An inclusive business model is a type of business model that seeks to create value for low-income communities by integrating them into a company's value chain on the demand side as clients and consumers, and/or on the supply side as producers, entrepreneurs or employees in a sustainable way. The businesses that design and use these business models can range from multinational corporations to large domestic companies, co-operatives, small and medium-sized enterprises, or even not-for-profit organizations that use business principles—or social business approaches—to achieve their mission. Since social value creation is integral to how inclusive business models intend to capture value, they differ from corporate philanthropy or corporate social responsibility. Businesses adopting inclusive business models can become inclusive businesses when they succeed in creating intended value and avoiding value destruction.
Criteria Inclusive business models can be developed and implemented by a wide range of entities, from private corporations (large and small), to state-owned companies, co-operatives, or even not-for-profit organizations, as long as the following criteria are met:
Human development impact: an inclusive business model contributes to human development by increasing poor people's incomes, improving their access to basic goods and services such as education, health, housing, water and sanitation, contributing to the Sustainable Development Goals and reaching excluded and disadvantaged groups (e.g. women, youth, disabled, ethnic minorities). Self-sustainability: an inclusive business model can receive start-up funding from different sources (including grants) but it must be designed to break-even and become self-sustainable over time (profits can be re-invested into the business or distributed to shareholders). Environmental impact: at a minimum, an inclusive business model does not have major negative environmental impacts and, at best, contributes directly to environmental sustainability (e.g. by saving resources, reducing carbon emissions, conserving biodiversity, etc.).
Benefits for business Generating profits. Business with the poor can sometimes yield higher rates of return than ventures in developed markets. Some microfinance institutions for instance have demonstrated their ability to reap significant profits. Developing new markets. The 4 billion people living on less than $8 a day worldwide have a combined income of about $5 trillion. They are willing and able to pay for essential goods and services (such as water, energy and healthcare), but too often they suffer from a 'poverty penalty' and end up paying more than rich consumers. Business models that offer better value for money—or entirely new products and services to improve the lives of the poor—can reap pioneer profits in return. Driving innovation. The challenge of developing inclusive business models can lead to innovations that contribute to a company's competitiveness. For example, to meet the poor's preferences and needs, firms must offer new combinations of price and performance. And the pervasive constraints that businesses encounter when doing business with the poor require creative responses. These forces drive the development of new products, services and business models that can catch on in other markets, giving innovative companies a competitive advantage in poor markets. Expanding the labour pool. The poor are a large source of labour. The advantages of hiring them as employees go beyond cost savings. With adequate training and well-targeted marketing, the poor can deliver high-quality products and services. Or their local knowledge and connections may place them well to serve other poor consumers in their communities. Strengthening value chains. For firms that procure locally, incorporating the poor in business value chains—as producers, suppliers, distributors, retailers and franchisees—can expand supply and lower risk. That allows them to reduce costs and increase flexibility, especially as the local businesses move into more specialized or higher-skill activities such as component production and business services.
Benefits for the poor Businesses can improve the lives of poor people, contributing broadly to what the United Nations terms 'human development'—expanding people's opportunities to lead lives they value.
Creating jobs and Increasing incomes, by including poor people in value chains as customers, employees, producers and small-business owners. Meeting basic needs', such as food, clean water, sanitation, electricity and health-related services all meet people's basic needs. Increasing productivity, through access to products and services—from electricity to mobile telephony, from agricultural equipment to credit and insurance. Empowering the poor. All these contributions support the empowerment of poor people, individually and communally, to gain more control over their lives. By raising awareness, by providing information and training, by including marginalized groups, by offering new opportunities and by conferring hope and pride, inclusive business models can give people confidence and new sources of strength to escape poverty using their own means. As such, inclusive business models can make a significant contribution towards meeting the Sustainable Development Goals (SDGs).
Constraints Despite opportunities, many businesses are not taking advantage of them because market conditions surrounding the poor can make doing business difficult, risky and expensive. Where poverty prevails, the foundations for functional markets are often lacking, excluding the poor from meaningful participation and deterring companies from doing business with them. The United Nations Development Programme, in a report titled "Creating Value for All: Strategies for Doing Business with the Poor" (2008), identifies five major market constraints and successful strategies to overcome them:
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