62264 Business Linkages: Enabling Access to Markets at the Base of the Pyramid Report of a Roundtable Dialogue March 3-5, 2009, Jaipur, India Written by Beth Jenkins with Eriko Ishikawa Designed by Alison Beanland © 2009 International Finance Corporation, International Business Leaders Forum, and the CSR Initiative at the Harvard Kennedy School Acknowledgements The authors would like to thank the CSR Initiative’s Jane Nelson and IFC’s Sujata Lamba and Toshiya Masuoka for their input into this report as well as for the leadership and support they have provided for the Business Linkages Series overall. Harsh Vivek, Neha Kaul, Ananthy Thambinayagam, Brad Roberts, and Ishira Mehta contributed to the initiative descriptions found in Appendix 1. Amanda Gardiner also provided invaluable review comments. Finally, the authors gratefully acknowledge the participants in the Roundtable Dialogue Series and particularly the March 3-5, 2009 Dialogue in Jaipur, India, upon whose experiences and insights this report is based. Rights and Permissions The material in this publication is copyrighted. Quoting, copying, and/or reproducing portions or all of this work is permitted provided the following citation is used: Jenkins, Beth and Eriko Ishikawa. 2009. “Business Linkages: Enabling Access to Markets at the Base of the Pyramid.” Report of a Roundtable Dialogue March 3-5, 2009, Jaipur, India. Washington, DC: International Finance Corporation, International Business Leaders Forum, and the CSR Initiative at the Harvard Kennedy School. Cover photographs: DSCL Hariyali Kisan Bazaar, Jaipur Rugs (photo by Eriko Ishikawa), and Jain Irrigation (photo by Subrata Barman) The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of IFC, IBLF, or the Harvard Kennedy School. Business Linkages: Enabling Access to Markets at the Base of the Pyramid Table of Contents PREFACE 5 1. OPPORTUNITIES TO ENABLE ACCESS TO MARKETS AT THE BASE OF THE PYRAMID 6 2. CHALLENGES IN FORMING BUSINESS LINKAGES 10 3. PATTERNS OF SOLUTIONS AND CROSS-CUTTING THEMES 11 4. CONCLUSIONS 16 APPENDIX 1. BUSINESS LINKAGE INITIATIVES OF JAIPUR ROUNDTABLE PARTICIPANTS 17 APPENDIX 2. JAIPUR ROUNDTABLE PARTICIPANTS 25 ENDNOTES 26 Preface Ever since the early thought leaders began to speak and write about doing business with the poor, they have looked to India as a source of innovation and experimentation in products, services, and business models intended to reach new markets at the base of the pyramid (BOP). Hence it was natural that following the launch of the Business Linkages roundtable series in Washington DC in 2007, and subsequent roundtables in Johannesburg and Rio de Janeiro, the fourth roundtable was held at the heart of the BOP action in Jaipur, India. The Business Linkages roundtable dialogues, held in partnership with the International Business Leaders Forum and the CSR Initiative at the Harvard Kennedy School, explore business models that incorporate those at the BOP as consumers, producers, and entrepreneurs, with special emphasis on producers and entrepreneurs. This emphasis was particularly pronounced in Jaipur, with the effects of the financial crisis making themselves felt throughout the economic pyramid around the world. Now, more than ever, we must find sustainable ways of reducing vulnerability and expanding opportunity for all. Pioneering work is taking place, and as we progress, issues of replicability and scalability come to the fore. There are still more questions than answers. In this vein, the Business Linkages roundtables are intended as safe, open spaces for practitioners to learn from one another – opportunities that are still rare for many. We have come a long way, from learning about innovation in enterprise development from Anglo American in South Africa, to exploring ways to finance and support entrepreneurs with Tribanco in Brazil, to looking at innovative BOP models like Jaipur Rugs in India. With each successive roundtable, we are growing and evolving a body of knowledge on the practice of business linkages. In this context, the current report adapts and builds upon the two previous reports in the Business Linkages series: · Business Linkages: Lessons, Opportunities, and Challenges (2007) · Supporting Entrepreneurship at the Base of the Pyramid through Business Linkages (2008) On behalf of IFC and its partners IBLF and the Harvard Kennedy School, I would like to extend a sincere thanks to the practitioners who have made time in their busy schedules to make this learning possible. Toshiya Masuoka, Director, Corporate Advice, IFC BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 5 1 Opportunities to Enable Access to Markets at the Base of the Pyramid Business models that offer critical goods, services, and livelihood opportunities to those at the base of the economic pyramid – the four billion people worldwide who earn less than $8 a day1 – are increasingly being explored as engines of business and development benefit. On the development side, many products and services – when appropriately designed, packaged, and delivered – can help purchasers meet basic human needs and improve their productivity. This is especially true in industry sectors such as food and beverage, financial services, information and communications technology, health care, and water and sanitation. Similarly, the opportunity to participate as suppliers, distributors, or retailers in commercial value chains can help increase local job and wealth creation, enhance skills and capacity, add purchasing power, and generally stimulate economic activity and development – contributing, in the process, to quality of life. On the business side, models targeting the base of the pyramid can unlock potentially vast new markets and help catalyze innovation, reduce costs, increase flexibility and the ability to specialize, meet legal requirements, and enhance social license to operate, thus contributing to overall competitiveness. These “BOP” or “inclusive” business models fall into three broad categories: buying from, distributing through, and selling to those at the base of the pyramid.2 Many companies also support enterprise development and access to markets at the BOP more generally, beyond their value chains, for any combination of legal, social, and economic reasons such as complying with concession agreements, building employee and community morale, and preserving social license to operate. BOX 1 RECENT FLAGSHIP REPORTS ON BUSINESS WITH THE BASE OF THE PYRAMID Since the last Business Linkages Roundtable in Rio de Janeiro, Brazil, in June 2008, three major reports on doing business with the base of the pyramid have emerged. The first, released in July 2008, was the United Nations Development Programme’s “Creating Value for All: Strategies for Doing Business with the Poor,” which analyzes constraints to and strategies for inclusive business based on a sample of 50 case studies featuring social enterprises and for-profit companies of all sizes in a range of countries around the world. The second, the World Economic Forum’s “The Next Billions: Unleashing Business Potential in Untapped Markets,” released in January 2009, identifies perspectives and design principles for the development of successful BOP business models. The third, Monitor’s “Emerging Markets, Emerging Models,” released in March 2009, analyzed a sample of more than 250 mostly Indian cases to identify business models with the potential for scale. Those models included pay per use; no frills service; paraskilling; shared channels; contract production; deep procurement; and demand-led training. 6 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 1.1 Buying From the Base of the Pyramid Companies are sourcing a wide variety of products and services from local small and micro enterprises. These products and services range from agricultural commodities to cleaning and printing services to higher value-added inputs such as manufactured components. Buying from local small and micro enterprises can help companies cut costs and increase flexibility. It can increase quality, traceability, and sustainability of supply, which is increasingly important in agriculture, forestry, apparel, and other sectors. In some cases, for example in coffee and tourism, it can contribute to an interesting, unique product offer. And buying from local small and micro enterprises helps build strong and diversified local economies, fortifying companies’ social licenses to operate and enhancing their long-term business prospects. BOX 2 BUYING FROM THE BOP: GLAXOSMITHKLINE’S MILK SUPPLY CHAIN IN INDIA The Consumer Healthcare division of GlaxoSmithKline (GSK) leads in the health food drink category in India. To ensure a consistent, high-quality supply of milk, GSK has built a procurement structure to support small dairy farmers linking into its supply chain. First, GSK has named representatives in villages to support dairy farmer capacity building. Farmers bring their milk to their village representatives, many of whom have bulk coolers on premises; or, if they are not too far away, they can deliver directly to GSK milk chilling centers. By bringing technical knowledge and market infrastructure to the village level, GSK has catalyzed an increase in commercial dairy farming and enabled farmers to improve productivity and quality – increasing their incomes as a result. For example, average yield per animal has gone up by 33%. 1.2 Distributing Through the Base of the Pyramid Distributing through small and micro enterprises can be an effective strategy for reaching target markets at the base of the pyramid. In some cases, infrastructure is so poor that traditional distribution methods, using large trucks for example, simply cannot be used. In other cases, sales volumes or price points are too low for traditional distribution to be cost-effective. In still other cases, the local “rooting” and relationships of trust that small and micro enterprises possess within their communities are critical to the successful marketing and sales of products and services there. From the community’s perspective, distributing through small and micro enterprises also creates jobs and, in some cases, enables better customer service tailored to their needs. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 7 BOX 3 DISTRIBUTING THROUGH THE BOP: COCA-COLA SABCO’S MANUAL DISTRIBUTION CENTERS IN AFRICA AND ASIA In East Africa and several countries in Asia, Coca-Cola Sabco makes daily deliveries to thousands of tiny shops in low-income communities through a system of Manual Distribution Centers owned and operated by local entrepreneurs. These micro-distributors can help shop owners identify the kinds of products that will be fast-moving, and they can offer mixed-case ordering and frequent delivery of small quantities of product. This enables shop owners to reduce the amount of investment they have tied up in inventory, reduce out-of-stock situations, and meet consumer demand. This increases shop owners’ sales, helping their businesses to grow and succeed. Today there are over 2,200 MDCs operating in Sabco territory in East Africa – generating revenues of $426 million and directly employing over 11,000 people. CASE STUDIES 1.3 Selling To the Base of the Pyramid Companies of all kinds are growing more interested in base of the pyramid consumer markets. In some industries, selling to the BOP offers opportunity for simultaneous business and development impact. Certain products and services have the effect of empowering the purchaser and helping to make him or her more productive. These include: • health care; • education; • financial services such as credit, insurance, savings, and payments; • information and communications technologies, such as mobile phones and Internet access; • production equipment and technology, such as small-scale irrigation systems; • utilities like water and power; • and distribution and business development services appropriate to the needs of small and micro enterprises. The most obvious reason for companies to sell to the BOP is the opportunity to grow revenues by developing new markets. BOP end consumers and small, and micro enterprises are currently underserved in many – often all – of the areas listed above. Reaching them successfully usually requires product and business process adaptation, which points to a second reason to sell to them: the effort drives creativity and innovation. In some cases, innovations that target the BOP prove relevant in higher-income segments as well, a phenomenon McKinsey & Company has termed “innovation blowback.”3 8 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid BOX 4 SELLING TO THE BOP: INDIA’S IDEA CELLULAR Idea Cellular, part of the Aditya Birla Group, a leading Indian conglomerate, is one of the fastest-growing telecom service providers in the country. A main factor in its rapid growth has been its penetration into India’s vast rural market, home to an increasing percentage of new mobile customers. Idea Cellular conducts media campaigns in local dialects and offers a suite of products and services customized to the needs of rural and semi-urban consumers at the base of the pyramid. These include low-cost handsets, talk-time vouchers in denominations as low as US$0.20, and value-added services such as SMS-based religious offerings. Idea now has more than 44 million subscribers and more than 700,000 retail outlets around the country, approximately 300,000 of which serve consumers at the base of the pyramid. 1.4 Going Beyond the Value Chain Many companies are also working with BOP consumers, producers, and small and micro enterprises beyond their value chains – for example, in broad-based education, health, and enterprise development efforts. Such efforts can improve quality of life and help strengthen and diversify local economies. For the companies driving them, they can reduce reputational, operational, and political risk in the short term and increase growth prospects in the long term. BOX 5 GOING BEYOND THE VALUE CHAIN: SYNGENTA FOUNDATION’S AGRICULTURAL DEVELOPMENT WORK IN INDIA Syngenta is a leading multinational agribusiness concern, selling primarily seeds and crop protection products. The Syngenta Foundation focuses on raising farmer productivity and linking farmers to markets. In India, the foundation has established four projects across four states covering the cultivation of rice and vegetables. Farmer training is a core component of all four projects. Sometimes Syngenta seeds are provided; for example, the Syngenta Foundation is now working with approximately 6,000 farmers to grow beets from seeds developed specifically for warm climates. Finally, the projects assist with commercialization, for instance by organizing farmers into groups for collective marketing. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 9 2 Challenges in Forming Business Linkages Business linkage practitioners in large firms face three main categories of challenges in doing business with those at the BOP: operational challenges, reputation and relationship management challenges, and systemic challenges.4 A growing body of experience suggests that the issues are similar across industries and geographies, whether a firm is buying from, distributing through, or selling to those at the BOP. • Operational challenges include securing internal commitment for linkage efforts within the firm, obtaining reliable, actionable information about BOP consumers, producers and other enterprises present in the local market, and measuring the impact (especially the social impact) of any linkages that are formed. • Reputational and relationship management challenges include managing community expectations and reducing the economic dependence of local producers and small and micro enterprises on the business relationships they establish with the larger firm. • Systemic challenges include building the skills and capacity of small and micro enterprises at the BOP, improving their access to finance, and strengthening the regulatory or public policy environment for linkage efforts. In Jaipur, participants highlighted two more systemic challenges: addressing inadequate physical infrastructure and filling gaps in complementary markets, such as the market for agricultural inputs like fertilizer and irrigation equipment.5 Many of the operational, reputational, and relationship management challenges to doing business with the BOP have their roots in the systemic challenges. It is worth noting that these challenges work in the opposite direction as well, inhibiting those at the BOP in their efforts to do business with larger, often more formal, firms. Systemic challenges are thus some of the most critical to overcome if we hope to sustain, replicate, and scale up business linkage activity worldwide. At the same time, they are some of the least amenable to unilateral, quick-fix solutions. Creative, new approaches will be required. 10 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 3 Patterns of Solutions and Cross-Cutting Themes There are clear patterns in the solutions discussed during the Business Linkages roundtables Washington, Johannesburg, Rio de Janeiro, and now Jaipur, as as Tables 1-3 show.6 More information on these examples can be found in Appendix 1 and in prior reports in the Business Linkages series.7 TABLE 1 OPERATIONAL CHALLENGES, SOLUTIONS, AND EXAMPLES Operational Challenges Solutions Examples Securing internal • Procurement • The National Content Strategies of BP in Azerbaijan and ExxonMobil in Chad commitment policies • The purchasing policy of Pan American Energy in Argentina’s Gulf of San Jorge • Performance • BP incorporates National Content targets into the performance metrics of measures and delivery managers incentives • Ecom moved from dollars-per-ton to dollars-per-ton-per-hectare, a measure of productivity • Culture of long- • Nestlé’s concept of “shared value creation” term thinking Obtaining reliable, • Dedicated staff or • The venture development manager at Rio Tinto’s Diavik Diamond Mines actionable market departments • Anglo American’s Anglo Zimele family of funds information • Real Microcrédito’s local loan officers in Brazil’s favelas • RuralFone’s local sales coordinators and delivery agents in northeast Brazil • Newmont’s linkages department at the Ahafo mine in Ghana • Supplier databases • The supplier database created by ExxonMobil, IFC, and the local chamber of commerce in Chad • The shared supplier databases of the Private Sector Initiatives in Tanzania and Malawi • Network leveraging • Petrobras and the national small business association SEBRAE in Brazil • Unilever and Ashoka Fellow M.G. Papamma’s network of women in India; Amanco and Ashoka Fellow Arturo Garcia’s network of farmers in Mexico • Coca-Cola and the Women’s Union in Vietnam • Barclays and the Ghana Cooperative Susu Collectors Association • ICICI Bank, microfinance institutions, and other civil society organizations in India Measuring impact • Collectively • The WBCSD-IFC Measuring Impact Framework developed • The Rockefeller Foundation’s Impact Investing Network’s IRIS Standards frameworks • Participatory • Diavik Diamond Mines’ Socio-Economic Monitoring Agreement with the local monitoring and government and indigenous groups evaluation • Petrobras and SEBRAE’s selection of indicators jointly with stakeholders agreements BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 11 TABLE 2 REPUTATION AND RELATIONSHIP MANAGEMENT CHALLENGES, SOLUTIONS, AND EXAMPLES Reputation & Relationship Solutions Examples Management Challenges Managing expectations • Social responsibility • Diavik Diamond Mines’ Participation Agreements with indigenous agreements groups • Newmont’s Social Responsibility Agreement, developed through a Social Responsibility Agreement Forum at its Ahafo mine in Ghana • Advance purchase • SABMiller’s fixed price agreements with sorghum farmers in Uganda agreements and Zambia • Votorantim Celulose e Papel’s inflation-indexed, fixed price agreements with eucalyptus farmers in Brazil • Jain’s commitment to purchase onions at a pre-set minimum price or the market price at harvest time (whichever is greater) Reducing dependence • Market diversification • The small business fairs of IFC and the Asociación los Andes de services for suppliers Cajamarca near Newmont’s Yanacocha mine in Peru • SABMiller, CARE International, and local commodities brokers’ support to sorghum farmers in Uganda and Zambia • Local economic • SABMiller’s KickStart program development “beyond • Cairn India’s work with dairy farmers in Rajasthan the value chain” • Peer networking • SBP’s Business Bridge program in South Africa • Appropriate exit • Newmont and IFC created the Asociación los Andes de Cajamarca to strategies lead and sustain SME development near Yanacocha over time • The Vietnam Business Links Initiative secured government buy-in and replication of its standards and training programs 12 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid TABLE 3 SYSTEMIC CHALLENGES, SOLUTIONS, AND EXAMPLES Systemic Challenges Solutions Examples Building knowledge • Standardized training • IFC’s SME Toolkit and Business Edge and skills modules • Grupo Martins’ Martins Retail University in Brazil • SEBRAE’s programs for Brazilian micro and small businesses seeking to incorporate formally • Best practice • Starbucks’ CAFÉ practices guidelines • Nestlé’s Nespresso AAA certification • Unilever’s Sustainable Tea Initiative guidelines • Ongoing coaching • Grupo Martins, Ruralfone, Coca-Cola Sabco, Anglo Zimele, Mozal Aluminum, and Bharatiya Yuva Shakti Trust (the Indian affiliate of Youth Business International) • Enterprise Centers • BP in Azerbaijan • ExxonMobil and IFC in Chad • Microsoft and UNIDO in Uganda • Anglo Zimele’s Small Business Hubs in South Africa • SABMiller and Cargill’s Sanjhi Unnati Centers in barley-growing districts in India • Peer networking • SBP’s Business Bridge program in South Africa • General Motors’ mentorship brokering between large and small suppliers • Petrobras’ Rede Petro system in Brazil Improving access • Own financing • Anglo American’s Anglo Zimele to finance institutions or arms • Grupo Martins’ Tribanco • ECOM Supplier Finance • Capitalization of • The $15 million Supplier Finance Facility of BP and IFC in Azerbaijan external (often joint) • The Aspire SME financing facilities of GroFin and the Shell Foundation, funds together with local banks in Africa • Starbucks’ investment in Root Capital to provide financing for small-scale coffee suppliers in Central America • Links with microfinance • Pepsico and BASIX in India institutions • Links with commercial • Chevron’s partnerships with Kazakh banks BankTuranAlem and banks KazKommertzBank • Votorantim Papel e Celulose helps eucalyptus farmers access credit from Banco Real in Brazil • Mundo Verde refers suppliers to Caixa Econômica Federal and Banco do Nordeste in Brazil • Non-traditional collateral • Barclays accepts grain stocks as collateral in Zambia • A focus on financial • Anglo Zimele incorporates financial literacy into its Small Business Start- literacy Up Fund’s lending requirements • Real Microcrédito credit agents provide financial education along with – sometimes instead of – loans Strengthening regulatory • Collective engagement • The National Business Initiative and Business Trust in South Africa and public policy in public policy • The Zambia Business Forum environments dialogue • Business Action for Africa • Public sector • BP provided the Azeri government with revenue management tools capacity-building • IFC helped the provincial government of Cajamarca, Peru, to streamline business registration procedures BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 13 TABLE 3 SYSTEMIC CHALLENGES, SOLUTIONS, AND EXAMPLES continued Systemic Challenges Solutions Examples Addressing inadequate • Supply collection • The SABMiller-Cargill Sanjhi Unnati Centers, ITC Ltd’s Choupal Saagars, physical infrastructure centers GSK’s milk chilling centers, and DSCL’s Hariyali Kisan Bazaars, all in India • Mundo Verde’s collection centers in Brazil • Shared infrastructure • DSCL Hariyali Kisan Bazaar often shares land and premises (and associated costs, e.g. utilities and maintenance) with partners • Information & • ITC’s e-Choupals communications • FINO’s use of smart card-based banking solutions technologies Filling gaps in • Marketplaces • ITC’s e-Choupals and Choupal Saagars, the SABMiller-Cargill Sanjhi Unnati complementary markets Centers, and DSCL’s Hariyali Kisan Bazaar in India • Direct sales • Jain sells high-quality onion seeds and other inputs to farmers through on- the-ground extension agents • Andhra Pradesh Paper sells tree seedlings to farmers Cutting across this landscape of challenges and solutions are two common themes: systems thinking and collaboration. Systems thinking. Any stable, profitable business relationship requires a stable, profitable partner – whether it be a supplier, a distributor, or even a customer. But BOP suppliers, distributors, and customers are plagued by systemic challenges that make stability and profitability hard to achieve. They might be cut off physically by roads that wash out every year; unwilling to risk changing their livelihoods because insurance isn’t available; or unable to meet their contractual obligations because electrical outages shut down production every few hours. In this context, many smart, well-intentioned efforts to do business in BOP markets meet with unexpected consequences, and struggle to achieve sustainability and scale. A company might set out to sell small-scale farmers irrigation equipment on credit, which improves their productivity by 100% or more – but the farmers still default on their loans because they can’t find buyers, or because the sudden increase in supply drives prices down. Another company might adopt a policy establishing BOP procurement targets of 10 or 20%, but it costs those small and micro businesses four years’ annual income to incorporate legally, so they can’t take advantage. The examples are numerous. At the BOP, market systems are full of holes and cannot be taken for granted, as they often are at the top of the pyramid. Companies have to think proactively about the systems in which their BOP suppliers, distributors, and customers are embedded and often take action to make them work better. As Monitor puts it, they have to “organize the entire value chain end-to-end,”8 filling in the missing pieces that make it possible for their partners to find stability and earn a profit. 14 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid Collaboration. Some companies fill in the missing pieces themselves, considering it part of the cost of doing business. Sometimes it is economically viable to do so. For example, in India, GlaxoSmithKline has organized the milk value chain end-to-end for its flagship brand Horlicks. At times, organizing the value chain end-to-end involves or even creates additional business opportunities. Jain Irrigation and Andhra Pradesh Paper, for instance, sell agricultural inputs to and buy agricultural produce from the same small-scale farmers. When it is not economically viable for a company to take such holistic approaches, they sometimes look to corporate foundations or social responsibility departments to help make up the difference. Jaipur Rugs, for example, relies on the Jaipur Rugs Foundation to do the community organizing and training that enable BOP weavers to participate in its production chain. Certainly, organizing a value chain end-to-end is costly, and it typically goes beyond the capabilities of any single actor. As a result, a third and increasingly common approach is for companies to reach out to external collaborators who can fill in pieces of the system that they themselves cannot. Such collaborators may include companies in complementary lines of business; government agencies; civil society organizations; microfinance institutions; international development agencies; and international financial institutions. For instance, microfinance institution and business development service provider BASIX is working with ICICI Lombard to offer crop insurance to the potato farmers in Pepsico’s value chain in India. In another example, more than 110 companies use ITC Ltd’s network of e-Choupal kiosks and Choupal Saagar stores to provide access to nearly everything rural farmers need to be successful, from market prices to extension services to farm equipment to tele-health care to on-site purchasing of their crops. Collaborative models are increasingly characterized by • Multiple actors • Finding complementary business (or mission-based) cases • Specializing in what they do best • Together filling in gaps in the market systems of the BOP • Reducing and targeting the need for subsidies to make those systems work • And enabling BOP business models to achieve greater sustainability and scale. Collaborative models have various advantages. For example, they spread investment costs among multiple actors and reduce the need for subsidies, whether from governments or from corporate social responsibility or philanthropy departments. They enable each actor to specialize, and thus, at least in theory, permit greater scale. At the same time, in practice, collaborative models can come with non-negligible transaction costs, for example in the organization and coordination of the system. These challenges become increasingly complex as the number and diversity of collaborators increases – for instance when non-business actors, who speak different languages, have different perspectives and incentives, and are governed by different legal frameworks, are involved. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 15 4 Conclusions In a time of financial crisis, we are reminded that connecting to larger national and international markets is not a guaranteed route to stability or profitability for those at the base of the pyramid. Few opportunities are entirely risk-free. Any risk can be too much risk for people with little to fall back on. Reducing dependence and other operational, reputation and relationship management, and systemic challenges to doing business with the BOP take on special relevance in times like these. We are encouraged to see patterns of solutions emerging and encourage business linkage practitioners to continue to share their experiences and insights. At the same time, the collaborative, systems-oriented aspects of their work deserve greater attention and understanding. Together with practitioners in business, government, and civil society around the world, IFC, IBLF, and the CSR Initiative at the Harvard Kennedy School look forward to continuing and deepening our exploration of this field. 16 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid Appendix 1 Business Linkage Initiatives of Jaipur Roundtable Participants ● Andhra Pradesh Paper Mills9 technical assistance described above, the fund looks for Andhra Pradesh Paper Mills (APPM) is a pulp and paper company opportunities to link its portfolio companies into Anglo American’s based in the state of Andhra Pradesh, India. In the 1980s, APPM supply chain. The Supply Chain Fund targets firms that are already foresaw a steep decline in raw material from conventional forests commercially viable so that it can focus its assistance on generating and, as a result, implemented a strategy to achieve a sustained significant future growth, and typically exits within about three supply through raw material self-sufficiency. This included a massive years. As of 2006, approximately 72% of its investees were still in farm forestry program encompassing 2,842 villages in seven districts operation, employing over 2,200 people. along the Andhra Pradesh coast. The program focuses on: Anglo Zimele’s newest fund, the Small Business Start-Up Fund, • conserving natural resources and a healthy environment, focuses on entrepreneurs and small businesses in the communities • establishing massive plantations on marginal and degraded farm surrounding Anglo American’s mines. Through a network of 11 local lands, and Small Business Hubs, the fund provides loans at an interest rate of • creating an eco-friendly, farmer-friendly commercial environment. 10% per year (compared with the current prime lending rate of 12%) To reach its goal, APPM promoted two tree species, casuarina and together with assistance formulating business plans, training and leucaena, noted for their affordability, adaptability, and rapid growth, coaching on the essentials of running a business, tax advice, and as well as their ability to offer continuous flows of financial benefits mentoring. As of December 2008, the Small Business Start-Up Fund to farmers. APPM built clonal and seedling nurseries close to the had financed 179 businesses ranging from construction to catering villages. Through the distribution of genetically superior planting to plumbing, 40% of them headed by women entrepreneurs. Though stock, together with information dissemination and technical many borrowers had no track records and the fund does not request assistance, the company has helped farmers reduce their initial collateral, the repayment rate was 91%. establishment costs from $200/hectare to $50/hectare and improve the productivity of their land by up to three times, thereby increasing ● BASIX12 their incomes. These actions have also resulted in a tripling of Established in 1996, BASIX works to create sustainable livelihoods hectares under plantation (from 4,782 in 2003 to 15,000 in 2008), for the rural and urban poor through financial services integrated providing APPM with a secure source of supply. with technical assistance. The organization covers more than 1.5 million mostly rural households in more than 18,000 villages in 15 ● Anglo Zimele10,11 states, and it has approximately $120 million in assets under Anglo Zimele is the enterprise development and empowerment management. initiative of mining and natural resource company Anglo American in In 2001, BASIX realized that credit was necessary but not sufficient South Africa. Anglo Zimele manages three separate funds: the Supply for the creation of sustainable livelihoods and developed its “triad” Chain Fund, the Anglo Khula Mining Fund, and the Small Business strategy: Start-Up Fund. In addition to financing, these funds provide hands- • Livelihood financial services (namely savings, credit, insurance, on support in areas such as management, corporate governance, and remittances) • Agricultural and business development services (improving legal compliance, accounting, administration, public relations, and productivity and local value addition, and facilitating market environment, health and safety. linkages) The oldest fund, the Supply Chain Fund, has financed and supported • Institutional development services (such as forming and over 150 businesses since it was established in 1989. It provides strengthening community groups, building the capacity of both debt and equity financing and usually takes minority stakes of grassroots organizations, and engaging in policy advocacy) up to 20% in the businesses in its portfolio. In addition to the BASIX leverages a wide range of partnerships in the implementation BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 17 of this three-pronged strategy, including microfinance institutions, and Rs 1 crore, and revenues of Rs 4,000 to Rs 45,000 per month. non-governmental organizations, cooperatives, government agencies, Most supply construction-related materials, furniture, textiles, and and national and multinational companies such as Pepsico, ITC Ltd, services like catering and janitorial services. 14 of these vendors JK Seeds, AVIVA, Royal Sundaram, and ICICI Lombard Insurance. have received orders and will probably see their incomes increase. In These partnerships expand the array of competencies at the total, they have generated over $2 million in construction and organization's disposal, increase its outreach, reduce its transaction $400,000 non-construction contracts. costs, and reduce its risk as well as that of its customers. Today Cairn is also supporting employment through the provision of skills BASIX has more than 200,000 savings customers, 600,000 training, which had reached over 3,750 people as of March 2009. microcredit customers, and one million insurance customers. Most of the skills covered are construction-related and required for employment by Cairn construction contractors. These include ● Bharatiya Yuva Shakti Trust 13 welding, plumbing, masonry, electrical, carpentry, and bar-bending, Bharatiya Yuva Shakti Trust (BYST) is a youth entrepreneurship among others. Other skills are more general – like mobile phone initiative that turns job seekers into job creators. BYST partners with repair, computing, computer-based accounting, and English. Nominal the Indian private sector to provide underprivileged youth ages 18-35 fees are charged to trainees, with Cairn also contributing for training with training, collateral-free financing, structured mentoring, and specifically targeted to its business needs. Cairn and IFC split the networking opportunities that together foster entrepreneurial remaining costs 70:30. development and sustain thriving businesses. For example, BYST Finally, Cairn is working to strengthen local enterprise and economic makes deliberate efforts to network these youth businesses into the development beyond its value chain, for example through programs value chains of larger corporations, efforts which have been boosted that support dairy farmers. Through Cairn’s dairy program, more than by corporate “affirmative action” programs seeking qualified Tier 2 700 women have organized into 13 self-help groups and engaged in and 3 suppliers from disadvantaged backgrounds. Through BYST, a transparent process of collecting surplus milk. Over $160,000 in approximately 1,500 youth businesses have been created, revenues have been generated. generating approximately 15,000 new jobs. BYST and IFC are working together to develop a self-sustaining model that can be ● Calypso Foods16,17 replicated in other developing countries. A significant part of IFC’s Calypso Foods supplies branded, processed fruits and vegetables assistance is dedicated to the Mentor Development Program, which sourced from Indian smallholder farmers to domestic and will establish a mentor accreditation process expected to expand international markets. Its domestic customers include institutional BYST’s mentor network to 30,000, impacting 90,000 youth buyers like large restaurant chains; its international customers enterprises across India. include grocery chains with private label products. Fruits and vegetables are the fastest-growing segment in global ● Cairn India 14,15 agricultural trade, at over 12% per year. This growth rate has its Cairn Energy is an independent oil exploration and extraction roots in multiple sources of demand, ranging from food to company with headquarters in Edinburgh, Scotland. Cairn India, a pharmaceuticals to alternative medicines to natural cosmetics. While listed subsidiary of Cairn Energy, currently owns 30% of India’s oil India is currently a net importer of fruits and vegetables, the country assets. The company operates in Rajasthan, Andhra Pradesh, and has a number of advantages, such as climactic diversity and Gujarat. abundant labor, which favor further development of domestic In Rajasthan, Cairn and its partner, the International Centre for production. Within 10 years, Calypso expects domestic production to Entrepreneurship and Career Development, work through a local reach $20 billion, benefiting the mostly small-scale farmers that Enterprise Center to build the capacity of SMEs to qualify for dominate this segment. contracts with the company and its contractors. To date, these efforts Calypso sources its raw materials – from pineapples to gherkins – have resulted in 125 vendors qualified and registered. These vendors from more than 5,000 small-scale farmers spread across more than are on the small end of the SME spectrum, with one to four 400 villages in South and East India. A team of Calypso agricultural employees, plant and machinery investment of between Rs 25 lakhs extension agents provides those farmers with a comprehensive range 18 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid of services that enable them to improve productivity and quality, and example, in Uttar Pradesh, Madhya Pradesh, Punjab, and Haryana, therefore to earn more money. These services include high-quality HKB buys wheat, paddy, and soybeans; in Uttar Pradesh and Madhya seed and organic fertilizer sales, soil testing services, and training in Pradesh, the company buys grains; and in central Uttar Pradesh, it planting and growing techniques. The extension team has also buys milk. introduced low-cost drip irrigation for efficient water management in HKB’s unique selling proposition is affordability and accessibility to areas where farmers previously used flood irrigation. Taken together, rural consumers. DSCL has over 300 HKBs in operation and plans to these services have enabled gherkin farmers to earn net incomes of expand coverage nationwide. The company intends to cover two Rs 48,000 per acre per year on two crop cycles. million farming households in over 20,000 villages and bring 20 million acres of cultivable land under HKB’s service in the coming ● Coca-Cola Sabco 18,19 years. There are also plans underway to increase HKB’s value Coca-Cola Sabco (CCS) is a key bottler for The Coca-Cola Company proposition by forging alliances with service providers in social in southern and eastern Africa and Asia, with 25 plants employing sectors like education and health care. over 9,700 people across 12 countries. Many of CCS’s territories are One of HKB’s main challenges is the high cost of physical characterized by highly dense, low-income urban settlements with infrastructure. One way the company addresses this is to partner narrow, unpaved, and unmaintained roads and high numbers of very with other companies, such as banks, fast-moving consumer goods small-scale retail outlets. In this context, where classic distribution companies, and telecommunications service providers. Such models are not effective or efficient, CCS developed an alternative, partnerships allow HKB to focus on its core objective of reaching the Manual Distribution Center (MDC) model. MDCs are rural farmers with quality products and services. For instance, some independently-owned, low-cost operations run by local HKB centers are also Bharat Petroleum petrol stations. This allows entrepreneurs. An MDC usually consists of a small central the companies to spread the costs of utilities such as electricity, warehousing facility with a manageable coverage area and defined water, housekeeping, and security. It also provides HKB with a customer base (typically 150 retail outlets). These outlets are low presence very close to main national and state highways. volume with high service frequency requirements and limited cash flows, which necessitates fast turnaround of stock. Distribution is ● Financial Information Network and Operations Ltd kept manual to accommodate small drop sizes and physical (FINO)22 infrastructure constraints, and to keep costs at a minimum. Today Among the main barriers to entry for the banking sector in rural CCS has over 2,200 MDCs operating in East Africa, generating areas are the high costs of customer acquisition and servicing. These revenues of approximately $426 million and directly employing over 20 costs can be brought down significantly through technology. This idea 11,000 people. led to the creation in 2006 of Mumbai-based Financial Information Network and Operations Ltd (FINO), a company providing biometric- ● DSCL Hariyali Kisan Bazaar 21 enabled, smart card-based solutions geared toward rural and semi- Hariyali Kisan Bazaar (HKB) is the rural retail arm of DCM Shriram urban populations in India. Consolidated Ltd (DSCL), an agribusiness and chemical products FINO is a technology provider to banks, microfinance institutions, corporation. HKB is focused on increasing rural incomes by insurance companies, and government agencies, offering solutions improving agricultural practices, with the strategic intent to create for savings, loans, insurance, remittances, and social benefits. On the long-term relationships with farmers. front end, FINO sources customers using a network of agents; HKB bridges gaps in technical know-how and access to finance, and provides customers with client-branded biometric smart cards; and brings efficiency, consistency, and transparency to rural retail and enables customers to interact with its clients via mobile point-of- agricultural produce markets. The products and services available transaction (POT) devices. On the back end, FINO aggregates and through HKB include quality agricultural inputs and complimentary maintains data transferred from POT devices on its or its clients’ core extension services, farm fuels, automotive products, construction systems. This method of service delivery has brought the cost of material, telecommunications services, consumer durables, apparel, serving rural and semi-urban customers down to approximately 25% and food. In some cases, HKB also buys the farmers’ produce. For of the cost of existing alternatives. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 19 To date, FINO has successfully enrolled five million customers in over ● ICICI Bank 166 districts in 20 states. It is the market leader in its space in India ICICI Bank is India’s second-largest bank with total assets of $75 with a 60-70% share of all smart cards enrolled, and its clients billion and a presence in 18 countries. Through its network of include the State Bank of India, Union Bank of India, Punjab National branches, subsidiaries, and affiliates, ICICI offers a wide range of Bank, ICICI Bank, ICICI Lombard Insurance, SEWA Bank, and various services, including savings, credit, insurance, asset management, state governments implementing the National Rural Employment investment banking, and venture capital. Guarantee Scheme of the Government of India. The company aims ICICI Bank has worked to promote financial inclusion at the base of to reach 25 million customers in both domestic and international the pyramid through access to credit and other enabling services, markets. looking across the market ecosystems in which those at the BOP are embedded. For example, its microfinance program reached ● GlaxoSmithKline 23 approximately eight million BOP families from 2002-3 to 2007-8. In GlaxoSmithKline (GSK) is a leading producer of prescription rural areas, where more than 45% of small and marginal farmers medicines, vaccines, and consumer health care products with lack access to finance, ICICI Bank works with self-help groups, presence in 140 countries. In India, GSK Consumer Healthcare India cooperatives, microfinance institutions, and other partners to offer is the market leader in the Health Food Drink category. Its flagship credit, crop insurance, market intermediation services, and training. brand, Horlicks, is a 100 year-old malted milk beverage traditionally For example, in the dairy sector, the company currently has tie-ups viewed as a milk replacer for its protein content and organoleptic with approximately 600 dairy units from the cooperative and private properties. GSK Consumer Healthcare India sources milk, barley, sectors, including small, medium, and large processing dairies and wheat, and sugar. affiliated infrastructure units like collection and chilling centers. Sourcing milk in India is a challenge due to a lack of chilling capacity These dairy units refer farmers with “pouring memberships” to the and frequent adulteration, as 84% of milk is produced in the bank, which follows up with its own due diligence and issues loans. unorganized sector and 50% of the total is consumed as liquid milk Whenever a loan client comes to sell his or her milk, the dairy in local households. To ensure a consistent, high-quality supply of subtracts the appropriate repayment installment from the price it liquid milk, GSK has built a procurement structure in which the pays and transfers that money directly to the bank. This program company enables every stage of the milk value chain, from setting offers doorstep service for the farmer, added loyalty and increased up support systems for dairy farmers to building strategic milk supply for the dairy, and aggregated demand at a reduced risk relationships with the biggest dairies in the country. GSK has for ICICI. The program currently covers around 35,000 farmers representatives at the village level to guide farmers on health and across seven states (Punjab, Haryana, Rajasthan, Gujarat, hygiene, expansion of their dairy farms, deworming, design of dairy Maharashtra, Andhra Pradesh, and Tamil Nadu). sheds, improving yields, breeding, and other issues. In select cases, Linked to this, ICICI funds the dairy processing units, collection and the GSK representatives also provide feed and medicines. Dairy chilling centers themselves through its Rural Business Banking and farmers bring milk either to their local village representatives or Agri Business Banking programs (which provide comprehensive directly to GSK milk chilling centers. Tankers collect en route at the banking solutions to small rural and agricultural enterprises and to chilling centers and transfer the milk to the GSK factory. medium and large enterprises, cooperatives, and other institutions in By making technical knowledge and market infrastructure available food processing, agricultural input supply, and other agriculture- at farmers’ doorsteps, GSK has played a pivotal role in increasing related industries). Approximately 150 units have been financed commercial dairy farming, enabling farmers to improve productivity, under these two programs. quality, and hence earnings. For example, average yield per animal has gone up by 33%. GSK’s dairy supply chain initiatives have also ● Idea Cellular24,25 built supplier loyalty and ensured sufficient availability of quality milk IDEA Cellular (Idea) is part of the Aditya Birla Group. Idea is the for the company. As a result, the company considers this a classic fastest-growing GSM service provider in India, which has become the win-win procurement strategy with a long-term strategic intent. largest and fastest-growing cellular services market in the world as telecom companies, through product-price innovations, have reduced 20 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid charges, increased subscriber bases, and positioned themselves to IDE India has reached approximately a million small-scale farmers, exploit economies of scale to further enhance affordability and usage. enabling them to increase their productivity while saving water and Idea is taking the mobile revolution from urban India to rural India energy – thus increasing their incomes. IDE India calculates that offering a suite of products and services customized to the needs of these farmers have realized $934 million in income based on rural and semi-urban consumers at the base of the pyramid. investments of $374 million of their own and $23 million by IDE. For example, Idea has forged alliances with vendors for low-cost In addition, jobs have been created throughout the value chain, in handsets and launched small recharge sachets in denominations as manufacturing, sales, installation, and maintenance of IDE systems. low as US$0.20. The company provides Value Added Services (VAS) such as “radio on demand,” which has been particularly successful ● ITC Ltd28 in rural areas where FM radio does not reach. Other examples ITC Ltd is a leading Indian conglomerate with interests in include an SMS-based religious offering service and dialer tones in agribusiness, paper products, hotels, branded apparel, and other languages other than Hindi and English. Idea’s media and industries. Within the agribusiness division, ITC’s much-celebrated advertisement campaign is also conducted primarily in local e-Choupal model streamlines procurement from small-scale farmers languages, to reach out to rural users. The company’s largest VAS at the base of the pyramid. sales come from rural and small urban towns, where it has found Indian agriculture markets have been dominated by the highly that even very low-income customers are willing to pay per-unit inefficient mandi system in which both farmers and buyers lose premium prices if they get the services they want. value. ITC’s e-Choupals use information and communications Idea had 44 million subscribers as of the end of March 2009, technologies like computers, the Internet, and radio to offer farmers making it the third-largest private GSM operator in India with a 15% access to information, extension services, agricultural inputs, and share of the market. The company has more than 1,520 branded other household products and services, as well as markets for their service centers and more than 700,000 retail outlets around the produce. Information and extension services typically include local country, including in places where roads do not yet exist. More than and global price data, weather forecasts, and knowledge of new 300,000 of those retail outlets sell products and services to farming techniques. Some e-Choupals also facilitate access to consumers at the base of the pyramid. financial services like crop insurance. Prices on products purchased through e-Choupals are typically lower than those available from ● International Development Enterprises India 26,27 village traders, because e-Choupal operators can aggregate and International Development Enterprises (IDE) India is a non-profit transmit orders to ITC representatives who buy in bulk. Importantly, organization dedicated to ending rural poverty through market-based farmers can also use the e-Choupal system to sell directly to the approaches. IDE India develops affordable technologies appropriate company, eliminating middlemen and obtaining higher prices. to the needs of small farmers; helps build the value chains that Today, there are 6,400 e-Choupals in 40,000 villages in eight states, manufacture, distribute, retail, and install those technologies; and serving more than 4.1 million farmers. ITC intends to grow the raises awareness among potential customers to stimulate demand. network to 20,000 e-Choupals in 100,000 villages in 15 states by The organization has focused primarily on irrigation technology, 2015 – at which point it will serve over 10 million farmers. Recently, including drip irrigation and treadle pumps. the company has also started linking the e-Choupals to regional hubs IDE India currently operates in 15 states, nurturing a network of called Choupal Saagars, which act as one-stop shops in the brick- approximately 35 manufacturers, 100 distributors, 825 dealers, and and-mortar sense, offering farmers a wide variety of products and 1,620 assemblers. IDE India’s market ecosystem also includes services such as farm equipment and inputs, fuel, consumer goods, approximately 225 non-governmental organizations, which help raise warehousing, soil testing, healthcare, and more. More than 110 awareness and provide agricultural extension services, among other companies are now involved, using ITC’s e-Choupal and Choupal functions. The irrigation technology developed by IDE India has been Saagar network to do business with rural India. exported to various countries in Africa, Latin America, and Asia, where the organization also provides knowledge and skills for designing and implementing development projects. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 21 ● Jain Irrigation Systems The Jaipur Rugs Foundation identifies, assesses, and recruits Jain Irrigation Systems is the second-largest manufacturer of weavers and provides them with the training and other social support irrigation systems worldwide and also a leading processor of fruits services they need to participate effectively in the Jaipur Rugs and vegetables. For instance, Jain is the world’s largest producer of production chain. For example, foundation staff visit weekly or bi- pureed mangos and the third-largest producer of dehydrated onions. weekly to make sure productivity and quality are good. The Jaipur In India, Jain has built its success in dehydrated onions by sourcing Rugs Company, in turn, supplies yarn and color-coded patterns, from small-scale contract farmers. Approximately 60% of its onion paying on the basis of production typically once a month. The supply comes from approximately 4,000 farmers with an average weavers themselves are responsible for establishing dedicated acreage of 2.5 acres under onion production. working areas, which are usually outside for lack of electricity and Jain sees contract farming as the future of its processing business thus must be covered to protect the work in case of rain. They must as advantages accrue to the company and to the farmers. The also return the patterns when they are finished along with any contract farming model is built on selecting progressive, receptive unused material. farmers and providing them with quality onion seeds; access to Jaipur Rugs guarantees 100% buy-back of the rugs its weavers irrigation systems, fertilizers, and other inputs; agronomical guidance; produce (in cases of inadequate quality, the company pays a reduced and management training through Jain extension agents on the rate commensurate with the extent of the defect). However, its ground. The company then buys the onions back at a guaranteed weavers are not employees; rather, the company likes to call “each price – either a minimum price established at the beginning of the artisan an entrepreneur.” As such, they are subject to some of the growing season or the market price at harvest time, whichever is risks of entrepreneurs as well. Jaipur Rugs provides global market greater. Often the relationship with Jain enables the farmers to obtain linkages for what they produce, commercializing the rugs in markets credit from commercial banks. they might never have been able to reach on their own. By the same For Jain, the advantages of this model include direct control over the token, though, the company cannot protect them from decreased quality and security of supply. Farmers benefit from the availability of demand when those markets take a downturn. high-quality seeds, input finance, agronomic support, and an assured Jaipur Rugs has received a number of awards for quality and its market for a crop that yields an additional $300-$400 per acre model has recently attracted international attention – for example, compared with previous growing practices. Based on the success of becoming the subject of a case by professor and base of the pyramid this model, Jain is planning to increase its contract farming base in guru C.K. Prahalad. mangos, bananas, and pomegranates, among other crops. ● Mozal Aluminum30 ● Jaipur Rugs29 Mozal is a $2 billion aluminum smelter built with foreign investment The Jaipur Rugs Group designs, develops, manufactures, markets, in post-conflict Mozambique. As part of its long-term strategy, Mozal and exports rugs to more than 20 countries, working with top retail was interested in sourcing from local SMEs, but initially the company chains such as Crate & Barrel in the United States and ELTE in had problems establishing contracts and ensuring that quality and Canada. Its 2007-2008 revenues were more than $10 million and its environment, health, and safety standards were sufficiently high. sales growth has averaged more than 40% a year in the past three In 2001, in the construction phase, Mozal and IFC began working years. together to build the capacity of local SMEs to qualify for contracts Jaipur Rugs operates in eight states in India using a vertically with it and other large companies. Through training and mentorship, integrated model in which the company oversees the entire their efforts enabled 15 SMEs to win over $5 million in contracts. production chain, from raw material selection to spinning to dyeing to Based on this initial success, when Mozal entered the operations weaving to finishing. Working in tandem with the Jaipur Rugs phase in 2003, the partners decided to establish the Mozambique Foundation, the company has incorporated more than 40,000 low- SME Linkage Development Program (Mozlink) to: income people into its production chain, approximately 28,000 of • Create stronger and more competitive SMEs through mentoring, them as weavers. About 60% of them are women and about 80% coaching, training, and exposure to best practices are illiterate. • Increase SME access to finance 22 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid • Provide business opportunities to Mozambican companies without 4. Spin-off compromising on safety, quality, or competitiveness Two of the Shell Foundation’s flagship programs are Breathing Space • Create jobs through local SME growth and Trading Up. Breathing Space tackles indoor air pollution, which • Transfer knowledge and business from other countries to kills 1.6 million women and children every year, by leveraging an Mozambique initial investment in the development of an improved cook stove with • Expand the concept of SME linkages by involving other large additional investments in entrepreneurs who can lead corporate partners, such as Coca-Cola, Sasol, and SABMiller commercialization efforts on the ground. In India, Envirofit India Pvt Mozlink pursues these goals via a three-pronged strategy consisting Ltd (a subsidiary of US-based non-profit Envirofit International) has of knowledge sharing, supply analysis, and an SME Development raised awareness among consumers in rural and peri-urban low- Center through which 12-month cycles of training and mentoring are income markets; obtained a commercial credit line; worked with provided to local small businesses, often by local business utensil dealers for distribution; and arranged for consumer finance development services providers. for the poorest customers through a microfinance institution. The Between 2003 and 2005, Mozlink Phase I resulted in contracts of Shell Foundation hopes to see sales in India reach four million approximately $15 million to 25 SMEs. Since 2005, Mozlink Phase II households by year five. To date, 50,000 stoves have been sold in has resulted in $18 million in contracts with 50 SMEs. SMEs are also India and 520,000 stoves have been sold around the world. These beginning to establish relationships with other large companies: in stoves cut toxic emissions by 80% and fuel usage by 50%. They can total, 80 SMEs have established contracts worth over $20 million also reduce cooking time up to 40%. with Mozal and other firms. Trading Up establishes linkages between developing world producers and major retailers in the developed world. On one side, the Shell ● SCF Capital 31 Foundation partners with retailers in order to understand their and SCF Capital is a boutique merchant bank focusing on systemic their customers’ needs. On the other side, working with change in the structuring of financial supply chain flows for global intermediaries ranging from non-governmental organizations to for- platform companies working with small and micro businesses. SCF profit businesses, the foundation arranges for the seed capital and Capital is addressing the unique financing requirements and technical assistance producers require to meet the retailers’ needs. constraints of these small and micro businesses by creating a new In India, for instance, the foundation is helping to channel certified asset class. Using a combination of traditional factoring, buyer organic and fair trade cotton to groups like C&A, IKEA, and Marks confirmation of invoices, and credit insurance, the company is working and Spencer. to create a transparent, investment-grade asset which can be used to obtain credit. For example, whereas small-scale retailers usually pay ● Source for Change35 cash for the merchandise they buy from distributors, SCF facilitates Source for Change (SFC) is a Business Process Outsourcing (BPO) the financing of those purchases by packaging the credits of groups company built on the idea that social values can be achieved through of small-scale retailers together and insuring them as securities. the private marketplace. SFC provides high-quality services at competitive prices by creating technology jobs for low-income rural ● Shell Foundation 32,33 women, who demonstrate keen attention to detail and long-term The Shell Foundation was established by the Shell Group in 2000 loyalty to the company. The company’s clients include Pratham India, with a $250 million endowment and a further commitment of $160 The University of Maryland, the Government of Rajasthan, Piramal million over 10 years. The Foundation’s mission is to “develop, scale Water Pvt Ltd, InTouch Solutions, ARAVALI, Reel Colour Studios, and up, and promote enterprise-based solutions to the challenges arising the Confederation of Indian Industry. For Pratham India, one of the from the impact of energy and globalization on poverty and the largest Indian non-governmental organizations, SFC executed a environment.” Its methodology consists of four steps: 34 19,200-form data entry project in 21 days and was cited as the 1. Incubation highest-quality data entry provider among 20 different vendors. 2. Pilot Other examples of SFC’s work include magazine page layout, bill and 3. Scaling best practice invoice processing, library cataloguing, and contact verification via BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 23 telephone. Based in Bagar, Rajasthan, SFC currently employs 38 women who range in age from 18 to 35 and have at least a 10th grade education. All but three are first-time paid employees. SFC’s vision is to catalyze 100,000 technology jobs for rural Indian women. ● Syngenta Foundation36,37 Syngenta is a leading agribusiness concern with more than 24,000 employees in more than 90 countries around the world, selling primarily seeds and crop protection products. The Syngenta Foundation for Sustainable Agriculture is a non-profit organization that works to increase the income-earning opportunities of small- holding farmers by raising their crop productivity and linking them to markets – working in partnership with players like cooperatives, government agencies, non-governmental organizations, and universities. In India, the foundation has established four projects across four states, two in Maharashtra (Chandrapur and Jawhar) and one each in Orissa (Kalahandi) and West Bengal (Bankura). These projects focus on improving the cultivation of rice and vegetables. Farmer training is a core component of all four projects, covering topics such as efficient utilization of soil, water, and nutrients; use of improved farm equipment; seed treatment; rainwater harvesting; and fertilizer briquetting. Training is imparted both in the classroom and via demonstration. In Bankura, Kalahandi, and Jawhar, Syngenta Foundation is making efforts to organize the farmers into groups and to help them carry out their own marketing of fresh vegetables. In tropical sugar beets, Syngenta Seeds is working with approximately 6,000 farmers growing from seeds developed specifically for warm climates. Eco-efficiency is a strong theme, and participating farmers have noticeably decreased crop duration and water usage. The project also helps farmers establish buy-back linkages for their produce with the processing factory. 24 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid Appendix 2 Jaipur Roundtable Participants Aavishkaar Venture Management Services Pvt Ltd Amalgamated Plantations Private Limited Andhra Pradesh Paper Mills Ltd Anglo Zimele BASIX Bharti Del Monte Bhartiya Yuva Shakti Trust (BYST) - Youth Business International Cairn India Ltd Calypso Foods DSCL Hariyali Kisan Bazaar FINO GlaxoSmithKline ICICI Bank Ltd Idea Cellular Intellectual Capital Advisory Services Pvt. Ltd (Intellecap) International Business Leaders Forum International Centre for Entrepreneurship and Career Development International Development Enterprises India International Finance Corporation ITC Ltd Jain Irrigation Systems Ltd Jaipur Rugs Company Pvt Ltd Jaipur Rugs Foundation Monitor Group SBP SCF Capital Shell Foundation Source for Change Syngenta Foundation United Nations Development Programme BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 25 Endnotes 1 Hammond, Allen L., William J. Kramer, Robert S. Katz, Julia T. http://www.monitor.com/Portals/0/MonitorContent/documents/Mo Tran, and Courtland Walker. 2007. “The Next 4 Billion: Market nitor_Emerging_Markets_NEDS_03_25_09.pdf (accessed May Size and Business Strategy at the Base of the Pyramid.” 15, 2009). Page 115. Wahington, DC: World Resources Institute and the International 9 Jain, J.K., Vice President, Raw Materials, Andhra Pradesh Paper Finance Corporation. Page 13. Mills Ltd. 2009. “Presentation on Farm Forestry.” Presentation to 2 Nelson, Jane. 2007. “Building Linkages for Competitive and the IFC-IBLF-HKS Business Linkages Roundtable in Jaipur, India, Responsible Entrepreneurship.” Corporate Social Responsibility March 3, 2009. (CSR) Initiative Report No. 8. Cambridge, MA: United Nations 10 Jenkins et al 2008, page 9. Industrial Development Organization (UNIDO) and the Fellows of 11 Mehta, Ishira. 2008. “The Anglo Zimele Model: A Corporate Risk Harvard College. Page 145. Capital Facility Experience.” IFC Business Linkages Practice Notes 3 Seely Brown, John, and John Hagel III. 2005. “Innovation Series. Washington, DC: IFC and Anglo Zimele Empowerment Blowback: Disruptive Management Practices from Asia.” Initiative Ltd. McKinsey Quarterly 2005(1). 12 Gupta, Rajeev Kumar, Associate Vice President, BASIX. 2009. 4 Jenkins, Beth, Anna Akhalkatsi, Brad Roberts, and Amanda “Basix: Addressing Livelihoods through Triad Strategy.” Gardiner. 2007. “Business Linkages: Lessons, Opportunities, and Presentation to the IFC-IBLF-HKS Business Linkages Roundtable Challenges.” CSR Initiative Report No. 16. Cambridge, MA: in Jaipur, India, March 4, 2009. Harvard Kennedy School. Pages 12-18. 13 Pramanik, Arindam, Consultant, Bhartiya Yuva Shakti Trust. 2009. 5 Among these participants was Kazuhiro Numasawa of the United “Turning Job Seekers into Job Creators: The BYST Experience.” Nations Development Programme, which has identified five Presentation to the IFC-IBLF-HKS Business Linkages Roundtable constraints to inclusive business that for the most part fall into in Jaipur, India, March 4, 2009. the “systemic” category: limited market information, ineffective 14 Arora, Deepak, General Manager, Corporate Social Responsibility, regulatory environments, inadequate physical infrastructure, Cairn India. 2009. “Cairn: Stimulating the Bottom of the Pyramid.” missing knowledge and skills, and restricted access to financial Presentation to the IFC-IBLF-HKS Business Linkages Roundtable products and services. For further information, please see United in Jaipur, India, March 4, 2009. Nations Development Programme (UNDP). 2008. “Creating Value 15 Shah, Ashok, Director, International Centre for Entrepreneurship for All: Strategies for Doing Business with the Poor.” New York: and Career Development. 2009. Personal communication (e- UNDP. mail), April 17 and May 5, 2009. 6 Sources for the tables that follow include Jenkins et al 2007; 16 Mitra, Debashish, Managing Director, Calypso Foods. 2009. Jenkins, Beth, Eriko Ishikawa, Emma Barthes, and Marisol “The Need for a Paradigm Shift to Ensure India’s Growth for the Giacomelli. 2008. “Supporting Entrepreneurship at the Base of Next Decade.” Presentation to the IFC-IBLF-HKS Business the Pyramid through Business Linkages.” Report of a Roundtable Linkages Roundtable in Jaipur, India, March 4, 2009. Dialogue June 10-12, 2008, Rio de Janeiro, Brazil. Washington, DC: IFC, IBLF, and the CSR Initiative at the Harvard Kennedy 17 Calypso Foods. No date. “Calypso Foods: Building a bridge School; and the proceedings of a Roundtable Dialogue March 3- between rural India and global food markets.” Online at 5, 2009, in Jaipur, India, entitled “Business Linkages: Enabling http://www.calypsofoods.net (accessed June 2, 2009). Access to Markets at the Base of the Pyramid.” 18 Jenkins et al 2008, page 11. 7 Jenkins et al 2007; Jenkins et al 2008. 19 Geaneotes, Alexis, Eriko Ishikawa, and Jane Nelson. 2009. 8 Karamchandani, Ashish, Michael Kubzansky, and Paul Frandano. “Developing Inclusive Business Models: A review of Coca-Cola 2009. “Emerging Markets, Emerging Models: Market-Based Sabco’s Manual Distribution Centers in Ethiopia and Tanzania.” Solutions to the Challenges of Global Poverty.” Monitor Group. Washington, DC: IFC and the CSR Initiative at the Harvard Online at Kennedy School. 26 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 20 Figure is for 2007. Source: Geaneotes et al 2009. 34 Shell Foundation. No date. “Our Mission.” Online at 21 Uppal, Arjun, Head of New Businesses, DSCL. 2009. “Rural http://www.shellfoundation.org/our_mission.php?p=home Business Centre.” Presentation to the IFC-IBLF-HKS Business (accessed May 3, 2009). Linkages Roundtable in Jaipur, India, March 4, 2009. 35 Raman, Karthik, Business Development Chief, Source for Change. 22 Gupta, Rishi, Director and Chief Financial Officer, FINO. 2009. 2009. “The Future is Rural.” Presentation to the IFC-IBLF-HKS “Financial Information Network & Operations Ltd.” Presentation to Business Linkages Roundtable in Jaipur, India, March 3, 2009. the IFC-IBLF-HKS Business Linkages Roundtable in Jaipur, India, 36 Dasgupta, Partha, Advisor, Syngenta Foundation for Sustainable March 4, 2009. 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Personal communication (e-mail), May 5, 2009. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 27 Notes 28 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid INTERNATIONAL FINANCE CORPORATION IFC, the private sector development arm of the World Bank Group, adds value to private sector investment by offering its client a range of Advisory Services. For instance, to catalyze local economic growth, IFC designs and implements programs to integrate Small and Medium Enterprises (SMEs) into the supply chains of its clients to create income generation opportunities for communities around clients’ project sites. These results are achieved through a mix of interventions, such as local supplier development programs, training in business/technical skills for SMEs and micro-entrepreneurs, and facilitating SMEs’ access to finance and entry into new markets. www.ifc.org THE CSR INITIATIVE, HARVARD KENNEDY SCHOOL Under the direction of John Ruggie (Faculty Chair) and Jane Nelson (Director), the CSR Initiative at Harvard’s Kennedy School is a multi-disciplinary and multi-stakeholder program that seeks to study and enhance the public contributions of private enterprise. It explores the intersection of corporate responsibility, corporate governance, and public policy, with a focus on the role of business in addressing global development issues. The Initiative undertakes research, education, and outreach activities that aim to bridge theory and practice, build leadership skills, and support constructive dialogue and collaboration among different sectors. It was founded in 2004 with the support of Walter H. Shorenstein, Chevron Corporation, The Coca-Cola Company, and General Motors and is now also supported by Cisco Systems Inc., InterContinental Hotels Group, Microsoft Corporation, SAP, and Shell Exploration and Production. www.hks.harvard.edu/m-rcbg/CSRI INTERNATIONAL BUSINESS LEADERS FORUM (IBLF) IBLF is a not-for-profit organization established in 1990 to promote responsible business leadership and partnerships for international development. It is supported by over 100 companies from around the world and a range of other partners including inter-governmental organizations, bilateral development agencies, and NGOs. IBLF works in over 50 countries, mobilizing visionary leadership, building cross-sector partnerships and engaging the capabilities of companies to create innovative and sustainable development solutions. www.iblf.org International Finance Corporation Harvard Kennedy School International Business Leaders Forum 2121 Pennsylvania Avenue NW Harvard University 15-16 Cornwall Terrace Washington, DC 20433 79 John F. Kennedy Street Regent’s Park USA Cambridge, MA 02138 London NW1 4QP www.ifc.org USA United Kingdom www.hks.harvard.edu/m-rcbg/CSRI www.iblf.org