Monday June 3 2019
Last time, I talked about the considerable potential for partnerships between corporates and impact enterprises. In this blog, I’ll focus on the undoubted challenges. Again, I’m building on several published sources, my own experience, and conversations with entrepreneurs, corporate staff and investors.
In the opening lines of Anna Karenina (“Happy families are all alike; every unhappy family is unhappy in its own way."), Tolstoy identified a category of problem that also applies to corporate/enterprise partnerships: they need to succeed in several key aspects and can fail if any of them are not in place. I’ve set out the main ones below, and welcome your thoughts and additions. Addressing these challenges requires trust, determination, flexibility, and open eyes, ears and minds on both sides.
- The reality is that relatively few tangible opportunities will exist for partnerships between a given set of MNCs and SGBs. Even if there is a problem on either side that can, in principle, be fixed by the other, the timing may not be right, if the opportunity it is recognised at all.
- SGBs can have unrealistic expectations of grant or investment funding from MNCs. In practice, it’s often difficult to unlock significant amounts of funding for early stage, experimental projects/collaborations, especially those that have a much longer timeframe to realising business benefit. One approach that has been shown to work well in the right circumstances is to use external sources of blended finance and impact investment to fund partnerships.
- Driven by expectations of continuous growth and improvement, global companies often have investment processes and IRR targets designed to focus their capital on opportunities that generate the highest returns in the shortest space of time. The risk and margin profiles of opportunities that target low-income markets, and the timescales needed to exploit them, mean that they are likely to survive this scrutiny without the right sponsorship and long-term view. And even when the appetite to invest exists, multinational companies may lack the market insight they need to identify, assess, and develop opportunities with the potential to create significant business and social value.
- MNCs and SGBs tend to operate on significantly different timescales. MNCs are risk-averse and have frequently tortuous internal approval processes. SGBs are time-poor and cashflow constrained, and often unable to devote enough attention or patience to the long process of designing and setting up a partnership with an MNC. To an extent, corporate accelerators or dedicated partnership teams within MNCs can help here by unblocking and brokering partnerships, although these teams can’t substitute for the local / in-country ownership of partnerships essential for success.
- While the energy and entrepreneurialism of SGB management teams can be refreshing and galvanising for MNC staff, the reality is that they come from different worlds, each with its own language and mindset. Building trust and respect across these divides takes time.
- Beyond corporate accelerators, there are relatively few opportunities for SGBs to get in front of the right people in MNCs. Conversely, there are few channels for MNCs to find promising SGB partners. MNCs often won’t talk directly to a partner until they reach a critical size / market penetration. They tend to work with third parties such as distributors or supply aggregators, and how SGBs integrate with these third parties can be critical to partnership delivery.
- Forming partnerships may not fit easily into the organisational structure and ‘day jobs’ of MNC staff, and functions such as corporate procurement may lack the requisite skills, vision, seniority or incentives to drive the partnership forward. Ownership and sponsorship may be concentrated in a small number of people within the MNC who move on, creating a need for new relationships to be formed.
- Procurement systems and standard legal templates often don’t fit well with the needs and scale of SGB partners, necessitating patience and creativity to adapt them.
- SGBs may need to manage multiple touchpoints within MNCs. For example, supply partnerships will need to be co-ordinated with supply chain / manufacturing teams, and distribution partnerships with sales / brand teams. It can be difficult for a small company to manage multiple relationships, and this is, again, where a dedicated partnerships team within the MNC, or at least a single point of contact with accountability for making the partnership work, can help.
- Impact-washing, which can be well illustrated by an example I stumbled on in Uganda. A large oil company made much of its partnership with a local farmers’ co-operative to supply fresh fruit and vegetables to its workforce. An impact audit uncovered that actual procurement was limited to one cabbage per month, with the oil company’s catering supplier preferring to stick to its established suppliers, many of them outside Uganda. On paper, it was a supply partnership. In reality, it was a con.
None of this is to suggest that corporate/enterprise partnerships aren’t worth pursuing. I hope that these two blogs help make it a little easier to find the right opportunities and pursue them with the right balance of optimism and realism.