HOUSTON, Texas — The COVID-19 pandemic pushed between 119 and 124 million people into poverty in 2020. It is predicted that the pandemic will cause global unemployment to reach more than 200 million in 2022. Now more than ever, businesses have the ability to impact people’s lives and help fight global poverty. Specifically, inclusive businesses could help fight poverty around the world.
What Is an Inclusive Business?
Inclusivity is a term that has vast uses. Inclusivity can mean including different races, genders, religions, age groups, abilities, socioeconomic statuses and more. The private sector approach to inclusive businesses is an important area to focus on, especially the structure that includes and supports low-income groups to create shared value. Shared value means that both parties benefit from this transaction: the business gains commercial success and low-income populations gain economic opportunities.
Inclusive businesses include people at the bottom of the world economic pyramid (BOP) into their business model. Inclusive businesses include BOP people “as suppliers, distributors, retailers or customers.” Not only does including BOP people in businesses’ value chains provide jobs with a reliable income but it can also provide essential needs such as water, sanitation, education, power and connectivity.
But what is the bottom of the pyramid? The term “BOP ” refers to the four billion people that live on less than $1,500 a year. It can be subdivided into groups based on income. “Low income” is categorized as $3-$5 a day. Members of this group often have jobs and own consumer goods. Below them, earning $1-$3 a day, are people struggling to make a steady income. They do not have access to education, health care or proper infrastructure. About 1.6 billion people earn $1-$3 daily.
These people often lack the skills and education needed to acquire a steady income. According to the International Finance Corporation, the pyramid’s base is a largely untapped market of $5 trillion. IFC is one of the companies working to increase the presence of inclusive businesses. It has invested $23 billion in inclusive businesses since 2005.
Benefiting Both Sides
The two-way value production of inclusive businesses means that as populations’ incomes increase and basic needs are fulfilled, demand for products and services increases. This further grows the businesses. If large, global businesses use this business model and include lower-income markets, billions of people could become economically stable.
However, this relies on those businesses’ decisions to help. The motivation is there. Tapping into the 65% of the world’s population that earns less than $2,000 a year not only benefits profits but increases efficiency and feeds innovation. BOP markets behind economic development have the potential for rapid growth as the demand is there.
Measuring The Impact
Hank Wasiak, a marketing professor at the University of Southern California, has great experience working in global business and discussed his thoughts with The Borgen Project on inclusive businesses and global poverty. He explained how “when companies make the effort to include [the bottom 1.6 billion]they can provide education and training, which creates even more value.” While brands could consider the option of donating a portion of profits towards global poverty as an alternative option, “the bigger and longer-term impact is when a company goes back through their development and integrates underserved communities into that value chain.”
After years of research, it is clear that economic growth is among the most essential strategies to alleviate poverty. Global research estimates that increasing average income by 10% leads to a 26% reduction in poverty. Large multinational companies can help drive this economic growth by providing better wages to BOP people by using a more inclusive business model. Wasiak says, “if any business looks hard enough and cares enough, there’s always an opportunity to build that underserved group of people into their company.”
Inclusive Business In Action
One significant example of a company working to create an economically inclusive value chain is Unilever. In 2015, Unilever began a partnership with Acumen, a nonprofit impact investment fund supporting companies working to help low-income communities. The Clinton Giustra Enterprise Partnership works with economic development programs to close supply and distribution chain gaps. It aimed to help give more than 300,000 farmers sustainable income by including them in their supply chain.
One measurable example of Unilever’s impact is their Indian subsidiary, Hindustan Unilever, which aimed a low-cost, high-quality product at BOP markets. In 2002, Harvard Business Review reported that it might create $200 million in revenue per year. This product is just one example of Hindustan Unilever’s impact. It has created 29 factories in remote areas to employ rural residents and work to help women micro-entrepreneurs.
Aiming to have a positive impact is beneficial for Unilever as purpose-driven brands grow two times faster than non-purposeful brands. In January of 2021, Unilever acknowledged the pandemic’s massive impact on poverty. It aimed to train and educate 10 million young people, providing them with living wages and useful skills for their futures. It is also investing $2 billion annually to increase the inclusion of underrepresented groups into its supply chain. Its end goal is to make sure that people can earn a living wage to afford basic needs for themselves and their families.
More important Than Ever
The social and financial consequences of the pandemic continue. The pandemic is responsible for hundreds of billions of lost income. Inclusive business models are essential to support low-income communities and combat the impacts of the pandemic. The impoverished are disproportionately affected by COVID-19 since they have to risk long-term economic stability to fulfill immediate necessities. The pandemic strengthened the barriers to economic opportunities that they face since have less access to markets and services.
Some inclusive businesses have helped deliver essential supplies and valuable health information to BOP communities during COVID-19. For example, Olam International, which incorporates members of the BOP into its supply chain, used its online platform to inform smallholder farmers about COVID-19.
Inclusive businesses that provide goods and services to BOP consumers face various challenges. For example, members of this group struggle to adjust to utilizing e-commerce. Businesses are addressing this by allowing orders via telephone or financing temporary internet connections.
Companies that choose to use an inclusive business model and incorporate BOP communities into their value chain have the ability to improve lives in the long run. Inclusive businesses provide goods, services and jobs. They also provide skills and education, which can help maintain a steady income for a lifetime. Choosing to utilize this strategy of business can significantly impact poverty, especially following the COVID-19 pandemic.
– Jacqueline Zembek