Alleviating Global Poverty Through Profitable Partnerships: Markets, Economic Well-Being and Moral Vision

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Alleviating Global Poverty Through Profitable
Partnerships Markets, Economic Well-Being and
Moral Vision

• Laura P. Hartman
• Associate Vice President Professor, DePaul
  University, Chicago, USA

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Acknowledgment to Co-Authors

• Scott Kelley, DePaul University
• Patricia Werhane, DePaul University
• Dennis Moberg, Santa Clara University

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The Simple Underlying Principle

• If we can find approaches that
• meet the needs of the poor in ways that
• generate profits for business and votes for
  politicians, we will have found a sustainable way
  to reduce inequity in the world.
• - Bill Gates, address to Harvard University
  graduates, 2007

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The Thesis

• Poverty can be alleviated, if not eradicated,
• both locally and globally, but only if we
• change our narratives
• about global free enterprise, and only if we
• rethink our mindsets
• regarding how poverty issues
• are most effectively addressed.

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So, let us review our current narratives. . .
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Moving from CSR as Responsibility or Obligation
to Moral Vision with Guile

• Defining the CSR as Responsibility narrative
• Companies are unlikely to engage in CSR under
  certain competitive conditions or unless the
  institutional environment is favorable
  (Campbell, 2007)
• Preferring self-interest with guile, whenever
  possible
• Firms are only going to engage in CSR when the
  favorable environment already exists.

NARRATIVES
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Moving . . . to Moral Vision with Guile

• Defining the Moral vision with guile narrative
  (alternative)
• It is those firms with moral vision, moral
  imagination, that will be vigilant for
  opportunities to act in ways that are both
  socially responsible and will enhance their
  long-term financial performance. (Moberg,
  Werhane, Hartman 2008)
• If a firm is strategic in its vision, it will
  identify those self-interests in more
  opportunities.

NARRATIVES
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A sustainable outcome orientation
The outcomes of a self-interested approach ?
those of moral vision with guile.

• In a growing global economy, with consumer
  saturation among the rich countries, companies
  aiming for long-term value creation must look to
  new markets, even to potential customers who are
  very poor, and understand these new stakeholders.
  
• Otherwise, companies will simply function as
  extractors from those communities, a strategy
  that cannot contribute to new market development
  and thus will not be viable in the long run.

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Should big business have the responsibility to
save the world? The R of CSR can evolve to
Strategy

• Corporations are not responsible for all the
  worlds problems, nor do they have the resources
  to solve them all.
• Each company can identify the particular set of
  societal problems that it is best equipped to
  help resolve and from which it can gain the best
  competitive benefit.
• Addressing social issues by creating shared value
  will lead to self-sustaining solutions that do
  not depend on private or government subsidies.
• Continued . . .
• Source Porter, M.E. and M.R. Kramer, Strategy
  and Society the link between competitive
  advantage and corporate social responsibility

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Porter Kramer Bottom Line
When a well-run business applies its vast
resources, expertise, and management talent to
problems that it understands and in which it has
a stake, it can have a greater impact on social
good than any other institution or philanthropic
organization.
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Poverty alleviation is just one such particular
societal challenge

• If in the realm of their core competence, firms
  addressing this social issue can gain competitive
  benefit.
• Their creation of shared value will lead to
  self-sustaining solutions that do not depend on
  private or government subsidies.
• If these firms will apply their vast resources,
  expertise, and talent to poverty alleviation a
  challenge in which they now have a stake they
  can have a greater impact on social good than any
  other institution or philanthropic organization

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The Scope of the Issue Today

• For purposes of this audience and presentation, I
  will not cover other elements of poverty in any
  depth here.
• We are merely suggesting the issue of poverty
  alleviation as one opportunity where
  multinationals can use strategy to have a
  positive impact on multiple stakeholders,
  including themselves.
• In this discussion, however, I would like to
  focus on the possibility that, by turning a
  responsibility into a strategy in any arena
  we are changing the mindsets sufficiently to
  create successes where they could not before
  exist.

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As an example,

• Cemex distributed cement products - 2.5 million
  poor in Guadalajara
• Typical construction time
• Over a year to construct a single room
• Over 13 years to finish a modest, four-room
  dwelling.
• Cemex offered financing to low-income families to
  build or expand their homes.

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One would assume . . .

• Since Cemex was appealing to the BoP Mexican
  market, they had virtually no competition!
• Without competition, traditional theory
  (self-interest with guile) would predict market
  exploitation since there would be no
  institutional forces supporting CSR.
• Yet, it was apparently moral vision with guile
  that drove Cemex leaders to its proactive CSR -
  they were willing to forego competing on price
  where they had a clear advantage and instead
  invest in building an institutional
  infrastructure among their customers.

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• Required Customers participated in savings
  groups
• In return Participants were offered technical
  assistance, educational programs, guaranteed
  quality materials and delivery, guaranteed
  prices, and free storage of materials.
• To Cemex profits of 1.5 million (2005),
  anticipated expansion into Colombia, Venezuela,
  Egypt and the Philippines

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Insights for Poverty Alleviation Changing the
mindsets

• The poor do not lack resources.
• Poverty alleviation is an evolving, dynamic
  process.
• Poverty is often the result of patterns of
  exclusion.
• Feasible approaches to poverty reduction have
  been and can be created through commerce.

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Evidence ofEntrepreneurial Cunning

• Moral imagination drives moral vision but, in
  many circumstances, it is incomplete without
  guile, that exercise of cunning that accounts for
  sustainable responses to institutional
  opportunities.
• The following are a series of corporate actions
  that demonstrate the entrepreneurial cunning
  component that comprises moral vision with guile.
  
• We offer these not as an exhaustive list but
  rather as a useful starting point.

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1. Rudimentary Institution Building

• As we saw in the Cemex case, firms appealing to
  BoP markets find it valuable to use rudimentary
  institution building as a form of entrepreneurial
  cunning.
• By encouraging and facilitating the formation of
  buyers cooperatives, political action networks,
  or community self-help associations, firms
  essentially create new stakeholders through which
  to negotiate and conduct commercial activities.

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2. System Engagement and Systems Thinking

• Focuses on the nature of the relationships a firm
  builds with its stakeholder institutions.
• Ongoing cooperative relationships with local
  stakeholders in place of far less sustainable
  one-shot market transactions.
• Involves the firm not just in a one-to-one
  relationship but in a system of interactions with
  customers and local communities. This, in turn,
  requires systems thinking.

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Example - Finance Partnerships SELCO of India

• SELCO brought reliable, affordable and
  environmentally sustainable electricity to 45,000
  small businesses through a small, solar home
  electrical system
• It linked customers with microfinance partners,
  financing systems based on a share of future
  earnings.

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SELCO of India

• It was SELCOs readiness to escape the
  traditional mental model and to conceive of rural
  Indian customers as participants in a vast
  cultural and social system that marked their
  moral vision.
• SELCO realized that trust and confidence could
  only develop if the company benefited others in
  the customers local area through partnerships.

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3. Stakeholder Solidarity

• Stems from an attitude of identification and
  alliance that only comes from prolonged contact
  with local stakeholders (e.g., potential
  employees and customers).
• As a result, company strategies are chosen that
  are not just respectful of stakeholder customs,
  but also that represent wishes, habits, and
  practices that this group has but may not
  express.

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Example ONIL Stove

• Donald ONeal noticed that poor women cook over
  dangerous three-rock, open fires inside their
  homes, causing respiratory illness and severe
  burns, and contributing significantly to air
  pollution.
• He decided to design a better method of cooking.
• He lived among them and studied the cultural as
  well technological issues associated with cooking
  in Guatemala.
• Two years later, he had designed a solution made
  principally of cement and called the ONIL stove.

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But where are the big guns?

• So far, our examples have focused on
  entrepreneurial ventures, often locally operated,
  in countries known for corruption,
  non-enforcement of a rule of law, and many other
  institutional barriers to market entry.
• The costs seem too large, the margins too low,
  and the opportunity for loss of shareholder value
  and reputation seem too great.
• But, taking a systems approach combined with
  moral imagination, moral cunning, and a concern
  for poverty alleviation, we find increasing
  global involvement in BoP markets.

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Systems Engagement BHP Billiton

• BHP Billiton is the largest diversified resources
  company in the world
• In 2001, BHP Billiton expanded an enterprise loan
  program it had established in Mozambique, where
  it runs an aluminum smelter.
• During its original project (Mozal), its use of
  contractors from the local community on the
  project was not successful.
• However, as with Cemex, BHP found that the most
  effective way to increase local participation in
  the later project was through building local
  institutions to support an infrastructure which
  would then support BHPs business objectives.

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Systems BHP Billiton

• BHP participated in the development of the Small
  and Medium Enterprise Empowerment and Linkages
  Program (SMEELP) which helped to provide
  contractors with the skills necessary to compete
  for BHP contracts, ultimately benefiting
  themselves, their communities and BHP.
• This systems thinking will guarantee its
  sustainability
• Once the project is over, the Mozambique
  government will assume management of the program
  in order to assure local control of the
  activities and its foreseeable future, including
  partnerships with other organizations who will
  utilize the contractors.

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Institution Building and Solidarity

• In India, there are an estimated 660,000
  diarrhea-related deaths per year, a problem with
  known preventative measures as simple as hygienic
  education and access to anti-bacterial soap.
• BUT While Hindustan Lever, Ltd. (HLL) had an
  advanced distribution system in urban areas, it
  could not replicate them in rural areas.
• The sheer vastness of the task had discouraged
  many other MNCs from entering these areas, a
  challenge facing NGOs, developments, and
  government as well.

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Unilevers Lifebuoy Soap Campaign

• But, the company does not coat it in the
  do-goody mantra of corporate social
  responsibility. It states openly that it wants to
  make washing hands with soap a habit especially
  after going to the toilet and before eating in
  order to sell more bars of its Lifebuoy soap.
• Profitability will guarantee what all
  development projects need consistent support.
  Its the fact that we hope to make money which
  makes our involvement sustainable, she says.
  This cant be a fashion if we are a soap
  company. When we say were in this for the
  money it helps, because people know were not
  going to leave next year when the chairmans wife
  finds a new charity.

Jopson, B. Unilever looks to clean up,
Financial Times (November 14, 2007)
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Show me the Money!!Well be smiling all the way
to the bank.

• Unilever Uganda soap sales per annum 1m (1.5m,
  700,000)
• But only 14 per cent of Ugandan adults used soap
  to wash their hands after going to the toilet.
• Imagine if we change behaviour, if every
  household starts to wash hands with soap, says
  George Inholo, Unilevers head in Uganda. Well
  be smiling all the way to the bank.

Jopson, B. Unilever looks to clean up,
Financial Times (November 14, 2007)
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• These shifting mindsets have produced
• Appropriate and effective incentives,
• Stakeholder interest maximization,
• Economic growth, and
• The potential for the reduction of both poverty
  and the unfulfilled needs of the abject poor.

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Embracing the concept of profitable
partnerships means an effort towards new
mindsets
From maximizing profits From short-term
shareholder gain From working for people From
charity philanthropy
To simply making more profits to medium/long
term perspectives. to working with people. to
profitable partnering!
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What have we learned?

• Institutional structures in developing economies
  should not be assumed to be insurmountable
  barriers to market entry in global settings.
• Rather, such structures can facilitate entry
  without compromise if one couples moral vision
  with cunning and guile.
• Indeed, if any progress is to be made in
  alleviating global poverty, such forms of guile
  and cunning are imperative.

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Much to be learned tentative conclusions

• MNCs need to develop and to encourage and nurture
  moral imagination.
• Proactive CSR at the BoP requires mental models
  that both individualize stakeholders and break
  through those mental models that condemn millions
  to the vicious cycle of poverty.

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Much to be learned tentative conclusions

• Leaders must be systems thinkers. In addition to
  considering stakeholders (institutional or
  individual) one at a time, they must consider
  existing and potential interactions and
  interrelationships.
• There is no substitute for immersing oneself in
  the experience of those stakeholders with which
  one intends to partner. Engagement requires an
  intimate knowledge of a partners experience. (á
  la Paul Polak, Out of Poverty)

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Whether there is a fortune at the base of the
pyramid or only sustainable profits is
inconsequential. That there are profits in
markets previously overlooked and ignored is of
great consequence to both poverty alleviation
efforts and to the sustainable development of
global companies in the new flat world of the
Twenty First Century.
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Ability need not begat responsibility.Ability
need only inspire us to care more effectively and
as much for others as we do for ourselves and
our stakeholders.
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