‘Inclusive business’ is a relatively new term for the global business community, but its principles have been at the heart of Japanese policy making and business culture for some years.
The definition is quite clear. Firstly, an inclusive business should be financially viable. Secondly, it should benefit low-income communities by expanding opportunities and access to fundamental goods, services or wages for the poorest. It is a business initiative that, whilst maintaining its for-profit nature, contributes to poverty reduction through the inclusion of poor communities in its value chain.
In recent years the Japanese government and Japanese industry have been particularly focused on inclusive business models. Why?
At a time when developed markets are undergoing relative contraction, it is necessary to look at new ways to capture new markets. Many Japanese businesses enjoy an advantage in high-end segments of the economy. Government and business understand the need to recognise the numerous middle-income markets in developing countries. At the same time, economic cooperation with developing economies contributes to the resolution of the many social issues of developing countries, such as poverty, health and sanitation problems that are derived from low incomes and inadequate infrastructure. Using innovation to resolve these problems can create a mutually beneficial, win-win situation for all players.
Pursuing inclusive business strategies has enabled the Japanese Government to achieve sustained, effective economic cooperation through public-private alliances. It has boosted the global business presence and recognition of Japan, and has also enabled Japanese businesses to access new markets, innovate by creating new products, services, sales routes, or partnerships and build reciprocal alliances with other companies, governments, aid organisations, NGOs and social entrepreneurs.
So how does an inclusive business work in practice?
A good example is a water supply business in East Manila, in the Philippines. The company never excluded the areas where customers could not afford to pay for the service. It gained margins from other areas and compensated the inevitable loss from this profit. Some years later, with the economic expansion of Manila, these poorer areas of difficult management started diminishing and the company now possesses a relatively large area of clients. The Japanese trading firm that supported the company from the start was integral, shaping this inclusive business strategy.
Another example is that of a Bangladeshi-Japanese agricultural business. The firm, which grows soya beans, recruited local women in remote villages to grow, gather and select seeds. Seeds suitable for consumption as beansprouts were exported to Japan, whilst the remaining seeds suitable for domestic cooking were sold cheaply to the workforce, enabling them to sell these on the local market. The ratio between the two types of seeds is almost 50:50. This business created both employment and revenue for local villagers.
Let us look more specifically at how inclusiveness shapes different Japanese businesses. There are three characteristics that define the typical structure of Japanese small and medium-sized businesses (SMEs).
Firstly, Japanese SMEs have been very active and innovative within their local communities, contributing to the expansion of local social welfare.
Secondly, Japanese SMEs usually have efficient on-the-job-style training systems. There are many companies in Japan where managers take responsibility for the maximisation of their workers’ education and welfare.
Thirdly, philanthropic activities, additional to the company’s main purpose, are popular in Japan. The strong sense of unity between employers and employees means it is relatively easy to achieve consensus for this within a typical business.
“The three principles of innovation, training and philanthropy”
These principles are evident in a typical inclusive Japanese SME business. For example, several years ago, one SME in Osaka succeeded in creating a powder extracted from fermented soya beans that is capable of removing dust from contaminated water. One tonne of contaminated water can be purified for around one dollar. The owner employed local women in Bangladesh, India and Tanzania and advised them to sell the powder in very small packages, so that even the poorest customers could buy them. He intentionally included remote areas in his market. He spent a lot of his time training women to explain correct usage of the product to local villagers. Many Japanese young people joined his company to support its philanthropic work.
In Dhaka, Bangladesh, one Japanese sister and brother developed and created a system of pre-paid travel cards for local commuters to resolve the chaotic ticketing situation. Their technological experience meant they were able to create the structure very cheaply. In Phnom Penh, Cambodia, a Japanese businesswoman set up an investment fund to assist farmers in creating value-added products like honey. She succeeded in securing assistance from Japan’s top honey brand, enabling the success and profitability of a number of local farms.
Whilst these conscientious business activities are not exclusively practiced by Japanese SMEs alone, it seems that the three principles of innovation, training and philanthropy, which lie at the heart of Japanese business structure, mean they are better able to exercise and disseminate the idea of inclusive business in various countries throughout the world.
I would now like to examine the issue of inclusiveness within big business in Japan. Large Japanese companies have a history of training their foreign employees in Japanese business practices, often using training courses offered by the Japanese government. Some of these foreign trainees will go on to become ministers or business leaders in their home countries. They voluntarily establish alumni associations throughout the world, in countries such as Africa, China and India. They diffuse Japanese management style to local businesses, and in doing so increase the mutual welfare of local communities.
Examples include a distribution process for the sale of Lactaid milk, a system that was created in Japan almost 50 years ago. Today, more than 40,000 local women distribute the product every morning in Brazil, Indonesia, Korea, Thailand and 30 other countries.
Another Japanese company, which produces outboard motors, has taught local people in seaside villages in Africa, Asia and South America, how to create and manage their fishing businesses. This includes basic commercial practices, and also includes training on the efficient usage of outboard motors. As a result, this company has gained the top share in these markets.
Taking the technological and training needs of local employees into account has enabled these companies to increase social welfare whilst growing their businesses.
Two professors at Harvard and MIT recently published a book called Why Nations Fail, in which they presented the worlds of inclusive and extractive institutions as comparative notions. They recognise inclusiveness as a fundamental keyword for economic development. As I explained above, Japanese SMEs and big businesses have great potential to contribute by nurturing the concept of inclusiveness and developing this notion of mutuality. Inclusiveness will be a keyword that will represent Japanese business both at home and as a global force abroad in the 21st Century.