130214 ADB IB Workshop - Introduction to IB Models_v14 - Comments Armin

7/29/2019 130214 ADB IB Workshop - Introduction to IB Models_v14 - Comments Armin

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An introduction to inclusive business models

ADB-IDB Inclusive Business Workshop

Tokyo, Feb-Mar 2013

DRAFT - WORK IN PROGRESS


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What is an inclusive business?

DRAFT-WORK

INPROGRESS


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Are these inclusive businesses?

Source: Coca Cola case study from the Global Compact Network and Kennan Institute Asia; Nike case study courtesy internet med ia reports; Nestle case study courtesy ADB market scoping; Dalberg

research

Coca Cola is a major consumer of water

resources in Vietnam, leaving it open to

criticism, consumer boycotts and brand risk

Coca Cola invested USD 100,000 in the

Clean Water for Communities project to

provide clean water access to schools and

communities in 3 Vietnamese districts

The project resulted in a more positive

brand image for Coke, and broadly positive

press coverage

The project also provided access to clean

drinking water to 10,500 students and 1,000

families

Now with the clean water project, we benefit

from clean qualified water. We are so happy; we

can use it directly for cooking and drinking.

There are two fountains, one for cooking and

drinking and another one for cleaning.

Beneficiary villager in Dao Xa Village

Nike experienced hyper competition and

falling demand, causing significant pressure

to increase margins through cost savings

As a result, Nike decided to sub-contract

product manufacturing to secondary

manufacturers in emerging markets such as

Cambodia and Vietnam

Benefits to Nike included cost savings due to

reduced wages, as well as reduced capital

expenditures

Low-income workers receive employment,

and small businesses get integrated into a

global supply chain, resulting in higher

quality and standards

25% of Nestles global revenues are

generated from coffee exports from

Vietnam; investing in capacitating coffee

farmers is imperative to secure a steady and

robust supply of beans

Nestle directly purchases coffee beans from

farmers; additionally, to increase farmer

retention, Nestle provides important

technical training and assistance to promote

sustainable agriculture

Nestle was able to expand its supplier base,

and secured the supply of high quality beans

Benefits to the farmers included higher

yields, better prices, and increased access to

training and finance

COCA COLA NIKE

The facts on the ground suggest there are still

enormous problems with these supply chains

and factories ... what is Nike doing to change the

picture and give workers more rights?.

Michael Posner, Human Rights First

NESTLE

Nestles plans, [of] improving post-harvesting

techniques like drying, are a good step in

promoting economic stability. If these are

addressed successfully, then the investment could

be very positive for Vietnamese coffee producers.

Pablo Dubois, International Coffee Organization

How can we tell?

DRAFT-WORK

INPROGRESS


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What are inclusive businesses?

Source: 1ADB definition of BoP; Dalberg research

DRAFT-WORK

INPROGRESS

PROFIT-MAKINGBUSINESSESTHATENGAGETHE BASEOFTHE PYRAMID (BOP) AS

SUPPLIERS, EMPLOYEES, DISTRIBUTORSANDCONSUMERS, INAMANNERTHATRESULTSINA

MEASURABLEIMPROVEMENTINLIVINGSTANDARDSOFTHOSEPOPULATIONS,

CONTRIBUTINGTOASYSTEMICREDUCTIONOFPOVERTY.

DEFINITION


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Who are inclusive businesses attempting to include?

BOP

USD 4/day or

less

TOP-TIER

BOP ISDEFINED1ASTHELARGEST, BUTALSOTHEPOORESTSOCIO-ECONOMICGROUPIN

THEWORLD, COMPRISINGINDIVIDUALSEARNING USD 4/DAYORLESS.

BASEOFTHE PYRAMID

Source: 1ADB definition of BoP; Dalberg research

DRAFT-WORK

INPROGRESS


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What does it mean to be inclusive?

Source: Dalberg research and analysis

Inclusive models seek to engage BoP actors across the business value chain in a manner that generates

positive financial and social returns

SUPPLIERS

EMPLOYEES

DISTRIBUTORS

CONSUMERS

1

2

3

4

VALUECHAIN FORTHE BUSINESS FORTHE BOP

Transparent, reliable supply chains

Cost savings due to local sourcing

Jobs and income

Stable prices for products

Training and skill development

Supply of talent at lower cost thanexists in developed wage markets

Secure, safe jobs and income Opportunity for social mobility,

where possible

Cheaper, more flexible, more

responsive distribution chains

Secure jobs, increased income,

better livelihood opportunities

Additional markets and revenue

streams

Increased access to safe, innovative

and affordable products

DRAFT-WORK

INPROGRESS


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How do you make businesses inclusive?

Source: Icons from www.thenounproject.com

MANUFACTURING

/ PRODUCTIONPROCUREMENT CONSUMERSLOGISTICSANDDISTRIBUTION

MARKETING /

AWARENESS AFTER SALES

Can we buy directly from local BoP

suppliers? Can we help increase vendor capacity by

investing in training?

Can we provide/facilitate access to finance

to vendors?

Are there non-traditional actors that can

help in raising awareness generation andmarketing efforts (E.g. government, civil

sector, NGOs, etc.)?

How do we use technology to provide better

aftersales support to the BoP? Can we work with BoP entrepreneurs to

help with aftersales support and consumer

feedback?

How can we optimize energy usage?

How can we build employee capacity by

investing in training and professional

development?

How can we customize benefits to suit low

income employees?

How can we minimize any negative impact on

the environment?

How do we provide access to information to our

logistics partners to help them become more

efficient?

Are there local networks that we can tap into

and develop for transportation and distribution?

Can we reorganise the business to enable work

with small orders/inventory sizes?

How do we make products more affordable?

How do we provide financing to BoP

consumers who cannot afford high up front

payments?

How do I ensure effective tailoring of

products to suit the BoP needs?

DRAFT-WORK

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Inclusive businesses are different from existing businesses

1Positive externalities encompass impact measure along Human Development Indicators

Source: Dalberg analysis and research

DRAFT-WORKINPROGRESS

Market

returns

Below

market

Above

market

returns

Low HighPositive externalities 1

Inclusive

business

Mainstream

business

Businesses can generate profit and impact

poverty by accessing new markets, adapting

products for BoP & reconfiguring to an

ethical, greener, more efficient supply chain

Social enterprise

Social enterprises seeking longer

term and scalable impact can better

attract capital and grow with a focus

on financial sustainability

COMPARINGDIFFERENTTYPESOFBUSINESSESACROSSMARKETANDSOCIALRETURNS

Market returns on the X-axis; Social returns on the Y-axis


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and also differ from CSR initiatives


DRAFT-WORK

INPROGRESS

Effective management of economic, social and

environmental impact

Brand-building and risk management

Employee and customer engagement

Investor relations

Profitability and long-term sustainability,

taking into account social and environmental

concerns

Engaging in new markets with a license to

operate

Does not generate any direct financial returns

Requires consistent on-going funding

Inclusive businesses aim to meet or exceed

cost of capital

Each activity is specifically designed to

generate social impact

Impact is limited by scale of investments and

donations

Social impact may be the objective, or simply

an outcome of the business activity, but must

be explicitly measured

Impact is achieved by scale which is directly

related to the success of the business

PURPOSE

FINANCIALRETURNS

SOCIALRETURNS

CORPORATESOCIALRESPONSIBILITY INCLUSIVEBUSINESS

A pharmaceutical company that donates

medicines to the government for

free/subsidized distribution to BoP

communities

A pharmaceutical company selling medicines

in affordable unit sizes, utilizing community

health workers to reach BoP populationsEXAMPLE


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Why should large companies change their business model to become more inclusive?

DRAFT-WORK

INPROGRESS

b i i l i ki i h i l 60% ( 3


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BECAUSE being inclusive means working with approximately 60% (~3.5B

people) of the worlds population that otherwise remains poorly engaged

35%

65%

DRAFT-W

ORKINPROGRESS

PRESENCEOF BASE OF THE PYRAMIDPOPULATIONS1INTHEWORLDIN 2012

Population in millions; Top-two countries in each region; Poverty line in 2005 PPP

Source: World Bank PovCalNet analysis tool accessed on 11 February, 2013; Dalberg research

EAST ASIAAND PACIFIC (BOP: 1251M)

Non - BoPBoP

88%

12%

EUROPEAND CENTRAL ASIA (BOP: 54M)

35%

65%

MIDDLEEASTAND N.AFRICA (BOP: 175M)

10%

90%

SUB-SAHARAN AFRICA (BOP: 778M)

68%

32%

LATIN AMERICAANDTHE CARIBBEAN (BOP: 196M)

6%

94%

SOUTH ASIA (BOP: 1544M)

The Base of the Pyramid populations identified here earn USD 4/day or less

Turkey: 13m

Russia: 8m

China: 831m

Indonesia: 217m

India: 1180m

Pakistan: 165m

Nigeria: 159m

Ethiopia: 80m

Brazil: 56m

Mexico: 29m

Egypt: 59m

Iraq: 22.7m

B th l i k t h b t ti l di d


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BECAUSE these low-income markets have substantial spending power and are

growing rapidly

MARKETSHAREBYINCOMESEGMENTS GROWTHINCONSUMERSPENDING

+79%

4.3B

2.4B

+67%

1.5B

0.9B

+18%

1.9B1.6B

+25%

2016

1.0B

2012

0.8B

45%

2,085B

34%

21%

Source: Regional market sizes from The Bottom 4 Billion, World Resources Institute (2008); Consumer spending numbers from Credit Suisses Emerging

Consumer Survey 2012; Dalberg research

REGIONAL MARKET SIZESAND BOP MARKET SHARE

Market sizes in USD billion

CHINA

INDIA

BRAZIL

MEXICO

USD 4/day and less

USD 4/day - USD 8/day

USD 8/day and more

1,421B

49%

36%15%

66%

528B

13%21%

60%

319B

11%29%

DRAFT-WORK

INPROGRESS

B th l t iti i l B P k t th t


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BECAUSE there are large opportunities in several BoP markets that

businesses can invest in and capitalize

NOTE: Measures here are not comprehensive. Sizing the entire BoP market for impact investments is very difficult; thus only selected businesses within five

sub-sectors were analyzed in the JP Morgan report

Source: Survey of global impact investors and funds, Impact Investments: An Emerging Asset Class, JP Morgan (2010); Dalberg research

INDICATIVE

Housing

790210200190180100

Health

Education

Water and Sanitation

Finance

210 79010 190180 2000

Not measured

POTENTIALINVESTEDCAPITALREQUIREDTOFUNDSELECTED BOP BUSINESSESOVERTHENEXT 10 YEARS

All amounts in Billion USD

POTENTIALINVESTEDCAPITALREQUIRED (BILLION USD) POTENTIALPROFITOPPORTUNITY (BILLION USD)

USD 214B-USD 786B USD 177B-USD 648B

USD 5.4B-USD 13B USD 2.9B-USD 7B


USD 176B


NOTEXHAUSTIVE


BECAUSE traditional markets are getting saturated and forward


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BECAUSE traditional markets are getting saturated and forward-

looking companies are already shifting their focus

Source: Company annual reports; Internet research; Dalberg research

60% 58% 56% 53% 51%47%

40%

2010

53%

2009

49%

2008

47%

2007

44%

2006

42%

2005

EMERGINGMARKETSHAREOFTOTALREVENUESOVERTIMEFORSELECTEDCOMPANIES

Percentage share of total revenues

ILLUSTRATIVE

72% 72% 68%64% 62%

58%

2010

42%

2009

38%

2008

36%

2007

32%

2006

28%

2005

28%

Unilever Toyota


PRELIMINARY

Developed marketsEmerging markets Developed marketsEmerging markets

Shareoftotalreve

nues

Shareoftotalreve

nues

BECAUSE engaging the BoP can spark innovation that not only overcomes


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BECAUSE engaging the BoP can spark innovation that not only overcomes

emerging market barriers

Source: Images from company websites; Dalberg research

SELECTEDEXAMPLESOFINNOVATIONATTHE BOP

PRODUCTS

Problem:

Electricity is expensive for BoP

Supply of electricity is unreliable

for majority of the BoP

population

Innovation:

Products and appliances that are

not dependent on grid

connectivity to operate

Products and appliances that

emphasize energy efficiency, and

entail minimal running costs

Examples include low-voltage

tablets (Aakash), LED lights

(Nokero 200), and refrigerators(GodrejsChotu kool)

SERVICES

Problem:

Up front ability to pay is low

Access to financial services is

limited or non-existent

Innovation:

Pay-per-use models that

prioritize increased access overasset ownership. E.g. Sarvajal for

drinking water, Ecotact for

sanitation

Mobile money platforms that use

local networks and mobile

technology to provide basic

banking services (deposits,

withdrawals, loan payments,

transfers, etc.) to under-coveredBoP. E.g. Safaricoms mPesa in

Kenya


BUT ALSO drives development of products with significant potential in richer


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BUTALSOdrives development of products with significant potential in richer

markets

Source: www.gehealthcare.com ; www.grameenamerica.com ; Dalberg research

LOW

-COST

ECGMACHINE

BY

GE

GE Medical Systems developed an

affordable, portable EKG machine

specifically for rural India to overcome

infrastructure and access challenges

The machine costs $2,500, compared to

$10,000 for standard machines in

developed markets

The new product has now been

successfully marketed in developed

markets

MICRO

-LOANS

IN

AMERICA

BY

GRAMEEN

BANK

Grameen Bank pioneered the concept of

providing group-based micro-loans to

low-income households in rural

Bangladesh

The group-lending model for small loans

was replicated in urban America by

Grameen America, in 2008

Grameen America has reached 12,500

families and disbursed over USD 60m in

micro-loans


SELECTEDEXAMPLESOFREVERSEINNOVATION

BECAUSE there is increasing agreement that IBs need not sacrifice ILLUSTRATIVE
http://www.gehealthcare.com/http://www.grameenamerica.com/http://www.grameenamerica.com/http://www.gehealthcare.com/


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BECAUSE there is increasing agreement that IBs need not sacrifice

earnings for impact

Source: Insight into the impact investment market, (JP Morgan, 2011); Dalberg research

40%

60%

Yes

No

TRADEOFFBETWEENIMPACTANDFINANCIALRETURNS

GIIN/JP Morgan survey of impact investors(2011); N=52

GENERALLYSPEAKING, DOYOUTHINKATRADE-OFFBETWEENFINANCIALRETURNS

ANDIMPACTISNECESSARYWHENMAKINGIMPACTINVESTMENTS?


ILLUSTRATIVE

BECAUSE IBs are also increasingly perceived as no more risky than ILLUSTRATIVE


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BECAUSE IBs are also increasingly perceived as no more risky than

traditional companies, and expected to perform at par or better than them

1.The number of investments in the sample respectively are: EM Equity = 105, and EM Debt = 724

2.Returns from traditional businesses are average returns for: Cambridge Associates Emerging Markets Venture Capital and Private Equity Index, (1989-2008)

and JP Morgans Corporate Emerging Market Bond Index (2002-2011).

Source: Insight into the Impact Investment Market, JO Morgan and GIIN (2011); Dalberg research

EXPECTEDRETURNS1FROMIMPACTINVESTMENTSINEMERGINGMARKETS

COMPAREDTOREALIZEDRETURNSFROMTRADITIONALBUSINESSES2

GIIN/JP Morgan survey of impact investors (2011)

5

15

20

25

18%

9% 9%

0

10

11%

Emerging market debtEmerging market equity

Real returns from traditional businesses

Expected returns from Inclusive Business investments

Annualinternalrateofreturn(%)

LEVELOFRISKASSOCIATEDWITH INCLUSIVE BUSINESSINVESTMENTS

GIIN/JP Morgan survey of impact investors (2011); N=52

9%

31%

60%

Similar to comparable traditional businesses

Higher than comparable traditional businesses

Lower than comparable traditional businesses

ILLUSTRATIVE

AND FINALLY BECAUSE for many large multinational companies being inclusive is


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ANDFINALLY, BECAUSE for many large multinational companies, being inclusive is

not a choice, its simply good business

1 Ernst and Young (www.ey.com)

Source: McKinsey Quarterly; www.wikipedia .com; Dalberg research

COSTSAVINGS

EMPLOYEERETENTION

Companies operating in developing markets can generate significant cost savings through hiring relativelylow-

cost local labor; this also allows companies to pursue additional revenue opportunities that wouldnt be

profitable if handled by higher-cost employees

Developing economies offer cost savings in materials procurement; estimates suggest that a 1% reduction in

costs, achieved through a sophisticated, local and low-cost supply chain is equivalent to a 10% increase in sales1

The pool of qualified talent in developing markets is shallow there is strong demand and weak supply of

capable and skilled employees; losing talent is bad for business as recruiting (to refill existing positions) and re-

training are expensive

Businesses that increase the value proposition for their employees offering technical training, formal

professional development, perks such as subsidized housing, etc. as a part of core strategy are likely to better

retain employees and cut costs

LICENSETOOPERATE


Protests and instability in the market hurts business; by taking substantive voluntary steps to invest in the local

environment and community companies can reduce reputational risks and persuade governments and the wider

public to allow business operations without interference or obstruction

TBD

POSITIVEFEEDBACK

EFFECTS


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What are the challenges to inclusivity?


Companies face two important sets of challenges when trying to engage with


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the BoP

EXTERNALCHALLENGES

External factors including inadequate infrastructure and transportation, dispersed consumers, poor access to

information, products and finance, and lack of market information affect business growth and scale.

INTERNALCHALLENGES

Developing an inclusive business can challenge the existing operations, capacities and processes within a

business. This may lead to internal tension and opposition to change.


EXTERNALCHALLENGES

There are five critical market-based challenges that limit business EXTERNAL


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g

growth and scale

Source: Dalberg research

CHALLENGE IMPLICATIONS FOR BUSINESSES

Limited purchasing power, nofinancial access

Even inexpensive products and services may be unaffordable for the average BoPconsumer

BoP businesses find it difficult to increase capacity or achieve scale (including as

suppliers to other businesses)

Low education, awareness

and skills

Consumer willingness to pay suffers as they there is limited access to product

information, including availability, quality, usability, prices, etc

Suppliers, distributors and retailers may lack the knowledge and skills to deliver

quality products and services, consistently, and cost effectively

Hard to reach Standard distribution models are very costly and ineffective in reaching BoP

populations

Disaggregated, low-quality

supply chains

Procurement is inefficient, with presence of several intermediaries

Procurement is unreliable given poor infrastructure and limited capacity of SMEs

Poor market data andinformation

Businesses know very little about poor peoplewhat they prefer, what they canafford, and what products and capabilities they have to offer as employees, producers

and entrepreneurs

DRAFT-WORKI

NPROGRESS

Innovative inclusive business models have tried to address market EXTERNAL


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barriers (1/2)

Source: Internet research; Company websites; Dalberg research

Limited

purchasing

power, no

financial

access

Purchase finance Focus on lowering transaction costs of consumer finance

and provide micro-loans to individuals/groups for small-

ticket purchases

Pay-per-use

Sachet model

Implement alternate payment models in which customers

pay for each use of the product, instead of owning it

Sell product in smaller unit sizes and lower prices

Supplier finance Incorporate B2B financing within IB models that engage the

BoP as suppliers, including trade finance, partnering with

commercial banks, etc.

Low

education,

awareness

and skills

Marketing /

awareness

Partner/co-invest with government bodies, donors, local

bodies to implement awareness and education campaigns

Up-skilling

De-skilling

Invest in technical training / professional development to

fill staffing needs

Disaggregate operations into discrete tasks that can be

performed by low or un-skilled BoP populations

BUSINESSMODELS DESCRIPTIONCHALLENGES EXAMPLES

DRAFT-WORKI

NPROGRESS

MEKONG BAMBOO

Innovative inclusive business models have tried to address market EXTERNAL


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barriers (2/2)

Source: Internet research; Company websites; Dalberg research

BUSINESSMODELS DESCRIPTION

Hard to reach

Micro-entrepreneur/

micro-franchise

Partnerships

Increase points-of-sale in hard-to-reach areas by hiring and

developing the BoP as micro-level entrepreneurs andfranchisees

Build linkages with SMEs, rural NGOs and other businesses

etc. that are local to the target market, to leverage proven

networks and systems and reach BoP consumers

CHALLENGES

Disaggregated,

low-quality

supply chains

Direct purchase Purchase directly from BoP producers, and develop their

capacity through training and investment

BoP-owned

cooperative

Third-party

aggregator

Purchase from cooperatives or other apex organizations of

BoP producers, and collaborate with them to improve /

increase production capacity

Purchase from intermediaries that aggregate supply from

BoP producers

Poor market

data and

information

Various Emphasize establishing linkages and relationships with local

individuals and organizations in the business model, in

order to gain context and key market information.

EXAMPLES


Sarvajal uses a PAY PER USE model to provide low income and rural


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WHATWASTHEPROBLEM?

Rural access to clean drinking water is very poor, leading to a vast majority of all diseasesin India; Sarvajal wanted to develop a low-cost, market-based solution to increase access.

HOWWASITSOLVED?

Sarvajal used a franchisee-based model in which village-level entrepreneurs operated

solar-powered water purifiers for community access to clean drinking water

Community members used a pre-paid card to buy water from the entrepreneur; the card

is re-chargeable via the mobile phone

WHATWERETHEOUTCOMES?

Sarvajal supplies clean drinking water to more than 150 cities, towns and villages in

India at Rs. 0.25 0.50 per liter

Sarvajal has provided employment and income-generation opportunities to water

entrepreneurs in Indian villages

WHATWASLEARNT? Challenges of operating in rural environments can be overcome by innovatively and

effectively incorporating technology into the business model, e.g. for cashless payment

and re-charge, for aftersales servicing and quality monitoring, etc.

Identifying high-capacity entrepreneurs/franchisees is difficult and can often make or

break the business

Sarvajal uses a PAY-PER-USE model to provide low-income and rural

communities access to safe and clean drinking water


Photo courtesy www.images.google.com


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WHATWASTHEPROBLEM?

Guangshas construction workers were poorly trained, which led to a number of costlyon-site accidents

HOWWASITSOLVED?

Guangsha created free-tuition vocational schools at each construction site of more than

50,000 meters

Semi-permanent day laborers are required to pass four training exams in order to get

official Guangsha contracts

Training certificates are only valid for one year and must be renewed annually or at thestart of each project, whichever is sooner


In 2005, Guangsha had net profits of $19 million and an output value of $670.7 million

90% of students receive training certificate on their first attempt

WHATWASLEARNT?

Providing training for BoP employees can reduce costs, mitigate risks, and improve

employee retention

Training programs for BoP employees often require large upfront investments (e.g.

Guangsha invested $3.65 billion to start schools)

Guangsha Construction invested in UP-SKILLING its workers in China



Nestle established a network of MICRO-DISTRIBUTOR FRANCHISEES to expand


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WHATWASTHEPROBLEM?

Nestl could not reach BoP consumers because its typical distribution model using a full

truck would not work infavelas with narrow streets

HOWWASITSOLVED?

Nestl identified a network of distributors and micro-distributors who would buy

products and assemble assortments appropriate for distribution to micro-retailers in

favelas

Distributors also assembled pre-packaged kits for direct sales to families in their homes,

using trusted direct sales agents from local communities


Nestl increased sales among BoP consumers infavelas

Nestl created jobs by recruiting informal workers to become direct sales agents and

micro-distributors

WHATWASLEARNT?

BoP can be effective distributor of products to

Hiring local staff (e.g. direct sales agents) with relationships of trust within the

community can increase direct sales to BoP consumers

Nestle established a network ofMICRO-DISTRIBUTORFRANCHISEESto expand

their reach among the urban poor in Brazil



Intel partnered with the Government of Vietnam to SPREAD AWARENESSAND EFFECTIVELY MARKET its affordable laptops within target


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WHATWASTHEPROBLEM?

Intel wanted to increase penetration of its low-cost laptops within low-income

households in Vietnam Poor awareness of IT and IT products among low-income households in Vietnam

HOWWASITSOLVED?

Intel worked with the Vietnamese Government to increase awareness of information

technology through programs on digital literacy, and by working directly with schools,

hospitals and offices, and by targeting small businesses and farmers in rural areas


Intel provided more than 100,000 affordable PCs to young Vietnamese people via a

government program

Increased technology access and IT awareness in more than 200 community centers

Adoption of Intel provided laptops in schools, hostpitals and government offices

WHATWASLEARNT?

Working with the Govt can be an effective means of encouraging product adoption,

while increasing awareness of potential benefits

Working with the Govt can open new doors to working with local product/service

providers, banks, etc .

AND EFFECTIVELY MARKETits affordable laptops within target

populations



Starbucks secured its supply of quality coffee beans in Latin America by


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WHATWASTHEPROBLEM?

Consumers demand coffee with various combinations of the following characteristics:high quality, sustainable production, fair trade, traceability, and improved social

conditions in farming communities.

HOWWASITSOLVED?

Starbucks created the C.A.F.E. practices, which guide farmers to produce higher-quality,

environmentally friendly, sustainable coffee

Conservation International and other agencies help farmers implement C.A.F.E. practices Starbucks commits to purchase coffee from farmers who have a sufficiently high C.A.F.E.

score


By fiscal year 2007, Starbucks made 65% of its purchases from C.A.F.E. approved

suppliers and hopes to increase that percentage to 80% by 2013

WHATWASLEARNT?

Even without greater interaction, a commitment to purchase can serve as a powerful way

to engage BoP suppliers

Consumers in developed countries are increasingly interested in products that engage

the BoP in sustainable ways

Starbucks secured its supply of quality coffee beans in Latin America by

PURCHASINGDIRECTLYfrom smallholder farmers, and by investing in training



Case studies show that inclusive businesses deploy some key

k b

EXTERNAL


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strategies to overcome market barriers


Limited purchasing power

& financial access

Low awareness and skills

Hard to reach

Supply chains

Market data and

information

Invest in

developing

capacity

Leverage non-

traditional

assets

Invest in local

partnerships

Adapt products

and processes

STRATEGIES

MARKETSTRATEGIESMATRIXTOOVERCOMEEXTERNALMARKETCHALLENGES


Low to high relevance

Engaging in local partnerships is central to overcoming challenges to inclusive businesses


h B P


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the BoP

EXTERNALCHALLENGES

External factors including inadequate infrastructure and transportation, dispersed consumers, poor access to

information, products and finance, and lack of market information affect business growth and scale.

INTERNALCHALLENGES

Developing an inclusive business can challenge the existing operations, capacities and processes within a

business. This may lead to internal tension and opposition to change.


Companies need to be internally aligned around key elements of

th i l i b i t it

INTERNAL


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the inclusive business opportunity


Inclusive

Business

Leadership

1

Resources andcapacity

2

Business case

4

Risk analysis and

mitigation

3

Businessopportunity

5

There are some critical questions companies should ask

themsel es before en a in ith BoP markets

INTERNAL


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themselves before engaging with BoP markets

Source: Dalberg research

Leadership

Business

opportunity

Resources andcapacity

Business case

Risk analysis and

mitigation

Is the senior management fully invested in the inclusive business opportunity, including

support for innovation and long-term view on profitability?

What are the core capabilities of the existing business that match to important BoP

needs and gaps?

Can we partner with the right organizations/networks to gain market knowledge and

expertise and to develop any additional skills, capacity necessary to operate the IB?

Does the business plan incorporate a long-term view on profitability and include new

performance metrics and incentive structures aligned to the IB?

Are there any risks to the existing business (brand, reputation, product cannibalization)

arising from the inclusive business opportunity?

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Annex


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Annex

Which inclusive business sectors have attracted the most funding?

DIRECTIONAL


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Which inclusive business sectors have attracted the most funding?

SECTORDISTRIBUTIONOFINCLUSIVEBUSINESSES

Survey of 2213 total investments (2011); Value of investments in billion USD

13%

6%

12%

10%

0%

1% 100%

Microfinance

Food & Agriculture

Cross sector

Clean energy and tech

Other

Housing

Healthcare

Education

Water & Sanitation

Value

4B

37%

6%

15%

21%

2%3%

Number

2,213

34%

15%

13%

7%

3%2%

Source: JP Morgan/ GIIN survey of impact investors in Insight into the impact investment market, (JP Morgan, 2011); Dalberg research


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Companies need to be internally aligned around the inclusivebusiness opportunity in order for it to succeed

INTERNAL BARRIERS2


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AREASOFINTERNAL

ALIGNMENT

CONSIDERATIONS

Leadership Is there sufficient buy-in within the companys leadership to go ahead with the IB effort?

Is there sufficient top-management support for innovation and risks? Does the leadership have a long-term view

on profitability?

Business opportunity

and environment

What business core capabilities can be leveraged / extended into establishing an IB?

What societal needs exists that intersect with the business core capabilities?

Based on the above two, what is the inclusive business opportunity? What are the objectives, and targets of the

IB? What is a timeline for success?

What has been tried out previously that has worked/failed? Why?

Is there a clear understanding of the business eco system, including understanding of relevant legal and regulatory

issues?

Resources and capacity Is there clarity on resources and investment needed for the IB? Does the business already possess the necessary

skills and expertise in-house?

Are there partners available with supplementary/complementary skill/experience sets?

Does the business possess the ability to continuously monitor and assess business outcomes, and adapt the

business model if needed?

Business case Is the expected return on the cost of capital lower/the same/ higher than the existing business?

Is there a longer timeline on returns, specifically, a longer term view on profitability and establishing breakeven?

How will performance be measured? (E.g. Revenues, profitability, social impact, intangibles)

How will the performance metrics impact your business incentive structures?

What is the optimal organization structure? Is there need to change the existing structure? How will partnerships

be incorporated into this structure?

Risk analysis and

mitigation

Is there an understanding of the main risks related to business reputation and brand image?

Is there a risk of cannibalization of existing customer base?

business opportunity in order for it to succeed

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Documents

130214 ADB IB Workshop - Introduction to IB Models_v14 - Comments Armin