VA
Insights

Inclusive business (IB) is an innovative business initiative to benefit the poor and low-income population. On one hand, IB companies have viable business models which can secure a healthy level of profitability. On the other hand, they can provide jobs, increase income opportunities and services to the poor and low-income. With both economic value and social impact, IB has received growing attention in poverty alleviation operations.

As the consultant of Asian Development Bank (ADB), Venture Avenue goes deeper into the topic of IB in China. In 2016, we participated in the overall research of the topic, first of its kind in China. Afterwards, we have continuously conducted relevant projects in Shanxi, Heilongjiang and Inner Mongolia. On the basis of fully understanding the IB concept and broadly reaching out to various stakeholders, we would like to share some observations with you.

First of all, IB is a flexible tool to reduce poverty as well as a powerful weapon to secure the poverty alleviation results.

Considering the individual beneficiaries, the target of IB is not only limited to the poor, but also expanded to the Bottom of the Pyramid (the BOP). This group of people can be those just get rid of poverty through concentrated poverty reduction measures or those totter in the verge of poverty. But they share the same pattern as with low income, less savings, thus weak risk mitigation capability. They will easily fall into the poverty trap whenever natural disasters or life changes occur. IB companies build up a solid firewall between those people and poverty by providing affordable products, employment or income-increasing opportunities.

In addition, the solutions for BOP generated by IB are sustainable. It can help maintain the poverty alleviation results. According to the statistics, the BOP population consists of about 4.5 billion people worldwide with daily living expenses less than 8 dollars per capita. While this population can lead to huge market potential, productivity and talent pool, IB aims to involve them in its core value chain as its customers, employees, suppliers or distributors, etc. Since IB business models are profitable, scaling out can not only benefit more BOP population but also generate more economic values. Hence, such poverty alleviation solution is sustainable from both the motives of the enterprises and the social impact it can create.

Considering the macro-environment, IB can diversify the local economy. Economic development is the cornerstone of raising people’s income and the key of preventing new poverty cases and people slipping back to poverty. Taking the project of “4 coal-rich cities in Heilongjiang province” as an example, their local economy has undergone a long-term recession with high unemployment rate due to the dependence on the declining coal industry. However, the contribution of small and medium enterprises to the local economy is growing. They are scattered in the agriculture, manufacturing and trade industries, among which some IB prototypes have made their appearances. For example, some potential IB companies provide farmers with green planting technology and purchase the grown products with higher price thus to increase the farmers’ income. IB emphasizes on the innovative and scalable business model. Its steady development can inject new vitality into the local economy.

Secondly, although IB is more often seen in agricultural area, it also has great potential in the emerging and civil service industries.

In China, poverty alleviation aims to lift poor farmers out of poverty. In the process of agriculture production and sales, enterprises and farmers are naturally connected. Therefore, agricultural enterprises are the most common IB companies. For example, the companies can benefit the poor farmers by purchasing their products at guaranteed price, renting their land, employing vulnerable or disadvantaged people to engage in some simple work thus to increase their income. However, in addition to agriculture industry, we have also seen the potential of IB in the emerging and civil service industries.

Tourism industry is one of them. The difference of IB in tourism is that it engages BOP more broadly besides directly benefiting them in the value chain. In general, it is estimated that one job created in the tourism industry can bring five indirect job opportunities. Take a demo tourism project in a regional poverty county in Inner Mongolia as an example. The project is expected to create 1500 jobs to local farmers and herdsmen directly and bring about 12000 indirect jobs mainly in neighboring catering, accommodation industries, handicrafts and agricultural products sales etc. Although many poor areas are struggling with economic development, they do have beautiful sceneries and unique natural resources. Undoubtedly, developing IB in tourism industry can use their own strength. In fact, rural tourism has already become a poverty alleviation measure in China.

If IB in tourism industry leads to broader social impacts, IB in the education sector brings deeper changes where IB provides services to the BOP. Also in Inner Mongolia, we were lucky to visit a private vocational school as an IB prototype. The school’s business has achieved a healthy financial status as it’s mainly focused on academic education and supplemented by internal training of enterprises and courses sales. The school not only teaches the students from low-income families professional skills, but also finds their needs by paying regular visits to their home and encourages them to embrace the life with more confidence and courage. After graduation, besides gaining higher income with their skills, the students have learned something more important, which is a new perspective towards themselves and more positive attitudes towards life.

Thirdly, capacity building is an indispensable part in developing IB.

The development of IB in China is still in early stage. Many potential IB companies are constrained by their profitability and scales. In addition to funding, there is a huge demand of capacity building, including strategy planning, business management, sales and marketing, human resources development, etc. For example, product homogeneity and complicated and costly sales channels are the common challenges encountered by companies in agricultural industry. As a result, the less competitiveness and low sales margin will seriously hinder the further development of the companies. Although these companies have shown their potential for IB, they are facing obstacles in the sustainability and scalability of their business models. How to differentiate their positioning, highlight the feature of IB and build the brands are all urgent problems to be solved.

As an initiative to create both economic value and social impact, the value of IB is obvious, especially in the era with uneven development and widening gap between the rich and the poor. We hope to see good IB business models in China keep emerging, thus to benefit more low-income population.