A pioneer in sustainable business, TechnoServe promotes inclusive business solutions to raise the incomes of farms and small enterprises in emerging markets. As TechnoServe’s Regional Director in West Africa, Katarina Kahlmann designs and executes innovative business models that benefit actors all along the supply chain.
TechnoServe focuses on strengthening market systems with the “potential for inclusive growth.” What does this look like in practice?
TechnoServe works with enterprising people in low-income countries to build competitive farms, businesses, and industries. We help large companies develop and execute sustainability strategies, for example related to sourcing or distribution. In parallel, we support small businesses and farms in the corporate supply chains to flourish. Actors at each step of the value chain need to be economically viable in the long-term—that is, break even or make a profit—while not depleting environmental or social capital.
For example, cashews have seen amazing growth in demand over the past decade, like many other nuts. TechnoServe works with cashew factories that employ hundreds of workers, source from thousands of farmers, and have the potential to bring foreign exchange that truly impacts the countries’ GDPs. These factories tend to struggle with low productivity, high costs and thus almost no profits. We help them improve their sourcing, train their workers, and invest in better equipment to improve their profitability and transform them into inclusive businesses that are viable in the long term.
What has led you personally to focus on inclusive business?
There is an enormous power in working to improve the conditions for 4.5 billion people living of less than $8 per day.
They are producers of widely consumed goods. Your much-needed cup of morning coffee or delicious piece of chocolate after dinner has most likely started its journey in a small farm in a low-income country. Making sure that these producers can operate in an economically and environmentally sustainable system is in everybody’s interest.
For instance, agriculture has caused up to 80 per cent of deforestation, by some estimates. Increased productivity for 500 million smallholder farmers can reduce the pressure for more land to feed growing populations. Multinational buyers can help their suppliers improve yields.
The base of the pyramid also brings massive buying power as consumers. Many global brands face saturated markets in high-income countries and see low-income markets as their future growth horizon. This brings challenges in terms of price points, margins and, maybe most importantly, logistics. Large urban populations are relatively easy to reach, while poor, rural communities can be costly to serve.
Have you had to convince clients, funders or other partners of the need for inclusive business models? How did you make the business case?
TechnoServe works with some of the world’s largest consumer goods companies like Coca-Cola, Unilever and Nespresso. They are acutely aware of the importance—and challenges—of working low-income producers and consumers.
The business case comes down to what the commercial model looks like in practice and if it is economically attractive. Are farmers incentivised to produce high-quality crops? Do they want to sell to the corporate supply chain, or do they get a higher price in the local market? Do consumers have access to the products they demand at the right price and place?
To figure that out, real-world pilots are needed. I have learned the importance of starting small—very small—before scaling up. Tweaks will be needed, and it is far easier to adjust the business model design with fewer producers, vendors or consumers involved.
Inclusive business brings value in the long term, while public companies operate on a quarterly timeline. These expectations of fast return on investment can be at odds with the viability and impact of the inclusive business model. Privately held companies, foundations and public institutions tend to have more flexibility and patience. That said, it is important to figure out ways for listed corporations to promote inclusive business in their supply chains. By breaking down targets and showing progress quarterly, we help business leaders track benefits in the short term.
What advice do you have for social entrepreneurs or intrapreneurs on how to effectively pitch inclusive business to their key stakeholders?
For social entrepreneurs, it is first and foremost important to have a viable business plan with good margins and manageable levels of risk. As an inclusive business, you may get brownie points with some investors for your social cause, but in the long run, you need to break even to survive. In fact, I believe that social businesses should aim for decent profitability in order to reinvest and strengthen the business, so that it has some “extra fat” if the start-up assumptions turn out to be too optimistic.
Second, make sure you understand the businesses you source from and sell to. If your suppliers struggle to deliver high quality on time, your business will suffer. Understand what their challenges are and how you can address or circumvent them. Similarly, your customers’ requirements in terms of quality, volume, reporting, etc. are essential for your future sales growth, as is your understanding of their long-term strategy.
Lastly, as I mentioned, start small to prove your offering before you adjust it based on your learnings and scale. Even if you think you have got it all right from the start, there will be surprises and challenges. Give yourself the leeway to modify as you go.
Please describe how the field of inclusive business has evolved over time, either in your experience in West Africa or from a more global perspective.
Ten years ago, many multinational companies were speaking of corporate responsibility as a marketing tool and environmental, social, and governance (ESG) factors as a set of risks. Today, they consider sustainable business as an opportunity for expansion and profitability.
As consumers have become more aware and information is more readily available, most corporates realise that they depend heavily on the well-being of producers and workers in their supply chain, and that their future growth often relies on the prosperity of consumers in emerging markets. The increased awareness is a great step towards a more inclusive and sustainable private sector.
Going forward, I hope to see more isolated solutions scale to impact many more people. This will require insight and commitment for corporations and investors to bet on innovative business models that could pay off in the long run.