Make or Buy: When Should Corporates Invest in Inclusive Business Solutions?

Join us for a live written discussion with a panel of experts to explore when corporates should be investing in inclusive business solutions.

Live Panel

Thursday 5th September 2019, 15:00-16:00pm BST (10:00-11:00am EDT). ADD TO CALENDAR

Background

Over the past two decades, large companies have started to venture into markets at the base of the global economic pyramid (BoP). They typically pursue one, or several, of the following five objectives: generate access to new markets; drive innovation; strengthen supply chains; help to recruit and retain talent and realize a company’s purpose. However, large companies have often struggled to succeed with their own initiatives, due to three main barriers: lack of leadership support and conducive structures and processes; long gestation periods and low margins; and lack of talent and insight. Buying, that is investing into inclusive businesses externally, is an alternative way to achieve these objectives that also addresses some internal constraints to scaling these initiatives

This online written discussion aims to shed light on the why, the when and the how of Corporate Impact Venturing, based on Endeva’s research and recent report. We are bringing together experts to share their insights and experience to improve the chances of success for inclusive business ventures and increase both the return on investment and the progress on the Sustainable Development Goals.

This event is part of the Inclusive Business Boost series funded by the UK Department for International Development.

Panel

Christina Tewes-Gradl, Founder and Managing Director, Endeva

Michael Fuerst, Strategy and Innovation, Global Health and Corporate Responsibility, Novartis

Stefan Maard, Managing Director, DIVA, Novozymes

Priscilla Rozé-Pagès, Inclusive Business Global Manager, AIR LIQUIDE

Hassan Hajam, Research Lead, Yunus Social Business

Favad Soomro, Head, Engro Foundation

Reymound-Yaw Buckman, Leader, Airbus BizLab

Owen Henkel, Investment Director, Pearson Ventures

Christophe Poline, Sustainable Investment, Director, Schneider Electric

Dr. Maarten van Herpen, Owner & Executive Director, Acacia Impact Innovation

Moderator: Tatiana Bessarabova, Business Fights Poverty

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Hello and welcome to Business Fights Poverty online written discussion. This event is part of the Inclusive Business Boost series funded by the UK Department for International Development.

Please add your own comments - you need to be logged in - which you can do via the top right of the screen.

We’ll be starting the discussion in 10 minutes.

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As we start the live portion of today’s discussion, I would like to invite our expert panelists to introduce themselves.

Hi Everybody. I am Maarten van Herpen. After 5 years of driving corporate inclusive business as head of the Philips Africa Innovation Hub, I have recently founded my own company (acacia-ii.com) to continue as social entrepreneur and innovation consultant. With 2 others, we recently wrote an article on HBR about what holds back corporate social innovators.

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Hi! I am Christina Tewes-Gradl, founder and managing director of Endeva and lead author of the study “Make or Buy:
Corporate Impact Venturing at the Base of the Pyramid”. Looking forward to the discussion today!

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I am Favad and I work for Engro Corporation Limited – a large diversified conglomerate in Pakistan. I am heading Engro Foundation – non-profit set up to look after social investments of Engro and its subsidiaries. I am also heading a recently established specialized non-profit company called ‘ENGIVE’ – Engro Impact Venturing Enterprise, built to provide customized channel to impact investments. We have just invested in our very first venture ‘FeedSol’ – an animal feed company targeting small and medium sized livestock farmers. The venture works closely with our dairy business to create supply chain efficiencies.

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I´m Alexia, I´m working with Rey who could not attend today so I will represent him and provide you his answers to the 3 questions.

Rey´s personal intro:

I´m Rey Buckman. I´m Airbus BizLab Leader in Hamburg and BizLab Coach. Airbus BizLab is an aerospace accelerator for internal innovation projects and external start-ups.
I have also co-created and implemented the #africa4future initiative on the global level of Airbus to promote technology entrepreneurship between Airbus and African startups.
I participated to the creation of the internal impact@Airbus community, to share and scale projects related to impact business in the company.

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Hi everybody !! really pleased to be with you. I am Priscilla Rozé-Pagès, Inclusive Business Global Manager in Air Liquide,

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Hello Everyone,

My name is Hassan Hajam.
I Represent The Corporate Social Innovation Unit of Yunus Social Business.
I am more specially in charge of:

  1. Building Social/Inclusive Business Ventures with Multinational Corporations
  2. Leading Qualitative Research to:
    • Understand Corporate Executives’ underlying reasons, opinions, and motivations triggering their commitment to Social Innovations
    •Capture the lessons learned by the Corporate Social Intrapreneurs, grasp the best practices they implemented, and comprehend the challenges they faced during the Social Innovation Journey

Our objective is to pioneer the elaboration, implementation, and development of Avant Garde best-in-class services, mechanisms, partnerships, tools and methodologies supporting Corporations in their social innovation journeys giving birth to solutions that contribute to a more inclusive, equitable and sustainable economy.

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I have created the Inclusive Business new activity since 2015 and we are today under the management of a Comex membre of the Group

Welcome everyone! We have an excellent panel of experts. Here is our first question for today’s discussion.

Q1: From your experience, when does buying inclusive businesses externally make sense - through Corporate Impact Venturing (CIV) - vis-a-vis building them in-house?

The paper draws on insights gathered from 24 interviews conducted with eleven companies, four investees and nine experts (for a full list, see annex). I will share lessons learnt in the discussion today.

As a recent and young actor in the Inclusive Business, we wanted to identify the different levers to address the Base of the pyramid market as quickly and efficiently as possible, while combining social impact and financial return for both parties. Investing in an impact investing funds had been seen as an efficient way with a twofold purpose : to learn from this ecosystem, and to have a faster entry in this market.

We’ve identified several drivers among companies that decide to venture externally: They want to get their hands on state-of-the art innovations and proven business models. They want to expand reach in low-income markets quickly. They want to realize their purpose (e.g. access to energy for all) in a visible way and strengthen the ecosystem around them. They want to create opportunities for employees to look beyond the corporate walls and engage with entrepreneurs. The right approach on venturing will depend on the objectives. Often, buying externally is easier to handle for a large company than building something new inhouse, and it can help to keep low margins off the balance sheet.

“A1: In my opinion buying makes sense generally. However, we need to be careful and should not pursue it as only way to invest. Buying or building also should not be seen as a binary choice. Ecosystems and ventures within these ecosystems are developed in their own context which may not fit investment objectives perfectly. I think there is always a ‘build’ built into a buy decisions in order to mold ventures to meet your specific needs. In our context in Pakistan, the marketplace for inclusive ventures is not well developed so even if I decide to buy, I may not be able to implement my strategy. Often in a large and diversified country like ours, ventures have limited relevance across sub-geographies. If there is a good fit, buying will always be better decision as corporations like to move fast, one would want to avoid long gestation periods of establishing businesses and most importantly in my opinion you get to buy ‘social capital’ of entrepreneurs. In ‘high context’ society like ours, business models turnout to be very different from how they appear on paper or excel sheets. Business modeling doesn’t consider the social side well enough, for example the quality of relationships with suppliers and distributors. In many situations, inclusive businesses, particularly operating in agricultural markets in developing world, need to rely on quality of relationships rather than legal thoroughness of contracts to carry out the business. This particular advantage in itself is good enough a variable to go for ‘buy’

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A1:

Actually, the Airbus BizLab model is hybrid and I think that inclusive businesses could be built thanks to both external and internal resources, depending on the company needs and objectives.

Resorting to external resources allows companies to get access to new markets or to a new technology that they either don´t have or don´t want to acquire. What´s more, buying externally enables companies that have financial resources but a lack of human resources to implement the project. EXP: Drones Doing Good alliance : Airbus coordinates and provides funding to implement the project, but Lifebank and partners provide human resources to implement it. Buying externally is also a way for companies to learn about local markets, new use of technologies and get knowledge in specific industry domains, such as healthcare logistics in the case of Lifebank.

Internal resources are complementary. Indeed, companies have global market and supply chain knowledge, valuable technology know how, and potential to achieve large scale.

Q1:
If a corporate can create the right boundary conditions, building in-house has a lot of advantages, such as access to the corporate resources and talent. Unfortunately there are only few good examples, and a challenge is to do this long-term.

External impact venturing especially makes sense when a topic is of strategic importance, but at the same time the synergy to leverage company assets is low. For example, an inclusive business may often not fit well with the sales & distribution processes of the company, due to which the internal processes and channels may even be slowing the venture down.

In addition, another reason to venture externally is when the inclusive business cannot find an internal business owner.

External venturing also makes it easier to attract external investors.

My question related to Q1: To get the best of both worlds, would it be possible to do external venturing, while still giving the venture some access to the talented people that work at the corporate?

Dear Priscilla, would be keen to learn: which fund have you invested in, and what are your objectives? Are you also seeking to identify companies that could be relevant for your core business?

But, our first step in the Bop Market and Inclusive Business was to create our own projects, from scratch. Once launching them, we have decided to invest in an impact investing funds to complement our approach