February 2013

INVESTING IN INCLUSIVE BUSINESS IN DEVELOPING ASIA AND LATIN AMERICA: NEW OPPORTUNITIES FOR JAPANESE COMPANIES
Inclusive Business (IB) engage poor and vulnerable populations in core activities across the business value chain, as suppliers, distributors, employees and consumers, thereby generating systemic and scaled impact on poverty reduction, as well as healthy market returns for the company. IB differs from CSR through its profit and up-scaling motivation. Japanese companies have a strong market presence in developing Asia and in Latin America, and have a record of social responsibility and value orientation for more inclusive societies. However, Japanese firms have historically focused on top-tier markets, and only a minority has attempted to directly involve low-income segments within their core activities. Their interaction with base of the pyramid markets has mainly been limited to corporate social responsibility activities (CSR). While running CSR programs is important and valuable for socially-minded companies, making business activities more inclusive including involving the poor as suppliers, laborers and distributors not only makes more financial sense for companies, but also generates longer-lasting and systemic impact on the lives and livelihoods of poor populations. At the same time, sustained growth in emerging economies over the past decade has raised the purchasing power of the lowincome segments of society, opening up new and untapped markets for interested and forward-thinking businesses. The provision of goods and services that are targeted and affordable to these low-income segments, can effectively supplement existing efforts by governments and donor agencies to increase access and reduce poverty. Given the strong innovation potential of the Japanese economy, the base of the pyramid market in developing Asia and Latin America offers new business opportunities for Japanese companies. However this requires often changes in the business models of many firms. The Asian Development Bank (ADB) and the Inter-American Development Bank (IDB) are collaborating to help Japanese companies who wish to make their business models more inclusive and relevant for the poor. 1 With the help of Dalberg Global Development Advisors and Fujitsu Research Institute, the ADB and IDB are offering a workshop for corporate leaders explaining the essence of IBs and assistance in discussing and developing business plans for IB investments in Latin America and developing Asia. The workshop will also give the opportunity for JICA, Sasakawa Peace Foundation, and JIBSC to highlight their efforts and initiatives to promote IBs. The corporate leadership workshop is likely to be followed up through further investment and technical support from ADB and IDB. The IB workshop will be held on 28 February and 1 March 2013 in the Fujitsu Research Institute in Tokyo. We expect about 80 representatives at higher management level from 40-60 Japanese companies implementing or intending to implement inclusive business models in Latin America and developing Asia. Participation on invitation only is free of charge. The workshop language will be English/Japanese for Day One and
1

Since 2008 IDB, through its Opportunity for the Majority program has invested more than USD 300 million in IB companies in Latin America, thereby created a lot of jobs, products and services for the poor while at the same time strengthened value creation of business. ADBs new Inclusive Business initiative in addition to promoting IB investments supported impact assessment, market studies, better IB environment, and further knowledge work.

2 English only for Day Two. For registration please contact the workshop secretariat (Fujitsu Research Institute, Tel: 03-5401-8392; email: fri-adb-idb-workshop2013@cs.jp.fujitsu.com).

Workshop Program
28 February and 1 March 2013, Fujitsu Research Institute,
New Pier, Takeshiba South Tower, 16-1 Kaigan 1-chome, Minato-ku, Tokyo

Thursday, 28 February 2013

09:00-09:30 09:30-09:45:

Registration Introduction
Welcome (Fujitsu Research Institute (FRI)) Purpose of the Workshop - Yoshihisa Ueda, Resident Representative, InterAmerican Development Bank (IDB)

09:45-10:45:

What Is Inclusive Business and what Differs IB from CSR?

This session will present the standard definition of the Inclusive Business concept and distinguish it from corporate social responsibility, microfinance, contract farming, and Base of the Pyramid approaches. In particular it will discuss benefits that inclusive businesses receive by engaging with the BoP, such as decreased costs, increased revenues from new market segments, brand value, etc. The session will also highlight the relevance and contribution of inclusive businesses to economic growth and poverty reduction. Furthermore the presentation will summarize the key principles that factor into the decision to engage, including contribution to the core business of the company, how to generate internal buy-in and support, finding good and effective partners, and impact assessment monitoring.

Presentation 1: What is IB (Gaurav Gupta, Dalberg Global Development Advisors): Presentation 2: CSR and IB (Robert de Jongh, Red Mantra Group) Discussion (moderated by: Armin Bauer, Senior Economist, Asian Development Bank (ADB)) 10:45-11:05 11:05-11:50 11:05-11:25 Coffee/Tea Break

IB and Japanese Firms

From CSR to IB: An Overview on Japanese Companies Contribution
This session will give an overview of CSR and IB activities of Japanese companies. It will highlight that most social work of Japanese companies is CSR, and that the IB experience of Japanese firms is still in a very nascent stage.

Presentation (Takafumi Ikuta, Senior Research Fellow, Economic Research Center, FRI)

4 Questions and Answers 11:25-11:50 Mapping of Japanese IB Models in Latin America and Developing Asia
This session will provide an overview of Japanese companies that have invested in true IB models in Asia and Latin America.

Presentation (Robert de Jongh, Red Mantra Group) 11:50-12:30

Japanese Support for Inclusive Business

Representatives from JICA, JIBSC, and Sasakawa Peace Foundation will summarize their work to support inclusive business.

The support program of the Japan Inclusive Business Support Center (Kiyoshi Mori, Director, JIBSC/METI) JICAs Private Sector Support for IB companies (Jin Wakabayashi, Director, Private Sector Partnership Division, Office for Private Sector Partnership, JICA) Technology Solutions for the Poor in Asia (Mari Kogiso, Sasakawa Peace Foundation) Questions and answers (moderated by Takafumi Ikuta, FRI) 12:30-13:45 13:45-15:45 Lunch Break

IB Examples from Asia and Latin America: What makes your business an inclusive business?
The session will give examples of IB models from Latin America and Asia, and explain key features of IB (especially vis--vis CSR) such as investment returns, composition of core business and internal buy ins, implications for client involvement (supplier, consumer, distributor, laborer), innovations to serve the needs of the low income clients, financing issues and risk perspectives, growth models, technical assistance and capacity development requirements, and framework conditions/enabling environment, and social impact measurement (reach, depth, systemic contribution to poverty reduction). The presentation will also include short Videocon with companies. The session will provide opportunities for Japanese companies to ask questions related to their own business model; such questions will then be deepened in the discussion on the second day.

Presentation 1: Key features of IB and examples from Asia (Gaurav Gupta, Dalberg Global Development Advisors) Presentation 2: Key features of IB and examples from Latin America (Robert de Jongh, Red Mantra Group) Questions and Answers 15:45-16:05 Coffee/Tea Break Questions and Answers 16:05-16:20

Social impact measurement

10 key tools used by business to measure their socio-economic impacts: Summary of a study done by the World Business Council for Sustainable Development (WBCSD)) (Armin Bauer, ADB) Harmonizing impact assessment proposal from ADB (Armin Bauer, ADB)

5 Questions and Answers 16:20-17:00

The IB and OMJ Initiatives of ADB and IDB

ADB and IDB will explain their IB support both technical assistance as well as investments for Asia and Latin America.

Presentations: Armin Bauer (ADB) and Robert de Jongh (for IDB) Questions and answers 17:00-17:20

Suggestions for follow up

Company participants will provide through filling up a short questionnaire - further information on their IB work and interest to work on IB in Asia and Latin America. Suggestions for follow ups at a more strategic level will then be discussed. For follow up discussions at company level, separate time is allocated at the second workshop day.

Discussion (moderated by: Armin Bauer, ADB) 17:20-17:30 17:30-18:30

Closing remarks Reception (hosted by FRI)

Friday, 1 March 2013

13:30-17:00 Initiating BoP Investment Opportunities in Latin America and Developing Asia Selected companies can discuss with the ADB/IDB teams investment opportunities in inclusive business markets. The business case if viable, growth oriented and providing sufficient social impact could be followed up by further technical assistance and possible co-investments from IDB and ADB. Companies that wish to have follow up discussion may arrange the timing through FRI (c/o Takafumi Ikuta and Nozomi Katou Tel: 03-54018392; email: fri-adb-idb-workshop2013@cs.jp.fujitsu.com)

Background Note
Addressing the Bottom of the Pyramid makes good business sense: An increasing number of companies operating in developing Asia and the Pacific are applying or exploring business models that integrate lower-income groups at the base of the pyramid (BoP). They perceive great opportunities to expand sales of goods and services that can diversify revenue streams. Inclusive business goes beyond the BoP approach and includes the poor not only as consumer of goods and services, but also as suppliers and laborers as well as distributor by creating employment and income opportunities for the poors livelihoods. Asia's private sector is increasingly realizing that the base of the income pyramid (BoP), i.e. those living below the $3-$4 poverty line2, represents an interesting business opportunity as a substantial new market for goods and services that can improve the livelihoods of the poor and vulnerable, and as a significant pool of entrepreneurship, assets, talent and productivity that can be leveraged for the supply of critical inputs, innovative distribution systems, and skilled labor. In addition, investors are recognizing that these inclusive business models can generate positive financial returns while simultaneously delivering meaningful impact at scale in an era of heightened societal expectations of the private sector. Shared value investment help making growth more inclusive: % of population below the the rich Asia and Latin respective poverty lines (2009) America have the lower and upper made major middle class progress in the last two decades to sustain growth and 65.9% 94.1% low income ($4) reduce extreme 53.0% 88.4% vulnerable ($3) poverty. However over the past two 33.2% 70.9% poor ($2) inclusive business decades, it has also become clear 14.3% 36.0% very poor ($1.25) that the pattern of 1,983.1 1,586.7 Total population (million people) growth has not been inclusive. Sources: World Bank PovCalNet (24 Aug 2012 update), ADB Key Indicators 2012 Income inequality has grown in most of the regions developing countries, millions of poor and vulnerable people have not substantially benefited from economic expansion. Government efforts to provide basic services and income opportunities for the poor have not been sufficient to meet the great needs for decent work, and access to affordable basic goods and services. There is growing realization that private-sector led, market-based solutions can play a very substantial role in tackling social and environmental challenges that confront Asia and the Pacific. Government and the poor themselves (through demanding goods, services and jobs) are increasingly interested to involve the private sector in poverty reduction. Against
East and Southeast Asia South Asia
2

The Base of the Pyramid in Asia

About 53% of Southeast Asias and 88% of South Asias population are vulnerable to poverty with less than $3 a day per capital income or expenditure in 2008 global purchasing power parity, while 7% (Latin America) and 14% in Southeast and 33% in South Asia are extremely poor ($1.25 international poverty line). (see: World Bank PovCal Net latest [Feb 2012] updates). For Latin America with a much higher GDP per capita than Asia - the BoP line chosen by IDB is higher at $10 which covers about 60%of the Latin American population live below this incidence of poverty.

7 this background, the private sector while recognizing the huge market of the poor is only starting to develop. It is increasingly seeing opportunities to both make a profit and create shared value for society through the BoP. The rapid emergence of impact investing and social enterprise in many countries presents a timely opportunity to dialogue on how to build on these developments. Inclusive business is not CSR: ADB and IDB define inclusive business as core business operations within a companys business strategy that integrates the low-income segment (BoP) within its value chain as suppliers, consumers, distributors and/or employees in such a way that it creates shared value for business, the poor and vulnerable ($3/4 poverty line) and society and impacts in a systemic way and in scale on poverty reduction and the living condition of the poor. The market at the base of the pyramid represents about three-fifths of the population of developing Asia and the Pacific. Inclusive business initiatives engage poor people as suppliers, consumers, employees and distributors. While their internal rate of return (IRR) varies, successful inclusive business companies typically generate IRR of 10-20%, in many cases higher than traditional business. Inclusive business differs from corporate social responsibility, microfinance, contract farming and social enterprise modalities in scale of impact and profit. IB can be performed by small and by larger companies. Balancing financial return and social impact in scale IB differs from social enterprises (SE) and corporate social responsibility (CSR) in its realized profit making motive, as well as its social impact in scale and systemic contribution to poverty reduction, and consequently, the larger size of investment needs. It also differs from the original base of the pyramid approach that sees the poor mainly as market for private ventures and assumes automatic benefit for the poor through the provision of any consumption good. Expanding private sector growth through inclusive business ventures on the other side would provide the poor with new jobs and access to quality and affordable goods and services, helping them improve their lives and reducing poverty.
Inclusive Business: Balancing Social and Financial Returns

Financial rate of return

20%

commercial companies
15%

debt investments (equity, guarantees)

inclusive business

10%

Technical Asssitance

6%

equity, patient capital, guarantees

3%

social enterprises
financially viable 0%

CSR Philanthropy

Systemic social impact (scale, relevance for the poor)

8 Japanese companies have a strong market share in developing Asia and in Latin America, and Japanese managements also show strong social responsibility and value orientation for more inclusive societies. However they are mostly catering to the upper income markets and only few Japanese firms so far involve the poor in their core business to create value that can be shared with stronger systemic impact on return for business, the poor, and the developing societies. While running corporate responsibility programs (CSR) meets the social value conscious of management, investing in inclusive business i.e. involving the poor as suppliers, laborers and distributors, and serving the markets of the poor as consumers - makes more business sense and has stronger systemic impact on poverty reduction in Asia and Latin America. At the same time, economic growth increasingly raising the purchasing power of the low income segments of society, and those markets offer huge potentials to supplement governments efforts on poverty reduction through providing goods and services that are relevant, affordable and accessible for the poor and low income groups. Given the strong innovation potential of the Japanese economy, the base of the pyramid market in developing Asia and Latin America offers new business opportunities for Japanese companies, which are barely explored so far. Support to inclusive business from Japan in developing countries is offered by the Japan Inclusive Business Support center (JIBSC) under the Ministry of Economics, Trade and Industries (METI),a nd through the Japan International Cooperation Agency (JICA). However investments are nascent are still often focusing on CSR and social enterprises with strong NGO dimensions. Considering the challenge to upscale investments in truly IBs, JICA is interested in deepening its cooperation with ADB and IDB. On the other side, ADB and IDB are interested in including also more Japanese companies in their private sector portfolio that directly supports poverty reduction. Typically, IBs need three areas of support when they wish to invest: (1) support for business development, (2) access to innovative and relevant IB finance (often initially in the range of $0.5-$10 million with debt, equity and guarantee features), and (3) help with impact assessment.3 (4) They often also need a better enabling environment (including goal setting for IBs in poverty reduction) by the government. Broadening the technical assistance and investment support to Japanese companies to involve them more in the IB models has been a challenge in the past. The Tokyo workshop is a first attempt on the long route to overcome this and implant the idea of IB more into Japanese business community. ADB and IDB can help facilitating IB investments of Japanese firms: ADB and IDB both have inclusive business programs and provide investment support as well as technical assistance and advisory services. So far Japanese companies investing in Latin America or Asia have not yet made use of those IB support structures. Given the strong social orientation of the Japanese societies and various companies managements, ADB and IDB have a strong interest in including Japanese companies in their IB and Opportunities for the Majority (OMJ) programs.4 The objectives of the Tokyo workshop: ADB, IDB and the Fujitsu Research Institute got together to offer a workshop for about 60 Japanese companies that wish to upscale their investments in inclusive business in Latin America or in Asia. The corporate leadership training workshop organized in cooperation with Fujitsu Research Institute and Dalberg Consult is a first attempt to familiarize Japanese companies with the IB work of ADB and IDB with the purpose to explore further ways of partnership through more actual investments for the base of the pyramid in Latin America and Asia. To this end, the workshop will
3

ADB and IDB have developed impact assessment tool for IBs and is now in the process of harmonizing it with other development partners and investors for Asia and Latin America. More information is on ADBs IB website (More information on ADBs Inclusive Business initiative is on the IB website: http://beta.adb.org/themes/poverty/inclusive-business-base-pyramid), and on IDBs OMJ website ().

9 Familiarize business leaders with the concept of IB and its relevance in todays economy Clarify that IB is core business that generates sufficient profit for shareholders and impact in scale for the poor, and hence very different from CSR; Give an overview and examples of actual IB investments by Japanese companies; Provide examples of IB investments from the Asia and Latin America region; Identify and discuss common challenges faced by inclusive businesses, as well as ways of overcoming them; Discuss principles of investment opportunities; and Engage in an initial discussion with Japanese companies to make their business proposals ready for IB support by ADB and IDB.

The workshop is organized and hosted by ADB, IDB and FRI. Dalberg Global Development Advisors was hired to facilitate the workshop. It will be held on 28 February and 1 March 2013 in the Fujitsu Research Institute, at the conference room in the 5th floor of the Takeshiba South Tower, 16-1 Kaigan 1-chome, Minato-ku, in Tokyo. Participants will be about 80 higher level business leaders from Japanese companies selected by invitation only. No participation fee will be charged. Follow up activities to help IB companies developing business plans and financing its investments in Asian or Latin America developing countries can be planned by IDB and ADB. For more details, please see the attached Workshop Agenda. For more information and for registering your participation (on invitation only), please contact the workshop secretariat (Ms. Nozomi Katou, Fujitsu Research Institute, Tel: 0354018392; email: katou.nozomi-01@jp.fujitsu.com). For other follow ups and further discussions on possible investments or advisory services, please contact: - At Fujitsu Research Institute: Mr. Takafumi IKUTA, Senior Research Fellow, Economic Research Center, Fujitsu Research Institute, Tel: 03-54018392; email: ikuta.takafumi@jp.fujitsu.com). - For ADB: Dr. Armin BAUER, Asian Development Bank (ADB), Manila, email: abauer@adb.org, Tel: 0063-2-6325550 - For IDB: Mr. Robert DE JONGH (consultant to IDB and ADB), email: rdejongh@palante.com - For Dalberg Consult: Mr. Gaurav GUPTA, Mumbai: email: Gaurav.Gupta@dalberg.com