Exploring the Links Between International Business and Poverty Reduction: A Case Study of Unilever in Indonesia Principal Author: Jason Clay Principal Author: Jason Cla An Oxfam GB, Novib, Unilever, and Unilever Indonesia joint research project First published by Oxfam GB, Novib Oxfam Netherlands, and Unilever in 2005 © Oxfam GB, Novib Oxfam Netherlands, and Unilever 2005 ISBN 0 85598 566 6 All rights reserved. This publication is copyright, but may be reproduced by any method without fee for advocacy or teaching purposes, but not for resale. The copyright holders request that all such use be registered with them for impact assessment purposes. For copying in any other circumstances, or for re-use in other publications, or for translation or adaptation, prior written permission must be obtained from the publishers, and a fee may be payable. Printed by Information Press, Eynsham, UK Original language: English A catalogue record for this publication is available from the British Library. Copies of this report and more information are available from: Oxfam GB, Oxfam House, John Smith Drive, Cowley, Oxford, OX4 2JY,UK Email: [email protected] Oxfam GB is registered as a charity (no. 202918) and is a member of Oxfam International. Novib, Mauritskade 9, Postbus 30919, 2500 GX Den Haag, The Netherlands, +31()703421991 Unilever PLC, PO Box 68, Unilever House, Blackfriars, London EC4P 4BQ, UK Tel +44 (0)20 7822 5252 Fax +44 (0)20 7822 5951 Acknowledgements This report is based on research commissioned by Oxfam GB and Unilever Indonesia and carried out in Indonesia by T.Hani Handoko, A. Prasetyantoko, B.M. Purwanto, and Maria Ratnaningsih, co-ordinated by Amar Inamdar at Synergy. In-country project facilitation and information gathering were provided by Oxfam staff in Indonesia and by Unilever Indonesia. The principal author of the report was Jason Clay. The project was supported throughout by David Logan and Michelle Dow of the Corporate Citizenship Company, who also assisted in the drafting of the final report. Front-cover photographs (left to right): Soybean farmer tending his plants. (Kate Raworth/Oxfam GB) Unilever factory employee packing product. (Unilever Indonesia) Unilever sales representative distributing product to retailers by bicycle. (Unilever Indonesia) Customer buying goods from a warung retailer. (Unilever Indonesia) Exploring the Links Between International Business and Poverty Reduction: A Case Study of Unilever in Indonesia Principal Author: Jason Clay An Oxfam GB, Novib, Unilever, and Unilever Indonesia joint research project Exploring the Links between International Business and Poverty Reduction Contents Acronyms and abbreviations 7 5 Low-income consumers in the marketplace 87 Foreword: Oxfam 8 The fast-moving consumer-goods (FMCG) market in Indonesia 88 What exactly does UI sell? 88 Foreword: Unilever 10 Who buys UI products? 89 Executive summary 12 Access to UI products 89 1 Introduction 23 Why do people buy UI products? 92 Why Oxfam and Unilever began this project 23 The role of promotion and advertising 94 What is this research about? 25 Meeting or creating needs? 96 Methodology 26 Key insights 99 The context of the research project 30 6 UI’s wider impact in the community 101 Assessing the impact of Unilever Indonesia 33 Corporate community involvement 101 The structure of the report 35 UI’s influence on the business sector and government 103 2 The impacts of Unilever Indonesia at the macro-economic Key insights 104 level 37 Setting the context: the 1997–98 financial crisis 37 7 Conclusions 106 Unilever’s organisation and recent performance in Indonesia 38 Content: lessons learned from the research project 107 UI’s response to the financial crisis 44 Process and partnership: lessons learned from working together 111 Key insights 46 Feedback from the external reference group 114 The way forward 115 3 The employment impacts of Unilever Indonesia 48 Employment in Indonesia 48 Notes 116 UI’s employment impacts 51 References and sources 119 Key insights 59 Appendix 1: The project team 121 4 The value chain from supply to distribution 60 Supplier companies 62 Appendix 2: UI product list, 2003 123 Producers of raw materials 67 Kecap Bango sweet soy sauce: from farm to fork 68 The distribution chain 74 Supporting employment and value generation in UI’s value chain 78 Key insights 84 4 Exploring the Links between International Business and Poverty Reduction 5 Tables, figures, boxes, and case studies Tables Boxes A A brief history of Unilever in Indonesia 13 1 Percentage of people living in poverty in Indonesia (1996, 1999, B A selection of Oxfam’s lessons from the research 21 2002) 30 C A selection of Unilever’s lessons from the research 22 2 UI financial performance (1996 and 1999–2003) 40 3 Exchange-rate fluctuations and UI’s currency transactions (1996–2003) 43 1 Unilever and Oxfam 25 4 Employment in Indonesia (1996–2004) 49 2 The challenge of definitions 25 5 UI employment data by type (1996–2003) 52 3 Oxfam’s view of poverty 30 6 UI monthly salaries compared with Indonesian minimum wage 4 Seventy years of Unilever in Indonesia 32 (1996–2003) 54 5 Examples of UI sourcing in Indonesia 65 7 UI average monthly earnings of entry-level permanent employees 6 Palm oil and tea 68 (Java), (2003) 55 7 Distribution and livelihoods 75 8 UI estimates of average monthly payments to entry-level workers (Java) paid by UI third-party partners (2003) 64 8 Calculating employment supported in the value chain 80 9 Estimate of gross margin values generated by UI’s best-selling 9 The views of Unilever and Oxfam on the role of a brand 93 shampoo in the value chain (2003) 79 10 Communications between UI and consumers 96 10 UI products: price of smallest available units, compared with some household staples and popular products 90 Case studies Figures 1 Economic and employment impacts in the UI supply chain: the case of PT Sorini, a supplier of raw materials 66 1 UI and its business partners: structure of operations from sourcing 2 Economic and employment impacts in the UI supply chain: the case to marketplace 39 of Dai Nippon, a packaging supplier 67 2 Distribution of UI’s total pre-tax profits (1999–2003) 41 3 Shampoo: from creation to consumption 79 3 UI’s international foreign-exchange, trade, and human-resource flows 4 Small sachets: a response to consumer demands 98 at a glance (2003) 42 4 UI and its business partners: from sourcing to marketplace 61 5 Coconut-sugar and black-soybean producers, collectors, and traders involved in the Kecap Bango supply chain (2000–2003) 70 6 Estimated employment linked to UI’s value chain (2003) 82 7 Estimated distribution of value generated along UI’s value chain (2003) 83 6 Exploring the Links between International Business and Poverty Reduction 7 Acronyms and abbreviations CSO civil-society organisation CSR corporate social responsibility FDI foreign direct investment FTE full-time equivalent FMCG fast-moving consumer goods GDP gross domestic product ILO International Labour Organization KHM Kebutuhan Hidup Minimum (‘minimum subsistence need’) IMF International Monetary Fund MNC multinational company MOU memorandum of understanding MT metric ton NGO non-government organisation Rp rupiah RRP recommended retail price SDK Sub-Distributor Kecamatan SME small/medium-sized enterprise SPSI Serikat Pekerja Selurun Indonesia (All Indonesia Labour Union) UI Unilever Indonesia 8 Exploring the Links between International Business and Poverty Reduction Foreword: Oxfam 9 Foreword: Oxfam Oxfam1 believes that the private sector can be an important engine of This initiative prompted both Oxfam and Unilever to challenge their own development. Companies, when they act responsibly, can play a vital role in biases and assumptions. We have assumed that engaging the private contributing to sustainable development and poverty reduction. sector in a collaborative project can bring about positive change. Through intensive dialogue, Oxfam believes that it has succeeded in raising Our reason for undertaking this particular research project with Unilever awareness with Unilever about the potential impacts of their business stems from our desire to deepen understanding, on the part of both Oxfam choices and operations, and that this may help Unilever and others to take and Unilever, of the impacts of investment by a multinational company upon into account ‘pro-poor’ opportunities in the future. Oxfam will continue its people living in poverty. For many years, foreign direct investment has been critical engagement with companies, as part of a broad range of influencing seen as being key to ‘pro-poor’ development for what it brings in terms of activities. This includes respecting the choice of others who have decided to wealth creation, employment, technology transfer, and other components of stay out of such engagements. poverty alleviation. Yet there is a wide on-going debate about whether and how these contributions translate into real benefits for people living in This project has depended on the efforts of very different actors to work poverty. together to deepen understanding and identify some potential for real change. We hope that the insights provided will generate enthusiasm for Research on corporate environmental and social impacts often focuses trying to fill the gaps and improve on the methodology that we have begun to upon a specific aspect of operations. Our aim with this project was to develop. examine a company’s impacts more comprehensively, and especially to investigate the furthest ends where poor people’s interaction with the I thank all of our project team colleagues for their energy and commitment business are indirect, informal, and possibly most vulnerable to exploitation. to the project. I am particularly grateful to Oxfam’s team in Indonesia, and to By researching the spectrum of Unilever Indonesia’s activities, we wanted the Unilever Indonesia team, for their hard work and willingness to welcome to begin to describe the ‘poverty footprint’ of these activities.