Over the past several years, business has been playing an increasingly important role in poverty alleviation and social development through what are known as Inclusive Business Models (IBM), solutions that provide access to economic opportunities to low-income communities in a manner that will make businesses more viable and sustainable. These initiatives are usually considered as part of the firms’ corporate social responsibility and are assumed to entail sacrifices in profits in exchange for their impact on society.
Our position on this matter is quite clear, however: Inclusive Business Models have a potential positive impact on the firm’s long-term profitability; they are — and should be! — an integral part of any business firm’s strategic agenda.
Equally as important from a developmental perspective is the fact that these initiatives also have a tremendous potential for helping alleviate poverty and improving the lives of the economically disadvantaged members of society. IBMs should therefore be encouraged and supported by government agencies, multi-lateral organizations, NGOs, and other social institutions.
The United Nations Development Program (UNDP), the UN’s primary instrument for social development, has long realized the importance of partnering with the private sector, business in particular, in the implementation of its worldwide network of developmental programs.
UNDP Philippines has for some time been working in close partnership with businesses and business associations in pursuing the UN’s Sustainable Development Goals (SDG) in the country. A recently published comprehensive report prepared by this agency jointly with the Philippine Business for the Environment showcases a number of IBMs being implemented across the country — 139, to be exact — that are quietly transforming the countryside by contributing in varied ways to the attainment of country-specific SDGs.
The IBM initiatives highlighted in this report serve as examples for commercial enterprises of all types and in all areas of business to emulate in the formulation of business strategies and practices that enable them meet their long-term business goals and at the same time address the economic, social, and environmental needs of society.
From the large number of individual cases of IBMs covered in the report cited above and from other sources, we choose, for lack of space, two which we believe serve as the quintessence of IBMs that are focused on the poorest among the firms’ two major stakeholders, those who are strategically positioned at specific points in their supply chains: the poorest among their customers, and the poorest among their suppliers. Our purpose here is to show the commercial wisdom and economic rationale behind corporate efforts to serve the economic interests of these deprived members of our communities.
SOLAR PHILIPPINES: EXPLOITING UNDERSERVED MARKETS, UPLIFTING LOCAL COMMUNITIES — AND CLEANING UP THE ENVIRONMENT TO BOOT
Solar Philippines is the largest developer of solar rooftop power plants in Southeast Asia. The company’s avowed vision is to end “energy poverty” by providing cheap and reliable electricity to every Filipino by the year 2022, a lofty goal indeed considering that 10% of the country today has no access to electricity. According to a recent company press release, the firm intends to devote half of its resources to remote areas of the country which currently remain unserved or poorly served by electric utilities.
This IBM is a textbook case of a marketing strategy aimed at creating consumer value by introducing cheaper versions of existing products and services that are currently priced beyond the reach of a large number of potential customers.
Solar Philippines is poised to invest heavily in the production of solar panels for the intended purpose of serving the energy needs of poor communities. This is made possible by the application of new production technologies which are more cost-effective than coal-fired power generating facilities. Moreover, solar-generated energy brings the added benefit of leaving no carbon footprint, a significant windfall to communities long suffering from the ill effects of carbon emission resulting from the production and use of fossil-based energy.
Cheap energy has the tremendous potential of creating opportunities for income- and employment-generating activities in poor communities, and is an essential ingredient for reducing widespread poverty in the country. Solar Philippines has plans of organizing rural consumers into “Solar Cooperatives” for the purpose of generating electricity at lower costs and with greater dependability than existing electric cooperatives. Discussions are currently underway with various communities and government agencies to make this a nationwide model to integrate irrigation and other income generating initiatives in the remotest areas of the country.
Solar-generated energy is one of a class of products known as “information goods” which have the distinct characteristic of being subject to increasing returns — meaning, the more its production is scaled up, the lower the cost of producing additional amounts. It is therefore conceivable that the price of energy in the country will become progressively lower as the output of solar energy increases, a harbinger of things to come, thanks in no small measure to Solar Philippines and the visionary men and women behind the company.
By producing energy at a lower cost than existing alternatives, and selling this at low prices that nonetheless cover costs, the company may expect to generate net income streams well into the future and at the same time serve the economic interests of its customers and of the community, an all-win situation anyway one looks at it.
KENNEMER FOODS: HOLDING DOWN ON TRANSACTIONS COSTS AND BUILDING PRODUCTIVE COMMUNITIES
Kennemer Foods International, Inc. (KFII) is the country’s leading exporter of cacao beans to the international market. Through its Cacao Growership Program (CGP), it supports its large supplier base of smallholder farmers by providing them with access to financing, technical assistance and a guaranteed market.
The CGP potentially enhances KFIIs long-run profitability by enabling it to acquire its input requirements from economically efficient, technically savvy, and ethically reliable business partners. By virtually integrating them into its operations rather than doing business with them through arm’s-length supplier contracts, KFII is able to substantially reduce its transactions cost by insuring the quality of its supplies, guaranteeing the timeliness of their deliveries, and foregoing the need to closely monitor their activities to insure adherence to contractual arrangements.
A long-term evaluation of the social impact of the CGP has shown that the average annual gross income per hectare of a typical cacao farmer has gone up from P25,000 to P175,000, a whopping seven-fold increase, leading to a total increment in annual income of P7.6 billion to the 36,500 farmers directly employed in the program, truly commendable contributions to the SDGs.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.
Dr. Niceto S. Poblador is a member of the MAP Corporate Governance Committee, a retired UP Professor, and until recently was Professorial Lecturer at the UP School of Economics.