Connecting Corporate Responsibility and Bottom of the Pyramid (BOP) Approaches and Opportunities

Djordjija PetkoskiHead – Business, Competitiveness & Development TeamWorld Bank Institute

Overview

The Bigger PictureNew Paradigms – Private Sector Engagement in DevelopmentCorporate Philanthropy vs. Corporate ResponsibilityIntegrating BOP and CSRThe Business Case for BOP ApproachesExamplesNext Steps and Potential Challenges

Global IssuesPoverty and Developing Countries Today:

3 billion people (survive on) under $2/day1.2 billion people (survive on) under $1/day

Global Gross Domestic Product (GDP) Year 2000:30 trillion – 5 billion people – 20% global GDPYear 2050:140 trillion – 8 billion people – 40% global GDP

(assuming 3.5% growth)

Population Growth

1 billion1 billion1 billionDeveloped Countries

8 billion7 billion5 billionDeveloping Countries

205020252000

BOP market - $5 trillion: Total by income segment

BOP market by income segment: Asia -

$3,470 billion

Asia: BOP Spending and Population (% of BOP total)

New Expectations of Business

World Economic Forum, Voice of the People Survey.

What Do Business Leaders Think?

Business Leaders’ Ranking ofTop Development Challenges

Good Governance & Tackling CorruptionPoverty Alleviation & EducationSustained Economic GrowthPeace & SecurityEnergyHIV/AIDSWaterHuman RightsInternational Trade RulesInternational Financial Architecture

World Economic Forum, GCCI Survey.

• Of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs).

• The top 200 corporations’ combined sales are 18 times the size of the combined income of 24% of the total world population.

• MNCs account for a quarter of global economic activity, they employ less than 1% of the world’s labor force, while one third of the world’s willing-to-work population is unemployed.

Reactive Proactive

Businesses must move from reactive behavior to strategic measures.

Businesses must create new strategic opportunities, including stakeholder engagement.

Improvements in competitive context - a healthy society as prerequisite to economic success.

New Pressures New Paradigms

Pressure on business to engage in broader sustainability issues.

Increasing difficulty of tackling certain global problems unilaterally.

Necessity of bringing in the comparative advantages of all stakeholders.

Competitive benefits for the private sector to play a more proactive and collaborative role in development.

Private Sector Engagement in Development

Private sector engagement in development presents a new paradigm for operation.

It increases opportunities for different stakeholder groups to achieve mutual development goals, as well as encourages comprehensive and systematic thinking about:

Multi-stakeholder partnerships.The role of the private sector in development and its impact on the local environment and community. Corporate governance. Complementary and integrated approaches to poverty alleviation. Business contributions to peace. The links between current development efforts within and among development actors that can be combined to increase on-the-ground, long-term impact and learning.

However….

…despite global companies’ ability to create wealth worldwide, the benefits of this rarely directly reach the 4 billion poorest people of the world – the so-called “Bottom of the Pyramid (BOP).”

Corporate Philanthropy vs. Corporate Responsibility

The private sector’s engagement in development does NOT have to be a philanthropic activity.It can be a part of a business’s core strategy

Fundamental, long-term impact on poverty alleviation and social development by increasing client countries' national competitiveness and helping to achieve specific development goals.

Poverty reduction collateral social benefits stabilization of fragile, developing and emerging market countries better business environment enhanced competitiveness and investment.

BOP Approaches and CSR

BOP approaches can be a critical component of a company’s CSR strategy and core business.

New business models• The more traditional “consumer-oriented” BOP

approaches• Empowering the poor to not only enter the market

as consumers, but to be integral parts of the supply chain as producers.

Creation of new markets AND the transformation of existing markets.

Estimated BOP market by sector: $5 trillion

Integrating CSR and BOP

Both CSR and BOP strategies should be fully aligned with broader corporate strategy and long-term market positioning.

Effective CSR and BOP strategies can help deliver sustainable business growth.

The Emerging Business Case for BOP Approaches

Top-line GrowthMost large businesses have saturated their markets

entering untapped markets opens up an enormous new consumer, supplier, and partner base and unlimited opportunities for innovation and investment.

Cost SavingsBringing in the BOP creates supply chain efficienciesOutsourcing labor markets to the BOPBOP markets are built on different business models

InnovationExtending beyond innovation in new products to innovation in new business models.

The Poor as a Partner, Not Just a Consumer

“Bottom of the Pyramid” approach.Business interest in BOP markets has been primarily in food and consumer products.Large national companies have been the most innovative in meeting BOP needs in the housing, agriculture, consumer goods and financial services sectors.

Platform for Business Growth

Increased access to financial services and to communications, notably mobile telephones is the greatest success story.Access to information, e.g. up to date market prices, and to credit is now enabling the poor to compete more effectively, and engage as entrepreneurs in the global economy.

Example: TetraPak

Food for Development program, for example in Nigeria.Business benefit of building market for Tetra Pak packagingDevelopment benefit of improved nutrition for school childrenLocal economic benefit of creating local supply chain with local products and manufacturing, so creating jobs

Example: Tata, India

Tata - India$2,000 car: aimed at the “family of four sitting on a two-wheeler, driving on slippery roads in the rain”*Plan to sell 1 million cars/yearThe car will be distributed in kit form to small, low-tech assembly plants in rural areas.

Example: CEMEX“Patrimonio Hoy”CEMEX, the third largest global cement manufacturer, created the "PatrimonioHoy” program, one of the most successful housing programs in the world.

The program was built based on the fact that it is women, not men, who save regularly to progressively build a family home. Inspired by the "group lending" concept, CEMEX/Patrimonio Hoy designed an offer that requires clients to save about $10 per week over a period of 70 weeks to finance the building materials required to build a new roof or add a new room.

Corporate Social Responsibility (CSR) and Multi-Stakeholder Partnerships (MSP)WBI, in partnership with CEMEX and ITESM University, have developed a comprehensive training program that includes:

WBI’s CSR on-line courseCEMEX and ITESM’s Corporate Citizenship on-line courseWBI and ITESM’s MSP on-line course. The program is directed mainly to business representatives from all Latin America and will be delivered on-line from March 2007 to March 2008. The launch of the program will be done through a roundtable session with CSR experts from the three organizations.

Japanese Context

Limited access to best practices of Japan companies as well as companies form other OECD and EDC countries.Better understanding of the Japanese experience and involving Japanese companies can:

re-shape the global CSR agenda through improving the framework on how companies can best contribute to development – BOP approach, perhaps.Identify new best practices with practical solutions and scalability potential.

Moving ForwardThese examples represent the “first stage.”CSR and BOP approaches have existed in separate silos……to move ahead strategically, these approaches need to be coordinated, integrated and/or complementary. “Stage 2” will facilitate the poor’s market entry and into the formal economy/supply chain. In order to do this, it is necessary to both build CSR capacity down the supply chain and facilitate BOP efforts from the ground up.

Challenges & Strategies

External BarriersInfrastructure challenges

ManagementThe need to change management’s perspectives and modes of operating.

PartnershipsThe need to foster and commit to multi-stakeholder partnerships.

Structural ChangeNew business models new R & D; venture; new divisions within a company.

Risk SharingGAIN example joining forces with other sector actors can help mitigate risk.

New challenge for current and future business and public sector leaders: how to capitalize on business opportunities while ensuring sustainability through addressing global development challenges?

Thank you