Non-governmental organizations reckon corporations contribute to poverty via their slavish adherence to the financial bottom line. Corporations say they could contribute to poverty reduction if the NGOs just got out of the way.

Seems pretty straightforward doesn't it? Maybe for some. But the growing sense that a working relationship between advocate groups and the private sector is vital in tackling poverty has prompted a far-reaching report that gives both sides plenty to think about -- not least the fact that poverty reduction is more complicated than either NGO or corporate extremists would admit.

The report, Exploring the Links Between International Business and Poverty Reduction: A Case Study of Unilever in Indonesia, attempts to investigate the levels of interaction between a multinational corporation and the local community in an area where poverty has been a generational feature of life.

Looking into the impacts of the company's operations in four areas -- the macro-level, employment, consumers, and the wider community -- author Jason Clay says he was endeavoring to explore "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."

It's a timely document. With many world leaders arguing over failures in meeting poverty reduction goals and over the role of such international bodies as the United Nations, the role of the modern multinational corporation in relation to poverty becomes spotlighted.

Unlocking the Case

Unilever Indonesia, a subsidiary of the Anglo-Dutch consumer goods giant, was founded in 1933, when Indonesia was still a Dutch colony. The report notes the company has a core workforce of about 5,000, of whom 60% are direct employees and 40% are contract workers.

Indirectly, the full-time equivalent of about 300,000 people make their livelihoods through UI's operations.

It is the impact on this latter group that provides the report’s most interesting findings.

Whereas much poverty reduction energy has been spent on providing employment opportunities with multinational corporations directly, for instance, it turns out that much of Unilever’s impact is through its supply and distribution chains.

The dispersal of revenue generated by various local operators is one of the more important focal points for assessing the company’s role.

Overall, the picture is not rosy. UI estimates that the total amount that moves through its supply, distribution and manufacturing network -- its value chain -- in a year is $631 million. Of this, after the company has extracted its own payments and transfers, about $421 million is spread across the other elements of the chain. Payments direct from UI to other links in the chain account for 34% of this sum, while local taxes take out 25%. Retailers of the company’s products receive about 17%, suppliers about 9%, distributors about 6%, farmers 4% and marketing agencies about 3%.

The Tapering Chain

The report notes that levels of revenue paid back to stakeholders is in proportion to their closeness to the company itself. There is a distinct tapering in payments to primary suppliers, such as farmers, who are those most likely to be stricken by poverty. Retail distributors on the other hand gain more handily.

The report concludes that for both suppliers and distributors, the closer they are to UI in the value chain the more likely they are able to negotiate favorable prices and conditions.

This view tends to underscore prevailing arguments that those winning the globalization battle are those with the most bargaining power, often major corporations themselves. Others clutching at the ends of either the supply or distribution chains tend to lose out in proportional terms.

This conclusion has alerted Unilever to the "job multiplier" carried in its extensive value chain. The findings, says the company, "point to the potential use of value-chain policies as a tool in sustainable poverty reduction."

To what extent this projection makes the leap into company policy will be worth watching.

Unmapped Landscape

The report provides a range of lessons that can be used by both civil and private sector actors in attacking poverty. But, as Oxfam alluded to in its summary remarks, it has tended to prove the old adage that "the more you know, the more you know you don’t know." The organisation admitted it “learned how difficult it is to reach a specific definition of what constitutes 'fair practice’ by companies.”

At close to 100 pages, the report still misses important indirect aspects of the role of UI. For instance, while there is a relatively positive view on the company’s re-packaging of some products into smaller sachets to make them more affordable, no assessment is offered of the environmental impact of such an increase on packaging and on the flow-on effect in relation to poverty.

Also, little is made of UI’s colonial-era background and the extent to which this may have gained it an unfair foothold to over-step local producers, thus establishing a poverty pattern still being felt today.

Finally, the fact that every Indonesian pays about $600 in national debt each year, paid mainly to international finance institutions, raises questions about the government’s overseas lending strategies to build infrastructure to attract foreign investment from such companies as Unilever, which may have quite legitimately lobbied for such debt generating projects.

Ultimately, the report should serve to further highlight the limitations of simplistic extremism in approaches to the complex goal of poverty reduction in the many contexts in which it appears. That is something both civil and private sectors can take home.

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This column has been reprinted courtesy of Ethical Corporation. It was first published on Nov. 15, 2005.