As the early pioneers raced ahead of America’s great waves of settlers and industrialization, the rest of the world got used to looking ever further westward for the frontiers of innovation. For a while the spotlight played around Boston and Pittsburgh, then shifted to Detroit, before jumping across to the West Coast. You could even argue that this westward shift continues via Japan, China and India. Certainly, as social and environmental factors begin to drive innovation, it pays to look further afield. SustainAbility has recently explored the experience of some extraordinary companies based in emerging markets. Strikingly, such countries now look set to become leading-edge laboratories on how to make business sense of sustainability.
Not that it should come as any great surprise that the centre of gravity is shifting in terms of global experimentation, particularly now that the collective gross domestic product of emerging economies exceeds that of the developed economies. The amount of foreign direct investment into developing countries has grown enormously, as has the amount flowing out. Foreign direct investment from developing countries amounted to $120 billion in 2005, up from just $16 billion in 2002. Witness the acquisition of the Anglo-Dutch group Corus, one of the world’s largest steel producers, where India’s Tata Steel won out over another emerging economy rival—Brazil’s CSN.
None of the companies we investigated were in steel: instead, Brazil’s Amanco makes pipes; China’s Deqingyuan produces healthier eggs; India’s Jubilant Organosys is in speciality chemicals and pharmaceuticals; and Sri Lanka’s MAS makes apparel for companies such as Gap, Victoria’s Secret, Marks & Spencer and Nike. (Some members of the Bhartia family, which runs Jubilant, have a majority stake in HT Media Ltd, publisher of Mint.) We looked for the critical factors, including market access, access to capital, risk management, operational efficiency, human capital, and brand value.
Here are the five that continuously bubbled to the surface. The first really should come as no surprise— it is the quality of leadership. The role of the CEO or chairman is crucial in pushing through strategies based on sustainability. This link is even stronger among the family-owned companies common in emerging economies. Simplicity helps, too. Zhong Kaimin, Deqingyuan’s founder, has a clear goal—to provide healthy eggs for his family, friends and the people of Beijing.
Second comes integration, with key sustainability factors—particularly those linked to ethics, governance, environmental and social performance—embedded from the outset in any new venture or business. At the same time, it is interesting to note that as Jubilant was moving up the value chain from basic chemicals to speciality products, its cost competitiveness was greatly boosted by a number of highly integrated manufacturing facilities, ensuring the productive use of by-products, effluents and wastes.
The third key factor was the one that people all too often focus on first, innovation. Our successful companies had learned to see things differently. Instead of seeing social and environmental challenges as a source of friction, Amanco has learned to look at emerging tensions as a fruitful source of new thinking on products and services —particularly when, in its case, it comes to supplying irrigation systems for low-income farmers.
The fourth item on our checklist is differentiation. So, how can a company, product or service stand out in the marketplace? In Sri Lanka, MAS has taken on the daunting task of producing highly sophisticated garments in a country where they had never been manufactured before. Interestingly, the company chose to build its factories away from the main pools of skilled labour, then identified and met the main needs of its employees and local communities. That, in turn, helped MAS differentiate itself clearly in the eyes of key clients.
The final factor is the quality of relationships across the stakeholder spectrum. While this is also true in developed countries, the emphasis may be greater in emerging economies where institutional frameworks and systems are often weak. For example, Deqingyuan’s high-quality operations risk being compromised if bird flu developed in local communities. The company has a pact with its neighbours, first providing them with high-grade organic fertilizer to enable them to grow corn, which it guarantees to buy as feedstuff at a higher-than-market price, and second, giving them cheap eggs in return for them not breeding their own chickens.
For those without the time to board an immediate flight to Beijing or São Paulo to probe such businesses in depth, the key takeaway is that success in terms of emerging sustainability requirements is no different from success in business-as-usual. Increasingly, the challenge is to anticipate and manage changes in the operating environment, including wider economic, social and environmental conditions. As one of our interviewees succinctly put it: “Twenty-first century companies need to integrate themselves more closely with what is happening in society in general. Those that don’t will be relegated to Jurassic Park.”
The emerging economies are also fascinating as test beds for new entrepreneurial solutions to challenges such as poverty and access to clean water, affordable drugs and sustainable energy. That’s why I have spent much time on tracking down such people and understanding what drives them, how they do what they do and how we can all help them. The lessons learned will be shared in a book to be launched by the Harvard Business School Press in February. This is The Power of Unreasonable People, which I have co-authored with Pamela Hartigan of the Schwab Foundation for Social Entrepreneurship. Being unreasonable, we conclude, is a process by which older, outdated forms of reasoning are jettisoned and new ones conceived and evolved. And it is something we are all going to have to get much better at.
John Elkington is founder and chief entrepreneur at SustainAbility (www.sustainability.com). Comment at firstname.lastname@example.org