Shared prosperity through inclusive business
Publication by the International Finance Corporation (IFC), a member of the World Bank Group
Companies in emerging markets do business with people who live at the “base of the economic pyramid” (BoP) at various points along the value chain for strategic reasons. IFC has invested in hundreds of such companies, which we call “inclusive businesses”. These companies have achieved commercial sustainability and growth while benefiting the poor.
On the supply side, companies might look to supplement and diversify their supply bases to meet volume targets and reduce risk, or position themselves for long-term cost savings. Some want to ensure security of supply by engaging, what are today, small suppliers, while others might cater to customer preferences for specific supply sources.
On the demand side, companies are aware that the BoP comprises over 4.5 billion people with a combined spending power of $5 trillion. Companies, therefore, look for innovative solutions to bring these people into their customer bases, gain market share, and increase revenues and profitability. Some see an opportunity to establish first mover advantage and customer loyalty in segments that will become the future middle class.
Inclusive businesses provide BoP suppliers with reliable markets that may not have existed previously. Inclusive businesses offer their BoP customers better access to the goods and services they need at a better value for their money. These businesses may also engage BoP distributors and retailers to reach its customers. BoP populations capitalize on these opportunities to increase earnings, improve quality of life, and fulfill their potential.
In 2011, we identified seven common business models in our inclusive business portfolio. This new report goes into greater detail on specific tactics that successful companies in our portfolio use time and again to reach the BoP. These are local companies, or those with significant investments locally. Before IFC invested in these companies, we conducted due diligence on each of them to ensure that their business models are commercially viable and that they meet IFC’s environmental, social, and governance standards. IFC regularly monitors these companies for the duration of the investment.
We believe that this report will add to the existing knowledge base on inclusive business, to which many different stakeholders have contributed over the years. This report has two sections that reflect the two principal ways companies reach the BoP — as suppliers and as customers — although companies may also engage BoP distributors and retailers in the process. The solutions presented are not sector-specific and can be tailored and used across industries. We hope that businesses in emerging markets will find these solutions relevant to the challenges they face.
Read the full report here.