As income inequality grows, inclusive business models are crucial to engage all stakeholders. With an emphasis on “core business” rather than philanthropic work, the UN Global Compact paper explains what inclusive business models are and how they benefit companies and low-income populations. Subsequently, it develops solutions for various market constraints involved with such models. Finally, it identifies internal company barriers to implementing inclusive business models and ways to overcome them.

The paper begins by describing the benefits of inclusive business models and how they are conducive to profits and operational sustainability. The first argument is value creation and productivity. Building relationships between businesses and poor people not only yields higher and more sustainable earnings, but also drives innovation, strengthens markets and supply chains, and creates empowerment in communities. The second argument is growth and value chain security. By providing access to new markets, companies can increase their market share, strengthen supply chains and drive innovation. As a result, the company can empower its employees while gaining new customers. The third argument is risk management. Inclusive business models help to reduce reputational risk associated with social or environmental factors. They also reduce risk of high absenteeism related to employee health, and risk of low employment commitment.

The implementation of inclusive business models can present several market constraints; the paper identifies five of these, effective solutions for overcoming them, and examples of how this has been implemented by other organisations.

The first market constraint is limited market information about poor people, their preferences, and what they have to offer. To tackle this constraint, businesses should adapt products and processes. For instance, M-PESA created SMS technology that allows users to repay micro-finance loans for those with limited access to formal banks.

Another constraint experienced by inclusive business models is an ineffective regulatory environment. By engaging in policy dialogue with governments, businesses can inform the policy-making process to achieve greater impact.

Businesses operating in markets that include poor people may also encounter constraints in the form of physical infrastructure. Novartis’ Arogya Parivar initiative in India recruits locals as health educators in rural areas, overcoming cultural barriers surrounding treatment and showcasing the benefits of building on poor people’s social networks and engaging them as intermediaries.

Consumers’ lack of knowledge and skills around the benefits of potential uses of a particular product or service can also serve as a barrier to inclusive business models. In this case, businesses should invest in removing market constraints by increasing private investment or leveraging social capital.

The last common constraint is access to finance and resources, which businesses can overcome by collaborating with other organisations to pool resources.

This report is particularly relevant for employees of businesses that wish to scale inclusive business models internally. Common internal constraints include opportunity cost of investment, strategic and operational misalignment, and capability gaps. Solutions to these problems include obtaining leadership support, quantifying total value created, utilizing external partners, and bringing core capabilities in-house.

1. Inclusive business models are relevant for all sectors and produce a wealth of opportunities for businesses, including larger markets, increased revenues, stronger value chains, improved products, a motivated workforce, and a loyal customer base. This can lead to value creation and productivity, growth and value chain security, and risk management for companies.
2. Introduces the concept of the "base of the pyramid", being people living on less than US$8 per day, and discusses systemic problems low-income populations are subject to, such as lack of access to healthcare, infrastructure, sanitation, education, and so on.
3. Inclusive business models benefit poor people by improving quality of life, generating sustainable income opportunities, providing access to jobs and skill development, and empowering communities.
4. Identifies common market constraints to inclusive business, including market information, regulatory environments, physical infrastructure, knowledge and skills, and access to finance and resources.
5. Presents business solutions to market constraints, such as adapting products and processes, engaging in policy dialogue, leveraging strengths of all stakeholders, investing in markets, and combining resources and capabilities.
6. Provides an explanation of common internal barriers and respective solutions for entrepreneurs within large firms wishing to scale inclusive business models internally, such as quantifying total value creation, adopting a portfolio approach, utilising external partners, developing core capabilities in-house, and so on.
7. Includes a list of resources for those interested in reading further, including 'Business Fights Poverty', 'Harvard Business Review', and 'International Finance Corporation Inclusive Business Group.'