Inclusive Business or Business as Usual?
April ’15 Associate Loes Van Rheen is immersing herself in the world of inclusive business models. Read on and find out that inclusive business can smell fishy…
Well let’s not start a discussion about definition; there is already plenty of that going on! UNDP describes inclusive business as ‘business models that include the poor on the demand side as clients and customers and on the supply side as employees, producers and business owner at various points in the value chain. They build bridges between business and the poor for mutual benefit’.
What does this mean in practice? To get an idea, these are a few of many examples of big businesses that ‘do’ inclusive business:
The examples above show how multinationals created new ways to reach a certain group of consumers that they otherwise would not have been able to reach. These consumers usually are base of the pyramid (BoP) consumers in remote areas or in urban slums.
‘The’ Base of the Pyramid
With a 4 billion consumer’s potential, it is no wonder that the BoP consumer is gaining popularity. However according to the Harvard Business Review companies should not make the mistake to think that this is a homogenous group of consumers with the exact same needs and desires.
One thing that is for sure is that it is a low margin/high volume business. The key is to find, acquire and retain these consumers at the lowest cost possible so economies of scale make it worth-while. In Coca-Cola’s & Unilever’s example, the biggest change they needed to make was an adaptation of their distribution model: Coca-Cola created a model with MDCs, Manual Distribution Centres. This way they can reach urban BoP consumers which they could not reach with their existing distribution centres. They trained individuals (mostly young adults without education and with poor job prospects) to become independent micro-distributors who supply small shops by foot. So now, everyone can drink Coca-Cola (whether that is a good thing or not is another discussion, as The Economist already reported on an increase in people having diabetes in the same slums). Unilever uses a community based version of the famous ‘Avon’ door-to-door distribution model to reach untapped consumers in rural villages.
Vodafone’s M-Pesa is an example of a truly new product designed for this specific target group: the 2 billion people around the world without access to banking services.
Untapped but potential market
How do they do this? How do these companies make it worth their while? How do they create an eco-system and make sure to de-risk the initial investments enough to create a profitable market? To break down entry barriers in Tanzania, Vodafone received grant funding of about $4.8 mio from DFID and the Bill & Melinda Gates Foundation. How about Coca-Cola? Coca-Cola received a loan and equity investment from IFC of $25 million. These funding mechanisms, in combination with their state of the art branding, marketing and distribution make it a worth-while investment. According to IFC Coca-Cola created 12.000 jobs with their adapted business model. And did you know that M-Pesa in Tanzania is about 25% cheaper than in Kenya? The funding was used to open up the market, not just for Vodafone but for all mobile money companies. This means 7 million people in Tanzania now have access to mobile banking. These examples show us that these markets might be untapped, but definitely have potential. Is that what inclusive business is about? Is inclusive business about finding mechanisms to reach an untapped market without running the risk of not being profitable?
I truly wonder. Because, if you really think about it, shouldn’t inclusive business be about including people, communities in your supply chain that you would not have done otherwise? Where perhaps the long-term added value for these people and communities involved is a lot greater than the short-term financial value? With the ultimate aim to really shake up the status-quo of doing business as usual?
No potential market
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A Community Bank meeting in action. Picture by Net-Works[/caption]
I might be biased, but I do think Net-Works is an example of that in practice. Why? Interface, the co-founder of Net-Works makes carpet-tiles. ‘Carpet what?’ was the most common reaction amongst my friends. At first sight you might not think of an interesting, innovative and exciting place. But it is. Why? Interface is committed to eliminating all negative environmental impact by 2020. And they are well on their way. There is more. They are having a positive social impact on fishing communities in developing countries with their inclusive business program Net-Works. In short: Interface buys discarded fishing nets from fishing communities and upcycles them into carpet-tiles. Additionally, conservation organization ZSL (the other very important half of Net-Works) works with the communities on the importance of their eco-system for their livelihoods and helps them to set up community banks. This means that for the first time they have access to finance and savings.
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Click on this visual for a complete explanation.[/caption]
Why? They could have just bought fishing-nets from large fisheries in the UK, Holland, France or any country in Europe with a coastline. There are plenty of discarded fishing nets available (unfortunately) and it would have a similar net effect on Interface’s environmental mission. But what they do with Net-Works is creating much more added value: access to finance for communities, eco-system restoration and supplementary income for families.
As said, let’s not fall into the definition discussion trap, but I think the extra steps companies like Interface take should be rewarded, so let’s call this inclusive business 2.0. And hopefully more companies will follow and we can call this business as usual in the future!
What do you think? Do you any great examples of Inclusive Business 2.0 models? Leave them in the comments, curious to read all about them!