With the increasing scrutiny and pressure on international aid budgets in this era of global economic downturn and the societal governance failures in the developing world, there is an increasing recognition of the role businesses can play in addressing some of the developmental challenges in their host communities. In response to such calls, some businesses, in particular multinational companies, are more than before showing their willingness to take an active role in sustainable development of their host countries.
One of the many approaches companies can undertake to make a sustainable development to the Malawian society is the ‘Bottom of the Pyramid’ or BoP approach. The proponents of BoP concept CK Prahalad and Kenneth Lieberthal, in their 1998 seminal article ‘End of Corporate Imperialism’ which appeared in the Harvard Business Review of 1998, argued that companies can increase their profits and at the same time contribute to poverty alleviation in the developing world by targeting the underserved poor at the bottom of the pyramid or income scale.
Anecdotal evidence in Malawi, however, shows that a significant proportion of companies are still failing to effectively penetrate this segment of the population. Some of the challenges companies face in reaching out to the poor are familiar, and include: poor infrastructure and poorly developed distribution channels, high levels of illiteracy among the poor, and a lack of effective legal and policy frameworks. While the majority of companies are still unenthusiastic about the prospects of venturing into such risky business strategies, in recent years, we have increasingly seen a smaller number of companies leave their comfort zones and enter the uncharted territories by undertaking initiatives that are core to their business, but also tailored towards meeting the needs of the poor. They are working with the poor as: consumers, producers, employees and small scale entrepreneurs.
Companies can engage in two major groups of initiatives in pursuit of their developmental agenda. To begin with, companies can pursue activities that are essential to the functioning of their supply chains. In recent times, a number of such inclusive business initiatives have gained popularity, with some showing a great deal of success. These initiatives are popular among multinational companies that are benefitting from a reliable and affordable source of raw materials purchased from local producers. For example, Eastern Produce Malawi, a tea producing company, has helped stimulate smallholder tea production in Thyolo and Mulanje districts by providing technical advice and input loans to the resource poor farmers organised in an outgrowers’ scheme.
Furthermore, it has, in addition to buying tea from these farmers at good prices, linked the outgrowers to the fair-trading system that buys their tea at premium prices. Part of the proceeds from such sales is spent on community infrastructural development projects. By providing assistance to the outgrowers, Eastern Produce Malawi is also delivering its commercial objective: continued access to reliable supplies of unprocessed tea to meet the expanding international market demand.
Secondly, companies can innovate by offering low income customers with affordable products and services. Such companies market their products and services in smaller units which are affordable to this category of consumers. Companies using this approach include: Unilever, Airtel and Telecom Networks Malawi (TNM). Airtel and TNM for example, are – apart from franchising the mobile phone credit service to local entrepreneurs across the country – reaching consumers with low purchasing power by marketing their mobile phone credits in smaller and affordable units. As a result of this innovative approach, the low income consumers are now able to access other essential services necessary for the transformation of their lives. In addition, these companies have created business opportunities for local entrepreneurs serving these low income consumers. For these companies, such a business model has helped to increase sales and expand their market shares.
While the above examples can be considered as innovative business models that simultaneously deliver commercial and social objectives, there have also been a number of donor and NGO driven initiatives which some companies are implementing to achieve developmental objectives. Such initiatives are implemented with the aim of sharing risks associated with serving the poor. Illovo Sugar (Malawi), Universal Industries and First Merchant Bank are some of the companies that have harnessed such opportunities to simultaneously achieve business and social value.
For instance, First Merchant Bank, with the support from the United Kingdom Department for International Development, increased access to financial products and services to risky and ‘unbanked’ customers and small scale entrepreneurs. Extending its financial products and services to such customers was, however, helped by a partnership it fostered with FINCA which not only has a robust network of branches across the country, but also has extensive capabilities in delivering affordable financial products and services for the poor.
The good thing about these initiatives though is that they, unlike corporate philanthropy – the most prevalent form of CSR in Malawi, do not require specific allocation of funds.