Social Inclusive Business Chapter 1

Socially Inclusive Business

Engaging the Poor through Market Initiativesin Iberoamerica

A Collaborative Research Project of the

SOCIAL ENTERPRISE KNOWLEDGE NETWORK

EscueladeGraduadosenAdministracióny DireccióndeEmpresas(EGADE)

Gerardo Lozano

EscuelaSuperiordeAdministracióny DireccióndeEmpresas(ESADE)

AlfredVernis

HarvardBusinessSchool(HBS)

Ezequiel Reficco(2001–08)

InstitutodeEstudiosSuperioresdeAdministración(IESA)

Josefina Bruni CelliHenry Gómez SamperRosaAmelia GonzálezPatricia Márquez

InstitutoCentroamericanodeAdministracióndeEmpresas(INCAE)

Juliano FloresJohn C.IckisFrancisco LeguizamónMichael Metzger

PontificiaUniversidadCatólicadeChile(PUCCH)

Mladen KoljaticMónica Silva

Universidad delosAndes(Uniandes)

Verónica DuranaNatalia FrancoRoberto GutiérrezIván Darío LoboEzequiel Reficco (2009)Diana Trujillo

Universidad deSanAndrés(UdeSA)

Gabriel BergerLeopoldo Blugerman

Universidad delPacífico(UP)

Álvaro J.DelgadoFelipe Portocarrero

Universidade deSãoPaulo(USP)

Monica BoseGraziella CominiRosa Maria Fischer,PauloRocha BorbaPublished by Harvard UniversityDavid Rockefeller Center for LatinAmerican Studies and Inter-American Development BankDistributed by Harvard University PressCambridge,MassachusettsLondon,England2010

EditorialCommittee

Patricia MárquezEzequiel ReficcoGabriel Berger

iii

Contents

Prologue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .viiPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi1. Introduction:A Fresh Look at Markets and the Poor . . . . . . . . . . . . .1

The“Business”of this Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Inclusive Business and the BOP Approach . . . . . . . . . . . . . . . . . . . . . .6Who is to be“Included”in Inclusive Businesses? . . . . . . . . . . . . . . . .10LIS as Broad Economic Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Organization of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

2. Market Initiatives of Large Companies Serving Low-Income Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Building the Business Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29How Innovation and Ecosystems Actually Worked . . . . . . . . . . . . . .37Scaling: An Unfulfilled Promise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47Summary and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

3. How Small Firms and Startups Shape Inclusive Businesses . . . . . .63

The Virtues of Small Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . .65Shared Management Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68Innovative Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76Financial Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77Insights on Small Companies Doing Business with LIS . . . . . . . . . . .78

4. Social Enterprises and Inclusive Businesses . . . . . . . . . . . . . . . . . . . .83

Social Enterprises and Market Strategies . . . . . . . . . . . . . . . . . . . . . . .85Social Enterprises’Inclusive Business Strategy Patterns . . . . . . . . . . .88Conclusions and Managerial Lessons . . . . . . . . . . . . . . . . . . . . . . . . .104

5. Engaging Organizational Ecosystems in Inclusive Businesses . . .111

What is a Business Ecosystem? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112The Analogy with Biological Ecosystems . . . . . . . . . . . . . . . . . . . . . .116Why Commit To The Business Ecosystem? . . . . . . . . . . . . . . . . . . . .117Working with Low-Income Sectors in These Ecosystems . . . . . . . .125“Business Friendships” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133To Conclude . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136

6. Utilities:Private Interests and Social Benefits . . . . . . . . . . . . . . . . .153

Context and Challenges in the Value Chain of Utility Companies .153Innovative Models That Allowed For the Inclusion of LIS . . . . . . . .156Barriers Faced By These Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . .168Grounds to Scale Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173Lessons Drawn from Utility Services for Low-Income Citizens . . .175

7. SolidWaste Management:Integrating Low-Income Sectorsin theValue Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .179

Context and Challenges in the Value Chain of SolidWaste Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .181Innovative Models That Allowed For the Inclusion of LIS . . . . . . . .183Barriers Faced By These Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . .187Collectors’Organization: Characteristics and Strategies . . . . . . . . .188Financial and Economic Sustainability . . . . . . . . . . . . . . . . . . . . . . .195Economic Inclusion of the Collectors . . . . . . . . . . . . . . . . . . . . . . . .198Social Value Generation for the Collectors . . . . . . . . . . . . . . . . . . . .201Lessons of Solid-Waste Management Initiatives forLow-Income Citizens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .203

8. Agribusiness and Low-Income Sectors . . . . . . . . . . . . . . . . . . . . . . .209

Context and Challenges in the Value Chain of Agribusiness . . . . . .210Innovative Models That Allowed For the Inclusion of LIS . . . . . . . .211Barriers Faced By These Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . .217Lessons on Agribusiness Initiatives for Low-Income Citizens . . . . .224

9. Market-Based Initiatives for Low-Income Sectors andEconomicValue Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .229

Measuring Economic Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .230Economic Value Creation in Business Initiatives withLIS Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .232Economic Value Creation in Business Initiatives withLIS Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .235Key Factors to Assure Economic Value in LIS BusinessInitiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .238Economic Value Creation in LIS Market Initiatives by Social Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .246Key Economic Performance Factors for Social Enterprises’Market-Based Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .248Discussion and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .253

iv Socially Inclusive Business