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Exploring the Links Between

International Business andPoverty Reduction:

a case study of

Unilever in Indonesia

An Oxfam GB, Novib, Unilever and Unilever

Indonesia joint research project

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Background

Why this research project?

Shared interest in increasingcontribution of international businessto poverty reduction

UN Global Compact/MDGs

What is this report about? a learning project; not an audit of

Unilever or UI. The goal: to understand how wealth

generated by a multinationalcompanys local operating company

can have positive or negative impactson people living in poverty To do this, we looked at UIs entire

value chain from small-scale producerto low-income consumer to understandthe points of entry and leverage toreduce poverty.

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Four areas of research

UIs macro-economic level impacts

UIs employment impacts

The value chain from supply to distribution

Low-income consumers in the marketplace

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The UI business

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Foreign exchange, trade & human resource flows

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UIs distribution of profits

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Value Chain

Estimated

employment linked

to UI value chain

(2003)

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Value Chain

Estimated

distribution of value

generated along UIs

value chain (2003)

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The supply chain

Direct suppliers

UI had 334 suppliers, spending approx Rp 3,591 billion (US$ 419m) 80% of suppliers are domestic, 20% are international Top 10 suppliers by value are all Indonesian and account for 34% of

purchases Domestic suppliers provided 84% of goods and services All UI suppliers required to observe Unilevers Code of Business

Principles UI maintains basic standards through negotiations, on-going dialogue, and

a rolling three-year audit programme

UI supplier companies exceed legal regulations governing wages andbenefits in Indonesia but pay and employment conditions for suppliersemployees and contract workers were lower than those for UIs directworkforce

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The supply chain (cont.)

Producers of raw materials

UI products are made from raw materials sourcedmainly from Indonesian producers, traders andprocessors

Producers growing agricultural products are among

the poorest people in UIs value chain Five agricultural raw materials entering UIs localsupply chain stand out in this regardtea, palmoil, cassava, coconut sugar, and black soybean

The market for coconut sugar a key ingredientfor Kecap Bangois characterised by oversupply,with farmers selling through middlemen andexperiencing high levels of debt which keep themin debt peonage

Where there is a business case for alternativesupply chains, these can have positive impacts forpoor producers

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The distribution chain

UIs distribution side of the value chain createsmore employment and value than the supplyside

The distribution chain creates twice as many

jobs (62.5%) as the supply chain side (27.1%) This includes thousands of jobs among an

estimated 1.8 million small stores and vendors This employment is often overlooked as a

contributor to economic development andpoverty reduction

The closer to UI that distributors and retailersare in the chain, the more likely they are to gainskills and knowledge, negotiate better pricesand conditions, experience higher employmentstandards and incomes, and be able to build upbusiness capital

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Value chain insights

Employment

More than 300,000 people (FTEs) make their livelihoods in UIsvalue chain

More than half this employment is found in the distributionand retail chain

Value

Total value generated along the chain was estimated atUS$633m: 1/3 UI 2/3 in the chain; the government receives(from UI alone) 26% of the total value generated

The value captured by poorer people working at either end ofthe value chain is much lower than the value captured by thosewho are in direct interaction with UI

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Lessons learned from project

Understand the job multiplier in UIs total value chain, and potentialuse of value chain policies as tool in sustainable poverty reduction

Value-adding activity creates a broad tax base - essential fordevelopment of formal economy and funding of governmentprogrammes

FMCG value chains can offer poor people an opportunity to gain basicskills and earn incremental, regular income

Although imperfect, may be useful first steps towards increasing skills,

accumulating assets, and improving quality of life The scrutiny of UIs relationship with low-income consumers and its

contractor review processes suggested ways in which the companycould improve its interactions with people living in poverty

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Lessons learned from

project

Highly embedded MNCs and large domestic companies might in

future provide a focus for useful work on private sector poverty

impacts and poverty reduction strategies. This project has increased our understanding of UIs impacts and

interactions with people living in poverty in Indonesia.

Gained a better understanding of the potential of distribution chains to

generate employment and income

But participation in value chains does not guarantee improvements forpoor people

Often difficult to define what constitutes fair practice by companies.

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Follow up actions

Unilever

Oxfam GB / Novib

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Exploring the Links Between

International Business andPoverty Reduction:

a case study of

Unilever in Indonesia

Questions & Discussion