For over a decade now, companies across the world have sought emerging markets for the prospect of high returns, as these markets often represent large, fast-growing regions with great potential for economic growth.
Unfortunately, despite abundant private investment, these countries still continue to face numerous social challenges, including inadequate healthcare, poor sanitation, and illiteracy. As an example, although India saw an 8 percent annual GDP growth in the last decade, 40 percent of India’s children under five are underweight and 85 percent of Indian farm households earn less that $1 a day.
In FSG’s recent paper on Shared Value in Emerging Markets, we looked at 30 case studies of companies across emerging markets, with a focus on the BRIC countries (Brazil, Russia, India, China) and South Africa. These companies are not only taking advantage of the economic growth in their country, but are doing so by intentionally solving social problems like those described above — i.e., these companies are successfully creating shared value.
This study led us to ask “So which emerging markets are most conducive for shared value efforts?”
Well, we found that there is no simplified answer to this question.
Each country is at a different stage of supporting shared value efforts. Brazil and India seem particularly ripe to encourage shared value creation—their governments are openly encouraging private sector participation in socio-economic development, their civil societies and academia are beginning to see corporations as partners in the shared value process, and their corporations are already creating profitable business models to solve social problems. We also found that ultimately, the decision to enter any country depends on a company’s corporate strategy, vision and relevance to the market, as well as regional opportunities and challenges presented within each country.
Our search also led us to find that irrespective of the country, successful shared value creators use certain common techniques to manage the realities presented by a new emerging market. To create shared value in an emerging market, these companies leverage their external environment in the following five ways:
1. Explore favourable government programmes that encourage private sector investment. They ask questions such as: What are the public policy priorities for this country? Does my company have the product or the service to respond to that priority? If yes, will the government be willing to support and scale my business? For instance, the Indian Government recognised great value in ICICI Lombard’s weather-based insurance product that protects Indian farmers from financial losses due to adverse weather conditions. As a result, today the Indian Government pays ICICI to expand these services to new customers.
2. If you do not know the local market, partner with someone who does.
Corporations that successfully create shared value begin their expansion process with humility, by asking questions such as: Do I (or my managers) really understand the needs of this market? Why has this market been ignored for so long? Will this new target market trust my company? Could I be unaware of some critical cultural and social aspects about this market? If yes, are there local civil society organisations with whom I can create an equal meaningful partnership to address their social mission and increase my market share at the same time? When Novo Nordisk’s market research confirmed that inaccurate diagnoses of type 2 diabetes was a major problem in China, the company partnered with the Chinese government to develop national standard treatment guidelines, as well as local physicians to train them on increasing people’s health-seeking behaviour. Thanks to this effort coupled with other targeted strategies to address the diagnoses and management of diabetes, Novo Nordisk has a 60 percent share in the Chinese insulin market.
3. Create partnerships with someone who shares your philosophy.
Most successful partnerships begin with an honest analysis that asks: Is my shared value business model intentional and do my objectives resonate with my partners? When the witch’s broom disease caused cocoa production in Southern Bahia to drop by almost 70 percent in a decade, Cargill found like-minded partners—other Brazilian cocoa producers as well as technical experts—to develop the Association of Cocoa Processors (APIC) who formed Project Phoenix. Under the project, the technical experts work closely with affected cocoa suppliers and provide technical assistance to ultimately improve their output.
4. Embrace all available external funding.
Shared value creators know that the initial pilot programmes might require some external seed money. These companies explore and ask questions such as: Are there any multilateral agencies that focus on this region? If yes, will they be willing to invest upfront in my company’s pilot project? For example, the UK’s Department of International Development played an instrumental role in the creation of M PESA, the mobile money transferring service in Kenya, by providing seed funding to Vodafone, through its subsidiary Safaricom, for early M PESA trials.
5. Leverage information and communication technology (ICT).
Companies ask questions such as: Is ICT well embedded in this country? If yes, how can I use it to bridge the infrastructure gaps in rural areas, or link the informal economy to established markets? How can I use ICT to lower my costs while delivering a service or a product in need? Again, M PESA is a classic example where a telecom company leveraged the fact that about 83 percent of the Kenyans above the age of 15 had access to mobile phones—and ultimately decided to provide a mobile money-transfer service.
Do you know of other successful shared value examples around the world? How did these successful companies leverage their external environments? Please share your story or example in the comments section below.
By Lakshmi Iyer, FSG Associate
(Lakshmi has experience implementing corporate social responsibility in India. She brings her social work and public policy perspective to help solve social problems for FSG’s diverse clients. She is currently based out of FSG’s Seattle office.)