Inclusive Business in the Asia-Pacific Economic Cooperation

APEC explores inclusive business potential in member economies
Policy and Government
SDGs
East Asia and Pacific
Latin America and the Caribbean
19. Jun 2018

Inclusive business in the Asia–Pacific Economic Cooperation

Page count
137
Asian Development Bank (ADB)

The publication discusses the market potentials, constraints, and necessary policy instruments for an enabling environment for inclusive business. A profile of inclusive business initiatives, the overview of the base of the pyramid market size, and the inclusive business ecosystem in each APEC economy as well as a recommended a framework to guide future work on inclusive business under the APEC regional economic cooperation agenda are also included in this report.

Recommendations

Inclusive business (IB) is attracting increasing interest in the Asia-Pacific Economic Cooperation (APEC), as its member economies target more inclusive and sustainable growth, and companies seek new business models that are both commercially viable and socially relevant. To move forward from traditional corporate social responsibility to IB, companies and enterprises should consider:

  • Exploring and understanding the largely untapped markets and unaddressed needs at the base of the pyramid (BOP) in the region, particularly in emerging Asia and Latin America. IB requires deep insight into local contexts and building trust and cooperation with local partners.
  • Linking core business objectives and targets to creating impact on critical development areas in the region like food security, climate adaptation, rural-urban development, and women empowerment. IB makes social development inherent, not just complementary as in CSR, to the business model.
  • Supporting greater business innovation. IB requires highly innovative business strategies and relationships in engaging new markets, exploring new BOP product/service lines, and mitigating investment risks.
  • Adopting sustainable (ethical, social, environmental) sourcing and development of commitments, talents, and resources across the value chain, backed by sustainability certification standards and processes.
  • Microenterprises (MSMEs, social enterprises) as important in last-mile distribution of IB products and services. Integrating MSMEs and SEs is key in IB value chain development.
  • Knowing more about impact investors for IB financing, and other IB support providers. Impact investing is growing in developed APEC economies like Australia, Canada, Singapore, and the United States. IB financing is already part of the portfolio of development finance institutions (DFIs) like the World Bank’s IFC, the Asian Development Bank, and Inter-American Development Bank, and bilateral development banks like the Norwegian Norfund, Dutch FMO Entrepreneurial Development Bank, British CDC Group, French Proparco, and Canada’s Development Finance Initiative. Business incubators and accelerators play an important role in growing and scaling up small enterprises into potential IBs. A range of policies for IB promotion, accreditation, and/or capacity building have been set up by a number of governments across the region, in addition to existing policies for greater ease in doing business.

This exploratory report on IB in the region also recommends that APEC, led by the APEC Business Advisory Council and Investment Expert Group (IEG), formally adopt IB as an agenda and work program, institutionalize IB capacity building, integrate IB as a thematic area in regular APEC events and business dialogues, recognize IB practice through an APEC IB Awards program, continue to develop the global IB framework with IB-supportive regional bodies like the G20 and ASEAN, and help establish IB reporting standards and metrics in line with SDG reporting.


APEC’s member economies, particularly in Latin America and Asia, are no stranger to inclusive business. In fact, these regions are leading the way in IB promotion and development; the concept of IB was born out of Latin America in 2005 via the Opportunities for the Majority (OMJ) program of the Inter-American Development Bank (IDB), and under the leadership of the Government of the Philippines as chair, was formally introduced as a dialogue agenda for APEC in 2015. These pioneering efforts, supported by regional development players like the IFC and ADB, helped generate substantial interest and investment in inclusive business. IFC and ADB are currently the biggest IB investors in APEC; IFC has deployed more than USD 12.5 billion in impact to IBs in Latin America, Southeast Asia, and China since 2005, while ADB put up USD 1.044 billion in 2014 for IB projects in Asia. By 2025, Asia is projected to have the biggest number of IBs, driven by increasing impact investment primarily from developed APEC economies.

This report also provides a snapshot of the markets for inclusive business in all APEC economies. The base of the pyramid (BOP) forms 43% of the total population of all APEC economies, with an estimated market value of USD 2.28 trillion per year. Food and housing take up the biggest share of BOP spending. Emerging economies in Asia and Latin America have the biggest BOP markets—China has the biggest (valued at USD 1.3 trillion per year), followed by Indonesia, Thailand, Mexico, the Philippines, Colombia, and Papua New Guinea. It was noted that most IBs in emerging economies are in agribusiness, financial services, education, and ICT, while personal care, energy, and transport are the least developed IB markets. Social enterprises, the report highlights, are currently more successful than bigger companies in BOP market penetration due to their fundamental community and local orientation.

Developed APEC economies have yet to catch up with Asia and Latin America in both number and maturity of inclusive businesses. IB investment in developed economies is still largely focused on CSR activities, and replicating IB models is difficult across regions because of a number of factors—i.e., varying business environments and BOP markets, different sociopolitical and innovation climates, and long-term investment requirements. Along with IB policies in place, business environment reforms are necessary such as simplifying business registration and licensing, enabling better access to finance for small and medium enterprises (SMEs), broadening public–private dialogue, and developing appropriate standards to support IB. Cross-country learning and cooperation via APEC will also help broaden and deepen IB market and value chain understanding.