Can Business Succeed In Eliminating Poverty Where NGOs Have Failed?
Poverty reduction until the late 1990s was the exclusive realm of Aid agencies and NGOs. Business input was allowed via monetary donations only, with business and poverty being kept apart like naughty children – spending time together would only make the other worse.
Now, however, representatives of big business come out with once unthinkable statements, such as: "We want to pursue commercial ambition but at the same time pursue an ambition that also drives positive change in the economies in which we operate", from Norah Odwesso, Coca-Cola's public affairs director for east and central Africa. Or Indra Nooyi, CEO of Pepsico, whose stated desire is to explore and develop "innovative business models that are economically viable and good for development".
Profit has steadily ceased to be a dirty word since CK Prahalad and Stuart Hart wrote the Fortune at the Bottom of the Pyramid (BOP) in 2002. With it they introduced a concept that the 4 billion people earning less than $1,500 a year represented a $5tn global market – a massive growth opportunity for business which could in turn bring products to alleviate poverty from improved nutrition to energy efficiency and sanitation.
Olivier Kayser, a former senior partner at McKinsey before setting up his own social innovation consultancy Hystra, explains: "there was a realisation that we won't be able to build sustainable, scalable models without the involvement of big business ... corporate social responsibility (CSR) was basically about paying your dues, not causing damage but also not necessarily feeling responsible for solving problems either."
Kayser began a project five years ago with a consortium including the oil firm Total to address access to energy in Africa. Choosing to focus on solar lamps – the clean, efficient alternative to the traditional kerosene lamps which cause hundreds of thousands of deaths a year – Kayser and his team found that "the reason why families are not buying them is that they are afraid of investing in new technology that they don't know – the old kerosene lamps are expensive, dangerous, but easy to fix. The question is one of perception of risk."
Total's brand and distribution network was ideally placed to address these issues. Using its network of 5,000 gas stations, Total could sell solar lamps with a guarantee that they could be returned to any of its gas stations if there was a fault. This, says Kayser, did "more to reassure consumers than any aid organisation could do" and saw Total become the largest distributor of solar lanterns in the region.
Another crucial difference between a business-centred rather than a philanthropic approach is that Total's lamps are sold at market value. Selling them cheaply would prevent competitors coming in, says Kayser. "It's product dumping. Their responsibility as a large player is not to use their power and deep pockets to look good for the media ... if they didn't make money, you prevent competition, there is no industry, and in the end the consumers won't be served well."
Plenty of examples abound of organisations moving away from CSR-style handouts towards targeting the BOP market. Royal DSM, a global leader in micro-nutrients and vitamins, teamed up with Jakarta-based social enterprise KeBAL in 2013 to provide nutritious, affordable meals through food cart vendors operating in slums. The business plan is to establish 10 KeBAL cooking centres serving 10,000 meals a day by 2015 plus a nutritional education programme for 20,000 households.
Ballarpur Industries Limited (BILT), the largest domestic producer of writing and printing paper in India and Malaysia, traditionally sourced its pulpwood from large plantations. Trials in 2006 to use smallholder farmers to boost regional development saw this become its major sourcing strategy: as of July 2011, 1,481 farmers planted 2,592 acres of trees, saving BILT $6.7 per ton on transportation costs from farm to mill, raising about 5,000 farming families out of abject poverty.
For every glowing report of an Ericsson Millennium Villages project or a Grameen Danone Foods, however, concerns still remain about businesses addressing BOP markets. Not all companies will be selling things as useful as solar lamps or nutrition supplements. The Tata Nano was heralded as bringing transport to the masses with the world's first $2,000 car, yet failed to meet even the most basic UN safety requirements.
Businesses targeting poor markets also face accusations of colonialism. The negative reaction from some quarters to a G8 initiative to tackle poverty through agriculture being a recent example. Putting agri-business at the table alongside government has led to accusations that big business is being favoured at the expense of small-scale farmers.
In the internet age, there are fewer places to hide irresponsible business practices. Motives are questioned and scrutinised at every turn. However, while CSR motives were subject to greenwashing tags, corporations may feel they are on safer – and familiar – territory when it comes to making money.
"There is suddenly the realisation that this easy division of the world between for-profit and not-for-profit was actually not working", argues Kayser. "Large corporations began to say, if you want us to do more than just respecting the law, and if you really want us to scale it up, then it needs to be profitable – otherwise we can't justify it to our shareholders."