Inclusive market model Q&A

01 Apr 2011

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International Center for Private Sector in Development in Istanbul will work on a new concept: "Inclusive business models". You can find detailed information about the topic as questions and answers below.

What are inclusive business models and what benefits are provided by them?

New Horizons - Currently, many large companies are trying to reach what we identify as the bottom segment of the income pyramid, a market that includes 4 billion people whose yearly income are below 3.000 American dollars according to estimated purchasing power parities. This group, named as the emerging consumers by the private sector, has been left outside the economic activities until now and didn’t become part of business plans. As a result, most of the services given by the private sector didn’t reach this segment constituting the bottom of the pyramid. The inclusion of this group means increasing competitiveness, higher profit rates, more qualified labor force, new producers and consumers and more creative solutions for companies.

In inclusive markets, the poor are incorporated both as consumers and producers. The firms adopting inclusive business models for better access to new markets and observe an increase in their profits by strengthening their value chains. With the new employment fields created by the firms, life quality of low-income people becomes better off and this has a positive effect on the profitability of private sector eventually. Another important effect of the inclusive business models that focus on the market of the poor is supporting entrepreneurship in value chains. Inclusive business models both include the labor force that was previously absent in private sector and improve the quality of the current work group by education. Also, general costs of the companies decrease and flexibility is achieved as poor people can take on roles like producer, wholesaler, and consumer in different parts of the value chain.

When we analyze from the country perspective, the significance of inclusive markets is visible in areas like the provision of basic needs and fields such as health, education where public sector may not be sufficient. Firms implementing inclusive business models reach population segments and regions where state is not adequate. Countries supporting inclusive business models both give way to the growth of private sector and improvement in welfare level as well as acceleration of human development. With the adoption of this market logic, productivity of the country is rising and sustainable development is achieved with the participation of all segments of the society.

How are the practices of inclusive markets in Turkey?

Inclusive business models are becoming widespread in Turkey in order to lower the number of poor, realize human development and increase the participation of private sector in this process. This model, which enables the poor to undertake the roles of consumer, employee, producer and/or entrepreneur, is not just the responsibility of the private sector. The process requires the contributions of institutions like the Turkish government and local civil society associations. This way, the needed legal infrastructure, technical knowledge and financial capability will be provided with the cooperation of these institutions and social awareness will increase with the presence of different actors.

What are Turkey’s priority tasks in inclusive markets?

The “Creating Value for All: Strategies for Doing Business with the Poor” report prepared by the United Nations Development Program (UNDP) Growing Inclusive Markets (GIM) Initiative lists five main constraints in this area. These are limited market knowledge, insufficient regulatory infrastructure, inadequate physical utilities, lack of information and skills and limited access to financial services. In the case studies conducted, the most common problem is identified as the lack of information and skills. At this point, state’s preparation of the necessary legal framework for inclusive markets has priority. When we look at the situation of private companies, inclusive business models’ contribution to not only long-term human development but also firm’s profitability, market share, value chains that are vital in short-term should be emphasized. The participation of development partners and civil society organizations in this process also creates a significant value.

Which sectors should prefer inclusive business models?

Inclusive business models were implemented by various companies working in different sectors in a variety of countries and positive results were obtained. This model, which gives the role of consumer, buyer and other positions in the value chain to the poor segment simultaneously, is preferred for its benefits by SMEs, large national companies as well as non-profit organizations. The profiles of different companies in the GIM database from various sectors and countries prove that inclusive business models can be implemented in a diverse set of business areas successfully.

What are the differences between CSR projects and inclusive business models?

Corporate social responsibility projects include business-focused social and responsibility investments that may contribute to development. Instead, inclusive market models are directly influencing the main operations of companies. On one hand, activities of the firm are directed towards incorporating poor segments to the value chain, and on the other, realizing MDGs is aimed. Inclusive business models create more effective and lasting social influence compared to CSR projects, since the company’s decision making mechanisms, financial processes and strategic plans also become a vital part. Pro-poor business models, when executed successfully, are both beneficial for the financial performance of the business world and contribution of the ongoing operations to development.

What are the most remarkable, mutually beneficial inclusive business models in the world?

There are many significant examples in the world. First of all, Grameen Bank established in Bangladesh and later opened in many countries in the world can be addressed, with its great success with innovations in microfinance. Also, there are companies that provide high cost medical services, like heart operation, for affordable prices for poor in India with the business model they developed. Other important examples include Vitmark, which assists development of the farming sector in Ukraine’s underdeveloped areas and enables farmers to undertake the role of both productive producer and strong consumer and MTS, which provides health services to poor people with the help of tele-medicine in Belarus.

What are the examples from Turkey?

“Creating Value for All: Strategies for Doing Business with the Poor” report created by UNDP in 2008 is one of the most significant publications on inclusive business models in the world. In our regional report analyzing the examples in developing Europe and Central Asia, a continuation of the 2008 publication, Hey Tekstil was addressed as one of the most important examples of inclusive business models in Turkey. This firm gained hands-on experience about the positive effects of inclusive markets on both human development and company activities. Hey Tekstil preferred to locate its investments in areas that are far from main business centers and other companies do not favor, in order to decrease its costs. As a result, the company both created employment opportunities for more than 1.000 poor people and increased its profitability by %10. UNDP, Intel and Turkcell’s cooperation in a sample tele-medicine project, again in Turkey, inspired the MTS’s project in Belarus. Based on the prepared report, MTS implemented its project to facilitate access to medical services through tele-medicine, helping people that were facing limitations before.

What are some examples of UNDP activities in the world?

UNDP performed important projects in the areas of value chain integration and pro-poor products and services in the world. For example, it worked with Unilever to contribute to vegetable oil production of the Tanzanian farmers by providing resources for feasibility studies, training for farmers and as a result, the income of 6.000 farmers increased by $140 yearly. In another project, UNDP acted together with Ericsson and worked on access to information technology in rural areas. Through steps like arrangement of the necessary infrastructure investments, decline in the costs of tools with common usage and establishing a new model about having access to telephone, the goal of enabling poor people to use telecommunication services efficiently and productively was actualized.