Session 3.3 Understanding Corporate Impacts - Mandy Cormack
Transcript of Session 3.3 Understanding Corporate Impacts - Mandy Cormack
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Exploring the Links Between
International Business andPoverty Reduction:
a case study of
Unilever in Indonesia
An Oxfam GB, Novib, Unilever and Unilever
Indonesia joint research project
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Background
Why this research project?
Shared interest in increasingcontribution of international businessto poverty reduction
UN Global Compact/MDGs
What is this report about? a learning project; not an audit of
Unilever or UI. The goal: to understand how wealth
generated by a multinationalcompanys local operating company
can have positive or negative impactson people living in poverty To do this, we looked at UIs entire
value chain from small-scale producerto low-income consumer to understandthe points of entry and leverage toreduce poverty.
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Four areas of research
UIs macro-economic level impacts
UIs employment impacts
The value chain from supply to distribution
Low-income consumers in the marketplace
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The UI business
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Foreign exchange, trade & human resource flows
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UIs distribution of profits
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Value Chain
Estimated
employment linked
to UI value chain
(2003)
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Value Chain
Estimated
distribution of value
generated along UIs
value chain (2003)
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The supply chain
Direct suppliers
UI had 334 suppliers, spending approx Rp 3,591 billion (US$ 419m) 80% of suppliers are domestic, 20% are international Top 10 suppliers by value are all Indonesian and account for 34% of
purchases Domestic suppliers provided 84% of goods and services All UI suppliers required to observe Unilevers Code of Business
Principles UI maintains basic standards through negotiations, on-going dialogue, and
a rolling three-year audit programme
UI supplier companies exceed legal regulations governing wages andbenefits in Indonesia but pay and employment conditions for suppliersemployees and contract workers were lower than those for UIs directworkforce
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The supply chain (cont.)
Producers of raw materials
UI products are made from raw materials sourcedmainly from Indonesian producers, traders andprocessors
Producers growing agricultural products are among
the poorest people in UIs value chain Five agricultural raw materials entering UIs localsupply chain stand out in this regardtea, palmoil, cassava, coconut sugar, and black soybean
The market for coconut sugar a key ingredientfor Kecap Bangois characterised by oversupply,with farmers selling through middlemen andexperiencing high levels of debt which keep themin debt peonage
Where there is a business case for alternativesupply chains, these can have positive impacts forpoor producers
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The distribution chain
UIs distribution side of the value chain createsmore employment and value than the supplyside
The distribution chain creates twice as many
jobs (62.5%) as the supply chain side (27.1%) This includes thousands of jobs among an
estimated 1.8 million small stores and vendors This employment is often overlooked as a
contributor to economic development andpoverty reduction
The closer to UI that distributors and retailersare in the chain, the more likely they are to gainskills and knowledge, negotiate better pricesand conditions, experience higher employmentstandards and incomes, and be able to build upbusiness capital
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Value chain insights
Employment
More than 300,000 people (FTEs) make their livelihoods in UIsvalue chain
More than half this employment is found in the distributionand retail chain
Value
Total value generated along the chain was estimated atUS$633m: 1/3 UI 2/3 in the chain; the government receives(from UI alone) 26% of the total value generated
The value captured by poorer people working at either end ofthe value chain is much lower than the value captured by thosewho are in direct interaction with UI
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Lessons learned from project
Understand the job multiplier in UIs total value chain, and potentialuse of value chain policies as tool in sustainable poverty reduction
Value-adding activity creates a broad tax base - essential fordevelopment of formal economy and funding of governmentprogrammes
FMCG value chains can offer poor people an opportunity to gain basicskills and earn incremental, regular income
Although imperfect, may be useful first steps towards increasing skills,
accumulating assets, and improving quality of life The scrutiny of UIs relationship with low-income consumers and its
contractor review processes suggested ways in which the companycould improve its interactions with people living in poverty
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Lessons learned from
project
Highly embedded MNCs and large domestic companies might in
future provide a focus for useful work on private sector poverty
impacts and poverty reduction strategies. This project has increased our understanding of UIs impacts and
interactions with people living in poverty in Indonesia.
Gained a better understanding of the potential of distribution chains to
generate employment and income
But participation in value chains does not guarantee improvements forpoor people
Often difficult to define what constitutes fair practice by companies.
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Follow up actions
Unilever
Oxfam GB / Novib
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Exploring the Links Between
International Business andPoverty Reduction:
a case study of
Unilever in Indonesia
Questions & Discussion