Building Inclusive Value Chains

Authors: Mareike Grytz, Inclusive Business Action Network & Carolin Ehrensperger, SEED

How can people living at the base-of-the-pyramid (BoP) be integrated into global value chains and improve their livelihood on a long-term perspective? One answer clearly is: by fostering Inclusive Business Models (IBM).

Making value chains more inclusive via IBM has taken the classic value chain approach to a new, yet distinctive level. Inclusive Business Models explicitly focus on improving the quality of life for people living at the BoP by integrating them as customers on the demand side, distributors or suppliers on the supply side and as employees and partners.

Companies adapting Inclusive Business or replicating and upscaling already existing models are actively creating new markets, establishing more inclusive growth patterns and serving as a catalyst for economic and social development of the BoP. Linking smallholder farmers to value chains with improved access to markets or developing technology innovations for individuals in low-income regions with no access to necessary health services are just two of many examples of how the private sector can engage with the BoP.

Prominent examples of large companies using innovative business models to integrate and target the BoP include for example Unilever and Bosch.

Unilever, Symrise and GIZ: Improve the livelihoods of Madagascan smallholders

Almost 80 percent of vanilla used in the global food industry is produced in Madagascar, especially in the tropical forests. For ~70,000 Madagascan families the production of vanilla provides their main income. Most of the producers are small-scale farmers who face severe challenges as missing education infrastructure for farm management and production (vanilla has an intensive and long production process), high vulnerability to climate conditions (vanilla is a seasonal crop) and dependency on middlemen who pass only small amounts of the profits to them.

As part of the Unilever Sustainable Living Plan, the company has set itself the target of having a positive impact on the lives of 5.5 million people by a) improving the livelihoods of smallholder farmers, b) improving the incomes of small-scale retailers and c) increasing the participation of young entrepreneurs in their value chain by 2020. This is why Unilever partnered with Symrise, GIZ and other actors from the ecosystem to improve the livelihood of 4,000 vanilla smallholder farmers in Madagascar. Via farm field schools and demonstration farms the productivity of vanilla is being increased and farmers also get to know advantages and ways of diversifying their crop. Thus, their income from vanilla production is rising and they can improve their food self-sufficiency by selling other crops. In addition, the project has the potential to improve even more lives in Madagascar by upscaling the outreach.

Bosch India Foundation: Making health care affordable in India

In India, several congenital and early childhood diseases cannot be contained due to the lack of financial resources of the affected persons and their families, and the scarcity of healthcare facilities, particular in rural areas. The lack of awareness on the diseases and their treatments is further limiting the amount of people seeking medical assistance. The multinational corporation, Bosch, is exploring ways to change this.

The Bosch India Foundation and partner NGOs are providing affordable technology-based solutions to health suppliers in order to benefit low-income patients and expand access to better health services. Together they have incorporated products such as big data analysis for preventive healthcare, clinical and validation services, and mHealth and eHealth solutions, all within a cost optimization system.

One example is a locally-developed eye-care solution that screens and detects eye diseases launched in 2014. The system, composed of both hardware and software, is more affordable for individual practices and big health suppliers compared to competitors. In a country in which nearly one in every three citizens is visually-impaired, the provision of such a product can impact a significant number of lives – an estimated 80% of vision loss cases in India are preventable if they are detected early enough.

But not only large companies, also Small, Medium and Micro Enterprise (SMMEs), harness the potential of global value chains to improve livelihoods at the BoP, as the example of A Global Marketing Partnership for SRI Indigenous Rice shows.

A Global Marketing Partnership for SRI Indigenous Rice: Strengthening partnerships to increase farmers’ income

Traditional rice cultivation is a very resource-intensive process that, due to the use of fertilizers and a decreasing variety of rice types, has negative impact on the environment in general and biodiversity in particular. With low market prices, indigenous rice farmers in Asia and East Africa are struggling to make a living, relying more and more on dangerous chemicals. A Global Marketing Partnership for SRI Indigenous Rice is offering a holistic solution to economic and environmental issues of rice farming.

The 2005 SEED Winner, which includes public and private players, offers associated indigenous farmers organic and fair trade certification and an international marketing channel for their organically grown rice. It promotes the use of System of Rice Intensification (SRI) methods, which is a resource efficient way of increasing profitability, while reducing water use by 30-50%, eliminating the use of pesticides and significantly lowering the carbon footprint of rice production.

Starting small in Cambodia in 2005, a partnership with Lotus Food, a North American retail partner, allowed the organisation to enter the North American market. Currently, around 4,000 small-scale farmers from Cambodia, Madagascar and Indonesia are supplying their rice to Lotus Foods at prices 30-40% above market price. Further jobs are created along the value chain, for example in rice mills.

Building bridges to facilitate inclusive value chain development

Unilever and Bosch are not the only actors in the private sector finding ways to include the BoP in their business models; many new approaches have sparked in the past years. Yet, enterprises continue to face several constraints to developing inclusive value chains, including unclear regulatory and policy environments, lack of infrastructure, high levels of illiteracy, and insufficient knowledge and skills. Scaling up the viability of products and services, securing financing and gaining the trust of low-income consumers are among the main concerns.

Supportive ecosystems can help to overcome the challenges, just as the partnership with NGOs allows the Bosch India Foundation to reach out to their target group of low-income patients. Governments have an important role in creating enabling conditions and providing incentives for inclusive businesses, while civil society organizations can facilitate access to low-income communities and generate awareness among them. Research institutions share information on Inclusive Business Models, while development partners can support the creation of local support institutions, identify best practices and create a space of dialogue. (UNDP)

To start this dialogue and build bridges between the different ecosystem players, join us at the SEED Africa Symposium 2015, 9-10 September, Kenya, Nairobi. Based on best practice, inclusive businesses, multinational corporations, investors, development actors and others will discuss what the success factors for inclusive businesses are, which ecosystem players are important, and what each of them can do to facilitate the development of inclusive value chains, The Inclusive Business Action Network will be hosting a closed-door workshop for inclusive business representatives and a session focusing on “Making markets more inclusive: the role of the private sector“.

Inclusive Business Action Network: Promoting inclusive businesses around the world. As a Network, IBAN connects the dots between the vast number of businesses, existing initiatives, support mechanisms and stakeholders around the world. Compiling and sharing publications, guidelines, checklists and market research from a broad range of sources, IBAN facilitates access to relevant information and knowledge. Online and offline peer-learning and exchange formats provide numerous opportunities for interaction between the different members of the inclusive business community. A network of local hubs and partner structures provides direct access to local partners and BoP markets.

SEED Africa Symposium 2015: Building Bridges for Impact is the goal for this year’s Symposium. Around 500 entrepreneurs, business leaders, investors, practitioners and policy makers will examine emerging trends in the green and entrepreneurship space and look into ways of constructing new bridges to amplify the impact of social and eco-enterprises.