Inclusive businesses succeed by investing in customer education & supplier training
Last week in Washignton DC, CEOs and senior executives from successful inclusive businesses were brought together by the International Finance Corporation (IFC), and highlights of their business model shared in a new report. One of the strong themes was the need to invest in capacity building for the BOP. The term varies: consumer education, customer literacy, customer sensitization, client training, supplier support... 'hand-holding'. Even more varied were the examples:
- In India, FINO provides a smart-card banking and payment system for the unbanked, and supports financial literacy training for potential clients.
- Moderna, the leading miller and marketer of wheat flour in Ecuador, provides training to bakers on baking and business management.
- Brookfield, providers of low-cost housing and finance in Brazil, discovered a need to provide training in house maintenance to their clients, none of whom have had their own house before.
- Group Martins even runs an online university for the small shops and retailers whom they supply across Brazil.
These examples all focus on the consumers of goods or services. Others support the producers and suppliers in their value chain. Jain Irrigation Systems, for example, specialises in drip irrigation for Indian smallholders, and provide agronomic training including planting, input application and how to meet international standards. These are inclusive business ventures that have received finance (usually equity) from IFC, generate commercial returns, and have already achieved some scale - in some cases reaching many millions at the base of the pyramid (BOP). The question raised, was are the companies profitable because of, or despite, these investments? The company representatives see them as central to business success; part of the cost of doing business with the base of the pyramid. In most cases, the costs are incorporated into core business costs, sometimes marketing costs. Occasionally capacity building of disadvantaged groups is done separately on a non-profit basis with NGOs, or with help of donor funding. While the companies regard this as an ingredient of success, there is no doubt it also remains a challenge. When corporate participants were asked what their greatest challenge was, building capacity at the Base of the Pyramid came out top. Details of each inclusive business example can be found in a new guide by IFC: Inclusive Business Models; Guide to the Inclusive Business Models in IFC's Portfolio.