CREATING VALUE FOR ALL: STRATEGIES FOR DOING

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EXECUTIVE SUMMARYC R E AT I N G VA LU E F O R A L L : S T R AT E G I E SFOR DOING BUSINESS WITH THE POOR iGrowing Inclusive MarketsBusiness Works for Development Development Works for BusinessUnited Nations Development Programme

United Nations Millennium Development Goals12345678Goal 1: Eradicate extreme poverty and hungerGoal 2: Achieve universal primary educationGoal 3: Promote gender equality and empower womenGoal 4: Reduce child mortalityGoal 5: Improve maternal healthGoal 6: Combat HIV/AIDS, malaria, and other diseasesGoal 7: Ensure environmental sustainabilityGoal 8: Global partnership for developmentCREATING VALUE FOR ALL: STRATEGIES FOR DOING BUSINESS WITH THE POORJuly 2008The United Nations Development Programme (UNDP) would like to acknowledgethe contributions of partner organizations to “Growing Inclusive Markets”.Each partner organization is contributing in different ways and the views andrecommendations expressed in this report are not necessarily shared by each ofthose partner organizations. Further, the views and recommendations expressed inthis report do not necessarily represent those of the UN, UNDP or their MemberStates. The boundaries and names shown and the designations used on the heatmaps do not imply official endorsement or acceptance by the United Nations.Copyright 2008United Nations Development ProgrammeOne United Nations Plaza, New York, NY 10017, USAAll rights reserved. No part of this publication may be reproduced, stored in aretrieval system or transmitted, in any form by any means, electronic, mechanical,photocopying or otherwise, without prior permission of UNDP.Design: Suazion, Inc. (NY, USA)Production: Scanprint (Denmark)

FOREWORD FROMT H E A D M I N I S T R AT O RThe Growing Inclusive Markets Initiative, launched in2006, embodies UNDP’s strong conviction that the private sector is a greatuntapped resource for investment and innovation to achieve the MillenniumDevelopment Goals.The initiative was inspired by 2004’s Unleashing Entrepreneurship: MakingBusiness Work for the Poor, a report prepared by the UN Commission on thePrivate Sector and Development at the request of then-UN Secretary-GeneralKofi Annan. The Commission suggested that UNDP issue further reports toclarify how businesses are creating value in the difficult market conditions thatso often characterize poverty—and how, in the process, they can also createvalue for the poor.This report, the first in a series, advances UNDP’s efforts to turn theinitiative’s ideas and analysis into action through a dialogue with the privatesector, government and civil society. It is the product of research based on50 case studies, writing and reviews by a network of developing countryacademics and a diverse advisory group of institutions with expertise in theprivate sector’s role in development.Unleashing Entrepreneurship showed that, under the right marketconditions, the private sector can alleviate poverty and contribute to humandevelopment in many ways. In a market economy, firms and households interactwith each other and with the government. Taking risks, they earn profits andincomes that fuel economic growth. The economy’s power to generate decentjobs depends largely on the private sector’s vitality. And the private sector, bysupplying consumer goods and services, brings more choices and opportunitiesto the poor.The private sector’s effectiveness in fostering development depends,however, on the strength of the state and on the quality of political, socialand economic institutions. A strong state with enough human, financial andi

institutional resources can ensure that a marketeconomy gives private agents the incentivesto expand their productive capacity and touse it well. The State must also be able toensure fair competition as well as redistributionof income—market outcomes are not alwayspolitically or socially acceptable. There isalso the critical need for providing socialprotection, supporting the most vulnerableand strengthening their capacity to sustainproductive livelihoods. UNDP’s approach isto emphasize developing the private sectorwhile targeting the parts of it that promotepro-poor growth—augmenting the choicesof the poor by providing them with goodsand services or by offering them incomegenerating opportunities and decent work.Business and market approaches aloneare no panacea for tackling poverty. Themany dimensions of poverty require diverse,context-specific solutions. Many poor peoplecan benefit from better access to markets ifthey have at least a few assets—land, health,education—or a small income to build on.But others, with virtually no assets, areill-equipped for the marketplace. Theyneed targeted support to help them buildsustainable livelihoods and benefit frommarket interactions.How does the private sector helpmarkets include the poor? Partly by creatingand diffusing innovations. Basic science andmajor technological enterprises may receivesupport from governments, but a competitiveeconomy gives entrepreneurs and businessesstrong incentives to create and applyinnovative technologies and processes.And diffusing new models and businesspractices is central to productivity growth.The power of poor people to benefitfrom market activity lies in their ability toparticipate in markets and take advantageof market opportunities. What can the statedo to increase that ability? It can help poorpeople develop their human capital (health,education and skills). It can also provideinfrastructure and basic utilities and ensurethat the poor are legally empowered.This report focuses on what the privatesector can do to include the poor in businessas consumers, employees and producers.iiC R E AT I N GVA L U EF O RA L L :S T R AT E G I E SBuilding on UNDP’s track record ofadvocating for change and connectingcountries to knowledge, experience andresources to help people build a better life,the report starts with the markets of thepoor. It shows the challenges of doingbusiness where markets suffer from a lack ofinformation, infrastructure and institutions.But it also shows how businesses deal withthese challenges—by devising inclusivebusiness models that join business and thepoor to create value for all.Much work in this area has so farfocused on large multinational firms.This report puts the work of small, mediumsized and large enterprises in developingcountries on an equal plane. Certainlymultinationals can lead others by example.With their influence, global reach andresources, they can effectively scale up andreplicate successful business models. But asUnleashing Entrepreneurship showed, smallerbusinesses also have much to teach us aboutstrategies that work. And they create most ofthe jobs and wealth required to meet theMillennium Development Goals.Business cannot stand alone, however.This report suggests that businesses—withgovernments, civil society and the poor—can build the foundations for new markets.Governments must unleash the power ofbusiness by improving market conditionswhere poor people live and removing barriersto their economic participation. Not-for-profitorganizations, public service providers,microfinance institutions and others alreadyworking with the poor can collaborate andpool resources with businesses to help seizeopportunities. Donors can facilitate dialoguesbetween businesses and governments orother partners. Socially minded investorsand philanthropists can supply the funds tomake these time-intensive and uncertainventures possible. Business models thatinclude the poor require broad support,but they offer gains for all.Kemal DervişUNDP AdministratorF O RD O I N GB U S I N E S SW I T HT H EP O O R

CONTENTSABOUT THE INITIATIVE AND ITS RESEARCH1ACKNOWLEDGEMENTS7OVERVIEWBOXESBox 1Box 2Box 3Box 4The Growing Inclusive Markets Initiative Advisory Board 2Case studies prepared for the Growing Inclusive Markets Initiative 5What are inclusive business models? 14Inclusive business models and the Millennium Development Goals 24FIGURESFigure 1 Market heat map for access to credit in Guatemala 15Figure 2 Growing Inclusive Markets strategy matrix 20Figure 3 Growing Inclusive Markets strategy matrix and summary of solutions 2213

ABOUTT H E I N I T I AT I V EAND ITS RESEARCHCape Verde: Localbusinesses—from smallscale fishers to largenational companies—are the main focus ofthis initiative.Photo: UNICEF/JuliePudlowskiThe Growing Inclusive Markets Initiative responds to a needfor better understanding of how the private sector can contribute to humandevelopment and to the Millennium Development Goals. Led by UNDP, theinitiative was conceived in 2006 after the success of Unleashing Entrepreneurship:Making Business Work for the Poor—the 2004 report of the UN Commissionon the Private Sector and Development, prepared at the request of then-UNSecretary-General Kofi Annan.The initiative’s broad aims are: Raising awareness by demonstrating how doing business with the poorcan be good for poor people and good for business. Clarifying the ways that businesses, governments and civil societyorganizations can create value for all. Inspiring the private sector to action.1

Box 1. The Growing Inclusive MarketsInitiative Advisory BoardThe Advisory Board has formed the core ofthe Growing Inclusive Markets Initiative.Its guidance, insights and inputs have beeninvaluable to the initiative and to this report.§ Agence Française de Développement§ Business for Social Responsibility§ Dalhousie University, Faculty of Management§ ESSEC Business School, Institute for Researchand Education on Negotiation in Europe§ European Foundation for ManagementDevelopment§ Global Development Alliance, United StatesAgency for International Developmentthe needs and interests of those partners.Thus, the initiative’s advisory group comprisesdiverse institutions with an interest in theprivate sector’s development role—includingleading international development agencies,global business organizations representinghundreds of companies and experts fromwell-known research institutions operatingat the interface of business and development.By disseminating its research findingsand analytical tools, the initiative helpsbusiness leaders, policymakers and otherdevelopment practitioners—especially indeveloping countries—support businessmodels that include the poor.Five principles guide the initiative’s work: Core business emphasis. The initiativepromotes business models that createvalue by providing products and servicesto or sourcing from the poor, includingthe earned income strategies of nongovernmental organizations. It doesnot consider activities that are purelyphilanthropic or that cannot prove tobe or become commercially sustainable,even though they have their ownbusiness rationales and are importantfor development. Developing world focus. The initiativeis particularly interested in developingcountry businesses as central actorsin providing goods, services and jobopportunities to the poor. To sharpenthis focus, the Growing InclusiveMarkets Initiative commissioned 50 casestudies of companies from researchersand academics in countries from Peruto Kenya to the Philippines. Thisbottom-up process, anchored in localknowledge, is producing an ever-growingnetwork of development practitioners,policymakers, business people and civilsociety actors. Human development framework,guided by the Millennium DevelopmentGoals. Human development expandspeople’s choices to lead lives that theyvalue. This understanding of poverty§ Harvard Business School,Social Enterprise Initiative§ Harvard Kennedy School,Corporate Social Responsibility Initiative§ Institute of Business, University of West Indies,Trinidad and Tobago§ International Business Leaders Forum§ International Chamber of Commerce§ International Finance Corporation§ Johnson Graduate School of Management,Center for Sustainable Global Enterprise,Cornell University§ Overseas Development Institute, Programmeon Business and Development Performance§ Special Unit for South-South Cooperation,United Nations Development Programme.§ United Nations Foundation§ United Nations Global Compact§ University of Michigan, Ross School of Business,William Davidson Institute§ World Business Council for SustainableDevelopment§ World Economic Forum§ World Resources InstituteUNDP resolved from the outset tocreate a multistakeholder, open process,involving as wide as possible a range ofpartners, which could constantly evolve with2C R E AT I N GVA L U EF O RA L L :S T R AT E G I E SF O RD O I N GB U S I N E S SW I T HT H EP O O R

guides the work of UNDP, which hasexplored and applied the concept ofhuman development since 1990 in itsannual Human Development Report.The initiative also applies a humandevelopment framework to doingbusiness with the poor, concentratingon meeting basic needs and providingaccess to the goods, services and earningopportunities that foster economicempowerment. It shows how the privatesector can contribute to achieving theMillennium Development Goals. UNDP’s Egypt Country Office hasalready published a national reporton ‘Business Solutions to HumanDevelopment’ and fostered a multistakeholder dialogue at the local level. Local agenda. The initiative is explicitlymodeled on UNDP’s success in localizingits Human Development Reports to shapenational agendas and promote policychanges in countries around the world.Partnership and multistakeholderapproach. The initiative has a multisector, networked approach and acommitment to involve many partnersfrom different backgrounds—fromthe academic world to the developmentcommunity to business associations—whoare leaders in business and developmentthought. In this spirit, the information,analysis and tools generated by theinitiative will all be published online,to be discussed and supplemented byinterested parties. RESEARCH TOOLSAmong the immediate objectives of theGrowing Inclusive Markets Initiative is tocreate an initial set of data, information andanalytical products that will