India Briefing Part 2: Companies and challenges - The business of aspiration
Corporate responsibility is not yet strategic in India, but some pioneers are making strides, and doing so on their own terms
India attracts certain stereotypes. Poverty, slums and temples rank among the traditional favourites. But the country is changing, and changing fast. Thanks to the structural market reforms of the past two decades, its economy is at last taking off. Once known as the sluggish elephant of south-east Asia, it is winning the eye of investors as a possible tiger of the future.
The image of corporate responsibility is changing too. Once confined to simply philanthropy, market leaders are now talking the language of strategic sustainability. A small tranche of innovative pioneers are developing business models that fuse historic cultural concerns for society with the basics of the bottom-line.
Hindustan Unilever, consumer goods company Unilever’s local subsidiary, provides a case in point. In 2002, it began a health-marketing campaign about the benefits of washing hands with soap. To encourage take-up among low-income communities, it reduced the size and therefore the cost of its flagship Lifebuoy soap brand.
The result has been a significant reduction in diarrhoeal disease. The strategy also led to a 20% upsurge in sales of Lifebuoy in the programme’s target area.
The business logic is straightforward, according to Meeta Singh, head of corporate responsibility at Hindustan Unilever. Nine in ten of India’s population live at the base of the socio-economic pyramid. Yet all consumers, regardless of their income, aspire to high-quality products. For business and social reasons, those aspirations should not be ignored.
“Our goal to deliver competitive, profitable and sustainable growth goes hand in hand with ensuring a sustainable future for the planet and helping society to prosper,” Singh says.
This typically Indian approach to inclusive business is a classic win-win. Unsurprisingly it has spawned imitators across the country, such as e-Choupal.
Godrej Consumer Products, another example, is about to launch the latest in a line of products catering to India’s low-income consumers. Its Chotukool refrigerator is billed as the world’s lowest-priced model at 3,250 rupees (£48). The manufacturer has shaved off costs by reducing the product’s size and weight, and replacing the compressor with a battery and cooling chips.
Accessing new markets may provide one of the most obvious drivers for corporate responsibility in India, but it is by no means the only one.
Those Indian companies that are moving on from a purely philanthropic approach are doing so for at least four different reasons.
Risk management and reputation represents a major driver. Resource-intensive industries have met with considerable criticism from civil society groups in recent years. Extractive companies in the energy and mining sector find themselves high on the hit list.
As Ethical Corporation reported in January 2008, Indian mining company Vedanta Resources, which faces accusations of alleged human rights violations among tribal peoples in Orissa state, is just the latest in a long list of targeted companies.
“The response typically comes from companies that want to improve their image because they have been traditionally looked on as the ‘bad boys’,” says Seema Arora, principal counsellor at the Confederation of Indian Industry.
The global expansion of Indian companies over the last two decades can also be credited for a shift in gear with respect to corporate responsibility. Not only are Indian international companies picking up best practices when entering overseas markets, but domestic firms are also subject to ethical safeguards from international clients.
It comes as no coincidence that the information technology sector, the main beneficiary of India’s outsourcing boom, features among the most progressive industry areas. So too the apparel sector, as Indian exporters seek to meet international supply chain standards.
Investors are also drivers of better performance. The 2009 fraud scandal at software outsourcer Satyam Computer services has raised concerns about ethics and governance standards among India’s publicly listed companies.
Evidence of nascent investor pressure can be seen in a new ESG (environment, social and governance) index on India’s national stock exchange. The index, which was launched with support from Standard & Poors and the International Finance Corporation, tracks 50 of the best performing stocks.
Indian companies that are looking to list on foreign stock exchanges are particularly attentive to investor expectations regarding corporate responsibility practices and policies. The world’s largest coal producer, Coal India, which hopes to list on the London Stock Exchange this year, offers an emblematic example.
To date, government regulation has done little to promote a more strategic approach. The ministry of corporate affairs recently published a set of guidelines on corporate responsibility, but these are entirely voluntary.
In a similar vein, the United Nations-backed Millennium Campaign in conjunction with Indian non-profit Partners in Change is just about to launch a primer for business. The primer aims to promote private sector engagement with the Millennium Development Goals.
Public sector companies (known as public sector undertakings or PSUs) are the exception. Under new rules from the Indian ministry of public enterprises, PSUs must apportion up to 5% of their profits for social or environmental projects.
In the future, 10% of PSUs’ annual performance evaluation by the central government will depend on their corporate responsibility record.
A small but significant group could be described as falling into the enlightened self-interest category – ie those that genuinely get the positive business case for corporate responsibility. The most illustrative of these are long-standing Indian corporations with a heritage of strong internal values, such as Tata Sons, Godrej, Aditya Birla and Mahindra & Mahindra (see box for more on the Mahindra World City).
“The advent of modern management systems, as well as the segregation of management from owners, has lead to more strategic thinking around corporate responsibility,” concludes Viraj Chouhan, general manager for public affairs at Coca-Cola India.
Several indicators point to a gradual professionalisation of the corporate responsibility field in India. Companies are beginning to appoint specific corporate sustainability managers, and strategic advisers such as the Big Four accountancy firms are springing up to assist them.
International corporate responsibility organisations such as the Global Reporting Initiative (through a partnership with German development agency GTZ), the World Business Council for Sustainable Development and Global Compact have also established a presence in the country.
Transparency provides a weather vane on how fast Indian companies are catching up with international norms. Only 50 or so companies (of India’s more than 700,000) currently issue corporate responsibility reports. But while the figure may be small, it has tripled in recent years. Many more are benchmarking and reporting internally, if reluctant as yet to go public.
The ultimate test of strategic management comes in companies’ programmes themselves. Tata Consultancy Services shows just how far India’s top performers have come. This India-based multinational has an A+ grade for its GRI-compliant corporate responsibility report. It is rated as “gold standard” in Business in the Community’s benchmark corporate responsibility index.
“What we are doing goes beyond philanthropy … we are using our core competency, which is IT, to add value to the social sector,” says global head of corporate social responsibility Joy Deshmukh-Ranadive, in reference to TCS’s community programmes. This is just one of five pillars in TCS’s sustainability strategy.
She highlights TCS’s adult literacy programmes. Through the application of cutting-edge phonetic software developed in TCS’s own innovation labs, the computer-based programme provides training in functional literacy. Over 140,000 illiterate people from nine different Indian-language groups have learned key literacy skills through the 35-40 hour programme.
Note of caution
Despite advances in corporate responsibility management in India, historic and cultural influences still impinge heavily on business practices and philosophy. Foreign companies operating in India require a sensibility to such distinctions if they are not to have problems.
“A lot of multinationals have strong global commitments to CSR, but where it comes to India they are struggling to apply it locally,” says Janet Geddes, associate director for international development at KPMG India.
The challenges are multiple. In addition to being new entrants, international companies typically work through locally run subsidiaries that may not be as well equipped or may have differing priorities, Geddes explains.
Hindustan Lever, Coca-Cola and banks such as HSBC and Standard Chartered are among those that have succeeded in implementing their corporate priorities through their local Indian operations.
Hindustan Unilever, for instance, adopts a four-stage model to achieve this balance. To be adopted locally, projects must fit within the company’s global priorities, coincide with the Millennium Development Goals, resonate with local stakeholders and meet internal competencies.
Given the business opportunities and developmental challenges in India, it is vital that approaches to corporate responsibility begin to converge. For that to happen, Indian and international companies must take the best that each has to offer. And leave the rest aside.
India’s urban centres are exploding at the seams. The Mahindra Group, a £4bn Indian conglomerate, believes its model of mixed-use urban living could provide a solution. The concept behind the Mahindra World City project is simple: create new urban districts outside existing cities and equip them with residential, business and commercial facilities.
The company has so far initiated two pilots, one in Chennai, Tamil Nadu state, and in Jaipur, Rajasthan. Inaugurated in 2002, the £360m Chennai project is the more developed. Located 35km from the city’s international airport and 55km from the sea port, the 1,550-acre site is an hour’s journey by road from the centre of Chennai city. It also boasts rail connections.
Ultimately the idea is that employees will live on the site, providing them with the ideal work-life balance. Such proximity would also cut down on the ecological impacts of commuting as people could walk or cycle to work. Mahindra has built 240 homes at its Chennai pilot so far. Another 741 are under construction.
Economic viability stands at the centre of the Mahindra World City model. In Chennai, the site’s special economic zones focus on three specific sectors: information technology, apparel manufacturing and production of car parts. There is also a separate domestic tariff area.
“Too many model urban projects have failed because they fail to provide jobs for people,” says Subrata Sengupta, senior marketing manager at Mahindra World City.
The developer has taken this lesson on board. To date, 50 blue-chip firms have set up operations on the site. Of these, 32 are so far operational. The list includes global companies such as Cap Gemini, Renault Nissan and BMW. Exports grossed £216m last year, and are expected to hit about £328m in the current financial year.
Job creation is a large part of the initiative’s social footprint. Over 20,000 people currently work in World City. Mahindra has teamed up with CAP Foundation, a local non-profit organisation, to provide skills development for the local inhabitants (seven existing villages remain within World City). About 9,000 people have so far been trained, four out of five of whom have found employment with companies on the site or nearby.
Environmental considerations have been factored into each stage of the project’s design. Water preservation, for example, ranks as a primary concern. Three-quarters of the water used for landscaping and flushing is sourced from the park’s sewage plant and accompanying tertiary treatment facility. All the business units on site are also equipped with rainwater harvesting. All solid waste is recycled as natural fertiliser, while plastic waste is sold for recycling to a biodiesel producer.
Environmental design features are especially evident in the residential properties. All the homes in World City are either platinum or gold level pre-certified under the benchmark Indian Green Building Council standards. Examples of environmental innovations include CFC-free air conditioners, energy-efficient lights, fly-ash bricks and low volatile organic compound paints.
One major area where Mahindra still has work to do is in the use of renewable energy. It is in the early stages of testing various solar technology prototypes at the Chennai site. A solar plant is currently under consideration for its Jaipur project. The World City in Jaipur is pre-certified as a gold standard development under the international Leadership in Energy and Environmental Design (LEED) standard. As one of 16 global projects selected for the Clinton Foundation’s climate positive development programme, the World City aims to become carbon negative.
For more info go to: www.mahindraworldcity.com
Case study: e-Choupal, ITC
India’s IT and high-tech industries have grabbed the business headlines in recent years, but the country’s economy remains predominantly rural. Nearly three out of four of the population live and work in the country’s more than 600,000 villages. Most operate close to or below the poverty line.
Indian consumer goods giant ITC has developed an award-winning business strategy to raise rural incomes through sustainable agricultural initiatives that jump-start the rural market. Its solution lies in providing connectivity through village-based internet kiosks, known as e-Choupals. By equipping farmers with online access, the initiative increases their access to real-time information and awareness of market conditions and opportunities. In so doing, they overcome the joint problems of fragmented production and weak infrastructure that leave India’s farmers vulnerable to middle-men.
Farmers log on to bargain as virtual buyers’ cooperatives, to adopt best practices, to obtain weather forecasts, to inform themselves about food safety norms and to make purchases. Through the internet, they can access high quality machinery and other agricultural products from established and reputed manufacturers at fair prices. ITC trains individual farmers to act as advisers. In essence, the system is expanding the quality, distribution and profitability of India’s agricultural commodities.
In the ten years that the programme has been running, ITC has established 6,500 e-Choupal centres in 12 different states. The centres serve 40,000 villages and are estimated to have empowered around four million farmers. The programme has recently expanded to include mobile telephone services as well.
e-Choupal also serves a strategic purpose for ITC. Its foods business sources wheat from different regions and blends them for its packaged branded wheat flour, Aashirvaad, a market leader. Despite paying higher prices for agricultural goods due to the increased bargaining power of the farmers, ITC cuts its overall costs by improving productivity of the crop. It achieves this through cooperation with farmers and more efficient transactions in the value chain, which act to eliminate wasteful intermediation in the procurement process.
The initiative provides the company with an unparalleled delivery channel into rural India for other goods and services. ITC also has a fast-moving consumer goods arm. To leverage this positioning, ITC has set up a series of rural marketing hubs. Known as Choupal Saagars, these vending points are located within “tractorable distance” of 30 e-Choupal centres and their user communities. As well as fast-moving consumer goods, these rural shopping centres also provide farm-related services such as soil testing, product quality certification, medical and clinical services and fuel station.
At a broader social level, the e-Choupal concept is helping stimulate competitiveness in Indian farming, which is in turn improving productivity and livelihoods. As rural incomes increase, so too will demand for consumer and industrial goods, driving domestic growth for India as a whole.
The programme differs from typical bottom of the pyramid thinking, according to Nazeeb Arif, vice-president for corporate communications. Instead of simply targeting a share of the smaller wallet of the rural sector, it is increasing the size of farmers’ wallets overall. “This is actually a shift from ‘fortune at the bottom of the pyramid’ to ‘fortune for the bottom of the pyramid’,” Arif says.
Though touted as a model example by government, the programme has become the victim of fluctuating agricultural policies in recent years. The central government had ordered restrictions on the storage of agri-commodities in an effort to tackle food inflation by curbing hoarding by unscrupulous players. This process “has impacted on legitimate players like ITC”, Arif says.