And the raison d’être of companies in emerging countries?

Of Ivy Bucheassociate director of the Business Transformation Initiative at IMD Business School and PhD student at ESCP Business School.

Over the past decade, the corporate purpose has generated considerable interest among professionals and academics. However, this focus has mainly focused on developed countries and companies based in the United States and Europe.

But what about emerging markets? According to a 2021 IMF report, the top 20 emerging countries account for 34% of global nominal GDP in dollars and 46% in terms of purchasing power parity.

Filling the institutional gaps

How can companies’ raison d’etre play a role in enabling them to be successful? To do this, they must put it at the center of their strategy in order to redefine the rules of the game and reshape the value proposition, which will have an infinitely greater impact. This is exactly what Mahindra and Mahindra Financial Services (Mahindra Finance) and Hindustan Unilever Limited (HUL), in Mumbai, are doing to fill institutional gaps and seek inclusion in India.

Emerging markets are filled with these gaps, with institutions that can support the market and connect buyers and sellers, all of which are missing or ineffective.

Mahindra Finance has, for example, implemented its corporate purpose (RISE) to improve rural welfare by addressing one of them: establishing the creditworthiness of poor, illiterate and bankless farmers.

The latter were caught in a vice between banks, which refused them loans for lack of valid documents (no proof of identity, no guarantee, irregular income) and unscrupulous lenders who charged exorbitant interest rates.

Mahindra Finance decided to create a socially inclusive Pay & Earn business model that aligns with revenue, cash flow and operating surplus generated by the use of tractors. Thanks to a better understanding of the difficulties faced by clients, Mahindra Finance has progressively expanded its offering, becoming in less than two decades the largest non-bank financial services company in India.

Inclusive approach

In the same spirit, India’s largest consumer goods company, Hindustan Unilever Limited (HUL), has tackled inequalities, clearly felt in emerging countries in terms of income, gender, access and disparity between rural and urban areas.

HUL has taken an inclusive approach that what is good for India is good for HUL. Knowing that its millions of consumers were spread across all socio-economic strata, HUL focused on creating markets by addressing the entire pyramid.

The company used reverse engineering in product innovation, designed low-cost processing technologies, and developed partnerships with suppliers to offer products at different prices, breaking the income-access-consumption triad.

Do not give up

Another inclusive move by HUL was to restructure the company to establish itself in many Indian markets by addressing the nuanced local needs resulting from the country’s inherent heterogeneity. In addition, each HUL brand has taken a position focused on the purpose of the company that goes beyond the functional benefits of the product.

Take the example of its largest tea brand, Brooke Bond Red Label, whose creed is to celebrate coexistence without distinction of culture, gender and other differences.

Despite the risk of a negative impact on his image, he created the first transgender music group in India (6 Pack Band). This initiative affected consumers, as it aimed to make society more tolerant. Today, HUL is Unilever’s largest subsidiary in terms of sales, the second in terms of value globally.

Instead of resigning themselves to the difficulties of emerging markets, domestic and foreign companies can rely on the corporate purpose not only to achieve business success, but also to encourage positive change in the social, economic and environmental composition of the market.

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