Development (USAID). The initiative aims to develop a locally sourced supplementary food to address malnutrition, and scale-up and strengthen the Ethiopian chickpea supply chain, for both the domestic and export markets. For PepsiCo, chickpea-based products constitute an important part of the company’s strategy to build a $30 billion global nutrition business by 2020.

Our research shows that the opportunities presented by inclusive business for global companies are significant. It is proven to drive product and service innovation, provide access to new markets, help differentiation from competitors and strengthen brand reputation. With regards to supply chains, benefits include cost reductions and secured access to critical raw materials. In addition, a business models based on mutual profit – spreading social and economic opportunities while creating shareholder value – builds positive relations with key stakeholders and strengthens the licence to operate in the country.

In the report, we have identified ten steps companies should take when exploring and building inclusive business models. For example, companies should evaluate the socio-economic impact of their operations in a given market, identifying where across the value chain socio-economic benefits could be further enhanced. Companies should focus on their core competencies and strengths – how can they be applied to address societal and development challenges through core business activities? In addition, it is crucial to get senior management on board at an early stage as well as deciding on the commercialisation of the business model. We believe there is great potential for companies to leverage the skills and expertise of their CSR departments, to develop and test innovative ideas and business models.

Finally, our research shows that when companies get it right, inclusive business is a successful growth strategy for operating and expanding in emerging and developing economies. At Corporate Citizenship, we see inclusive business as the next frontier and the way forward for sustainable businesses looking to take traditional corporate responsibility to the next level.

To hear more about the report and our work in the area of Inclusive Business, please contact Corporate Citizenship’s Anne Stubert: anne.stubert@corporate-citizenship.com