The Conference Board The World Bank Integration of Poor Countries in Global Supply Chains A Global Buyers’ and Producer

1. The Conference BoardThe World Bank Integration of Poor Countries in Global Supply ChainsA Global Buyers’ and Producers’ Perspective January 28, 2010

2. Introduction and Overview:GLOBAL BUYERS/PRODUCERS ARE ACTIVE PARTICIPANTS IN INDUSTRIAL DEVELOPMENT • Identification of industrial operation bottlenecks • Global players are increasingly proactive in identifying public goods bottlenecks affecting their operations, articulating policy measures and seeking public sector and NGO collaboration to address them • Forming PPPs to take necessary actions

3. CASE STUDY FOCUS: • business decision-maker formulas in balancing geographic and economic considerations such as a country’s public policy and its institutional and private sector capacity • company- or industry-specific strategies used by the global buyers in dealing with MDC and LDC government and market failures and the lessons that can be learned from best practices in these challenging markets • public-private sector collaborative efforts can lead to reforms that maximize buyer, seller and LDC benefits. How to overcome transportation, logistics, innovation and quality bottlenecks. How decision making criteria of global buyers and sellers can be taken in account in the design of national policies and assistance strategies by international organizations.

4. HINDUSTAN UNILEVLER – WHEEL HOUSEHOLD DETERGENT • Three Household Detergent Markets: (1) base; (2) middle; and (3) highest. 90 percent of the Indian population is in the lowest category (98 percent of the UK is in the top section) • Product: 10rs “sachet” – two week supply – wean consumer off of 5rs bar (“dying format”) that consumer uses for “tough stains”. Instead, the market pitch is hygiene and health • Competition – Local Brands: Nirma (minimized manufacturing costs such as electricity, no sales force – instead used wholesale distributor network) and Ghari • Strategy – Wheel Smart SHRIMATI: (1) single message – cleanliness is critical for hygiene message delivered through consumer peer endorsements, local street fairs; (2) reduce logistics and manufacturing costs

6. Market Shares – India Laundry Mass Market Source: HUL, 2009

7. Mass Markets Model

8. HUL STRATEGY • Use community volunteers and local spectacles (street fairs) to raise personal hygiene awareness and attract new BOP clientele • Reduce logistical costs through strategic sourcing to minimize warehouse costs, trucking and warehouse maintenance and training, reducing production costs (e.g., packaging and dye)

9. Business Operations and Systems – HUL v. Latin America • Latin America: S & OP Model – Relational contracting with tightly knit local manufacturers/distributor networks based on logistics sophistication, cost effective production, local partner contingency handling • India: Source factories close to markets. Relianceon Shaktinetwork of local housewife/entrepreneurs for retail distribution in rural areas

10. Bottlenecks and Solutions • South America: – requires quick adaptation to market and trade policy changes. Negotiations with local governments and distributors are key to keep market penetration. Use of sophisticated production scheduling systems and electronic data interchange • India: - develop in-depth understanding of needs of the poor and promotion of products through educational outreach (e.g. clean garments can improve health). Sophisticated reward/penalty systems to avoid local distributor default

11. Enterprise-related Issues • Skills: – significant logistical skills gap (e.g. warehousing) – India’s growth rate is not sustainable without significant upgrade. Opportunities for PPP and joint efforts with NGOS • Local Partner Sophistication: • Latin America: need for robust financial checks among local counterparts • India: need for business sophistication in limited partner agreements • Business Service Providers (e.g. designing, packaging): • India: special need to focus on packaging and labeling because of high unit costs for small “sachet” packets

12. Infrastructure, Factor and Backbone Services • Factor Costs and Systems • India: Microcredit key need for Shaktientrepreneurs, small shopkeepers, truckers and consumers • Connectivity (Land, Air, and Customs): • Latin America: cobwebs of transportation network is core. Biggest challenge is lack of physical infrastructure, transportation services. Difficult to fix because of bureaucracies, political instability • India: roads and ports key challenges – inferior to those found in comparable countries (China, Brazil) • Supply Chain Management (Latin America): financial checks and balances – core of supply chain sophistication

13. Public Private Collaboration • Skills Development • Latin America: few formal skills needed • India: need for Shakti/small shopkeeper financial literacy and consumer education re: hygiene value of cleanliness • Transport/Trade Facilitation • Latin America: collaboration with government and other buyers can reduce costs by 10 percent but little done so far • India: need for road and port improvement and for logistical hubs • Regulation/Standards/Certification • Latin America: light health, environment regulation. Little public/private collaboration

14. Bottom of the Pyramid Consumers/Workers Are Vital to World Economic SustainabilitySource: HUL Interviews, March 18, 2009BOP market is large. As consumers/suppliers are attracted the pyramid will evolve into a diamond shaped market structure

15. Need to Achieve Both Supply Chain Efficiency and Effectiveness

16. Efficiency – Cost control is key: Need to absorb short-term cost pressuresMASS MARKETS MODELUtilization of strategic sourcing to minimize warehouse costs

17. Effectiveness – Affordability, Acceptability; Availability, Awareness (FMCG) • Affordability is the degree to which a company’s good or services are affordable to consumers at the low end of the market • Acceptability is the extent to which consumers and others in the value chain are willing to consume, distribute or sell a product or service • Availability is the extent to which customers are able to acquire and use a product or service • Awareness refers to what customers know about he products or services you sell • Source: Jamie Anderson, Costas Markides, Strategic Innovation at the Base of the Pyramid, Sloan Management Review (Fall 2007, Vol 49, No. 1), pp. 83-88 at 87.

18. WEAK TRANSPORTATION INFRASTRUCTURE AND LOGISTICAL SKILLS IMPAIR SUSTAINABILITY OF GROWTH RATE

19. ROADS/TRUCK FLEET CONDITIONIndia’s High Cost of Surface TransportSource: G Vaidhyanathan (JNPT), ICS World Bank, Cygnus, KPMG Analysis *Source: World Bank report: “Road transport service efficiency study “November 2005

20. PORTS

21. WAREHOUSINGSource: G Vaidhyanathan (JNPT), ICS World Bank, Cygnus, KPMG Analysis Turn Around Time in Hours

22. TRANSPORTATION/LOGISTICAL SKILLS GAP Turn Around Time in Hours

23. HUL CASE STUDY: LESSONS LEARNED(1) HUL experience underscores the need for national transport and logistics services industry reform to achieve a competitive environment that fosters an evolution to a quality-based selection process(2) Global buyers can compensate for logistical bottlenecks with sourcing ,cost control, and aggressive market penetration strategies. The most innovative facet of HUL’s approach is to respond to logistics inefficiencies through collaboration with NGOs to train rural women to be social entrepreneurs that raise awareness on personal hygiene