An inclusive business is a sustainable business that benefits low-income communities. It is a business initiative that, keeping its for-profit nature, contributes to poverty reduction through the inclusion of low income communities in its value chain. In simple words inclusive business is all about including the poor in the business process be it as producers or consumers.
Large corporations traditionally target consumers in the middle and high-income segments of society, and established suppliers and service providers from the formal economy. Inclusive businesses find profitable ways to engage the low-income segment into their business operations in a way that benefits the low-income communities and creates sustainable livelihoods.
Inclusive businesses may engage low-income communities through, among other things, directly employing low-income people; targeting development of suppliers and service providers from low-income communities; or providing affordable goods and services targeted at low-income communities.
Inclusive business is not corporate philanthropy, which has inherent limitations of scope and budget. Rather, it is the search for sustainable business models that "do well by doing good" and have the potential to become part of the mainstream business model within the companies concerned — the key to business having development impact at scale.
As employees and suppliers, the low-income segments gain access to the formal economy; including provision of training, access to finance and income. As consumers, low income customers can benefit from products and services that meet their needs in an affordable way. If business does both, it opens up the virtuous cycle of business in development. Such an inclusive model functions by engaging the poor in any stage of the business chain. This would result in creating more employment, income, technical skill and local capacity. The basic idea here is to use the know-how and capital base accumulated at the tip of the economic pyramid to develop its base.
Areas for inclusivity
There are 4 broad areas where the principles of inclusive business can be incorporated.
- Supply chain — Big corporate have realized that associating themselves with small suppliers have enabled their supply chains to be more flexible and stable and at the same time be of reduced costs.
- Employment — Employing the local people in the areas of business will firstly ensure a market for the product. Also local employees will have a better idea of the kind of products that might appeal to the market and can also provide essential local knowledge.
- Product/service — Another way of looking at inclusivity in business is by producing goods or rendering services to the poor. Even though earlier it was considered that producing for the poor is ultimately a mere wastage of resources now the poor are target customers for many business corporate.
- Distribution channels — Poor localities have poor public infrastructure. Therefore it is essential that there is some amount of flexibility and reliability in its operations. This will be ensured to a certain extent with inclusion.
Taking up inclusive business is a challenge by itself.
- Internal challenges — taking up an inclusive initiative in a corporate firm implies undergoing major internal changes that may be unwelcomed and opposed. It may be seen as too risky and also not too rewarding in the short run. In many cases it is also considered to be highly time consuming. Therefore it is important to keep in mind the internal structure of the firm as there needs to be internal commitment and initiative.
- External environment challenges — these are what are usually referred to as external diseconomies. As we are all very well aware the poor are the most ignored category in the society by the government. They lack basic infrastructural facilities like housing, electricity, water, sanitation etc. it is often seen that small suppliers do not have proper roads and communication systems. These can be major drawbacks for the firm.
- Social challenges — conventionally business firms are known to be profit motived. Therefore before taking up any such inclusive business ideas it is essential to gain the local population’s trust and respect. But this might result in a drastic change in the existing social patterns. Therefore building such relationships should be done with utmost care so that there are no social disturbances within the concerned localities.
- IFC Inclusive Business
- Growing Inclusive Markets, UNDP-led inclusive business initiative with case studies database
- DCED overview on inclusive business models debate
- Inclusive Business website
- The Practitioner Hub for inclusive business
- Inclusive Business brochure of the WBCSD-SNV Alliance
- Video on "Inclusive Business - profitable business for successful development"
- Promoting Small and Medium Enterprises for Sustainable Development - published by WBCSD in collaboration with SNV
- Doing Business with the World – The New Role of Corporate Leadership in Global Development
- Endeva - research on inclusive business in various sectors