Strategic CSR - Caring Capitalism

The article in the url below focuses on the growing wealth of successful Indian entrepreneurs (such as Vinod Khosla, “the billionaire venture capitalist and co-founder of Sun Microsystems”) and their willingness to invest it in philanthropic enterprises. One quote, in particular, from the article stood out:

“Mr. Khosla said his experience with microfinance had helped shape his views on the best way to tackle poverty. He has invested in commercial microfinance lenders and has donated to nonprofit ones, and he said that moneymaking versions had grown much faster and reached many more needy borrowers.”

The article and the philosophy behind the quote draws heavily on the Bottom-of-the-Pyramid (BOP) work of C.K. Prahalad (Issues: Profit, p271):

“By backing businesses that provide education loans or distribute solar panels in villages, he says, he wants to show that commercial entities can better help people in poverty than most nonprofit charitable organizations.”

While there is certainly an important role for social entrepreneurs in CSR (Issues: Social Entrepreneurship, p189), however, I think it is overly optimistic to think businesses should exist primarily to solve social problems.

Business is the solution to market problems/opportunities that carry social value as a consequence. Firms maximize social value by combining scarce and valuable resources to meet market needs, while considering the interests of a broad range of stakeholders and planning to maximize sustainable shareholder returns over the long term. Firms can often use their expertise to aid in meeting social goals, but this should not be their primary concern. Governments and nonprofits also play important social roles where gaps in the market occur.

The danger in using for-profit organizations primarily to solve social problems is that the profit motive can easily corrupt the founding purpose. This is becoming increasingly evident in the microfinance industry (see Strategic CSR – Microfinance, September 27, 2010, below) in which the article reports that Khosla has just profited “about $117 million” from SKS Microfinance’s recent IPO (see also, more recently, Strategic CSR – Microfinance, November 22, 2010).

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

In Capitalism, Sun's Co-Founder Sees a Pathway to Help the Poor

By VIKAS BAJAJ

1287 words

6 October 2010

The New York Times

Late Edition - Final

1

http://www.nytimes.com/2010/10/06/business/global/06khosla.html

From: David Chandler {msbbe096}
Sent: Monday, September 27, 2010 11:45 AM
Subject: Strategic CSR - Microfinance

The article in the url below suggests the dangers of success for the microfinance business model (Issues: Microfinance, p245):

“SKS Microfinance, India's largest lender to the poor, aims to raise about $350m this month by selling a 21.6 per cent stake in an initial public offering expected to spark a wave of listings by equity-strapped Indian microfinance companies.”

While the high rates of repayment and community structure present a real opportunity for microfinance institutions to be profitable (or at least self-sustaining), the profit-maximization pressures (higher interest rates and lower loan qualification standards) that accompany a public listing carry the potential to undermine the social-entrepreneurship microfinance goals (Issues: Social Entrepreneurship, p189):

“Muhammad Yunus, the Nobel Peace Prize-winning founder of Bangladesh's Grameen Bank - the world's most famous microlender - has criticised the commercialisation of the industry, saying profit-oriented microlenders are little different to the loan sharks they once set out to replace.”

The possibility for corruption quickly arises as the pursuit of profit spreads across the sub-units of the organization:

“SKS, which says it has 7m borrowers in 19 Indian States, also plans to boost its revenues through alliances with large companies to distribute their products - such as mobile phones and water purifiers - even as it provides rural consumers with the microloans needed to buy the items.”

The article in the second url below shows the success and rapid growth of microfinance organizations, such as SKS, in India:

“For the last three years, outstanding loan portfolios of Indian micro-finance institutions have grown by 65 per cent annually, according to the World Bank, with total loans of about $2.5bn to about 22.6m households.”

As well as reinforcing the threats:

“Typical loans average between $200 and $250, and carry rates of about 28 per cent - lower than money-lenders, albeit still expensive when compared with commercial bank rates.”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

SKS Microfinance plans to raise $350m in IPO

By James Fontanella-Khan in Mumbai and Amy Kazmin in New Delhi

418 words

21 July 2010

Financial Times

Asia Ed1

17

http://www.ft.com/cms/s/0/1879f6e4-9422-11df-a3fe-00144feab49a.html

New networks help ease debt dilemma

Kazmin, Amy

603 words

21 July 2010

Financial Times

Asia Ed1

17

http://presscuttings.ft.com/presscuttings/s/3/viewPdf/37730595

Strategic CSR - Cadbury's

The article in the url below demonstrates how Cadbury’s is trying to expand its hold on the confectionary market in India into the consumer base at the bottom of the pyramid:

“The candy maker's latest product for the low end of the Indian market is Cadbury Dairy Milk Shots. The pea-sized chocolate balls, which were introduced this year, are sold for just two rupees, or about four U.S. cents, for a packet of two, which weighs five grams -- a fraction of an ounce. They have a sugar shell to protect them from the heat.”

The potential for growth is significant:

“The British candy maker has been in India for more than 60 years and dominates the chocolate market. Still, it says, less than half of India's 1.1 billion people have ever tasted chocolate. Traditional milk-based sweets, or mithai, still dominate the industry here, where they are given and eaten at festivals.”

Although Prahalad’s bottom-of-the-pyramid argument has been seized by CSR advocates as a potential hope for solving some of the developing world’s social problems (and the article dutifully notes similar product downsizing by consumer products firms such as Procter & Gamble and Unilever), given some of the more fundamental problems that face the poorer sections of India’s society, it is hard to see how bringing chocolate to the masses constitutes social progress. The principle, however, is important—the greater the opportunities the private sector sees to cater to the needs of market segments in developing economies, the greater the chance for the progress that the private sector has brought elsewhere (the importance of chocolate notwithstanding J).

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility

© Sage Publications, 2006

http://www.sagepub.com/Werther/

Cadbury Redefines Cheap Luxury --- Marketing to India's Poor, Candy Maker Sells Small Bites for Pennies

By Sonya Misquitta

826 words

8 June 2009

The Wall Street Journal

B4

http://bw.dowjones.com/article/SB124440401582092071.html

Strategic CSR - Tata

The article in the url below outlines a new plan for the Tata conglomerate. Bolstered by its success with the Tata Nano (“the world’s cheapest car”), Tata wants to expand its access to the market at the bottom of the pyramid (Issues: Profit, p200) by building and selling homes in the poorest areas of India:

“Tata Housing Development … has begun its first ultra low-cost development selling homes ranging from 283 sq ft to 465 sq ft priced at between Rs390,000 ($8,200) and Rs670,000.”

While the size of the market is debatable, the size of the demand is not in doubt:

“Tata Housing calculates India needs at least 24m homes if it is to house all its people living in slums. One of the worst affected cities is Mumbai, where by some estimates about 60 per cent of its population lives in shanties.”

The firm calculates that, although living in the poorest areas, many consumers have access to sufficient funds to purchase affordable homes:

“However, many slum-dwellers are not destitute by local measures. Tata estimates 180m Indian households live on between Rs90,000 and Rs200,000 a year. Housing at Tata's new low-cost development - Shubh Griha, or "Auspicious Homes" - in Boisar, about 60km from Mumbai, comes with electrical, toilet and plumbing fittings built in.”

To make the communities even more appealing, Tata Housing also plans to build “schools, a hospital, shops and a recreation centre” nearby.

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility

© Sage Publications, 2006

http://www.sagepub.com/Werther/

Tata laying foundations to house India's millions of slum dwellers

By Joe Leahy and Varun Sood in Mumbai

451 words

29 May 2009

Financial Times

USA Ed1

01

http://www.ft.com/cms/s/0/a5bf7b44-4bb4-11de-b827-00144feabdc0.html

Strategic CSR - Google

The articles in the two urls below announce Google’s support for a project to bring internet connections to the half of the world’s population that currently does not have access:

“The search engine has joined forces with John Malone, the cable television magnate, and HSBC to set up O3b Networks, named after the "other 3bn" people for whom fast fibre internet access networks are not likely to be commercially viable.”

Rather than focus on connecting homes to the telecommunications network in each country, the coalition of firms is working to try and establish the network itself:

“They will today announce an order for 16 low-earth orbit satellites from Thales Alenia Space, the French aerospace group, as the first stage in a $750m (£426m) project to connect mobile masts in a swath of countries within five degrees of the equator to fast broadband networks.”

Once in place, the infrastructure will reduce the cost of internet provision, while also improving quality and reliability.

Have a good weekend.
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006

Google backs space-age project to connect 3bn to net via satellite
By Andrew Edgecliffe-Johnson in New York
426 words
9 September 2008
Financial Times
London Ed1
01
http://www.ft.com/cms/s/0/ee2f738c-7dd0-11dd-bdbd-000077b07658.html
Archived at:
http://www.iterasi.net/openviewer.aspx?sqrlitid=sy59pbbkokig8rjyb5l8nq

Space offers high-speed Net access to Africa
Edgecliffe-Johnson, Andrew
717 words
9 September 2008
Financial Times
Europe Ed1
23
http://www.ft.com/cms/s/0/591d172a-7de1-11dd-bdbd-000077b07658.html
Archived at:
http://www.iterasi.net/openviewer.aspx?sqrlitid=d9seealcfeie3tk-ycplmw

Strategic CSR - Mobile phones

The article in the url below outlines the steps mobile phone companies are taking to develop products that appeal to consumers at the bottom-of-the-pyramid (Issues: Profit, p200):

“A study by Gartner, a technology research group, of related security issues estimated mobile phone payment systems could be available to 15 per cent of the world's 3bn unbanked people by the end of this year.”

The availability of mobile phones and the level of current technology make banking and financial services particularly amenable to the needs of BOP consumers. Often, consumers in this target market do not have bank accounts, but need to take out a loan, pay bills, or send money to friends and relatives, all of which can be done using their mobile phone:

“Mobile technology has the potential to offer cheap no-frills banking, at low risk, because transactions are monitored in real-time, on widely-used, high-quality infrastructure.”

This article came from a supplement in the FT on Sustainable Banking. Other articles in the same supplement can be found at:

http://www.ft.com/reports/sustainablebanking2008

Have a good weekend.
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

FT REPORT - SUSTAINABLE BANKING 2008
Mobile phone operators revolutionise cash transfers
Tieman, Ross
739 words
3 June 2008
Financial Times
Surveys SBA1
04
http://us.ft.com/ftgateway/superpage.ft?news_id=fto060220081321472830

Strategic CSR - BOP

The article in the url below from BusinessWeek presents an enlightened, progressive approach to combating poverty at the Bottom of the Pyramid (BOP) that was developed by Paul Polak, founder of the nonprofit organization International Development Enterprises (IDE) (Issues: Profit, p200):

“Founded by Polak in 1981, IDE is based on the belief that there are simple solutions to the seemingly complex problem of poverty, and that those solutions are based on enabling the entrepreneurial spirit of the poor.”

Given the fact that “800 million of the world's poorest earn their living from one-acre farms”:

“IDE's focused mission has been to develop radically low-cost tools that will help subsistence farmers become small-scale commercial farmers. … IDE only develops products that will pay for themselves in the first year through the buyer's increased productivity.”

As well as design innovative products, IDE also invests in others who are pursuing equally innovative solutions:

“When IDE began promoting treadle pumps in Bangladesh in the 1980s, for instance, the organization recruited four manufacturers to produce the pumps by offering them marketing assistance.”

Polak reports that his focus on market solutions for poverty instead of charitable handouts, rather than being welcomed, has run into resistance from entrenched interests within the international development community. Polak believes, however, that:

“The only sustainable, scalable approach to fighting poverty is to give poor people a way of increasing their income; to treat the poor as potential entrepreneurs, rather than as recipients of charity.”

As quotes from Polak in the article illustrate, there are often unforeseen consequences of well-intentioned charitable interventions that often undermine the broader objectives that justified the initial action. And, ultimately:

“"We have invested a staggering $568 billion in development aid in Africa over the past 42 years, and have very little to show for it," says a World Bank economist quoted in Out of Poverty.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Business Week Online
Insider Newsletter
February 28, 2008
********************
Giving the Poor a Means to Work
Paul Polak and his company, International Development Enterprises, have helped 17 million people lift themselves out of poverty
by Jessie Scanlon
http://newsletters.businessweek.com/c.asp?695386&c55a2ee820194f0f&69

Strategic CSR - P&G

The article in the url link below presents a case study concerning a multi-national’s attempts to move into a new market. In particular, it describes P&G’s efforts to work in developing economies to build a business model to appeal to “Bottom of the Pyramid” consumers (Issues: Profit, p200):

“[P&G] has a goal of increasing total sales by 5% to 7% annually over the next three years. As part of that mission, it is looking to tap roughly one billion additional consumers -- most of them very poor women who live in developing countries.”

The article describes in detail the different challenges a firm like P&G faces and the extent to which it needs to adapt to the new cultural and economic environment—from single portion packaging, to small retail outlets, to different shopping habits (daily, rather than weekly, for example):

“Reaching these customers isn't easy. In emerging markets, P&G estimates that 80% of people buy their wares from mom-and-pop stores no bigger than a closet. … Rather than stock up on full-size goods, which cost more per item, they buy small portions of soap, laundry detergent, and single diapers as they need them -- even though the smaller sizes are usually sold at a premium. … P&G calls such locally owned bodegas, stalls and kiosks "high-frequency stores," because of the multiple times shoppers visit them during a single day or week.”

The article is clear that it is the business model that is driving P&G’s expansion in Mexico, although it is through similar efforts that economic and social progress is also made:

“For P&G the stakes are high. Sales of P&G products in developing markets currently total $20 billion, up from $8 billion five years ago. In recent years, emerging markets have contributed about 40% of the company's "organic" sales growth, which excludes gains from acquisitions. The company still lags other consumer-product rivals. Last year P&G derived 26% of sales in these regions -- a far cry from Unilever and Colgate-Palmolive Co., which manage to snag about 40% of their business in developing markets.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Emerging Ambitions -- P&G's Global Target: Shelves of Tiny Stores --- It Woos Poor Women Buying Single Portions; Mexico's 'Hot Zones'
By Ellen Byron
2229 words
16 July 2007
The Wall Street Journal
A1
http://online.wsj.com/article/SB118454911342967244.html

A freely accessible version of this article can be found at:
http://marketdrivengrowth.blogspot.com/2007/08/p-global-target-shelves-of-tiny-stores.html

Strategic CSR - Unilever

The article in the url link below presents an interesting tension between for-profit and non-profit priorities in the developing world (Issues: Philanthropy, p196; Profit, p200):

“In their work to promote handwashing, partners say Unilever tends to be in a hurry to get things done, while some donors and aid workers get entangled in their own red tape. … One of toughest challenges faced by Unilever’s marketing experts has been to persuade partners that radio ads and roadshows need to be run at particular times of the year to be effective, and cannot always wait for consensus-building.”

Unilever’s involvement in the campaign to increase hand washing in Uganda hangs on the firm being able to get its branded soap (“Lifebuoy”) associated in the public’s mind with hand washing. Unicef’s goal, however, is to just get people to wash their hands, but they benefit from the marketing and distribution expertise that accompanies private sector involvement. It is easy to see how the two organization’s goals are compatible, while being awkward at the same time:

“Donors would never pay for a branded campaign that told the suspicious residents of Muko to “wash your hands with Lifebuoy”, Ms Sidibe says, and some are not comfortable with a multinational brand on the same list as campaign supporters. “But they are realising it’s the only way to keep us interested. It’s important the brand gets recognised otherwise it’s impossible to justify our involvement.””

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther/

Unilever looks to clean up in Africa
The consumer goods group is piggybacking on public health networks to promote its antibacterial Lifebuoy soap.
By BARNEY JOPSON
1064 words
15 November 2007
Financial Times
London Ed1
Page 20
http://www.ft.com/cms/s/0/ed8386ce-92cd-11dc-b9e6-0000779fd2ac.html