Inclusive Business Guide

8/4/2019 Inclusive Business Guide

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I n c l u

s i v e B u s i n e s s G

ui d e

How toDevelop Businessand

Fight PovertyChristina Gradl

and

Claudia Knobloch


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Acknowledgements

To begin with, we would like to thank everyone whocontributed to this publication.

Partners

We would like to extend a special thanks to our partners. The German Federal Ministry or Economic Cooperation and Development(Bundesministerium r wirtscha tliche Zusammenarbeit und Entwicklung)fnanced this publication and provided expertise on content together withthe Gesellscha t r Technische Zusammenarbeit.

The International Chamber o Commerce supports the communication o the publication.

Additional acknowledgements

Several sections in the publication were written by experts.We would like to express our gratitude or providing their expertise.

We are grate ul to:

Martin Herrndorf (section on fnancing, IT sector profle, Mexico country profle)

Fritz Jung and Jonas Naguib(sections on Partnerships between German development organizationsand the private sector and The develoPPP.de program)

Prof. Dr. Genia Kostka(China country profle)

Aline Krmer(Siemens AG case study, Nokia case study,MicroEnergy International case study, Brazil country study)

Tobias Lorenz(water sector profle)

Jakob Schmidt-Reindahl(INENSUS case study)

Louise Kantrow(section on The role o business in achieving the MDGs)

Leonie Vierck (SAFO case study)

ReviewersExperts rom the realms o business, academia and development work contributed with comments and suggestions. Their ideas and advicegave the publication structure and clarity.

Our gratitude goes to:

Michael Anthony (Allianz SE), Katharina Averdunk (endeva), Dr. Andreas Blthner (BASF SE),Dr. Michael Grewe (BMZ), Martin Herrndorf (endeva and the University o St. Gallen), Prof. Dr. Genia Kostka (Frank urt School o Finance & Management), Aline Krmer (endeva and the TU Munich),Jonas Naguib (GTZ),Daniel Philipp (MicroEnergy International),

Christine Polzin (SERI),Isabel Reingruber (SAP AG),Heiko Schwiderowski (DIHK),Nicolai Tewes (Allianz SE),Piera Waibel (University o Zurich)


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I

l u s i v e B u s i e s s G ui d e

HowtoD opBusi ssa dFightPo rtyChristina GradlandClaudia Knobloch


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Pr a Imagine this: You see a $100 bill lying on thestreet. Would you keep walking and think to your-sel : Thats impossible someone would havepicked it up already. No? You would pick it up?Then youre exactly the right person to read thispublication.

Developing business and ghting poverty o ersyou real opportunities or sustainable growth i you know how to capitalize on them. This know-how is augmented with every business model thatis developed at the base o the economic pyramid.While many questions remain to be answered, wealready have substantial in ormation and experi-ence at our disposal or how to integrate peopleliving in poverty into value chains. Every com-pany and entrepreneur has to learn their own les-sons through trial and error to some extent. Thus,the learning journey continues.

This publication is the rst comprehensive guideon inclusive business, or business that includespeople living in poverty as producers and consum-ers. It brings together existing knowledge, pres-ents several practical examples and provides in-

ormation about contacts and urther reading. Wewould like to thank everyone who helped compilethis knowledge including the entrepreneurs, in-novators and experimenters, the nancers, inves-tors and brokers, the observers and academics.

Inclusive business provides answers to the greatchallenges o our time making poverty a thing o the past and preserving ecosystems or the uture.We hope that the words that ollow help you dis-cover and act on new opportunities.

Christina Gradl und Claudia Knobloch

d a

Writ to us!.grad @ d a.org .k ob o h@ d a.org

P h o t o : S u s a e

U e r i h


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3 endeva | InclUSIve BUSIneSS GUIDe P r e f a c e

For many years, German development organizations havebeen working hand-in-hand with the private sector. With-in the ramework o the Federal Ministry or Economic Co-operation and Development (BMZ) program develoPPP.de, more than 3,000 development partnerships in over 70partner countries have helped make business ideas stem-ming rom private companies a reality and, at the sametime, employment and income have risen in our partnercountries and poverty has been reduced. But in manycountries, the poorest o the poor are still excluded romeconomic development.

Under the catchphrase base o the pyramid, businessmodels that begin at the intersection between the privatesector and development organizations have started toemerge over the years. They can bundle the interests o theprivate sector and development organizations: new mar-kets or companies new products and services and newsources o income or poor sections o the population.

There is a lot o potential here rom the company perspec-tive. Together with partners rom civil society and develop-ment organizations, projects can o ten be carried out asterand the risks o ailure can be easier to overcome.

I hope you learn a lot rom this publication and that itsparks lots o new innovative business ideas that orm thebasis or new development partnerships.

Susanne Dorasil

H ad o D partm t or e o omi Po i y; Fi a S tor

F d ra Mi istry or e o omi coop ratio a d D opm t (BMZ)

The eight Millennium Development Goals (MDGs) are the mostcomprehensive and universally agreed development goals, em-bodying the international communitys pledge to create a betterand healthier uture or billions o people in developing coun-tries by 2015. The goals strive to substantially reduce poverty andhunger, empower women, increase access to education, health-care, clean water and sanitation, reduce the incidence o a num-ber o deadly diseases, protect the environment and orge strongglobal partnerships or development.

Over the last decade considerable progress has been made inachieving the MDGs but signi cant challenges remain. Reachingthe MDGs calls or collaboration among all stakeholders. Whenthe 2015 targets or the MDGs were set in 2000, the privatesectors contribution to meeting these targets was not as well-understood and accepted as it is today. In that same year, theInternational Chamber o Commerce launched the World Busi-ness and Development Awards to showcase creative initiatives bycorporations who apply their core business expertise to achievethe MDGs. Today, the role o the private sector as an engine o growth and development is widely recognized, as are bene tsthat business can bring: creating jobs, building skills, developingtechnologies.

One o the most important innovations in this arena has beenthe emergence o inclusive business models which are conceivedas sustainable business solutions that increase access to goodsand services and create new sources o income or low-incomecommunities. These models involve doing business with low-income populations anywhere along a companys value chain:they are incorporated into the supply, production, distributionand/or marketing o goods and services. This generates new jobs,incomes, technical skills and local capacity. Likewise, poorerconsumers can bene t rom products and services that are notonly more in line with their needs but are also a ordable. By

ocusing on business viability, these new models have the capac-ity to be increased in scale, thus including thousands o peopleliving in poverty. The emphasis is on core business rather thanon philanthropy.

I am certain that both the newcomer and the experienced prac-titioner in this eld will nd this guide invaluable to their work.

Jean-Guy Carrier

Icc S r tary G ra

P h o t o : B

M Z

P h o t o : I

c c


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4 endeva | InclUSIve BUSIneSS GUIDe

I bri Inclusive business brings added value orcompanies and people living in povertyalike. Broken down into three sections,this publication provides answers to threebasic questions about this new type o approach to business and social develop-ment: The What, the How and theWhere.

Companies and entrepreneurs can capi-talize on their technologies, processesand management know-how to developnew business opportunities at the base o the economic pyramid. Activity in thesemarkets is only going to increase. On theone hand, pressure to tap into new mar-kets or procurement and sales is increas-ing. On the other, it is getting easier toconduct business because overall condi-tions in many developing countries haveimproved and there are more nancingoptions and expertise available.

Th Wh t

Both companies and people living inpoverty can bene t rom inclusive busi-ness. Trade o ten gives poor people bet-ter access to products and services that

ul ll their basic needs, it increases theirproductivity, creates better opportunities

or them to earn income and, last but notleast, it boosts their sel -con dence and

eeling o security. Companies can estab-lish themselves early on in growth mar-kets, strengthen the supply chain, bene t

rom innovation and enhance their abil-ity to innovate, their reputation and ap-peal as an employer.

The , market at the base o the global pyramidis large and growing ast. 4 billion people in theworld two-thirds o all human beings live on lessthan $3,000* per year. Together they spend $5 tril-lion (measured in terms o local purchasing power)a year. By 2050, there will be 3 billion more peopleon the planet, almost all o them in developingcountries. And their willingness to pay can be highbecause people living in villages and slums o tenpay more and get less than elsewhere a phenom-enon known as the poverty penalty.

As suppliers, people living in poverty o er compa-nies opportunities in agricultural raw materials andhandicra ts in particular but in other areas such astourism as well. Tight-knit cooperations can im-prove the reliability o supply, increase quality andmake unique selling propositions possible whendesigning products.

Environmental protection is also an importantissue. On the one hand, people living in povertyare o ten more a ected by pollution, or example,because their livelihoods depend on arming orthey cannot adequately protect themselves romextreme climate events. On the other hand, de-veloping countries now have more and more le-gal incentives or environmentallyriendly activi-ties. Resource-saving technologies, products andprocesses thus o er long-term opportunities orgrowth.

Di cult market conditions are the greatest chal-lenge to making inclusive business ventures a suc-cess. The transaction costs and risks increase be-cause the necessary structures like roads, a stablelegal system or in ormation about market partici-pants are o ten insu cient in slums and villages.

* $ a ways m a s US do ars i this pub i atio

, Mark t siz wor dwidi th s gm t u d r$3,000 a y arby i dustry(i $ m asur d it rms o o apur hasi g pow r)

Tota o um5 tri io

, G oba i om pyramid

Portion o world population (%)

0

20,000

30,000

10 20 30

Annualper capita

income in $(m asur d i

2002 PPP)

10,000

Food2.895 bi io

Wat r20 bi io

IcT 51 bi io

H a th158 bi io

Tra sport179 bi io

Housi g332 bi io

e rgy433 bi io

Oth r932 bi io

Sour : IFc, WRI (2007) Th n xt 4 Bi io Sour : Bra ko Mi a o i , Wor d Ba k (2002)


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5 endeva | InclUSIve BUSIneSS GUIDe I n b r I e f

Th H w

Innovative business models nd ways to overcome thesechallenges. The rst promising approaches in tacklingthese obstacles have emerged along the entire , businessdevelopment process, starting with development throughto implementation all the way to growth.

For the development o new business ventures, the rightmarket expertise is o ten lacking. There is no in orma-tion available and no experience to speak o . Companiesare well-advised to work closely with the target group andinvolve people who know the ins and outs o the localcontext to help identi y opportunities, analyze the market,

nd solutions and develop products.

During the implementation phase, the necessary resourc-es nancing, partners, local skills are brought togetherand the model is tested. But because inclusive businesspro jects o ten require a number o changes to the existingbusiness, companies have to plan in longer time ramesand more fexibility or nancing and project organization.And, companies have to learn to work together with non-traditional partners.

During the growth phase, inclusive business projects re-quently pursue several equally important goals o an eco-nomic, social and environmental nature, all at the sametime. This requires more extensive measuring o successand more clear-sighted alignment. To expand the venturewithin a country or beyond, the business models have to

unction as independently o local conditions as possible.These models have to be highly standardized and clear-cut.

Th Wh

Some regions and sectors are particularly interesting in terms o inclusive business. That said, each company has to select its tar-get market individually in line with its competencies. The pro-

les in this publication can provide only an initial impression o the structures and existing activities on the respective markets.

Countries with large low-income sections o the population o erthe opportunity or a signi cant market. Many companies romwithin and abroad are already active in these countries. The ol-lowing countries are pro led: Brazil, China, India, Mexico, Rus-sia and South A rica.

Sectors where the low-income target group is already a consumerinclude products and services to meet basic needs and those thatincrease productivity. As producers, people living in poverty canprimarily be ound in agriculture. Competitive advantages orcompanies exist in sectors where they increase e ciency throughtechnology and expertise, thus being able to o er added value.The ollowing sectors are pro led: energy, nancial services, oodand agriculture, health, housing and construction, in ormationand communication technology, and water.

a d y d

Evidence shows that inclusive business can truly make a signi -cant contribution to ghting poverty. Aravind Eye Care Systemgave two million people in India their sight back over the last30 years, Manila Waters connected 1.5 million poor householdsto the central water supply in the capital o the Philippines inten years, 155 million people have been extended microloans.According to a study o the World Bank, almost every otherborrower in Bangladesh has been able to escape poverty. Howpeople living in poverty bene t rom reedom o choice and theability to participate is not to be underestimated. Being able tomake their own decisions about what they buy and sell also givesthem the opportunity to articulate their needs.

Private-sector institutions and especially governments play animportant role in inclusive business. They are responsible orprotecting the interests o both consumers and producers. Theycan also improve the overall conditions or business at the macrolevel. Companies have incentives to change the overall playing

eld which bene ts other players on the market. Whether in-clusive business will play a positive role in general is rst and

oremost a question o design this will be the mission o compa-nies, governments and development organizations in the yearsto come.

D p t

I p t ti

G wth

, Busi ss d opm t pro ss:3 phas s 4 st ps to i usi busi ss

Sour : d a


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InTroDucTIon ........................................................................................................08

1 THe WHaT ...............................................................................................................10

Fighti g po rty through busi ss.........................................................................11

Bui di g growth mark ts................................................................................................18

Str gth i g supp y hai s......................................................................................20

Prot ti g th iro m t, s uri g th utur...........................................22

O r omi g ha g s..................................................................................................24

2 THe HoW ................................................................................................................30

D opm t................................................................................................................33

01 Id ti y opportu iti s..........................................................................................34

02 A a yz th mark t................................................................................................38

03 Fi d so utio s.........................................................................................................40

04 D op th produ t............................................................................................44

Imp m tatio.............................................................................................................47

05 S ur u di g.......................................................................................................48

06 e gag part rs.....................................................................................................50

07 l rag o a apabi iti s................................................................................52

08 T st th mod .......................................................................................................54

Growth..........................................................................................................................57

09 U d rsta d th impa t.......................................................................................58

10 Adapt th mod ....................................................................................................60

11 expa d o a y........................................................................................................62

12 Tra s r to oth r ou tri s................................................................................64

c t di

p 1 pag 13

voda o Group, K ya

p

2 pag 17InenSUS, S ga

p 3 pag 19

Gram Ba k, Ba g ad sh, SKS Mi ro a , I dia

p 4 pag 21

natura, Brazi

p 5 pag 23

A r d Ritt r GmbH & co. KG, ni aragua

p 6 pag 27

Ti iski am mi k dairy, Maurita ia

p 7 pag 35

Si m s AGp 8 pag 37

nokia

p 9 pag 39

Mi roe rgy I t r atio a

p 10 pag 41

Smart commu i atio s, Phi ippi s

p 11 pag 43

SAFO / BASF Se

p 12 pag 45

D.light D sig , I dia

p 13 pag 49ATOS, egypt

p 14 pag 51

A ia z Se, I dia

p 15 pag 53

Bar ays Ba k, Gha a

p 16 pag 55

Bos h & Si m s Hausg r t , I do sia / Phi ippi s

p 17 pag 59

Ma i a Wat r compa y, Phi ippi s

p 18 pag 61

Ara i d ey car Syst m, I diap 19 pag 63

ITc limit d, I dia

p 20 pag 65

visio Spri g

co t t


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7 endeva | enTWIcKlUnGSGeScHFTe I nHa l T s v e r z e I c HnI s

3 THe WHere ...................................................................................................................66

cou tri s with pot tia..................................................................................................67

Brazi ........................................................................................................................................68

chi a .......................................................................................................................................69

I dia.........................................................................................................................................70

M xi o....................................................................................................................................71

Russia F d ratio.........................................................................................................72

South A ri a........................................................................................................................73

S tors with pot tia........................................................................................................74

e rgy....................................................................................................................................75

Fi a ia s r i s.............................................................................................................76

Food a d agri u tur....................................................................................................77

H a th.....................................................................................................................................78

Housi g a d o stru tio........................................................................................79

I ormatio a d ommu i atio s t h o ogy (IcT)...............................80

Wat r.......................................................................................................................................81

ouTlook .............................................................................................................................82

re erence maTerIals ......................................................................................84

lit ratur tips a d I t r t i ks..................................................................................85

list o abbr iatio s............................................................................................................86

list o supporti g orga izatio s.................................................................................87

e d ot s....................................................................................................................................87

abouT enDeva ............................................................................................................88

Pub i atio i ormatio....................................................................................................89

T pi

p 1 pag 12

Ma y am s o id a

p 2 pag 15

Who is poor?

p 3 pag 32criti a su ss a tors i th ompa y stru tur

ext t i ti

p 1 pag 16

Part rships b tw G rma d opm torga izatio s a d th pri at s tor (BMZ)

p 2 pag 28

Th ro o busi ss i a hi i g th MDGs (Icc)

p 3 pag 42

Th d oPPP.d program (BMZ)


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Fighting poverty through business is itpossible? The answer is yes because inclu-sive business brings together business andsocial development. When companies dobusiness with people living in poverty,both sides stand to bene t. Access to mar-kets enables these people to make produc-tive use o their capital and improve thequality o their lives with the money theyearn. Vast opportunities or innovativebusiness models exist where companiesmake this possible.

Companies and entrepreneurs can make asigni cant contribution to human devel-opment. They have the technologies thatcan help boost productivity and improvethe quality o li e in developing countriesand leap rog to more sustainable ways o consumption and production. Relevantdomains include renewable energies andenergy e ciency, water treatment andemissions prevention but also medicaland pharmaceutical technology or oodchemistry. They have the product devel-opment and production processes to cre-ate products that meet the abilities andneeds o producers and consumers livingin poverty. And they have the manage-ment know-how to grow success ul mod-els and expand their reach. Fairtrade isbut one example where process and man-agement innovations have bene ted mil-lions o people living in poverty.

Developing countries and people living in povertywill play an increasingly signi cant role in uturebusiness development. There are a number o rea-sons why:

The markets at the top o the income pyramidare largely saturated. It makes sense or compa-nies to think about the business opportunitiesopen to them in lower income segments. It isalso important or companies to position them-selves at an early stage in these markets to se-cure competitive advantage.

Raw materials or the manu acturing and oodindustry are becoming ever more scarce and ex-pensive. Sa ety and quality in the supply chainare becoming increasingly important as actorscritical to success. Developing countries o er al-ternative supply sources.

More and more developing countries o er astable environment or investment and trade.Many governments are working on re orms toreduce the time and cost o trade processes andimprove reliability or business.

Business models that improve the opportunitiesor people living in poverty are meeting with

more support. Donor countries, oundationsand social investors, who want to encouragesocial change with their capital, support busi-ness people not only with specially tailored -nancing programs but also with local contactsand expertise about business models o thiskind, thus removing barriers to implementa-tion.

I tro du tio


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9 endeva | InclUSIve BUSIneSS GUIDe I nT r o D u c T I on

In act, doing business to combat poverty isnt exactlybusiness as usual. Even though companies wont have tochange everything rom one day to the next just becausethey are doing business on a new market, most will stillbe con ronted with a ew challenges they may be unac-customed to:

The market structures they need to do business are lack-ing. The ideal basis or e cient trade is a good in rastruc-ture, readily available in ormation and en orceable rules.Even though market conditions in many developingcountries have improved, they are still relatively poor inmost slums and villages. This increases transaction costsand risks.

To date, only a ew success stories have been reported orinclusive business in a hand ul o industries, meaning alot o experimentation is necessary be ore arriving at aworking model or each speci c company.

As a result o the di cult conditions and lack o experi-ence, developing businesses to ght poverty is o ten atime-consuming process and raught with more costs,risks and uncertainties than normal.

Many companies nd solutions with non-traditionalpartners. These o ten include public or civil developmentorganizations or in-country aid organizations (hereina -ter re erred to as development organizations) or coop-eratives and government institutions. These new kindso partnerships need to be tested and ne-tuned.

Despite these challenges, inclusive business can makegood business sense, particularly considering the otherpositive e ects or the company such as employee re-tention, reputation and government ties, organizationallearning and the capacity or innovation. Pursuing thiswide range o goals all at the same time and simultane-ously ocusing on creating social and ecological valuecan also mean a higher degree o complexity.

How companies can take better advantage o inclusive businessand tackle the speci c challenges they ace is explained in thispublication in three parts:

Th Wh t describes the concept and target market and dis-cusses its unique structural eatures.

Th H w explains the process that starts with identi ying op-portunities through to implementing a success ul model inother countries; it describes how inclusive business is di erent

rom business on developed markets and provides several real-world examples o implementation or each step.

Th Wh describes the most important countries and sec-tors with potential or inclusive business.

This introductory publication covers a wide range o issues. Alist o literature or urther reading is provided at the end o eachchapter*. The Inclusive Business Guide is by no means a gen-eral guideline or oreign trade. Issues that come up in day-to-day business with oreign markets or new target groups, such ascustoms duties or legal requirements, are not discussed here. Ourhope is that the content will inspire many new business ideas.

Lets get started!

This arm r i Gui a has ryr aso to b proud o his p a ts.

Wh th r or ot h a s th m or apro t d p ds o his mark t a ss.

Photo: Adam Rog rs / UncDF

* lit ratur r r s to books a d magazi arti s stat th u r r i ormatio . O i pubtio s ar it d o y with th author(s), y ar a d tit a d ar i di at d by awww. To d th s pub i atio s,th am o th sour do um t just has to b t r d i a sta dard s ar h gi .


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T He WHa T


M-PESA is a mobile money solution. Inthe spring o 2010, 9.5 million Kenyanswere already using their cell phones topay or their groceries in supermarkets orto trans er money to their amilies. EvenVoda one who owns the M-PESA provider,Sa aricom, has been surprised by the rap-id growth since the service was launchedin 2006. In Kenya, however, bank trans-actions are expensive and many peopledont have bank accounts. Fast, easy, noaccount required and, most importantly,cheap its no wonder that demand or M-PESA was so high.

k y g

People living in poverty havea lot o untapped potentialas producers and consum-ers this shi t in perspectivecan be mutually bene cial.

The benefts companiesreap rom inclusive businessinclude the establishment o new, growth-intensive supplyand sales markets, enhancedreputation, employee reten-tion and urther training aswell as capacity or innova-tion.

People are better able tosatis y their basic needs andincrease their productivity,income, sel -con dence and

eeling o security.

Fighti g po rty through busi ss

Until now, development work and business devel-opment were two completely separate worlds. In-novations and pro ts belonged to the realm o thecompany. In development work, money was spentto improve the lives o those living in extremepoverty. There is rationale or both. But there isalso a place where the two overlap, where businessdevelopment and social development intersect.The business models located at this inter ace arecalled inclusive business models.

It i th b nc o bro d-b d bu in ctivity, not it pr nc ,th t cond mn much o hum nity to u ring.k a , orm r Un S r tary G ra1

A stor ow r i Madagas arPhoto: Adam Rog rs / UncDF


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ch gi g p pti : h p i ti t p t

Inclusive business requires us to rethinkour perceptions o people living in pov-erty: rom seeing them, not as needy vic-tims, but as empowered and capable ac-tors. People in developing countries areo ten portrayed as helpless, waiting withbig, round eyes and hands outstretched

or our handouts o ood and water. Noth-ing could be urther rom our minds thanto consider these people customers andbusiness partners. From this perspective,it would seem downright unethical towant to sell them something, strippingthem o the last shirt o their backs, soto speak. Characterizing them as needy isuse ul to win nancial and political sup-port or development measures. But thisperception reveals only a raction o thereality o people living in poverty.

The fip side o this reality is typi ed by dynamiceconomic activity, by buying and selling, by pro-ducing and consuming. Yet despite all o theirhard work and creativity, many people are stilltrapped in poverty. They lack not only incomeand capital but also, and more importantly, realopportunities or growth and development. Thislack o opportunity is to a great extent due to alack o markets.

Structures that acilitate e cient trade simply donot exist, making it di cult or armers to selltheir harvest or or artisans to nd markets ortheir goods. Many products and services are eithernot available or are o poor quality and too ex-pensive.

Ma y am s o id a

nowadays, th r ar a umb r o t rms that

hara t riz th o pt o i usi busi ss.Som o us mor o i udi g o sum rs,oth rs o produ rs. Som ar a or d mor bybusi ss p op a d oth rs by p op worki gi d opm t. H r ar th most importa tt rms:

Base (or Bottom) o the Pyramid (BoP) r rs to th id a o a quiri g p op i i g i

po rty as o sum rs, thus ghti g po rtya d tappi g i to a hug mark t. Th o usis usua y o th mark ti g asp t. Th I t rAm ri a D opm t Ba k (IADB) a s thisopportunities or the majority .

Business linkages r rs to possibi iti s or

stab ishi g busi ss ti s with sma ompa i sa d mi ro t rpris s i d opi g ou tri s. Th I t r atio a Busi ss l ad rs Forum (IBlF)orga iz s dia og orums o this topi tog th rwith th I t r atio a Fi a corporatio(IFc) a d th Har ard K dy S hoo .

Inclusive business r rs to th i usio o p op i i g i po rty i to busi ss pro

ss s a o g th a u hai . This t rm is us dby th a ia b tw th Wor d Busi sscou i or Sustai ab D opm t (WBcSD)a d th Dut h d opm t orga izatio , Snv,as w as by th U it d natio s D opm t

Programm (UnDP) withi th Growi g I u si Mark ts I itiati . Th o pro t orga i zatio , Ashoka, us s th t rmFull EconomicCitizenship (FEC) or this o pt.

Making markets work or the poor/MMW4P/

M4P a d opm t strat gy that aims tomak mark ts work mor ti y a d thusi r as th i om a d impro th qua ity o

i o thos i i g i po rty. At th or ro t o this ort ar th d opm t orga izatio sDFID, SDc a d SIDA.

Pro-poor value chain development am thod us d by d opm t orga izatio sto i t grat produ rs, sp ia y sma arm rs,mor ti y i to a u hai s.

Responsible supply chain manage-ment summariz s ma ag m t m thods

or sustai ab supp y hai orga izatio . Oo us is o th air i usio o mi roprodu rs,or xamp , or agri u tura produ ts.

M-Pesa i not ch rity proj ct. It i good or bu in nd it i good or oci ty. W c n h lp improv qu lity o li or million o p opl th r

no b tt r thing comp ny lik Vod on c n do.a s i , ceO voda o 2


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T He WHa T


Th i usi busi ss mod a so r qu t y

app ars i o tio with th o owi g twoo pts:

Social enterprise/social business r rs toompa i s that pursu so ia obj ti s as part

o th ir busi ss mod , amo g th m ghti gpo rty. So ia t rpris s app y busi ss ogito at ast o r th ir osts.

Corporate social responsibility r rs to thr spo sibi ity o ompa i s to mak a o tri butio to so i ty a d pr t damag . Ma y

ompa i s stri to i t grat cSR a ti iti si to th ir or busi ss. I usi busi ss

pursu d by ompa i s a so a s i to thisat gory. I a t, th s typ s o i itiati s a so

o t origi at i th cSR d partm t i arg rompa i s.

In 1980, there were only our landline con-nections or every 100 inhabitants in A rica.Voda one identi ed this opportunity andinvested in the mobile network in rastructureon the A rican continent. Nowadays, one in

our people in A rica has a cell phone. Boththe phone companies and the users havebene ted enormously.

Thanks to mobile networks, both entrepre-

neurs and armers can conduct their businessmore productively: they have access to in or-mation about prices and demand, allowingthem to sell their goods at better terms and

saving them unnecessary trips to markets.Skilled workers can be contacted directly bycustomers, even rom di erent regions. And,it is certainly use ul to have a phone whenlooking or a job.

In the private sphere, having a phone savestime and improves the quality o li e. Cellphone owners can stay in touch with amilymembers who live ar away and have better

access to in ormation. Remote diagnosesimprove healthcare and emergency numbersprotect against crime. Together with its part-ner, Sa aricom, Voda one o ers additional

services in Kenya. M-PESA, the mobile bank-ing service, makes monetary transactionspossible or people who dont have bank accounts. This saves them time and money.Voda ones success was immediate: in March2010, M-PESA had 9.5 million customers and10,000 new users sign up every day.

Sour s: The Vodafone Policy Paper Series (03/2005),A rica: The Impact o Mobile Phones www

Safaricom (www.safaricom.co.ke)

C y 1 voda o Group, K ya

commu i atio or a d op d K ya

I usi busi ss

st th i i p p i i g i p ty :

P r o d u C e r s

u s e d

m o r e

b y p e o p

l e f r o m

t h e :

C o n s u m e r s

P u b l i C s e C

t o r

P r i v a t e s e C t o r Bas o th Pyramid /

Bottom o th Pyramid / BoP

R spo sib supp yhai ma ag m t

Pro poora u hai

d opm t

Busi ss i kag sOpportu iti sor th majority

Maki g mark ts work or th poor/M4P

Fu e o omi citiz ship

Herders in Senegal use cell phones and GPS systems to track their herds.

P h o t o : I D R c

/ S y . D j i b r i l

M-PESA turns cell phones into a mobile money solution.

Photo: Voda one

Sour : d a


16/92


P t ti p d d t

Once this shi t in perspective has takenplace, opportunities suddenly emergewhen the poor are incorporated in thevalue chain:

As customers, they buy goods and ser-vices to take care o their basic needsand boost their productivity and qual-ity o li e.

As suppliers, they produce agriculturalproducts and handicra ts and provideservices, or instance, in the tourism in-dustry.

Business models that open up these kindso possibilities also create income andbusiness opportunities or third parties:employees, business partners and micro-entrepreneurs are needed to keep a busi-ness running. By working together withthe local population, companies can takeadvantage o local expertise and socialnetworks.

I a company is success ul in combatingpoverty through business, this can giverise to other positive social and economice ects. The company or its partners canonly buy and sell other products i unc-tioning logistics and sales channels are inplace which in turn help develop othermarkets and lower the costs per product.Producer cooperatives gain knowledgeand can invest in quality assurance, pro-cessing and marketing, thus attractingmore demand. Market structures im-prove when one or more companies in-vest in in rastructure or the governmentadapts the legal ramework. These initialbusiness activities trigger new ideas and

the market base broadens. Developmenttakes place.

add d p i

Companies can boost their competitiveness in avariety o ways:

New markets: Establishing growth-intensive salesand supply markets expands the supplier and cus-tomer base, thus creating prospects or cheaperand higher-quality production, increased rev-enues and more pro ts. These markets are expect-ed to grow rapidly because o strong populationgrowth and increasing income in many develop-ing countries.

Enhanced reputation and PR: The contribution thatinclusive business makes to society as a whole im-proves the image o the company and the trustplaced in it by customers, suppliers, governments,investors and the general public. This underscoresthe companys CSR activities.

Employee retention and training: For many employ-ees, their employers commitment to pursuing so-cial goals is important and strengthens their iden-ti cation with the company. Having employeeswork in an inclusive business environment canalso be bene cial or job and management train-ing purposes and or the employees own personaldevelopment.

Innovations and the capacity or innovation: Innova-tion is the key when it comes to new market envi-ronments with completely di erent expectationsand challenges. Creative solutions or products,processes and business models are always the en-gine or company growth and a prerequisite orlong-term market survival. As a result, a compa-nys overall capacity or innovation is enhancedby pursuing projects that ollow an unusual logic,that ask new questions and that seek new organi-zational solutions.

a h rd r , w h v to tr v l long di t nc in rch o gr n r p turM-Pesa h m d our liv i r b c u w dont h v to tr v l to giv

our r l tiv nd ri nd mon y.e si g , h rd r a d M PeSA ustom r3


17/92

T He WHa T


add d p p i p ty

The local population also stands to bene t rom participatingin inclusive business in several areas:

Basic needs: Many basic needs are still not met today. One bil-lion people live without access to clean water, 1.6 billion arewithout electricity and ve billion have no Internet access.Examples o inclusive business models that provide ood, wa-ter, wastewater disposal, medical supplies, housing construc-tion and even education already exist.

Productivity: Access to electricity, telephone and Internet aswell as nancial services, such as loans and insurance, makeday-to-day li e more e cient and open up new business op-portunities or individuals and microenterprises.

Income: Farmers, artisans and other producers nd new sales chan-nels, services are in demand and jobs are created. Lower-pricedproducts increase real income.

Empowerment and con dence: New possibilities or consumption andincome and new orms o market participation or creation give peo-ple the eeling that they have more control over their lives.

D spit th simp i ity o this word, it is ota ways asy to d who is poor a d who is

ot. Po rty has ma y aus s a d ma y orms.

I om is usua y us d as a i di ator orpo rty. As a i t r atio a sta dard, th Wor dBa k stab ish d thr sho ds o $1.25 p r day or

xtr m po rty a d $2 or mod rat po rty(m asur d i o a pur hasi g pow r). Bas do th s gur s, 1.4 bi io p op w r i i gi xtr m po rty a d 2.6 bi io i mod ratpo rty i 20054.

Th prob m o po rty, how r, a bb tt r d s rib d usi g th apabi ity o ptd op d by th o omist, Amartya S .S s s po rty as a a k o a uab oppor tu iti s. This i w shap s d opm t work today to a arg xt t. Th p op i po rtydo t ha th r dom to hoos to i

u i g i s. This i ud s simp basi dssu h as ood, du atio a d ar r hoi but

a so opportu iti s to shap a d parti ipat iso i ty. I om a ows a ss to th s oppor

tu iti s but is a so o r su t o r a izi g o spot tia .

I usi busi ss do s ot ssari y hato start with th xtr m y impo rish d, i. .p op who ar $1 a day, but with thos whog t by o $3 or $4 p r day. It is o t asi r to

o trat o groups that ha apita , b itk ow dg , a d or so ia i usio , but ar u ab to b t rom it b aus o i ad quatmark t a ss. Busi ss mod s that i or porat th s s tio s o th popu atio o rboth sid s o sid rab opportu iti s to makthi gs b tt r. O t , thos i i g i xtr m

po rty ha o apita to sp ak o . Th y ard p d t o huma itaria aid. Th u di ga ai ab or d opm t aid a b o trat d o supporti g th s p op i mark tsa d busi ss r at opportu iti s or thoswho ha apita to put it to good us .

I this pub i atio , w g ra y ta k aboutp op i i g i po rty a d ot poor p op

to mak it ar that it is th i i g iro m to thos a t d that ads to po rty. Po rtyi d opi g ou tri s is arg y a stru turaprob m rath r tha a i di idua prob m. Th

r qu t r r s to s ums a d i ag s, i. .th typi a iro m t or po rty, u d r s or this i w. Th o strai ts that hi d rmark ts a d p rp tuat po rty ar xp ai do pag 26.

th di g: Abhijit V. Banerjee and Esther Du o (2006), The Economic Lives o the Poor www

Deepa Narayan and Patti Petesch (Ed., 2002), From Many Lands.Voices o the Poor (n w York: Ox ord U i rsity Pr ss)

Amartya Kumar Sen (1999),Development as Freedom (Ox ord: Ox ord U i rsity Pr ss)

Who is poor?

Ba Phot, a arm r i Issa , north r Thai a d, aow har st rops two to thr tim s a y ar with a

so ar pow r d pump.

P h o t o : A d a m R

o g e r s / U n

c D F


18/92


Partnerships between the private and publicsectors can play a decisive role or sustainabledevelopment. In the last 10 years, German de-velopment policy has established new ormso partnerships with the private sector lead-ing to activities in more than 70 developingand transition countries. Our programme ordevelopment partnerships with the privatesector (www.develoPPP.de) has been com-mended as innovative in this eld. Indeed, wehave many success stories to demonstrate thevalue o those partnerships. Business and de-velopment objectives o ten complement oneanother and can be achieved more e ectivelyin a joint e ort.

Whether the issue is environmental protec-tion, education, healthcare, poverty eradi-cation, agriculture, water or energy supply,the primary elds o action in developmentpolicy overlap with the business objectiveso the private sector. Consequently, involve-ment in shaping the economic, political, legaland social ramework in developing countriesis mutually bene cial or private and publicpartners. The partnerships incorporate theshared interests and capitalize on the respec-tive strengths o each partner. Companiesrely on the many years o experience o thedevelopment organizations to sa eguard theirinvestments, participate in growth marketsand establish stable, long-term structures.The development organization bene ts romthe business activities o the private sectorin the partner countries which help achievedevelopment goals and cut costs. This alsoimproves the living conditions o people indeveloping countries over the long run andimproves the economic, environmental andsocial conditions or doing business.

The public and private sector work togetherto bring an idea to li e, an idea that is increas-ingly seen as the basis or sustainable corpo-rate management: voluntary assumption o responsibility by companies or social, envi-ronmental and governance issues, otherwiseknown as Corporate Social Responsibility(CSR).

Nowadays, many rms consider CSR a xedcomponent o their corporate strategy. Mul-tinational corporations can no longer a ordto have their business activities subject to se-rious criticism in the public eye because, orinstance, working conditions in the supplychain are inhumane. CSR is there ore a stra-tegic investment that aims to strengthen thegeneral publics approval o the company andinspire the con dence o customers, investorsand other stakeholders. Corporate social re-sponsibility also has a positive impact on em-ployee motivation and product quality.

Part rships b tw G rma d opm torga izatio s a d th pri at s torby Jonas Naguib (GTZ) and Fritz Jung (BMZ)

W h v m ny ucc tori to d mon tr tth v lu o d v lopm nt p rtn r hip with th priv t ctor.


19/92

T He WHa T


The start-up company INENSUS GmbH, basedin Goslar, Germany, specializes in small windturbines and decentralized energy systems.In 2007, one o the company ounders, JakobSchmidt-Reindahl, traveled to Senegal with adelegation o the German Federal Ministry o Economics and Technology (Bundesministe-rium r Wirtscha t und Technologie BMWi)on a trip organized by the GTZ. He ound thatthe coastal regions, where only approximate-ly 20% o the rural inhabitants are connectedto the electricity grid, o er excellent condi-tions or cost-e ective operation o windturbines or a decentralized energy supply.

INENSUS per ormed an in-depth marketanalysis or an entire year. Market studieswere conducted and wind measurements

taken with nancial support rom the Ger-man electricity supplier EWE AG and in coop-eration with the GTZ. INENSUS then used thisin ormation as a basis or adapting its busi-ness model Micro Power Economy to localconditions and joined orces with MATFORCE,a local company rom Senegal. To nalize thisphase o the project, the Senegalese compa-ny INENSUS West A rica S.A.R.L. was ormedas a joint venture between INENSUS GmbHand MATFORCE.

Since then, the company has been workingon a pilot project o its business model with

nancial support rom EWE AG. These activi-ties also receive unding rom the GTZ as aPPP project. Since January 2010, INENSUSWest A rica operates a hybrid system (con-

sisting o a small wind turbine, solar panelsand a diesel aggregate) in Senegal and sellselectricity to the inhabitants o a village.Many other similar projects are in the plan-ning stages.

The business model o Micro Power Economyassumes that demand or electricity willincrease as the energy provided stimulatesmore productivity. The model thus relieson healthy economic development o thevillages. To encourage investment in income-

generating activities, a partnering micro -nance institution (MFI) is making microloansavailable to customers.

Sour s: I sus (www.i sus. om), eWe AG (www. w .d ),MATFORce (www.mat or . om)

C y 2 InenSUS, S ga

A jour y to a w t rpris

Helpers rom the local community putting up the wind monitors. The measurements were very promising or INENSUS. A house in Senegal. Most houses there are notconnected to the grid.

The PPP partnering model is also urther de-veloped in this context: involvement is notlimited to actors rom the public and the pri-vate sector; other key actors rom civil society,be they trade unions, non-governmental or-ganizations (NGOs) or academic institutions,are integrated into initiatives and projects.New plat orms or dialog have been created,like the United Nations Global Compact,which is supported by the BMZ. So ar, 6,000companies rom around the world have

joined the Global Compact and voluntarilypledged to adopt ten principles in the areaso human rights, labor standards, environ-mental protection and anti-corruption. Part-nerships are initiated and practical modelsdeveloped in dialog with governmental andnon-governmental representatives.

Th prim ry f ld o ction in d v lopm nt policy ov rl p withth bu in obj ctiv o th priv t ctor

Photo: Adam Rog rs / UncDFPhotos: Jakob Schmidt-Reindahl


20/92


A total o 1.2 billion people live in India,two-thirds earn less than $2 per day. Theyare the target group o SKS Micro nance.The goal o this micro nance institu-tion is to serve eight million customersby 2010, a gure that represents onlyone percent o the target group. Alreadytoday, the companys market value isroughly $130 million.

Companies that strive or long-termgrowth can ill a ord to ignore the bot-tom o the global income pyramid: it iscurrently made up o two-thirds o theworlds population and is growing rap-idly.

, Four billion people around the worldlive on less than $3,000 per year, mea-sured in terms o local purchasing pow-er. Per day, this is equivalent to $3.32 inBrazil, $2.11 in China or $1.56 in India. 5 Based on the international standard, 2.6o these 4 billion people are consideredpoor because they have less than $2 tolive on. 6 However, de nitions o pooror rich are certainly not set in stoneand are a question o perspective. In somecountries, even people who earn less than$8 a day belong to the middle class. Evenso, their access to healthcare or nancialservices can still be lacking. Overall, thereis a lot o potential or improvement atthe bottom o the pyramid.

Bui di g growth mark ts

s t ti p h i g p w

Even though individual income in this segment(under $3,000) is low, when the incomes o theNext 4 Billion, as they are re erred to by the In-ternational Financial Corporation (IFC) and theWorld Resources Institute (WRI), are combined,their purchasing power is immense. In a reporto the same name, this , market is estimated tobe worth around $5 trillion. The smallest part ismade up o the poorest segment that lives on lessthan $500 a year. The largest part is accounted orby the segment that earns between $1,000 and$1,500 per year.

People in the low-income market spend most o their money meeting basic needs. Food toppedthe list at 60% o the market or $2,895 billion in2006. The market or in ormation and communi-cation technology made up only a small percent-age at $51 billion. The amount o money spenthere, however, rose rapidly as income increased.

These market gures are expressed in terms o lo-cal purchasing power. International purchasingpower, however, is also an important indicator orinternational companies. Regardless o the exactvolume o the total market, it is clear that peoplelabeled poor also spend money to satis y theirneeds.

k y g

Four billion people live onless than $3,000 per year.

Taken together, their com-bined local purchasing poweris equivalent to $5 trillion.

By 2050, there will be threebillion more people on theplanet, almost all o them indeveloping countries.

Interest among these con-sumers in low-priced andgood quality products is high.

, G oba ow i om mark t by i om s gm t(tota sp di g i $ PPP)

3,0002,500

2,000

1,500

1,000

500Sour :

IFc, WRI (2007) Th n xt 4 Bi io

, cha g s i wor d popu atio

B i l l i o n s o

f P e o p

l e

1

3

7

5

9

2050203020101970 19901950

LessDeveloped

Countries

More Developed Countries

, G oba i om pyramid

Portion o world population (%)

Annualper capita

income in $(m asur d i

2002 PPP)

0

20,000

30,000

10 20 30

10,000

Sour : Bra k o Mi a o i , Wor d Ba k (2002) Sour : Un (2005), Wor d Popu atio Prosp t: Th 2004 R isio


21/92

T He WHa T


G wi g p p ti

The market is growing rapidly: according to projectionsrom the United Nations Population Fund (UNFPA), the

planet will have approximately , three billion more peoplein 2050 than it does today. The great majority will live indeveloping countries.

For companies who nd a largely saturated and highlycompetitive market at the top o the pyramid, it will beparticularly important to take a closer look at lower incomesegments. This doesnt just apply to companies that targetconsumers but also to business-to-business solutions. Mostpeople at the bottom o the pyramid earn their income asmicrobusiness owners in agriculture, handicra ts, servicesor trade. As entrepreneurs, they are by all means willing toinvest in increasing productivity and competitiveness ei-ther through new technologies or materials. But the rangeo products and services open to them has to be consistentwith their needs and nancing has to be available.

P ty p ty

It may sound like a paradox but people with little market accessrequently have to spend more money than their rich neighbors

or more than consumers in industrialized countries and theyhave to settle or lower quality. This phenomenon is known asthe poverty penalty. It represents the opportunity to developa better range o products and services by increasing e ciency.In Bangladesh, 1 kWh o electricity costs approximately $1.95in rural regions while in Germany, the price is only one-tenth o this amount. 7 In the slums o Jakarta, Nairobi and Manila, cleanwater is ve to ten times more expensive than in higher-incomeareas o these cities. Similar price di erences exist in the nancialsystem, in healthcare and even in simple consumer goods.

th di g C.K. Prahalad and Allen Hammond (2002), Serving the Worlds Poor, Pro tably (Har ard Busi ss R i w 80, p. 4857)

Clayton Christensen and Stuart L. Hart (2002), The Great Leap (MIT S oa Ma ag m t R i w Fa 2002, p. 5156)

IFC and WRI (2008), The Next 4 Billion www

When it comes to inclusive business, thenancial sector has been leading the charge.

For more than 30 years, the Grameen Bank hasbeen granting microloans to the poor in Bang-ladesh. Its ounder, Muhammad Yunus, wasawarded the Nobel Peace Prize in 2006 andthus made microcredit the most widely knownexample o ghting poverty through business.

The model used by the Grameen Bank can betraced back to the principle o cooperativebanks in the 19th century. The bank does not

require collateral or the loan. Instead, bor-rowers belong to a group that bears collectiveresponsibility. I one o the group membersmisses an installment, the entire group is nolonger eligible or a loan. The peer pressureexercised in the group has resulted in repay-ment rates o over 95%.

Almost all o the borrowers are women. Theloans range rom $1 to $1,000 and interestrates all between 20% and 50% per year. Theyare thus much more a ordable than the rateso ered by traditional lenders who ask or upto 700% interest. Microloans are usually invest-ed in a microenterprise to buy a ew chickensor install a village telephone, or example.

This model o microloans has inspired similarprograms around the world. In 2007, the Mi-crocredit Summit Campaign reported a total

o more than 3,500 micro nancing organiza-tions on all ve continents. These institutionsgranted loans to around 155 million people. 8 But the market potential is still ar rom beingexhausted: according to estimates, at leastone billion people are potential microloanborrowers. 9

Nowadays, even pro t-oriented banks o ermicroloans and are working hard to improvethe e ciency o the model. In September2009, SKS Micro nance had 5.3 millioncustomers, making it the largest microcreditlender in India. The company relies on stan-dardized products, universal customer andsales partner training and on state-o -the-artcomputer and mobile technology to manageand repay the loans. SKS has been able togrow rapidly and generate high pro ts thanksto its cookie-cutter model.

Sour s: IFc & WRI (2008) The Next 4 Billion www, SKS I dia (www.sksi dia. om), Gram Fou datio (www.gram ou datio .org)

C y 3 Gram Ba k, Ba g ad sh, SKS Mi ro a , I dia

Mi ro r dit A mod tra s arou d th wor d growi g as it go s

Women in Madagascar take part in a training on nancial management.

Photos: Adam Rogers / UNCDF

A micro-credit group in India meets to collect installments.


22/92


Priprioca is a ragrant plant ound in theheart o the Brazilian rain orest. Naturadiscovered the plant and used it as thebasis o its Ekos cosmetics line. The com-pany worked together with village com-munities in the north o the country tocreate a new supply chain or this ingredi-ent. Ekos became the most success ul lineo this rapidly growing company.

Regions with little market access are alsointeresting as potential sources o supply.By integrating people living in povertyinto the supply chain, production vol-umes, delivery reliability and quality canbe improved, the fexibility o the supplychain strengthened and the unique sell-ing propositions enhanced by rare, high-quality and ethical products.

n t i g di t

Developing countries have large capaci-ties or the production o agriculturalproducts. Seventy-two percent o all agri-cultural land can be ound in developingcountries. 10 This potential or productionis not only important or meeting risingdemand or more and higher-quality oodproducts, but also or the growing need

or renewable energy sources. The qualityo the end products and the productionprocess is gaining in importance. De-mand or products certi ed as organicor air is steadily rising.

Some valuable raw materials can only beproduced or extracted in certain regions.The pharmaceutical industry is constant-ly on the lookout or new plant-based ac-tive ingredients. In this context, coopera-tion with people who live in regions witha high level o biodiversity like rain orestsmakes sense or both sides. These partner-ships enable new sources o supply to bedeveloped and, at the same time, biodi-versity is sa eguarded. The course o ac-tion pursued by Natura is exemplary inthis area.

l t diti d i

Skilled workers in developing countries also pro-vide valuable services. Opportunities exist particu-larly in the case o labor-intensive and handcra t-ed products, such as those in demand or interiordesign. IKEA works with cooperatives and amily-run companies in Vietnam to produce textiles andceramics. The company concludes long-term con-tracts with the suppliers that have xed paymentterms, a mutually bene cial model.

s i t i t t ti

The service sector is very underdeveloped but thisis starting to change thanks to the widespreadavailability o data networks. Digital Dividend inCambodia and TxtEagle in Rwanda are start-upcompanies that rely on mobile technology to pro-vide services like translation in local languages akind o microbusiness process outsourcing. Inter-est is also growing in tourism that is committed tomaking a positive impact on the local culture andthe natural environment, and in the process creat-ing unique experiences or tourists. The companyHospitality Kyrgyzstan is an ecotourism operatorin Kyrgyzstan that o ers homestays with local no-mad amilies. The local population is essential as aservice provider here.

Str gth i g supp y hai s

th di g Andrew W. Shepherd (2007),Approaches to Linking Producers to Markets www

Beth Jenkins et al. (2007),Business Linkages Lessons, Opportunities and Challenges www

Julio A. Berdegu et al. (2008),Innovative Practice in Connecting Small-Scale Producerswith Dynamic Markets Keys to Inclusion o Small-Scale Producer sin Dynamic Markets www

k y g

The wealth and diversity o natural raw materials makesit possible to sa eguard,broaden and improve thesupply chain and make useo new and unusual materi-als, also satis ying the qualitycriteria or organic or airin many cases.

Tradespeople and artisanso er skills, traditional eth-nic handicra ts and tech-niques.

Services ranging rom tour-ism to business processoutsourcing can be providedby microenterprises.


23/92

T He WHa T


The roots o the pripr ioca plant contain essent ial oils. The astounding diversity o the plant world hidden in the Brazi lian rain orest couldserve as the oundation or sustainable business models.

I b li v th conc pt w th r b or th lin wFir t w got to wh t w ought to chi v , wh t w w nt d to y withth product. a t r d fning thi , w look d or r w m t ri l , communiti

nd comp ni to t up our upply ch in.ri d m t ,proj t ma ag r, natura 11

The cosmetics manu acturer Natura haspositioned itsel in Brazil as a holistic andsustainable company. The use o ingredientsextracted rom species o plants ound onlyin Brazil plays an important role in cultivatingthis image. These types o ingredients also

orm the basis or Ekos, Naturas extremelysuccess ul product line.

Priprioca, a plant that only grows in the Brazil-ian rain orest, is the primary ingredient o thisline. Its oil has a strong ragrance and has longbeen used as a per ume by people living in

the rain orest. The ingredient was suitable ora new product line but there was not enougho the plant available. So, Natura went to work building a supply chain together with villagecommunities in the north o Brazil.

In 2003, the company success ully persuadedthree villages to become producers o pripri-oca. Natura provided the seeds and trainedparticipants in the growing method. Pricingwas also not clearly de ned because a market

or this plant had not previously existed. Na-tura initially negotiated payment with projectparticipants based on the amount o landused in the cultivation o the plant, whichresulted in a drop in production volume the

rst year. Agreements were then reached onspeci c supply volumes and prices.

To satis y sustainability criteria, Naturaalso established a certi cation program. This program was designed to ensure thatingredients rom Brazilian plant species wereextracted sustainably and ecologically.

The consumers hold this holistic and authen-tic approach in high regard. In 2004, Naturasmarket value was 133% o its annual rev-enues compared to 33% or LOral. 12

The potential or other sustainable per umeingredients rom the Brazilian rain orest isenormous: thousands o plant species are noteven being used yet.

Sour : c udio Bo hat (2007),Ekos: Per ume Essences ProduceSustainable Development www

C y 4 natura, Brazi

B auty rom th Brazi ia rai or st

Essential oils are an important ingredient in the cosmetics industry. Naturas Ekos product line is based on the p riprioca ragrance.

Photo: natura Photo: Thomas Heinze Fotolia.com

Photos: natura


24/92


Cocoa is the basis or chocolate produc-tion and hence the business o Al red Rit-ter GmbH & Co. KG. But cocoa productionis in a downward spiral: prices are alling,quality is su ering and environmental de-struction is increasing. Ritter has created amodel in Nicaragua to reverse this spiral:a sustainable agricultural model protectsthe existing orest, increases quality, guar-antees good prices or armers and sa e-guards the long-term supply o cocoa orRitter.

D p i g i p t i q ity id pti

At the turn o the millennium, the Mil-lennium Ecosystem Assessment conduct-ed an extensive analysis o the worldsecosystems and arrived at a disturbingconclusion. Over the past 50 years, hu-man beings have changed these ecosys-tems more rapidly and extensively thanever be ore, largely to meet rapidly grow-ing demands or ood, resh water, timber,

ber, and uel. Sixty percent o the ecosys-tems around the world are debilitated orused in a way that puts their existence injeopardy over the long run. 13 Up to now,economic growth and improved qualityo li e have been based on the increaseduse o resources, evidenced by the strong, correlation between CO 2 emissions andper capita income. The goal is to elimi-nate this interdependency. Quality o li ehas to be improved or more people with

ewer natural resources, using environmentallyriendly technologies, products and processes.

P p i i g i p ty p ti y t d y pti

Low-income communities are o ten particularlyimpacted by environmental damage. Basic hous-es and shacks are less protected against extremeweather conditions as a result o climate change.There is no alternative or contaminated drinkingwater. Soil erosion and drought can lead to the losso a small armers livelihood. However, the peoplewho live in poverty o ten have no other choice butto overuse the natural resources around them. In-dustrialized nations also o ten outsource resource-intensive and dirty production steps to develop-ing countries.

l p ggi g

Scientists and companies all over the world havedeveloped a range o environmentally riendlytechnologies and resource-saving products andprocesses in many areas. They can help encourageleap rogging, i.e. accelerating development bymoving directly to more advanced environmental-ly riendly processes such as renewable energies. Insome cases, these technologies are much easier toput into practice in developing countries becausestandards have not yet been established there, pro-duction capacities and networks dont exist andthere are ewer conficting interests. Investing inenvironmental protection, e.g. renewable ener-gies and energy e ciency can also be worthwhile

nancially in light o rising prices or oil and gas.

Sustainable processes in the supply chain are be-coming increasingly important or companiesto minimize risk or product quality, reliabilityo supply and reputation. Leap rogging can alsotake place here. Sustainable agricultural methodscan be used rom the outset instead o the cost-intensive and environmentally un riendly meth-ods common in industrial agriculture. Ritter hasestablished a success ul model in Nicaragua.

Th d th t

The advantages sustainable models have to o er

will become even more evident in the uture: Political incentive systems at the national and

international level will drive the costs o usingnatural resources even higher and make it moreworthwhile to help protect ecosystems. Already

Prot ti g th iro m t, s uri g th utur

k y g :

Quality o li e can only beimproved as long as there areenough natural resources.

Environmental protectionis particularly relevant orpeople living in poverty.

Companies with expertisein environmentally riendlytechnologies and processeshave an advantage in inclu-sive business.

Sustainable models will be ingreater demand in the utureand encouraged by policy-makers.

, I om a d cO2 missio s p r apita a d ou try

Sour : Gapmi d r, 2008

200 400 1,000 2,000 4,000 10,000 20,000 40,000

0 0 . 0

4

0 . 1

0 . 2

0 . 4

1

2

4

1 0

2 0

4 0

1 0 0

2004

Am ri a

europ & c tra AsiaSub Sahara A ri a

Midd east & north A ri aSouth AsiaSouth ast Asia a d Pa i

GDP per capita i $

C O

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i s s i o n s

i t o s p e r a p

i t a


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T He WHa T


A cocoa armer in Nicaragua with his product. Growing organic cocoa islabor-intensive.

Cutting open a cocoa bean or qualitycontrol.

The dried bean is the basic ingredient inchocolate production.

C y 5 A r d Ritt r GmbH & co. KG, ni aragua

Ritt r: a y o th rai or st

47 nations, including China and Brazil, have de ned apayment system or eeding electricity rom renewableenergy sources into the grid.

At a societal level, sustainability is increasingly in de-mand and more attention is paid to harm ul behavior.According to the Organic Monitor research institute,global demand or organic ood rose in 2007 by $5 bil-lion to a total o $46 billion.

Competition or natural resources is driving prices upand adversely a ects quality and reliability o supply.Resource-saving, sustainable processes can o er a signi -cant competitive advantage here.

Environmental protection is thus also a key component o eco-nomic sustainability.

th di g Kumar Duraiappah (2004), Human Well-Being, Poverty and Ecosystem Services Exploring the Links www

Martin Herrndorf and Burcu Tuner (2009):Satis ying basic needs - respecting the earths limits. www

Stuart L. Hart (2007),Capitalism At the Crossroads: Aligning Business, Earth, and Humanity (Upper Saddle River, NJ., Wharton School Publishing)

SustainAbility (2007),Developing Value The Business Case or Sustainability in Emerging Markets www

When Ritter cant get its hands on any cocoa,there is no chocolate to be had. Globaldemand or this raw material has increaseddrastically over the last ew years. Ritter hasto worry more and more about the reliabilityo supply on a market dominated by majorcorporations. Competition is particularly

erce or the small harvests o organic cocoa.

Cocoa arming requires a lot o time and idealclimate conditions. The extremely labor-intensive and sensitive cocoa trees only bear

ruit a ter around ve years. Organic cocoarequires a number o di erent steps in the

arming process. Overall yield is approx. 30%less than with conventional arming meth-ods. This kind o sustainable arming neces-sitates a special kind o support.

For the producers o Ritter, the solution is aclosely-knit and long-term partnership tosecure access to high-quality cocoa and be

able to o er an organic product line. Ritterlaunched the CACAONICA project in Nica-ragua in 1990 with this goal in mind. Cocoagrowers elt orced to constantly expand their

elds and destroy the rain orest as prices elland soil ertility decreased. Weather catas-trophes and soil erosion made the situationeven worse or small armers.

CACAONICA encourages sustainable cocoaarming based on organic standards with an

integrated approach:

Environmentally riendly arming methods:Cocoa is grown on plantations in crop com-binations with other trees. This protects the

soil and the rain orest. Knowledge building: Farmers receive

advice and training not just about arm-ing methods but also about topics such ascooperative organization, quality controland marketing.

Funding: The cooperative makes advancepayments or cocoa deliveries and transportcosts. It also assumes the cost o organiccerti cation.

Premium prices: The armers receive aguarantee rom Ritter to buy the cocoabeans that meet the companys high qualitystandards at a price higher than the globalmarket price.

More and more armers and cooperatives selltheir cocoa to Ritter Sport, especially theirorganic cocoa. Ritter can be sure that its sup-ply will be replenished. And the rain orest cankeep growing.

Sour s: cSR W tW it (www. sr w tw it.d ),A r d Ritt r GmbH & co. KG (www.ritt r sport.d )

Photos: Al red Ritter GmbH & Co. KG


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Tiviski is a camel milk dairy in Mauritania, acountry situated in the Sahel region o A rica. Themajority o the population o 3.4 million still de-pends on agriculture and livestock or their live-lihood. The extreme conditions that Tiviski hasbeen con ronted with since its ormation in 1989are a good example o the structural challengesposed by inclusive business projects. Companieswill ace similar hurdles in every developing coun-try, though usually they wont be quite as ormi-dable

O r omi g ha g s

k y g

Market conditions that acili-tate trade are o ten lackingin the slums and villages o developing countries.

Constraints exist in ve areas:market in ormation, regula-tory environment, physicalin rastructure, knowledgeand skills o the marketparticipants and access to

nancial services.

Innovative business modelsare needed to keep transac-tion costs low. How thesemodels are developed isdescribed in chapter 2The How.

.

, G oba ompariso o hi d morta itychi d morta ity or ry

10,000 i births adjust d toth y ar 2000.

> 100

75

50

20

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o Data

Sour : cIeSIn 2005


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T He WHa T


s d i g th t i t

The people at the bottom o the global income pyramid arenot dispersed equally throughout the globe, they mainlylive in the slums and villages o developing countries. Thedi erences between the various countries and regions canbe clearly seen on a , world map that uses child mortal-ity as an indicator or poverty: poverty is most widespreadin A rica and Asia. There can also be huge discrepancieswithin a single country. In China, or example, the coastalregions are very well developed while poverty is still preva-lent in the interior.

Today, the overwhelming majority o people who have toget by on less than $2 per day live in rural areas. But this israpidly changing. By 2050, the planet will have three bil-lion more people than it does today. Most o them will livein the urban slums o developing countries.

Th diti f i t t d i g

Market development in slums and villages doesnt just mean in-troducing a new product to stores or signing a supply contractwith a producer cooperative. Companies have to overcome chal-lenges that they are unaccustomed to, to this extent at least, indeveloped markets. One undamental problem is inadequatemarket conditions. In ormation is unavailable, the in rastructuredoesnt work, the legal system is ine ective and other conditions

or doing business are simply non-existent. Support systems,such as logistics services, nancial services or media that com-panies could otherwise rely on, are also lacking because these re-gions are not su ciently developed as markets. An analysis con-ducted by the United Nations Development Programme (UNDP)identi ed constraints in ve areas. 14

Arou d o mi io p op i i Kib ra,th arg st s um i nairobi, K ya.

P h o t o : U

n H

A B I T A T

chi dr sta d i i or wat r i Kathma du, n pa .

P h o t o : U

n H

A B I T A T

I Madagas ar, arm rs s sugar a a d g tab s at th i ag mark t.

I a i ag i Uthra Prad sh, I dia, wom mbroid r saris to th s th m.

P h o t o : c

h r i s t

i a

G r a

d

P h o t o : c

h r i s t

i a

G r a

d


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1. Market in ormationIt is o ten not easy to access reliable mar-ket in ormation. Standard market re-search data such as socioeconomic data,consumer habits and user pro les is rarelyrecorded or people living in the slumsand villages in developing countries. Noris much known about existing produc-tion capacities and skills. I this type o data does exist, it has usually been gath-ered by government agencies or develop-ment banks. Generally they dont publishthis data or, i they do, it is not in a user-

riendly ormat. Third-party intermediar-ies such as market research institutes, rat-ing agencies or corporate consultants arerare in these markets. When Nancy Ab-deirrahmane began to set up Tiviski, nomarket or camel milk had previously ex-isted, meaning, o course, that there wasalso no in ormation about the quantityproduced or price.

2. Regulatory environment Laws and their en orcement are o teninadequate in developing countries. In1989, a legal ramework did not exist orthe dairy industry in Mauritania. With-out a police orce, unctioning courts o law and other government organizationalsystems, businesses have no guaranteethat contracts will be honored and thatthey will be protected against crime.Nor do legal processes a ord the peopleliving in slums and villages any protec-tion. They o ten dont have any orm o o cial identi cation or proo o perma-nent residence. Companies and individu-als requently encounter lots o red tapetrying to obtain permits and licenses. InLatin America, it takes 73 days to registera business on average and costs around48% o the annual per capita income. InOECD countries, in contrast, it takes only17 days and costs 5%. 15 Many small busi-nesses thus operate on an in ormal ba-sis. However, this makes it more di cult

or them to do business with establishedcompanies who need a solid legal basis

or business relationships.

3. Physical in rastructurePoor in rastructure hinders the exchange o goodsand services as well as in ormation. In Maurita-nia, there is no real system o roads to speak o ,which would have made collecting milk a lot eas-ier. Transport networks are also lacking elsewhere:60% o all paved roads in the world are ound inthe ew number o high-income countries. 16 Net-works or electricity, water or even data are eithernon-existent or in poor condition.

4. Knowledge and skillsKnowledge and skills are required to produceand use products and services. Eighty percent o Mauritanias population is illiterate. The nomadslacked knowledge on how to prevent animal dis-eases, boost productivity or organize business.Many people, particularly those who live in ruralareas, have inadequate access to education. Fur-thermore, media networks are also insu cient. In2005, only 4% o A ricans had Internet access. 17

5. Access to nancial servicesPoor households almost never have a savings orchecking account, making it more di cult to buyexpensive products. And, when people dont havebank accounts, they cant make use o a ordableand reliable payment methods like bank trans ers.Loans or larger investments and purchases arenot granted to many people because they have nolegal documents, no secure income or property toserve as collateral. Insurance companies are gen-erally unwilling to conclude insurance policieswith people living in poverty. Insurance cover-age would reduce their vulnerability and allowthem to take a longer-term view o their business.Households and companies are thus not able tocontrol their nancial situation with any measureo predictability. During periods o drought, manynomads were orced to give up their herds be-cause no credit was available to buy eed. Very ewnomads have bank accounts to organize moneytrans ers with Tiviski.

I ti i d ght

These structural problems put special demands onthe entire business development process whichwill be explained in chapter 2. The idea is to meetthese particular demands with the right solutions,

rom identi ying business opportunities throughto applying models that have already been suc-cess ul in other countries. I these unique eaturesare kept in mind, success ul models can also bedeveloped in di cult conditions as is evidencedby the growing number o positive examples.

th di g UNDP (2008),Creating Value or All Strategies or Doing Busi-ness with the Poor www

World Bank (2008),World Development Report 2009: ReshapingEconomic Geography www


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T He WHa T


Many amilies still make their livelihoods rom camel herding in Mauritania.

C y 6 Ti iski am mi k dairy, Maurita ia

As stubbor as a am a d su ss u

Tiviski has success ully set up A ricas veryrst camel dairy in Mauritania despite all o

the challenges it aced. Today, the companysells 20 products in addition to camel milk,it also sells yoghurt and Camelbert cheese,a so t French-type cheese made rom camelmilk. These products are sold in many smallstores in the country and they enrich what isavailable to eat locally. In the past, milk couldonly be obtained directly rom the camel orwas imported at high prices rom abroad.

More than 1,000 amilies supply camel milk. The dairy now also processes milk rom goats

and cows. Nancy Abdeirrahmane says: Thedairy had a much larger impact on peoplehere than I ever could have imagined.

Success was driven by many investments andinnovations: Tiviski set up a re rigeration andcollection system which relies in part on don-key carts to pick up the milk rom collectionstations. A separate cooperative organization

supports the herders, makes credit availableor eed during drought seasons, o ers veteri-nary services and provides advice about live-stock breeding and herding. The producersare paid with vouchers that can be submitted

to Tiviski or payment. According to NancyAbdeirrahmane, the success o the dairy alsoled Mauritanians to look at animal husbandryas an economic activity, not merely as a wayo li e passed on rom ather to son.

Sour s: Mamadou Gaye (2007), Tiviski Dairy: A ricas First Camel Milk Dairy Improves Livelihoods o Semi-Nomadic Herders inMauritania www

Namitha Dipak (2008), Tiviski Dairy: Innovative Milk Marketingin the Desert www

Now th t th d iry i ucc ul v ntur nd l o n dv ntur , it mm l xciting. ev n o th r i n v r dull mom nt. W r lw

d v loping om thing n w, building om thing, conv rting old thing ,m nding, p inting or fnding olution to our growth probl m .

n y a d i h , ou d r a d ow r, Ti iski am dairy, Maurita ia18

Tiviski produces a whole range o dairy productsranging rom resh milk to its Camelbert cheese.

Photo: Tiviski

P h

o t o s : T i v i s k i

Milk, not just rom camels, but rom cows and goats, is used orproduction.


30/92


In September 2000 world leaders came to-gether at the United Nations Headquarters inNew York to adopt the United Nations Mil-lennium Declaration, committing their na-tions to a new global partnership to reduceextreme poverty and establishing a number o objectives to be reached by 2015. They havebecome known as the Millennium Develop-ment Goals (MDGs). Over the last ve years,the rise o corporate social responsibility andthe growing recognition that business anddevelopment objectives o ten coincide, hasplaced the private sector at the heart o thestruggle to raise living standards in emergingeconomies.

Over the past ew years, business, as repre-sented by the International Chamber o Com-merce, has had extensive involvement in themany UN and other international meetingsand con erences that have identi ed the cru-cial components o a global partnership ordevelopment and its interlinked priorities.Together, these con erences refect a globalconsensus on the challenges acing humanityand set out a roadmap or cooperative actionby governments, business and other groups insociety. The ocus should continue to be onimplementing these objectives. Poverty eradi-cation has emerged as the oremost uni yingpriority we ace.

In this regard, business has consistently em-phasized the importance o mobilizing do-mestic resources and encouraging local entre-preneurship, oreign direct investment andother private capital fows, overseas develop-ment assistance and integrating the in ormaleconomy into the ormal economy. Creatingan environment conducive to enterprises o all sizes and in all sectors to develop, createjobs and pursue technological innovationand cooperation coupled with sound gover-nance and policies to reduce barriers to inter-national trade and oreign direct investment is the best model or helping people to getout o poverty and paves the way to reachingthe MDGs.

Th Ro o Busi ss iA hi i g th MDGsBy Louise KantrowICC Permanent Representative to the United Nations

Cr ting n nvironm nt conduciv tont rpri to d v lop, cr t jobnd pur u t chnologic l innov tionnd coop r tion i th b t mod l or h lping p opl to g t out o pov rty nd p v th w y to r ching th MDG .

Fairtrad otto is produ d i Ma i. Th wom b t rom b tt r o ditio s a d thbuy rs rom a mark o qua ity that has b om i r asi g y import

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