Supply Chain

Inclusive Business:
Is It About Cutting Out the Middleman?

I was fortunate enough to visit Manila in the Philippines recently for an interesting summit that was held by the Asian Development Bank and supported by CSR Asia. The event brought together a diverse group of participants from government, investment organizations, and people who work on the ground helping facilitate Inclusive Business (IB). IB can be seen as a variant of social entrepreneurship where large firms work to reduce the risk around partnerships with bottom of the pyramid entrepreneurs by treating them as part of the company that they serve.

By Chris Oestereich | Published 8 years ago | About a 4 minute read

I was fortunate enough to visit Manila in the Philippines recently for an interesting summit that was held by the Asian Development Bank and supported by CSR Asia. The event brought together a diverse group of participants from government, investment organizations, and people who work on the ground helping facilitate Inclusive Business (IB). IB can be seen as a variant of social entrepreneurship where large firms work to reduce the risk around partnerships with bottom of the pyramid entrepreneurs by treating them as part of the company that they serve. This could include sharing of expertise, providing equipment or funding, or offering guarantees around the purchase of the entrepreneur’s produce. In doing so, this allows the entrepreneur to focus more on delivering the end product, and less on things like sales and marketing.

At the IB Forum, ideas and hard-earned wisdom were in great supply. And many connections of the sort which will lead to the creation of good in the world were made. But I walked away from the event with some concerns. A couple of speakers espoused the benefits of cutting out middlemen as a win-win prospect. The claims were made as statements of fact—without any sort of justification. We’re left to assume that middlemen are purely parasites in need of removal.

It is true that some middlemen are exploitive? I know of one case in which fishermen took over those duties, and in doing so raised their income fifty times. But can we further say that this is always the case? I seriously doubt it.

If we're to believe that cutting out the middlemen is always a win-win, then we must assume that working with a middleman is inherently destructive. This further assumes that the middleman is always extractive — that none of them ever create any value. I hope this notion seems patently absurd, but it’s worth thinking through.

The common connotation of the “middleman” seems to be a negative one, but it does have multiple meanings. It can be defined as, “a person who is in a position to give you special assistance.”

Middlemen make profits. That's undeniable. If they didn't, they wouldn't be in business for long. If they're being exploitive, then I think it would be good to work to change the ways in which they do business, or if that’s not possible, remove them from the picture. But who determines when a business relationship is exploitive? Are there objective criteria? Or is this one of those "I know it when I see it," things? If you were a hard-working, ethical “middleman” who had spent years building your business, would you feel otherwise if your livelihood was wrested from you by an “inclusive” corporate initiative?

If we look at this in terms of a value chain, this outlook seems to “value” the endpoints, rather than the chain. If we’re going to start looking at things that way, I’d be pretty nervous if I was adding value anywhere in the middle.

To get to a place where we can feel that inclusive business is non-exploitive, I think we need to put a few things in place:

Two-way transparency across the value chain;
An agreed method for fairly sharing benefits; and
An evolving set of guidelines on how such partnerships should interact to help avoid obvious concerns.

Transparency is often a part of Inclusive Business deals, but I’m only aware of deals where the transparency flowed in a single direction. If the big firm at the end of the value chain squeezes out the middleman, and then gets to peer into the farmer's books, massive questions of ethics and power relations come into play. If a corporation then gets to set a farmer’s margins, do you think they would put themselves at risk of ever realizing a loss?

It's possible to see the act of cutting the middleman out as itself being an exploitive act. They may be edging out a value creating entity, and even if the middleman was acting unfairly, it's possible that the IB deal becomes equally exploitive. And there’s the possibility that the middleman was creating value that was being shared with the farmers. If that value is destroyed, the farmer could end up worse off in the end.

This article was originally published on CSR Asia Weekly on March 16, 2016.