Inclusive Business and Large Corporates: Insights from the Business Call to Action Members
Incorporating inclusive business practices at the corporate level often involves overcoming an array of internal and external barriers. Because incorporating the BoP as suppliers, producers or customers is a new aspect of business, there can be internal challenges, such as getting buy-in from different parts of the organization, as well as the external challenges, such as an unsatisfactory regulatory environment or lack of local skills and infrastructure. Despite the difficulties, companies that pursue inclusive business reap benefits that extend beyond the bottom line.
The Business Call to Action saw in its research that its large corporate members who manage to integrate inclusive business within the company find that it helps them gain competitive advantage, capture market share through being first-movers, building market awareness and overall position themselves in the long term.
To commemorate the June mini-series on inclusive business insights from large corporates, we are featuring three BCtA member companies who are integrating inclusive business models into their broader operations as part of their long-term positioning and diversification, while creating social impact and overcoming development challenges through their products and services.
In Mexico, the majority of people living in extreme poverty lack access to financing for safe, high-quality housing. As a consequence, most low-income families rely on self-construction, where homeowners manage every aspect of building, extending, or refurbishing their homes. Without technical and financial assistance, these families often pay high prices for low-quality construction materials, reinforcing the cycle of poverty. To address this complex and multi-dimensional challenge, Mexico-based CEMEX, a global building materials company with presence in over 50 countries today, is implementing multiple programs that aim at enhancing low-income people’s capacities for accessing affordable housing through access to services, building materials, training and well-planned savings and credit scheme.
CEMEX was one of the first pioneers in the Latin American market to incorporate the low-income consumers into its core business strategy. Its flagship inclusive business program, Patrimonio Hoy has improved the living conditions of more than 2 million individuals through more than 3.3 million square meters of home construction families by making housing improvements through micro-loans for construction material over the past 15 years. CEMEX’s model is based on understanding BoP consumers’ home improvement needs, including technical assistance, fixed-price materials and delivery schedules tailored to individual families.
CEMEX’s success in addressing the gaps within the BoP housing market provides evidence for scalability and replicability of the innovative models. Beyond Mexico, in Colombia and Guatemala, as part of its Assisted Self Construction Programme (PiAC), CEMEX is partnering with local governments and NGOs to manage Self-Employment Production Centers, where local families receive supportive training and material for manufacturing brick blocks to construct their own homes. CEMEX has already supported more than 25,000 families through the centers and plans to reach an additional 26,700 in Mexico and the Caribbean by 2016.
In India, over 800 million people live on less than three dollars a day and of this population, only 35 per cent have access to essential medicines. Health-seeking behaviours and health expenditures are low in these communities, compounded by poor sanitation and the limited availability of medicines and trained professionals. In response, Novartis developed and launched in 2007 Arogya Parivar, which means healthy family in Hindi, to expand access to affordable products, improved health infrastructure and community education.
Arogya Parivar’s inclusive business model utilizes a market-based approach for healthcare provision. By offering education on diseases, treatment options and prevention as well as enhancing access to affordable medicines, Novartis has built upon an existing network of qualified professionals that bolsters weak or, in some cases, non-existent healthcare infrastructure.
The program achieved a break-even point within 30 months, and the sales have increased 25-fold since the launch. In just six years, the programme has trained more than 500 health educators and has built capacity among hundreds of business partners, suppliers, and customers. More importantly, thanks to the success of Arogya Parivar in India, Novartis has replicated a similar model in Kenya, Vietnam, and soon Indonesia, thus, in the process becoming an essential public health tool in rural areas in these markets.
In Brazil, the lack of access to the formal financial market is staggering, where 40 percent are still excluded from formal banking systems. A few years ago, the Brazilian Government launched a simplified tax system specifically for micro-entrepreneurs called Simples Nacional, which aimed at encouraging informal small businesses to become formal. However, many micro-entrepreneurs’ mindsets remain similar to those of informal entrepreneurs; such businesses are therefore known as ‘semi-formal’ enterprises.
Itaú Unibanco, the largest bank in both Brazil and Latin America, is addressing the challenge through the micro-finance operation aimed at micro-entrepreneurs in the metropolitan regions of São Paulo, Rio de Janeiro and Porto Alegre. Its main goal is to address the needs of urban communities that lack access to formal banking with microfinance and microinsurance products.
Through a partnership with the International Finance Corporation (IFC), the financial arm of the World Bank and the Inter-American Development Bank (IDB), Itaú not only provides informal micro-entrepreneurs with financing, but also delivers financial guidance on managing money and achieving success in business. The initiative has helped the bank to better understand this market segment, gain a foothold in a significant market and eventually graduate microfinance recipients to other financial products offered by the bank.