③jongh_20130224 from csr to ib adb preso

7/29/2019 Jongh_20130224 From CSR to IB ADB Preso

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Red Mant ra

The Red Mantra Group, 2013.

From CSR to Inclusive Business?

Exploring Japans New Promise to Emerging Markets

Tokyo, Japan

February 28, 2013

Workshop on Investing in Inclusive Business in Developing Asia a

nd Latin America:New Opportunities for Japanese Companies


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The Japanese Experience: Testing theWaters

Preliminary Assessment of Japanese corporateengagement in Inclusive Business with caveats:

Not exhaustive, scope and time were limited

Confined to literature review

Findings and analysis are preliminary

Further analysis and a broader scope wouldsubstantiate findings

2From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets


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Overview

The Key Drivers for Japan to Pursue Inclusive Business

Key Opportunities for Japanese Companies inEmerging Markets

Examples of Current Japanese Inclusive Business-likeinvestments in Emerging Markets

The Way Forward: Accelerating Impact



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Key Drivers: New Markets for Growth

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By 2015, less than 50% of globaloutput will come from developedmarkets

BoP consists of 4.7 billion people,US$5 trillion PPP and will grow to 5.5billion people and US$70 trillion by2030 (MoP)

BoP Consumers (in $2-8/day)increasingly spend their income onfood (41%), other essentials (28% fuel,housing, education, medicine) and onconsumer goods (32%)

Can a business strategy focused

strictly on the developed world and

in the ToP sustain a companys

long-term growth?

Source: Blackrock 2012.

Source: Nomura Research Institute (NRI) 2012.

From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets


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Key Drivers: New Opportunities for Growth

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By 2015, less than 50% of global outputwill come from developed markets BoP consists of 4.7 billion people, US$5

trillion PPP and will grow to 5.5 billionpeople and US$70 trillion by 2030 (MoP)

BoP Consumers (in $2-8/day)increasingly spend their income on food(41%), other essentials (28% fuel,housing, education, medicine) and on

consumer goods (32%) Market opportunity today estimated at

US$ 2.9 trillion for food, $20 billion forwater, 51 billion for ICT, $158 billion forhealth, $179 billion for transportation,$332 billion for housing, $433 billion forenergy, and $932 for other services

Can a business strategy focusedstrictly on the developed world and inthe ToP sustain a companys long-term growth?


Source: J.P. Morgan 2010.

Source: PWC Analysis, 2012.


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According to Edelman MarketingResearch (2012), consumerpreferences have shifted dramaticallytoward a notion ofprofit with purpose

There has been a 33% increaseglobally in profit with purposeconsumer preferences, and in Japan,100% growth since 2010 in consumer

focus on the importance of socialpurpose during a purchasing decision

Rather than merely exercising theirlicense to operate, leading brandsand corporations must movebeyond operational imperatives andsocial add-ons to establish theirlicense to lead

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Key Drivers: Changes in ConsumerPreferences

Source: Edelman 2012.

Source: Edelman 2012.



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The Japanese Context: Key Drivers for IB

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-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2000 2002 2004 2006 2008 2010 2012 2014

Japan v. EM Growth 2000 - 2015

Japan EM

Source: Edelman Red Mantra Analysis, Japan METI, OECD, NRI, 2012).


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The Japanese IB Experience: Baby Steps

EMBEDDED BoP BUSINESS CULTURE ALIGNMENT: Long-term outlook, highquality, affordable products, innovative, value-based, gemba, kotozukuri

POLICY INCENTIVES: JICA, JETRO, METI, MOFA providing incentives to promoteinclusive business development in target emerging markets

KNOWLEDGE BASE: Systematized research from academia, government, researchinstitutes, and multiple IB focused events targeting private sector in last 24 months (i.e.IFC, UNDP, etc)

PRELIMINARY CORPORATE ENGAGEMENT: Market scoping pilots underway,primarily in Asian markets to test IB viability and potential

BUT QUESTIONS REMAIN

CSR v. INCLUSIVE BUSINESS: Is there a stronger focus on CSR, with a bias onenvironmental issues, particularly climate change vs. social considerations?

SCALE: Given the experimental nature of BoP investments to date, how can a view

toward scale and disruptive innovation be further embedded in concept design? EMERGING MARKET DIVERSIFICATION: What are the right incentives to more

rapidly accelerate Japanese diversification into frontier emerging markets? Is theresufficient understanding of the BoP market opportunities?

RATIONALE: What is the right rationale for Japanese IB development and how can itbe effectively integrated into Japanese corporate culture?



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IB thru Value Chain Localization

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How was it solved? Develop a market diversification strategy to target emerging markets with weak medical care and the lower income

segment in those countries in particular accompanied by proactive consumer education (Taiwan 1964)

Develop a BoP centered distribution network leveraging local Yakult Ladies for direct sales and consumer education

(focused on explaining the nutritional properties of the products)

What were the Outcomes? Local BoP employment and increased income (40,800 Yakult ladies outside Japan) and 14,500 employees outside

Japan PLUS nutritional value created among millions of people Yakult Ladies model trademark (adopted by Danone,

Unilever) Increased sales and rapid geographic expansion to more than 10 emerging markets+; 32 million people served every

day dairy products , 28 million bottles of Yakult consumed daily in 31 countries, revenues US$ 3.4 billion (30x what itwas 30 years ago)

What was the Opportunity? Leverage preventive medicine through intestinal tract health by introducing probiotic products and consumer education

at affordable prices (based on Shirotaism preventive medicine, affordable prices, intestinal tract health)

While demand for these products is universal, there is greater need in emerging markets due to the greater incidence ofmalnutrition and diarrea (2.5 billion cases each year, 1.5 million deaths among children under 5/year 2nd leading causeof death after pneumonia) Yakult made a conscious decision to focus on emerging markets

Lower income populations in these countries did not have access to affordable products that would improve intestinalhealth

What were the Lessons? Not all emerging market are the same intelligent adaptation of localization model critical for long term success

Investing in lower income segments provides long term growth strategy as consumer segments move upmarket overtimeconsumer can grow with you adapted this approach to developed markets as well (i.e. USA hispaniccommunities)

Localization of value chain model has been a founding principle that was key to company growth and marketpenetrationFrom CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets


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IB thru Value Chain Localization

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How was it solved? Develop a supplier training program with strict quality controls to improve productivity, post-harvest processing and quality of coffee;

address logistical challenges by leveraging existing network of local collectors and informal links, including access to cred it, in supplychain

Offer premium prices for coffee through incentive schemes for quality and quantity; provide seedlings and processing equipment forfree to increase farmer loyalty and increase productivity

What were the Outcomes? Toarco Jaya now exports 200-500 tons of coffee beans per year, benefitting 7,000 farmers + 900 temporary workers

Arabica has become a reliable source of income for farmers and Sulawesi has become well known for its coffee

Key Coffee No. 2 in Japan (16% market share) has grown to 74 branches across Japan; 1,300 staff; 4 roasting facilities;US$ 629 million in sales; BUT, 15 years for Toarco to be profitable (now 3% of global sales)

What was the Opportunity? Indonesia is the worlds 3rd largest exporter of coffee beans, 87% robusta which is used in the food processing industry but

historically the country received low value for their products due to variable quality; Indonesia exports limited volumes of higher value(2-3x) Arabica

After steep decline in coffee prices, there was a need to create value addition to hedge against the commoditization of coffee

Demand for specialty coffee was growing in Japan and there was an opportunity to introduce more specialty coffee amongstproducers however, logistics, access to finance, technology, quality control, increasing the number of coffee producers, wereprimary obstacles

Integrate more coffee farmers into the specialty coffee scheme to increase sales and market share leveraging their assets inIndonesia

What were the Lessons? Needed to overcome significant logistical obstacles to assure supply chain efficiency, minimize risks, and assure quality

Need to invest in the capacity of local farmers and create trusted networks with local stakeholders and build ontraditional informal links in the existing supply chain (i.e. collectors)

Strict quality control measures improved famer compliance with new standards, increased productivity, and farmerincome

From CSR to Inclusive Business? Exploring Japans New Promise to Emerging MarketsSource: UNDP, 2011.


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IB through Employment in EMs

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How was it solved? Develop a unique product line of high-end bags for upscale women in target developed markets (Japan and Taiwan

initially) wih USP focused on the originality of the design but also Made by BoP brand attributes

Ensure high labor standards, fair wages (pays double average wages), quality production, high-end product andleverage marketing to create a unique BoP centered brand identity

What were the Outcomes? Employed 60 employees from the BoP in Bangladesh; Sold over 100,000 bags to 70,000 customers in Japan

and Taiwan

Sales have surpassed US$ 3 million after year 5; expected to grow to US$12 million in 2014; prospects tocreate 140 new jobs in Bangladesh and Nepal and expand retail efforts to Singapore, Hong Kong and andChina

What was the Opportunity? Increasing niche for unique, high-end fashion products from emerging markets in target developed markets Highly skilled labor force in select emerging markets (in this case Bangladesh and Nepal) with poor conditions,

informality, low wages race to the bottom

Possibility to introduce a new fashion label that would source its materials and manufacture its high-endproduct line in emerging markets by employing the BoP and using jute, environmentally friendly fiber

What were the Lessons? Social enterprises can grow into successful inclusive businesses what they lack in scope and scale they make up

through product innovation and design MOTHERHOUSE is a good example

Inclusion can be commercialized as a luxury good provided quality, reliability, and transparency of production processare embedded within the companys value proposition



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Diverse Japanese Companies Exploring IB


Note: Not exhaustive listing


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Preliminary Considerations

DRIVEN BY CSR MANDATE OR PHILANTHROPY: Japanese companies havea strong track-record integrating CSR including ISO 26000, but represent astronger bias toward environmental (v. social) responsibility, and modestcommitments to corporate philanthropy unrelated to core business

CRITICAL MASS REQUIRED FOR ACCELERATED GROWTH: There is yet acore group of Japanese leading companies with demonstrable andinternationally publicized proof of concept and measurable results to catalyze

critical mass HOW TO INTEGRATE IB INTO JAPANESE BUSINESS ACUMEN: Considering

the innovation, quality, value and customer orientation of Japanese business,long-tern view and localization tendencies, it was surprising not to see more ofthese principles applied to the BoP segment where relevance is even greater

NASCENT JAPANESE IMPACT INVESTMENT: According to the SocialInvestment Forum in Japan, the sector is still nascent and has not yet

made the leap toward inclusive business type investing curtailing theability to spur innovation in the space

CLARITY ON CONCEPTS AND METRICS: There still appears to beconfusion between social enterprise, CSR, inclusive business and themetrics that are intended to accompany each of them (GRI, PULSE, etc).Important to reach consensus on terminology and adopt reportingstandards for IB to increase transparency and accountability



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Uncoordinated

Innovation

Marketplace

Building

Capturing the

value of the

marketplaceMaturity

The Way Forward: where we are?

Japanese Marketplace Building

Analysis and Categorization of Inclusive Business Models Leveraging CSR practice toward inclusive business Assessment of models, existing practice, knowledge development Debate on the concept shared value Defining the preconditions the inclusive business ecosystem (policies,

subsidies, incentives, capacities, capital) Increased and shared understanding of risks and needs Pilot investments and adaptive management

Global Practice 2013

Japanese Practice 2013



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Source: Adapted from PWC, 2012.

The Way Forward


Shift inMindset

Aspiration Trade-Offs: understand the different aspirations,influencers and trade-offs of the BoP and MoP Beyond Low Cost: Position products and services beyond cost,

pricing beyond functional considerations Platform Adaptation: Design product and services with a few

features, but tailor it to diversity

Ecosystem Alignment: Extract value by creating an ecosystem,

find and leverage ethical agents Progressive Scale: Think about scale from the start and

develop a modular, progressive roll-out (that will be adapted)

Smart Reach: Cluster marketing and distribution, create localfinancing mechanisms, enable where possible throughtechnology (online and off-line)

Trusted Endorsements: Build the brand with the aspiration inmind, but use word of mouth to drive awareness

Disruptive Innovation: Seek disruptive innovation and leapfrogsolutions tailored uniquely to segment needs focus onadaptation

Values and Metrics: Drive with broader corporate values,execute with targeted and customized metrics

InnovativeBusinessModels

New ValuePropositions

③jongh_20130224 from csr to ib adb preso

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