The State of Inclusive Business: Four things we know

 By Paula Pelaez, Head of Business Call to Action
 
For the cost of a New York take-out sandwich or less, most of the world’s population - seven out of 10 people – have to make ends meet every day. Inclusive business is helping them to break this cycle of poverty by creating jobs, affordable goods and services, education and skills training and more.
 

Companies recognize they won’t succeed in failed societies. Meanwhile, employees, consumers and other stakeholders are voicing their expectations for companies to also deliver societal value, not hinder and better yet – contribute to solve the most complex challenges of our time reflected in the Sustainable Development Goals.

With the equivalent of just US $10 or less[1], people living at the bottom of the economic pyramid (BoP) have to cover the costs of food, housing, education, transport, medical care, lighting and clothing every day. Most of these individuals are in developing countries – which for many businesses represent frontier markets. Low-income markets are mostly overlooked and represent untapped potential for economic growth.

But increasingly, companies are valuing inclusive business as a concrete model for driving both SDG impact and company growth. Integrating the BoP can play an important role in bolstering business when included in company value chains as suppliers, distributors, retailers, consumers, and employees. In addition to company growth, inclusive business presents an opportunity to break the cycle of poverty for billions by contributing to higher incomes; affordable, accessible and adequate products and services; and sustainable livelihoods.

This year, we partnered with GlobeScan to take the pulse on the state of Inclusive Business, surveying 193 inclusive business actors, including mostly companies, and other stakeholders such as government, multilateral organizations, NGOs, academics, think tanks and investors. The following statistics for overall responses are based on the feedback of all 193 participants, while company-specific statistics are based on feedback from 91 companies. View the full findings here.

Here are four key things we learned:

1. Companies are heeding the clarion call of the SDGs

We are now three years into an ambitious 15-year plan to improve the quality of life of every human being on the planet, articulated by the 17 Sustainable Development Goals (SDGs). Demonstrating that efforts to bring the private sector on board to achieve these goals have been successful, three-quarters of all respondents said the SDGs had either significantly or moderately influenced companies’ decisions to adopt inclusive business models. Four out of five companies said SDGs had influenced their decision to engage in inclusive business. This was strongest among SMEs, with 89 percent, while 71 percent of multinationals and 74 percent of large national companies also said the Global Goals had influenced their decision to engage in IB.

Drilling down to specific SDGs, inclusive business initiatives are thought to have contributed most to SDG 8: Decent Work and Economic Growth, and SDG 1: No Poverty. Also rating highly were SDG 3: Good Health and Well-Being, SDG 2: Zero Hunger, and SDG 5: Gender Equality. Surprisingly, only 10 percent of companies said they were contributing to SDG 10: Reduced Inequalities, even though this is a core element of inclusive business.

2. It’s helping to ensure we leave no one behind

At the heart of any inclusive business is its ability to improve the lives and livelihoods of those living at the bottom of the economic pyramid, while maintaining company profit. Two-thirds of respondents said inclusive businesses are doing what they are intended to do – lifting people out of poverty and reducing inequalities. This was even stronger among corporate respondents: 79 percent said inclusive businesses were very effective, while a further 12 percent said they were moderately effective.

Inclusive business does not only bring improvements in the lives of the BoP – it also benefits the company. Over half of surveyed companies said they had benefited from improved brand equity and reputation; 46 percent said it had opened access to new markets, while 43 percent said that it had given them a competitive advantage over other companies. This value is resoundingly recognized company-wide: 85 percent of respondents said that inclusive business was seen to add value across the while company, and not just among those who are engaged in the inclusive business initiative.

When reflecting on their own initiatives, most companies reported that the impact of their initiative(s) on improving the lives of low-income communities had been significant. Among BCtA member companies, almost all members (91 percent) agreed that their inclusive business initiative has had a large impact on improving the lives of low-income communities.

In terms of how they were actually improving lives, respondents reported that low-income populations were primarily engaged as consumers or employees, meaning they experienced better working conditions, more fair and consistent pay, as well as access to affordable essentials such as healthcare, finance, education, professional development, technical training and more.


3. It’s is not just growing, it’s expanding

Whether the inclusive business journey starts “accidentally”, or by responding to an SDG opportunity, there are many stages a company must go through to get to a point where the initiative is fully realized and flourishing. Interestingly, most respondents said they were either at a scale-up stage, where they were focusing on extending or replicating successful initiatives, or they were still growing initiatives slowly within the organization. Large national companies were much further along their inclusive business journeys than multinationals and SMEs, with the vast majority (79 percent) at the scale-up stage, compared to just 44 percent of SMEs and 39 percent of MNCs.

As for forward-looking growth strategies, most companies were inclined towards expanding existing inclusive business models into new markets or partnering to achieve deeper or greater scale, rather than acquiring existing inclusive businesses.

4. There are shared barriers to success

Despite its positive growth over the past decade, there are common barriers that many inclusive businesses face around the world that are significantly hindering success. Two thirds of those who had an active inclusive business listed a lack of access to sufficient financing as greatest barrier, while 59 percent said that restrictive or unsupportive government regulations posed the greatest risk to the success of an inclusive business initiative.

Demonstrating that global issues have a profound impact on the way business is done at the local level, the impact of climate change and the impact of technology advances were cited as the next most significant risks to the success of their inclusive business initiative. Managing gender inequality within companies and among low-income communities was seen as a top priority for over 60 percent.

In short

Overwhelmingly, respondents were optimistic about the state of inclusive business, and most were actively engaging in or supporting inclusive business initiatives. The SDGs were viewed as an integral part of any inclusive business model, and private sector was largely committed to contributing to them. Most were persevering and succeeding even despite the challenges they were facing.

Recognising the urgency and the unique role that business has in achieving the SDGs, we hope the findings of this survey spur dialogue and additional uptake of inclusive business models – as a concrete pathway for inclusive and sustainable private sector growth.

To find out more about the survey findings, view the full report here.

[1] In purchasing power parity