Inclusive Business: The Next Frontier of Fashion
In an increasingly competitive world, global companies are often measured on the social and economic value they create. Inclusive Business has primarily been the domain of social entrepreneurs in hot pursuit of achieving financial and social success. However, there is increasing evidence that multinational companies are getting in on the game to build sustainable business models that expand market share and address systemic social issues, such as poverty. Inclusive Business is defined as a profitable core business activity that expands opportunities for disadvantaged and marginalized populations by helping them become market players. Yet Inclusive Business models differ from philanthropy and charitable giving because they respond to market demand and success is based on a double bottom line. Taking a cue from social enterprises, many of which are small to medium enterprises or startups, established multinationals are seeking ways to use the whole of the business—from supply chains, to alternative sourcing strategies to market penetration—to make a socio-economic impact in developing and emerging markets.
To date, the Inclusive Business movement has been led by the Food and Beverage, Energy, and Agriculture industries. Increasingly, it is non-traditional players like the fashion industry that are transforming global commerce by launching Inclusive Business models designed to alleviate poverty through job creation, access to markets, education, and training. From UNIQLO’s Inclusive Business in Bangladesh that engages low-income populations in planning, production, and distribution of a t-shirt line, to kate spade’s Hand in Hand Collection that is sourced from women-only artisan groups in post-conflict countries—the fashion industry is expanding the value chain to help reduce poverty by including those at the base of the pyramid[i] as suppliers, producers, and consumers.
The fashion industry is not only taking the lead in the private sector, it is also being called upon by development and aid organizations to be a changemaker at the forefront of sustainable development. Awareness raising campaigns, such as the United Nations’ Fashion 4 Development, and multi-stakeholder partnerships like the Ethical Fashion Initiative are helping to ensure that the world’s most marginalized populations, a majority of whom are women, are able to connect to the top of fashion’s value chain. According to the Secretary-General of the United Nations, Ban Ki-moon, “joining forces with civil society and the private sector, including non-traditional players, like the fashion industry, has become indispensable.”[ii]
Motivation, Drivers, and Business Benefits
With ever-changing market trends, aggressive production schedules, and the unyielding pressure to manage costs, profitability is still the reigning queen of fashion. Yet in spite of these market pressures, the industry has an extraordinary ability to utilize Inclusive Business models to engage consumers on the issue of poverty and achieve its core business goals of growth and profitability.
Fashion businesses typically require relatively little capital or infrastructure and are often the first step for industrializing economies, which means that there is great potential for the fashion industry to play a leadership role in developing business models that help alleviate poverty. In Bangladesh, a least developed country, 70% of the gross domestic product is derived from the fashion industry. Oxfam, the international development organization devoted to poverty eradication and justice, notes that, “If Africa, East Asia, South Asia, and Latin America were each to increase their share of world exports by 1 per cent, the resulting gains in income could lift 128 million people out of poverty.”
The purchasing power of key markets around the world is yet another reason to take notice of the fashion industry’s tremendous capacity to help alleviate poverty. According to Marketline's February 2012 Industry Profile on Global Apparel Retail, the world's consumers spent approximately$1.2 trillion on clothes. Approximately 35 per cent of sales were in Western Europe, 36 per cent in the Americas, and 25 per cent in Asia. Over the past several months there have been countless articles hailing Africa as the next retail frontier for fashion, and in the last decade African economies have been growing at a rate that rivals China, India, and Brazil, according to the World Bank. The Business of Fashion magazine notes that “seven of the world’s 10 fastest-growing economies are currently in Africa, with 70 percent of the continent’s population living in countries which have enjoyed average economic growth rates in excess of 4 percent over the past decade. This steady progress has given rise to a growing middle class. In fact, approximately 310 million people on the continent are now deemed middle class (defined as those spending between $2 and $20 a day at 2005 prices) according to a 2011 report by the African Development Bank, driving demand for products like mobile phones, televisions and fashion.”[iii]
Innovation and Job Creation
Innovation is at the heart of the fashion industry, and with many designers who are tasked with creating several collections per year, there is an unrelenting pressure to produce inspired and differentiated products that will ensure a brand’s profitability and growth. Sourcing from less developed markets where there is a tradition of handmade goods and textiles can serve as a major source of creative inspiration for design teams, help reduce production costs, and create jobs in local communities. The nature of the industry also makes it possible for fashion companies to work with community organizations that directly benefit the poor, while at the same time influence the community benefits of larger scale and factory production. For fashion businesses that are social enterprises, like Indego Africa or brands whose goal is to help build trade, like EDUN or SUNO, sourcing from Fair Trade or artisan communities can help to overcome some of the operational complexities that larger companies, particularly those with a low margin/high volume model, face when sourcing from less developed markets. Minimum order requirements that can limit production opportunities for large-scale fashion brands and retailers are also less of an issue for these types of companies.
Trade is necessary for building economies and economically empowering the poor, and “trade, not aid” is a catch phrase espoused by many social entrepreneurs. But fashion is a business driven by desire, and products that are responsive to the market are the only way to ensure profitability and long-term sustainability of the business. Furthermore, trade can inadvertently become a form of aid unless it is executed in a transparent and ethical manner, and artisans are taught the skills necessary to eventually become independent suppliers. Economic independence, which is a critical component of any socio-economic venture targeted at the poor, is of particular importance for women who are often the most disadvantaged and marginalized people in the developing world.
It is impossible to speak of poverty eradication without considering the role of women who constitute most of the world’s 1.3 billion poor. A majority of garment workers in developing and emerging markets are young women with little to no work experience who have emigrated from rural areas, and whose propensity for financial exclusion from the market typically exceeds that of men’s. Despite the gender disparity in financial access, when women earn everyone benefits: women are more likely to focus their earnings on improving the health, education, and nutritional status of their households and communities--conferring the greatest possible benefit to the greatest number of people. Inclusive Business models designed to increase women’s economic participation is critical to reviving economies and building stronger markets and distribution models where workers at the end of the supply chain are able to share in the success of the products sold.
Inclusive Business is fast becoming de rigueur in sustainable development and corporate social responsibility circles within the fashion industry; however, it is not without its problems. Companies that have a strong sustainability agenda with a long-term view are usually the best poised to take on Inclusive Business models. The concept is still leading edge, which means that the ROI in terms of profitability may not be realized for several years. There are also the added complexities of working in underdeveloped markets which can lack the operating environment, infrastructure, and technical expertise required to easily scale the model.
The Way Forward
As an innovation concept Inclusive Business is very appealing. But despite its marketability, it can be very challenging to obtain the financial investments required to move the project forward. CSR professionals, social intrapreneurs, and marketers within fashion brands should not be afraid to go outside of the company to pursue alternative sources of funding for Inclusive Business projects. In fact, public-private partnerships between fashion brands and development organizations can not only help to minimize project costs, but can also provide project teams with the necessary technical expertise, contacts, and credibility to social impact work that the development industry brings. Public-private partnerships can also help build awareness among key stakeholders in local markets who are critical to the success of the project, such as policymakers and trade organizations.
The fashion industry is very diverse, and there is no set formula for which fashion businesses should engage in Inclusive Business. In fact, the playing field for Inclusive Business is wide, and includes everyone from mass market brands like Levi’s to niche, higher-end brands like Nicole Miller. That said, high-end, luxury fashion brands may be best positioned to benefit from the long-term growth of Inclusive Business models because margins are not driven by high volume, giving them greater freedom to produce collections or a portion thereof in developing and emerging markets.
Inclusive Business models are a powerful way for the fashion industry to help reduce poverty and create sustainable livelihoods for disadvantaged communities. But Inclusive Business is still the new kid on the block and for those companies willing to take it on, there must be enough “patient capital” for ROI and sustainability, and the willingness to make trade-offs between a significant social impact and a maximized return in order to make it work.
Janiece Greene is a Social Impact Strategist based in New York City, and is a thought leader, regular speaker and author on social impact, financial inclusion, and women’s economic empowerment.
[i] The base of the pyramid is defined as people that are living on less than $8 a day in purchasing power (PPP) terms or who lack access to basic goods and services.
[ii] L’Uomo Vogue, May/June 2012
[iii] “Could Africa be the Next Frontier for Fashion Retail?”, The Business of Fashion, May 31, 2012