Multinational corporations and poverty reduction

The findings of various recent studies show that corporations are not only in the best position to address the problem of poverty but they also have the capacity to become the most instrumental players in the fight against it

The usual assumption is that those poor living at the bottom of the economic pyramid (BOP) in developing countries have little money to spend on the goods and services offered by transnational corporations as most of their income goes on meeting their basic needs such as food and shelter. Therefore, wealthy TNCs, mostly from the powerful TRIAD countries of North America, Western Europe, and Japan focus on the two billion rich consumers living in their own regions and those upper income segments in developing countries. This neglect not only isolates the vast majority of the world’s 4-5 billion poor from the international market system but TNCs also loses much needed growth opportunities present in their huge untapped potential (believed to be US$13 trillion a year). Studies such as Blowfield, Vachani, Prahalad, London and Hart; Prahalad and Hart; Prahalad and Hammond; Prahalad and Liberthal, all conclude that buying from costly informal market systems the poor at BOP spend significantly higher amounts of money compared to the rich thus selling high-quality, low-price consumer goods, TNCs can ‘do well’ (achieve healthy profits) and also ‘do good’ (improve humanity) simultaneously.  The foundation of this endorsement is based on two pillars: the poor can manage their economic activities and develop if given the opportunity, and market capitalism should not be restricted to a particular group of people such as the rich. 

The findings of various recent studies show that corporations are not only in the best position to address the problem of poverty but they also have the capacity to become the most instrumental players in the fight against it. Therefore, there is a growing interest in development studies – especially since the publications of the path-breaking articles The Fortune at the Bottom of the Pyramid (Prahalad and Hart, 2002), and Serve the World’s Poor Profitably in the Harvard Business Review – utilizing corporate resources such as capital, sophisticated management, technological know-how, and economy-of-scale for the wellbeing of the world’s poor whom MNCs traditionally neglect. 
Viewing the poor primarily as value-conscious rational consumers this compelling proposition argues that by selling fast moving consumer goods (FMCG) to world’s 4-5 billion low-income people, involving them to the corporate value chains as producers, suppliers, distributors and as employees multinational enterprises (MNEs) can create a mutually beneficial condition both for 91000 TNCs with the plethora of 750000 of its subsidiaries presence almost everywhere on the planet and for the world’s poor. Increasing their consumption choices, providing access to higher quality goods at a lower price will eventually create a consumer surplus and this residual money will help them to spend more on nutritious foods, health and education hence, enhance their wellbeing.
The question may arise as to why a corporation – established to make profits for its shareholders – should care about stakeholders, society or help the poor fight poverty at all? As TNCs exist and operate their business activities within communities and are increasingly intertwined with many facets of people’s social and economic life, many believe that making profit maximization their sole motive will hurt societal expectations, which ultimately affect corporate interests. Some even point out that many societal ills such as unemployment, inequality, environmental pollution, malnutrition and poverty are linked with corporate business, and for this they should put something back into society. Contrary to Nobel winning American economist Friedman’s 1970s view that “the business of business is to increase its profits,” pioneering British entrepreneur Anita Roddick in 2005 insists that “the business of business is responsibility, to increase the public good, not private greed.” Moreover, in two specific ways poverty can be a challenge to TNCs: it limits the size of potential markets and also the availability of skilled workers. Therefore the alleviation of poverty in poor countries is in TNCs self-interest because it allows rich countries’ TNCs to gain access to much needed larger markets for their products and services. 

Although Adam Smith’s seminal 1776 work The Wealth of Nations confirms that the invisible hand of the marketplace is the greatest source of wealth creation, to date the challenge of poverty has been interpreted as being an issue for institutions such as local governments, OECD-based developed countries, the World Bank, the United Nations, foreign aid, and other non-governmental organizations (NGOs). Despite enormous efforts by these institutions (including the sending of $2.3 trillion in aid to Africa since the 1950s) the progress of poverty alleviation has been unsatisfactory. The number of people living on under $2 a day is 2.6 billion, 38 percent of the world’s population (Karnani, 2011) and “currently more than eight million people around the world die every year because they are too poor to stay alive” (Sachs, 2005).  “Most people in Latin America, the Middle East, and Central Asia, are poorer today than they were 10 years ago, and most Africans were better off 40 years ago” (Lodge, 2006). 
Considering these facts, the interest in combining market forces and corporate resources to combat poverty has grown significantly, especially during the past decade. Heavyweight scholars such as Rehman Sobhan (2010) whilst identify unequal access to markets as being one of the major causes of poverty, Amartya Sen (1999) insists that the freedom to enter markets can itself be a significant contributor to development. Therefore, professor Yunus and Weber (in 2007) convincingly argue that combining the power of free markets and corporations we can help make a more humane world. 
Taking into account the Millennium Development Goals (MDG) as an important metric for poverty eradication and human development and investigating to the deep rural context, findings support the idea that Danone, Unilever and Nestle (DUN) are true partners in improving the wellbeing of those rural villagers who supply raw materials, and are involved as producers as well as employees. DUN’s close embeddedness with the local people of Bogra, Kalurghat, and Moga not only have provided them a secure income opportunity (the only sustainable source of poverty reduction: Anderson, Markides, and Kupp, 2012; Karnani, 2011) but also other necessary tools such as resources, training, motivation, technological know-how and improved productivity, all contribute positively in the fight against poverty as described by Kolk and Tulder (2009). These enable them to improve their capabilities and increase their freedom of choice (necessary conditions for development according to Amartya Sen). DUN activities empowering those marginalised acute poor who were left behind by governments, local institutional establishments, and even suffering under restrictive social and cultural norms which prevent them from engaging meaningfully in their lives. It also appears that the food-related corporations Nestle and Danone are more capable of making an effective impact on the poor. Unilever, being one of the most successful locally rooted global corporations offering a wide range of consumer goods products in almost every corner of the planet, is undoubtedly one of the significant players in the concept of selling low-cost high-quality products to improve the wellbeing of the poor. 
The revelations of Walnolz (2007) about Bangladesh that everyone living below $8 a day, whilst the upper quintiles of the income distribution is well served by leading brands, the lower quintile are completely cut-off from big businessAdded together, the amount may be equivalent to the monthly total of a poor family’s vegetable items, which are obviously more important compared to these products. This may explains that the market opportunity of serving the poor profitably for a mutual benefit is significantly limited in this income category.  
Those who accept the poor as irrational unskilled people urge it is only governments who can ensure the wellbeing of the world’s poor. Acknowledging government role in improving health, education and infrastructure among others, evidence also suggest that in many poor countries (apart from willingness and ability) government policies can also be part of people sufferings. In their book Creating a World Without Poverty Yunus and Weber whilst claim poverty is the result of the failure of socio-economic system, Oxford University professor and a development expert Paul Collier in his influential work The Bottom Billion insists political instability, inappropriate resource management, and bad governance is the fundamental causes for the sufferings of the poor majority of whom lives in world’s 50 or so failing countries.  Living on less than US$2 a day means poor unlikely to have access to information – newspapers, television, books, the internet – that might prevent them from attaining a similar level of knowledge as the rich, corporate/government bureaucrats or even academics at the world’s prestigious institutions have however, evidence do not support to generalise all of the 4-5 billion world’s poor as unskilled, irrational people. We can often find them putting much careful thought into their choices. They have to be sophisticated economists just to survive. 

The writer is a post-graduate student at Birkbeck, University of London. Email: [email protected]. 

Multinational corporations and poverty reduction

The findings of various recent studies show that corporations are not only in the best position to address the problem of poverty but they also have the capacity to become the most instrumental players in the fight against it

The usual assumption is that those poor living at the bottom of the economic pyramid (BOP) in developing countries have little money to spend on the goods and services offered by transnational corporations as most of their income goes on meeting their basic needs such as food and shelter. Therefore, wealthy TNCs, mostly from the powerful TRIAD countries of North America, Western Europe, and Japan focus on the two billion rich consumers living in their own regions and those upper income segments in developing countries. This neglect not only isolates the vast majority of the worlds 4-5 billion poor from the international market system but TNCs also loses much needed growth opportunities present in their huge untapped potential (believed to be US$13 trillion a year). Studies such as Blowfield, Vachani, Prahalad, London and Hart; Prahalad and Hart; Prahalad and Hammond; Prahalad and Liberthal, all conclude that buying from costly informal market systems the poor at BOP spend significantly higher amounts of money compared to the rich thus selling high-quality, low-price consumer goods, TNCs can do well (achieve healthy profits) and also do good (improve humanity) simultaneously. The foundation of this endorsement is based on two pillars: the poor can manage their economic activities and develop if given the opportunity, and market capitalism should not be restricted to a particular group of people such as the rich. The findings of various recent studies show that corporations are not only in the best position to address the problem of poverty but they also have the capacity to become the most instrumental players in the fight against it. Therefore, there is a growing interest in development studies especially since the publications of the path-breaking articles The Fortune at the Bottom of the Pyramid (Prahalad and Hart, 2002), and Serve the Worlds Poor Profitably in the Harvard Business Review utilizing corporate resources such as capital, sophisticated management, technological know-how, and economy-of-scale for the wellbeing of the worlds poor whom MNCs traditionally neglect. Viewing the poor primarily as value-conscious rational consumers this compelling proposition argues that by selling fast moving consumer goods (FMCG) to worlds 4-5 billion low-income people, involving them to the corporate value chains as producers, suppliers, distributors and as employees multinational enterprises (MNEs) can create a mutually beneficial condition both for 91000 TNCs with the plethora of 750000 of its subsidiaries presence almost everywhere on the planet and for the worlds poor. Increasing their consumption choices, providing access to higher quality goods at a lower price will eventually create a consumer surplus and this residual money will help them to spend more on nutritious foods, health and education hence, enhance their wellbeing. The question may arise as to why a corporation established to make profits for its shareholders should care about stakeholders, society or help the poor fight poverty at all? As TNCs exist and operate their business activities within communities and are increasingly intertwined with many facets of peoples social and economic life, many believe that making profit maximization their sole motive will hurt societal expectations, which ultimately affect corporate interests. Some even point out that many societal ills such as unemployment, inequality, environmental pollution, malnutrition and poverty are linked with corporate business, and for this they should put something back into society. Contrary to Nobel winning American economist Friedmans 1970s view that the business of business is to increase its profits, pioneering British entrepreneur Anita Roddick in 2005 insists that the business of business is responsibility, to increase the public good, not private greed. Moreover, in two specific ways poverty can be a challenge to TNCs: it limits the size of potential markets and also the availability of skilled workers. Therefore the alleviation of poverty in poor countries is in TNCs self-interest because it allows rich countries TNCs to gain access to much needed larger markets for their products and services. Although Adam Smiths seminal 1776 work The Wealth of Nations confirms that the invisible hand of the marketplace is the greatest source of wealth creation, to date the challenge of poverty has been interpreted as being an issue for institutions such as local governments, OECD-based developed countries, the World Bank, the United Nations, foreign aid, and other non-governmental organizations (NGOs). Despite enormous efforts by these institutions (including the sending of $2.3 trillion in aid to Africa since the 1950s) the progress of poverty alleviation has been unsatisfactory. The number of people living on under $2 a day is 2.6 billion, 38 percent of the worlds population (Karnani, 2011) and currently more than eight million people around the world die every year because they are too poor to stay alive (Sachs, 2005). Most people in Latin America, the Middle East, and Central Asia, are poorer today than they were 10 years ago, and most Africans were better off 40 years ago (Lodge, 2006). Considering these facts, the interest in combining market forces and corporate resources to combat poverty has grown significantly, especially during the past decade. Heavyweight scholars such as Rehman Sobhan (2010) whilst identify unequal access to markets as being one of the major causes of poverty, Amartya Sen (1999) insists that the freedom to enter markets can itself be a significant contributor to development. Therefore, professor Yunus and Weber (in 2007) convincingly argue that combining the power of free markets and corporations we can help make a more humane world. Taking into account the Millennium Development Goals (MDG) as an important metric for poverty eradication and human development and investigating to the deep rural context, findings support the idea that Danone, Unilever and Nestle (DUN) are true partners in improving the wellbeing of those rural villagers who supply raw materials, and are involved as producers as well as employees. DUNs close embeddedness with the local people of Bogra, Kalurghat, and Moga not only have provided them a secure income opportunity (the only sustainable source of poverty reduction: Anderson, Markides, and Kupp, 2012; Karnani, 2011) but also other necessary tools such as resources, training, motivation, technological know-how and improved productivity, all contribute positively in the fight against poverty as described by Kolk and Tulder (2009). These enable them to improve their capabilities and increase their freedom of choice (necessary conditions for development according to Amartya Sen). DUN activities empowering those marginalised acute poor who were left behind by governments, local institutional establishments, and even suffering under restrictive social and cultural norms which prevent them from engaging meaningfully in their lives. It also appears that the food-related corporations Nestle and Danone are more capable of making an effective impact on the poor. Unilever, being one of the most successful locally rooted global corporations offering a wide range of consumer goods products in almost every corner of the planet, is undoubtedly one of the significant players in the concept of selling low-cost high-quality products to improve the wellbeing of the poor. The revelations of Walnolz (2007) about Bangladesh that everyone living below $8 a day, whilst the upper quintiles of the income distribution is well served by leading brands, the lower quintile are completely cut-off from big businessAdded together, the amount may be equivalent to the monthly total of a poor familys vegetable items, which are obviously more important compared to these products. This may explains that the market opportunity of serving the poor profitably for a mutual benefit is significantly limited in this income category. Those who accept the poor as irrational unskilled people urge it is only governments who can ensure the wellbeing of the worlds poor. Acknowledging government role in improving health, education and infrastructure among others, evidence also suggest that in many poor countries (apart from willingness and ability) government policies can also be part of people sufferings. In their book Creating a World Without Poverty Yunus and Weber whilst claim poverty is the result of the failure of socio-economic system, Oxford University professor and a development expert Paul Collier in his influential work The Bottom Billion insists political instability, inappropriate resource management, and bad governance is the fundamental causes for the sufferings of the poor majority of whom lives in worlds 50 or so failing countries. Living on less than US$2 a day means poor unlikely to have access to information newspapers, television, books, the internet that might prevent them from attaining a similar level of knowledge as the rich, corporate/government bureaucrats or even academics at the worlds prestigious institutions have however, evidence do not support to generalise all of the 4-5 billion worlds poor as unskilled, irrational people. We can often find them putting much careful thought into their choices. They have to be sophisticated economists just to survive. The writer is a post-graduate student at Birkbeck, University of London. Email: [email protected].