Unilever in Indonesia – a case study

Unilever and Oxfam have explored the links between wealth creation and poverty reduction – how the local operations of a business such as ours can contribute to sustainable poverty reduction.

Understanding our contribution

In 2005 we published a detailed research report on the results of a joint project, involving Oxfam GB and Oxfam Novib (the Netherlands). The report focused on Unilever's operations in Indonesia. By mapping our impacts, we explored how business can contribute positively so that more people, particularly poor people, can benefit from involvement in business networks.

Unilever in Indonesia

Unilever has operated in Indonesia for more than 75 years and is deeply embedded in the local economy. Our business contributes directly to the country's tax base and employment, and has an extensive network of local suppliers and distributors. Approximately 95% of Indonesians use at least one Unilever product, including brands such as Pepsodent, Lux, Sunlight and Lipton.

Key findings

Our key finding from the research was that the potential poverty reduction impacts of a company such as Unilever Indonesia 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.

Unilever Indonesia employs about 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 Unilever Indonesia'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 in 2003 (the year the study focused on), 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.

Employment linked to Unilever Indonesia's value chain - estimate (2003)

By examining the jobs and the value created at each point in this chain, we learned a great deal about where companies can have the most positive and negative impact on poverty reduction. The value created by people working at either end of the value chain (for example in agriculture and retailing) is much lower than the value captured by those at the centre of the chain (companies directly supplying Unilever Indonesia). It is possible to increase the value created by people at the ends of the chain, for example through producer co-operatives or alternative supply-chain models.

But participation in value chains alone does not guarantee improvements in the lives of people living in poverty; other social institutions and resources are needed. Thus a joined-up approach to poverty reduction involving governments, international institutions, business and civil society organisations is essential.

What did we learn?

Both Unilever and Oxfam learned a tremendous amount from the research and the process of working together on this project. Such learning could not have occurred without intensive and often difficult debate, which contributed to constructive discussion and analysis.

Lessons learned from the research

While the private sector has an important role to play in the drive towards sustainable poverty reduction, for example in product delivery, wealth creation, skills transfer and so on, it is only one contributor. For optimum impact, a concerted effort is required between business, governments, international institutions, civil society and others.

For all participants, a persistent focus on the position of the individual living in poverty – whether man, woman or child – is essential when assessing impacts and developing solutions.

Analysis of private sector impacts needs to be more alert to the differences between multinational companies in different sectors and the different levels of integration into a local economy. For example, the Unilever Indonesia business is very different from some of the traditional targets of civil society campaigning, such as extractive or export-processing industries.

Fast-moving consumer goods (FMCG) company value chains can offer poor people an opportunity to gain basic skills within a structured learning environment and earn incremental, regular income. Such opportunities may be the first steps towards accumulating assets, increasing independence and improving quality of life.

However, from our research it also became clearer that participation in value chains alone does not guarantee improvements in the living conditions of poor people. For value chains to work for poor people, there needs to be other social institutions and resources in place, such as credit and saving schemes, marketing associations and insurance schemes.

Lessons learned from the partnership

This project represented a big step for Oxfam in its work with the private sector. They had never gone so far in exploring the motivations, trade-offs and choices that companies make in their operations.

This project was the first time Unilever had worked so closely with an NGO to analyse our social and economic impacts in a particular country. The research gave us new insights and information in a number of areas, including new perspectives and ways of looking at social issues.

During the project Oxfam and Unilever came to realise that, despite our very different missions and goals, we share a commitment to contributing to poverty reduction and economic development. The greatest differences between us were determined by our varying expectations of what companies can and cannot be expected to contribute to poverty reduction, the promotion of social and economic rights and national development. By the end of the project, we were much closer to understanding these limitations and opportunities.

The report is offered as a data-rich study of just one company, Unilever Indonesia, and its interactions with the people, business and economy of just one country, Indonesia. We hope that it will contribute to a greater understanding of the links between wealth creation and poverty reduction.