Collaboration: The secret to building effective business linkages?

Shona (from the World Business Council for Sustainable Development) recently blogged about the Statement of Intent for Doing Business with the World, recently signed by twelve chairmen, CEOs, and other senior executives of major global corporations. The signatories declare their commitment to playing their part in “empowering people so they have the opportunity to move out of poverty.” Their proposed modus operandi? “Inclusive business solutions” that turn the world’s poor into new markets, new suppliers, new employees, and new customers.

One “inclusive business solution,” the focus of Shona’s Issue Brief on Promoting SMEs for Sustainable Development, is for large firms operating in developing countries to include local SMEs in their value chains. Sounds like a no-brainer: local communities enjoy new opportunities for employment and income generation; large firms reduce costs, increase flexibility, tap new markets and sources of innovation. The Issue Brief acknowledges that, in practice, it’s not so easy. A wide range of challenges face even the most advanced value chain linkage initiatives.

These challenges, along with innovative new solutions currently being explored, are mapped out in a recent report by the CSR Initiative here at Harvard, IFC, and IBLF, drawing on the experience of IFC clients and Business Action for Africa Enterprise Development Group members.

One of the findings I thought was most striking about this report (and, in the name of full disclosure, I’m one of the authors) was the role of collaborative action and intermediary organizations – what Michael Porter might call “institutions for collaboration” – in the landscape of emerging solutions. As I tried to make sense of the range of challenges and solutions these companies faced, I sliced and diced them a number of ways, trying to find some patterns (I should also disclose that I was once a consultant). For example, lots of the challenges were really external to the companies involved – things like regulatory constraints and lack of access to commercial finance by SMEs. It seemed natural that collaboration would help reduce the cost to any given company of addressing these external challenges, and at the same time increase their chances of having any luck at it.

But collaboration is also being used to address things I would’ve considered internal challenges – including identifying and assessing potential SME partners, establishing targets and commitments for local content, and in some cases, even ensuring corporate accountability that those targets and commitments being met.

As companies move toward more of “core business case” for forging value chain linkages with SMEs, it will be interesting to see whether competitive concerns crowd out the tendency toward collaboration, or whether a company’s capacity for collaboration in this space – the quality and extent of a company’s networks, and its ability to initiate, manage, and dynamically evolve relationships within them – actually becomes part of its strategic and competitive edge.