Home The Washington Diplomat November 2011 Maligned Multinational Corporations? The Business of Building a Better World

Maligned Multinational Corporations? The Business of Building a Better World

Maligned Multinational Corporations? The Business of Building a Better World

In a small village in northeast Bangladesh, Ojud Miah watched his duck hatchery crumble. A destructive cyclone had slammed into his property in 2004, killing his business, his livelihood and his means to feed his family. Several years later, Miah had not only rebuilt his hatchery — 1,800 ducks strong — but he had also expanded his business and hired several fellow villagers.

Miah’s recovery funds didn’t come from a foreign aid stash. They came from Chevron, a worldwide oil and gas company.

Long viewed by many in the developing world as the “big bad businesses” that exploit the poor, multinational corporations are in fact some of the main actors behind the push to eradicate global poverty. The goodwill isn’t exactly fueled by generosity. Corporations still run on profits, but creating healthy societies, and therefore new consumer markets, makes good business sense.

Of course, multinational corporations go where the money is, and in recent years, the money trail has led directly to emerging powerhouses such as China, India and Brazil, which continue to expand while Western economies remain anemic or contract. But beyond the mad dash to tap into emerging growth, the private sector has become an integral part of international development efforts as it increasingly seeks out partnerships with governments, nonprofits and NGOs.

And the timing couldn’t be any better. As congressional appropriators slash U.S. foreign aid budgets — a rude awakening that’s only just begun — multinational corporations (MNCs) have become critical financial backers in development circles.

Some MNCs are major philanthropic donors, while others are stewards of corporate social responsibility, promoting best business practices, for instance. But companies are also simply answering the demands of developing nations by tailoring services to them, whether it’s introducing mobile phone banking apps to help people without access to banks manage their money, training women to become small business entrepreneurs, offering microloans to farmers, or providing low-cost health care for diseases that are now becoming prevalent in the developing world, such as cancer and diabetes.

Photo: Mars Inc.
Mars Inc. invests in cocoa vocational schools in the developing world to improve yields for farmers who struggle with aging cocoa trees, pests and disease, depleted soils and unpredictable rainfall. Because 38 percent of the world’s cocoa is produced on small farms in Côte d’Ivoire and 21 percent in Ghana, the corporation, which owns candy brands such as M&M’S and Snickers, has invested heavily in developing those countries.

The end result is the same: improving lives. “These companies understand there is no conflict between doing well and doing good because they do both every day,” Secretary of State Hillary Clinton said at the State Department’s 12th Annual Awards for Corporate Excellence last year, which honored companies such as Coca-Cola, Cisco Systems, Intel and Mars Inc. (This year’s finalists include Cargill in India, General Motors in Uzbekistan, and Procter & Gamble in Pakistan and Nigeria.)

“They invest in the communities where they operate to create a healthy workforce. They protect the environment to make their investment sustainable. They educate the next generation of employees, managers and customers. They win market share, they win respect, and they prove that corporate social responsibility is not an added cost of doing business; it’s a core part of doing business right,” Clinton said.

Private sector involvement in the developing world was explored during the Society for International Development’s 2011 World Congress conference in Washington this past July. “As a large company, we can innovate on a large scale,” Nils Tcheyan, General Electric director of Africa energy policy, said at the conference. “As a global company, we understand that we do better in a world that’s more stable and where people can lead productive lives…. We see our future as closely connected to the global challenges of poverty, energy, environment, health and infrastructure.”

Connecticut-based GE in fact now derives half of its profits overseas — reinforcing concerns among American workers that their jobs are being outsourced. Indeed, whether in Detroit or Delhi, corporations aren’t exactly seen as a force for good for the average worker. The global economic slump has only further tarnished the luster of Western-style capitalism. Skittishness over free trade eroding middle class wages as well as revulsion over banking and investor greed have given big business a bad rap — anger that has boiled over into the anti-corporate protests now sweeping the world. Even the once-touted microfinance industry has come under closer scrutiny amid accusations that high-interest loan sharks have been preying on the poor, not lifting them out of poverty.

Indeed, the issue of exploitation to turn a corporate profit remains very real around the world. Chevron, for instance, is still wrangling over an $18 billion judgment against it for damage inflicted on Ecuador’s Amazon region by Texaco, which Chevron acquired in 2001. The long-running legal saga has pitted the oil giant against a group of Ecuadorians whose hometowns essentially become toxic dumping grounds. Likewise, Shell and BP have doled out billions for contamination clean-ups — Shell for polluting parts of the Niger Delta for decades and BP for the recent Gulf of Mexico oil spill.

Such disputes naturally garner international attention, and justifiably so, but these multinational energy companies have also quietly supported a range of life-changing projects in the developing world. Partnering with NGOs and governments, Chevron, for example, has invested $700 million between 2006 and early 2011 to help jumpstart small businesses though microfinance loans; fund initiatives that increase access to health care; and donate to projects that oversee job training and promote education in math, science, technology and engineering.

As Chevron’s website states, “Our investments in communities also are investments in the long-term success of our company, and they deliver mutual benefit and promote shared progress.”

Feel-good corporate mission statements aside, as critical as foreign aid and good governance are to the developing world, no nation will ever be able to lift itself out of poverty without a thriving private sector. And this nexus of economic growth, poverty reduction and corporate profit is changing the face of international development, especially as cash-strapped governments scale back foreign aid and the role of MNCs in development will — and, experts believe, should — expand.

‘Connected Capitalism’

The Society for International Development’s 2011 World Congress this past summer brought together some of the biggest players in the development arena, from World Bank President Robert Zoellick to former Ghanaian President John Kufuor. But it also attracted top CEOs and representatives from companies such as Booz Allen Hamilton, Deloitte, KPMG, Chevron and Mars to explore the role of private sector corporations in building sustainable societies around the world.

That role has grown quietly yet exponentially. In the 1960s, official development assistance (ODA) in the form of public sector funds accounted for about 70 percent of all resources transferred from developed to developing nations. Private corporate engagement accounted for the rest. But 50 years later, that statistic has flipped, according to a report by Carol Adelman, director of the Hudson Institute’s Center for Global Prosperity. Now, official flows stand at 17 percent; the rest — 83 percent — comes from private engagement, including remittances, philanthropy and foreign direct investment.

“Official aid is a minority shareholder in the growth and development of poor countries,” Adelman wrote in the 2009 report.

For example, in 2007, U.S. ODA accounted for only 9 percent, or $21.8 billion, of the total $235.2 billion flowing from the United States to the developing world. The rest, $213 billion, came from private entities. Although “private entities” include everything from nonprofits to religious organizations, a large bulk of the funds came from businesses in the form of remittances, investment and donations.

Daniel Runde, former director of the Office of Global Development Alliances at USAID, the main government agency that provides U.S. economic and humanitarian assistance worldwide, says multinational corporations are a positive and powerful force in international development and that public-private partnerships are the key to stimulating poorer economies.

“The private sector has so much to offer,” Runde, now director of the Project on Prosperity and Development at the Center for Strategic and International Studies, told The Washington Diplomat.

He calls it “connected capitalism.” Others have dubbed it “philanthrocapitalism.”

“Sophisticated MNCs impact the lives of hundreds of thousands and even millions of people through supply chains, through their hiring, through their corporate philanthropy, through their business practices,” he said.

Runde, who’s focused much of his career on development, acknowledged that the traditional view of foreign assistance has relied mostly on government and the work of intergovernmental organizations and NGOs — very little on private enterprise. In that regard, MNCs have not always been part of the development discussion.

But over the past decade, there has been a major shift. Agencies such as USAID and the State Department, for example, have come to view MNCs as potential partners that offer economic expertise, the latest technology, supply-chain buying power, innovation, agility and major financial resources to cut through the painstakingly slow and oftentimes underfunded bureaucratic process.

Adelman of the Hudson Institute is another expert who welcomes the change. “Whereas disaster relief and humanitarian programs generally have been handled well by government donors, there is widespread agreement that the government foreign aid model for development projects — top down and centrally planned — has been unsuccessful,” she wrote. “Development funds too often have been concentrated in the hands of a few large contractors with high overhead who are incentivized by lasting contracts, not by building lasting institutions and capabilities in poor countries.”

But the emerging paradigm of partnering with the private sector allows for “opportunistic innovation,” decentralization and flexibility, she said.

Multinational corporations bring more to the table than just efficient business models — they bring money. Indeed, some experts believe the future of international development will be financially difficult if not impossible to sustain without the help of MNCs and others in the private sector. Although the Obama and Bush administrations have tripled foreign aid and jumpstarted numerous development initiatives, contrary to popular opinion, foreign assistance remains a tiny fraction of total U.S. government spending — roughly 1 percent. The Defense Department famously has more military band members than the State Department has Foreign Service officers, and USAID has been steadily hollowed out by years of interagency turf wars and today is a shell of its former self.

Moreover, any budgetary increases have already begun to slow and reverse after years of federal overspending, with foreign assistance always first on the chopping block. As Runde noted, the ODA “bull market” of the past decade has died in the tough economic climate, and aid funding will likely continue to shrivel in the coming years.

Levels of Help

Audra Jones, former senior director for partnership at the United Nations Foundation, said private companies spur international development through three “corporate spheres of influence” — at the operational, community engagement and strategic investment levels.

At the “operational” level, MNCs impact the lives of millions by providing jobs both internally and through supply chains. This includes remittances, which in 2007 accounted for $79 billion, or 34 percent, of U.S. engagement with the developing world. That’s more than three times what the U.S. government gave in ODA that year.

“The World Bank and other studies are clear that funds sent back by migrants to their families and to community development projects are one of the strongest poverty reduction forces in poor countries,” Adelman wrote of remittances.

Also on the “operational” level, companies can improve their employees’ lives on a “day-to-day” basis, Jones said, by offering solid health care benefits and safe working conditions.

Jones said the second sphere of influence, “community engagement,” is more known for helping the world’s poor. It encompasses philanthropic giving such as donations to NGOs and charitable groups. In 2007, corporations provided $6.8 billion in cash and in-kind giving.

Many corporations have dedicated foundations for charitable giving. For instance, Sylvia Mathews Burwell, president of global development at the Bill and Melinda Gates Foundation, recently announced that she’ll be heading to Walmart in January 2012 to lead the company’s charitable giving efforts and its Global Women’s Economic Empowerment Initiative. Walmart and the Walmart Foundation donated about $800 million in cash and in-kind gifts (mostly food) around the world last year, and the foundation has made about $262 million in cash grants this year.

Another company with a global presence, Western Union is a major player in worldwide remittances, having moved $76 billion in payments or money orders across borders. But the Western Union Foundation, the philanthropic arm of the Fortune 500 money-transfer provider, has also awarded more than $73.8 million in grants to some 2,000 NGOs in 100 countries and territories. Its donations to organizations that focus on education, job training, disaster relief and business startups during the past three years of economic turmoil have also stayed consistent, not declined.

Luella Chavez D’Angelo, Western Union Foundation president, said her company is uniquely poised to foster international development because of its tight-knit connections with people who live in poverty-stricken areas. It partners with 470,000 agent locations in more than 200 countries, some with populations that live on less than $1 and $2 a day.

“No other company on the planet has the global reach and the security systems in place that we do,” D’Angelo said.

After the 2010 earthquake in Haiti, for example, one of its partner NGOs, Mercy Corps, was having trouble getting funds into the devastated country. Although Western Union’s 400 Haitian agent locations were closed in the chaos, the company was able to recruit agents in the neighboring Dominican Republic to physically move funds to the disaster area so the nonprofit could begin purchasing food and blankets for Haitians.

Over the next few months, Western Union would donate more than $1 million to the Haitian relief effort and waived transaction fees for Americans donating to the cleanup effort, a waiver the company frequently offers following major world disasters.

D’Angelo, who’s overseen the Western Union’s philanthropic branch for nearly a decade, said the corporation has maintained its donations during the economic crunch by sourcing funds from multiple places. She calls it a “corporate community hybrid.” Financing for grants to NGOs comes not only from the company’s profits, but from its employees as well. The foundation also asks its business partners to donate money, including vendors such as airlines, office supply companies and banks.

Investing in Growth

Increasingly, companies are transitioning from the philanthropy and donation-based methods of international development to “more strategic social investing,” said Jones. Investing in less developed countries is the last, and arguably most important, corporate sphere of influence.

“Over the years we’ve moved away from pure corporate philanthropy to what we call ‘strategic corporate investment,'” said Kirsten Knoepfle-Thorne, a senior policy advisor for Chevron. “Simply giving money is not enough, but building economic growth is something that companies are really good at.”

Such strategic investments in emerging economies naturally benefit corporations’ bottom lines. GE’s Tcheyan said it’s a positive cycle. He explained that future profits for GE — which specializes in advanced technology, services and finance — depend largely on strong infrastructure, a highly skilled workforce and stable institutions within the countries in which the company operates. So to succeed as a global corporation, GE must build up the societies it hopes to derive profits from, he said.

To that end, over the past decade, GE has repositioned about half of its investments to focus on key global issues such as energy, water and health care, according to Tcheyan. Company engineers design products and services that meet the needs of various developing nations, Tcheyan added, which “enables us to build revenue and returns for our stakeholders.” The Vscan, for instance, a pocket-size battery-powered ultrasound scanner, was created to allow physicians to travel around remote regions and test children for early signs of heart disease.

Mars Inc., which owns candy brands such as M&M’S, Snickers, Milky Way and Twix, depends on other nations for its most basic ingredient. Because 38 percent of the world’s cocoa is produced on small farms in Côte d’Ivoire and 21 percent in Ghana, the chocolate company has invested heavily in the well being of those countries.

According to Jeff Morgan, company director of global programs, these cocoa farmers, some of whom live on $1 a day, often lose 30 percent of their yields to pests and crop disease. Their output is also only a third or a quarter of what they could be producing because of the lack of education on best soil and agricultural practices, limited government support, and their inability to afford fertilizers. Mars, consequently, launched a sustainable cocoa program to strengthen farming communities by improving education and production. Better yields not only help Mars, they also boost the farmers’ incomes.

GE and Mars are also responding to an inevitable trend toward the developing world, where growth has leapfrogged ahead of stagnating Western economies such as the United States, Europe and Japan. Especially after the global economic downturn in 2008, multinational corporations know that future customers and profits lie with emerging middle classes abroad.

Profitable Partnerships

This investment influx for emerging nations such as China and India won’t abate down anytime soon. But what long-term role will multinational corporations play in promoting international development alongside governments and NGOs?

For now, private-public partnerships may be the exception, not the rule, but many development experts agree that big business will play a big part in alleviating global poverty.

“They’re trying to use the totality of their resources and philanthropy to do the best they can to shape and better the environments they operate in,” Runde said of the new MNC business model. “This isn’t a fad,” he said. “This is a permanent change — here to stay.”

That’s not to say, however, that the private sector can ever fully take the place of governments and NGOs. Capitalism’s raison d’être is profits not fighting poverty, and foreign assistance will always serve a much-needed function where the free market’s invisible hand isn’t interested in touching, whether it’s combating human rights abuses or corruption or promoting good governance.

“We shouldn’t look to [MNCs] to fill in the gap completely,” Runde said. “But there’s a synergy when the two sectors work together.”

Already, USAID and the State Department have worked to incorporate the private sector into their programs (also see “Top Economic Official at State Presses China to Play Fair” in the July 2011 issue of The Washington Diplomat). But Runde and Knoepfle-Thorne are partnering to take these collaborations even further, overseeing the Project on U.S. Leadership in Development, a three-year initiative sponsored by Chevron and the Center for Strategic and International Studies to generate innovative thinking on the best ways to integrate U.S. public and private sector resources to create sustainable partnerships.

Launched by former Secretary of State Condoleezza Rice and former National Security Advisor James Jones this summer, the project includes a high-level speaker series and research aimed at leveraging foreign aid assets to boost entrepreneurship, innovation and market-driven economic growth.

Runde said the project “rethinks development” while embracing the new actors, especially multinational corporations.

According to Knoepfle-Thorn, companies are “eager to see how public-private partnership could work; they want to know the nuts-and-bolts. My guess is we’ll see a lot more companies stick their toes in the water in the future.”

And that could turn the tide in international development, all the way from the corporate boardroom to a duck hatchery in Bangladesh.

About the Author

Rachael Bade is a contributing writer for The Washington Diplomat.