1. Inclusive Business:
The Importance of Scale
Davide Fiedler, WBCSD
Inclusive Business: Solutions at Scale in India
Chennai, 6 October 2016
2. Background
The context of today’s world
• Slowing economic growth in developed world
BoP maybe world‘s largest untapped market; there is immense room for growth
• The Sustainable Development Goals (SDGs)
• Formulate vision of a more equitable world
• Emphasize notion of „leaving no one behind“
• Provide shared language and common framework for action
• Ackwnowledge role of business and explicitly invite business to contribute
• Innovation - Technology - Investment
4. Background
The status quo of inclusive business
Companies of all sizes have launched hundreds of inclusive business models…
only very few have reached scale so far.
„Perfect storm“ is forming for inclusive business
• Increasing value of corporate purpose & social impact
• Emergence of dedicated financing mechanisms
• Emerging conducive policies and regulations
• Enabling technology & digitalisation
Question now is not anymore „should we do inclusive business?“
but „How do we get better at doing this?“
5. Magnitude of challenges
Poverty in all its dimensions
Source: World Development Indicators
1,7 billion people lack
access to basic
healthcare
1,3 billion live
without electricity
1,1 don’t have
access to clean
water
3 billion people
live on less than 3
USD per day
6. Magnitude of opportunities
There’s a huge market
71
75
115
121
0
20
40
60
80
100
120
140
1990 2000 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mobile cellular subscriptions (per 100 people)
Sub-Saharan Africa South Asia Latin America & Caribbean Euro area
Source: World Development Indicators
People without access to
mobile services
South Asia
438 million
Sub-Sahara Africa
290 million
Unbanked adults
2 billion
38% of adults have no access
to basic financial services
and are excluded from the
formal financial system
Source: World Development Indicators
7. Graph from „The Next 4 Billion“
BoP has a combined spending power of
5 trillion USD per year
62% of
global
spending is
from BoP
Magnitude of opportunities
Spending power
8. It encourages innovation
From marketing to transportation to
product design, inclusive businesses find innovative
approaches to serve BoP customers. It’s a
competitive
advantage
Inclusive
businesses are early-
movers into untapped
BoP markets. They
enhance their brand
value and license to
operate by building their
reputation as a business
partner of choice.
It’s a supply chain strategy
Sourcing materials locally from small-scale
producers, inclusive businesses build stronger
and more productive suppliers and secure access
to local resources.
It expands the labor
pool
Inclusive businesses have
higher access to
appropriately skilled and
more cost-effective
employees. Better wages
and more secure
livelihoods contribute to
local economies.
Business case
Beyond the numbers
9. Conclusion
In a nutshell
Scaling up is...
• An attractive business strategy,
because of the magnitude of the business opportunities;
• A sustainable development imperative,
because of the magnitude of the challenges;
• Challenging,
Because business as usual won‘t work;
• Possible!
Good morning and also from my side, welcome to today’s session on inclusive business.
As you can see, today our focus in on scale… but what does it mean? Why are we actually talking about it?
Let’s take a few steps back, and look at the context of today’s world.
On the one hand, we witness slowing economic growth in the developed countries. Against this background, and acknowledging that the BoP may be the world’s largest untapped market, there is immense room for growth in THIS market.
On the other hand, we have the Sustainable Development Goals, that put forward the vision of a more equitable world. The notion of leaving no one behind, is – in my humble view – a call to action for inclusive business.
The SDGs also provide a shared language, and a common framework for action, inviting business to play a more active role in achieving the Global Goals.
Innovation, technology and investment are explicitly listed as strengths of the private sector in this regard.
It’s not a stretch to say, that this is aligned to WBCSD’s Vision 2050 where 9 billion people live well and within the boundaries of the planet.
If we take a quick glance at the history of Inclusive Business, we usually start in the early 2000s.
In 2002 economists Prahalad and Hart wrote a memorable article, later followed by a book, titled “The fortune at the bottom of the Pyramid”
The theory and practice of “selling to the poor” that emerged in that period, experienced criticism early on, and Stuart Hart revisited it, shifting the focus from the BoP merely as consumers, to business partners.
BoP strategy, or as the WBCSD coined the term in 2005 – inclusive business – would integrate the BoP on both sides of the value chain – supply and demand, it would provide income generating opportunities, while providing low-income populations access to services and products on a commercially viable basis.
We have since then seen an immense growth of research, knowledge and market intelligence related to inclusive business.
And with it, also the acknowledgement, that venturing into BoP markets is no easy task.
Papers analysing the challenges have been written, and sector-specific guides are on the rise, to guide companies into these markets, presenting the specific challenges and solutions that companies adopted so far. Which organisations provide support, who are potential partners, etc etc.
Last but not least, in the last 2 years we see a growing body of work on business strategies adapted to the BoP context. Stuart Hart‘s „Bop 3.0“ and Ted London‘s „The BoP Promise“ are two prominent examples. Both provide insights into business strategies for taking inclusive businesses to scale.
Companies of all sizes have launched hundreds of IB models, but experts all over agree: only very few have reached scale. Actually, too few have reached scale.
On the other hand, we see a perfect storm forming:
more and more consumers as well as (to a smaller extent) investors value corporate purpose and social impact.
There is a growing body of dedicated financing mechanisms (impact investing, inclusive business bonds, patient capital, challenge funds, etc)
So the question today is not anymore whether we should venture into the BoP with inclusive business models.
The question is HOW DO WE GET BETTER AT DOING THIS???
Someone will now ask: do we only need to get better at this because only few have had success so far?
Maybe. But let me highlight why we need to think big, why we need to think at scale right when we start setting up an inclusive business.
3 billion people live on less than 3 USD a day. Add 1.5 billion people who live on less than 9 USD a day, and you have a huge portion of the population defined as low-income. We are talking about 4.5 BILLION people.
The second main characteristic of the BoP is the lack of access to services and products that cover even the most basic needs of a decent livelihood:
Health
Affordable and clean energy
Clean water and sanitation
If you don’t recognize these challenges as big opportunities, we can try some charts that look less like development language as well.
Here’s for example the number of mobile cellular-subscriptions per 100 people in different regions.
Do you know that 2 billion adults don’t have a bank account or any other access to financial services?
Last but not least, if I still haven’t convinced you, here are the spending patterns of the BoP. The market is estimated to hold 5 trillion USD per year.
46.5% of what low-income households spend, is on Food and Beverages; 10% on Housing, 6% on Energy
-> do you think we can solve these challenges with pilots and island solutions? Are we being smart about inclusive business?
-> do you think we are taking full advantage of the opportunities the market is presenting?
There are also reasons beyond the numbers.
inclusive business encourages innovation all along the value chain
It will help expand the labor pool
And strengthen and secure the supply chain
Last but not least, it’s a competitive advantage.
To wrap it all up:
We have seen in the last slides, that scaling up is actually an attractive business strategy. Because of the magnitude of business opportunities.
Sacling up is a development imperative. If we want to achieve the SDGs, there is no way around scaling up. Island solutions will not be enough. Projects and pilots will only take us a few steps forward, but the destination of these first steps is impact at large scale.
We know scaling up is challenging, that’s one of the reasons we will discuss some of these challenges today.
But we know that it is possible!
So, without further adue, I hand over to Berry who will lead us through the panel and some insights on how scale can be reached.
