Business & Development
Business: Critical contributions to development through employment creation and skills training It is widely accepted that the private sector has a crucial role
to play in poverty reduction through generating economic growth. However, firms
can make important positive contributions to poverty reduction and the
Millennium Development Goals (MDGs) directly through the way they conduct their
core business operations.
Shared value: the mutual interests of business and society
In a developing country context there is a strong mutual interest in development between the corporate sector and the host society. These societies need the positive social and economic benefits provided by private sector activity. Firms gain from a productive and stable society in a multitude of ways including access to a capable workforce, reliable supply chains, supporting infrastructure, and the presence of good governance and the rule of law. This mutual dependence and common interest in development allows opportunities to create what Michael Porter and Mark Kramer referred to in the Harvard Business Review as ‘shared value’ i.e. outcomes that benefit both business and society. We feel that this opportunity for shared value is particularly strong in the engineering sector due to the significant interface of its value chain with local economic and social development and the fundamental societal importance of creating and maintaining infrastructure.
Inclusive business models
There is also increasing recognition of the potential business opportunities of meeting the needs of poorest consumers – described by Prahalad and Hart as the “fortune at the base of the pyramid”. The world’s four billion poorest people represent an enormous potential market for goods and services but they are often overlooked, particularly by larger firms. There is increasing evidence of the private sector – from small local firms to large multinationals – recognising these potential commercial opportunities in developing inclusive busienss models that provide appropriate and affordable infrastructure services to the poor.
The opportunities for the private sector to contribute to development are one of the key dimensions of EAP’s organisational approach, cutting across all aspects of our programme.
In the extractive industries, we have examined the opportunities for companies to promote the development of local content (i.e. local employment and business opportunities) and to support the strengthening of local institutional capacity to maximise positive outcomes for host societies. Our work with AMEC demonstrated the opportunities for large engineering contractors to align business strategy and project delivery with local development priorities in order to meet the key challenges facing their clients and secure commercial advantage. We have used the lessons from this research to develop an economic and social performance framework (ESPF) for engineering and construction firms operating in developing countries to align their commercial objectives with local development needs. We have also worked with the International Institute for Environment and Development (IIED) Sustainable Markets Group to analyse pro-poor business models for the provision of water services to the urban poor.
Opinion Paper: Business Models for Sustainable Development: Provision of Water Services for the Urban Poor
(to be released soon)
Private sector involvement in water provision has been controversial in many parts of the world but there is a general consensus that private firms have an important role to play. A primary issue for the private sector business model is balancing commercial imperatives with the often costly and difficult process of extending infrastructure and services to poor consumers. This paper examines two business models for addressing this challenge of service extension: The Manila Water Company’s Water for Poor Communities (TPSB) Programme and the Water & Sanitation for the Urban Poor (WSUP) Partnership. The two models share common elements of innovation: a multi-sector approach to service expansion and provision; strong community involvement in option selection, design and operation; appropriate service levels to reduce costs and flexibility in the type of service provided. While there are challenges associated with these models, it is suggested that they could be replicated in different urban contexts. A clear and appropriate government regulatory framework is critical in enabling private operators to meet their obligations to expand services to the poor.
While most corporate engagement with global poverty centres on philanthropy, the opportunities for firms to contribute to poverty reduction through their core business activities are significantly greater. This particularly applies to the engineering and construction sector due to the significant interface of its value chain with local economic and social development and the fundamental societal importance of creating and maintaining infrastructure. There is broad scope for firms within this sector to identify mutual beneficial action to advance business strategy and contribute to local development and poverty reduction. Drawing upon Porter and Kramer’s model for strategic corporate social responsibility (CSR), the Economic and Social Performance Framework (or ESPF) has been developed for engineering firms to identify these mutually beneficial or ‘shared value’ opportunities. The ESPF has been applied to the operations of a large engineering services joint venture in the oil and gas industry in Timor Leste, and it was found to be a useful tool in identifying shared value opportunities to support the joint venture’s business objectives.
This collection of essays was published by Business Action for Africa in 2008. It includes a short opinion piece by EAP Executive Director Petter Matthews entitled Managing risk and innovation to increase investment in infrastructure (p. 19). In it he argues that the importance of social risk has been underestimated and provides some starting points for thinking about managing risk to promote innovation.
It is increasingly recognised that positive impacts on poverty
through core business alignment rather than traditional philanthropic
approaches are more substantial, scaleable and sustainable. These impacts
include greater levels of direct and indirect local employment, advancement of
productive skills, a more competitive local enterprise sector and more
effective local institutions.