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Oct 26, 2015

Creating shared value through inclusive business

CSR   /   CSR Asia

The inclusive business concept aims to address poverty in a way that is commercially viable for businesses. It provides an opportunity to engage with poor people through interventions in a company’s value chain that can provide solutions to poverty whilst also providing commercial benefits for the business through improving the competitiveness of the value chain.

Two-thirds of the world’s population live in poverty and many of them lack access to basic services. Women are often particularly vulnerable. The same is true of human rights since poor people are vulnerable and are often victims of abuses. Poor people alone are often unable to improve their economic prospects and inclusive business interventions are aimed at creating economic opportunities for them along commercial value chains of lead businesses.

The private sector has been a huge alleviator of poverty, creating the jobs and wealth that can provide people with the economic opportunities through employment and supply chain opportunities for small businesses. But there is more that the private sector can do and many businesses are increasingly interested in finding solutions to reduce poverty, engaging the poor, scaling up successful inclusive business models and contributing to the development process.

Successful inclusive business strategies should be based on three characteristics:

1. Improving the living conditions for poor people: Increased incomes and employment opportunities, increased knowledge and skills, access to markets, improved infrastructure, access to goods and services and premium prices benefiting poor communities.

2. Creating shared value: Low-income communities are integrated into efficient value chains of leading companies in a productive way, increasing incomes, improving living conditions and creating a more efficient, resilient and competitive value chain.

3. Commercial success for businesses: Lower supply costs, increased productivity, improved quality, differentiation opportunities and market expansion through the inclusion of poor people creating long term economic value.

The inclusive business approach will leverage a range of innovative initiatives that allow a lead business to include poor communities into its value chain, generating shared value for the business and those communities. It creates growth, productivity, profits and new opportunities for the business, at the same time generating jobs, income, wealth and new business opportunities for the poor and creates a potential win for the environment and resources by introducing more sustainable techniques and technologies.

A successful inclusive business strategy aims to include the poor in the value chain of a lead business as growers, producers, suppliers, distributors, agents, employees, business owners and customers in ways which enhance the competitiveness of the value chain and provide commercial opportunities for the business, while advancing the economic, environmental and social conditions of the communities where it operates.

The value chain includes all the parties that perform activities which are required to bring a product from its design, through different phases of processing and distribution to the final consumer. An inclusive business strategy will examine the interventions that can be leveraged by a business at different points in the value chain to create new opportunities for poor people. Such interventions will aim to include the poor and other marginalised groups in the value chain in a productive way by:

  • Providing job opportunities for poor people in value chains.
  • Investing in skills development, education and quality improvements that can leverage productivity enhancements and increase incomes.
  • Providing secondary incomes to people through a diversification of the local economy and identifying new market opportunities.
  • Improving the efficiency and effectiveness of a value chain to create larger margins for the poor and contribute to the competitiveness of the whole value chain.
  • Investing in entrepreneurship and new small businesses that can provide useful goods and services that feed into the value chain of a business and create clusters of local economic activity.
  • Establishing and strengthening policies, standards, institutional infrastructure and physical infrastructure so that poor people can get easier access to employment, markets for their products and improved distribution.
  • Innovation to create affordable goods and services that poor people can produce, distribute and consume.
  • Increasing the transparency of the value chain and improving access to information so that the share of benefits of the whole value chain are distributed equitably.

Inclusive business strategies should be guided by a number of principles that will help to define the possible value chain interventions that will be of most benefit to the poor and marginalised, whilst creating competitive advantage for the lead business:

  • Stakeholder engagement to ensure that inclusive business interventions are accepted by communities and that opportunities are aligned with the aspirations of poor people.
  • Considering multiple interventions along the value chain that together can leverage maximum benefit for poor people and their communities.
  • Maintaining good governance and transparency around any inclusive business strategy to avoid further exploitation of poor people through corruption, illegal activities and human rights abuses.
  • Monitoring and assessment to ensure that the outcomes of inclusive business interventions are effective and providing benefits to poor people and communities that are identifiable and measureable.
  • Flexibility in the design and delivery of inclusive business interventions recognising that not all attempts to meet the needs of the poor will be successful and realising that interventions may need to be changed or even abandoned over time.
  • A longer term plan to develop interventions that become scalable over time – successful inclusive business strategies ought to be scalable in their nature because they generate commercial benefits for companies.

There are many opportunities to create social and environmental value whilst increasing the competitiveness of the value chain of a company, that is, as part of the “core business” strategy. The shared value philosophy advocates meeting social needs in a way that creates commercial success. Inclusive business approaches are consistent with that vision, seeking to end poverty and to boost prosperity for poor people and the lead business. In the end, the objective is clear: The private sector has an important role in creating positive social impact through poverty reduction, shaping markets and facilitating new opportunities.

The India Responsible Business Forum (IRBF) Index 2015 is an initiative by Oxfam India in partnership with Corporate Responsibility Watch, Praxis and Partners in Change, non-profits which look at corporate accountability and business responsibility.

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