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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

SARPN acknowledges the Oxfam website as the source of this document -
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The business activities of multinational companies (MNCs) have an important contribution to make to economic development in developing countries. This contribution is particularly significant because the volume of private capital flows exceeds that of development assistance. International business activities and investments in developing countries have the potential to create positive or negative impacts at several levels for people living in poverty. The extent to which the wealth created by business can reduce poverty is determined by many factors. An industry’s operating structure – and the values and strategies of individual companies within it – are critical factors. Likewise, the opportunities open to people living in poverty, and their negotiating power – as citizens, workers, producers, consumers, and community members – are key determinants in the local context.

It was in this context that a collaboration began between a major MNC, Unilever, and a large development and humanitarian organisation, Oxfam – two organisations with very different aims and perspectives. This research project attempted to create a space in which to increase understanding of the impacts of business on the lives of poor people, to inform the poverty reduction debate. The project was intended to improve understanding among the wider business community, government, civil-society organisations, and academics about the relationship between a multinational business and poverty. As such, it was first and foremost a 'learning' project. The research does not purport to be comprehensive, and its scope is the operations of Unilever Indonesia (UI), not those of Unilever the multinational company.

This research explores to what extent, and how, the wealth generated by the local operating company of a multinational company in a developing country is translated into poverty impacts in one particular country, in this case Indonesia. The research focuses on Unilever Indonesia, the local operating company of Unilever, one of the world’s leading fast-moving consumer-goods (FMCG) companies. UI has been active in Indonesia since 1933 (see Box A), and the majority of its goods are produced for the Indonesian market.

Despite its abundant natural and human resources, Indonesia has high levels of poverty, with more than 50 per cent of its population living on less than US$ 2 a day. Poor Indonesians face insecure livelihoods, a lack of access to basic services, limited opportunities for economic advancement, and a lack of power to influence their situation.

To explore the range of potential impacts, the research design was ambitious in scope, covering aspects of UI’s entire value chain. Thus the report includes sections on the impacts of UI at the macro-economic level; UI’s employment policies and practices; UI’s relationships in its value chain from supply through distribution; UI’s relationships with poor consumers in the marketplace; and UI’s wider impact in the community, on the business sector and government in Indonesia.

Independent research undertaken in mid-2004 was supplemented with data from published documents produced by UI and Unilever, internal management documents used in day-to-day decision making, and information gathered from other sources. The in-depth partnership and joint research reflected here is a valuable addition to the more common corporate social responsibility (CSR) practice of public reporting.

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