Wednesday, May 3, 2017

Shared Value and the Developing World

In the “Creating Shared Value” article, Porter and Kramer speak a bit about how the three methods described can help the developing world. Such as reconceiving products, which was a part of the creation of low-priced cell phones introduced into various nations in Africa.  The example for redefining the value chain included Nestle’s build-up of their African and Latin American suppliers.  Yara’s investment of infrastructure in Africa was used as an example for improving existing clusters. The common idea is that business views parts of the developing world as a place where profit cannot be found, so investment in these areas is not needed. Companies rather think that philanthropy is the better solution, which will help the poor while not hurting the company’s bottom line.  As stated in the article, this assumption is wrong and hurts both the developing world and the business. 

An interesting field that shared value has been created in the developing world is in the pharmaceutical industry.  This type of connection makes sense, as drug companies will profit from their drug sales while also giving benefit to those who are taking their medicine, essentially saving their lives.  Pharmaceutical spending in low and medium income markets is expected to grow by 14%, while high-income markets will expand by only 4%.  There is an opening here for companies to step in and reap the benefits of this increase in growth. 

Some companies have already started to look into the developing world’s markets, and have used the methods described by Porter and Kramer to guide how they can create shared value in the developing world. GE, for example, is reconceiving its products to fit into the market. The company has changed its $500 portable electrocardiogram machine to become less expensive and easier to use for those who do not have experience with the device.  Pfizer and GSK have reconfigured its value chain by creating a new jointly owned company, VIIV Healthcare. VIIV Healthcare combines the facilities of both Pfizer and GSK in Africa to create an easier infrastructure route to transport HIV drugs.  Becton Dickinson and Company is improving existing clusters by building laboratories. These buildings will eventually carry the companies’ drugs and health devices, which will ensure income from the project.

There already exist companies who have benefited from a shared value strategy in the developing world. Such as Novo Nordisk, which invested heavily into China’s healthcare system.  Novo has saved 140,000 life years, while in the process building an insulin market which is currently valued at $1 billion.  Investment into the developing world’s health infrastructure can create shared value for both the company and society.  Saving lives is extremely important, and these businesses have the capacity to help while also receiving some value.

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