What is Inclusive Business?
The term Inclusive Business, initially coined by the World Business Council for Sustainable Development (WBCSD), is widely defined as “profitable core business activity that expands opportunities for the marginalised and disadvantaged”.
Inclusive businesses find profitable ways to engage low-income segments into their business operations in a way that benefits these communities and creates sustainable livelihoods. Companies engage this segment as employees, suppliers, distributors or consumers.
In a new report, Corporate Citizenship analysed a number of multinational companies’ Inclusive Business models (interventions across the entire value chain) focusing on emerging and developing markets.
SOURCE contributor, Rosie Helson takes an inside look at the report, digging deeper into how companies can start incorporating Inclusive Business practices into what they do.
This article focuses on:
- Emerging market consumers – an arena ripe for Inclusive Business
- The research – benefits of the Inclusive Business model for corporates
- CASE STUDIES – Uniqlo & Interface
- The challenges – funding, regulation and marketing
- The role of partnerships – understanding local contexts
- Opportunities for integrating Inclusive Business models – The 10 Steps
Emerging market consumers – an arena ripe for the Inclusive Business model
In many developing countries there is an emerging consumer class that has moved out from the markets; coined as ‘Base of the Pyramid’ (BOP), this customer segment holds great potential for today’s companies. Also pushed by increasingly competitive business in the Western world, many companies are strengthening their focus on emerging and developing economies. Of course, another push factor is that stakeholder groups are challenging companies more than ever over the extent to which they actually spread social and economic opportunities.
Research shows benefits of profitable, scalable Inclusive Business practices for corporates
The research has shown that Inclusive Business models have spread opportunities to poor and disadvantaged people through job creation, regular income generation, connection to markets, access to education and training, as well as access to finance. Due to the often complex and multi-faceted supply chains associated with the global fashion industry (indeed, even associated with a single garment), there is something to be garnered from these business models.
In-depth interviews were conducted with SABMiller, Heineken, Nestlé and Interface, as well as intermediaries like the International Finance Corporation (IFC). Research was also undertaken into retail company UNIQLO. Further recent investigation shows that there are not many examples of profitable, scalable Inclusive Business heralding from the corporate fashion industry, indicating that there could be challenges to be addressed in this arena as well as fantastic opportunities. Having said that, there are a few great examples that can relate to the fashion industry.
Case Study 1 : UNIQLO
UNIQLO launched a social business in 2010, together with the Grameen Bank Group, the biggest microcredit institution in Bangladesh. The social business is conducted entirely within the country from production to sales. Engaging low-income populations in the planning, manufacturing and distribution processes, UNIQLO has launched a product line of T-shirts.
The T-shirts are distributed and sold by ‘Grameen Ladies’ – women who are working towards financial independence through loans from Grameen Bank. The women sell the T-shirts through door-to-door sales in low-income rural areas, with all profits being reinvested in the social business. The project is targeting the production and sale of one million T-shirts and the creation of 1,500 jobs within three years.
Case Study 2 : INTERFACE
Another interesting example is from Interface, the world’s largest designer and maker of carpet tile. Although not in the fashion retail sector, many of the textile supply chain model operations are similar. Interface launched the initiative Fairworks in India. Fairworks sourced locally available and sustainable materials and worked with local female artisans to produce flooring tiles for consumers in developed markets.
As such, the project managed to fuse textile and market knowledge with traditional design. Through a partnership with the local NGO Industree, Interface provided access to education and training for the artisans.
Launched in the midst of the financial crises, the product line was not as commercially successful as originally anticipated. However, significant benefits for Interface included positive reputational impact strengthening the brand, as well as differentiation from competitors. Inclusive Business is a learning experience, and Interface is continuing its commitment to develop innovative Inclusive Business models.
Many more examples from outside of the fashion sector can be found in the report.
Assessing the challenges to Inclusive Business – funding, regulation and marketing
One reason for the lack of Inclusive Business models found in the multi-national fashion sector may be the perception of challenges associated with such models. Inclusive Business is a young and growing sector and the landscape around it is quickly developing. Funding is one potential challenge to its growth. However, the emergence of a growing social investment landscape is opening up opportunities to finance Inclusive Business models through development agencies, foundations and international organisations.
Other potential challenges are associated with regulatory issues and local marketing and distribution channels. For example, it may be that local TV and internet access is limited and as a consequence, marketing has to take an alternative format via radio and grassroots organisations. This type of insight can be aided through partnership development.
The role of partnerships in Inclusive Business models – understanding local contexts
“Joining forces with civil society and the private sector, including non-traditional players, like the fashion industry, has become indispensable.” -Ban Ki-moon Secretary-General, United Nations
While leading businesses are increasingly looking at how they can profitably address societal problems and development challenges through their core business activities, the public and non-profit sectors are taking on more market-based approaches to these challenges. Never before have so many partnerships between the private and non-profit sector taken place.
The management consulting firm Accenture recognises this changing landscape in the report ‘Convergence Economy’ (2011). It forecasts that by 2020, high-performing businesses, NGOs and development agencies “will have developed an ability to collaborate seamlessly with a set of non-traditional partners that spans today’s sectoral boundaries”.
The United Nation’s International Advisory Committee is a consortium of organisations which includes the Ethical Fashion Initiative. Although focusing upon microenterprises, it is one platform that may help to address the challenges associated with the establishment and wider progression of Inclusive Business models in the global fashion sector.
Based on the report findings, Corporate Citizenship advises that businesses cooperate with local partners who have a deep understanding of market conditions, as well as insights on consumer needs and behaviour.
It has been proven to be worth investing in understanding the local market context. A valuable approach can be to tap into local networks to gain market understanding, both at the product development stage and throughout the process of identifying marketing channels and distribution methods.
Opportunities for integrating Inclusive Business models – The 10 Steps
Whilst many smaller and boutique ethical fashion businesses are making use of business opportunities in emerging economies, more can be done by the larger brands.
Corporate Citizenship’s research shows that the opportunities presented by Inclusive Business for global companies are significant. It can drive product and service innovation, provide access to new markets or new customer segments, help differentiation from competitors and strengthen brand reputation.
With regards to supply chain, benefits include cost reductions and secured access to critical raw materials. In addition, by contributing to local economic growth, the company strengthens its license to operate in the country and facilitates positive relations with key stakeholders such as the government and local authorities, ensuring a long-term presence in the market.
Similarly, Inclusive Business models have considerable socio-economic impacts in developing markets, spreading opportunities through job creation, regular income generation, connections to markets and access to education and training.
In light of these opportunities, Corporate Citizenship has identified 10 steps companies can take when exploring and building Inclusive Business models. For example, companies should evaluate the socio-economic impact of their operations in a given market, with the aim of identifying where social and economic benefits could be further enhanced across the value chain.
Companies should focus on their core competencies and strengths, identifying where they can be applied to address societal and development challenges through the core business. In addition, it is crucial to get senior management on board at an early stage as well as deciding on the commercialisation of the business model. Corporate Citizenship believe there is great potential for companies to leverage the skills and expertise of company CSR departments, to develop and test innovative ideas and business models.
Corporate Citizenship’s research shows that, when companies get it right, Inclusive Business is a successful growth strategy for operating and expanding in emerging and developing economies. It is the next frontier for sustainable businesses looking to take traditional corporate responsibility to the next level.
Inclusive Business is profitable and scalable. Now is a great time for the fashion sector to embrace this. Fashion businesses have been shown to help alleviate poverty and typically require little capital to set up in industrialising economies.
The research described here deliberately focused on multinational companies with headquarters in the developed world and operations in developing markets. While societal and development challenges are most pressing in these markets, it is believed that there is also great potential to develop Inclusive Business models in the developed world, involving marginalised people in the value chain.
It is hoped that this report will further contribute to the Inclusive Business debate and provide inspiration for the private, public and non-profit sectors interested or active in the field. The fashion sector could and should be locking into the powerful potential of Inclusive Business.