Introduction to the special issue on growing inclusive markets

Citation

McKague, K., Wheeler, D., Cash, C., Comeault, J. and Ray, E. (2011), "Introduction to the special issue on growing inclusive markets", Journal of Enterprising Communities: People and Places in the Global Economy, Vol. 5 No. 1. https://doi.org/10.1108/jec.2011.32905aaa.002

Introduction to the special issue on growing inclusive markets

Article Type: Guest editorial From: Journal of Enterprising Communities: People and Places in the Global Economy, Volume 5, Issue 1

One of the great challenges of the twenty-first century is to re-invent both the language and the practice of “international development”. In recent years, a crisis in confidence has emerged within the international development community among a number of activists, bilateral agencies and multilateral institutions that has led to a questioning of the traditional roles and effectiveness of the donor state, the recipient state, and the myriad international and local actors standing between development assistance and the poor (Easterly, 2008; Moyo and Ferguson, 2009). Although credited with some important accomplishments (Sachs, 2005), critics argue that if the existing aid model was effective, so much more should have been accomplished with the $2.3 trillion in aid since Second World War (Easterly, 2006). Indeed, a growing number of commentators are questioning whether development assistance (as opposed to humanitarian aid) may have done more harm than good (Moyo and Ferguson, 2009). Critics of the traditional aid approach argue that it has undermined local self-reliance and systematically under-emphasised the importance of entrepreneurship and private sector development in creating virtuous cycles of self-sustaining asset growth, income, and options for the poor (Hoffman et al., 2005).

This current period of reflection has allowed bilateral agencies, non-governmental organizations, and multilateral agencies like the United Nations Development Program (UNDP) to revisit their own approaches and to explore the potential for private sector activity to make a positive contribution to poverty reduction. Economic growth is not necessarily translated into poverty alleviation, and the factors that have allowed some countries to grow their economies and include the poor in their local, national, and international marketplaces – as producers, consumers, employees, or traders – may be political, cultural, social, economic, regulatory, technological, or ecological. In most cases, these factors – depending on their force and direction – are intertwined in a complex web of drivers and inhibitors often only barely understood in terms of their overall impact on private sector development in the developing world. The World Bank attempts to categorise the business investment climate in developing countries with its “doing business” rankings and reports; but even this research cannot capture the multiple complexities of why business flourishes in some nations whilst floundering in others (Independent Evaluation Group, 2008).

Into this uncertain and complex set of systems has been added a new impetus to discover how and under what conditions inclusive enterprises become established, grow, and replicate. Some have advocated a special role for multinational corporations (Prahalad, 2005). Others have espoused more of a grassroots, network-based model for entrepreneurship (Wheeler et al., 2005; Reficco and Márquez, 2009; Peredo and Chrisman, 2006). Many organizations and individuals have put forward their own labels and ideas for inclusive business including:

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  social business (Yunus, 2007);

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  creative capitalism (Gates, 2008);

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  making markets work for the poor (CARE, 2004);

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  sustainable local enterprise networks (Wheeler et al., 2005);

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  bottom (or base) of the pyramid approaches (Prahalad, 2005; Hart, 2005);

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  social entrepreneurship (Seelos and Mair, 2005);

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  business solutions for the global poor (Rangan et al., 2007);

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  subsistence marketplaces (Viswanathan and Rosa, 2007);

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  grassroots business initiatives (International Finance Corporation, 2005); and

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  full economic citizenship (Budinich, 2005).

Regardless of terminology and the diversity of approaches, there remains a pressing need to discover “what works and why” when enterprise activity that generates positive outcomes for low-income individuals emerges and is successful. There is also a need to learn from these observations in a way that transcends the anecdotal and starts to move the development community towards empirical and generalizable findings and lessons learned.

With a few notable exceptions, there is a dearth of rigorous cases studies and empirical analysis of poverty-reducing entrepreneurial activity in the developing world at the organizational level. Many organizations maintain databases of brief case descriptions, often provided by the enterprises themselves and often with a bias towards large companies that have the resources to generate or pay for these stories to be written (World Business Council for Sustainable Development, 2010). There are also a number of celebrated cases that have been written by western-based academics but which lack the authenticity of a story told through the lens of the business by an independent researcher based in the same geography (Prahalad, 2005). Finally, there are very few cases and rigorous empirical analyses of small business development (still less of informal business development), told from the perspective of unbiased academic researchers rather than, for example, the micro-finance institution supporting them.

In this context, a recent high-profile project at the UNDP known as the Growing Inclusive Markets (GIM) initiative has sought to address this issue. The GIM initiative is described by the UNDP (2008) as:

[…] a new multi-stakeholder initiative that strives to study, understand and share with the broader development and business communities ways in which the pursuits of profit and human progress can work to mutual advantage.

Although the UN is a large organization that has been involved with aid over the last 60 years, the GIM initiative has sought to do things somewhat differently: to gather empirically rigorous data led by a network of southern-based researchers on the role of business in development.

This special issue of the Journal of Enterprising Communities (JEC) documents some of the work that has emerged from the GIM initiative as it has led a movement to reinvent the assumptions and practice of international development.

The origins of the GIM initiative within the UNDP and its engagement of key stakeholders in the field of business and development are summarized in further detail in Kevin McKague’s article in this issue. McKague’s research takes the GIM initiative as a case study for examining the capabilities required for changing the way, the business, and development communities think about the role of enterprise activity in poverty alleviation. However, a shorter background summary, here will help to set the context for the articles featured in this special issue.

Building on the launch of the UN Global Compact and the Millennium Development Goals in 2000 (both of which envisioned an important role for the private sector in global development) the UNDP (2004) released a more targeted report, Unleashing Entrepreneurship: Making Business Work for the Poor, in 2004. These “calls to action” built momentum in the business and development field and the UNDP itself established the GIM initiative in 2006. In its early planning and stakeholder meetings for a followup report to Unleashing Entrepreneurship, the GIM initiative agreed that it would not hire a northern consultant or university research centre to research and develop the cases (which would have been seen as a common operating procedure for similar projects). Instead, the GIM initiative would trust the capabilities of researchers in Africa, Asia, Eastern Europe, and Latin America (sometimes collectively referred to as “Southern” researchers) to undertake academically rigorous and unbiased research. The Southern researchers would be central to the GIM project and making the arguments to its various constituents.

The Southern case writers played a significant role in bridging the gap that so often exists between the lofty policy ideals of multilateral institutions and practical realities on the ground. In 2008, the GIM report Creating Value for All: Strategies for Doing Business with the Poor, was launched, based on 50 case studies developed by 18 Southern researchers (all but three being from the country or region of the enterprise they studied). In a pre-launch event, a two-day international conference on GIM was held in Halifax in June 2008. Hosted by Dalhousie University in collaboration with UNDP, the International Development Research Centre, the International Council for Small Business, and the Canadian International Development Agency. The conference was attended by over 200 representatives from 40 countries drawing from academia, development organizations, government, and the private sector – including nine GIM Southern case writers. The conference also served to broaden the network of researchers and scholars working on issues of private sector development and poverty alleviation.

This special issue on GIM includes papers and case studies presented at the conference or otherwise part of the broader GIM initiative. Each of the seven papers are introduced below.

The research study by Kevin McKague, a researcher at York University in Canada, begins the special issue by taking the UNDP GIM initiative itself as a case of an established organization seeking to change some of the assumptions and views of both the development and business communities. Drawing on institutional theory and the literature on dynamic capabilities, the study explores the skills and capabilities that the GIM business unit employed to manage key tensions in creating legitimacy with stakeholders and in managing the process of working with partners.

Mexican researcher Loretta Serrano’s article then offers an in-depth case study of the challenges and successes of CEMEX’s Construmex remittance business. Following the company’s positive experience with its now famous Patrimonio Hoy initiative to help low-income customers build their own houses, CEMEX established Construmex to allow Mexican migrants to the USA to pay for the construction of houses for their families back in their hometowns. The case is rich in detail about how CEMEX overcame a number of obstacles as it sought to build the business and understand the particular needs and preferences of migrants and their families.

Courtenay Sprague from the University of the Witwatersrand in Johannesburg and Stu Woolman, from the University of Pretoria present a case study on VidaGás in Mozambique. VidaGás, a for-profit liquid petroleum gas distribution company, was founded as an inclusive social business by a local community foundation and a Seattle-based non-governmental organization (NGO) with the support of local governments and social investors. VidaGás uses its profits and distribution network from LPG sales to supply remote health clinics with energy, refrigerators, and lighting and ensures the integrity of the cold chain so that vaccines can be distributed to low-income rural areas.

In the first study of its kind since emerging from civil war, University of Liberia Professor Alfred K. Tarway-Twalla conducted a survey of small-scale, mostly informal, business owners in the Central Region of Liberia. His findings highlight the significant contribution that micro and small businesses make to the economy and to meeting the need of the owners and their families. Results also show that small-scale businesses may be a much better credit risk than they are perceived to be, and help provide direction for government and NGOs seeking to develop the private sector and reconstruct the economy of the country.

Tulus Tahi Hamonangan Tambunan, a researcher at the University of Trisakti in Jakarta, draws on national statistical data to explore the role of SMEs in the nation’s economy. Tambunan’s research pays particular attention to the constraints on women entrepreneurs in this Muslim-majority country as well as the challenges that Indonesian SMEs face in being innovative.

In her paper on the factors that are associated with adoption of agrochemicals by plantain farmers, University of Ghana researcher Irene S. Egyir used survey data to identify and assess the most important enabling conditions and barriers to using productivity-enhancing agricultural inputs. Contrary to expectation, farmer’s gender and association with farmer organizations or NGOs did not influence adoption positively or negatively. The implications suggest that women plantain farmers have been effectively included in initiatives to improve agricultural productivity, but that NGOs and government efforts could do more for other potentially marginalized groups such as young, illiterate, or very low income farmers.

Pedro P. Franco Concha, a researcher at the Universidad del Pacífico in Peru, offers a case study of the Peruvian microfinance bank Mibanco and illustrates some of the challenges it faced in developing savings and loan products for previously unbanked low-income clients. Mibanco has played a leading role in the development of innovative microfinance products and services in Peru which have had an important influence on the practices of other actors in the financial services sector.

In an independent review of case writers’ experiences with the GIM project after the completion of the first round of case studies, case writers described a strong sense of shared learning throughout the process. Although significant barriers were noted in working with their case companies and meeting aggressive timelines, case writers were unanimously pleased at the final quality of their work and the Creating Value for All report. Additionally, many Southern researchers developed a greater insight into how the private sector could contribute significantly to reaching the millennium development goals. The case authors felt that having access to usable case studies gave them valuable tools for future writing of academic papers and books, and for teaching and consulting on issues related to the private sector’s role in decreasing global poverty.

In the less than four years since it is launch, the GIM case writers and initiative have helped lead the creation of a new and growing network of primarily Southern-based researches with strong interests in rigorous approaches to the creation of knowledge about what works, lessons learned and the challenges and opportunities for enterprise activity to play a role in poverty alleviation. Many members of this network served as blind peer reviewers of the articles presented here and we thank them for their helpful comments and suggestions. We hope that this special issue of the JEC Communities is a further step in the exciting emergence of this new movement.

Kevin McKague, David Wheeler, Corrine Cash, Jane Comeault and Elise RayGuest Editors