Capitalism at the Crossroads – Becoming Indigenous

Becoming Indigenous

The Monsanto experience holds an important lesson: If corporate sustainability strategies are narrowly construed, they will fall seriously short. It is not enough to develop revolutionary technology with the potential to leapfrog currently unsustainable methods. Antiglobalization demonstrators have made it apparent that if corporate expansion is seen to endanger local autonomy, it will encounter vigorous resistance. Multinationals seeking new growth strategies to satisfy shareholders increasingly hear concerns from many quarters about consumer monoculture, labor rights, and cultural hegemony. As long as multinational corporations persist in being outsiders—alien to both the cultures and the ecosystems within which they do business—it will be difficult for them to realize their full commercial, let alone social, potential.

Today corporations are being challenged to rethink global strategies in which one-size-fits-all products are produced for the global market using world-scale production facilities and supply chains. Even so-called locally responsive strategies are often little more than pre-existing corporate solutions tailored to “fit” local markets: Technologies are frequently transferred from the corporate lab and applied in unfamiliar cultural and environmental settings; unmet needs in new markets are identified through demographic (secondary) data. The result is stillborn products and inappropriate business models that fail to effectively address real needs. As GE CEO Jeff Immelt recently noted, existing large corporations will be pre-empted by more nimble local players from the developing world unless they learn how to innovate from the ground up—what he calls “reverse innovation.”³⁸

[wcm_restrict]Indeed, in response to the failure of traditional development assistance and large corporations’ inability to effectively address the needs of the poor, “social entrepreneurship” has burst onto the scene.³⁹ Rather than innovating from within existing institutions, this new breed of change agent seeks to launch new enterprises that address directly the problems of poverty, inequity, and unsustainability. Led by organizations such as Ashoka and Grameen Bank, there are now thousands of such fledgling enterprises around the world, each seeking to develop the new strategies and business models needed to catalyze social change.

The past decade has also seen the emergence of a new brand of financier—the “patient capitalist.” Patient capitalists are not aid agencies or large corporations, but rather groups of investors and intermediaries focused on supporting small, high-impact entrepreneurs on the ground. This emerging sector includes groups such as the Acumen Fund, E+Co, Root Capital, Grassroots Business Fund, Intellicap, Microvest, New Ventures, and Technoserve. Taken together with the rapidly growing social investing, clean tech investing, and microfinance sectors, we are witnessing the birth of an entirely new industry—impact investing. Indeed, at the 2009 Clinton Global Initiative, the Global Impact Investing Network (GIIN) was announced as a vehicle for accelerating the development of this new financial sector.

Clearly then, the next challenge for large corporations will be learning how to become “indigenous” to the places in which they operate (see Exhibit 1.2). Doing so will require that they first widen the corporate bandwidth by admitting voices that have, up to now, been excluded; this means becoming radically transactive rather than just radically transparent. It will also entail the development of new “native” capabilities that enable a company to develop fully contextualized solutions to real problems in ways that respect local culture and natural diversity. When combined with multinational corporation’s (MNC) ability to provide technical resources, investment, and global learning, native capability can enable companies to become truly embedded in the local context. It was with this realization that I embarked on a new professional challenge in 2003, having accepted the Samuel C. Johnson Chair in Sustainable Global Enterprise at Cornell University’s Johnson School of Management. Our initiative at Cornell has spawned a new effort, the Base of the Pyramid Protocol, which seeks to develop a practical approach for becoming indigenous.

Unilever’s Indian subsidiary, Hindustan Lever Limited (recently changed to Hindustan Unilever Limited), provides an interesting glimpse of the development of native capabilities in its efforts to pioneer new markets among the rural poor.⁴⁰ Hindustan Lever Limited (HLL) requires all employees in India to spend six weeks living in rural villages, actively seeks local consumer insights and preferences as it develops new products, and sources raw materials almost exclusively from local producers. The company also created an R&D center in rural India focused specifically on technology and product development to serve the needs of the poor. HLL uses a wide variety of local partners to distribute its products and also supports the efforts of these partners to build local capabilities. In addition, HLL provides opportunities and training to local entrepreneurs and actively experiments with new types of distribution, such as selling via local product demonstrations and village street theaters.

By developing local understanding, building local capacity, and encouraging a creative and flexible market development process, HLL has been able to generate substantial revenue and profits from operating in low-income markets. Today more than half of HLL’s revenue comes from customers at the base of the economic pyramid. Using the approach to product development, marketing, and distribution pioneered in rural India, Unilever has also been able to leverage a rapidly growing and profitable business focused on low-income markets in other parts of the developing world. Not surprisingly, Unilever has encountered challenges and bumps in the road in its journey to reach the base of the pyramid; these are discussed in later chapters. Importantly, however, through its strategy, the company has created tens of thousands of jobs, improved hygiene and quality of life for millions, and become a partner in development with the poor themselves.

The Road Ahead

To summarize, the greening initiatives of the late 1980s and early 1990s were revolutionary, if insufficient, steps: They repositioned social and environmental issues as profit-making opportunities rather than profit-spending obligations. More recent “beyond greening” strategies are even more significant: They hold the potential to reorient corporate portfolios around inherently clean technologies and create a more inclusive form of global capitalism that embraces the four billion poor at the base of the economic pyramid. If narrowly construed, however, such strategies still position MNCs as outsiders, alien to both the cultures and the ecosystems within which they do business. The challenge is for multinationals to move beyond “alien” strategies imposed from the outside to become truly indigenous to the places in which they operate. To do so will require companies to widen their corporate bandwidths and develop entirely new “native” capabilities that emphasize deep dialogue and local codevelopment. A more inclusive commerce thus requires innovation not just in technology, but also in business models, business processes, and mental frames.

Indeed, over the past ten years, “Clean Technology” and “Base of the Pyramid” strategies have exploded onto the scene, and social entrepreneurship has emerged as a new force for innovation. Each strategy provides important pieces to the sustainable enterprise puzzle: The former contributes “next generation” technologies with dramatically lower environmental impacts, and the latter creates innovative new ways to reach and include all of humanity in the capitalist dream. Yet each also comes with its own baggage and blind spots. Therefore, a crucial next step is to converge these strategies into what I call the “Green Leap.” Such a strategic convergence recognizes that clean technologies are almost always “disruptive” in character. (That is, they threaten incumbents in current served markets at the top of the pyramid.) As a result, the base of the pyramid might be the best place to focus initial commercialization attention. At the same time, the Green Leap approach also recognizes that successful strategies must be cocreated with communities and local partners so as to ensure cultural embeddedness, rather than imposing technological solutions from the top down.⁴¹

Given the urgency of both the need and opportunity described here, Cornell’s Center for Sustainable Global Enterprise launched the Cornell Global Forum on Sustainable Enterprise—an initiative to accelerate the rate of change toward this Great Convergence in the world. Indeed, nearly 100 of the world’s leading practitioners on the forefront of the “Green Leap” participated as delegates to explore entrepreneurial strategies for the growth and scaling of ventures in the “convergence zone.” The inaugural Global Forum was held in New York City, June 1–3, 2009, and the plan is to build this initiative into a growing global social network and an ongoing business movement.

Thus, as we enter the second decade of the new millennium, capitalism truly does stand at a crossroads. The old strategies of the industrial age are no longer viable. The time is now for the birth of a new, more inclusive form of commerce, one that lifts the entire human family while at the same time replenishing and restoring nature. The path to a sustainable world, however, will be anything but smooth. It will be a bumpy ride strewn with the remains of companies that variously dragged their feet, made promises they could not keep, bet on the wrong technology, collaborated with the wrong partners, and separated their social and business agendas. Only those companies with the right combination of vision, strategy, structure, capability, and audacity will succeed in what could be the most important transition period in the history of capitalism.

-This is part 3 of a 3 part series excerpted from Stuart L. Hart’s, Capitalism at the Crossroads (3rd Edition), published by Wharton School Publishing, an Imprint of Pearson.

Sources

38. Jeffrey Immelt, Vijay Govindarajan, and Chris Trimble, “How GE Is Disrupting Itself,” Harvard Business Review, October 2009.
39. See John Elkington and Pamela Hartigan, The Power of Unreasonable People, (Boston, MA: Harvard Business Press, 2008).
40. Brian Ellison, Dasha Moller, and Miguel Angel Rodriguez, Hindustan Lever: Reinventing the Wheel (Barcelona, Spain: IESE Business School, 2003).
41. Stuart Hart, “Taking the Green Leap,” Cornell University, Working Paper, 2009.

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About the Author

Stuart L. Hart, author of Capitalism at the Crossroads, is the Samuel C. Johnson Chair of Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. Professor Hart is one of the world’s top authorities on the implications of sustainable development and environmentalism for business strategy. He has published over 50 papers and authored or edited five books. His article “Beyond Greening: Strategies for a Sustainable World” won the McKinsey Award for Best Article in the Harvard Business Review for 1997 and helped launch the movement for corporate sustainability. To read Stuart’s complete biography, click here.