Leveraging private sector tools for sustainable economic development

| Updated: October 22, 2017 19:51:53

Leveraging private sector tools for sustainable economic development

One of many strategies for economic development is making businesses more inclusive. The term "inclusive business" means integrating the poor into the market system either as consumers on the demand side or as distributors, suppliers and/or employees on the supply side. It is not just selling customised products to the poor; it rather is improving skills of multiple stakeholders, creating access to markets by integrating the poor in their value chain thus generating income and jobs.
 Such commercially viable models help a business to transform and see growth. However, one common misconception about inclusive business rests with its relationship with Corporate Social Responsibility (CSR). Unlike CSR, inclusive business actually works as a core business strategy of the companies. It tweaks and transforms the core activities of business to include the poor into the value chain. For example, how Coca Cola's Manual Distribution Centre (MDC) model of distributing Coca-Cola through independently owned, low-cost manual operations created to service emerging urban retail markets where classic distribution models are not effective or efficient, has significantly contributed to entrepreneurship development in Africa.
Another example is introduction of small, affordable sachets of soaps and shampoos by Unilever. In India, Unilever realised the potential of the market segment (the lower-income group) that had been seemingly unattractive for its competitors, and adapted as per the needs of that group. Unilever not only developed the appropriate products or modified their packaging, but also created access to these products through alternate distribution methods like creating women entrepreneurship and succeeded in reaching the poor. The poor consumers, who could not afford the regular sized shampoos or soaps, now got the appropriate products. These sachets are now available even in the most remote places in the Indian subcontinent. Careful study of the market and tweaking the business model by designing the appropriate products, creating distribution methods and marketing strategies have all collectively contributed to Unilever's success.
Let us now move on to a different, more complex scenario of one of the most important sectors of Bangladesh, the agricultural sector, which as of 2016, employs 47 per cent of the total labour force and comprises 16 per cent of the country's GDP (gross domestic product). Being a major source of income for 14 million households in Bangladesh, it plays a very critical role in the country's economy, hence economic development.
Private sector actors sometimes do not realise the potential of the market and target the easy-to-access and lucrative one leaving its another potential segment untouched. This is one of the reasons why poor farmers do not get access to quality inputs or services and fail to get desired yield.
Realising that small farmers do not get the desired yield, a market development project, named Katalyst (a five-year project jointly funded by DFID, SDC, Sida, and CIDA1 , implemented by Swisscontact and GTZ International Services and works together with the Ministry of Commerce of Bangladesh), developed a business model for a seed company to make mini packets of quality seeds targeting the poor farmers who cannot afford to buy the regular packets. Initially, as the company was reluctant to do so, the project took an innovative approach to show the potential of the market through helping a seed company (read LalTeer Seed Ltd.) to create alternative distribution methods by developing a network of Mobile Seed Vendors (MSVs) - traditional vendors who move around within rural weekly markets with seeds in hessian sacks to cater to a poorer clientele requiring less quantity of seeds. When the company saw it was failing to gain a potential market share due to the unavailability of appropriate products in their portfolio, they went on board with the project to develop appropriate products for the poor farmers. These products were distributed through the network of MSVs the company had developed. This alternative distribution method, coupled with appropriate products, helped the company to increase market share by entering into a previously untapped segment. More companies are following the trend and market started becoming more competitive. At the same time, poor farmers who were using sub-optimal quality seed are now experiencing higher yield by using quality seed.
That was just one example of how businesses can be inclusive and help in the economic development of Bangladesh. That sounds appealing for the businesses, right? Well, if it does, then why do not the companies take such initiatives on their own? Because, all they need is "a little push!"
It has been observed that different innovative partnerships between private sector actors, government bodies, NGOs and/or other non-traditional partners play important role. Sometimes different parties do their own research, create inclusive business models and use the private sector's quest for profit as leverage in the process of development. As the companies sometimes do not realise the potential on their own, an initial push is very important to trigger and catalyse the process.
Inclusive businesses are tricky and need adequate planning.  Designing the right kind of product or services is one of the most critical elements in the process of designing inclusive business models. A well planned business model can be very rewarding by generating good profit. However, inclusive business models at their incipient stage do not necessarily guarantee a good return for the companies. In order to implement the plan successfully, the companies need to have a concrete strategy -- be it marketing, finance, or operations to internalise and sustain the change in their core activities, leading to sustainable economic development.

The writer is Senior Business Consultant, Swisscontact-Katalyst.
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