Practical considerations for donors engaging with multinationals: lessons from the BIF Expansion pilot

In this blog I reflect on some of the questions that arise when a donor programme engages with large companies.  This area can be contentious, with some arguing that multinationals (MNCs) should never need any public support.  However, there is another view.  As Kerry Conway highlights, donors can play an important role in helping the private sector achieve positive social and environmental impact in some of the poorest countries in the world.

Multinationals have the scale and reputation to provide essential products and services, as well as employment, to people that would otherwise not receive them. Yet, contrary to common belief, large companies do not always have the resources to make it happen. That is why targeted public funding or consultancy can have a catalytic effect, enabling large companies to extend the way they do business in a way that helps to lift some of the most vulnerable out of poverty.

The Business Innovation Facility (BIF) has been piloting a new approach to engaging with multinationals, using ideas and initiatives from or developed alongside companies as an entry point to programmes in four additional markets (in Kenya, Ethiopia, Bangladesh and Pakistan). 

This has raised a number of questions regarding which initiatives a donor should support through its interventions and how donors and large companies can work together more effectively. Successful engagement is dependent on effective communication yet often donors and MNCs find themselves speaking at cross purposes.

While we cannot pretend to have all the answers, we have set out below a checklist of five questions arising from BIF’s experience that have helped to decide how and when BIF should provide support.  We hope that these questions aid multinationals, too, as they seek opportunities for funding or assistance.

1) Grant funding or in-kind support?

Donors need to be clear upfront what they can and cannot provide.  Using terms more familiar to companies such as ‘consultancy’ rather than ‘technical assistance’ helps to clarify the offer.  BIF provides both but its market systems approach means that direct grants to companies are appropriate only when constraints are identified at the company-level (i.e. a company lacks the capability or seed capital to develop, scale or replicate an initiative that would support the effective functioning of the market).

2) Is such assistance additional?

Justification for public support is dependent on whether it is additional (i.e. companies would not otherwise undertake the action or investment).  Such support is dependent on the company:

• Not being able to self-fund the initiative;
• Not having the knowledge or skills to implement the initiative alone; and/or
• Not being willing to implement the initiative due to a perception that the costs/risks outweigh the benefits.

In the case of one MNC, BIF held a workshop close to the pilot location and invited an expert in the development of Base of the Pyramid (BoP) business models to provide advice on how to implement a new, more commercially viable iteration of the initiative.

3) What are the political economy implications?

Understanding the political context is fundamental to understanding the likelihood of success of company initiatives and market interventions.  In Kenya, BIF has conducted an assessment of the role of government in the development of mango and avocado markets and intends to conduct further political economy analysis as it develops new interventions in those markets.

4) Is the initiative non-distorting?

Any donor funding must mitigate against the risk of distorting the efficient functioning of markets, in particular by crowding out domestic firms or stifling competition.  When introducing our approach to companies, we have made clear that our support cannot confer benefits on any one entity such that it would be unduly advantaged as a result.  This can be achieved through focusing on initiatives that are:

• Pre-competitive: One finding of BIF’s assessment of the Ethiopian barley sector was that greater clarification regarding the regulatory framework for introducing new seed varieties would be beneficial to companies as they try to improve the yields of smallholder farmers. By helping to provide a transparent playing field for companies seeking to make their supply chains more stable and inclusive, BIF plans to enhance the functioning of the market.
• Replicable: In order to achieve systemic change, initiatives should never be ‘one-offs’ but should, rather, have the capacity to be adopted or adapted by other companies.  In this sense, the long-term benefits of an initiative should be considered ‘non-exclusive’.  On BIF, we believe that part of the donor’s role is to document the innovation before sharing it with other companies.

5) Does the initiative harness the core business of the multinational?

While central to concepts of inclusive business and shared value, the term ‘core business’ can, on occasions, be ill-defined. Further questions we have asked ourselves when responding to this requirement include:

Are we more interested in the commercial sustainability of an initiative or the harnessing of existing core competencies?

As my colleague Tom Harrison pointed out last year, multinationals tend to be extremely good at a limited range of things and so rarely stray from their core competencies without partnering with other organisations.  Competencies may also be contributed in-kind rather than harnessed for business delivery, suggesting that they can be an unreliable guide to identifying the core business of a company.  Given this, we have tended to spend more time focusing on company incentives, asking ourselves whether such initiatives are or can be made commercially sustainable.

What do we mean by commercial sustainability? 

Broadly speaking, we have asked ourselves whether initiatives stack up from the perspective of either increased revenue or avoided costs.  Intangible value drivers (e.g. enhanced brand value, license to operate) have their place but, from a donor perspective, are less likely to meet requirements regarding market replication and non-distortion.

What is an acceptable level of commerciality for profit-making ventures and when should profit be realised? 

Key to this question is an understanding of the incentives of senior-level company representatives.  One initiative that BIF is supporting through its Expansion pilot has defined a set of commercial indicators to monitor its performance but is maintaining a separate profit-and-loss account until such time as it can be integrated into its ‘core’ operations (which may be over a longer period than the lifetime of BIF). Crucial to our decision-making was CEO buy-in to the initiative as a profit-making venture.

The BIF Expansion is still at an early phase but our experience to date tells us that asking the important questions upfront helps to avoid misunderstandings further down the line.

This blog is part of the January 2017 series on how, and why, donors and businesses work together for development impact. For more candid opinions on what works, and what doesn't, read the full series on demystifying donor-business collaborations.