Study notes firms’ low awareness of inclusive business

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There is a need for big companies to tap low-income suppliers if the country's poorer sectors are to be increasingly integrated into the value chain.

COMPANIES in the Philippines are largely unaware of inclusive business practices which would otherwise help overall rapid economic expansion benefit more of the poor, according to findings of a joint study of the Board of Investments (BoI) and the United Nations Development Program’s (UNDP) Istanbul International Center for Private Sector in Development (IICPSD) that were released to journalists yesterday.

A joint BoI-UNDP IICPSD press release — which accompanied the release of the Business+ The Philippines report — noted that inclusive business “offers an opportunity to not only generate profit, but also helps those at the base of the economic pyramid and thereby contribute to reducing poverty in the country.”

Findings from 19 interviews with Philippine business executives and results of an online survey e-mailed to senior executives of 223 companies of various sizes and belonging to various industries “showed that the current levels of awareness and engagement in inclusive business are low.”

“[A]wareness was quite low and the terminology was hardly in use at all,” read the report itself, citing a mean score of 1.51 out of 7 where 1 meant “not aware at all.”

“Even those companies that exhibited inclusive business practices were not aware that they were actually already doing it and they did not consider themselves inclusive businesses,” it added.

“The lack of awareness regarding their own practices in inclusivity can easily result in their not being able to go further with it and benefits not being maximized in terms of reaching the poor.”

And while respondents believed such models were applicable to their industry (4.64 out of 7) and could be successful when applied (4.60 out of 7), “this attitude did not necessarily lead to engaging inclusive business practices.”

The study noted that inclusive business can especially be applied to “entry points” for the poor into the value chain: being an employee, consumer, supplier, distribution channel member, and entrepreneur.

“Around 33.6% of the participant companies did not even target the poor as customers or consumers while 26.9% did not do business with the poor in their distribution channels and 22.9% did not do business with the poor as suppliers,” the report noted.

Respondents had an overall inclusiveness mean score of 3.74, consisting of: 4.39 for employing poor people, 4.03 for investing in less developed neighborhoods, 3.79 for emphasizing the poor in one’s business strategy, 3.74 for considering poor people as entrepreneurs in one’s business model, 3.72 for emphasizing the poor in one’s mission statement, 3.52 for doing business with the poor (such as low-income producers) as suppliers, 3.41 for doing business with the poor in the distribution channel (e.g. as carriers, retailers, etc) and 3.35 for targeting the poor as customers/consumers.

Social enterprises had the highest scores across entry points, followed by large Philippine corporations, multinational corporations and small- and medium-scale enterprises.

The study also cited emerging inclusive business (IB) models in agriculture, tourism, health and education “but many of these companies were not aware that they were already undertaking IB practices.”

It also noted that respondents “see the national and local government bureaucracy and the existing regulatory environment in the country as the most significant challenges in doing inclusive business.”

In his foreword to the study, Ola Almgren, United Nations Resident Coordinator and UNDP Resident Representative in the Philippines, noted that while the country’s economy “has undergone unprecedented growth in recent years”, with gross domestic product expansion averaging 6.2% from 2010 to 2016 to make the Philippines “one of the fastest growing economies in Asia”, rates of underemployment and of poverty are still relatively high at 18.3% and 25.2%, respectively, while “inequality is still one of the highest in the region particularly in terms of income”.

“There are several ways companies can contribute to development but one is proving effective, sustainable, and feasible while addressing the unfulfilled gaps of poverty – inclusive business,” Mr. Almgren wrote.

“At its heart is the integration of the base of the economic pyramid — those that often get left behind — into companies’ value chains to ensure both commercial success and social impact,” he explained.

“Inclusive business underscores the idea that the pursuit of profit and development can and should be supportive of society’s more challenged sectors.”

For instance, Mr. Almgren said, “[c]ompanies can shift focus to creating commercially viable goods and services that will have a significant social impact while addressing the needs of the poor.” — with inputs from A. G. A. Mogato

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