Inclusive business model

An inclusive business model is a commercially viable model that benefits low-income communities by including them in a company’s value chain on the demand side as clients and consumers, and/or on the supply side as producers, entrepreneurs or employees in a sustainable way.[1] The concept was first formalized in an early United Nations report called Creating Value for All: Strategies for Doing Business with the Poor (2008) published by the Growing Inclusive Markets Initiative and guided by an Advisory Board consisting of leaders in the field such as the International Business Leaders Forum, the International Finance Corporation, key bilateral donors (USAID and AFD), the World Business Council for Sustainable Development, University of Michigan and Harvard Business School.

Inclusive business models build bridges between business and the poor for mutual benefit. The benefits for business go beyond immediate profits and higher incomes. For business they include driving innovations, building markets and strengthening supply chains. And for the poor they include access to essential goods and services, higher productivity, sustainable earnings and greater empowerment.

The businesses that create and use these innovative models range from multinational corporations to large domestic companies, co-operatives, small and medium-sized enterprises, or even not-for-profit organizations that use business principles—or social business approaches—to achieve their mission. [2]

Inclusive business is not corporate philanthropy or corporate social responsibility, which have inherent limitations of scope, impact and budget. Rather, it is the search for sustainable business models that "do well by doing good" and are part of the companies’ core business activities - the key to business having development impact at scale.

Criteria

Inclusive business models can be developed and implemented by a wide range of entities, from private corporations (large and small), to state-owned companies, co-operatives, or even not-for-profit organizations, as long as the following criteria are met:

Additional criteria that can be considered are:

Many examples of inclusive business models have been documented by the United Nations Development Programme and made available on an online searchable database.

Benefits for business

Benefits for the poor

Businesses can improve the lives of poor people, contributing broadly to what the United Nations terms ‘human development’—expanding people’s opportunities to lead lives they value.

As such, inclusive business models can make a significant contribution towards meeting the Millennium Development Goals (MDGs).[4]

Constraints

Although opportunities are great, many businesses are not taking advantage of them because market conditions surrounding the poor can make doing business difficult, risky and expensive. Where poverty prevails, the foundations for functional markets are often lacking, excluding the poor from meaningful participation and deterring companies from doing business with them.

The United Nations Development Programme, in a report titled “Creating Value for All: Strategies for Doing Business with the Poor” (2008), identifies five major market constraints and successful strategies to overcome them:

Success factors

Despite these challenges, a growing number of businesses are operating successfully in poor markets. To do so, they use five core strategies:[5]

Restructuring business processes can be as important as using new technologies. For example, the global spread of telephony is driven by wireless technology. But bringing mobile telephone service to poor people has depended partly on a change in the business process—the move to selling air time on prepaid cards. With ‘smart’ payment and pricing methods, an inclusive business model can accommodate the cash flow of its customers and suppliers, who are constrained by low and unreliable incomes and a lack of access to financial services.

Businesses can also rely on demonstration effects or engage collectively to inform public policy and promote effective regulations in developing countries. Since business engagement in policymaking can be controversial, companies and policymakers need a space to engage in frank yet transparent dialogue about how to improve the business environment. Collaborative efforts can open such a space. Companies operating in the same industry or region often share policy interests. And if they are doing business in ways that contribute to economic opportunity and human development, organizations outside the private sector may have complementary policy interests. Where business models are inclusive, collective action can give businesses a strong and legitimate voice in policymaking.

References

  1. UNDP (United Nations Development Programme) (2008). Creating Value for All: Strategies for Doing Business with the Poor. New York: UNDP.
  2. UNDP (United Nations Development Programme) (2010). The MDGs: Everyone's Business. New York: UNDP.
  3. "World Development Indicators Database 2007". The World Bank.
  4. . UNDP. 2010. Missing or empty |title= (help)
  5. . UNDP. 2008. Missing or empty |title= (help)

Further reading

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