Exploring the Links Between International Business and Poverty Reduction: A Case Study of Unilever in Indonesia

Foreign direct investment is recognised to be important for economic development, in terms of wealth creation, employment, skills development, and technology transfer. But there is an on-going debate about the extent to which these contributions translate into real benefits for people living in poverty.

In an attempt to evaluate the impacts of international business on people living in poverty, two organisations with very different aims and perspectives - Unilever (a major company operating in some of the poorest countries in the world) and Oxfam (an international development and humanitarian organisation) - collaborated on an ambitious research project. The research considered the impacts of Unilever Indonesia across the entire business value chain, from producers and suppliers, through the company's core business operations, to its distributors, retailers, and consumers. This report presents the findings of the research. It is a contribution to the debates among the wider business community, governments, civil-society organisations, and academics who seek to understand how the wealth, employment, and products that a large company creates could bring increased benefits to people living in poverty.

Key findings from this data-rich study include the following:

• UI's core workforce includes approximately 5 000 people, of whom 60% are direct employees, and 40% are contract workers. Indirectly, the full-time equivalent (FTE) of about 300 000 people make their livelihoods in UI's value chain.  
• More than half of this employment is found in the distribution and retail chain. This includes an estimated 1.8 million small stores and street vendors.
• The closer and more formally workers in the value chain are linked with UI's operations, the more they benefit from the company. Contracting out employment may reduce a company's ability to monitor the situation of contract workers or suppliers' employees, and thus result in gaps between corporate policy and practice. 
• Two thirds of the value generated along the chain is distributed to participants other than UI (producers, suppliers, distributors and retailers). Taxes paid by UI to the Indonesian government account for 26% of the value generated in the chain.
• The value created by poorer people working at either end of the value chain is much lower than the value captured by those who are in direct interaction with UI.
• Participation in value chains such as UI's does not automatically guarantee improvements in the lives of people living in poverty.       

The collaboration was prompted by calls from the UN to business, governments and non-governmental organisations to work together to develop solutions to global poverty - the first of the Millennium Development Goals. This report doesn't have all the answers, but we hope it provides a contribution to debate, and a basis for new insights into the links between business and poverty reduction from which we and others can learn.

Report available for download at http://publications.oxfam.org.uk/oxfam/display.asp?K=9780855985660

See also http://www.unilever.com/ourcompany/newsandmedia/unileverindonesia.asp