Call for doing business with the poor

01 Aug 2008

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Creating Value for All: Strategies for Doing Business with the Poor, a new and groundbreaking report recently released by the UN Development Programme (UNDP)  offers strategies and tools for companies to expand beyond traditional business practices and bring in the world’s poor as partners in growth and wealth creation.

New Horizons - Part of UNDP’s Growing Inclusive Market’s initiative, the report draws on extensive case studies and demonstrates the effectiveness—both for human progress and for wealth creation—of more inclusive business models.

UN Secretary-General Ban Ki-moon recently issued a call to action on the Millennium Development Goals (MDGs), urging an international effort to accelerate progress and to make 2008 a turning point in the fight against poverty. This report demonstrates concrete ways the private sector can join in this vital effort.

The report was also launched by UNDP Turkey and Turkish Industrialist’s and Businessmen’s Association (TUSIAD) in Istanbul on 8 July 2008 with the participation of private sector representatives and various NGOs. Following the opening remarks of TUSIAD Representative Dilek Yardım and UNDP Turkey Resident Representative Mahmood Ayub; the report was presented by Beth Jenkins from Harvard’s Kennedy School of Government. Questions and answers sections as well as panels were organized in which adapting growing inclusive markets in Turkey and recommendations for next steps were discussed.

The poor have a largely untapped potential for consumption, production, innovation, and entrepreneurial activity. But the more business models integrate and include the poor, the more likely companies successfully pursuing revenues will also help in fulfilling the MDGs.

Yet the private sector cannot meet the needs of the poor nor overcome all the obstacles to doing business with the poor alone. The report outlines what businesses, governments, communities, non-governmental organizations (NGOs), donors and international organizations can do to ensure the greatest good.

As UNDP Administrator Kemal Derviş writes, “The power of poor people to benefit from market activity lies in their ability to participate in markets and take advantage of market opportunities. Business models that include the poor require broad support and offer gains for all.”

Why are more businesses not engaging in poor markets?

Market conditions surrounding the poor and their markets can make doing business difficult, risky and expensive. In the report five broad constraints are identified: limited market information, ineffective regulatory environments, inadequate physical infrastructure, missing knowledge and skills, and restricted access to financial products and services. The report also identifies five successful strategies to overcome these obstacles and create a successful enterprise. These are:

·         adapting products and services;

·         investing in infrastructure or training to remove constraints;

·         leveraging the strengths of the poor to increase labour and management pool and expand local knowledge;

·        working with similarly-minded businesses, non-profit organizations or public service providers;

·        engaging in policy dialogue with governments.

 

As the authors note, “There is room for many more inclusive business models. There is room for more inclusive markets. And there is room for much greater value creation. In the words of Mahatma Gandhi, ‘the difference between what we do and what we are capable of doing would suffice to solve most of the world's problems.’”

What does the report offer? 

Creating Value for All showcases 50 case studies by researchers in developing and developed countries. These studies demonstrate the successful pursuit of both revenues and social impact by local and international small- and medium-sized companies, as well as multinational corporations.

In China, a company offered affordable computers and training to rural farmers via a low-cost operating system and software that is easier for customers with limited education, thus expanding its market base.

In the Democratic Republic of the Congo (DRC), where the banking sector was decimated by years of war, a mobile phone company responded by offering encrypted short message service technology to allow customers to wire money. The company now has two million customers in the DRC.

In Kenya, owner-operators of healthcare micro-franchises have increased their monthly incomes while treating about 400,000 patients in rural areas and urban slums suffering from malaria and other diseases.

In Mexico, a construction company has helped more than 14,000 Mexican migrants in the United States build, buy or improve a house back home in Mexico. From 2002 to 2006, the company generated US $12.2 million from construction material sales, and since late 2005, 200 houses have been sold.

In Morocco, the subsidiary of a European water and waste company has dramatically increased the percentage of people with access to water and electricity in the shanty towns of Casablanca. By hiring and providing technical and management training to community representatives, the company ensured local oversight. Now more than 30,000 new households are connected to Casablanca’s electricity system, and monthly household expenses for energy in this area have dropped from $17 to $6.

In the Russian Federation, a microfinance NGO transformed into a bank to provide access to commercial capital and reach more clients. In 2006, the bank helped create 4,250 direct and 19,950 indirect jobs. In 2007, its loan portfolio was projected to exceed $60 million with net profits on those loans of more than $2 million.

In addition to examples from the 50 case studies, Creating Value for All offers new tools for interested businesses. A strategy matrix helps find potential solutions to common constraints, while another new tool –heat maps – offers a  visual overview of the market or services landscape—and a first look at potential new markets. For example, in Guatemala’s western regions the heat map shows that 13 percent of people living on less than $2 per a day have access to credit, but that this figure drops to less than 8 percent in the country’s eastern regions.

Why are non-profit scenarios included in a private sector report?

The not-for profit sector can be an important player in helping establish private enterprises that eventually do operate for profit. This is not a zero-sum game. Non-profits, governments, donors, and private enterprise all have strengths, powers and knowledge that can facilitate sustainable development, wealth and job creation. All actors in society are encouraged to collaborate to ensure the best solution for the greatest number of people.

What role can governments play in operationalizing this report?

Governments are key players in creating value for all. They have the greatest powers to remove constraints in the market environment, by generating regulation that facilitates competitive business, reducing red tape, ensuring a functional and inclusive financial market and providing access to the legal system for the poor. In addition more collaboration with the private sector and upgrades in infrastructure and education, including training and consumer awareness, can remove basic constraints and make these initiatives more successful. On the other hand, needs of the poorest of the poor cannot necessarily be met by the private sector initiatives and these people will need aid and support at every level.

The Growing Inclusive Markets Initiative, led by UNDP, is a platform to facilitate the engagement of all actors for more inclusive business models so that the pursuits of wealth creation and human progress can work to mutual advantage. It gathers relevant information, highlights good examples, develops practical operational strategies and creates space for dialogue. For more information: www.growinginclusivemarkets.org

Please click here to read "Creating Value for All: Strategies for Doing Business with the Poor".

This article was taken from UNDP with some additions and changes.