WHAT’S better than giving rather than receiving? The government believes it’s receiving something after the giving and which could lead to equitable distribution of growth.
A Board of Investments (BOI) official calls such strategy as “Inclusive Business” or IB.
BOI Program Director for IB Melanie L. Moleño defines Inclusive Business as the engagement of the marginalized, or the low-income communities, into the management of big corporations.
In this engagement, the marginalized sector can be included in the core business as employees, suppliers, distributors and partners, she told the BusinessMirror.
“Why are we pushing for Inclusive Business? Because in social enterprises, they look at the impact—social impact more than communities,” Moleño said. “So they tend to see these projects [as], ‘Oh this will impact the community’ or ‘uplift the lives of the people’ or ‘improve the socio-economic status.’”
However, she said the initiative is at the expense of the revenues of the company.
“In IB, we’re looking at the win-win situation for both the community and the company. But the engagement increases the competitiveness of the company,” Moleño explained. “You don’t sacrifice your profit at the expense of social impact. Iyon yung kagandahan ng [That’s the beauty of] Inclusive Business.”
Continuum
FOR so long a time, capitalists have tried to bare their hearts out, initially calling such as acts of charity.
Then philanthropy came into the picture wherein the rich are photographed giving out checks representing a substantial share of wealth.
It was only after so-called activist shareholders prompted companies to bring philanthropy to another level. Thus, “corporate social responsibility,” or CSR, was born. This corporate strategy has evolved into several versions, like computer software, the recent one being “CSR 4.0.”
“Actually, [in the] continuum, when you come from CSR to IB— you look at Inclusive Business as the more mature among the [CSR] models,” Moleño told the BusinessMirror. “CSR could be plain philanthropy. You make it a little bit strategic, somehow connected [to your] business but still looking at the social impact more, then that’s [already] SE [Social Entrepreneurship.”
She claims that the Inclusive Business approach is “more sustainable [on the] side [of the] company and also [the] side [of the] community.”
“It [IB] encourages a long-term relationship between the two,” Moleño said. “[That is why we see it] as poverty alleviation approach.”
She further explained that the more companies engage the low-income communities, “the more that we improve the lives of the people.”
“Then, the economic growth of the whole country in general improves better. Which is why we are advocating for this as, I suppose, a better approach than SE.”
Criteria
MOLEÑO explained the 25 percent in cost of goods sold or cost of service is called as cost of sales and service for tourism business and cost of goods sold for businesses in agriculture.
That percentage must be sourced from the MSEs, she said.
“That’s one of the criteria,” Moleño added. “And the other criteria—they need to have at least 25 people in their operations as regular employees—meaning to say, at least minimum wage with all the benefits, directly hired. And, 30 percent of those hired should be women.”
Another criteria, she said, is that “we need to see an increase in income.”
“Before they hire the people, [what’s their] base-line income? The people we target are those at the below-poverty threshold. Specifically, [they are in the] databases of government agencies, e.g., 4Ps or the Pantawid Pamilyang Pilipino Program [the government’s conditional cash-transfer scheme], the indigenous peoples,” Moleño said. “We try to target these people.”
However, those not in the database of government agencies could still be hired as long as there’s a third party that could say they belong to the poverty threshold.
“Kasi hindi naman natin nasasabi na lahat nasa database. May process lang na magsasabi na si ganito, walang trabaho or kinikita niya is P100 a day lang [We can’t say all of them are in the database. There’s a process that could vet a person who is unemployed or is employed but earns only P100 a day].”
Moleño said a company must undertake a base-line study on these people and monitor them individually.
“And after the project—after three years, they will do an evaluation to compare the growth of their income from the start of the project.”
Models
MOLEÑO, however, said the company undertaking IB must also see its income grow.
“If you want it more mature [wherein] you don’t sacrifice your revenues then you engage in IB,” she told the BusinessMirror. “Hindi naman sila magkalaban, actually nagko-complement [Helping communities must also complement a firm’s revenue growth].”
The only thing with social entrepreneurship is, it’s still considered as MSMEs [micro, small and medium enterprises],” Moleño said. “In many instances, when you develop an IB model, you’re also engaging MSMEs or SEs sometimes.”
She further explained that having “engage-able income communities” means a company doesn’t engage individually.
“You engage a certain group, collectively. So you engage cooperatives or MSMEs and one of these entities could be an SE.”
Moleño said an SE may have an engagement with the community, “but it can’t scale up.”
“By the time [the entity has the capability to scale up], then that SE could be an IB entity.”
Moleño cited as example an agricultural company that sources from farmers but doesn’t buy a commodity per piece.
“So you look at an entity that can function as a consolidator, then you buy from that entity,” she explained. “Iyon yung entity na mag e-engage farmers directly [That’s the entity that would directly engage with farmers].”
According to the BOI official, the government is “also looking at the means.”
“When we engage the marginalized, it will also be the time that these people will need capacity-building, for example, because it’s difficult to find communities who can meet the standards of the company.”
She further explained these trainings are held for groups and not per individual.
“When it’s a cooperative, it’s just one training [session]. For the farmers, [if you’re a] company [you can do] technology transfer, [so the] community [can meet your] standards.”
Region
THE Philippines is the only country in Asia and among members of the Association of Southeast Asian Nations (Asean) that has an existing policy on Inclusive Business, according to Moleño.
On the regional level, there are still ongoing forums and workshops for the Asean policy makers, she said.
“It’s mostly raising awareness on IB. There has been a lot of discussions [at the] institutional level. Also, [it’s only the Philippines so far that has] specifics on [incentives] for IB models,” Moleño said, adding that the level of discussion at the Asean is still incongruous.
“When we talk about marginalized, [there are differences in the] definition. [For the Philippines], it’s more on economics. [But] when you talk to countries like Singapore, their marginalized population, it’s more on mental health issues.”
This is where interventions vary, according to Moleño.
“So, [our] approach [is] more on the incentives; it’s more economic also. You compensate the companies who are engaging in Inclusive Business models.”
Expenses
MOLEÑO said the raison d’être for offering incentives is the recognition that going into IB may be a very expensive effort on the part of the company.
“From the trainings, to facilitate all of these, [so that they can fully organize an] Inclusive Business model, it’s not cheap. So somehow, we see these incentives as sharing of costs. It’s a way for the government to say: ‘We will help you.’”
Moleño said there are different approaches for IB relative to each country.
“There’s a ‘Pay for Success’ model; wherein they ask the company to develop projects in which the company will engage the community. And then, it’s like the company would front load the expense for that.”
Once the project succeeds after a number of years, the government will pay back the expenses, Moleño explained.
“Everybody has their own interventions but I think it’s really only the Philippines who’s really pushing strongly for IB,” she said, adding that other countries still see such initiative as social entrepreneurship.
Poverty
MOLEÑO believes by offering incentives through IB, “you are kind of alleviating the people off of poverty.”
“Meaning to say, if they have the money, then they have the money to spend. If they don’t earn anything, then you don’t have the money to spend,” she told the BusinessMirror. “We’re looking at this as a more sustainable approach, because it addresses the economic issues.”
Moleño said while providing free medical check-up or tuition is okay, these do not address the economic side and only make people become dependent.
“But if you give them a long-term, sustainable source of income, they themselves can spend for the education of their children and for the other necessities,” she said. “We look at IB, actually, as a more sustainable approach; a long-term approach, toward poverty reduction.”
It is through the latter that the government believes would contribute to economic growth.
“We’re hoping that, since IB is focused on the marginalized sector, then the masses [can feel the] effect of economic growth.”
Inflation
GOVERNMENT data has revealed that inflation is hurting the bottom of the pyramid (BOP).
According to Moleño, how the government would contend with a high-inflation ecosystem as it pushes for IB with the BOP as key element is relative to certain factors.
But she noted the inclusion of IB in the Tax Reform for Acceleration and Inclusion, or TRAIN law, keeps the BOI optimistic.
“Kasi it’s being recognized as one of the potential areas where business can engage the marginalized sector,” she added. “However, [with regard to] inflation, we are hoping that with the provision of a stable source of income, employment, long-term marketing agreements and relationships ng company [with the marginalized sector] somehow could reduce the effect [of the TRAIN law].”
Moleño said the government believes inflation would not have much impact on the marginalized sector “if they have a stable source of income.”
This is why she is emphasizing that a company using an IB approach should also undertake an impact assessment, especially at the individual level.
“We want to see the time before he or she is employed, this is his or her income; then after the engagement, after the IB project, [what has happened to his/her income].”
One of the requirements, Moleño emphasized, is that the worker must receive a minimum wage. Or, if the worker already enjoys minimum wage, there must be a 20-percent increase in income. “That is our challenge, because even those with minimum wage are still below poverty threshold.”
Incentives
ACCORDING to Moleño, the government imposes requirements on a company using an IB approach.
For one, there is direct hiring at the local level.
“So, hindi siya dadaan sa manpower agency. Kasi when we post through the manpower agency, pwede siyang magpalit ng tao anytime. And then we don’t see the long-term impact that we’re trying to see,” she explained.
Also, the company is required to source 25 percent from MSMEs, which could be in the form of raw material or labor.
This is so that at least, there’s an assurance that 25 percent will come from, mostly, the locality, Moleño said.
“For example, if the firm’s financial statement is P1 billion, P250 million should come from MSMEs in order for the company to qualify for tax incentives.”
Moleño explained the incentives given by the government to IB projects are the same as any other priority activities, like income-tax holidays and other fiscal and nonfiscal incentives.
“However, it’s the only priority activity [that will give an] incentive because you are engaging the low-income community,” she said.
“As for the other incentives, if you’re familiar with BOI, you’re usually given incentives for putting up a power plant or a renewable-energy project, or you put up a port facility—anything under the IPP. This one [in IB], you are given incentives because you are engaging the low-income communities directly.”
Businesses in the tourism sector are required to hire local people if the IB model is used.
“To clarify, these incentives are given per project, not per company,” Moleño said.
For example, she said, a hotel chain that puts up outlets can apply for incentives for each one.
“Same thing with agriculture. However, the requirement for agriculture is a little bit high: 300 farmers or individuals engaged, [but it’s not] direct hiring [because] you don’t really hire for agriculture. So you can source from them, it’s mostly on sourcing raw materials.”
First
IN August the BOI approved the application of Seda Lio Resort as the first Inclusive Business model project under the current Investment Priorities Plan (IPP). Seda Lio Resort is a P1.7-billion hotel project of Ayala Land Hotel and Resorts Corp. (AHRC) approved by the BOI in 2017. The Seda Lio Resort is located within the sprawling 325-hectare Lio Tourism Estate in El Nido, Palawan, which is the first “ecologically sustainable tourism estate” by Ayala Land Inc. (ALI). Overall, the estate is managed by Ten Knots Development Corp. (TKDC), also an ALI subsidiary.
Nearly 90 percent of TKDC’s 341 employees come from local communities, according to a BOI document. The BOI said TKDC believes its Inclusive Business model that hits the quadruple bottom line is worthy of replication across the country.
“This is because their business model is financially profitable and creative in the ways it engages communities, protects the environment and upholds employees’ welfare.”
Inclusive Business models in the tourism sector like TKDC’s are preferred investment activities priorities under the 2017 to 2019 IPP, the BOI said. Under the IPP, inclusive business models in the tourism sector that integrate micro and small enterprises (MSEs) in their value chain may receive five-year tax holidays.
For a tourism enterprise to qualify for incentives, it should source at least 25 percent of total goods sold from MSEs. It should provide at least 25 direct jobs for individuals in select government databases such as DSWD Conditional Cash Transfer Graduates, Department of Agrarian Reform Beneficiaries and the like. There should also be a 20-percent increase in the average income of individuals engaged from MSEs. All of these requirements should be met within three years of operations.
Challenges
ACCORDING to a study conducted by the BOI on IB, companies have very low level of awareness when it comes to the Inclusive Business concept (where a mean score of 1.51 out of 7 was reached; 1 indicating “not aware at all”).
This year they plan on raising awareness for IB as well as reaching their quota of having five IB projects approved by the BOI. Currently only two projects are registered with the BOI as an IB model in the Philippines.
However, a book co-published by the League of Corporate Foundations (LCF) lists entities its executive director said “embody IB models as part of their system.” One of these is Jollibee Group Foundation Inc., the CSR arm of Jollibee Food Corp. that is notably under public scrutiny for practicing contractualization.
According to Helen O. Orande, the LCF began its road to IB in 2013 when it held a conference “to refocus efforts in making a genuine impact in contributing to more inclusive economic growth.”
“On the same year, in one of the LCF general assemblies, we have again invited several resource speakers in our learning session to talk more about Inclusive Business and how to integrate it to the business framework,” Orande, LCF executive director, said.
Image credits: LIO.SEDAHOTELS.COM, Board of Investments