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Creating Shared Value in Asia
by Richard Welford
Asia may have been the fastest growing continent for the last two decades but it still faces huge challenges. It is still home to the majority of the world’s poor, it struggles to grow whilst protecting the environment and it has woefully inadequate health care provision. Economic growth has created a growing affluent middle class, but the benefits of that growth have not “trickled down” to the people at the base of the income pyramid.
There is little doubt that the wealth that has been created by massive inward investment and the rapid growth of Asian multinational businesses has done much to alleviate the social needs associated with poverty, inequality and vulnerability. Yet, the poorest of the poor often remain stuck and we have still not managed to deal with many challenges associated with health, education, human rights abuses and environmental degradation.
The private sector has made an effort to improve the quality of life of those most in need. We have seen aid projects sponsored by companies that have made a tremendous difference. But the philanthropic approach adopted by many companies has its limitations. Philanthropy has often created a culture of dependency and has repeatedly failed to tackle the root causes of social problems which are related to marginalized groups that have no access to the benefits of the market economy, possess poor skills sets and who are often deprived of basic human rights.
We have realized that strategic community investment can bring about much greater benefits. Over the last decade companies have tried to engage with and invest in communities in a much more strategic way that emphasizes tangible benefits for the community and also benefits for the company in terms of brand, reputation and the local social license to operate. We have seen many successful projects that have tackled poverty and inequality in innovative and meaningful ways. Social returns on initial investments have been impressive, but they have rarely resulted in a financial return for businesses.
Many companies are now extending this approach and examining ways in which they can leverage their own assets and expertise to create shared value. Such shared value creates positive change for communities and is commercially viable for companies. An approach that includes commercial activities in communities and along value chains that creates wealth, incomes and opportunities for poor and marginalized communities is now gaining momentum in Asia and elsewhere. The shared value approach has the potential to be sustainable because it responds to social needs through economically viable initiatives.
Creating a shared value project is about considering three components and how they inter-relate:
1. Identifying social needs in the communities where the business has interests or which form part of its value chain;
2. Examining the assets and the expertise that the company can bring to help address social needs through new or expanded markets and value chains; and,
3. Identifying the opportunities for the business to engage with profitable business opportunities that will address social needs.
It is the combination of these three elements that provides for a potentially successful shared value initiative. Expertise, assets, economic opportunities and social needs are brought together to form innovative and exciting solutions to engage with the world’s remaining challenges.
The shared value concept is very much about finding creative ways to add new value (and not about sharing value that has already been created, which is in essence, philanthropy)
There are many ways in which a business can contribute to social needs in a commercially viable way. We have already seen are a number of different approaches used successfully, which are all consistent with a shared value philosophy:
1. Creating innovative new products and services that can serve the social needs addressed while generating profits. This approach may offer affordable products and services available to poor, vulnerable, disenfranchised or marginalized groups. This may include, for example, the provision of healthcare, clean water or nutrition to poor people at an affordable price.
2. Engaging in local environmental initiatives in partnership with local communities that create efficiencies and cost savings for the business and improved environmental resources for communities. For example, managing local water resources and creating resilience at times of drought through good watershed management.
3. Making a company’s value chains more efficient and more productive which can simultaneously increase incomes for people along the value chain and create better quality and more secure goods and services for that company. This includes working with poor farmers on increasing their productivity and the quality of goods they are supplying into the value chain.
4. Identifying inclusive business opportunities along value chains that can create jobs and incomes for people with social needs and at the same time improve value chain linkages, create new distribution networks and increase sales. Creating a new distribution network involving marginalized women in selling affordable products into rural areas that previously had no access to those goods and services could be one such example.
5. Businesses can cooperate with others to create clusters of local economic activity that can stimulate local economic growth, new job opportunities, wealth creation and entrepreneurialism. Working locally on skills development and helping people start their own small businesses can have win-win benefits for both local communities and the businesses selling goods and services in that location
6. Advocacy and public policy engagement: cooperating with governments and agencies on creating the infrastructures to allow the poor get access to essential services. For a bank, for example, this might include working on creating a regulatory system whereby poor people can get access to affordable banking services and facilitate financial inclusion.
A shared value project can be based on one or more of these commercial approaches. The approach chosen will depend on the social needs addressed, the community that is being focused on and the expertise and assets of the company.
The shared value proposition has much going for it. The commercial nature of the engagement with poor communities may well be an easier sell to senior management than other approaches. If successful, shared value projects become self-sustaining because they live on in the marketplace. Moreover, if they are successful in one location they are easily replicable and scalable.
For companies that are interested in exploring opportunities to create shared value both for communities and for their own businesses there are a number of questions to ask:
1. What social needs exist in the communities where the business has an impact?
2. What assets, capabilities and expertise does the business have to begin to deal with those social needs?
3. Are there opportunities for the business to create commercially viable goods and services that can match business capabilities to a solution to overcoming social needs?
4. How can innovations along the value chain become a source of shared value?
5. How can the business cooperate with communities, other businesses, governments and strategic stakeholders, developing innovative partnerships to create shared value?
6. Are there any risks associated with a proposed shared value initiative and if so how could they be mitigated?
7. In the process of creating shared value might there be unintended negative externalities that will have to be addressed?
8. How might a company begin to measure shared value creation?
CSR Asia will have a Shared Value Workshop at the CSR Asia Summit, in Bangkok, 17-18 September. We will also be launching some new training courses for interested companies later this year and into 2014. We are also exploring the creation of a network of organizations and individuals interested in shared value in Asia and would be happy to hear from you if you are interested in being part of that initiative.
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