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society_business

SOCIETY AND BUSINESS—An integration creating new opportunities

By M. Ekhlaque Ahmed

Corporate Social Responsibility (CSR) exists in business managers’ consideration in one way or the other. It may be a ‘forced act’ as a result of governmental or non-governmental organizations’ moves on corporations to meet their social obligation from where they make their money or take counter measures for protecting the environment or society from the detrimental effects of technical or chemical emission of the factory infrastructure or to ensure workers’ legitimate rights and such other aspects.

Corporate attitude towards CSR activities can be viewed from different perspectives as seen from the companies’ practices: I. Cosmetics value to give projected understanding of adherence to social objectives, II. Operational cost like any other support activity cost that managers try to keep as low as possible, III. Corporate reputation and image building opportunity  to reinforce brand positioning in the minds of consumer, and IV. Fulfillment of societal obligation in terms of funding social activities like education, health, flood, or earthquake rehabilitation support, etc. These attitudes portray an effort to yield short-term results and may not give sustainable and profitable yield of the dollar spent.

Parallel to this, NGOs perhaps reflect a pure CSR attitude in their big picture and objectives but are connected to this cause with a volunteerism either in terms of fund raising or management support. An element of strategic business attitude with a self-reliant approach can enhance the whole orbit.

We would like to present in this article a business model of Strategic CSR, an integrated approach to be considered as a strategic choice in the business connected to its value chain. A framework recommended in this review would help to attain “corporate-society integration” for commercial organizations and “society-business integration” for NGOs (for NGOs, we think society objective should remain the first consideration, but integrating it with a sustainable business model is no harm) opening up the narrowed down boundary of this concept for both.

CSR as the Strategic Choice  

Business is all about strategic choice; choosing from creative, innovative alternatives of articulated and unarticulated needs of the consumers (society being the total of it) to adopt a business model distinct and apart from the competition. There is no denying of the fact that business corporations should innately recognize the societal needs (consumer being the heart of it) and Corporate Social Responsibility should be reinvented as ‘Corporate-Society Integration.’ This is only possible when companies consider social causes as one of the key factor in their strategic choice while working out their new business model or strategic direction.

Profit through CSR—A New Business Approach

The framework presented below suggests that for business corporations, there exists tremendous new opportunities for growth and profits if they identify social and economic issues and develop a new business model to ease out the ‘pain points’ of the society as a whole. Customers are under tremendous economic and social pressures all over the world. This is evidenced from many examples of emerging low price brands and unconventional solutions given in not only developing markets, but also matured and developed markets in the world. Imtiaz, a super market chain in Karachi, manages a 5-10% lower price and attracts customers unbelievably. Chase, another supermarket chain beats its competitors with a wide margin when it directly connects its supply chain with the manufacturers/grower/basic source. Motorcycle had a big ‘ghost’ potential in Pakistan but remained unrealized till its technological improvements made possible through getting less costly components from China and assembling the final product locally.

The market expanded from a very small number to over a million motorcycles in a very short period of 5-6 years and also put pressure on the multinational brands to cut real and unseen ‘fats’ from their value chain and bring the product within the reach of those who needed it most to improve their lifestyles and functional needs.

Society and Business

These are examples of ‘social value’ and offer incredible new opportunities for business corporations. Standalone CSR activities as listed in the beginning of this article cannot be a substitute to such integrated processes. Nevertheless, as proposed in the framework, before social needs are integrated in the value chain and processes of the organizations, identification of these new opportunities around the social issues of the community requires a change in the organizational attitude—strategizing around which, requires a new leadership competency and human resource skills. The reaction on developing a new product and service matching the social value or cost innovation that breaks the utility-specification ratio to favor society appears negative. But wherever these challenges are faced by ‘will to do’ and ‘empathy,’ managers are successful. On the other hand, in urban and affluent markets showing their downturn, managers are left with no option but to go for this new opportunity which is quite big in number and will certainly give a new meaning to conventional frame of Corporate Social Responsibility.

We will review a number of examples from various parts of the world market, where the favored attitude has done the job.   Redefining Business Scope from the Eyes of Consumers

There is a need to move from standalone reasons of doing CSR to reasons which need extension and expansion in the business scope of the company.  Here are some concepts and examples:

1. Improve the Purchasing Power of the Consumer

Consumers are hard pressed now for money. This is not just true for people in rural markets, but equally applicable for consumers in urban markets. Products are not just competing with competitive brands, but they are also competing for purchasing power of the consumer. Hence there is a dire need for expanding the consumer’s purchasing power or capacity to consume. A non-conventional approach to creating capacity to consume was adopted by a supermarket chain called ‘Casas Bahia’ in Brazil. Poor consumers in Brazil are not able to buy appliances. Casas Bahia opened up banking facility to give loans to consumers of low and unpredictable income streams. Through a very sophisticated credit rating system, coupled with counseling, Casas Bahia is able to provide access to high-quality appliances to consumers who could not otherwise afford them.

Cemes, one of the world’s largest cement companies in Mexico, follows a similar approach in its ‘do it yourself’ business focused on expanding the consumer capacity to buy. The idea is to help the consumer learn to save and invest. By creating a pool of three women who save as a group and discipline and pressure each other to stay with the scheme, Cemes facilitates the process of consumption by bundling savings and access to credit with the ability to add a bathroom or a kitchen to their homes.

2. Create New Channel Solutions

Rural markets have a big population and are denied with infrastructure to reach conveniently and comfortably. Hindustan Levers picked this as an opportunity to develop a new channel of distribution and created a project called ‘Shakti’. They joined hands with ‘SHC’ (Self Help Group), getting microfinancing facility from NGOs working towards empowering rural women. Hindustan Levers trained Shakti Amma (empowered mother) to become their distributor, providing education, advice, and access to products to their villages. These village women entrepreneurs have unique knowledge about the village needs and the products in demand. They earn between INR 3,000 to 7,000 and become the source of earning for their families. “The social integration between micro financing agencies, rural women, and the multinational corporations can well be called as the MODERN CSR example built in the value chain and processes of the company—benefitting the society and the company at the same time.”

Another example of financial and economic empowerment in channel innovation was found by Nokia, when they were looking for breakthrough opportunities for mobile phone business in India. They found people to sell mobile phones from small stands, about the size many vendors use to sell fruit and vegetables. There were plenty of entrepreneurial people eager for the chance to make a decent living. Nokia picked them, trained them, and gave them the product for a couple of days’ sales and created a new opportunity for high velocity (turning over) to the people who had small money in their hands. A big brand given to a network of people to sell on vegetable carts like stands and getting economic and social empowerment. Tremendous form of CSR well built in the channel of distribution of Nokia, a non-conventional model to help the society together with achieving its own market share and profit objectives. Nokia later copied this model in various other countries like Indonesia and sub-Saharan Africa.

3. Give Affordable Products and Services

This is another area where corporations, as a result of research and development and revamping their value chain, can come out with products and services that are affordable to consumers. Masses can benefit from products and services, which otherwise were out of reach of the consumers with low income.  An example from Pakistan is ‘Naya Jewan,’ an Insurance company,   which is  offering health service to poor people at an annual price premium of Rs. 1,200 only. Hospitalization charges worth Rs. 150,000 will be provided against this annual cost of Rs. 1200 only. Amul, a dairy cooperative in India, has introduced good quality ice cream at less than $0.05 per serving affordable by all  in the lower income group. This product is not only a source of enjoyment; the milk in it is also a source of nutrition for the poor. Through Tecnosol, the poor consumers in rural Nicaragua have access to clean energy from renewable sources—solar and wind power. Previously, these consumers did not have access to grid-based electricity and were dependent on more expensive sources such as kerosene and batteries.

A number of new opportunities can be created for the society, particularly for its deprived members or the Bottom of the Pyramid (BOP) as some Strategy Gurus call them, instead of helping them through philanthropist acts. Further areas of interest may well include:

• Establishing Personal Computer Kiosks in rural areas to give valuable information to farmers, fisherman, etc., to check market prices, weather forecasts, learn about various fertilizer options, and so on and so forth through internet connections.

• Manufacture basic functional cell phone for masses in rural market to create connectivity with the larger group in urban centers.  Examples are already there by Grameen Phone in Bangladesh or Telefonica in Brazil.

• Providing low-cost Jeans garments or Shalwar Kameez or ladies suit. Export-based Textile companies should examine the possibility with a ‘cause driven marketing’ (not forgoing profits of course, but better managing their value chain).

• Banks opening up special accounts for poor with smaller savings to give them banking facilities. Examples have already been created by ICICI bank in India. Innovative banking facilities created by UBL Omni in Pakistan (whereby banking facilities are provided to masses through retail shop channels) is another example of strategic CSR-built marketing programs.

• Refrigerated dairies built by Nestle’ as collection points for milk and sending its trucks out to the dairies to collect the milk. It enhanced safe storage of milk in villages and increased the number of milk contribution even from small-level farmers.

• On governmental level, instead of running a program of giving ‘subsistence allowance’ to the poor, focusing on creating employment for masses by steering growth in selected industries. For example, Bangladesh’s ready-made garment, which created more than three million jobs. An 8.5% reduction in absolute poverty over a five year period in Bangladesh—a role model governmental level ‘CSR’ in collaboration with civil society, private sector, general public, leading to a social transformation, which can hardly be achieved by virtue of any donation-based ‘subsistence allowance’ activities. Instead of promoting ‘subsistence allowance,’ it’s better to provide opportunities for ‘empowerment allowance’ putting in profit, reward, return, yield, productivity, and such other optimistic terms upfront.

NGOs with CSR as ‘Core’

Another side of CSR exists in pure form with NGOs that target social work on non-profit basis and seek funds in the form of donations, charity, and other philanthropy including time and intellectual resource by individuals. While the society appreciates such organizations, their sustainability based on these funding options is always questioned.  We recently met a CEO of a Welfare Organization who runs schools without charging any fee from the students in the suburbs of Karachi, Pakistan. When we asked him how the NGO raises funds, he, besides mentioning the conventional methods, told us that he gets some 50% of the funds from a Japanese NGO—not in the form of dollar but in the form of used clothing, furniture, and other domestic stuff that is collected in Japan and sent to them. They import and market these second hand products through local wholesalers and retail markets. Initially, not having experience, the NGO suffered losses but they learned to become ‘marketers’ by failing a couple of time.  In their school, they have also started an Industrial Home where girls who learn sewing and tailoring make garments for export orders. Though, this is a small business to raise part of their funding needs, in our opinion a big concept towards self-reliance for dignity.

Case of GEAR—an emerging NGO struggling to invent a Profitable CSR Business Model

Let’s consider the case of GEAR (Generating Employment Alternatives for Self-Reliance) to see a departure from aid-based poverty alleviation programs to a business-driven profit-based CSR project, leading to social and economic transformation possibilities.

GEAR is a ‘social business’ organization with its vision, mission, and objectives given below:

Vision: To bring social and economic prosperity through establishing a culture of self- employment, dignity, and honor.

Mission: Gear is determined to create an innovative model of ‘social businesses’ for the deprived section of the society by creating sustainable financial resources coupled with the necessary support system resulting in continuous flow of economic activity.

Objectives:

1. Identify candidates from poor section of society by referrals through friends and family circles. We call these candidates ’GEAR Partners’.
2. Develop a unique self-employment model matching the expertise and interest of each GEAR Partner.
3. Fund the self-employment model of the selected partner and also help them in executing the same.
4. Monitor the results and operational mechanism of the model on a continuous basis in order to ensure that the model is generating acceptable revenues; troubleshoot, wherever needed.
5. Collecting GEAR partners’ contribution of profit to GEAR pool of fund (to the extent of the amount funded only, no interest charged) in order to create the next round of self-employment for new partners.

Sustainability Initial investments for activities of GEAR were raised through conventional methods like contributions, donations, etc., but recently GEAR is running several projects to run the organization with the concept of ‘society-business’ integration. Examples of such sustainable society-business integration projects are:

1. GEAR is being converted into a sustainable self-revenue generating model to bear its own expenses and fund self-employment needs of its partners. The plan includes creating GEAR-branded self-employment model e.g., GEAR Kiosks, GEAR Vegetable and Fruit Carts, and a number of GEAR-branded small businesses handed over to GEAR partners. This GEAR-branded business model will also be used as advertising and sales promotion tools for local and multinational companies—the advertising revenue earned will be a fund raising opportunity.

2. GEAR collaborated with a government-run Training Center to fund two months’ training in ‘Professional Sewing’ to 120 girls and women belonging to families whose monthly family earnings are Rs. 5,000 to 7,000. GEAR has convinced the management of the Training Center to go into ‘Garment Business’ to utilize the skills of the trained ladies.  GEAR will fund the sewing machines.

A business feasibility was proposed that incorporates provision for employment for the trained girls and women, returning of funds given by GEAR to train the ladies and purchase of sewing machines, and profit sharing between the Training Center and GEAR. The Training Center can remain a training center, but if the poor masses cannot afford monthly fee of even Rs. 500 to 1000, the society-business integration model of this nature can create a new type of CSR and can fill the society with new positive energy. Whereas, it appears to be a little sophisticated, with a ‘will to achieve’ it is surely possible. These are just examples and a number of such initiatives can be thought of and worked upon in the NGO model as well. How long should people and institutions look towards support, aid, and subsidies?

“Social transformation with a baseline support which spurs a stream of economic activity and multiplier effect is a better and more viable option.”

Prerequisite for the Shift     In a nutshell, it would be appropriate to re-emphasize the prerequisite for the proposed shift. As discussed in several strategic contexts, it’s the mindset with which the journey for change begins.  The leaders must play their role to take a broader view rather than remain ‘myopic’. This may not only be true for the sake of social transformation, but in many cases giving a big opportunity for business breakthroughs. We base our theory on the assumption that business organizations will do CSR not for the sake of the society, but basically for their own reasons of improving their profits. So, considering CSR on a business model, presented in this article, is directing the corporations to another era of new opportunities in terms of market feasibility, more product choices, consumer purchasing power, and overall better Return on Investment.

References

1. Porter, M.E., & Kramer, M.R. (2006). Strategy and Society: The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84 (12), 78-92.
2. Sprinkle, G.B., & Maines, L.A. (2010).  The benefit and cost of corporate social responsibility. Business Horizon, 53, 445-453
3. Prahalad, C.K. (2005). The Fortune at the Bottom of the Pyramid, Eradicating Poverty through Profits. Wharton School Publishing
4. Lafley, A.G. & Charan R. (2008). The Game Changer. Crown Business, New York.
5. Younus M. (1998). Banker to the Poor. Aurum Press Limited. 6. Generating Employment Alternatives for Self Reliance (GEAR) (2011) retrieved from www.gear.org.pk

 

Ekhlaque Ahmed is a seasoned Strategy and Marketing professional with over 30 years experience in the manufacturing sector. He has gained his management experience through leadership roles in topnotch companies like Philips, Osram, etc. Ekhlaque is also the professor of Strategic Marketing in various business institutions and is a renowned corporate trainer in the marketing, strategy, and channel management fields. He is the co-author of the book ‘Marketing Management Case Studies of Pakistani Companies’ and several other business articles in local and international publications.

Twitter: @ekhlaqueahmed

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