Professional Documents
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Workshop on Investing in Inclusive Business in Developing Asia and Latin America: New Opportunities for Japanese Companies Red Mantra
The Red Mantra Group, 2013.
Peru
Brazil Bolivia
Paraguay
Chile
Argentina
Uruguay
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
Most of the people living in poverty in Brazil (78.2%) are based in cities 10% do not have access to clean drinking water; 25% lack sanitary facilities; 57% do not have access to financial services High sensitivity to social welfare and negocios inclusivos strengthened by Lula and Dilma public policy incentives (i.e. Fome Zero)
% of population with an income < $3,000 in PPP Average Y-o-Y Growth since 2000
70.7% (2005)
3.9%
Challenges
Labor Composition
High unemployment rate (ca 10%) Fast changing business conditions Considerable bureaucratic interference and regulation including high taxes Underinvestment in infrastructure
Population
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
Tenda Atacado, Ltda is a Brazilian wholesale retailer of foodstuffs and other goods. The OMJ loan has as an objective to increase access to finance for low-income microentrepreneurs in the food services sector, accompanied by a grant to design a financial literacy and business skills training program.
Win-Win Relationship: as micro-entrepreneurs increase their income, Tenda increases its revenue base
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
Mexico has one of the fastest growing middle classes in the world, but living side by side with widespread poverty Despite strong development indicators as an OECD country, three out of 4 people live on less than $3,000 per year Great needs in housing, financial services, healthcare, nutrition, and education
% of population with an income < $3,000 in PPP Average Y-o-Y Growth since 2000 69.6% (2005)
Challenges
Labor Composition
Population
Dependence on US markets can pose a risk during economic downturns; Insecurity in certain parts of Mexico and negative media (generally exaggerated) can at times affect investor confidence Due to NAFTA and related trade agreement, no other significant risks other than those linked to the business model itself
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
MEXICO: Cemex
CEMEX identified the need to offer integral and progressive housing solutions tailor-made to the realities of the low-income segment
Overview and Context
Mexico has a housing shortage of over 9 million units most of which affect the lowincome segment and have been exacerbated by the recent economic crisis (a shortage of 20% housing stock)
Historically, the lack of assets in the country, especially among the poor, created a vicious cycle of poverty, worsened by the inability to access credit and capitalize the next generation Majority of low-income families build their homes incrementally based on their income streams and what they can afford; this represents 40% of CEMEX Mexicos sales) Limited employment and income opportunities for low-income women in poor urban and rural settings
The inclusive business provided: Affordable low-cost housing options for low-income families in urban and peri-urban areas with collateral free financing drawing on social capital created in groups with incremental payment plan Technical assistance and masonry training program and free storage of materials; and negotiations by CEMEX on quality with distributors Local job creation; Creation of long term patrimonio for family in design
Target population are the 2 million families (10 million people) who account for 17.5-25 % of Mexicos urban population who earn $320/week lack of credit history and high Source: IDB rates keep them out of the market interest
Participants are able to build their homes or additions 3x faster and at 1/3 of the average cost to build a home in Mexico. Participants gain access to the credit markets. Since inception, PH has advanced more than USD135 million in microcredit, otherwise inaccessible to clients The market value of homes built through Patrimonio Hoy is approximately 20 percent higher as a result of the higher quality and functionality of the structures. The program creates jobs mainly among local masons and those trained as promoters; 95 percent of promoters are women, of which half had no previous working experience.
At least $25 million in new revenue for the company; annual revenues of US$ 500600 million forecast (40% of Mexicos cement market); .6% default rate
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
Objective: Develop a model for the delivery of pharmaceutical products and medicine to the BoP in Mexico Overview: FS developed a integrated model built on addressing the how to lower the transaction costs of the current public health care models generating significant savings for the BoP consumer and providing improved access to health care services and generic drugs Results: Up to 75% cheaper than competing providers Every month. 12 million Mexicans buy their medicines at Farmacias Similares Estimated savings of 35%; saving of population of $450 million 3.5 million Mexicans see a doctor at the clinics next door; at an average opportunity cost/hr of US$ 450 million Retail outlets in 2008 grew to 3,916; annual revenue US$800m; now more than US$ 1 billion
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
MEXICO: Pepsico
BOP farmers: access to financing to expand production of sunflower crops in Mexico + technical assistance
Pepsico: access to a stable supply of healthy oils for its snack products
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
Labor Composition
Labor Composition
Labor Composition
Population
Population
Population
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
PERU: Nestl
Nestl was facing slowing growth in a rapidly growing emerging market (Peru) inclusive business was seen as an opportunity for Nestle to expand growth and value -- inclusively
Overview and Context
Nestle is one of the worlds leading nutrition and consumer products companies and a leading multi-national in Peru (industry leader)
Despite Perus record growth rates, Nestle in Peru was facing slowing growth and saturation in its traditional market segments
The inclusive business provided: Access to a new market for Nestle products Improved distribution mechanisms tailor-made for the low income segment and supply chain efficiencies and lower costs Technical assistance and vocational training for low-income women and development of innovative micro-credit schemes Access to nutritional products for a previously excluded market segment
Peru has a significant nutritional deficiency among low-income women and children curbing maternal health and stunting growth and development of children
Low-income women in urban areas have very limited employment and income generation opportunities in Peru Nestles products and services were not designed, marketed, priced, nor packaged for the low-income segment
Objective: Develop a new marketing and distribution strategy to deliver nutritional products to Perus malnourished low-income segment based on new consumer needs while empowering local women to increase nutritional awareness and increase their incomes Overview: Nestle developed an innovative distribution model, developed focus groups to better understand low-income consumer needs, and reinvented its value chain to enter this marketplace Results: Increased low-income womens income by $1,300/year 10,000 Low-Income women to be engaged in 1st phase 1.3 million low-income families targeted in 4 years Low-Income segment now 1/3 of Nestles business in Peru
Source: SNV
From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets
Red Mantra
ECUADOR: Pronaca
Pronaca had twin challenges: increased import duties on commodities and maximization of their local supply chain from traditional suppliers supply chain diversification through IB model and Context Overview Supply Chain Localization
Pronaca is a fully integrated poultry, pork and fish processor with operations across Ecuador ($500m turn-over & industry leader) Pronaca was founded over 45 years ago and is one of Ecuadors largest employers (more than 6,500 employees) Corn is a substantial input to the companys production processes. Of the nearly 450,000 metric tons of corn Pronaca uses each year, approximately 50% is imported, 30% is from integrated suppliers and 20% is purchased on the open market. In 2007, Pronaca accepted a $20 million loan from the IFC and engaged in an important Inclusive Business pilot with SNV-LA 50% of corn production in Ecuador is in the hands of small-scale producers of less than 20 ha The cost of importing corn at market rates and rising transportation costs are reducing margins and decreasing competitiveness
The deal provided: Increased economic opportunity for Pronacas more than 60 independent suppliers Improved wastewater management practices and an environmental demonstration effect for others in the industry Technical assistance and long-term financing that is not readily available for a local company
Objective: Diversify and stabilize Pronacas supply chain by substituting open market purchases with supply from small rural farmers Overview: Pronaca, along with SNV and local partners, is providing small rural producers with credit, technical assistance and forward contracts to support the development of their capabilities Results: Increased productivity by 100% in 3 production cycles Increased income 350% from $0.80 to %3.71/day 75,000 low-income people to be impacted in first phase by 2010 Access to credit for small-holders and development of asset base Sharp reduction in open-market purchases for Pronaca Increased margins and profitability by Pronaca
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COLOMBIA: Promigas
Promigas identified and leveraged a hidden asset to create a new, profitable and impactful product offering for the BoP
Overview and Context
87% of customer base belongs to lowincome segment 90% of customers connected for the 1st time, high set-up fee Because the cost of a new home connection can be as much as three times monthly income for low-income families, at approximately $500/home, Promigas offers financing in order to accelerate market penetration...spread costs over 72 month period; After 30 years of financing new home connections, Promigas realized it had developed a hidden asset: knowledge of the payment habits of two million clients, 70% of whom had no other access to the finance system (and did not have credit histories with anyone else) Promigas already has $10-15 share of wallet Saturated revenue stream
The inclusive business provided: Marketing survey to establish consumer demand Value companys hidden assets Develop new business line providing credit schemes to low-income households Use payment history of existing client base to manage risk Use gas billing to lower transaction costs
Objective: Develop a new product (financial instrument) leveraging the companys hidden asset (in this case client credit history) in order to provide access to finance at lower risk premiums to Colombias rural and urban poor
Result
Overview: Promigas developed an innovative product, leveraging existing market knowledge and sales channels, required regulatory compliance in order to offer financial services as a gas company
Results: 500K borrowers benefited, 93% BoP, 31% home improvement $140m in loans outstanding, 1% more than 60 days past due Net revenues of $30m in 2010, net profits $7.8m, 1,000 new jobs Gas business serves 12 million people, 25% of pop, 87% BoP
Red Mantra
The Red Mantra Group, 2012. Page 12