Friday August 16 2013
The big question that us development professionals who are working at the intersections of development and business faces today is whether private sector led growth can be inclusive and socially responsive. Our experience on that count is mixed.
Businesses obviously promote economic growth, jobs and other associated social benefits. However, the business models generally tend to target areas and groups which are near market, and which makes business sense for corporations involved. Businesses primarily (and rightly so) watch out for lowering their transactions costs which essentially means working with bulk suppliers and working with those with the necessary wherewithal. That approach targets easier to reach segments and markets wherein large traders / big farmers dominate. The businesses remain confined to generally semi-urban areas with good transportation and telecommunication network. Nonetheless, there are huge untapped markets exists wherein small holders are both producers and consumers..
There are examples where business channels are devised so as to targets small holders in far flung rural markets. Such businesses also makes commercial sense and are both inclusive and socially responsive. Based on my experience supporting private sector initiatives for growing their businesses through inclusive business models, I summarise here the following six ways in which private sector development can become more inclusive, equitable and socially responsive:
- The Intent matters: The agri-business /agriculture sector offers enormous opportunities for both big corporations and small scale processors /traders /exporters to link up with large number of small holders in a profitable supply chains. The policy is generally becoming more and more supportive of private sector initiative for direct farm engagements. Millions of producers and consumers market is awaiting proper response and link up with the mainstream corporate sector in a 'win-win' sort of way...the case rests with the private sector in terms of devising the intent and then implementing that intent sincerely. It can be done profitably, not in the short term, but in the long haul.
- The channel thinking is critical: Some of the private sector organisations have identified farmer producer companies as an important channel to purvey their products through to large number of shareholders of these companies. Similarly India is endowed with large number of semi-skilled youth with enough entrepreneurial zeal to become channel partners for corporations. That kind of 'channel thinking' is critical (and is missing in most corporations) to target vast rural markets for current and future businesses of large corporations. If you understand this and many other suitable channels, then you are ready for being profitable and impactful businesses...
- Intensity can not be lesser in these seemingly difficult markets: Generally corporations tends to consider rural markets and inclusive models as not their primary considerations and so they tend to focus less sincerely on that as the mainstream channel of their businesses keep providing them enough sustenance currently. However the more noble, forward looking and in a way futuristic corporates venture into these markets with utmost business and developmental sincerity. This essentially means that there are no short cuts and the process has to be as or more intensive then operating in urban /higher segment markets. Clearly no way, an inclusive business model can succeed with 'light touch' way of operating. When the intensity comes down, generally the light goes out of the business models
- It need upfront investments - the key is to maintain balance between CSR and business objectives: Every business that succeed is on the basis of its commercial positioning. As the saying goes, doing good while doing well is a tricky phenomenon. The business proposition has to be on the forefront for making the model commercially viable while CSR interest has to be on the forefront for willing to work with bottom of the pyramid (and their issues). The twin interests can certainly be met with a strategic proposition wherein the patient capital for business model creation for the BoP segment comes from the CSR funds and when the business becomes commercially viable, it becomes part of the mainstream of commercial operations of the corporation. Ideally the CSR funds should not be utilised at all in a business model creation and sustenance process. However the toughness of prevailing conditions for targeting rural small holders segment is such that in some cases it is strategic philanthropy to create business models within a couple of years through CSR funds...the impact of such models will be deep, self-sustaining and replicable
- Engage an honest broker / development organisation to steer the process: Corporations can do it themselves, given the intent, channel, intensity and resources as suggested above. Engaging a development organisation as a conceptualiser and facilitator can be immensely useful as the experience shows. More so from the point of view of ensuring success of the business model (as the accountability of the facilitator can be defined as such) and also for ensuring inclusion aspects (as that is the mandate of the development organisation). Such an engagement brings on board intelligent thinking and divergent approaches for successful execution.
- Change the mind-set - Get out of input-output logic: Finally the most important mind set change that needs to happen for corporations to successful create ventures of inclusive businesses is to get out of their two dimensional mind set. Every input in the initiative will not necessarily give rise to an output and sometime lots of inputs may result in nothing and sometime a series of small inputs can create stupendous success. Clearly creating such business models is complex not easily confined to assembly line or two dimensional matrices often used by corporates to measure success. If a seed a given, the farmers will not so easily start growing seedless watermelon! It requires a process of joint discovery, implementing / learning together and constantly enriching the design of the business model to make it a success.
I think there is possibility of integrating CSR within core business strategy, that would support to purse inclusive business.
Agree Jitesh. CSR funds sometimes are a necessity to get the inclusive business model started esp. when corporates work with the Base of Pyramid in their supply chains, however ultimately it should make perfect business sense for corporates to engage directly with farmers and farmer organisations. Perpetual dependence on CSR may prove to be counter-productive..