According to the World Inequality Lab, 10% of the population now own over 70% of the total wealth in China, Europe, and the United States, while 50% of the population own less than 2%. If we continue to ignore the warning signals, studies show that this gap will continue to increase.
“The issue of inequality raises a wide range of ethical questions – the main one being: is it acceptable to have such disparities? It is also a major source of economic and reputational risk, geopolitical tensions and it impacts the life of companies,” explains Professor Bénédicte Faivre-Tavignot, Executive Director of the HEC Paris Society & Organizations Center.
Extreme poverty and rising inequality in both developing and developed countries are not only unacceptable, they also contribute to an unstable environment and reduce the potential markets of companies throughout the world. Creating a more inclusive economy is therefore not just an ethical concern – it also makes strong business sense.
Companies realize that there are ethical and strategic reasons for conceiving and developing inclusive business models.
“Inclusive business is not just about providing low income communities with access to consumer products, it’s also about giving them access to work. It means looking at poor populations not only as consumers but also as producers and helping them to develop their production capacities,” says Professor Faivre-Tavignot.
That can mean providing job opportunities for disadvantaged communities. Local councils in France, for example, now ask contractors such as Veolia to include social impact and local job creation in their bids to run waste management and water treatment services.
Another key aspect of inclusive business is identifying how companies can make profitable and affordable products to serve poor communities in both the developed and the developing world.
“Working on access to goods and services for poorer people can be a major source of growth and a key driver of innovation for big companies,” explains Professor Faivre-Tavignot. “The majority of the population in emerging countries is either at the bottom or in the middle of the social pyramid. Developing innovative and affordable goods and services for these lower-income consumers can therefore open up great opportunities for companies.”
“Inclusive business is not only about developing new business models. The challenge is creating a new mindset and a company culture that integrates both economic performance and social impact.” Professor Bénédicte Faivre-Tavignot
DRIVING INNOVATION AND DISRUPTION
Creating an inclusive economy means developing infrastructure and production capacity in poor communities as well as providing them with goods and products.
For instance, companies cannot sell electrical infrastructure to a country that is unable to install and maintain it. This simple fact inspired Schneider Electric to embark on a social innovation program. It is not only developing affordable solar energy products for remote, rural areas in India, but also creating hundreds of training centers for electricians, with the target of training a million young people by 2025.
Interventions like this can help poorer areas grow and become more resilient, creating a stronger market in the long term. French company Bel, for example, is working with Vietnamese street vendors to sell the famous ‘Laughing cow’ cheese spread. The company has rapidly gained a sales force with expert knowledge of the local market and by 2025, it aims to recruit 80,000 vendors. In return, it meets some of the social needs of the workforce, such as insurance and banking services.
Creating inclusive products for low-income populations, or frugal innovation, can pay off by disrupting markets in developed countries too. “In many cases, multinationals from developed countries realize that to meet the needs of their customers or to reach new ones, they need to be disruptive, to come back to less sophisticated and less expensive products, to think out of the box, and to work in a more frugal way,” states Professor Faivre-Tavignot. “Frugal innovation is all about removing non-essential features and reducing complexity and production in order to provide low-income consumers with affordable goods and services that meet their specific needs.”
Having failed to sell its US designed electrocardiogram device, General Electric had a hit product in India when it created and launched a low cost, frugal, portable version. The Group recognized its potential at accident sites and in poorer rural clinics and began to sell the same product in the US.
Known as reverse innovation, this carries a risk for companies, which may naturally be reluctant to undermine their own premium products. “Cannibalization is a key issue for many organizations but an increasing number of companies would rather cannibalize themselves than be cannibalized by the competition. Exposing yourself to new needs therefore plays a critical role in defining innovative and frugal offerings and in redefining traditional business,” concludes Professor Faivre-Tavignot.
“Companies now understand that working with poor communities is a major source of disruptive innovation. It enables them to reinvent themselves and develop new business models.” Professor Bénédicte Faivre-Tavignot