Inclusive Business - What It Is

Inclusive Businesses

Altruistic Businesses?

Inclusive Business for Development Impact

 

The term “inclusive business” (IB) originated in 2005 and is closely linked to the Sustainable Development Goals (SDG). It was created by the World Business Council for Sustainable Development to separate business from philanthropy models for the alleviation of poverty. Stuart L. Hart and C.K. Prahalad 's article about the “fortune at the bottom of the pyramid,” (BoP) in 2004 had awakened private and public interest in the business potential in poor and low-income population groups.

 

What makes a business inclusive?

Against the background of its origin and in simple terms, “an inclusive business is a sustainable business that benefits low-income communities.” (Wikipedia) According to the World Bank “inclusive businesses are companies that develop innovative ways to do commercially-viable business with people living at the base of the pyramid (BOP) and to expand access to basic products and services. (https://olc.worldbank.org/content/what-inclusive-business). Over time, the term IB has embraced wider concepts such as the environment, gender, business sizes, etc.

In contrast to the philanthropic approach to poverty alleviation, it combines profit with social good (World Bank).

 

Motivations

Concluding from reviewing a variety of literature sources on this topic published during the past 15 years, I recognise a subtle shift in motivations among IBs. In its 2004 “Regional Perspectives”, the World Business Council for Sustainable Development (WBCSD) noted from discussions held in various world-regions a ‘it’s the right thing to do’ attitude, business opportunity driven motivations, societal or governmental pressures. In later literature, such as the 2014 report published by the International Finance Corporation (IFC), motivations leaned more towards commercial benefits, such as expanding markets, reducing costs, securing resources, etc. While this is true for companies from high-income countries operating in developing countries, there is also a noticeable change in the attitude of millennials entering the labour force at their home-bases. A 2016 survey found Millennials want purpose over pay-check. IB appears to be good also for attracting and keeping highly-qualified staff.

Does the motivation to do good have to be altruistic? This is a question the Overseas Development Institute (ODI) tries to tackle. Based on 4 models of social and commercial value, it concludes that commercial and social interest of IB is often present at the same time. Model A describes a situation where both are balanced and describes a commercial business providing products and services needed by poor consumers. In ODI's model B, a large organisation that has a significant impact on poverty through their normal business activities and enhance their development impact through R&D or inclusive distribution measures, would display more commercial interest than social value. Smaller and medium businesses mostly targeting local development are part of model C, in which both commercial and social value are lower due to lack of scale. Social enterprises who pursue social values over commercial interest fall into model D.

 

ODI's categorisation also demonstrates the importance of scalability and replicability of IB for development impact.

 

Institutional Nature and Mission

The predominant view is that IB refers to a private company with a profitable core business and a commercial motivation to “benefit the poor while opening new doors to companies’ activities” (WBCSD, 2005). However, the UNDP argued in its 2010 published paper: “the institutional background, even though it makes a difference for the opportunities and constraints a business model faces, is insignificant for the approach per se.” They can have not-for-profit, for-profit or even public natures. The key is the shared mission.

 

Core Business Activities

In addition to the organisation type, the businesses core activities are under scrutiny. In its 2015 released paper, the IFC distinguishes according to how they approach inclusive business:

 

In the IFC “Inclusive Business Model”, the core business activities integrate the poor from which commercial returns are expected. Organisations may have non-core “Inclusive Business Activities” that generate commercial returns. In contrast to commercial returns expected from IB operations, the returns of “Social Enterprise Initiatives” have a not-for-profit character.

 

Where is the dividing line?

The Donor Commitee for Enterprise Development (DCED) emphasizes that it can be very difficult to differentiate between inclusive and non-inclusive businesses. While most businesses contribute to taxes, employment, innovation, etc., an IB is expected to reach a specific target group, that is lower income people. Is inclusiveness established by the number or proportion of poor people reached? Armin Bauer demands a “systemic” versus an immediate impact of IB on the BoP.

Does it have to be a conscious effort to reach the poor or can it be a side-effect? Further, some expect the IB to make a positive environmental impact also, at least avoiding increased waste potentially generated by smaller-sized, more affordable products.

 

IB has changed traditional development aid practices. It is now recognised as a force for good reaching and changing the lives of low-income populations across the world. Of course, good intentions could also sometimes have unexpected positive as well as negative impact, just like any development measure undertaken even by the most experienced specialists. In many cases, the roles have flipped. Businesses are no longer perceived as contractors to carry out assignments in developing countries but as partners and drivers of social impact through their core business activities.

 

 

Business Case for Inclusive Business

Sustainable for-profit businesses need to deliver positive financial performances in the long-term. On the contrary, businesses ignoring their impact on society and environment, are increasingly faced with consumer resistance and decline. Nowadays, upset consumers have fast and far-reaching impact on reputations through social networks.

 

Even though building and running sustainable inclusive businesses may initially take time, human and financial resources, successful businesses have shown to benefit the brand, protect revenues and reduce risk.

  • Due to a shift in consumers' demands for products and services with either neutral or positive environmental and economical impact, reputation has become much more important for a business' bottom-line. To retain employees, companies recognise that particularly younger generation employees want to identify with their company's purpose and make a difference through their work.

  • Reaching new and larger target-markets with innovative new solutions and products can improve and protect revenues.

  • Access to resources, supply and diversified distribution reduces business risk.

Business for Development advices:

“However, this long-term value creation must be translated into a clear return-on-investment case, including a net present value analysis, to help management decide on the relative attractiveness of inclusive business investments relative to other pressing needs and justifying these decisions with shareholders.”

 

Sources:

https://www.enterprise-development.org/wp-content/uploads/DCED_IB_SynthesisNote.pdf

https://olc.worldbank.org/content/what-inclusive-business

ADB: How Inclusive is Inclusive Business for Women? Examples from Asia and Latin America. Asian Dev. Bank; 2016. (PDF)

Inclusive business—a business approach to development by Eunice Likoko and Janvier Kini (https://knowledge4food.net/wp-content/uploads/2017/04/gcp2-wfe_article-Inclusive-business-a-business-approach-to-development.pdf)

UNDP, Brokering Inclusive Business Models, 2010 by Christina

Gradl and Claudia Knobloch, Emergia Institute

http://www.undp.org/content/dam/undp/library/corporate/Partnerships/Private%20Sector/Brokering%20Inclusive%20Business%20Models.pdf

http://docs.wbcsd.org/2005/12/Regional_Perspectives_On_SL_Business.pdf

https://www.ifc.org/wps/wcm/connect/f0784d004a9b1f2ea5f0ed9c54e94b00/Attachment+G+-+G20+Inclusive+Business+Framework_Final.pdf?MOD=AJPERES

https://blogs.adb.org/blog/clarity-matters-inclusive-business

https://www.ifc.org/wps/wcm/connect/bf203d80463da1548c90bd9916182e35/SharedProsperitythruiBiz_FINAL.pdf?MOD=AJPERES

https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/3566.pdf

http://businessfordevelopment.org/business-case-inclusive-business/

 

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