Newswise — When corporations serve the world's 4 billion poor people - a global growth strategy often referred to as "B24B," or "business to 4 billion" - with affordable and easy-to-use products that have low environmental impact, those businesses achieve sustainability, says a University of Arkansas business researcher.
"Many business people assume that sustainability refers to 'green' initiatives that will add costs to products, services and the supply-chain network," said Terry Tremwel, research director of the Supply Chain Management Research Center in Sam M. Walton College of Business. "This is an unfortunate assumption because sustainability is actually about reducing costs and developing new markets, two important goals of every business."
In the global business community, the concept of sustainability may suffer because of its association with environmental issues, Tremwel said. Many people think sustainability means only environmental regulation and is therefore anti-business. But some business leaders understand that sustainability increases efficiency and reduces waste and costs. It is a branch of global business strategy that includes attention to product and package development, material sourcing, product formulation or re-formulation, material reuse, and efficient transportation networks and logistics. In short, sustainability requires good business processes.
Perhaps most importantly, multinational corporations must adopt sustainable practices to serve the 4 billion people worldwide who have per capita annual incomes of less than $1,500, Tremwel said. This huge population has great needs and demand for products and services. They are highly motivated to improve their lives, but they cannot afford expensive products. By participating in sustainability, Tremwel said, corporations will be able to tap into this market with simple and affordable products and services.
"There is tremendous pent-up demand within this population," he said, "but by using old methods, there are not enough materials in the world to create products to serve everyone. This pent-up demand will be captured by companies that create innovative and efficient products and services needed by poor people at prices within their reach. The green slogan 'reduce, reuse, recycle' is one method to stretch resources and reduce costs."
Sustainability in a global business context includes financial, environmental and cultural components, all of which are interconnected, said Tremwel. Many business leaders intuitively understand the financial and environmental components, as they are committed to reducing expenses, operating efficiently and developing products that are less harmful to the environment. However, the cultural component to sustainability is often overlooked. Technologically superior products may be rejected by consumers because the products are either too expensive or are not packaged in a manner that is culturally sensitive.
For example, Hindustan Lever Ltd., the Indian subsidiary of Unilever, a multinational corporation, developed an affordable detergent packaged in individual units, or sachets, instead of the customary large boxes. The sachets were less expensive and easier to use based on how Indian villagers wash clothes, which is dramatically different from methods used in the United States. Villagers in India responded by buying a huge number of sachets, resulting in a dramatic increase in revenues and profits for a small investment. The villagers found value in the new packages and product, which improved their lives. In response, the villagers rewarded Hindustan Lever by buying the new product.
A critical part of the sustainability effort has to do with reformulation, which simply means changing or improving products to reduce costs, increase safety or limit their effect on the environment. For example, according to its Web site, S.C. Johnson in 2005 removed more than 1.8 million pounds of volatile organic compounds from Windex glass cleaner. The change also gave the product 30-percent more cleaning power. In addition to improving the product's effect and safety and lowering its environmental impact, the company cut material and handling costs because the formula was less toxic.
There are many other examples, Tremwel said. His white paper on sustainability and global business growth can be found on the Web site of Walton College's Supply Chain Management Research Center at http://scmr.uark.edu/research/whitepapers.asp .
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