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

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


1
Alleviating Global Poverty Through Profitable
Partnerships Markets, Economic Well-Being and
Moral Vision
  • Laura P. Hartman
  • Associate Vice President Professor, DePaul
    University, Chicago, USA

2
Acknowledgment to Co-Authors
  • Scott Kelley, DePaul University
  • Patricia Werhane, DePaul University
  • Dennis Moberg, Santa Clara University

3
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

4
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.

5
So, let us review our current narratives. . .
6
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
7
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
8
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.

9
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

10
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.
11
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

12
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.

13
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.

14
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.

15
  • 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

16
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.

17
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.

18
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.

19
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.

20
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.

21
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.

22
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.

23
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.

24
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.

25
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.

26
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.

27
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.

28
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)
29
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)
30
  • 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.

31
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!
32
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.

33
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.

34
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)

35
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.
36
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.
37
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