Ethical Trade as a tool for Inclusive Development 


Published on

SATO Kan Hiroshi, Institute of Developing Economies
GDN 14th Annual Global Development Conference
19-21June 2013
Manila, Philippines

Published in: News & Politics
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • “ Inclusive Business” is fast becoming prominent especially among multilateral agencies. For example UNDP published a book entitled ”Creating Value for All” while IFC has organized the “Inclusive Business Leaders Forum”. This has further been consolidated by UN’s “Global Compact” agreement and UNDP’s “Business call to Action” initiative which are addressed primarily to private firms. There are many varieties of Inclusive Business models such as Cause Related Marketing including Fair Trade, Base of the Pyramid or BOP business, and so-called “Social Business”. Inclusive business is expected to contribute to inclusive growth, but the balance between business and development is delicate. This paper presents the case for “Ethical Trade as a tool for Inclusive Development”. The closer relationship between business, development and inclusive growth is important for several reasons. Development agencies have less resources and they need to rely on the private sector for dealing with development projects more efficiently. On the other hand business is required to be ethical and is obliged to solve social problems; otherwise it cannot sustain its long and complicated value chain. One of the key concepts for Business and Development combination is “Ethical”. Since global value chains become more and more interrelated, and the consumers in developed countries have more information about the living condition of producers of the goods they consume, a single “un-ethical” event on a value chain may damage the brand image of a global company. If being ethical pays off in the long run, each actor will have an incentive to be more ethical. That is the way business activities contribute to inclusive growth Now, the PowerPoint file I send you is not on CSR. This is about Inclusive business models such as BOP business, Cause Related Marketing including Fair Trade, and Social Business. The point I want to argue is how Inclusive growth can be realized in conjunction of Business and Development. If I will tailor this presentation in line with this year's GDN topic "Inequality, Social Protection and Inclusive Growth", tittle would be "Ethical Trade as a tool for Inclusive Development". I will argue that Business and Development are now approaching each other. The reason Development approaches to Business is lack of development fund and need for efficient management skill of projects. On the other hand, Business has also reason for approaching Development (or Ethical activities for solving social problems in the developing countries). Typical combination of Development and Business is Fair Trade that is directly interacting with marginalized producer in the developing countries with business approach. Base of the Pyramid business is another experiment of Business cum Development approach. There are several examples in Africa and South Asia of Social Business which is targeting to solve social problem through business activities. Dr.Yunus of Grameen is one of the opinion leaders for Social Business.Overall, key concept for Business-Development combination is "Ethical". Ethical Trade seems to be too naive and idealistic, but global value chains become more and more interrelated, each actor is requested to be Ethical because the consumers in developed countries have more information of their counterpart in developing countries. That is the way Inclusive development prevails in low income countries. 2013/6/20 satolan 2013 IDE-Jetro
  • BOP Business Lecture 2013/6/20 satolan 2013 IDE-Jetro
  • 時事トップセミナー 佐藤寛 2013/6/20 satolan 2013 IDE-Jetro
  • BOP Business Lecture 2013/6/20 satolan 2013 IDE-Jetro 経済産業省/ジェトロ  BOP ビジネスセミナー Ⓒ JETRO-PPP 2010ⓒJetro-PPP 2009
  • Ethical Trade as a tool for Inclusive Development 

    1. 1.  Ethical Trade as a tool forInclusive Development  GDN 14thAnnual Global Development Conference20 June 2013 Asian Development Bank ,ManilaSATO Kan HiroshiInstitute of Developing EconomiesPhoto by F.IkegayaPhoto by Sumitomo Chemical Col
    2. 2. Development and Business06/20/13 Ⓒsatokan 2013• ①People wants more efficiency forDevelopment / Aid industry needmore Fund for Achieving MDGs• ②Consumer demand more socialresponsibility for BusinessDevelopment(Aid)AltruisticEthicalBusiness(Trade)EgoisticEfficient①NeedsEfficiency ②NeedsSocialResponsibility①NeedsMore Fund2
    3. 3. Development sector’sapproach to Businiss• UNDP: Business call to action,GSB ( Global SustainableBusiness)• UN: Global Compact• IFC: Inclusive Business Leaders Forum• USAID:GDA ( Global DevelopmentAlliance )• DFID: Challenge Fund• JICA :BOP Business support grant  06/20/13Ⓒsatokan 20133
    4. 4. Why private businessshould be social/ethical ?• For the sake of avoiding boycott risk• For the sake of profit (BOP Business)• For the sake of sustainable supply chain.• ・・ But, the meanings of ethical varies:environmentally friendly, workplacecondition, living wage, no discrimination,philanthropic investment etc.ⓒsatokan 201106/20/13 Ⓒsatokan 2013 4
    5. 5. Avoiding Risks• Information of discriminated,oppressed, suffered and poor people ina value chain will spread quicklythrough advanced ITC and NGOnetworks.• Ethical Consumer “I don’t want to buySweat shop products”• High risk of Boycotting06/20/13 Ⓒsatokan 20135
    6. 6. と Manufacturing06/20/13 Ⓒsatokan 2013ProductionConsumersProcurementDistributionDevelopingcountriesIndustrializedcountriesValue Chain and RisksenvironmentChildlaborGlobal Value ChainsafetypriceManufacturingLivingwagesafety6
    7. 7. BOP Business• Business targeting at the lower incomestrata less than US$3,000 ( PPP ) .• Making goods and services affordableand available for BOP.• BOP are expected to be not onlyconsumers but also producers anddistributers (BOP 2.0).• BOP people are now included into Businesslandscape. =Inclusive Business.06/20/13 Ⓒsatokan 2013 7
    8. 8. Ⓒsatokan 2013Concept of BOP Penalty• BOP are considered as out of themarket and distribution network(exclusion) therefore ・・・・・・• They should buy with few choices• Lower quality (overdue, fake, inferior)goods, in exchange for higher money• Overcoming a lot of difficulties toaccess• Poor people are obliged to pay highercost than rich people ( BOP06/20/13 8
    9. 9. 06/20/13 Ⓒsatokan 2013Poverty Reductionthrough Consumption• If a good become available more easierand cheaper, life will be more stable• If a good become more durable andbetter quality ( even if the priceremain same ) , standard of life willbe uplifted.• Private investment for producingbetter quality goods with cheaper pricebenefits for economic growth andpoverty alleviation.9
    10. 10. 06/20/13 Ⓒsatokan 2013Concept of BOP Business• BOP people are Sleeping consumers• Low benefit but mass amount• Future Volume Zone• Poverty reduction through consumptionBase of the Pyramid    less than$3000PovertyReductionthroughConsumption10
    11. 11. 06/20/13 Ⓒsatokan 2013BOP Business Examples11Health :Privent MalariaElectricity: Education and healthTransportation: IncomeCommunication: OpportunityNutrition: Enjoy EatingCommunication :Security
    12. 12. Cause Related Marketing= CRM• Ethical as a tool for marketing• Poverty and development are verygood topic for CRM• Fair trade tells consumer that somepart of the payment will contribute thebetterment of producers life (not onlyliving wage but also education, healthand sanitation, infrastructure buildingand human rights)• Environmental certification are alsopopular. Ⓒsatokan 201306/20/13 12
    13. 13. 06/20/13 Ⓒsatokan 2013 13
    14. 14. Goodwill competition?06/20/13 Ⓒsatokan 2013 14Cadbury declared all Dairy milk will be100% Fair Trade cacao.      Nestle followed to make 100% FairTrade   KitKat  
    15. 15. Social Business• Variety of social business models areinnovated• Fee for Service/Cross Subsidy Pricing• Social marketing• Development oriented Socialenterprise・ Grameen model ofSocial Business = nodividend for shareholder06/20/13Ⓒsatokan 2013 15
    16. 16. Marriage ofDevelopment and Business• Business with Ethic and Developmentwith Efficiency will Overlap• Widening overlapping area may lead tomore inclusive developmentⒸsatokan 2013EfficientDevelopmentEthicalBusinessSocial BusinessSocialEntrepreneurPrivate companiesBOP Business06/20/13 16