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During recent years, commercial companies have played more and more significant roles in poverty alleviation efforts from working to achieve the UN Sustainable Development Goals globally to achieve the Precise Poverty Alleviation Targets in a Chinese context. Various international development organizations have grown to be more interested in these companies that play significant roles in poverty alleviation efforts. In July 2016, the Asian Development Bank (ADB) appointed Venture Avenue as one of the consults in China to undertake the first-of-its-kind landscaping study on how to leverage business to effectively alleviate poverty in China.

The Asian Development Bank has been actively promoting the concept of “inclusive business” over the past couple of years. According to the Asian Development Bank, first of all, an inclusive business needs to be a profitable commercial company. While the company is currently making healthy profits, the core business of the company will also increase income or create jobs for the bottom of the pyramid (BOP) population. The reason why inclusive businesses are able to have healthy profits and at the same time significantly benefit the BOP population is because inclusive businesses are often very innovative in their business models and social impact models. Social enterprises are often compared with inclusive businesses. Inclusive businesses emphasize on poverty alleviation for the BOP population. In contrast, social enterprises focus on using commercial means to resolve social problems and not necessarily only targeting the BOP population. In addition, from a corporate scale perspective, inclusive businesses are usually larger than social enterprises.

In China, rural population takes up more than half of the total population, and the vast rural population faces many challenges. Firstly, there is very severe land degradation problem in many rural areas. Years of inefficient farming and frequent usage of fertilizers have led to soil compaction and crop yield drop. Secondly, in most areas, small farms are using very backward and non-scalable production methods, causing low crop yields, low-risk tolerance and unstable income. Thirdly, a large number of rural youth and adults have moved to cities to work. Hence, there is a large shortage of labor in rural areas, which limits rural families’ income. Lastly, the infrastructure in many rural areas is very underdeveloped. The local population faces significant information asymmetry issue. Therefore, rural families often lack efficient sales channels to sell their produces and hence struggle to increase income. The above challenges in rural areas significantly limit local population’s income increase.

Various inclusive businesses are actively tackling the above challenges. These inclusive businesses have different emphasis in terms of the depth and breadth of their social impacts. For example, in the potato seed industry, two inclusive businesses both sell germ-free potato seeds to farmers to help them increase production yields and income. Additionally, both companies rent land from local farmers and hire farmers to work on their own land. Such practice not only creates additional jobs but also stabilizes farmers’ income. However, the two companies differ quite significantly in their social impact depth and breadth. Company A is able to sell potato seeds to more families to increase income for more families. In contrast, company B covers fewer families. However, company B not only sells potato seeds to farmers, but also builds a potato processing plant to purchase potatoes from farmers in order to manufacture processed potato products. Company B’s processing plant creates a stable source of demand for farmer’s potatoes. Less concerned about sales of their potatoes, farmers 8 Venture Avenue – empowering philanthropy are able to expand their potato production and hence enjoy further income increase. Therefore, company B’s social impacts in poverty alleviation are more in depth.

According to the above example, poverty alleviation efforts need to be multi-faceted instead of single dimensional. Only introducing advanced potato production mechanism to increase crop yield but not creating additional demand for farmers’ potato will create a new challenge for farmers to sell their potatoes. As a result, farmers are not willing to further expand production. Hence, the income increase will not be sustainable. Another typical example is in the area of rural e-commerce. Alibaba, the largest e-commerce company in China, is expanding its e-commerce business into rural areas. For rural areas that lack resources to develop traditional farming or manufacturing industries, Alibaba introduces the e-commerce business model to sell rural products into cities and therefore increase income for farmers. However, only introducing the needed e-commerce technical platforms and educating farmers on how to use them are not sufficient to promote rural e-commerce. Many rural areas still lack basic roads and logistics infrastructure. Even if the rural e-commerce business model is widely accepted, the lack of infrastructure will still limit how much sales could be achieved and hence the farmers’ income. Thus, basic infrastructure needs to be built out together with the e-commerce business model in order to achieve large-scale and sustainable poverty alleviation effects.

The ideal inclusive business tackles poverty from multiple angles with innovative technical solutions. For example, in the space of rural e-commerce, Alibaba adopted the “double cores+N services”strategy. One of the two cores is promoting the development of Taobao villages, rural areas where there are a large number of grassroots e-commerce businesses and scalable e-commerce eco system. And the second core is the rural Taobao program, building out rural e-commerce operation center to collect rural products to sell, bringing in outside products, and providing rural ecommerce capacity building services. And the N services for rural e-commerce include product sales platform, life services, production material services, logistics services, and capacity building services. By implementing the above strategy, Alibaba is able to create positive social impacts in multiple areas. Firstly, the most direct positive impact to low-income rural families is income increase. Via Alibaba’s e-commerce platform, rural households can buy high-quality products at much cheaper prices, hence saving costs. In addition, farmers can expand their sales channels through Alibaba’s rural e-commerce platform, and such expansion brings in additional income. Secondly, Alibaba’s strategy creates a new rural e-commerce ecosystem locally. Especially in areas lacking resources needed to develop traditional industries, the rise of rural e-commerce ecosystem can bring about long-term income increase and job creation. Lastly, the diverse inclusive business model creates urbanization effects indirectly. As the e-commerce industry develops locally, other local infrastructure, such as transportation and healthcare, develops consequently as well, benefiting a larger range of rural population that might not even participate in rural e-commerce locally.

Most inclusive businesses in China have mentioned that policy and financial support from the government are very critical to the future development of the company. In the agricultural sector, large investments for fixed assets are much needed, such as building large-scale storage space for forage grass, large-scale irrigation system and roads in rural areas etc. Such large investments are difficult to be undertaken entirely by private sector corporations. Therefore, the inclusive businesses that we interviewed would like to receive government co-investment or low-interest loans in order to implement large-scale development in agriculture and benefit more low-income farmers.