Harnessing the potential of social entrepreneurs

Many leading companies are starting to understand that profitable business lines can be developed out of the need to tackle pressing social issues, and that when done successfully, this is far more effective than philanthropy. But individuals have been doing this for years. As the International Business Leaders Forum reports in its recent eBulletin newsletter, social entrepreneurs have been behind many of the most innovative and scalable solutions to challenges in international development – from the provision of school meals or waste management in urban areas, to the development and installation of low-cost solar energy systems. Social entrepreneurs come in all shapes and sizes, but what makes them stand out is that they use entrepreneurial principles to tackle a particular social problem. Like Martin Kalungu-Banda, founder of Zambia's The Forum for Business Leaders and Social Partners, who forged a partnership between the country’s largest supermarket, local communities and government, which became a profitable model that business could replicate nationwide. The solution was good for business, and good for the local communities.

Many organisations have worked with social entrepreneurs for years, such as Ashoka or the Schwab Foundation for Social Entrepreneurship. But there is a gap in the understanding of how large multinationals can work with social entrepreneurs.

Picking up on work conducted by the CSR Initiative at Harvard University, IBLF recently produced a short report entitled, Harnessing Potential: why it makes sense for your business to work with social entrepreneurs. Companies can work with social entrepreneurs to help develop into underserved markets, while social entrepreneurs can help companies both design products and services that create value for low-income people and distribute those products and services more efficiently.

So far, so good – in theory. But as usual the challenge is in the implementation. To help, IBLF has compiled a list of social entrepreneurs that we think could make suitable partners for businesses. We’d also be interested to know of case studies where multinational companies have forged effective partnerships with social entrepreneurs.

Where does development come from?

In a speech at the United Nations, which Zahid (from Business Action for Africa) blogged about yesterday, new British Prime Minister Gordon Brown called for a renewed, collective drive to achieve the Millennium Development Goals laid out in 2000. He declared, “For too long we have talked in the language of development without defining its starting point in wealth creation – the dignity of individuals empowered to trade and be economically self-sufficient.” Alone here in my office, I said “YESSS!!!” and pumped my fist and highlighted the sentence in agreement. It sounded like Gordon Brown might dig our Economic Opportunity Program.

But what is the role of private sector firms in creating and expanding economic opportunity? The Prime Minister is right that it goes way beyond generosity. Instead, it is the private sector’s aptitude for “wealth and job creation that, if fully mobilized for global purpose, will help meet our goals.” Stated another way, the comparative advantage of business in development is rooted in core, profit-making business activity and the natural multiplier effects it engenders.

It’s time to break down the association between altruism and social value creation. Companies can create social value without altruistic motives, and altruistic motives don’t guarantee that social value will be created. For a long time companies seemed to fear mixing motives, and used one set of tools for shareholder value creation and another, distinct set for social value creation. Today we find leading companies combining these tools to leverage core business interests, assets, and activities for enhanced development impact. And if these companies manage to enhance their own long-term business prospects in the process? All the better.

A new partnership for meeting the MDGs

Today, UK Prime Minister Gordon Brown, in a speech at the UN, called for a new global partnership to tackle what he described as a "development emergency" – the shortfall in progress against the internationally agreed UN Millennium Development Goals. The speech was accompanied by two statements, one by Heads of State and the other by business. The UN Secretary General endorsed the Prime Minister's proposal for a UN Summit next year to review progress and accelerate action.

There were two refreshing aspects to his speech. One was a clear recognition of the role that business has to play, in partnership with others, in meeting the development goals. The other was the recognition, so often underplayed in these discussions, that “trade, wealth creation and job creation are the only routes to long term prosperity”:

And it is time to agree a new partnership for prosperity:
in each country, the government undertaking a rigorous examination of the obstacles to business formation…
in each country, development agencies helping to create the infrastructure necessary for growth…
in each country, the power of entrepreneurship unleashed…
in each country, a focus on agricultural productivity…
in each country, government and businesses being long term partners in a joint mission on economic development.

…perhaps for too long we have talked the language of development without defining its starting point in wealth creation – the dignity of individuals empowered to trade and be economically self sufficient.

To turn passionate words into practical action, we all have to step up to the challenge. As I argued in a speech today, Business Action for Africa is one example of the business community’s vision, big-thinking and readiness to support such an effort.

Customs procedures still a challenge – BAFICAA one solution?

A recent survey by the East African Business Council (EABC) has highlighted the continuing problems of cumbersome customs procedures in the region. Based on over 450 questionnaire responses the EAC Business Climate Index (BCI) 2006/07 Survey focused on six trade-related clusters namely, customs procedures, immigration and work permits, business registration and licensing, police roadblocks, weighbridge stations and quality standards and export certification. Customs procedures continue to top the list of obstacles as perceived by businesses and a serious impediment to intra-Africa trade.

This view is broadly supported by a report for Business Action for Improving Customs Administrations in Africa (BAFICAA). The report (sponsored by Unilever, BAT, SITPRO and Diageo), Customs and Business in Africa: A Better Way Forward Together was revealing. It emerged that businesses were tired of being considered “the enemy”. Customs authorities across Africa just did not appreciate the private sector and that despite reforms and improvements, generally most front-line Customs officers lacked any basic appreciation of business issues such as the impact of delays on their businesses. Respondents said that even when higher-level officials were business friendly, this rarely translated to lower management levels. The general feeling was that of frustration – those law-abiding, tax-compliant value-generating businesses were being treated with constant suspicion.

It is unfortunate though that these perceptions still linger. Customs administrations in the East African region have been putting themselves through a sometimes painful though much needed process of reform and modernisation. Much has improved as reflected in improved clearance times for most of the East African countries (see the recent Doing Business Report). Though this public sector driven reform and modernisation agenda has been driven by primarily revenue imperatives it has the potential to significantly improve the business climate.

BAFICAA is making sure that the role of the private sector as a driver of change is not overlooked. BAFICAA is working with customs administrations in the East African region to implement what the report calls “Fast Track” - or simplified procedures for compliant businesses aimed at reducing clearance times for businesses with a history of full compliance. The initiative has met with considerable success in its first phase which included the creation of private sector taskforces, meetings with national customs administrations and a regional workshop in Arusha, Tanzania with the EAC secretariat and the EABC amongst others. These meetings facilitated by Pricewaterhouse Coopers (Kenya) have set the groundwork for a dialogue with customs administrations. A meeting to agree an action plan with the Commissioners of customs is being organised by SITPRO in conjunction with the World Customs Organization (WCO) for later this year.

BAFICAA is still in its infancy but has broken free of its start in the UK and is now the purely African initiative it was always envisaged to be.

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.

What can business and governments do to promote SMEs?

Poverty remains a major challenge to sustainable development, environmental security, global stability and a truly global market. The key to poverty alleviation is economic growth that is inclusive and reaches the majority of people. Improving the performance and sustainability of local entrepreneurs and small and medium enterprises (SMEs), which represent the backbone of global economic activity, can help achieve this type of growth.

The World Business Council for Sustainable Development (WBCSD) has published an Issue Brief on SMEs in collaboration with SNV Netherlands Development Organisation. The brief explains how governments can help alleviate poverty by focusing on SMEs and how larger corporations can help themselves by including SMEs in their value chains. It describes some of the comparative advantages of SMEs and the challenges they face in developing countries. The Brief also includes a set of key messages to both business and governments on promoting the growth of SMEs.

The publication follows the recent "Statement of Intent for Doing Business with the World", in which the leaders of twelve WBCSD member companies commit to looking beyond corporate philanthropy to search for responsible, sustainable and inclusive business models that are good for business and good for development.

Meanwhile, the WBCSD is working with its members members, Regional Network partners and other stakeholders to broker new business ventures that are both good business and good for development.

Talking business in Ghana

I co-chaired the EU-Africa Business Forum in Ghana recently (21-22 June), an honour I was less than sure about after the largely declaratory inaugural meeting in Brussels last November. But we tasked the four working-groups (trade, entrepreneurship, infrastructure and ICT) to come up with deadlined deliverables and the results (fed into the AU Summit) were not bad.

Given the political profile - lots of AU and EU people there, led by their respective Commissioners Maxwell Mkwezalamba and Louis Michel - the Forum has the potential to be quite a good way of getting across business concerns (I was for example able to make various interventions in support of more efficient intra-regional trade flows)... though, having now done three big meetings across Africa in three weeks, I am also mindful of the danger of over-stretch/overlap/dilution.