NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Over two decades ago, C.K. Prahalad and Stuart L. Hart challenged the private sector to tap into “the fortune at the bottom of the pyramid” by developing products and services for the 4 billion people living on less than US $1,500 per year (purchasing power parity). They argued that serving these overlooked segments of society is not just a way to raise living standards and tackle rising inequality — it also represents a vast, untapped market opportunity.

Lever Brothers — a founding company of the contemporary corporate giant Unilever — had already acted on this ethos as far back as 1894. The company’s Lifebuoy Soap aimed to make hygiene affordable for everyone, thereby reducing the spread of disease. Today, Lifebuoy is the world’s best-selling germ-protection soap, demonstrating the enduring value that can arise from serving lower-income customers.

Yet the pursuit of such inclusive business models among large corporations remains more the exception than the rule. As doctor-turned-entrepreneur Paul Polak observed, “The majority of the world’s designers focus all their efforts on developing products and services exclusively for the richest 10% of the world’s customers. Nothing less than a revolution in design is needed to reach the other 90%.” This new approach to business, he argued, offers a route to eliminating poverty — a goal that philanthropy, economic growth and big-business-as-usual have failed to accomplish.

In 2024, the need to reduce poverty and inequality is as pressing as ever. Progress on the Sustainable Development Goals (SDGs) is falling short, and there are still around 4 billion people living on incomes below $8 per day — the widely used income threshold for the “base of the pyramid” in today’s global economy. The Business Commission to Tackle Inequality (BCTI) has warned that global inequality now constitutes a systemic risk that erodes trust in economic and political systems, undermines social cohesion, and drives unrest.

The promise of Prahalad and Hart’s vision of business as a tool for poverty alleviation has clearly not yet been fulfilled — even as this vision has gained traction under the mantle of inclusive business. The term refers to commercially viable business models that include people living at the base of the economic pyramid in their value chains as suppliers, employees, distributors, retailers and/or customers. In doing so, inclusive businesses aim to create decent livelihood opportunities and expand access to essential goods and services in a financially sustainable and scalable way. The rise of inclusive business sits alongside the turn towards “stakeholder capitalism,” which posits that the purpose of business is to create long-term value for all stakeholders and wider society.

The concept of inclusive business has been promoted by the UNDP, G20 and IFC, and by regional development banks such as the ADB. It has also been championed by initiatives such as Business Call to Action, hosted at the UNDP, and the Inclusive Business Action Network, funded by the German Federal Ministry for Economic Cooperation and Development. And in its flagship report, the BCTI identified 10 actions businesses could take to reduce inequality, including providing “safe, secure and sufficient work,” “promoting living wages and incomes,” and “making essential products and services more accessible and affordable” — all important elements of inclusive business.

The challenges of putting inclusive business concepts into practice

But despite the enthusiasm for inclusive business as a concept among development sector players and impact-focused enterprises, multinational corporations (MNCs) and other large corporations have found it difficult to operationalise. Put simply, inclusive business is a tall order: It requires companies to develop commercial solutions that bypass or overcome the very same systemic obstacles and inequalities that cause poverty in the first place, while navigating regulatory and policy environments designed for “business as usual.”

This challenge requires considerable effort and patience from company leadership and investors, for returns that are not guaranteed — running contrary to the usual norms of business. Inclusive businesses demand long-term thinking, an ability to learn by failing forwards, and acceptance of moderate levels of profitability in exchange for high social impact.

However, conventional business management frameworks, business-unit-based incentive structures and low tolerance to risk create obstacles for those looking to grow an inclusive business within a corporation — a common approach taken by large companies that want to introduce inclusive elements to their operations without fully converting to an impact-focused business model. Additionally, research by Business Fights Poverty and the League of Intrapreneurs (supported by UK Aid’s Inclusive Business Boost, Cemex and the BMW Foundation) found that social innovators within MNCs also face limited access to resources, a lack of necessary skills and unsupportive organisational cultures. Given these issues — along with the challenging economic climate, the renewed emphasis on ensuring profitability and the recent push-back against ESG — many corporations may be deterred from investing in inclusive business ventures, considering it too high-risk or insufficiently profitable.

Four reasons corporations should embrace inclusive business

Yet despite these challenges, corporations should consider inclusive business models, for four important reasons:

1. An essential partner: While governments must lead in addressing poverty and inequality, they will not solve this issue unilaterally, given the sheer scale of the problem and the complexity of its causes. That’s why the private sector is a key partner in the 2030 Agenda for Sustainable Development, in which the promotion of sustained, inclusive and sustainable economic growth is a key goal. And large global businesses, in particular, have the scale necessary to advance these goals.
2. A unique position: The private sector is the primary provider of the goods, services and economic opportunities that raise living standards around the world. Among these private businesses, MNCs have global value chains that span continents, are key drivers of innovation, and control a vast proportion of the world’s wealth: For the year 2022-2023, the Fortune Global 2000’s combined sales of $51.7 trillion were equivalent to nearly half of global GDP.
3. A heightened expectation: Consumer and investor expectations have risen for businesses to demonstrate their social as well as financial value: To take one example, in the 2021 Edelman Trust Barometer survey, 86% of respondents agreed that CEOs need to lead on societal issues.
4. A commercial opportunity: Businesses that lean into inclusive business can reap several rewards, driving innovation, establishing new markets, enhancing their reputation and employee engagement, building their value chain resilience, and boosting their long-term competitiveness.

A new era of opportunity for inclusive business

Given these commercial and development impacts, there are promising signs that inclusive business is at a turning point in terms of its uptake among MNCs. According to Accenture, developments in digital technology and supply chain infrastructure, a rise in strategic collaboration and investment, and the early success of inclusive business models in the Global South are creating momentum, such that inclusive business is an estimated $6 trillion opportunity in the current decade. In particular, Business Call to Action identified food and beverages, infrastructure, health, education, and financial services as the sectors that are best positioned for financial success, given the overlap between market needs, proven business models and the potential for social impact.

For large businesses seeking to tap into this momentum in emerging economies, the impact of digital technology and digital finance can be transformative. To take one prominent example, M-PESA, established in 2007 by Vodafone Group, is now Africa’s primary mobile money transfer service, reaching 51 million banked and unbanked customers with a slate of products and services that help drive inclusive development. And other businesses have joined in: For instance, M-KOPA is leveraging M-PESA’s platform to deliver financial products to people who are financially excluded, and it has deployed $1 billion in credit and other products since it began in 2010. Another example is Mastercard, which has pledged to help bring 1 billion people and 50 million micro and small businesses into the digital economy by 2025.

Three insights to put inclusive business into practice in corporations

There are a growing number of big businesses that are demonstrating that this approach to doing business is possible at the corporate level, despite its challenges. Their experiences highlight three important lessons in how inclusive business can be operationalised in the context of large corporations.

1. Build a persuasive investment case based on social as well as financial data:

From the outset, intrapreneurs working to introduce socially focused products or services into a large corporation must make a strong investment case to the company — and this often requires efforts to gather new data on social issues. For instance, Cemex’s inclusive business, Patrimonio Hoy, was developed following an 18-month research programme into the social challenges of self-built housing, which makes up over 60% of Mexico’s housing stock. Families face many barriers in constructing decent homes for themselves, including lack of financing and lack of technical construction knowledge, while public trust in the construction sector is low. Patrimonio Hoy addresses these hurdles by providing affordable access to savings-credit schemes, technical assistance and project support — including delivery of quality materials through local distribution networks that generate income for people in these local communities. The business offers delivery of these materials in small batches as the customer requires, helping to avoid loss of materials — for example, as a result of flood or theft. This has practical advantages for customers who do not have room to store large deliveries, and avoids unnecessary costs.

Cemex’s early research helped make the internal case for investment in Patrimonio Hoy, and helped Cemex’s leadership understand the likely returns (from both a social and financial perspective), leading to support for this new inclusive business over time. Cemex has also sought feedback from its customers, and evolved its offerings to respond to their needs. Since its establishment, Patrimonio Hoy has reached over 3 million people with access to credit, technical advice and other services that have helped them to build or improve their homes, resulting in the construction of more than 5.1 million square meters of housing, and generating sales of US $388.5 million over 19 years. Not only has this improved the quality of housing for people in low-income communities, but around 15% of Patrimonio Hoy’s customers now use their new space to run a business, contributing to their own financial security and local economies.

Alongside data-gathering initiatives to build the business case, tools such as Business Call to Action’s Inclusive Business Process and Maturity Diagnostic can help create a roadmap around which to align leadership and business units, and develop new metrics and KPIs that reward incremental progress.

2. Help communities and business to thrive together:

People in low-income communities are not only potential customers, they are also critical to the operation and resilience of value chains — as retailers and as producers. Inclusive business models within corporations can improve the livelihoods of both groups, as well as increasing the accessibility of affordable products.

For example, Hindustan Unilever’s Shakti programme enables over 190,000 women in rural areas of India to run their own businesses from home as independent retailers of Unilever’s products. This provides women with economic opportunities, while extending Unilever’s reach to last-mile communities. While the products are vastly different, Patrimonio Hoy also makes its sales through a network of local promoters, over 70% of whom are women. This provides a flexible source of income for people in local communities, and a trusted point of contact for customers.

The Healthy Line Shops model is another example of inclusive business within corporate value chains. It is a collaboration between the Global Alliance for Improved Nutrition and the Ethical Tea Partnership (funded by major tea companies and the Dutch Ministry of Foreign Affairs), that tackles malnutrition by enabling 3,200 households in tea-growing estates in Assam to buy more nutritious and affordable food via community-based shops. Local agents aggregate orders from these shops, negotiating lower wholesale prices and arranging delivery. There were 32 Healthy Line Shops (as of 2022), and they are profitable enough to cover delivery costs independently. In 2022, the programme was being scaled to 120+ new Healthy Line Shops in 30 tea estates — an expansion with the potential to bring nutritious food products to 50,000 tea workers and their families, while generating US $3.2 million annually.

Corporations are also supporting small business owners in their value chains — many of whom cannot access traditional lending options — via access to credit and digital finance. For example, Mastercard collaborates with partners including Unilever, KCB Bank Kenya and Kasha, a digital retail and distribution platform for health products operating in South and East Africa, on its Jaza Duka microlending platform. By 2022, Jaza Duka had provided over Ksh 1 billion in digital transactions to small retailers in Kenya, over half of whom are women, resulting in a 20% increase in their monthly sales on average.

3. Think creatively to adequately fund and scale inclusive business ventures:

Inclusive business ventures have low profit margins, so their commercial viability relies on successfully bringing the business to scale. First and foremost, scaling depends on developing a product offer that meets the needs and aspirations of low-income consumers while being affordable. It also requires up-front investment from the corporation, which can be considerable.

Reliance Jio took this approach when it invested $35 billion in building a new 4G network in India — one that offered calls and data at prices well below its competitors. It is now India’s largest telecoms company, with over 440 million subscribers, triggering what Wall Street Journal termed a “cheap-mobile-data revolution.” The company’s JioBharat 4G feature phone costs only $12 a unit, to appeal to customers who can typically only afford 2G phones. It is more than 20 times cheaper than the typical cost of a smartphone, and provides access to calls, internet, video and digital payments for a data charge of just $1.50 per month. In the space of a year, JioBharat phones have reportedly captured 63% of market share in the 4G feature phone segment, and increased 4G feature phone shipments by 300%.

Most inclusive businesses will not be able to invest such significant sums up front, nor will they have such a meteoric rise. However, scaling can also be supported through a combination of commercial and philanthropic investment that allows the business to move through an iterative process of refining the offer and delivery model.

This was the case with Patrimonio Hoy, which started within Cemex’s commercial business, and then moved to the CSR department for experimentation and development. It is now running as a profit-making business in order to scale. This flexible approach gave the fledgling business breathing space when it was needed. There are also many examples of businesses partnering with others — for example Jaza Duka and the Healthy Line Shops model — so that initial investment costs are shared.

Accelerating the adoption of inclusive business

Inclusive business models can contribute to global efforts to eradicate poverty and build a more equitable future. There are now successful examples that have proven that these business models can work when adopted by major corporations — whether they’re aiming for social impact or just hoping to expand into lower-income markets. Of course, this approach has its limitations: Business can never be the entire solution to social challenges, and it must be conducted in a way that centres human rights, including environmental and cultural rights. But there is no doubt that corporations have an unprecedented opportunity to uplift living standards for millions of people through the intentional development of inclusive products, services and economic opportunities. It is time to lean into that promise.

Note: This article was developed with support from Cemex, who are key partners of Business Fights Poverty alongside Unilever, Mastercard Center for Inclusive Growth and others.

Annabel Beales is a Collaboration Lead for Business Fights Poverty and a Senior Fellow of the Business Fights Poverty Institute. 

Photo courtesy of Pexels/Pixabay.