Multinational companies can grow successful and sustainable brands in developing countries through partnership with local suppliers

With apologies for picking up on this somewhat late in the day, corporate responsibility consultancy Corporate Citizenship recently produced an interesting report on what it is calling “inclusive business”.

Corporate Citizenship says: “Inclusive Business is widely defined as profitable core business activity that expands opportunities for the marginalised and disadvantaged … as employees, suppliers, distributors or consumers.”

And this ties in neatly with a recent report about Ikea’s partnership with the UN High Commissioner for Refugees to provide better tents for people affected by disasters and emergencies.

It’s a theme that has featured several times in the short life of View from the Middle – how can you square the circle between the interests of shareholders and the interests of the poor, marginalised and disadvantaged? Or “can companies ‘do’ development?” To put it at its crudest, shareholders are looking for profit maximisation and the poor are looking for help – not a lot of common ground you might have thought.

Inclusive business, though, looks as though it is enlightened self-interest on the part of both companies and – although they may not know too much about individual initiatives – their shareholders. This enlightened self-interest delivers benefits for the poor and marginalised. And there are also some interesting lessons for governments in developing countries that may well feel a lot of the time that they are treated as an irrelevance by many multinational companies.

SABMiller’s Eagle takes off

Let’s start off by talking about beer in Africa. Africa is of interest to major multinationals because, as the countries of the north are mired in recession and stagnation, the African continent is growing rapidly (albeit from a low base).

In Uganda, SABMiller has developed a local beer brand, Eagle Lager, that is brewed from locally-produced sorghum. This sorghum is sourced from around 8,000 smallholder farmers and this activity alone supports (through direct and indirect jobs) an estimated 34,000 jobs in agriculture in the country.

Ethical Corporation has already written about the benefits of this back in September 2009 in a piece which looked at the local impact of SABMiller’s brewing activities.

Heineken has taken a similar route with sorghum in Sierra Leone, where the locally grown crop replaces some, but not all, of the barley traditionally used for brewing. This initiative started in 2005 and involves 3,000 farmer families across the country.

In Mozambique, SABMiller is using a different crop, cassava in this case, to brew a local brand – Impala Lager. Launched in November 2011, Impala is made from 70% cassava, but being new it is not yet clear how successful this initiative will be. The company expects to build up to using 40,000 tonnes of cassava a year, providing employment for 1,500 smallholder farmers.

In both Mozambique and Uganda, there has also been significant input from the national governments. One of the reasons for SABMiller launching the new brands was to develop low-price products that would appeal to the BoP groups who can’t afford the traditional, high-price, brands and instead tend to drink “informal” or illicit alcohol.

Tax benefits

The national governments, seeing social benefits here as well as the potential for import substitution, have helped by applying different tax regimes to these locally-brewed brands made from local ingredients. In Uganda the excise rate applied is 20%, compared with 60% for imported beers. In Mozambique, the government has agreed to a reduced excise rate that allows SABMiller to sell the beer at a price 30% cheaper than mainstream lagers.

And in Uganda at least this has all worked out well for SABMiller. The launch and subsequent success of Eagle has taken the company from a position where the market was split evenly between itself and its major competitor to a point where Eagle on its own takes a 35% market share.

Turning to tents, and the Ikea/UNHCR example, this also seems to be a case of enlightened self-interest and a convergence of business skills and development need. This is not, as far as I can tell, an inclusive business initiative, in that Ikea does not appear to be planning to make a profit from the exercise. But it is putting all of its skills at making, and distributing, flat-pack furniture at the disposal of UNHCR.

Private sector help

Per Heggenes, CEO of the Ikea Foundation told the Guardiannewspaper:“Refugees are probably one of the most marginalised groups in the world. They don’t attract a lot of interest from the private sector. We looked at the situation and felt we could get involved and help children that are growing up in very difficult circumstances.”

There’s no doubt that the tent/shelter market is one that could do with some input. The products produced came in for some stinging criticism from Paddy Ashdown’s Humanitarian Emergency Response Review report for the UK’s Department for International Development in 2011.

As the Guardian piece comments, the tents UNHCR generally provides are only suitable for six months whereas many refugee camps (and the refugees in them) remain in place for several years. Routinely replacing tents comes at a big cost and so there is clearly a need for something better.

What would be wonderful, though, would be if the Ikea Foundation could produce not the tents themselves, but a template for the manufacture of these tents that could then be licensed out to manufacturers across Africa. As with the beer examples above, this would lead to significant levels of local employment and the development of local supply chains that would provide the raw materials needed to make the tents.

With any luck this has already been thought of.

Howard Sharman is a senior consultant with Advance Aid.