The world's poorest population constitute a new market for multinational enterprises: the possibility to eradicate poverty
The United Nations' sustainable development goal for ending poverty will not be reached unless multinational enterprises work together with the local people. Concrete cooperation has become increasingly important, as companies see the world's poorest people – the so-called base of the pyramid – as a new market. This is revealed in an international study conducted at Lappeenranta University of Technology (LUT).
The world's poorest are becoming the next big market for multinational enterprises because reducing poverty by enhancing people's possibilities to take care of themselves also raises their standard of living. This group accounts for billions of people. According to the researchers, this may be a good premise to involve multinational enterprises in the promotion of sustainable development goals.
The study suggests that there are three critical measures to push multinationals to commit to the eradication of poverty and support the UN's sustainable development goals on the developing markets.
One of the most important measures is to improve the ability of the locals to take initiative and act. The more people are educated, the better their chances are of caring for themselves and others, and of obtaining work at some point.
"Training the local population of developing countries to help themselves is a more efficient way to eliminate global poverty than to provide foreign aid," states Professor Juha Väätänen, who headed the research.
On the other hand, local governments need to offer sufficient incentives for enterprises to consider the market valuable enough. After that, it is important to integrate the business with local activity. In other words, mechanisms must be created to enable the enterprises to cooperate with the locals. Also dialogue between government officials and the enterprises is important.
"In each country, we identified the same challenge: when the company came to the country, it did not maintain a continuous dialogue with the locals. Nevertheless, becoming involved in the local community is one of the most important ways to help end poverty."
The third critical measure was to have multinational enterprises demonstrate corporate social responsibility in their operation. Management plays a key role in this because only they have the power to implement the required steps. It is essential to make companies understand the positive effect corporate social responsibility has on business.
"We believe that investing in corporate social responsibility pays for itself in the long term, but its profitability must be proven to multinationals," says Project Manager Roman Teplov.
Based on the results of the study, the researchers outlined recommendations on how local government and multinational corporations could further the elimination of poverty. There were several recommendations, but in Väätänen's opinion, one of the most important ones involved improving the technological intensity of production in developing markets. This opens up many new channels to develop local know-how. For example, India's pharmaceutical industry is able to produce low-cost pharmaceutical products for the domestic market or collaborate in production internationally. This significantly improves the position of public health care in procurement negotiations for pharmaceutical products.
"In sectors that are critical to combating poverty, countries should invest in domestic production. This makes it possible to learn from other companies and establish a better negotiation position with regard to multinational enterprises," emphasises Väätänen.
The study was carried out as a part of the EU-funded research project MNEmerge (A Framework Model on MNE's Impact on Global Development Challenges in Emerging Markets). The research is based on a vast amount of data collected on three continents. The focus areas were information and communication technology, the food, pharmaceutical and sanitation sectors, and agriculture and rural energy. A total of 2400 households and 250 representatives of middle management, employees and stakeholders of multinational enterprises were interviewed.