Unilever and Oxfam:

Understanding the Impacts of

Business on Poverty (B)

11/2008-5522
This case was written by Robert J. Crawford, Research Associate, and N. Craig Smith, INSEAD Chaired Professor of
Ethics and Social Responsibility. It is intended to be used as a basis for class discussion rather than to illustrate either
effective or ineffective handling of an administrative situation.
Copyright © 2008 INSEAD-EABIS
N.B.: TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION.
About the Project
This case was written as part of a project on “Curriculum Development for Mainstreaming
Corporate Responsibility,” coordinated by INSEAD and London Business School and
supported by the European Academy of Business in Society (EABIS). The project aims to
develop degree and executive programme designs and teaching materials that will assist the
process of mainstreaming the area of corporate responsibility into core disciplines in
management education and increasing its inter-disciplinarity. Within this context, EABIS
members from across Europe have been invited through an open call to submit case proposals
with the intention of developing a range of cases across a number of subject areas for use by
mainstream faculty. The open call for case studies generated over 25 submissions from
around Europe, from which a short-list was selected on the grounds of their business
relevance, academic rigour and potential for mainstreaming.

About The European Academy of Business in Society

Launched in 2002, EABIS is a unique growing alliance with currently more than 80
companies, business schools, academic institutions and other stakeholders, with the support of
the European Commission, committed to integrating business in society issues into
the the heart of business theory and practice in Europe. It is increasingly viewed as Europe’s
reference point for corporate responsibility knowledge development and learning. For more
information on members and activities visit: www.eabis.org

Acknowledgements
The development of this case and the overall project has been made possible due to the
generous financial support of EABIS’ founding corporate partners: IBM, Johnson & Johnson,
Microsoft, Shell and Unilever. The involvement in the development of this case study of
Mandy Cormack, formerly of Unilever and now an independent CSR Advisor, and Becky
Buell of Oxfam is also gratefully acknowledged.

Copyright © 2008 INSEAD-EABIS 1 11/2008-5522

 We learned a lot about how to pursue best outcomes, given what MNCs are able to do.

– Becky Buell, Head of Programme Policy, Campaigns and Policy Division,

Oxfam GB

“It was clear,” Becky Buell said, “that Mandy and I would have to review the report line by
line ourselves. This was the start of the most gruelling period of the whole project.”
Unilever’s Mandy Cormack agreed. Cormack, Buell and their teams met for extended
discussions to negotiate the report’s content and language and what it implied about their
respective organisations. The report went through a total of 14 drafts, Cormack recalled.
Some of the most useful discussions occurred during this period, but this essentially doubled
the time it took to finish the project. The safety mechanisms for dispute resolution and
confidentiality did not need to be invoked, given the cooperative relationship Unilever and
Oxfam had developed, although having these mechanisms in place built confidence and
enabled both teams to head off internal critics.

There were some last minute glitches in the editing process, with an Oxfam editor adding
some customary rhetoric to the press pack that Unilever found objectionable, and Unilever
summarising the major lessons in a way that Oxfam felt left out the key poverty messages.
This last and very tense interchange was a key moment, however, in highlighting an important
lesson about NGO-MNC collaboration. When the pressures are high, both parties are most
likely to fall back on their default modes – non-governmental organisations (NGOs) taking an
accusatory stance, multinational corporations (MNCs) reverting to protect the brand. Due to
the trust established during the course of this project, both parties were able quickly to
acknowledge and address the issues in order to move forward.

Official approval of the report came at last in May 2005 and the final report was published in
August 2005, two-and-a-half years after Stocking and FitzGerald’s initial discussion of the
project, by which time FitzGerald was no longer Unilever CEO, and two years after the
formal start of the project. Cormack and Buell agreed that Yogyakarta University – in
Indonesia rather than Europe and at a centre of learning – would be the appropriate venue for
launching the report.1 With the final report in hand, Cormack and Buell appeared together at
Yogyakarta University in September 2005 to discuss its findings on the impact of business on
the lives of poor people and other lessons from the project.

The Impacts of Business on Poverty2

The report asserted that business activities of MNCs had an important contribution to make to
economic development in developing countries. This contribution was significant in part
because the volume of private capital flows exceeded that of development assistance. In the
Foreword, Patrick Cescau, the new Group Chief Executive of Unilever, said, “We needed to
increase understanding of the impact of the operations of a business like ours on the lives of
poor people.” MNC activities in developing countries were said to have the potential to create

1 A European launch event subsequently took place at London Business School, 19 September 2005.
2 This section draws extensively on the joint report, available in full at
http://www.oxfam.org.uk/what_we_do/issues/livelihoods/downloads/unilever.pdf.
A summary of key points from the report is also provided as Exhibit 1: Key Findings of the Report.

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positive or negative impacts for people living in poverty. The extent to which the wealth
created by business could reduce poverty was determined by many factors, including industry
operating structure, company values and strategies, and the opportunities open to people
living in poverty and their negotiating power. Key findings of the study of Unilever Indonesia
(UI) and its value chain were as follows.

Impacts at the Macro-Economic Level

Unilever Indonesia (UI), although part of an MNC, was embedded in the local economy. The
majority of revenue generated by UI remained in Indonesia, through its local sourcing, wages,
margins, and dividends to local shareholders. Following an earlier period of investment by the
parent company, inward investment flows had fallen to zero because of the profitability of the
local business. For the period 1999–2003, 25% of UI’s total pre-tax profits was retained and
reinvested in the local business – an investment in UI’s long-term future as well as an
investment in Indonesia’s long-term development; 30% went to the government in corporate
taxes; and 45% was paid out in dividends to shareholders (see Exhibit 2: Distribution of UI’s
Total Pre-Tax Profits, 1999–2003). Because UI imported inputs and purchased foreign
currency for its business operations, and paid dividends to shareholders outside the country,
there was a net outflow of funds, showing that even a locally based company with only
modest exports like UI could have a negative foreign-exchange impact on Indonesia’s balance
of payments (see Exhibit 3: UI’s International Foreign-Exchange, Trade and Human Resource
Flows).

Nonetheless, UI was a substantial source of public revenue, with total taxes averaging US$
130 million per year (about 19% of UI revenues over the five-year period) paid to the
Indonesian government. UI also maintained its operations in Indonesia throughout the
financial crisis of 1997–98; adapted its business model to ensure that products remained
affordable; renegotiated contracts with suppliers to maintain business for all parties;
prioritised the retention of employees; and expanded local operations through joint ventures
and acquisitions. The report concluded that overall, on impacts at the macro-economic level:

While it is difficult to use macro-economic indicators to measure the direct impact

of UI’s activities on people living below the poverty line, indirect positive impacts
can be assumed in the contributions to government revenue; the stability of UI’s
value chain in a turbulent economy, with its attendant employment benefits; and
an overall business model that is deeply embedded in the Indonesian economy.

Employment Impacts

UI had a core workforce of around 5,000 people, of whom about 60% were employees, most
of them permanent, and 40% were contract workers, employed directly or through contracting
agencies. UI set high standards for the treatment of its permanent employees.

It adhered to the global Unilever Code of Business Principles. Pay and benefits were above
what was required by law, positioning UI in the top quartile of Indonesian companies. There
were high health and safety standards, favourable terms for retirement and maternity benefits,
good workplace facilities, and a strong emphasis on training. All UI employees had a written
contract, and there were clear procedures for negotiations between workers and management.

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The closer and more formally workers were linked with UI’s operations, the more they
benefited directly from the company. Oxfam was concerned that the number of contract
workers was significant (and had increased over the period studied), at around 40% of the UI
workforce in 2003. Although contract employment was recognised as an integral part of UI’s
business strategy, the application of standards was found to be in need of improvement in two
areas, on both of which UI was committed to take action: 1) the need to ensure that UI’s
labour-supply companies observed legal requirements concerning the transfer of temporary
employees to permanent employment contracts; 2) the need to respond to the concerns raised
by a female contract worker that illness or pregnancy could result in loss of employment.
These cases illustrated how contracting out employment may reduce a company’s ability to
monitor the situation of contract workers or suppliers’ employees, resulting in gaps between
corporate policy and practice.

The Value Chain from Supply Through Distribution

The research assessed the extent to which the producers and suppliers (backward linkages)
and distributors and retailers (forward linkages), linked with UI through its value chain, were
able to participate in UI’s success. As the report observed, the creation of value, income,
assets and employment was not necessarily an indicator of positive impacts for people living
in poverty: this depended on how the benefits of the value chain were distributed, which in
turn reflected their bargaining power within dynamic markets for raw materials and labour.

Supplier Companies. UI purchased 84% of goods and services for its business operations
through a local supply chain of 265 domestic companies (69 international companies made up
the balance). UI’s business model focused on high-volume, high technology, and high value-
added operations, while other parts of the business had become independent operations or
were outsourced. UI had expanded its business while building production capacity among
independent companies. In 2003, UI purchased goods and services valued at more than US$
254 million, mostly from Indonesian companies and on 6–12 month contracts. Many of these
supplier companies had been set up by UI, which had boosted the quality and standards of
local manufacturing through technical assistance programmes and the extension of UI’s
quality-management systems throughout the supply chain. UI’s investment in local suppliers
ensured a steady supply of high-quality inputs for the company, while creating local jobs,
assets, profits and tax revenues. This represented both an ingredient of UI’s success and a
major economic-multiplier effect of UI’s investment.

The major benefit for companies of being in UI’s value chain was a predictable market with
high-volume sales, and UI’s reliability in paying them. Yet negotiating prices with UI, and the
need to comply with stringent quality requirements, could be challenging for local supplier
companies. The research showed that supplier companies exceeded legal regulations
governing wages and benefits in Indonesia, but the pay and employment conditions for
suppliers’ employees and contract workers were lower than the conditions among UI’s direct
workforce.

Producers of Raw Materials. Small-scale agricultural producers were among the poorest
people in UI’s value chain, so changes in their situation could have considerable impacts on
their livelihoods. However, the value they generated had to be shared among a large number
of supply chain actors, of whom they were typically the least powerful, and their indirect

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relationship made it difficult for a purchasing company like UI to influence producer
conditions.

The research addressed this issue within a case study of Kecap Bango, a sweet soy sauce
made from black soybeans and coconut sugar. With sales of Kecap Bango growing rapidly
(but still less than 2% of total UI sales), UI needed to find a steady and consistent supply of
high-quality black soybeans. In partnership with researchers at a local university, the
company started to work with a small group of producers, offering them security of market
for their product, credit and technical assistance. Direct purchases by UI gave farmers a 10–
15% higher price than that on offer from traditional traders. Both UI and the producers had
benefited from this arrangement and the number of farmers participating had grown from a
dozen in 2002 to over 1,000 in 2004. However, there were some problems, including the
farmers having to carry a major financial risk within this new contracting arrangement and
UI’s strength as a large company constraining farmers’ negotiating power. Moreover, the
success of farmers selling this niche product could not be easily replicated without a similarly
compelling business case – it was not so likely, for example, with coconut sugar, the other
key ingredient of Kecap Bango, for which there was greater supply than demand.
Nonetheless, the report concluded as follows:

…the [Kecap Bango] case is very useful in increasing understanding of different

perspectives and impacts within UI’s value chain. Such an understanding, if
combined with a search for more business cases that also increase the value-
adding potential and hence power of poor producers, could enhance the longer-
term trading partnerships between agricultural producers and large companies.
The alternative black soybean supply chain established by UI removes layers of
middlemen, thus creating potential for increasing producers’ incomes. In this and
other ways, companies or buyers can increase incomes or promote savings among
producers. Opportunities to do this include direct purchasing at higher prices,
pre-financing production, and direct bargaining on prices between producers (or
producer associations) and buyers.

Distributors. UI’s distribution chain included wholesalers, modern retail formats (self-service
stores, supermarkets) and more traditional formats: small shops, family-owned warungs
(small sales outlets inside family houses), kiosks and street hawkers. A key finding of the
study was that more people were employed and more value generated on the distribution side
of the value chain than on the supply side. The report noted that the potential contribution to
economic development of employment generation in distribution was often overlooked. For
example, UI’s success in marketing small sachets to low-income consumers also increased
employment through the distribution system. Up to 1.8 million small stores and street vendors
sold UI products informally in rural markets and poor urban areas. So even where a product
did not have a particularly large impact on employment or income on the supply side, it could
still have an impact through distribution.

As with the supply chain, the research indicated that the closer to UI the distributors and
retailers were in the chain, the more likely they were to be able to negotiate better prices, gain
skills and knowledge, enjoy higher pay and better employment conditions and so improve
their lives sustainably. At the very edge of the formal economy, where poor families ran small
retail activities that might represent 40% of family income, both incomes and standards of

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product handling and storage tended to be lower. The report concluded that “to an even
greater extent than the supply chain, the local multiplier impact of the distribution chain is
little understood”.

Overall Value Chain. The research estimated that the full-time equivalent (FTE) of about
300,000 people made their livelihood from UI’s value chain. More than half of this
employment was found in UI’s distribution and retail chain, with about one third in the supply
chain (see Exhibit 4: Estimated Employment Linked to UI’s Value Chain, 2003). Job creation
was one way to assess the economic impacts of the value chain. Another was to seek a
monetary indicator.

In the study, gross margins along the value chain were used as a proxy for the financial value
created by each group of participants. The total value generated along the UI value chain was
conservatively estimated at US$ 633 million; UI earned about US$ 212 million with the
remaining US$ 421 million distributed among other actors in the chain (see Exhibit 5:
Estimated Distribution of Value Generated along UI’s Value Chain, 2003). The value added
was even more dispersed than the benefits of employment within the chain. Direct UI
operations accounted for about 34% of the total value generated throughout the supply chain,
while taxes paid to government by UI represented 26%, retail operations 18%, suppliers 9%,
distributors 6%, farmers 4% and advertising and other expenses 3%.

The total value captured declined towards either end of the value chain. The value captured by
poorer people working at either end, especially primary producers at the supply end, was
much lower than the value captured by those who were closer to the centre. Value captured at
the ends of the value chain increased where those participants had a stronger negotiating
position in relation to their product or service, where the value chain was restructured to
change the distribution of benefits, or where the value of their products or services could be
increased by (for example) innovation. From a perspective of poverty reduction, this was a
key insight that helped both organisations see the potential for increasing the pro-poor
outcomes of investment.

Low-Income Consumers in the Marketplace

One of the most challenging aspects of the project was assessing UI’s effects on low-income
consumers in a context of increased marketing to these groups around the world, by Unilever
and other companies (MNCs, regional and national enterprises). The views of the project
participants differed markedly. The key issues were access to UI products (including pricing),
the role of brands, promotions, and advertising, and whether UI was meeting or creating
needs for poor consumers.

According to UI data, 95% of Indonesians used at least one UI product, across all socio-
economic groups. Many of UI’s product sales were basic goods, such as hand soap, laundry
products and tea. People on low incomes spent a larger portion of their income on fast-
moving consumer goods (FMCGs) than those with higher incomes, though many of UI’s
products had become more affordable for people living in poverty, partly because of increased
sales in smaller packages, called sachets. While the unit cost was higher, because packaging
and distribution costs were reflected in the sale price, this marketing strategy was said in the
report “to respond to the reality that people on low incomes have limited cash in hand”. The

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FMCG industry in Indonesia was highly competitive. UI was the market leader in some
categories (e.g. toothpaste and hair care), while local companies led in other categories (e.g.
powder detergents). UI’s recent success was in part based on the expansion of sachet
packaging and its extensive distribution network, reaching all parts of a large country. UI
aimed to provide low-income consumers with access to products of consistently high quality
and value. 19

Oxfam was concerned about UI displacing smaller-scale local producers and ultimately
constraining competition in the marketplace. It took the view that a good industrial policy for
developing countries included nurturing the ability of independent small producers to compete
successfully with global brands in the local marketplace. Such competition was found in
Indonesian FMCG markets: while UI market share had grown during the period under review,
the number of companies in the market had also grown. However, it was difficult for the
project to assess accurately the overall balance of market share between international and
locally-owned businesses across all FMCG categories.

Oxfam also questioned whether companies like UI were creating rather than meeting needs
for poor consumers and, over time, turning luxuries into necessities through advertising and
promotion. It was impossible to measure the overall benefit or loss for either poor consumers
or small-scale local producers resulting from UI’s increasing market share and success within
the FMCG industry. What was clear, however, was that other companies learned from UI’s
marketing strategies, and would have to keep up with UI in order to compete successfully
within the sector. Determining impacts on poor consumers through their purchase of UI
products, especially in comparison to alternatives, was difficult. Consumers were influenced
by brand image across socio-economic groups. If local non-branded items were becoming less
common, how much was this due to marketing and distribution versus better value for
money? The report concluded: “Given the wide prevalence of both TV and print, responsible
standards of advertising and good communication links with people at all socio-economic
levels – both of them important aims of UI – are at least two benchmarks for social
responsibility.”

UI’s Broader Impacts

While UI invested in a wide range of philanthropic activities, often linked to an aspect of its
business expertise, both Oxfam and Unilever agreed that the greatest potential for pro-poor
impacts lay within UI’s mainstream operations and value chain. Nonetheless, voluntary
community involvement was recognised as bringing benefits to communities and directly and
indirectly to the business itself. UI’s main influence on other businesses had been among its
business partners, who often supported similar activities, and who appeared to have adopted
UI’s practices in other respects, such as health and safety standards. UI was also cited by
various NGOs for taking a public stand against corruption.

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Lessons from The Research3
Oxfam and Unilever identified separately their key lessons from the research and, overall, the
report concluded favourably on the project:

In the end, both organisations came to realise that, despite their very different missions and
goals, they share a common commitment to contributing to poverty reduction and
development. By the end of the project both Oxfam and Unilever were much closer to
understanding the limitations and opportunities that determine what companies can and
cannot be expected to do to contribute to poverty reduction.

Oxfam’s Key Lessons from the Research

The report identified the following key lessons for Oxfam:

We learned that our analysis needs to be more alert to the differences between multinational
companies. At every point in its value chain, UI’s business is highly dependent on
Indonesians: as producers, suppliers, employees, contract workers, distributors, retailers and
consumers. UI’s business decisions and choices reflect the embedded nature of its operations,
favouring a long-term approach to optimising opportunities for business success, and an
emphasis on the development of skills and industry within the wider Indonesian economy. As
such, UI is very different from some of the traditional targets of CSO campaigning, such as
extractive or export-processing industries. These differences have important implications for
an understanding of UI’s poverty footprint; moreover, an appreciation of them can help us to
understand why and how a company like UI might be motivated to study and improve its
poverty impacts. Our findings suggest that highly embedded MNCs and large domestic
companies might in future provide a focus for useful work on private sector poverty impacts
and poverty reduction strategies. While there is an increasing number of corporate social
responsibility measures in place, there is nothing that allows companies to conduct a
systematic assessment of their positive and negative contributions to poverty reduction
throughout the value chain. This project has increased our understanding of UI’s poverty
footprint in Indonesia. It also provides the company with some insights into how they can
increase their overall contribution to poverty reduction and perhaps eventually develop a ‘pro-
poor’ policy. This is a powerful concept, which may be useful for engagement with other
companies.

• We have gained a better understanding of the potential of distribution chains to generate

employment and income. Our research found that for every direct employee there were
many more jobs in distribution chains. For NGOs currently focusing their efforts on
improving conditions for producers and other workers within supply chains, the research
shows that it may also be valuable to analyse MNC policies towards the distribution and
retail aspect of their value chains.
• However, as a result of this project, it became clearer that participation in value chains
alone does not guarantee improvements in the living conditions of poor people. This
reinforced our belief that for value chains to work for poor people, there need to be other
social institutions and resources in place, such as credit and saving schemes, marketing

3 Oxfam and Unilever’s key lessons as given in the report are provided here in full and verbatim.

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 associations and insurance schemes, as well as diversification of income streams, to avoid
dependency on any single company or market.
• We also learned how difficult it is to reach a specific definition of what constitutes ‘fair
practice’ by companies. This issue is not as clearly defined as we would like it to be. For
example, despite international definitions of ‘a living wage’ and how to calculate it, and
despite the national definition of a legal minimum wage, it remains difficult to judge the
appropriateness of MNC wage levels within a given context. For example, how much
above the legally required minimum wage is it appropriate for an MNC to pay? And to
what extent can the same policies be encouraged for an MNC’s suppliers and contractors?
Similarly we debated, but did not resolve, the concept of a ‘fair price’ and the question of
how much expenditure on advertising is appropriate as a proportion of consumer prices.

Unilever’s Key Lessons from the Research

The report identified the following key lessons for Unilever:

• The primary lesson for us is the insight that we gained into the extent of the widespread
‘job’ multiplier in UI’s total value chain. While admittedly the FTE calculations in this
report are estimates, the findings nonetheless point to the potential use of value chain
policies as a tool in sustainable poverty reduction. As such it will be useful to share the
insights of the FMCG value-chain multiplier, and the opportunities that it offers, with all
those concerned with poverty reduction strategies.
• The spread of value-adding activity throughout the value chain creates a broad tax base. A
predictable tax base is essential for the development of the formal economy on which the
government can build, and finance, its social and environmental programmes. This report
addresses only the direct taxes paid by UI to the Indonesian government. Further research
could explore the scale of taxes paid by the many players involved in an FMCG value
chain, including both companies and individual workers.
• FMCG value chains can offer poor people an opportunity to gain basic skills within a
structured learning environment and earn incremental, regular income. Although
imperfect, these opportunities in turn may be the first steps towards accumulating assets,
increasing independence, and improving quality of life. Oxfam has pointed out that there
may be negative impacts for poor people who participate in FMCG value chains, such as
poor working terms and conditions, or debt and financing difficulties. These are matters
that need particular care and attention. Government, businesses, and civil society
organisations can each play a part in helping to gain the best outcomes for poor people.
• Even where there is a shared appreciation of the benefits of an alternative supply chain, as
in the black soybean project, it is recognised that there are constraints and limitations on
the viability of the model, and doubts about whether the model itself represents the answer
to the problems of poor farmers. Where it can, Unilever will continue to work with a wide
range of partners, including NGOs, to seek better, sustainable practices to reduce negative
social and environmental impacts in the production of the agricultural crops that it
purchases.
• A persistent focus on the position of the individual living in poverty – whether man,
woman, or child – is essential for developing sustainable poverty-reduction strategies.

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 Oxfam held the line on this matter throughout the project, and the Unilever team
acknowledged its importance. For a company like UI which interacts with people living in
poverty, this mindset and the feedback that it creates offer an opportunity to increase the
positive impacts of its activities and reduce the negative impacts. It also indicates that
while a company has an important ‘product-delivering, wealth-creating, skills-
transferring’ role, it is only one participant alongside other businesses, governments,
international institutions, and civil society organisations in the drive for sustainable
poverty reduction. For optimum impact, a concerted effort is required.

Other Learning
While the participants acknowledged that the final report fell short of an examination that was
both comprehensive and definitive, they agreed that they had learned a great deal from the
exercise. According to Kaviratne, “The report more or less confirmed our perception that we
[UI] were doing a lot of things well, and now it was documented.” Nonetheless, he also
recognised that UI had had things to learn: for example, understanding the need to
communicate better with poor people; conducting regular evaluations of the social and
environmental impacts on a brand-by-brand basis; and something that Kaviratne felt he had
not sufficiently taken into account, the influence of the company throughout the value chain.
“The further that a partner was away from us,” he said, “the less positive our impact. I was
unaware of this, in particular for the contract workers and subcontractors, and we are looking
into this area in greater detail now.” Cormack agreed, adding that the exercise created a
relationship of respect between Unilever and Oxfam. “If they attacked us,” Cormack
explained, “we knew to call them up to ask what was going on.”

For her part, Buell gained a number of new perspectives on the impact of business operations
on poverty reduction. First, there were the particular characteristics of the FMCG market.
“We saw that the value chain extended in two directions. We had not considered the
employment it generated in the retail sector before,” Buell explained. “It involved much more
than the supply chain issues, [which were] the ones we were accustomed to looking at… The
project gave us a good idea of how an MNC works and the factors they need to take into
account.” Second, she observed the full picture on value chains, beyond the traditional focus
on workers and retailers. According to Buell, “the impact of companies on poor people’s lives
was far greater and more complex than we had thought…. It wasn’t just about creating wealth
and distributing it, but what MNCs and NGOs could do to create better conditions for poverty
alleviation, like creating credit institutions to help poor farmers.” Third, Buell believed that
both sides worked hard to overcome their instinctive distrust of each other. As she put it:

We both saw we were coming from a ‘true place’ and this helped the project
because we all cared deeply [about poverty alleviation]… we got beyond our
default modes, like how we [Oxfam] automatically claim the moral high ground…
or how companies will, under pressure, revert to protecting their brand. We
developed greater self awareness on both sides.

Finally, although the process was extremely time consuming and labour intensive, both sides
felt that it set a kind of precedent for future MNC-NGO collaborations. “We intend to do
more projects like this,” Buell said, “but we will have to choose which ones we work with

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very carefully. There is no way we can repeat this level of investment.” One cooperative
project was the Sustainable Food Lab,4 in which academic researchers, NGOs and MNCs
(including Unilever) were working together to seek solutions to nutrition and hunger in the
LDCs.

According to Kaviratne, while the differing missions of NGOs and MNCs meant that such
cooperation was not a long-term prospect, they can work “when they are goal-driven, with a
specific and limited purpose”. Interest in the report was also strong; not only did it encourage
other MNCs to approach Oxfam with similar proposals, but it served as a model for the
projects of other groups. A Financial Times article reported:

It takes a great deal of courage, some would say foolhardiness, for a

multinational company operating in impoverished parts of the world to open its
internal documents to scrutiny by campaigners for fairer globalisation. But that is
what Unilever has done in a groundbreaking project with Oxfam…

It was the first time the company had invited a non-governmental organisation to
examine documents and interview local employees, and it was clearly a painful
experience …

But Unilever was not alone in taking a gamble. Oxfam… says it has gone further than
before in exploring the motivations of companies and the trade-offs they make. It has
been forced to revise some assumptions about big business…

Despite their disagreements and tortuous negotiations, Unilever and Oxfam say they
have found more common ground than they expected. It may be only a first step, but it is
a grown-up approach to understanding how globalisation affects the people at the
bottom.5

4 http://www.sustainablefoodlab.org/
5 Alison Maitland, “Globalisation’s Strange Bedfellows,” Financial Times, 8 December 2005.

Copyright © 2008 INSEAD-EABIS 11 11/2008-5522

 Exhibit 1
Key Findings of the Report

Impacts at the Macro-Economic Level

UI was embedded in the local economy and the majority of UI revenues remained in Indonesia,
although a net outflow of funds had a negative impact on Indonesia’s balance of payments.
19% of UI revenues was paid in tax to the Indonesian government.
UI maintained its operations through the financial crisis of 1997–98 and adapted its business model
accordingly (e.g. to ensure that products remained affordable).
Employment Impacts

• UI had a core workforce of 5,000 people; 60% were employees, 40% were contract workers, who
were increasing in number.
• Pay and benefits for permanent employees were above what was required by law, positioning UI
in the top quartile of Indonesian companies.
• The closer and more formally workers were linked with UI’s operations, the more they benefited
directly from the company.
• UI was less able to monitor the situation of contract workers or suppliers’ employees, potentially
resulting in gaps between corporate policy and practice.
The Value Chain from Supply through Distribution

• The creation of value, income, assets and employment was not necessarily an indicator of positive
impacts for people living in poverty; this depended on how the benefits of the value chain were
distributed.
• UI purchased 84% of goods and services for its business operations through a local supply chain
of 265 domestic companies (69 international companies provided 16%).
• UI built production capacity and other capabilities among its independent suppliers.
• Small farmers were among the poorest people in UI’s value chain and the least powerful. Their
indirect relationship with UI made it difficult for a purchasing company like UI to influence
producer conditions.
• The case study on Kecap Bango illustrated the potential and limitations of alternative supply
chains (UI buying black soybeans directly from over 1,000 small farmers at 10–15% price
premium and providing credit and technical assistance).
• More people were employed and more value generated on the distribution side of the value chain
than on the supply side.
• 1.8 million small stores (warungs) and street vendors sold UI products (especially small sachets)
informally in rural markets and poor urban areas.
• The closer to UI the distributors and retailers were in the chain, the more likely they were to be
able to negotiate better prices, gain skills and knowledge, enjoy higher pay and better employment
conditions, and thus improve their lives sustainably.
• 300,000 people (FTEs) made their livelihoods from UI’s value chain; more than half in UI’s
distribution and retail chain, with about one third in the supply chain. Thus, for every person
directly employed by UI, there were at least 60 (FTEs) indirectly employed in the value chain.

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• Total value generated along the UI value chain was US$ 633 million; UI earned US$ 212 million
with US$ 421 million distributed among other actors in the chain; thus UI operations accounted
for 34% of the total value generated, while taxes paid to government by UI represented 26%.
• Total value captured declined towards both ends of the value chain. The value captured by poorer
people working at either end, especially primary producers at the supply end, was much lower
than the value captured by those closer to the centre.
Low Income Consumers in the Marketplace

• 95% of Indonesians used at least one UI product, across all socio-economic groups.
• People on low incomes spent a larger portion of their income on FMCGs than those with higher
incomes.
• Many of UI’s products had become more available to people living in poverty, because of sachets.
While the unit cost was higher, because the costs of packaging and distribution were reflected in
the sale price, they were said to be more affordable.
• Oxfam was concerned about UI displacing smaller-scale local producers and questioned whether
companies like UI were creating rather than meeting needs for poor consumers and, over time,
turning luxuries into necessities through advertising and promotion; but it was impossible to
measure the overall benefit or loss for either poor consumers or small-scale local producers
resulting from UI’s increasing market share and success within the FMCG industry.
Oxfam’s Key Lessons

• We need to be more alert to the differences between multinational companies.

• We have gained a better understanding of the potential of distribution chains to generate
employment and income.
• Participation in value chains alone does not guarantee improvements in the living conditions of
poor people.
• It is difficult to define what constitutes ‘fair practice’ by companies (e.g. fair price).
Unilever’s Key Lessons

• The primary lesson for us is the insight that we gained into the extent of the widespread ‘job’
multiplier in UI’s total value chain.
• The spread of value-adding activity throughout the value chain creates a broad tax base, essential
for the development of the formal economy.
• FMCG value chains can offer poor people an opportunity to gain basic skills within a structured
learning environment and earn incremental, regular income.
• Alternative supply chains have their constraints and limitations.
• A persistent focus on the position of the individual living in poverty – whether man, woman, or
child – is essential for developing sustainable poverty-reduction strategies.

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 Exhibit 2
Distribution of UI’s Total Pre-Tax Profits, 1999–2003

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 Exhibit 3
UI’s International Foreign-Exchange, Trade and Human Resource Flows, 2003

Source: UI internal data

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 Exhibit 4
Estimated Employment Linked to UI’s Value Chain, 2003

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 Exhibit 5
Estimated Distribution of Value Generated along UI’s Value Chain, 2003

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