Economic growth in emerging markets has outpaced the growth of the supporting institutions that make up the broader context in these markets. There are many “contextual gaps,” which can give rise to political,
social and environmental challenges. For businesses, both multinational and local, these markets offer some of the most promising growth opportunities. These businesses cannot afford to wait for governments, grassroots enterprises or civil society to close the contextual gaps; nor can they rely on prevailing business-as-usual practices to automatically overcome or resolve the gaps. Businesses must actively find ways to reinforce the contexts that support the very markets they need for sustaining their growth aspirations.
With emerging markets accounting for two-thirds of global GDP growth over the past decade and about 40% of current global output, investing in contextual strength is becoming an essential business need.
Consider the case of Yum! Brands. It derived about half of its revenues from China and faced a sharp decline in 2013 in the Chinese market because of an antibiotics scare in the local poultry supply chain. The company’s ability to grow in additional markets also ran into barriers: for example, the growth of its KFC franchise in sub-Saharan Africa was capped by the lack of local modernized poultry farming practices. Supply chain deficiencies are one facet of the contextual gaps we alluded to earlier. Alternatively, natural and environmental challenges and inadequate institutions to protect against them can represent a different form
of a gap. Consider the cases of Coca Cola and Nike. Both companies found that their global growth opportunities were at risk of being severely affected by environmental and climatic changes. Droughts, more unpredictable weather patterns, and more frequent major floods are threats to Coca Cola’s supply of key ingredients – such as sugar cane, sugar beets and citrus for its fruit juices – sourced from agricultural sectors highly dependent on natural water supplies. Similarly, Nike has had to contend with factory shutdowns due to floods in Asia.
In the face of these challenges, leading businesses are investing in initiatives to close the gaps through a variety of sustainable and inclusive business activities – we shall refer to them as SIBA – that address the contextual gaps and create social, environmental and economic value. Of late, numerous case studies and illustrations have appeared in the media, in corporate publications and in the academic literature that describe such activities.
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