Responsible companies can learn a lot from social entrepreneurs about selling to the poor, but first they must understand how their core business contributes to social and economic development
Big companies coming to the field of “social entrepreneurship” for the first time could be forgiven for feeling a little lost.
While the term social entrepreneur has been around for about 30 years, few can agree on what it means. Add “social business” and “social innovation” to the mix and most company board members will be left scratching their heads.
The jargon is unfortunate. Put simply, social entrepreneurs are individuals that use entrepreneurial methods to achieve social change. They run social businesses, sometimes at a profit, that seek to address market failures. Their goals might include access to expensive or hard-to-get medicines, or sanitation and agricultural irrigation for the poor. And their ideas for creating affordable products for these underserved markets are examples of what is called social innovation.
Social entrepreneurs attract column inches because they offer a novel approach to tackling poverty that does not involve government or charity handouts. The classic social business is microfinance, the brainchild of Muhammad Yunus, who founded the Grameen Bank in Bangladesh in 1976. He proved that if you give poor women small loans to help start their own businesses, and work their way out of poverty, they will pay the money back.
It has taken major banks the best part of three decades to recognise that Yunus was on to something with his microfinance idea. Now Barclays, Deutsche Bank and others are starting to see it as a niche business and reputation-enhancement opportunity. This is encouraging. But the positive publicity these banks attract remains disproportionate to their investment in microfinance. For example, Citigroup boasts that its foundation has invested $40 million in microfinance institutions, mainly in Latin America, in the past seven years. The bank’s revenues for the last quarter of 2007 were $7.2 billion.
These numbers show why proponents of responsible business should be sceptical of just how great a role social entrepreneurs can play in alleviating poverty in developing countries in tandem with big business. Yes, there are thousands of social entrepreneurs around the world working on small, local projects. Many will have useful ideas for big companies wanting to sell to customers at the “bottom of the pyramid”, or the world’s four billion people living on less than $2 a day. And some would benefit from corporate cash to take their ideas to scale.
But the social objectives or business model of the partners that a big company chooses when buying or selling goods and services in poor countries may not matter that much for the poor. What is important, from an international development standpoint, is that a company is doing business in these countries at all.
The world’s 77,000 transnational corporations have 770,000 affiliates that, in 2005, employed 62 million people and exported goods and services worth $4 trillion, according to the UN conference on trade and development. Businesses in poor countries account for a growing proportion of those figures. The fact is that, just by having local companies in poor countries in their supply chains, big business can help improve the lives of people living in those countries.
Responsible companies should not get distracted from this fact. They should do a lot more to measure and find evidence of the impact of their activities in a country.
Unilever offers an example for others to follow. Its latest “economic footprint” study, published in March, found that its South African subsidiary supports 100,000 jobs (with only 4,000 employees) and accounts for 0.9 per cent of the country’s GDP.
For a company that wants to make a positive impact in poor countries, these are the numbers that really count. They help to convince doubtful governments of the benefits of foreign direct investment. And they give board members a clear understanding of what impacts their decisions might have on local communities.
Unilever, it seems, is the only big company evaluating its economic and social footprint in this way. It does partner with social entrepreneurs in places such as India and invests €1 billion a year in research and development of new products that must all pass through a comprehensive system, called Brand Imprint, for assessing their social and environmental impacts. But it does not need external partners to add credibility to its brand. This instead comes from working in emerging markets in a responsible way and on a scale that enables governments and others to recognise the positive social outcomes that come from big companies doing what they do best: business.
So, while advocates of responsible business should recognise, and applaud, the innovative efforts of social entrepreneurs, their work so far is a drop in the ocean compared with the huge potential of larger companies to contribute to lifting millions from poverty.