Thursday
October 18
2012

Daniel Gonzales

Science and Technology: The Next Frontier of Inclusive Business

Editor’s note: This article was also published in the 45th edition of the magazine RS, dedicated to entrepreneurship and inclusive business.

Latin America and the world have already demonstrated that inclusive businesses not only exist, but are capable of growing accelerated and profitably. What is missing is showing rates of return that exceed that of the market to attract investors and the traditional actors of economic and entrepreneurial development. Science and technology might be the solution.

The initial literature about business opportunity “at the base of the pyramid” was written with the hypothesis that there was a great opportunity for multinational companies to sell products to the poorest of people. As the years have passed we have seen that this is not as easy and certain and less so in a context such as that of Latin America. Multinationals that have actually succeeded in taking advantage of the business opportunity and simultaneously created impact are few and far between. There are cases like that of the skin whitening cream Fair & Lovely by Unilever, which was an important source of sales for the company in Asia, but with questionable and controversial impact. There also are countless examples and efforts by consumer companies, wood and construction companies, which despite their positive impacts have been abandoned because they don’t generate utility and necessary sales. Inclusive businesses are one of the best CSR strategies for big businesses because of the natural bond with their operations and knowledge. However, these are not businesses in the strict sense of the word because these entities are not going to directly generate cash surpluses and profits, or because they are marginal and largely unimportant to the core business.

It is important to promote inclusive business in micro, small and medium sized enterprises. The inclusive businesses of companies of this size, in addition to being a source of profitability, are important for the core business. Although isolated cases of NGOs exist that have successfully developed business lines, it is generally the entrepreneurs of MSMEs that have a better capacity to really make inclusion a business. Just to name a few examples:

  • Paraguay: Junta Saneamiento Itagua has annual sales of $667,000 distributing potable water services to 51,000 families.
  • Mexico: Ziklum has sales of almost $1.7 million annually, with 30 direct jobs and 200 indirect jobs. It is currently recycling 70 tons per month.
  • Guatemala: Kiej de los Bosques increased annual product export sales by less than $2.2 million in 2008 to $222 million in 2010. The company has increased the number of permanent jobs created and productivity from 50 producers to 106.

The role of accelerators, incubators, impact investing funds and other organizations that offer technical assistance and access to capital is fundamental to creating an environment to accelerate the emergence of these companies. It is indispensable to strengthen these organizations that support inclusive businesses so as not to wait decades until they are really an important force in the economy.

So then, what is the role of the big business? Some very special ones will be able to use their capabilities and resources to develop inclusive businesses and really allow them to grow and become more profitable, turning them into a competitive advantage. Businesses such as Natura Cosmeticos and Masisa have been Latin American examples for the world in this regard. But for the rest, the primary role will be to serve as anchors of inclusive businesses in terms of being business allies in purchasing, contracts, sales and other economic transactions that give stability and reliability to the MSME inclusive business.

Large companies can prioritize the development of inclusive business around their value chain as a priority in their CSR strategies. To demonstrate their relevance to strategy, whether strengthening the supply chain or distribution or CSR, it will be important to measure the advancement through clear objectives and goals, rather than worrying about the many impact methodologies. Large companies must measure the impact of inclusive businesses that they support in their value chain in terms of whether they create new clients, earn trust with suppliers, improve the internal climate and other metrics.

Is it possible that inclusive businesses can be a source of utility for large companies? A new role exists for large companies in Latin America that has been little explored. Supply chains, production, distribution and commercialization of large companies can be used to quickly bring social innovation to the market – not only to be linked with inclusive MSMEs.

Many MSME entrepreneurs are progressing well toward the purification of water, bringing electricity to remote communities, developing construction materials through recycling and using mobile payment methods. Many will be successful, but it will take between five and 15 years to have a sufficiently strong value chain to impact millions of people. In return, if the large companies begin to think about how to leverage the technology and science that already exists to improve their products or bring new ones to the market in a massive and accelerated way, it is possible that the process could take just one to three years. Additionally, it will demonstrate the profitability over the market necessary to stop using adjectives like “inclusive” or “impact” so that the industry as a whole develops businesses and investment with the criteria of inclusion and environmental protection as a part of their normal operations.

What would happen if a large cement maker purchased the patent for a construction system to make blocks out of recycled material? How could a large bank take a mobile banking service to the market on a massive scale?

Image credit: Thephotographymuse

Categories
Entrepreneurship, Technology
Tags
AVINA, financial inclusion, incubators, technology