Development 2.0: Changing the Way Globalization Works
Market-Based Development
Business and Global Development
By Claude G.B. Fontheim and Shamarukh Mohiuddin
At the World Economic Forum earlier in 2008, Microsoft's Bill Gates thoughtfully commented that the world's problems are far too big for philanthropy and that business would itself have to be a force in solving the problem of global poverty. "We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well ... I like to call this idea creative capitalism."
True enough, while philanthropy has its place in development, global and local businesses are key drivers of sustainable economic growth. Sustainable economic growth relies on the ability of economies to generate jobs and livelihoods on an ongoing basis, and in most cases, such growth is deeply linked with the ability of local businesses to flourish, and of global companies to operate in these markets.
Even some skeptics of globalization have now come to recognize that the core business practices of global companies can have an enormous positive impact on local economies by improving the access of communities to markets, jobs, health care, capital, technology, standards, skills, and finance.
This article will highlight the ways in which the core business activities of global companies can enhance and drive economic development, particularly where these companies are mindful of local needs.
Beyond Philanthropy: Towards Sustainable Economic Solutions
Aside from providing crucial employment opportunities, global companies are also addressing continuous economic improvement in the countries where they operate, due to their dependence on global supply chains.
Global businesses have a vital stake in making sure their workers and suppliers in developing countries are productive and sustainable, which provides an impetus for investments in health, technology, standards, and skills in communities in the developing world.
But this is not enough.
For successful outcomes, many businesses are also partnering with other stakeholders such as governments, foundations, NGOs, local business partners, and multinational development agencies such as the World Bank and the UN.
Such partnerships are a critical tool for companies seeking to maximize the economic development benefits of their core business activities.
Consider the examples of major U.S. retail companies, Limited Brands and Gap Inc., which have successfully collaborated with the International Labor Organization on programs to enhance labor standards and productivity. Such efforts have played an important role in improving the apparel industries in several developing countries, while also enhancing the sustainability of these two companies' supply chains.
Programs like these can also bring new economic opportunities to developing countries. Trends in investment flows reveal that the primary factors influencing new investment decisions in developing countries are not wage costs but the productivity of workers and vendors and related improvements in labor, environmental, and other workplace issues.
IBM, Pfizer, Ernst & Young, and other companies deploy employee volunteers to developing countries in order to help build human and institutional capacity.
IBM has its version of the Peace Corps where younger staff members get assignments in the developing world to work on projects that utilize IBM's technology to provide computer training. While the company's On Demand Community program leverages its employees' skills and the firm's customized portal technology to facilitate skills development in the developing world, it also showcases the effectiveness of IBM's technology solutions to potential new customers.
Pfizer's Global Health Fellows Program each year sends dozens of skilled employees to address global health issues with nonprofit and government stakeholders in the developing world.
Meanwhile, Ernst & Young's Corporate Social Responsibility Fellows, skilled in business advisory services, are deployed to provide skills-based technical service to entrepreneurs at small- to medium-size firms in underprivileged communities in the Americas.
Other companies such as GE, Cisco, Starbucks and Accenture also have employee volunteer programs.
Chevron Corporation has programs to build technical skills and other educational services in developing countries to build and sustain a strong indigenous workforce. For example, Chevron has provided Nigerian youth with training on petroleum engineering — an essential skill in a region where many people rely on the oil and gas industry for their livelihoods.
The idea behind these projects is not only to make a difference in developing countries, but also to help develop a skilled workforce and managers who have more perspective and knowledge about the wider global market.
Global company investments in these types of development activities also benefit the company by enhancing brand reputation and building relationships with host governments.
Exxon Mobil is a further example of a company that has actively supported programs to bolster its workforce. The company has devoted particular focus on its employees in Africa, where it has significant operations, by investing heavily in fighting HIV/AIDS, tuberculosis, and malaria, and by dedicating resources to community disease control.
Products and Services for the Poor
There are also innovative ways in which businesses can and do build on their core business competence to deliver products and services that stimulate economic development in developing countries. The inherent nature of successful global businesses embodies a quick response to market needs and good returns to investment; which sometimes makes them particularly effective at addressing needs in the developing world.
In 2006, the financial services company American International Group (AIG) announced a $5.25 million partnership with microfinance institution Accion International to improve access to financial services for those facing poverty in emerging markets.
The aim was to develop a range of new initiatives and products extending from remittances and savings products to micro-insurance and housing loans, to meet the critical financial services needs of poor entrepreneurs, such as seamstresses, market vendors, bakers, and weavers to help them work their way out of poverty.
The phone company Motorola is selling $35 cell phones to developing countries in Asia and Africa, anticipating the needs in those countries. In some countries, poor farmers are using cell phones to find out the latest markets prices for commodities, thus enabling their businesses to stay profitable.
In other developing countries where banking services are costly to avail, cell phones are fast becoming a critical tool to expanding access to such services.
Procter & Gamble also has product lines customized to serve markets at the bottom of the pyramid. While India's economy continues to grow at a fast pace, statistics indicate that India has the world's largest number of children out of school. In an attempt to make a difference, P&G, in partnership with Child Rights and You, launched Shiksha, a national consumer movement that is making it easy for all consumers to help educate underprivileged children by simply buying any of P&G's large packs of Tide detergent, Pantene and Olay products, Vicks VapoRub, Gillette razors, and other products.
Rule of Law and Standards
Fostering rule of law and adherence to global standards are other areas where businesses are having a lasting impact on economic development and enhancing the quality of life.
Many global companies are promoting rule of law internationally by assisting in the development of legal capacity, increasing the transparency of the regulatory environment, and eliminating discrimination and corruption. Their work to advance the rule of law in a country is a key source of their credibility and legitimacy.
As CSR expert Jane Nelson at Harvard's Kennedy School of Government says, "The private sector can be much more involved in supporting and promoting good governance, especially in countries where there are governance challenges."
After decades of conflict, responsible global businesses and NGOs are also engaging each other in positive ways to solve important problems. This open dialogue between businesses and NGOs — and with governments — can lead to social progress while improving business efficiency.
When global companies engage directly with local groups and NGOs, it helps to empower these local groups and give them new found leverage and influence within their societies.
Global trade and investment, as well as grassroots business development at the "bottom of the pyramid," are essential drivers of economic development.
Businesses can increase their positive development impact through strategies that build on their core business competences, including the following measures:
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Incorporate economic-development considerations in to business planning
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Bring core business know-how to partnerships with NGOs, international institutions, and governments
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Develop CSR programs that are based on core business competences, extend and deepen the development benefits of the core business, and mitigate the social and environmental costs of economic development
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And by practicing targeted philanthropy to reinforce these development goals
Claude G.B. Fontheim is the CEO of Fontheim International, LLC; partner of Sonnenschein, Nath & Rosenthal; senior advisor to the Business Council for Global Development; and chairman of GlobalWorks Foundation. Shamarukh Mohiuddin is the director of the Business Council for Global Development.
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