A ground-breaking project
"It would take a good deal of courage, some would say foolhardiness, for a multinational company operating in impoverished parts of the world to open its internal documents to scrutiny to campaigners for fairer globalization. But that is what Unilever has done in a groundbreaking project with Oxfam that sets out to explore the fraught question: does international business investment help or hinder the fight against poverty?"
(The Financial Times, December 7, 2005)
In 2004-5 Unilever worked closely with Oxfam GB and Novib (Oxfam Netherlands) on a research project to increase our understanding of the impacts of business on the lives of poor people.
Together we looked closely at our business in Indonesia (Unilever Indonesia) – a country where we have operated since 1933. The product of our collaboration was a joint research report: Exploring the links between international business and poverty reduction: a case study of Unilever in Indonesia.The report focuses on the potential links between international business and poverty reduction. It explores how, and to what extent, our business operations have an impact on poverty in Indonesia – both positive and negative. It looks at the impact of Unilever Indonesia's (UI) entire value chain, from its interactions with small-scale producers in the supply chain to those with low-income consumers.
Why did we do it?
The first question asked about this report is: why did you do it? The answer for Unilever is two-fold. First, our business engages in many ways with poor people around the world as producers and consumers. Second, the Millennium and Johannesburg Declarations (2000, 2002) place poverty eradication at the centre of global strategies for sustainable development. To play our part, and support the Declarations, we needed to increase understanding of the impact of the operations of a business like ours on the lives of poor people.
Different industries interact in different ways with society. We believed that there were useful lessons to be learned from exploring how industry structure, operating practice, and, indeed, individual company values could, through wealth creation and the provision of goods and services, play a part in sustainable poverty reduction.
What did we do?
Together we developed a research programme to explore the nature of UI's business and to understand where and how the business potentially impacts on people living in poverty.
A team of independent researchers in Indonesia looked at the impacts of UI:
- at the macro-economic level (including flows of investment and shareholder returns);
and at its:
- employment policies and practices (wages and standards, both for employees and contract workers);
- relationships in its value chain from supply through distribution;
- relationships with poor consumers in the marketplaces;
- and wider impact in the community.
What did we learn?
Our key finding was that the poverty reduction impacts of a company like Unilever Indonesia (UI) are spread across the full breadth of its 'value chain': the long chain that links raw materials providers and other suppliers to the manufacturing of products, then through product distribution and retail outlets to the consumer. By examining the jobs and value created at each point in this chain, we learned a great deal about where companies can have most positive and negative impacts on poverty reduction. Some of the key findings of the research on UI's 'value chain' were:
- Unilever Indonesia's core workforce includes approximately 5 000 people, of whom 60% are direct employees, and 40% are contract workers. In addition, nearly 2 000 people are employed in factories solely making Unilever products under contract.
Indirectly, however, the full-time equivalent of about 300 000 people make their livelihoods in UI's value chain. - More than half of this employment is found in distribution and retailing, among an estimated 1.8 million small stores and street vendors.
- Of the total value created, around two-thirds is distributed to participants other than Unilever Indonesia, such as producers, suppliers, distributors, retailers and the Indonesian government which receives an estimated 26% of the total.
- The value created by people working at either end of the value chain is much lower than the value captured by those at the centre of the chain who are in direct interaction with, or part of Unilever Indonesia.
The value created by people at the ends of the value chain increases where such people have a stronger negotiating position in relation to their product or service, where value chains are restructured to change the distribution of benefits, or where people can increase the value of their products or services, for example through innovation. - Participation in value chains such as Unilever Indonesia's does not automatically guarantee improvements in the lives of people living in poverty.
For supply and distribution chains to benefit poor people even more, there need to be other social institutions and resources in place such as credit and saving schemes, marketing associations, and insurance schemes as well as diversification of income streams to reduce dependency on any single company or market.
Conclusions
The Exploring the Links report provides an unusual example of a private sector business and an NGO working together to share insights and jointly explore the links between their activities. The report is first and foremost a 'learning' project. In the end, both organisations came to realise that, despite our very different missions and goals, we share a common commitment to contributing to poverty reduction and development.
Next steps
Building on the lessons learned from our work in Indonesia with Oxfam, we asked Professor Ethan Kapstein of INSEAD (a leading European business school), to look at our footprint in South Africa. The report, called "Measuring Unilever's Economic Footprint: The Case of South Africa", focuses on Unilever's impact throughout the South African economy. The study builds on the Indonesia research with a more formal way of measuring the economic impact on jobs and incomes, using an 'input-output' analysis.
