CEME Inclusive Commerce Blog Hosted by the Center for Emerging Market Enterprises (CEME), The Fletcher School

15Feb/11Off

A Primer on Inclusive Business

Posted by Shikhar Bhattarai

When I first heard about Inclusive Business, I immediately realized how “Fletcheresque” of an idea this was – multi-disciplinary in terms of business and development, cross-sectorial in terms of actors and stakeholders, and producing a two-fold outcome in terms of financial and social rewards. In other words, a new type of business model for Multi-national Corporations (MNCs) which engages not only the traditionally affluent and the top and middle of the economic pyramid but also focuses on the poor and the bottom of the pyramid (BOP) to make profit and deliver social change is Inclusive Business. Originally coined by the World Business Council for Sustainable Development (WBCSD) and SNV, a Dutch International Development organization, the term has now become ubiquitous among all of the major international organizations, development consultancies, NGOs and civil societies. As much as the buzz-word has spread like wild fire, so has the related research, incubation and piloting initiative by major MNCs throughout the world.

Inclusive Business model promises to be fundamentally sustainable than what critics would consider as just a ‘fad’. Reasons are simple. As any core course in business would teach (Professor Jacque’s Corporate Finance course at Fletcher for instance) the basic objective of a corporation is to make profit and sustain its free cash flow for as long possible. Inclusive Business model is not just a philanthropic activity for a firm’s corporate social responsibility (CSR) initiative, but it vows to be bigger and better, and most importantly, profitable and sustainable. Compared to a philanthropic activity which would increase and decrease during economic upturn and downturn, an inclusive business isn’t just a “step child” that can simply be cutoff during harsher times. Inclusive Business is a model in which a project or a firm is built on, based on the inclusion of BOP as a part of the value chain – whether it be through directly employing low-income individuals, partnering with low income suppliers and entrepreneurs or by offering affordable goods and services to the BOP market.

While Inclusive Business promises wonders, it is definitely not free of challenges and shortcomings. Firstly, Inclusive Business model adoption means exposure to unknown political and social risks and, as we have seen time and again that this is a tough nut to crack for MNC’s. Secondly, measuring impact of these types of projects is cumbersome, often times subjective and hence no one standard has been agreed upon yet. Without a proper impact assessment method, returns from investing in an Inclusive Business are not properly quantified. Thirdly, company indices and ratings that go beyond the bottom line is still in its infancy and not common across industry.

Realizing these shortcomings, international organizations and aid agencies have actively partnered with MNCs and other state and non-state actors to promote these models. For instance, United Nations has incorporated Inclusive Business models as ways to achieving several of the Millennium Development Goals. In general, advocacy to adopt these models by businesses throughout the world has increased many folds in recent years. However, as long as impact remains only as an asterix (*) in the footnotes of financial proformas, the potential of this model will only be overlooked.  Particularly, executives often fail to look beyond the model’s idealist social impact, which they believe is not-aligned with their firm’s goal. As a result, the golden opportunity of an Inclusive Business to partner with the hardest working individuals and to reach newer and larger markets, obvious dream targets for any businesses, is also largely overlooked.