IB Examples from Asia and Latin America

ADB-IDB Inclusive Business Workshop

1:45 p.m. 3:45 p.m., Tokyo, Feb-Mar 2013

In this session we will be focusing on IB opportunities in specific countries in Asia and Latin America
ASIA LATIN AMERICA

PHILIPPINES INDONESIA VIETNAM INDIA PAKISTAN THE MEKONG SRI LANKA BANGLADESH

TBD

Source: Dalberg research [TBD]

1 Philippines

Market overview: Philippines

Population
25% 75%

BOP OVERVIEW

96.5m

Spending

62%

38%

$180.0B2

Non-BoP Current IB engagement (n=70)

BoP Engagement model (n=70)

10% 11% Consumer

INCLUSIVE BUSINESS PROFILE

26% 49% 14%

11%

Agriculture Financial services Manufacturing Others

43%

Supplier Distributor Employee

36%

Consumption-driven economy with household consumption contributing 24% to GDP and consumer confidence is rising

IMPORTANT
MACROECONOMIC

Large pool of young labor that is literate, the majority of whom speak English The majority of the poor work in the agriculture and informal industries sectors Large network of 700K SMEs and NGOs and 20K SEs; this existing platform can be leveraged/extended into IB models Poor business climate Corruption and red-tape leading to severe regulatory bottlenecks

PHILIPPINES VITAL STATISTICS1 GDP per capita (PPP) USD 4,300 (2012 est.)

TRENDS

GDP composition Agriculture 12.4% Industry 31.3%% Services 56.4% Labor composition Agriculture 33% Industry 15% Services 52%

CHALLENGES

Inflexible and outdated labor code that serves to limit labor productivity Lack of government initiatives Poor infrastructure, leading to high costs (logistics, transportation, etc.)

1.CIA World Fact book 2.Uses BoP/Non-BoP per capita spending ratios averaged for East Asia and Pacific region for Thailand, Cambodia, Indonesia Source: ADB Market scoping studies; Dalberg research

NOT EXHAUSTIVE

Deep dive into selected important IB sectors in the Philippines

IMPORTANT SECTORS
Agriculture/Agribusiness

MODE OF ENGAGEMENT
Supplier

RATIONALE
High inclusive growth potential - source of livelihood and employment for 12 million rural workers Supply of raw materials, particularly coconut, fish, rice and seaweed Represents the largest share of current IBs in the Philippines

Design-based manufacturing

Employee

The manufacturing sector has been able to ward off competition from China since Filipinos have customized western products integrating oriental elements to suit the local consumer base

Business Process Outsourcing

Employee

Existing employment in this sector is more than 1 million Largely English-speaking labor pool Well educated/qualified professionals in medicine, animation, programming and engineering

Tourism

Employee

Sector is currently underdeveloped, but represents scope to grow (neighboring countries like Vietnam are more advanced) Very high potential for employment generation of BoP populations Scope for significant positive spillover effects in linked sectors such as agribusiness

Source: ADB market scoping study; Dalberg research and analysis

ENCASH uses TECHNOLOGY and PARTNERSHIPS with rural banks to provide ATM services to rural CONSUMERS
WHAT WAS THE PROBLEM? Provision of ATM services to rural populations in Philippines was deemed unviable and expensive by commercial banks As a result, rural populations faced severe challenges to get access to cash HOW WAS IT SOLVED? Using partnerships with rural banks, cooperatives and MFIs and by innovatively using technology, ENCASH installs ATMs in remote, rural areas To keep costs down, ENCASH also outsources ATM processes

WHAT WERE THE OUTCOMES? With 337 ATMs installed and more than 140 partnerships as of 2012, ENCASH has the largest rural and cooperative banking network in Philippines Availability of cash in the villages has led to the emergence of micro-enterprises near the ATM as people spend the money in their own village

WHAT WAS LEARNT? Inclusive businesses can expedite and create greater impact by incorporating technology in business models Rural populations are fast at adopting new technologies that offer a strong value proposition
Source: ADB market scoping studies; Dalberg Research Photo courtesy www.images.google.com
6

Smart communications used innovative products to make wireless services affordable for low income CONSUMERS
WHAT WAS THE PROBLEM? The low income Filipino population had little access to cellular phone services and could not afford wireless products and services Credit worthiness was also an issue since applicants for the service had to provide extensive documentation to establish their financial status HOW WAS IT SOLVED? Smart introduced the Smart BillCrusher where no documentation such as credit cards, proof of employment, etc. was necessary The company introduced low-denomination top up pre-paid cards sold by micro-entrepreneurs Capitalizing on the unique Filipino culture of sharing, Smart introduced a sharing service that allowed customers to share airtime with family and friends WHAT WERE THE OUTCOMES? Smart Communications grew from ~190,000 subscribers in 1999 to 24m in 2006 Consumers benefited from several services such as: mobile banking, wallet to wallet transfers, low cost remittances, ATM withdrawals, etc. WHAT WAS LEARNT? Local relevance & social dynamics can be crucial to designing products that can be easily adopted Smaller unit sizes tailored to suit low income cash flows, can help mitigate issues around extensive proof of credit worthiness
Source: Growing Inclusive markets UNDP case studies; ADB Market Scoping studies; Dalberg Research Photo courtesy www.images.google.com
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Overview of additional inclusive businesses in the Philippines

SECTOR COMPANY ENGAGEMENT MODEL

Agriculture /Food

Dizon Farms
Coffee for Peace

Supplier
Supplier

OVERVIEW Fruit and vegetable wholesale chain that procures from 1,000 small farmers at fair prices and extends training in farming and processing Sources coffee beans at fair prices from tribal areas in Philippines, removing middlemen and improving incomes Fast food retail company that sources inputs from small scale farmers, through long term contracts and technical assistance for farmers Purchases coffee from low income farmers, assisting them in increasing yield and quality, while also working with the Govt Targets tricycle drivers and market vendors as customers for its micro-savings program, while educating people of benefits Reduce costs of remittances for the BoP and offer additional services

Jollibee Food Corporation Nestle

Supplier

Supplier

Financial services

World Partners Bank

Consumers

Western Union
Manufacturing All Home Design Work Asia Energy Health IT Power Source group Generika Inc. Smart Communications Globe Suppliers Employees Consumers Consumers Consumers Consumers

Incorporates sourcing from basket weavers and small scale consolidators Labour cooperative that provides outsourced manpower services for labour intensive services, ensuring that labourers are paid minimum wages and get adequate social benefits Combine renewable and conventional generation to provide electricity to off-grid households through mini-grids. Power source also supports entrepreneurs in setting up small businesses Has franchisees all over Philippines and conducts educational and marketing campaigns , by encouraging a shift to use of generics in order to reduce costs of health for the BoP Offer mobile communication to the BoP, with customized facilities such as prepaid loading, and other services such as microfinance banking facilities Offer mobile communication to the BoP, with customized facilities such as prepaid loading. BPI Globe BangKo is the first mobile phone-based microfinance savings bank Deploys ATMs in rural areas not deemed viable by commercial banks, charging a withdrawal fee between $0.5 2, reducing travel to far off towns
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Encash

Consumers

Source: ADB Market Scoping studies; Dalberg research

2 Indonesia

Market overview: Indonesia

Population
11% 89%

BOP OVERVIEW

244.8m

Spending

73%

27%

$551.6B

Non-BoP Current IB engagement (n=105)

BoP Engagement model (n=67)

37% 26%
Consumer

INCLUSIVE BUSINESS PROFILE

22% 50% 14%

13%

Agriculture

Consumer goods/retail
Manufacturing Others

Supplier
Distributor Employee

13%

24%

IMPORTANT
MACROECONOMIC

INDONESIA VITAL STATISTICS1 GDP per capita (PPP) USD 5,000 (2012 est.)

TRENDS

Recent economic growth (6.5% real GDP growth in 2011) is among the fastest in the developing world, and is driven significantly by rising consumer demand (63% of GDP in 2011) A young and large population with significant scope for inclusion as employees, given some of the lowest real wage rates in the region Huge natural resource reserves that can be leveraged for supplier IB models Almost 60% of the labor is employed in two sectors Agriculture/Fisheries (40%) and Tourism (20%) The rule of law is weak; corruption is high particularly in the infrastructure and natural resources sector Pace of private sector reforms remains low, restricted by a change-averse and bureaucratic legislative branch Insufficient infrastructure including inadequate roads and transportation, poor electricity access, etc. all constrain productivity Education levels and labor productivity remains low relative to regional estimates
10

GDP composition Agriculture 14.3% Industry 46.9% Services 38.8% Labor composition Agriculture 38.3% Industry 12.8% Services 48.9%

CHALLENGES

1.CIA World Fact book Source: ADB Market scoping studies; Dalberg research

NOT EXHAUSTIVE

Deep dive into selected IB opportunities in Indonesia

KEY SECTORS MODE OF ENGAGEMENT RATIONALE

Agriculture/Forestry/ Fishery

Supplier

Largest employer, particularly of BoP populations, accounting for 40% of the labor force Track record of engagement with inclusive business models in which MNCs incorporate smallholder farmers as suppliers (e.g. Nestle, Unilever)

Energy

Consumer

Large demand and need (both for grid electricity and for decentralized appliances) as electrification rates remain low, and a third of the population remains without access Potential for investment in infrastructure is high given ageing power plants that need to be replaced in the short term and government incentive sin the sector

Tourism

Employee

More than 20% of Indonesias labor force is employed in the tourism industry, most of them informally Sector recorded 11% growth in 2012 (Q1), year-on-year

11

Source: ADB market scoping study; Dalberg research and analysis

P.T. Toarco Jaya is a subsidiary of a large Japanese coffee company and sells a brand of speciality coffee while engaging the BoP as SUPPLIERS
WHAT WAS THE PROBLEM? Coffee trees are grown in mountainous regions, where transport is difficult Coffee farmers are not aware of latest information on production methods and quality control mechanisms HOW WAS IT SOLVED? Toarco established purchasing stations close to farmers and offered premium prices for quality coffee Toarco engaged local collectors to play multiple roles including providing credit to farmers, buying coffee beans, transporting them to Toarco, and ensuring quality control for coffee Toarco also organized seminars for training farmers in cultivation and post harvest processing WHAT WERE THE OUTCOMES? P.T. Toarco Jaya now exports 200-500 tons of coffee beans per year It procures from 7,000 small-scale farmers , providing 53 full time and 900 temporary jobs at its Rainforest Alliance certified plantation WHAT WAS LEARNT? Incentives for quality produce can help increase adoption of training techniques provided to improved productivity Leveraging local capability to navigate difficult terrain can ensure greater reach and bring down transport costs
Source: Growing Inclusive Markets country case studies; Dalberg Research Photo courtesy www.images.google.com
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RUMA is an IT and services firm that connects large companies to low income CONSUMERS though a network of BoP DISTRIBUTORS
WHAT WAS THE PROBLEM? The BoP population in Indonesia had very limited access to markets for consumer goods and services such as mobile phone minutes Companies that wish to serve low-income segments find it very difficult to obtain any robust consumer information HOW WAS IT SOLVED? RUMA uses a network of micro-entrepreneurs to sell products such as prepaid mobile minutes, and prepaid vouchers for utility bills using mobile technology RUMA provides market intelligence to consumer goods companies like Nestle and Danone through their mobile phone product survey WHAT WERE THE OUTCOMES? RUMA has trained and incorporated over 10,000 agents, expanding their customer base to over 2 million consumers Significant job creation in the region for women (85% of Ruma entrepreneurs are women) and BoP populations WHAT WAS LEARNT? Matching payment methods to the requirements of poor people will increase collections BoP customers prefer prepaid or pay-per-use models that allow them to pay in smaller increments Collecting and providing market information on the BoP to companies is often as valuable and impactful as directly providing products and services
Source: ADB market scoping studies; Dalberg Research Photo courtesy www.images.google.com
13

Overview of additional inclusive businesses in Indonesia

SECTOR Agriculture /Food COMPANY Green Gold Global ENGAGEMENT MODEL Supplier OVERVIEW Source export grade seaweed from BoP farmers, while hleping them design and build farming apparatus, providing inputs and implementing international management and quality control standards Link international markets for sustainable seafood with small fishermen in Indonesia and invest in fisheries conservation while working with Govt and nonprofit organizations Source agri-products produced by SMEs and BoP communities at contracted prices and sell using a multilevel marketing strategy and market based approach Manage wet market operations, provide farmers with information from a network of markets and retail outlets, in order to optimtize prices and improve bargaining leverage Wholesale banking institution that partners with over 700 MFIs, providing loans and services Main retail/export outlet (state owned) for ~600 SME producers in Indonesia, which provides capacity building and training assistance as well as loan/credit with 6% interest Provide power using micro-hydro technology to rural and remote communities that are not currently reached by the existing power grid. 90% of the workforce is also sourced from local communities Provide affordable solutions for alternative power generation and access to rural communities through a mix of renewable sources and technologies while engaging the BoP in planning, construction and operation Provides products such as mobile minutes, vouchers for payment of utility bills, etc through a network of small shops using mobile technology; also works to provide market intelligence and employment information to the BoP Uses a franchisee model to provide education to rural/urban BoP at affordable prices, by using a low cost, child safe and environmental friendly materials

Bali Seafood

Supplier

UKM Indonesia Paskomnas

Supplier Consumer

Financial services Retail

Bank Andara PT Sarinah

Consumer Supplier

Energy

RiverGen

Employee/ Consumer Consumer

Terrasys Energy

IT

PT. Rekan Usaha Mikro Anda (RUMA)

Distributor/ Consumer Distributor/ Consumer

Education

biMBA AIUEO

14

Source: ADB Market Scoping studies; Dalberg research

3 Vietnam

15

Market overview: Vietnam

Population
17% 83%

BOP OVERVIEW

89.7m

Spending

50%

50%

$83.6B2

Non-BoP

BoP

Current IB engagement (n=76)

Engagement model (n=76)

Consumers

INCLUSIVE BUSINESS PROFILE

Manufacturing

37%

30%

Agricuture, forestry & fishing Financial services & insurance Others

42% 16%

31%

Suppliers Distributors Employees

14%

18%

12%

IMPORTANT
MACROECONOMIC

One of the fastest growing economies in the world in the last decade averaging 6.8% annual growth Recent improvements in business and investment climate as indicated by significant growth in FDI Vietnamese export sector has exhibited 20% average annual growth over the last 15 years Vietnams Doing Business rankings reflect continuing challenges in starting a business, registering property, getting credit and paying taxes

VIETNAM VITAL STATISTICS1 GDP per capita (PPP) USD 3,500 (2012 est.)

TRENDS

GDP composition Agriculture 21.5% Industry 40.7% Services 37.7% Labor composition Agriculture 48% Industry 22.4% Services 29.6%

CHALLENGES

In spite of proactive Govt efforts, there is lack of infrastructure, specially electricity and a reliable road system Inadequate legal and regulatory systems are further bottlenecks to businesses

1.CIA World Fact book 2.Uses BoP/Non-BoP per capita spending ratios averaged for East Asia and Pacific region including Thailand, Cambodia, Indonesia Source: ADB Market scoping studies; Dalberg research

16

NOT EXHAUSTIVE

Deep dive into selected IB opportunities in Vietnam

KEY SECTORS MODE OF ENGAGEMENT RATIONALE

Agriculture/Agribusiness/ Agri-inputs

Supplier

Leading exporter of natural resources commodities in crops such as coffee, rubber, tea and cashew Large number of food processing exporters suggests potential to involve farmers as suppliers to these exporters Employs largest number of people in Vietnam

Light manufacturing

Supplier Employee

Significant anticipated short-term growth in manufacturing across sectors Opportunity to integrate millions of low-income people into the work force Existing capabilities due to diverse manufacturing base garments, textiles, shoes, electronics Scope for sourcing raw materials from low-income producers

Healthcare

Consumer

Significant existing demand for healthcare Vietnam is the second-highest self-medicating country in the world Large opportunity for decentralized and technology-driven care models (such as telemedicine, remote diagnostics) that provide access to health products and services in rural areas

17

Source: ADB market scoping study; Dalberg research and analysis

Philips Electronics works with DISTRIBUTORS TO SPREAD AWARENESS about low energy lighting and sell technology to low income CONSUMERS
WHAT WAS THE PROBLEM? Low income households use inefficient fuel-based lighting which has negative health and environmental implications HOW WAS IT SOLVED? Philips sells energy saving light bulbs with 2 -3X the longevity of regular bulbs Philips increased product awareness and knowledge of long term benefits of low energy lighting though conventions and seminars for current distributors Philips also partnered with State Vietnam electricity to help distribute light bulbs at a subsidy to the poor WHAT WERE THE OUTCOMES? Increased revenues for Philips in Vietnam Increased awareness of negative effects of fuel-based lighting and increased access to clean lighting technologies among the BoP in Vietnam WHAT WAS LEARNT? Spreading awareness amongst distributors helps indirectly influence consumer decisions, as local distributor/retailers are closer and more credible to consumers Partnering with public organisations can help leverage Govt initiatives to make products affordable/accessible for the low income group
Source: ADB market scoping studies; Dalberg Research Photo courtesy www.images.google.com
18

Coca-Cola uses an innovative grassroots approach engaging the BoP as DISTRIBUTORS in order to reach rural CONSUMERS
WHAT WAS THE PROBLEM? Rural population was hard to reach and penetration numbers for these regions was low HOW WAS IT SOLVED? Coca Cola provided opportunities for sellers in rural markets to become distributorsThe route to market model provided an opportunity for rural sellers to become distributors Hundreds of mini-distributors were engaged trained to set up independent businesses Coca Cola also uses this network to collect market information on key local needs and requirements

WHAT WERE THE OUTCOMES? Over 50 million sales revenue from Vietnam in 2009, with 30% growth in 2010 Distribution networks in all small cities and towns in 64 province of Vietnam by 2014

WHAT WAS LEARNT? Engaging and organizing existing informal rural retailers into a formal and proprietary distribution network offered Coca Cola substantial competitive advantages in sales Investing in building the incomes and capacity of the local community will build the companys reputation in the community and build loyalty among consumers as well as employees
Source: ADB market scoping studies; Dalberg Research Photo courtesy www.images.google.com
19

Overview of additional inclusive businesses in Vietnam

SECTOR COMPANY ENGAGEMENT MODEL OVERVIEW

Agriculture /Food

Duc Viet Joint Venture Company

Supplier/Consumer

The company invests in breeds, and provides high quality piglets as well as training to ~100 farmers who supply reared pig; DVJV also provides small distributors with coolers for processed meat and cater to BoP consumers through wet markets
25% of the companys global comes from coffee exports from Vietnam Nestle works through public private partnerships to deliver techinical assistance/training to farmers Gentraco provides seeds and materials for contracted farmers, invites experts for training, buys high quality rice (which creates 2 -3 time more profit) from farmers at a price 5% higher than market price Through a route-to-market approach, Coca-Cola partners with mini distributors and bodies such as the National Womens Union to train women, in order to increase product penetration TESCO provides seeds, materials, technology & periodic monitoring to the farmers & collects raw materials from low income farmers at competitive prices (0.05% higher than market rates) for export of canned food Sells affordable aluminium/steel products to the BoP through distributors 10 15% of whom are BoP sellers and are provided with credit/funds Philips sells long lasting energy saving light bulbs to low/middle income families, while creating product awareness and knowledge amongst distributors to indirectly influence customers JSC produces low cost TVs for the low income market, by reducing costs through eliminating distribution costs, importing affrodable equipment bulk and using the latest productivity TMA plans to team up with the Govt and mobile service providers to create mobile banking services for the low income group & provide health, education and market related information through mobile technology

Nestle

Supplier

Gentraco Join Stock Company

Supplier

Coca Cola Beverages Vietnam Ltd. An Giang Fruit, Vegetable and Foodstuff JSC (AN-TESCO) Manufacturing Energy Kim Jang Aluminium Plastic JSC Philips Electronics Vietnam Ltd.

Distributor

Supplier

Consumer/Distributor Consumer

IT /Technology

Dong A Joint Stock Company(JSC)

Consumer

TMA Solutions

Consumer

Other services

Linfox Logistics

Employees

Linfox hires and trains BoP employees for specific tasks such as bundling, loading and other supply chain management services The Linfox College helps employees with a learning/development program
20

Source: ADB Market Scoping studies; Dalberg research

4 India

21

Market overview: India

Population 6%
94%

BOP OVERVIEW

1,258.3m

Spending

49%

51%

$1,206.1B

Non-BoP Current IB engagement (n=120)

BoP Engagement model (n=67)

3% Consumer 10% Supplier Distributor Employee

INCLUSIVE BUSINESS PROFILE

25% 51% 13%

11%

Agriculture Energy Healthcare Others

24% 63%

IMPORTANT
MACROECONOMIC TRENDS

A booming services sector has driven Indias GDP growth story over the last decade and constitutes 65% of the GDP; Agriculture employs more than half of the population offering largest scope for inclusion (as employees and suppliers) More than half of the population is under the age of 25, and India possesses 25% of the worlds workforce; demographics are especially favorable in low-income states Poor law enforcement, complexities in the regulatory environment, including inefficient subsidies and bureaucratic procedures (related to opening a business for e.g.) Low productivity of labor in general and shortage of technical and managerial talent in particular Policy paralyses, lack of reforms & administrative obstacles with instances of large scale corruption raise concerns about Indias ability to sustain a high growth rate
22

INDIA VITAL STATISTICS1 GDP per capita (PPP) USD 3,900(2012 est.)

GDP composition Agriculture 17% Industry 18% Services 65% Labor composition Agriculture 53% Industry 19% Services 28%

CHALLENGES

1.CIA World Fact book Source: ADB Market scoping studies; Dalberg research

NOT EXHAUSTIVE

Deep dive into selected IB opportunities in India

KEY SECTORS
Agriculture/Agribusiness

MODE OF ENGAGEMENT
Supplier Employee

RATIONALE
More than half of Indias population is dependent on agriculture for their livelihood Significant investment required in agricultural supply chains, including storage and cold chain infrastructure Government incentives for this sector, including encouraging private sector investment

Energy

Consumer

Millions at the BoP seeking off-grid solutions for access to energy Significant renewable energy potential, particularly solar Huge consumer opportunity USD 2.04B/year in decentralized renewable energy services

Tourism

Employee

India has the 2nd fastest growing tourism market in the world One of the largest service industry employment sectors provides 9% of employment in India Sector employs people all over India, including a large percentage of women

Sanitation

Consumer

Huge need, as 65% of rural households and 11% of urban households do not have any latrine facility at home (2010) Government support and carrots for private sector investment in this sector in order to meet targets
23

Source: ADB market scoping study; Dalberg research and analysis

Greenlight Planet offers affordable lighting to rural low income CONSUMERS while also engaging the BoP as DISTRIBUTORS and EMPLOYEES
WHAT WAS THE PROBLEM? BoP households in India, especially in rural areas, do not have reliable access to electricity and instead must rely on kerosene lamps which can be costly, unsafe, and provide poor quality light HOW WAS IT SOLVED? Solar-powered, portable, LED household lighting products, some of which can double as cellphone chargers Innovative marketing and distribution channels such as the Saathi model that engages rural retailers and prominent community members such as teachers, village leaders, etc. as distributors WHAT WERE THE OUTCOMES? Greenlight reaches 1 million consumers and engages 1,000 distributors while employing 230 people Greenlight plans to reach 10 million customers through 10,000 distributors by 2015

WHAT WAS LEARNT? Multiple distribution channels (e.g. shelf space in stores, door-to-door distribution agents) need to be utilized to reach BoP markets Marketing strategies requiring physical presence (e.g. rural village road shows, meetings with local dealers) are important in BoP markets where personal relationships are important
Source: Rug making Shaping lives on the road to export markets, CARE; Dalberg Research Photo courtesy www.images.google.com
24

Aravind eye care used an innovative deskilling technique for less skilled EMPLOYEES to in order to effectively cater to low income CONSUMERS
WHAT WAS THE PROBLEM? Lack of high skilled resources, such as doctors, made eye screening and surgery expensive

HOW WAS IT SOLVED? End-to-end business model that divided operations into simple, discrete, assembly-line like tasks using less-skilled professionals Division of labor allowed for greater utilization of doctors, while still providing low-cost, highquality, high patient throughput WHAT WERE THE OUTCOMES? LifeSpring averages five times the number of deliveries compared to private clinics and the cost Aravind grew from one hospital with 11 beds in1976 to seven hospitals with 3,590 beds $2.5 million patients screened per year Profitable, even though two thirds of surgeries are to the BoP WHAT WAS LEARNT? Division of operations into simple, discrete tasks can optimize scarce resources and allow for high-quality, high-volume services Longer investment horizons may be required to achieve scale; Aravind took a decade to perfect operating model
Source: IDB Inclusive Forum 2010; Dalberg Research Photo courtesy www.images.google.com
25

Overview of additional inclusive business models in India

SECTOR Agriculture /Food COMPANY Star Agri ENGAGEMENT MODEL Supplier/Consumer OVERVIEW Star Agri procured farm produce from rural farmers to fulfil orders from indian corporates, using a quality based procurement StarAgri provides services such as warehousing, quality testing and collateral management services to BoP farmers GEWP sells affordable drip irrigation technology to small scale farmers across India Sells rugged ATMs that consumer low power for rural areas with intermittent power supply to both private and public banks Industree works with rural artisans and SHGs to produce textiles garments and other handicrafts, which retail under a unique brand name Industree provides collateral for SHGs & acts as a guarantor for bank loans Jaipur rugs employs 40,000 rural artisan weavers to make hand woven carpets for export and 200 full time employees who are provided techinical training and encouraged to develop professional skills Greenlight Planet sells affrodable solar lighting products to the BoP in India through a decentralised distribution model involving village level entrepreneurs & local staff as employees to oversee operations Apollo REACH hospitals provide super speciality medical care at affrodable rates (20 - 30% less than major hospitals) and uses a hub and spoke model to effectively provide talent to these hospitals As a rural business process outsourcing company DesiCrew engages the rural BoP as employees, after training educated youth, who would otherwise migrate to cities in search of jobs AISECT uses a franchisee model while partnering with Govt organizations to provide IT and vocational skills training uses a flexible fee structure that takes agricultural cycles into account Combines the use of decentralized purification centres in partnership with local bodies to provide clean drinking water (20 litres/person/day) Village level entrepreneurs operate units and BoP individuals also work as construction workers Aarusha provides low cost housing for migrants and low income individuals in big cities in India and also engages the BoP as workers in the facilitates
26

Global Easy Water Products Financial services Textiles Vortex Engineering Industree Crafts Pvt. Ltd.

Consumer Consumer Suppliers

Jaipur rugs

Supplier/Employee

Energy

Greenlight Planet

Consumer/Employee/Dist ributor
Consumer

Health

Apollo REACH

IT

DesiCrew Solutions

Employee

Education

AISECT

Consumer

Water

Water Health

Consumer

Housing

Aarusha Homes

Consumer

Source: ADB Market Scoping studies; Dalberg research

5 Pakistan

27

Market overview: Pakistan

Population 7%
93%

BOP OVERVIEW

180.0m

Spending

11%

89%

197.8B

Non-BoP

BoP Current IB engagement (n=70)

INCLUSIVE BUSINESS PROFILE

23% 39% 23%

16%

Financial services Food Consumer goods Others

IMPORTANT
BANGLADESH VITAL STATISTICS1 GDP per capita (PPP) USD 2,900 (2012 est.)
MACROECONOMIC TRENDS

The financial services and manufacturing sectors have grown at twice the rate of the agriculture sector There is a huge demand for micro-insurance products in agriculture and health Pakistans labour force is growing at ~4% a year Exports were worth $20 bn in 2011 with textiles and food making for majority share

GDP composition Agriculture 20.1% Industry 25.5% Services 54.4% Labor composition Agriculture 45.1% Industry 20.7% Services 34.2%

CHALLENGES

Distribution & logistics are most notable obstacles for businesses engaging with the BoP Govt public policies and regulations are considered a major non-financial risk Internal conflict, rule of law, stability, resource security and infrastructure readiness are causes of concern Pakistans energy deficit and institutional fragmentation of the sector is a major contributor to reduction of industrial productivity
28

1.CIA World Fact book Source: ADB Market scoping studies; Dalberg research

NOT EXHAUSTIVE

Deep dive into selected IB opportunities in Pakistan

KEY SECTORS MODE OF ENGAGEMENT RATIONALE

Agribusiness

Supplier Consumer

Animal feed for emerging beef export markets, seeds to assure increased productivity and agricultural infrastructure are import sectors where inclusive businesses can plug in Innovative financial and micro and crop insurance products and services can help mitigate risks in agribusiness

Energy

Consumer

Pakistan has a huge demand supply gap in energy River based hydro-energy initiatives and biomass/biogas/solar power for off-grid population can be systematic solutions Energy efficient services through technology innovation, infrastructure replacement/retrofitting are also potential areas that can be tapped into

Health

Consumer

Pakistans health facilities are highly polarized with few low cost services for the BoP There is a huge demand for diagnostic centers in smaller towns Health centered micro-insurance products are an urgent need to provide affrodable care to millions of Pakistanis

29

Source: ADB market scoping study; www.ibfb.org; Dalberg research and analysis

Nestle incorporates small dairy farmers in its value chain as SUPPLIERS ensuring a reliable supply of milk
WHAT WAS THE PROBLEM? Nestle needed a reliable supply of milk, but large dairy farmers were expensive due to their significant bargaining power HOW WAS IT SOLVED? Nestle set up its own supply chain by setting up Village Chilling centres where local individual farmers could deposit milk Nestle hires a Village Milk Collection Agent who is responsible for overseeing milk collection, quality assurance, cash payment to farmers, and organizes extension services (e.g. veterinary)

WHAT WERE THE OUTCOMES? Nestle collects milk directly from 160,000 farmers, taking in 50 million liters per year and earning a profit of $20.7 million on revenues of $456 million

WHAT WAS LEARNT? Organizing BoP suppliers can be an effective way of building a low cost and reliable supply chain, but initial set-up of infrastructure is time and cost-intensive Finding high quality staff who can interact effectively with individual BoP suppliers (e.g. VMC agent) is critical to the success of supply chains incorporating the BoP
Source: ADB market scoping studies; IDB inclusive business forum 2010; Dalberg research Photo courtesy www.images.google.com
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Engro helps small scale farmers pursue profitable commercial business as SUPPLIERS through effective procurement management systems
WHAT WAS THE PROBLEM? Small dairy farmers are geographically dispersed over large distances, and lack techinical skills Dairy farmers refrain from commercial business since they are subject to unjust price, exploitation by middlemen and payment delays
HOW WAS IT SOLVED? Engro established milk procurement infrastructure deep in rural Pakistan using GPRS powered devices to manage procurement through information systems The MIS systems enable prompt and accurate payments on a weekly basis for farmers enabling frequency of payments to match supplier needs

WHAT WERE THE OUTCOMES? Sales have grown 20 times since 2006, with milk procurement tripling between 2006 2011 There are 1000 purchase locations and a field force of 1500 people to help farmers develop their production WHAT WAS LEARNT? Investing in building procurement channels close to supplier base, even though cost intensive can reap several long term benefits Tailoring payment systems to supplier needs can help maintain a steady supply of inputs as suppliers do not have to deal with cash flow problems
Source: G20 Challenge 2012; Dalberg research Photo courtesy www.images.google.com
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Overview of inclusive business models: Pakistan

SECTOR Agriculture /Food COMPANY Agro Pvt. Ltd. Vita Pakistan Shakarganj Foods and Products Ltd. Dalda Foods Pvt. Ltd. Unilever Pakistan Ltd. ENGAGEMENT MODEL Consumer Consumer Supplier Supplier/Consumer Distributor/Consumer OVERVIEW Agro provides low cost inputs and services to the BoP Vita provides low cost fortified milk for the BoP Shakarganj integrates dairy suppliers in its value chain Dalda Foods interates BoP suppliers in its cooking oil value chain and allows consumers access to healthy oil Unilever integrates the BoP into its supply and sales chain primarily through the Shakti Amma Program and a complementary farmer programs to improve quality of raw material s Nestle integrates BoP farmers in its dairy value chain Al Hamd integrates women into their frozen foods value chain Capital marketing will include BoP drivers in its cold supply chain Tameer will market health insurance products through its mobile phone banking distribution network Qingqi is keen to develop, manufacture and market low cost combine harvesters for low income farmers Ferozsons provides low cost medicines for the BoP RL enterprises will locally manufacture Zinc Sulphate for BoP farmers, generating employment and health benefits

Nestle Pakistan Al Hamd Food Ltd. Financial Services Capital Marketing Services Tameer Microfinance Bank Ltd. Automobiles and parts Pharmaceuticals Chemicals Plum Qingqi Motors Ltd. Ferozsons Laboratories Ltd. RL Enterprises

Supplier Supplier Distributor Consumer Consumer Consumer Employee/Consumer

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Source: ADB Market Scoping studies; Dalberg research

6 Sri Lanka

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CIC Agri is a large conglomerate that engages BoP across the value chain as SUPPLIERS, EMPLOYEES and CONSUMERS
WHAT WAS THE PROBLEM? Lack of quality agricultural inputs for farmers, and inadequate information on effective production mechanisms HOW WAS IT SOLVED? CIC Agri provides small holder farmers with seeds and fertilizer and buys the harvested product back at fair prices It directly employs 2,500 BoP individuals in its factories, processing units and farms CIC Agri offers consultancy services for farmers on optimizing yields WHAT WERE THE OUTCOMES? CIC Agri directly impacts the lives of over 20,000 farmers CIC currently contributes to 6% of Sri Lankas total agricultural production and plans to grow 20% every year

WHAT WAS LEARNT? Offering integrated solutions across the value chain can help tap synergies in producing impact Working with a large number of small suppliers with effective techinical support can ensure scalability of model
Source: ADB market scoping studies; Dalberg research Photo courtesy www.cicagri. com
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MAS Intimates is a manufacturer of intimate apparel and sportswear that engages the BoP as EMPLOYEES
WHAT WAS THE PROBLEM? Majority of the BoP labour force has minimal work experience and does not possess specialized skill sets High attrition rates are a major challenge for the textile sector HOW WAS IT SOLVED? MAS absorbs workers at entry level positions, and trains them in requisite skills A lot of emphasis is placed on career paths, employee interests and professional development In order to promote ownership, small teams have weekly meetings with employees to discuss challenges faced along production lines WHAT WERE THE OUTCOMES? MAS currently employs 50,000 individuals from BoP backgrounds, 80% of whom are women MASs strong reputation as a preferred employer has led to low attrition MAS has grown to 34 facilities in Sri Lanka and has now launched its own brand of clothing

WHAT WAS LEARNT? Providing employee benefits such as those provided by traditional office jobs, and promoting greater ownership of work can help ensure longevity of employee engagement
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Source: ADB market scoping studies; Dalberg research Photo courtesy www.images.google.com

7 Bangladesh

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Kik is a German retailer for textiles that incorporates BoP artisans into the international value chain as SUPPLIERS
WHAT WAS THE PROBLEM? The textile sector had been experiencing a 20% growth in Bangladesh, however a large pool of artisans were completely disconnected from this export-driven growth story HOW WAS IT SOLVED? Kik worked with local partners: Systain Consulting Ltd. & CARE to involve rural women in their supply chain Funding was provided to local entrepreneurs to set up venues for work and training Systain Consulting offered quality and monitoring control, while CARE was responsible for mobilizing rural women WHAT WERE THE OUTCOMES? Kik fulfills demand for 5 out of its 600 centers from Bangladesh and plans to scale up the model The enterprise has seen an average annual growth of 15% in production

WHAT WAS LEARNT? Partnering with local organizations can help international companies keep track of sector specific needs and provide operational support Investing in training facilities while mobilizing local work force can help ensure supply of skilled labour to drive scale
Source: Rug making Shaping lives on the road to export markets, CARE; Dalberg Research Photo courtesy www.images.google.com
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BATA partners with CARE to train and engage rural women as door to door DISTRIBUTORS of company products
WHAT WAS THE PROBLEM? Rural Bangladeshis have limited access to consumer products, and have to travel large population centers investing time and money HOW WAS IT SOLVED? BATA works with a CARE initiative that selects women as sales representatives to sell multiple products BATA provides necessary trade credit, training support and delivery of products, while CARE provides credit guarantee, training and support services to the self-help groups

WHAT WERE THE OUTCOMES? Within 9 months of engaging with the model the program generated USD 300,000 in revenue Success of the program resulted in a 20-fold increase in women sales agents

WHAT WAS LEARNT? Existing programs can mitigate risks that working with low income consumer can bring in, while offering operational on-ground support Investing in training facilities while mobilizing local work force can help ensure supply of skilled labour to drive scale
Source: Bangladesh Social Enterprise Report 2010, FDC, LIBRA Advisory Group; Dalberg Research Photo courtesy www.images.google.com
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8 Mekong Region

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Urmatt sources organic rice and by-products from 7000 low income SUPPLIERS in Thailand
WHAT WAS THE PROBLEM? Declining demand, increasing production costs and low profitability had forced many small scale rice farmers into indebtedness and out of their farms HOW WAS IT SOLVED? Urmatt utilizes a fair trade contract farming model with more than 7000 farmers to purchase organic rice and exports rice and rice by-products Urmatt through monetizing by-products and cross subsidizing its business model hopes to bring down costs of organic rice WHAT WERE THE OUTCOMES? Organic rice requires only one-third of the cash capital needed for conventional rice production and is four times more energy efficient The companys growth rate is supposed to double in the next 2 years and include another ~1400 farmers as rice exports from Thailand increase at 15% a year WHAT WAS LEARNT? Tapping growing demand for adjacent products that are cost efficient can help increase margins and profitability for both suppliers and the company Cross subsidizing multiple products and bringing down product prices and enhance demand for cost efficient products
Source: ADB market scoping studies; Dalberg research Photo courtesy www.images.google.com
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Hydrologic Social Enterprise partners with microfinance institutions to sell clean filtration technology to low income CONSUMERS
WHAT WAS THE PROBLEM? Less than 5% of the population has access to piped water in rural Cambodia, and most people boil water using wood/charcoal which has negative health and environmental effects

HOW WAS IT SOLVED? HSE developed a ten liter ceramic water filter that is equipped to kill disease causing bacteria HSE partners with VisonFund, an MFI to provide 6-month loans to villagers to help families purchase filters

WHAT WERE THE OUTCOMES? By February 2012 226,000 filters were sold allowing 420,000 people access to clean water, while also reducing wood usage and cutting emissions by 41,000 tons a year HSE plans to sell other water, sanitation and hygiene products through the same channels in future WHAT WAS LEARNT? Tailored purchase finance is difficult to design effectively, but can help increase adoption of appropriate technology Models which promote technology that have multiple health and environmental benefits can tap additional sources of funding/revenue such as carbon finance
Source: ADB market scoping studies; Dalberg research Photo courtesy www.images.google.com
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End of Session Questions?

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