Poverty continues to affect a large proportion of the world’s population. More than a billion people survive on less than US$ 1 a day and nearly three billion on less than US$ 2 a day. Some 30,000 children die daily as a result of extreme poverty. Companies based in the developing world have long experience of working with low-income communities, while others are increasingly encountering poverty as they seek new markets. Companies also encounter relative poverty among the poorest sections of society in the developed world, where many cannot afford the products and services that average earners take for granted. For all companies, the world’s poorer regions represent an opportunity and a challenge. The vast numbers of people living in poverty today are potential consumers, employees and suppliers.

Products

Some strategies are focused on winning customers among low-income populations. For example, GrupoNueva has gone as far as setting a target of making 10% of its sales among low-income segments by 2008, which depends on finding new ways of doing business with new customers. Many companies develop simple, affordable products. Examples include low-cost mobile phones made by Motorola and the Simputer, a low-cost, portable alternative to the PC developed by IT experts in India. Yet there are substantial challenges in establishing businesses in poorer countries. Often they suffer from inadequate framework conditions, such as legal, regulatory, and intellectual property systems. Infrastructure and services are often limited or non-existent, with underdeveloped networks for telecoms, power, water, and sanitation and only the most basic health and education systems.

Business finds it hard to operate in such conditions, but without business acting as the motor for development, the necessary frameworks, infrastructure, and services are less likely to emerge. The challenges for business are to understand the roots and nature of poverty and identify ways to do business effectively in low-income communities. To do so, businesses have adopted a variety of strategies. Other companies source their products among poor communities to promote enterprise and create wealth. One example is the program by Delta Cafés, Portugal’s coffee market leader, to revive the coffee growing industry of East Timor after 20 years of neglect. This program has included training farmers and developing the Delta Timor brand, which has achieved status as a premium fair trade product among socially responsible consumers in Portugal.

Markets

Many consumers and producers in poor areas have limited purchasing power, and businesses wishing to work in such areas need help to create viable markets and supply chains. One means of achieving this is through small loans, or micro-credit, which can transform the prospects of small enterprises. In Brazil,ABN AMRO worked with Acción, a nongovernmental organization, to create a micro-finance unit based in Heliópolis, one of Sao Paulo’s crowded shantytowns. Loans vary from US$ 70 to US$ 3,350 and have benefited around 1,000 micro-entrepreneurs. Also in Brazil, where poor access to credit is a major factor in the lack of adequate housing, a GrupoNueva subsidiary offers a credit card that low-income households can use to pay in installments for materials to build and improve their homes. Many companies help to build supply chains by supporting small and medium-sized companies seeking to become suppliers and distributors. In South Africa, Mondi Recycling encourages employees to become self-employed owner drivers, and Coca-Cola trains thousands of micro-entrepreneurs to sell its product.

Infrastructure

Many companies provide infrastructure to help build markets. For example, Vodacom deployed 22,000 subsidized cellular phones in rural areas of South Africa as a condition of its license to operate. The rural phones have delivered revenues of over US$ 100 million a year, more than the company’s conventional pre-planned services. Companies   work with governments, aid agencies, and NGOs to build infrastructure such as solar electricity systems. Solar power provided by companies such as BP, EDF, Shell, and Total benefits many countries, including Angola, Brazil, India, Malaysia, Morocco, the Philippines, and Sri Lanka.

Frameworks

Some companies have acted to address flaws in framework conditions, such as legal systems or intellectual property rights. For example, Statoil is supporting courses in human rights for Venezuelan judges in a project organized by the United Nations Development Programme. Philips is funding exchanges of intellectual property experts between Chinese and US or European universities.

Trade

Global trade rules influence the ability of countries to escape the poverty trap. Estimates suggest that if Africa could gain an additional one percentage point share of global trade, it would earn US$ 70 billion more in exports each year, more than five times the sum that it receives in international assistance. WBCSD members and other business leaders have voiced the need to remove unfair subsidies to level and widen the global playing field. These include a group of chief executives and chairmen of leading corporations who signed a letter in the Financial Times urging WTO member governments to step up their efforts to liberalize world trade in the Doha round of talks.

Extracted from Challenge to Opportunity: The role of business in tomorrow’s society by the Tomorrow’s Leaders group of the World Business Council for Sustainable Development.

http://www.wbcsd.org/DocRoot/C77uYrHIIJcti1FWAn1s/tomorrows-leaders.pdf