Market Movers: Lessons from a Frontier of Innovation (December 2007)

8/14/2019 Market Movers: Lessons from a Frontier of Innovation (December 2007)

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Market MoversLessons from

a Frontier of Innovation

A companion piece to Developing Value:The business case for sustainabilit y in emerging markets


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2

ACKNOWLEDGEMENTS

IFC Team

Richard Caines

Maria Gallegos

Rachel Kyte

Vanessa M anuel

Piot r Mazurkiewicz

SuSTaIna bIlITy Team

Kelly Crui ckshank

Ivana Gazibara

Kavita Prakash-Mani

M ichael Sadow ski

Jodie Thorpe

Peter Zoll inger

ProjeCT advISory GrouP

Melissa Brown, Execut ive Dir ector,Association or Sustainable andResponsib le Investment in Asia(ASrIA)

George Dallas, Managing Director,Standard & Poors

William Frater, independent, ormerSenio r Analyst o Frat er AssetManagement

Dr. Subi r Gokarn, Execut ive Directorand Chie Economist , CRISIL

Dr. Aileen Ionescu-Somers, DeputyDirecto r, Forum or CorporateSustainabili t y Management, IMD

am anCo HoldInG InC.

Andreas Eggenberg, o rmerExecut ive Director, AmancoAgricultural Solut ions

Juan Luis Gomez, ormer BusinessAnalyst, Amanco Agricult uralSolu ti ons

Jorge Ramirez, Financial DirectorRoberto Salas, CEO

beIjInG deqInGyuanaGrICulTural TeCHnoloGyCo. lTd.

Liu Xumin, Environmental Manager

Wen Nanying, Human Resour cesManager

Zhang Wenjiang, Financial M anager

Zhong Kaimin, Chair man and CEO

jubIlanT orGanoSyS lTd.Shyam Bang, Executive Director,Manu acturi ng and Supply Chain

Shyam S. Bhartia, Chairman andManaging Director

Ashok Ghose, Chie o EnvironmentHealt h & Saety

P. Ravishankar, President , HumanResources

R. Sankaraiah, Executive Director,Finance

Rajesh Srivastava, President , FineChemicals and CRAM S

m aS HoldInGS

Ajay Amalean, Managing Director,

MAS Corpo rate Solut ions

Mahesh Amalean, Chairman

Ravi Fernando, Director, Corporat eBranding and St rategic CSR

Kamani Jinadasa, Manager,Womens Empow erment and GoBeyond

Dave Ranasinghe, Joint ManagingDirecto r, MAS Intimates

Sharmin i Ratw att e, Directo r, MASInvestments

Deepthi de Silva, Directo r, Group

Human Resources

In addition, we gratefullyacknowledge the comments, inputand company nominations from:

Rajni Bakshi, freelance writer

Jeremy Baskin, Programme forIndustry, University of Cambridge

Cecilia Bjerborn, IFC

Andrea Castro, FundacinPROhumana

Aimilios Chatzinikolaou, IFC

Anne Copeland Chiu, IFC

Mara Emilia Correa, GrupoNueva

Deborah Feigenbaum, IFC

Nicholas Flanders, IFC

Andre Fourie, National BusinessInitiative

Miguel Angel Gardetti, Instituteof Studies for Corporate

SustainabilityLouise Gardiner, IFC

Lucie Giraud, IFC

Dr. Aditi Haldar, Confederation ofIndian Industry

Jonathan Hanks, Incite

Paul Kapelus, African Institute forCorporate Citizenship

Ritu Kumar, Actis

Dana Lane, IFC

Joan Midthun Larrea, GlobalEnvironment Fund

Clarissa Lins, Brazilian Foundationfor Sustainable Development

(FBDS)Mike Lubrano, IFC

Malini Mehra, Centre for SocialMarkets

Viraf Mehta, Partners in Change

Mario Monzoni, Center forSustainability Studies, FundaoGetulio Vargas

Julio Moura, GrupoNueva

Khurram Naayaab, Partners inChange

Fei Pei, IFC

Tarcila Reis Ursini, Ekobe

Sarah Ruck, IFC

Enrique Sanchez-Armass, IFCRobin Sandenburgh, IFC

Kalim Shah, IFC

Bernard Sheahan, IFC

Sameer Kumar Singh, IFC

Simon Winter, TechnoServe Inc.

Finally, we are deeply gratefulto Lijian Zhao, who stepped into help us with the case studyresearch and to Tim Hindle, whoso eloquently turned our thoughtsinto words.

mkt ms

IFC and SustainAbi lit y have been the stew ards o the Market Movers project, bu t we are indebted to many

ot hers, not ably our project advisory gr oup, t he int erviewees rom the case study companies and ou r colleagues,wi thout whom t he cont ent w ould have been less rich, i not impossible to wr ite. It is thus wi th enormous

gratitude that we w ould like t o acknowledge:


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Market Movers

Corporate pioneers are using sustainabili ty t o createbusiness opport unit ies in emerging economies

How can business combine long-term success with sustainability

wit h demands for a healthy environment and a just society? Few chiefexecut ives would admit that t his question w as not near the top of their

agenda. And i t is not just of concern t o boardrooms in London and NewYork. According to a World Economic Forum CEO survey, sustainabilityhas emerged as a challenge for companies globally, wit h some of the

most innovative practices undertaken in developing countries.1

Market M overstells the sto ries of a number of fi rms in emergingeconomies that have managed to f ind business value in st rategies

based on sustainability. The firms are driven by world-class businessleaders and range across the globe, f rom Beijing t o Sao Paulo in manycases operat ing in some of the most challenging environments in w hich

to foster commercial success. The report goes on to draw some lessonsfrom their experiences and to make recommendations as to how other

emerging-market businesses might create value f rom sustainabil it y.

While we recognise that any measure of the value added either totheir bot tom line or to society by businesses sustainabil it y st rategies isnecessarily imprecise, it is none the less real for that. In all our cases there

is a close correlati on bet ween sustainabil it y and business success, evenif there is no ir refut able evidence of causation betw een t he tw o. The

entrepreneurs who bu ilt up t hese companies invariably att est to it .

This report is a companion p iece to Developing Value: The BusinessCase fo r Sustainabil it y in Emerging M arketspublished in 2002 by theInternational Finance Corporat ion (IFC), SustainAb ili ty and t he Ethos

Inst it ute. It was the fi rst large-scale study t o examine specif ically t herisks and opportunities of sustainability for businesses across emerging

economies. At that time, there was a widespread assumption that goodgovernance and corporate responsibi lit y were the almost exclusive

preserves of western corpor ations. Yet t he report found t hat manybusinesses in emerging economies were gaining benefits (such as highersales, reduced costs and l ower risks) f rom bet ter corporate governance,

improved environmental practices, and investment in social and economicdevelopment.

Throughou t the case research w e have used t he same concept ualunderpinnings as in t his earlier report . Unlike that report , however, wherewe focused our analysis on specif ic acti ons and investments, here w e look

at enterprises as a whole, seeking examples where sustainability has beenint egrated int o business st rategy. The aim i s to show by example thatsustainability strategies can work almost anywhere in the world.

FOREWORD

Perceiving social responsibility

as building shared value rather

than as damage control or

as a PR campaign will require

dramatically different thinking

in business. We are convinced,

however, that CSR will become

increasingly important to

competitive success.

Michael Porter and Mark Kramer (HarvardBusiness Review, December 2006)

A note on language

Discussions around sustainability

and business strategy are

frequently confused by the

language being used. In Market

Movers, we have provided a

glossary (see page 46) to help

reduce any such confusion.

But in general we use the term

sustainability to refer to a

business approach that creates

value by embracing opportunities

and managing risks derived

from environmental, social

and governance issues. Many

investors, however, prefer the

acronym ESG. So we use that

term also, as and when it seems

appropriate.

Market Movers

1 World Economic Forum , Respond ing to the Leadership Challenge: Findings of a CEO Survey on Global Corporate Citi zenship, 2003.


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Market Movers

TABLE OF CONTENTS

4

Foreword 3Part I Executive Briefing 6

Recipes for success 8

A note for investors 10

In closing 12

Part II Cases in Detail 13

Introduction 13

Amanco: Pipe dreams 14

Deqingyuan: A lot more than chicken feed 20

Jubilant Organosys: Sweet solutions 26

MAS: Going beyond 32

Part III Tools and Guidance 38Step 1: Analyse your business 38

Step 2: Identify risks and opportunit ies 39

Step 3: Develop a strategy 40

Step 4: Plan and implement the strategy 40

Step 5: Monitor and review progress 40

Step 6: Communicate 41

Appendix One:Research approach 44

Appendix Two:Glossary 46

Market Movers

Sustainability has made [us] a market leader, and

a market leader will not only survive out of crisis,

it will thrive out of crisis.

Zhong Kaimin, chief executive of Deqingyuan

Twenty-first century companies need to integratethemselves much more closely with what is

happening in society in general. Those that dont

will be relegated to Jurassic Park.

Julio Moura, president and CEO of GrupoNueva

RichardLord


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Markt Mvrs

Market M oversis not necessarilyint ended to be read from cover tocover. It is divided into t hree sect ions,

and although they are interrelated,

each can be read independently,based on the readers interests andneeds.

Part I (Execut ive Briefing) providesthe main messages and analysis.

Whi le it cont ains the essence of thereport , it i s not a simple summary of

what follows. The analysis presentedin it is not repeated elsewhere.

Part II (Cases in Detail) profiles thefour companies that are the bedrock

of the report. It identif ies how sus-tainability contribut ed to their busi-

ness success, and it points to some ofthe ingredients of that success.

Part III (Tools and Guidance)provides practical guidance to helpcompanies ident if y, understand

and analyse sustainabil it y issues,

and to see how they are relatedto business success. It aims to helpcompanies communicate their

approach and st rategy t o investors,business part ners and ot hers.

Our main target audience is Ceosand sni r xcut ivs in emer-

ging economies. The repor t aimsto h elp them understand t he

cont ribu ti on sustainabilit y canmake to st rat egy, risk managementand innovation . This audience w ill

probably be most i nt erested inPart I and some of the cases in

Part II (see Figure 1, Index t o casestudies).

We also hope that the case studiesin the report w ill be relevant f orthe f inancial communit y invs-

t rs, lndrs and t hir agnt s

(such as analysts and consul tant s).This group w ill be most i nt erestedin Part I and sections of Part III.

Final ly, we ho pe t he cases w il lprovide support to susta inabi l i ty

spcial ists, who are charged w it hhelp ing companies to discuss,

invest igate, measure and commu-nicate elements of sustainability,

and w ho someti mes str uggl e togain the understanding of thew ider business comm uni t y. This

group w ill l ikely be interestedin the whole report.

Hw t us this rprt

FIGURE 1: INDEx TO CASE STUDIES

Sector

pipes &

construction

chemicals &

pharmaceuticals

apparel &

textiles

agribusiness

Amanco

Deqingyuan

Jubilant

Organosys

MAS

Holdings

HQ

Sao Paulo

Noida, Uttar

Pradesh

Colombo

Beijing

Operations

14 countries

in Latin

America

India

US

mainly Sri

Lanka & India

China

Illustrates

innovation

integration

differentiation

leadership

Business Case

brand value through sustainability governance

market creation through economic development

cost savings through environmental efficiency

operational efficiency through environmental efficiency

licence to operate through community development

access to capital through transparency & governance

strong client relationships through high labour standards

employee productivity & lower turnover through good

workforce management

licence to operate t hrough socio-economic development

sales & market access through good environmental standards

brand value through good environmental standards

access to capital through good corporate governance


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Market Movers

PART I ExECUTIVE BRIEFING

INSTANCES OF ExCELLENCE

BOx 1: BUSINESS IN EMERGING ECONOMIES

Since 2002, the signi f icanceof emerging economies hasgrow n rapidly. According toThe Economist, the collecti vegross domest ic product (GDP)of emerging economiesrecentl y exceeded that ofdeveloped economies fo r thefi rst t ime in over a centu ry.

What i s more, not only has

the amount of fo reign directinvestment int o developingcountries grown enormouslyin recent years, but so t oohas the amount f lowing out.Foreign direct i nvestmentfromdevelopingcountries

amounted t o $120 billi onin 2005; up from $16 billionin 2002.3 Witness the recentacquisit ion of the Anglo-Dutch group Corus, one of t heworlds largest steel producers,by Indias Tata Steel follow inga fierce bidding war wi thanother emerging economyrival Brazil s Companh iaSiderrg ica Nacional (CSN).

Thanks to more free trade andcheaper telecommunicati ons,corporations from emergingeconomies are increasinglybeing integrated into theglobal economy. CVRD, a

Brazilian mining companypri vatised in 1997, is nowthe second largest min ingcompany in t he wo rld. Theresult is that such corporati onsare increasing ly aff ected bychanging expectat ions aroundglobal business. They of tenare, or have ambit ions tobe, quot ed on one or moreof the worlds leading stock

exchanges, for example. Theyknow they have to observecontinually rising standardsof disclosure and governanceif they are to gain access tothe planets deepest poo ls offinance.

Companies f rom emerging econo-mies are increasing ly making theirpresence felt in the global businesscommunit y. Not on ly are they ac-quiring more and more companiesin the developed wor ld, but t heyare also pursuing strategies thatare highly competit ive wit h t hoseof established businesses in westernmarkets. India, for example, is well

know n f or i ts progressive fi rms indiff erent areas of the know ledgeeconomy, including IT and pharma-ceut icals, while Brazil has becomea global leader in biofuels. On theevidence of th is report , companiesfrom emerging economies are alsointegrating sustainability in their

business strategies in innovative waysthat stand comparison w ith those tobe found anywhere else in the world.

In a recent art icle in the HarvardBusiness Review,2 Michael Porterand Mark Kramer argue that t oomuch of the debate about corpo-rate responsibility pits businessagainst society as if they were

separate entit ies, when clearly thetw o are int erdependent. The es-senti al test guid ing sustainabili ty isnot whether a cause is wort hy, butwhether it pr esents an opport unit yto create shared value that is, ameaningf ul benefit for society thatis also valuable to t he business.

There are comp anies in emergingeconomies that have been observ-ing t hat t est f or years befor e it w asspelled out i n t he Harvard BusinessReview developing original busi-ness st rategies that gain compet it iveadvantage by being environmentallyand socially responsib le. These com-panies are creating value both fortheir business and for society, and

this report presents some examples.The impl ication is not that t hesecompanies are representat ive of allcompanies in emergi ng economies,but rather that ot her companiescan, if t hey tr y, repli cate aspectsof thei r success.

6

Fou r com panies; fi ve in gredi ent s and count less valuable l essons

2 Michael Porter and Mark Kramer, Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review,December 2006.3 All fig ures in t his report are in US dollars except where ot herwise indicated.


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Mrket Mvers

BOx 2: FOUR CASES IN POINT

At t he heart of Market Moversare four case studies (see PartII), four very different examples

of a successfu l combinat ion ofprof it abilit y and sustainabili ty in

emerging economies.

amnc, a Latin American

pipe maker, has developed anapproach based on innovative

products and services, includinga range designed specifically

for low -income customers. This,coupled wit h a reputation for

an ethical business approach,has built Amanco in to a strongbrand and helped create new

markets w ith substant ial pot en-tial for growth.

Beijing-based deqingyun

took on one of the worlds mostsevere business challenges theproduction of healthy eggs for

the Chinese market. It led theway, banking on t he idea thatChinas increasing ly health-

conscious consumers would paya premium for a quality brand.

And it succeeded. Its brand em-phasis on health and safet y hasbeen popular and its eggs are

now being sold as far af ield asHong Kong.

M aS is a Sri Lankan apparel

manufacturer whose rol l-callof blue-chip customers includes

Victorias Secret , Gap, Marks &Spencer and Nike. In a marketreplete w ith low -cost rivals, MAS

differentiated itself based on itsexemplary employment prac-

tices and turned its employeeprogramme into a brand (called

Women Go Beyond). This per-suaded several western f irms tochoose it as a strategic partner.

jubi lnt orgnsys was abulk chemicals producer thatseized the oppo rt unit ies pre-

sented by th e opening up ofIndias econo my in t he 1990s

to shif t i nt o specialit y chemi-cals and pharmaceuticals. Inth is new market i t discovered

th at i ts emphasis on environ-mental m anagement and local

commun it ies was a pow erfulcompet it ive weapon. The com-

pany integrated the prod ucti veuse of wastes and eff luent s

int o product development andmanufacturi ng, and therebyreduced operating costs, built

up relati onships w it h localcommun it ies and att ract ed

partn ers wi t h simil ar concernsf rom Euro pe and t he US.

CourtesyofAGD


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Maket Moves

There is no simple formula f orensuring t hat a sustainable businessst rategy w il l be more successful

than any other strategy. However,

the aim in analysing our chosencase studies was to understand therelationship betw een sustainabi lit y

and business success, and tounderstand why these four chosencompanies were successful in their

strategies.

In analysing the case studies,the link between each companys

environmental, social and gover-nance effo rt s and it s businesssuccess was explored. This analysis

was based on a series of factors thatinf luence a firms f inancial result s:

saes an m aket access revenue, sales, market share,

access to new markets

recipes f o success

8

Through the research, a numberof ingredients of success were

also identi fi ed. These were f acto rsthat contribut ed to t he strongresul ts in all f our case studies and

helped t hem overcome some of theconstr aint s that many emerging -

economy companies face. Other

companies may find these can helpwith business strategies that createvalue both for t hemselves and fo rsociety. The five ingredients are

summarised below.

leaeship. The role of the chiefexecut ive or chairman i s of ten

crucial in pushing through astrategy based on sustainability.While t hat i s true in any country,

it may be parti cularly true inthe f amily-run f irms common in

emerging economies, where abusiness leader who has a clear

vision, backed by rigorous marketanalysis, can be a powerful force.Zhong Kaimin, the f ounder of

deqingyuan , had a very simplevision: t o provide good, healthy

eggs, fir st f or hi s fami ly and f riendsthen f or t he people of Beijing. But

that simpl e vision is leading t osomething f ar more prof ound inChinas poult ry business.

There is no simple formula for

ensuring that a sustainable

business strategy will be more

successful than any other

strategy.

meant t o be exhausti ve t heydo not detail every benefit thatth e compani es have fou nd. Rather

th ey provide a quick reference of

the m ajor aspects of each case.An image of t his matr ix is alsorepeated w it hin each indi vidual

case study in Part II to help orientth e reader.

opeat iona ef f iciency theimpact on a companys costs

access to capita access to

debt or equity capital, the cost

of capital isk managem ent an i cence

to opeate the cont rol of loss,damage or disruption, ensuringongoing acceptance of the

companys operat ions

taent an hu man capi t a theknow ledge, skill s and talent of

employees and contract labour

ban vaue an eputat ion

public perception of a company,it s products and it s brands.

Figure 2 summarises the mostimport ant business cases t he

w ays in w hich sustain abili typerformance influences business

dri vers and st rategy in each of t hefour case studies. These are not

FIGURE 2: SUMMARy MATRIx OF BUSINESS CASES

Environmental

Performance

Sales &Market Access

OperationalEfficienc

Accessto Capital

Risk Mgmt &Licence toOperate

Talent &Human Capital

Brand Value &Reputation

DQy

Amanco

JOL

Amanco

MAS

JOL

MAS

MAS

DQy Amanco

DQy

JOL

Social

Performance

Governance

Performance

DQy = Deqinguan JOL = Jubilant Organoss


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Mrket Movers

overcome communit y distrust. Byengaging w it h it s neighbours, listen-

ing and acting on w hat it hears,and involving and empowering the

communit y, Jubi lant has helpedcreate an environment of goodw illand understanding and avoided

pot enti al business disrupti ons. Thiscollaborative approach w ith the

communit y has also strengt henedrelationships with the local govern-

ment and eased the process ofobtaining environmental clearances,

which require communit y consultation.

These ingredient s could const it ute

a perfectly good l ist for generalbusiness success in both developed

and emerging economies. After all,sustainability, simply put, is sound

business planning w hich anti cipat esand strategically manages changesin a companys operat ing environ-

ment (which i ncludes changes in

environment al, social and econom icconditions). However, the emphasisin emerging economies may be

diff erent. For one t hing, manyfi rms in emerging economies are

fami ly-run, and it may be easier f orenligh tened leaders to pursue a

long-term goal w it hout shareholdepressure to achieve short-termfinancial targets. Moreover, the

pot ential fo r innovation i s greater(almost by definit ion) in emerging

economies than it is in developedones, where commercial progress

is more l ikely t o occur i n smallsteps than in big leaps and bounds.And t he lack of inf rastructur e and

systems common in developedcount ries means that companies

may have to seek ot her advantagesin o rder t o compete. For example,

where legal frameworks are weak,the value of trusted r elati onshipsmay be higher.

Companies that build strong relationships with their constituencies

suppliers, customers, employees are at an advantage.

In tegrt ion. Sustainabili tyelements were often embedded incorporate strategies from t he very

beginning. In the case of jubilnt ,

fo r example, at t he same time asthe company was moving up thevalue chain, developing a range of

speciality chemicals and researchservices, it was improving its costcompet it iveness with a number of

highly int egrated manufacturingfacilit ies that allowed fo r the

productive use of by-products,effluents and wastes.

Innovt ion. The companies studieduse sustainability as a source of

innovation. amnco , for instance,wanted to move away from being

a commodit y-type producer in orderto increase profits. Its sustainability

strategy allows it to d iff erentiateitself f rom t he crowd by usingenvironment al and social problems

as a source of ideas. Once a challengeis ident if ied, the company applies

creativity to develop new productsand services to address it , such as

financing f or irr igat ion systems forlow -income f armers.

dif ferent it ion. Successfulcompanies have the courage

to be different. M aS took onthe daunt ing task of producing

highly sophist icated garment s ina country where they had neverbeen manufactu red before. It

also chose to bui ld it s facto ries inthe countryside, away from t he

most h igh ly skil led labour. Thisst rategy succeeded because M AS

identi fi ed (and then met) the mainneeds of it s employees and t he

local communit ies factors whichdif ferentiated M AS in t he eyes ofit s major client s.

qulity of reltio nships. Companies

that build strong relationships w iththeir constituencies suppliers,

customers, employees are at anadvantage. Successfully operatingin poor rural areas of India, for

example, requi red jubilnt to

ColinJ.Warren


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BOx 3: VIEWS FROM ELSEWHERE

Since Developing Value5waspub lished in 2002, there has

been a substantial amount ofwork on the business case forsustainability. The finance sector

has been part icularly active, ledby asset managers and i nvestors

involved in in it iat ives such asthe United Nations Environment

Programme Finance Init ia-tive (UNEP-FI), the Principles

for Responsible Investment orthe Enhanced Analyt ics Init ia-tive. Overall, there is a trend to

recognise more f ully t he mate-riali ty of ESG issues and begin

to t ake them int o account inlong-term investment decisions

and a need for companies toimprove communication withinvestors on sustainabil it y and

the business case.

The investment bank GoldmanSachs, for example, has found

that ESG issues are l ikely t o bematerial f or competit iveness

and reputation, and thereforecan have an impact on t hecompanys valuat ion . In Brazil,

ABN Amro Real considered en-vironmental and social concerns

in the forestry industry andconcluded that t hey are mate-rial and can impact corporate

f inancial results. The Associationfor Sustainable and Responsible

Investment in Asia (ASrIA) also

concludes that ESG factors mayimpact investment valuation

dynamic, and that as investorsbecome better versed in ESGanalysis, companies wil l become

more strategic on these issues.6

Beyond investors, academics atHarvard, Yale, IMD in Swit zer-

land and INCAE business schoolin Costa Rica7 have also identi -

fied a business case for sustain-ability. They tend to see sustain-abili ty as a source of innovation

and comparative advantage,and t hey emphasise the recipro-

cal relationship betw een com-panies and society a relation-

ship which creates opportunitiesfor mutual benefit or sharedvalue, as Michael Port er and

Mark Kramer put i t in t heir ar-ti cle in Harvard Business Review.

IMD is perhaps the most cau-

t ious in th is respect support -ing t he noti on of a business

case for sustainabil it y, but warn-ing that it is secto r-specif ic andthat stakeholder support for

sustainability efforts is unreli-able. It also emphasises that

the more that sustainabili ty isembedded as part of businessstrat egy, the more diff icult it is

to measure i ts eff ects. That isbecause it is hard to separate

sustainability- and non-sus-

tainabili ty-related benefit s afinding borne out by the case

studies in this report.

However, despit e t he increasing

number of papers highlightingthe rising import ance of emerg-

ing economies and emerging-economy corporat ions,8 the last

f ive years has seen relat ivelylit t le analysis of the business

case fo r sustainabil it y in emerg-ing economies.

Cont ribut ions from the Brazil-ian Foundation for Sustainable

Development, IFC, INCAE andUNEP-FI have generally found

that the business case forsustainabili ty t ends to hold inemerging as well as in devel-

oped economies. An OECD pa-per on CSR in emerging-econo-

my companies also reaches thisconclusion while emphasising

that the specif ic drivers maybe dif ferent. The paper f inds,

as does this report , that com-panies in emerging economiesmay oft en be practising sustain-

abilit y wit hout calling it such.But it also w arns that the gap

between leaders and laggardsin emerging economies may begreater than i t is in developed

countries.9

5 SustainAbility, International Finance Corporation and Ethos Institute, Developing Value: The Business Case for Sustainabil it y in Emergi ng M arkets, 2002.It was itselfbased on an earlier publication: SustainAbility, Buried Treasure: Uncovering th e Business Case f or Corpo rate Sustainabil it y, 2001.6 UNEP-FI, Show Me the Money: Linking Environmental, Social and Governance Issues to Company Value, 2006; Nyenrode Business Universiteit and Boston College,Knowing t he Price, but also t he Value? Financial Analysts on Social, Ethi cal and Environment al Inf ormat ion, 2005; Goldman Sachs, Global Energy: Introducing the Gold-man Sachs Energy Environmental and Social Index, 2004; UNEP-FI, The Materi alit y of Social, Environmental and Corporate Governance Issues to Equit y Pricing, 2004;United Nations Global Compact , Who Cares Wins, 2004.7 Dan Esty and Andr ew Winston , Green t o Gold: How Smart Companies Use Environmental Strategy t o Innovate, Create Value, and Build Compet it ive Advantage,Yale University Press, 2006; European Academy of Business in Society, Measuring Corporate Responsibility Linking Financial and Social Values, www.eabis.org/research/MeasuringCR/ (15 September 2006); Porter and Kramer, 2006; Oliver Salzmann, Aileen Ionescu-Somers and Ulrich Steger, The business case for corporate sustainability:literature review and research options, European M anagement Journal, February 2005; Ulrich Steger (ed.), The Business of Sustainability: Building Industry Cases forCorporate Sustainabi lit y, Palgrave MacMillan, 2004.8 Antoine van Agtm ael, The Emerging Market Century: How a New Breed of World-Class Companies Is Overtaking the World, Free Press, 2007; Boston Consult ingGroup, The New Global Challengers: How 100 Top Companies from Rapidly Developing Economies Are Changing the World, 2006; Jeremy Baskin and Kathryn Gordon,Corporate Responsibility Practices of Emerging Market Companies: A Fact Finding Study, OECD Worki ng Papers on Int ernational Investment ,2005; Goldman Sachs,Dreaming with the BRICs: The Path to 2050, 2003.9 IFC, The Promise of Private Equit y: Environment , Society and Corpo rate GovernanceNew Crit eria f or Success in Private Equit y Investm ents, 2006; UNEP-FI, Sustain-abilit y M anagement and Report ing: Benefits f or Financial Instit uti ons in Developing and Emerging Economies, 2006; Baskin and Gordon, 2005.

Market Movers


12/48

Market Movers12

In closing

There is no decree that industrialprogress in emerging economies has

to f ollow t he path it has followedelsewhere. Globalisation the ever

faster and f arther movement ofpeople, products, ideas andinformation is helping business

to leapfrog over stages in t heprocess in remarkable (and

unpredictable) ways. Places likeBangalore and Shanghai are fl yingthrough a totally new trajectory of

development f rom that f ollowedby Manchester or Tokyo.

Similarly, there are companies

in emerging econom ies that are

int egrating sustainabilit y intotheir business strategies in unlikely

ways, thus creating value bot h f orthemselves and for the societies

in w hich they operate. Thosecompanies are led by people who

appreciat e that business needs agood society as much as society

needs good business.Market

Moverst ells the sto ries of aselected few of them.

The four companies we prof ile are

very diff erent from each ot her,ranging from some which startedoff wi th an explicit sustainabilit y

agenda to those wh ich came torealise t hat sustainabili ty simp ly

made sound business sense forthem at a particular time in their

development. In all cases, though,

their f ocus has been on managingissues material to core business,

as part of the overall businessapproach. Small , discreet act ions

to t ackle specifi c concerns can addvalue but sign if icant result s are

most l ikely to arise from st rategicventures.

As market interest and expectat ionsgrow, robust sustainabili ty perfor-

mance is being viewed as a markof quality management and often

a precondit ion for doing businessin t he eyes of a growing range ofinvestors, business partners and

customers. By understanding,measuring, managing and then

discussing the business value ofsustainability with these stakehold-

ers, in terms that are relevant t o

them, f irms in emerging economiescan be competi ti ve wit h t he very

best anywhere in t he world.

There are companies in emerging

economies that are integrating

sustainability into their business

strategies in unlikely ways.

Small, discreet actions to tackle

specific concerns can add value

but significant results are most

likely to arise from strategic

ventures.

MarkFallander


13/48


14/48


15/48

Market Movers

Sustainabi l i t y perf orm ance

What you measure is what you get

Amanco has been a pioneer inmeasuring t he impact of it s TBLst rategy, bui lding on t he ideas ofRobert Kaplan, a Harvard profes-sor of account ing w ho in the 1990sdeveloped a method of extendinga companys measure of its perfor-mance beyond t he fi nancial. Onthe understanding t hat what youmeasure is what you get , he set outa concept he called the BalancedScorecard.10 This added ot heryardsti cks of company perf ormance,such as customer sat isfact ion andlevels of innovation, t o t he classic

prof it and loss account . The ideaaroused w idespread i nt erest.

Amanco has extended t he idea ofthe Balanced Scorecard to embracebot h social and environmentaldimensions. It has begun to producewhat it calls a Sustainabil it y Score-card (see Figure 6 on page 41), andits efforts stimulated Kaplan himselfto co-author a Harvard BusinessSchool case study ent it led Amanco:Developing the Sustainabil it y

Scorecard.11 It is a constant chal-lenge for companies to measure theimpact of the sustainabili ty elementof their strategies, and Amanco hasgone as far dow n t his road as any.

Amanco first introduced its Sus-tainability Scorecard in 2003 andit has been cont inuously refi nedever since. Init ially it f ocused on t hesocial impact on employees and t hecommunit ies around it s factori es.But i t has since been expanded to

include business w it h low-incomecustomers, fi ght ing corrupt ion inthe sector, and indicators on acci-dent prevention and eco-eff iciency.

It is dif fi cult t o measure the impactof every aspect of Amancos sustain-ability strategy. The specific benefit

of eff ort s to lead t he debate onwater resour ces and t ransparency,for instance, cannot be quanti fied.But Jorge Ramirez, the companysfi nancial directo r, is convinced t hatthe extensive media coverage that

these initiatives receive has a posi-tive effect on consumers awarenessand att it ude towards the company.There is less doub t about the ben-efit s of t he companys eff ort s toreduce waste and to low er accidentrates. These are all measured andmanaged, and have a posit ive impacton costs.

The BoP segment, although still small,already generates over $4 mill ion inrevenues and t he company believes

the BoP idea has high g row th po ten-tial, projecti ng t hat income from itwill double year-on-year. Since theinit ial project in Guatemala, thecompany has developed new ideasincluding a pilo t f inancial servicesprogram fo r the residential bui ldingand installati on segment in Brazil,launched in 2005. The programprovides credit cards to low -income

customers who lack access to t hebanking system enabling themto purchase build ing materials.Amanco has also set up a pro-gramme to t rain plumbers fromlow-income groups, certifying

those who successful ly completethe programme as Doctores deConst ruo, a br and w hich addsvalue for the plumbers. For Amanco,th is is also part of develop ing t hecompany as an alternat ive to t hemarket incumbents in Brazil, whowere already working w ith thewell-established plumbers. Theonly way to success is wi th surpri se

doing something differently,says Salas.

To some extent Amancos dist inc-tive culture is self-sustaining. Thecompany att racts the sort of em-ployees that want to make it w ork,and who gain satisfacti on f rom t heidea. Amanco has frequent ly beennamed as a Top 100 employer inBrazil , and in 2007 Amanco Ecuadorwas cit ed as the fi ft h best emp loyerin all Latin America.12

Market Movers

CourtesyofAmanco

10RS Kaplan and DP Nort on, The balanced scorecard: measures that dri ve performan ce, Harvard Business Review, JanFeb 2002.11Ricardo Reisen de Pinho and Robert Steven Kaplan, Amanco: Developing the Sustainability Scorecard, Harvard Business School Case 9-107-038, January 2007.12Citat ions by the Great Place to Work Institut e, ww w.greatplacetow ork.com/ (27 August 2007).


16/48

Market Movers16

BOx 4: INNOVATION

Conclusion

21st cent ury business

The companys fort unes are closely

allied to those of t he region. The

growth of Latin Americas GDPper capita over the past 25 years

has been poor lower t han fo r allemerging-economy regions except

sub-Saharan Africa. Moreover, statespending on inf rastructure has

fal len sharply in al l count ries exceptColombia as fiscal controls havebeen tigh tened. Most spending on

wat er and sanitat ion in t he regionremains publicly financed.

The company has already been

through some hard times. Duringthe economic crisis between 1999and 2003, Amanco had t o close

a number of p lants, although

the company provided extensiveretraining and outplacement

services to help laid-of f employees

fi nd new w ork. To succeed inthe 21st century, Julio M oura,

president and CEO of formerowner GrupoNueva, has said

that companies need a dif ferentapproach t o t hat of the last century.

In essence, they need t o int egratethemselves much more closely w it hwhat is happening in society in

general. Those that dont, he says, will be relegated to Jurassic Park.

The big opport unit ies over the nextten years, he believes, will come

from the things that society is mostconcerned about . Among whichhe includes climate change, poverty,

conf lict and globalisation.

Amancos new ow ners seemdetermined to continue wit h the

sustainability strategy that made

the company so attractive whenit came on the market. Mexichem

has conf irmed that it int ends tocont inue w ith t his approach and

has created a special board ofdirectors for Amanco, to reflect

the companys wide geographicalspread and support it s sustainabil it ygoals. But there will be diff erent

challenges in nurt uring such astrategy for a quoted company,

wi th t he short -term horizons thatare imposed on it by it s investors,

as opposed to those that werefaced by Amanco w hen it wasprivately owned.

Like any business, Amancoseeks to i ncrease prof it s.

However, th e company i s

constr ained by the f act t hatpipes are a commoditisedproduct, wit h t radit ionallylow margin s. Amanco has

solved t his challenge bydeveloping a value proposition

based on providing tailored

w ater solut ions to d iff erentconsumer segments. Social and

environm ental prob lems such

as w ater l eakage or f armerslack of access t o f inancing areth e source of ideas, and t henAmanco app lies creativit y,

research and developmentto t ry to solve them. Amanco

th us tu rns t hese probl ems int o

opport unit ies innovatingprodu cts and services t o meet

needs at a compet it ive price.

Innovatio n in productionpr ocesses to r educe resou rceand energy consumpt ion hasalso helped t he company keep

prices dow n and cont ribut edt o increased pro fi t s.

Courtesy

ofAmanco


17/48

Market Movers


18/48

Mt Ms

key

data

Company profile

18

FoundedAmanco Holding Inc. was

fo rmed in 1994 th roughthe merger of several pipesystems companies owned

by Swiss entrepreneur StefanSchmidheiny.

ownerSHIP STruCTure

Wholly owned subsidiary ofMexichem since March 2007 previously part of GrupoNueva

SeCTor

Pipe systems, constructionproducts and geosynthetic

systems

HeadquarTerSSao Paulo

oPeraTIonSPlant s operat ing in 14 Latin

American countries

M arkeTS

More than 55,000 points ofsale in 29 countr ies, including

primarily Brazil, Mexico,Colombia, Argentina and

Cent ral America

M aIn CoM PeTITorS

Companies used as benchmarksinclude Wavin (Dutch), Uralita

(Spanish), Iponor (Finnish) andTigre (Brazilian)

eMPloyeeS

7,100

M arkeT SHare2005: from 17% (Peru) to

66% (Ecuador); 28% acrossthe region

awardS and reCoGnITIon 2006 and 2007: Amanco

(Ecuador) listed in BestCompanies to Work for in LatinAmerica by Great Place toWork Insti tute (ranked 5th)

2005: Distinctionfor Corporate SocialResponsibi lit y f rom MexicanCenter f or Philant hropy(CEMEFI)

2002, 2003, 2004 and 2005:listed in Best Companies to

Work for in Brazil by GreatPlace to Work Institute

Amanco is a Latin American producer of int egrated water solut ions for t he construction,inf rastructu re and irrigation industr ies. It is also involved in the trading of constructionproducts. It produces an annual Sustainability Scorecard, which measures the results of

environment al and social management as well as standard f inancial result s.

FY02 FY03 FY04 FY05 FY06 FY02 FY03 FY04 FY05 FY06

800

700

600

500

90

80

70

60

592

61512

67592

75688

84

798

85

revenue (uSd M n) ebITda (uSd M n)

Compound annual grow th rate (CAGR)from 2002 to 2006: 7.8%13

CAGR from 2002 to 2006: 8.6%.

13Here, and elsewhere in the case studies, CAGR has been calculated by t he aut hors, based on revenue, income or EBITDA f igur es provid ed by t he companies.


19/48

Mrket Movers

1. brnd v lue in cresed t hrou ghsustini l i t y governnce

Sustainabil it y is an int egral part ofAmancos brand dif ferentiation.

In Brazil, Amanco has gone frombeing relatively unknown t ohaving 50% brand aw areness in

less than 18 months.

Leadership on t ransparency wit hinsector helps make Amanco t hepreferred brand to w in cleancontracts in an industry prone tocorruption.

2. Mrket cret i on y helping

custo mers ow n econom icdevelopment

Amanco created new market s at

the base of the pyramid.

Substant ial po tent ial as newsegment accounts fo r 80% o fcustomer base but current ly only20% of sales.

Pilo t projects providing newagricult ural products and servicesare now generating $4.1 million i nrevenues.

Amanco estimates income f romlow -income segments wi ll doubleyear-on-year, compared w it h j ust515% grow th in other segments.

The am nco u siness cse t he th ree most im por t nt f ct ors

Here we highlight the three most important ways in which sustainability performance at Amanco is influencing business

drivers and supporting business strategy.

AMANCO BUSINESS CASE MATRIx

EnvironmentalPerformance


OperationalEfficiency

Accessto Capital

Risk Mgmt &Licence to

Operate



SocialPerformance

GovernancePerformance

3. Cost sving s fr om supp ort ingenvironm entl ef f i ciency

Good environment, health andsafety management saves moneyand cont ributes to increasedmargins.

There w ere $850,000 in savings

in 2006 through eco-efficientmanagement of plants (reducingresource and energy consumpt ion).


20/48

Market Movers

the (grow ing) branded egg marketin Beijing. Prof it s doub led in 2005(to over RMB 10 million), and only

fell back in 2006 because of heavyinvestment in expansion thecompany increased i ts inf rastr ucture

sixf old in a single year.

In M arch 2007 Deqingyuan beganto sell it s eggs at a pr emium p rice

in Hong Kong, a cit y that has nottr adit ionally sourced eggs fr om

20

CASE: DEQINGyUAN

A LOT MORE THAN CHICKEN FEED

A small start -up near Beijin g ishelping t ransf orm Chinese eggproduction anti cipatin g a market

trend tow ards better food qualityand safety.

If you set out to fi nd t he mostchallenging environment i n w hich

to start a business, you w ould behard pushed to beat t he chicken

industr y in China. A series of foodsafety and health issues SARS,bird f lu, t he Sudan 1 carcinogen

have undermined confi dence inthe abilit y of the w orlds biggest

egg consumer (account ing fo r anextraordinary 40% of tot al world

consumpt ion) to monit or thequalit y of it s pou lt ry stock. Thiswas not helped by the f ragment ed

nature of the industry in China.Prices are continually under pressure

fr om myriad small p roducers pre-pared to cut corners on production

standards and food safety. Only acouple of farms in the whole count ry

can boast more than a mill ion birds.In Europe and America such farmsare commonplace.

Nevertheless, in 2000 one man

took on t he daunting challengeof produ cing a quality egg for t heChinese market . He was not a serial

entrepreneur wi th a family back-ground in business. Rather, Zhong

Kaimin was an engineer who hadworked in the Ministry of Defence

for 16 years. But he and his familyknew that it w as hard to fi nd a

decent egg in Beijing. So, wi th thehelp and advice of a few fri ends andfamily, he set out to f ill t he gap.

His company, Deqingyuan, based

some 90 kil omet res out side t heChinese capit al, is now producing

about 480,000 high -grade eggs aday and account s for over 70% of

When an outbreak of bird flu caused egg sales to plummet,

Deqingyuan continued to sell everything it could produce at its

full premium price.

mainland China. It now intends to

open tw o new f arms one in thesout h of the country near Hong

Kong, the other near Shanghai.Wit hin t hree years Deqingyuanhopes to be producing 6 million

eggs a day. Furt her p lans includethe production of liquid and pow-

dered egg. These products have alonger shelf l if e than eggs in t heirshells and provide an eff icient w ay

of dealing wi th periods of highand low demand.

Meanwhile t he egg-distrib utio n

system in Chin a is shi f t ing inDeqingyuans favour, away from

the t raditional wet markets (whichthe health authorit ies are gradu-ally closing dow n) and int o super-

markets, some of them ow ned byfo reign giant s such as Wal-Mart ,

Carrefour and Tesco. World-famousbrands such as these do not want

to r isk their reput ations by sellingfood products of dubious quality.

Enter Deqingyuan, w hose eggs arealready available in over 500 Chinesesupermarkets.

Mr. Zhong did not plunge int o hisventu re t otally unprepared. He

gained an MBA f rom t he PeoplesUniversit y in Beijing and persuaded

some f riends w it h business experi-ence to jo in him. They did door-

to -door market research and, onceproduction had begun, they gave

away half a million eggs in order t oshow people how much bett er theytasted t han the tradit ional fare.

Deqingyuan brands it s eggs w it h

disti nctive packaging , and it stampsthem wi th t he date they were laid,

the fir st t ime this has been donein China. The company also dif fer-enti ates it s product by selling eggs

by number, as well as the moretradit ional approach of selling by

weight . When an outbr eak of birdf lu caused egg sales to plummet

(and a large number of produc-ers to go bankrupt ), Deqingyuancont inued t o sell everything it could

produce at its full premium pri ce.Local consumers were hungry for a

product t hey could tr ust, a brandthat t hey could rely on. Sustain-

abili ty has made Deqingyuan amarket leader, says Mr. Zhong, and a market leader wi ll not only

survive a crisis, it w ill t hri ve outof crisis.


21/48

Market Movers

Waste not , want not

Deqingyuans business proposition

is based on Chinese consumers

growing willingness to pay for foodsafet y. Expendit ure on householdconsumption in the count ry is ris-

ing by almost 7% a year, much of itgoing t owards better quality food.So the highest environment al and

animal-husbandry standards arefundamental t o Deqingyuans

success. This means prot ect ing theenvironment that birds live in,

ensuring adequate cage size andsiting and providing good qualityfeed, thereby reducing the incidence

of disease and the need for antibi -oti c use in egg production.

The company is unusual in aiming

to be green in one of t he mostpollut ing industr ies of all: in Chinaagricult ural w aste is reckoned t o be

greater in volume than industr ial andmunicipal waste put together. But

the result is a higher quali ty product,which means that Deqingyuan can

charge a higher price for i ts eggs(Deqingyuans eggs sell at almost

a 200% premium t o the price of astandard egg).

Deqingyuans sustainabil it y concernsstretch w ell beyond animal welfare.

There are significant worker healthrisks in t his indust ry due to ammo-nia and dust concentration in the

facility. Deqingyuan has purchasedadvanced equipment to address th is

problem, and provides a health caresyst em f or it s employees. Other

environmental measures includewaste management , energy conser-

vation and rainwater collection f orlandscape use.

Chickens make a lot of mess, andgetting rid of it can be a problem.

So Deqingyuan turns much of i t int ofert ili ser wh ich it sells to nearby

farmers. But th e company nowprodu ces far m ore w aste t han itcan absorb , so t he company has

constr ucted a biogas plant , which

will come on str eam in late 2007.

This w ill convert t he waste int omethane gas, which can be used toproduce electr icity. The electricit y

produced will more than meet thecompanys own needs, so it will ex-

plore oppo rtunit ies to sell t he rest.The company wil l also benef it f roma new revenue stream through the

sale of Cert if ied Emission Reduc-t ions (CERs).

The companys business goals have

also led it to provide support tothe local communi t y. Above all, itneeds to guarantee good f oodstu ff

fo r it s birds, and it needs to be surethey are not going t o be infected

by disease from ot her local stocks.So it provides high-grade organic

fertiliser (made from its own waste)to local farmers to enable themto grow corn, which Deqingyuan

guarant ees to buy as feedstu ff at ahigher-than-market price. In addi-

ti on, it gives cheap eggs to villag-

ers nearby in retu rn f or t hem not

breeding their ow n chickens adeal struck aft er the avian flu out -break in 2004.

On governance, Deqingyuan has

also set out to fo llow good p racticeaware that wi thout it foreign in-vestment is unlikely. An internation-

al account ing f irm is wo rking onan audit w ith a fut ure initial public

of fering (IPO) in mind. Theyre notperf ect on governance, says Joan

Larrea of the Global EnvironmentFund, an investment fund focusedon clean t echno logies and emerg-

ing econom ies. The main at trac-tion is that they do t ake it seri-

ously. Deqingyuan ho lds regularshareholder and board meetings,

and produces the required fi nan-cial documents. They have an opendiscussion betw een the board and

management, and have just addedan independent board member.

Market Movers


CourtesyofDeqingyuan


22/48

Market Movers22

BOx 5: LEADERSHIP

Conclusion

Head and should ers above

th e rest

Sett ing up an operation like

Deqingyuans is expensive. Thebirds cages have come from Italy,

the fertiliser-making equipmentfrom Germany, and the biogas plant

f rom Americas General Electric. Notsurprisingly, for some time moneywas Chairman Zhongs main challenge.

He says he devoted up t o 80% of histime t o f und-raising.

Deqingyuans prof it ability de-pends on t he companys abili ty

to charge a price premium t ocover the higher costs of pro-ducing high-quality eggs. This

is no mean feat in a count rywhere food qualit y standards

are inconsistent and many egg

producers have been bankrupt-ed due to the price competi tion.How ever, Mr. Zhongs vision

and leadership allowed h im t otake t he risk. He bet (correctl y)

that his high-qualit y eggs wouldmesh w ith the grow ing health-consciousness of Chinese con-

sumers if he could build a brandthat became associated w it h

quality. He achieved this in sev-

eral ways, including organisingmarketing activities in residen-tial communi ties, giving away

more t han 500,000 eggs for f reefo r people t o t aste, and devel-

oping a unique brand and pack-aging, with production datesclearly printed. Mr. Zhongs

leadership in p ioneering higherquality and ethical standards in

the Chinese market also helped

secure IFC investment anot hercrit ical facto r that contri butedto success.

IFC was impressed by the companys vision of transforming Chinas

egg production at the same time as it pioneered new standards ofsustainability.

in good stead as it approaches themarket . Mr. Zhong says the thing

that keeps him awake at night nowis the challenge of f inding enough

suit ably qualified people t o managethe companys rapid expansion. Theindustry has tradit ionally been run

by small f amily firms; trained poul trymanagers in China are even rarer

than good eggs.

The high price of ent ry may deter com-petitors from capturing Deqingyuansmarket share fo r t he foreseeable

fut ure. Those who do enter wil l inany case be hard pushed t o f ind

the management skil ls requir ed to

maintain such hi gh environ ment alst and ards. The f ew ri vals that existin the branded egg market currentl yout source at least some of their

production t o ot hers, handing overbirds to their suppl iers and collecting

their eggs thereafter. Deqingyuandoes everyth ing it self and is in

cont rol o f i t s birds all t he time. It i s,says Joan Larrea, head and shouldersabove the rest.

But he managed to att ract someheavyweight fo reign i nvesto rs

including t he IFC (which t ook astake in t he company in 2006) andthe Washington-based Global Envi-

ronment Fund. M r. Zhong believesthat Deqing yuans high standard

of animal welf are was partly re-

sponsible for IFCs interest. Theproject i s smaller t han wouldusually draw IFCs attention, but

the insti tu ti on w as impressed bythe companys vision of transforming

Chinas egg producti on at the sametime as it pioneered new standards

of sustainabil it y. Receiving IFC sup-port was crucial for Deqingyuan,bringing not only money but also

expert ise in, f or example, thebiogas proj ect.

The company is now th inking ofa stock-market listing in 2008 or

2009 to give it access to the furt hercapital i t wi ll need if it is to scaleup it s operation to a national level.

Its good governance and environ-mental perfo rmance wil l stand i t

Courtesy

ofDeqingyuan


23/48

Market Movers


24/48

Mt Ms

key

data

24

FoundedBeijing Deqingyuan Agricul-

ture Technology Co. Ltd w asfounded in 2000 by the currentchairman, Zhong Kaimin.

ownerSHIP STruCTure

Owned by: Individualshareholders includ ing

Zhong Kaimin (14.9%),DQY Agriculture TechnologyCompany (27.7%), Global

Environment Fund (15.9%),Capital Today (15.9%),

Innobiz Hong Kong (8.8%),Shanghai Yi Bei (8.6%) and

IFC (8.2% )

SeCTorAgribusiness

HeadquarTerSBeijing

oPeraTIonS

Beijing

M arkeTSBeijing, Hong Kong

M aIn CoMPeTITorSFollow ing Deqingyuan

(71% share of brandedegg market in Beijing),

competi tors are Gegeda (25%),Liuminying (1%), Gazige (1%)

and Xiaonong (1%)

eMPloyeeS335

M arkeT SHare

71% of branded egg market

in Beijing3.6% of tot al egg market inBeijing14

awardS and reCoGnITIon

National High-Tech ModernAgriculture Demonstration site

National Food SafetyDemonstration Enterprise

Deqingyuan, based in Beijing , China, produces high-quali ty eggs for t he Beijing and HongKong markets. Deqingyuan was established in 2000 with the recognition that local eggquali ty was poor, and it became the f irst company in China to sell f resh eggs bearing a

production date and trademark.

CAGR f rom 2002 to 2006: 107.3% CAGR f rom 2002 to 2006: 150.4%

FY02 FY03 FY04 FY05 FY06 FY02 FY03 FY04 FY05 FY06

6

4

2

1.20

.90

.60

.300.03 0.08

0.65

1.241.12

revenue (uSd M n) neT InCoM e (uSd M n)

US dollar figures for revenue and net income calculated by authors based on renminbi figures supplied by company and average annual

RMB:US$ exchange rate from the Economist Intelligence Unit.

Company profile

0.37

1.22

3.37

6.186.74

14Calculation of t ot al market share, based on branded eggs account ing for 5% of all eggs in Beijing. However, th is f igure is grow ing f ast.


25/48

Mrket Movers

1. Hig her sles n m rket ccessf rom et ter envi ronmentl n

sfety stnrs

Based on Deqingyuans reput ationfor quali ty and safet y, sales grewfrom $0.4 million in 2002 to $6.7mill ion in 2006.

Deqingyuan has 71% share of thebranded egg market in Beijing.

Deqingyuan entered HongKong market, w hich does nottraditionally source eggs frommainland China.

Deqingyuan commands higherprices per egg in Beijing (0.9 RMBper egg vs average of 0.3 to 0.4RMB per egg) and Hong Kong.

The deqingyu n usiness cse t he th ree most im por tn t f cto rs

Here we highlight the three most important was in which sustainabilit performance at Deqinguan is influencing businessdrivers and supporting business strateg.

DEQINGyUAN BUSINESS CASE MATRIx



OperationalEfficienc

Accessto Capital




SocialPerformance

GovernancePerformance

3. access to cpit l f rom goo corport e g overnnce

Alt hough industry has dif fi cult ygaining access to capital,Deqingyuan tapped int ointernational investment fromGEF and IFC.

Investors are att racted by thecompanys pioneering vision ,qualit y and environmentalperformance, and seriousapproach t o governance.

2. brn vlu e n repu t tio nui l t on goo envi ronmentl

n sfet y stn rs

High food safety based on soundenvironmental approach allowsDeqingyuan to create a trustedbrand.

During SARS crisis, which def lat edegg sales th roughout China,Deqingyuans sales increased -evidence of high level of trustDeqingyuan enjoys with consumers.


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Market Movers26

CASE: JUBILANT ORGANOSyS

SWEET SOLUTIONS

The opening up o f Indiasecono m y in t he 1990s m ade

jubilants sustainabil i ty strategyeven more v aluable.

Started in 1978 as a bulk chemicals

producer, when Indian industry wasprotected behind high tariff walls,

Jubi lant Organosys found i tselffo rced t o ret hink it s business model

after the opening up of the Indianeconomy t o global t rade and com-petition in 1991. The liberalisation

included a gradual reduction o fcustoms dut ies on chemical prod-

ucts, the pr ices of which plungedto 30-year lows in t he second half

of the 1990s. The prof it s of manyfi rms in t he industry were severelydepleted.

Jubilant reckoned t hat i t was going

to be hard t o succeed in t his new,compet it ive global market . So it

decided to shif t in to h igher valuegoods and, over the next decade,

transformed itself from an essential-ly bulk chemicals manufacturer intoa low -volume f ine and specialit y

chemicals producer, with a growingfocus on supplying the pharmaceuti-

cals indust ry. It moved i tself strategi-

cally higher up the value chain.The company has traditionally reliedon an unusual source fo r it s raw

material. Most chemicals f irms of it skind rely on crude oil-based feed-stocks. But accessing them can pose

a problem, as their prices are high lyvolatile and their supply sometimes

uncertain. So Jubi lant decided to usemolasses as it s feedstock. M olasses is

a waste product f rom t he manufac-ture of sugar from cane, and Indiais a huge grow er of cane, second in

the w orld only t o Brazil. The priceand supply of molasses are signifi-

cantly disrupted only by an extraor-dinary monsoon. Thus Jubi lant was

able t o stabi lise it s cost base.

Coincidentally, the choice marked a

switch to a more environmentally-friendly way of producing the same

products. Molasses is a renewableresource. Its use provides gainful

employment f or the sugar industryswaste and avoids the need for envi-

ronmentally-intensive oil extraction.

India is today recogn ised as a lead-

ing global player in generics anda suppl ier to the pharmaceuti cals

industry. This success has been

driven by it s grow ing skil ls base, bybig improvement s in qualit y, andby a new breed of entrepreneur.

Jubi lant has been part of t his evolu-ti on, and many of i ts fi ne chemicalsproducts are now dest ined f or big

pharmaceuticals manufacturers.Revenues from int ernational sales

account for about 60% of tot alrevenues for the Fine Chemicals

division. Even purchases by domes-ti c customers of ten end up in int er-nat ional market s, as customers are

frequentl y t he out sourced opera-tions of international companies.

Jubi lant has also developed t he

capabilit y to come up wit h newproduct ideas (it employs 1,200scientists, who account for almost

a quarter of i ts tot al staff ), and tosell t hem to w estern businesses.

Jubilant carries out the research inIndia, sends samples to potential

customers and t hen manufactu resthem in bulk i n India when it has

found a buyer. Much of t his wo rkis done fo r l if e-sciences f irms andJubi lant describes it s fu ture str ategy

as being to become the f irst-choice outsourcing partner of the

life-sciences industry.

CourtesyofJubilantOrganosys


27/48

Market Movers

Sustainabilit y perform ance

What dif ferent iates us is the EHS

As might be expected f rom a

chemicals and pharmaceut icalscompany, Jubi lant s main focus on

sustainabi li ty has been di rectedat EHS environment , health andsafety standards. Many of these

are imposed by legislation, butJubilant has gone far beyond local

requirement s. It is a major supplierof carbamazepine15 to Novart is,

for example, which it producesat a facilit y that has gained the

approval of Americas demandingFDA (Food and Drug Administrat ion).Jubilants facilities are also OHSAS

18001 certified, and the company

has been providing t raining t ofoster a stronger safety culture, andstrengthening occupational safety

systems and inf rastructure.

Shyam Bhart ia, Jubi lant s chairman

and co-founder, says that thecompanys rapid growth has been

facilit ated by it s sustainabilit ystr ategy. It has helped bo th it s

inor ganic and it s organic grow th th e for mer by making it easierto buy companies in developed

markets (Jubil ant, f or example,curr ent ly has some 700 empl oyees

in t he US), th e latt er by helping i tgain a local licence to operate in a

sector that is particularly sensitive, inIndia as elsewhere. To rai se i t s localprof ile t he company has made its

ow n medical facilit ies availableto local communi ti es, suppo rt ed

local schoo ls by providing t each-ing materials, and set up womens

self -help groups. This has helpedJubil ant avoid t he problems ot hercompanies have faced in Ind ia,

where there has fr equentl y beenstr if e and mistr ust betw een local

inhabit ants and their corporateneighbours.

Jubi lant has been a pioneer in en-couraging sustainabil it y reporting in

India, producing i ts own corporatesustainabil it y report (audit ed by

Ernst & Young) since 2003. It w as

one of the fir st companies in India

to produce such a report alignedwith the Global Reporting Initiative,

and has released i ts 2006-07 reportin l ine w ith t he G3 Guidelines atapplicati on level A+.16 Jubilant be-

lieves that this degree of transpar-ency, wh ich is st ill rare in emerging

markets, has helped in attractinginsti tu tional investo rs. Their owner-

ship of the company increased from7% in 2004 to 32% in 2006. Jubi lantbel ieves that it s EHS record is also

help ing to reassure customers thatit can be a reliable partner over the

longer t erm, and i t has seen a rise inthe volume of long-term contracts

(those fo r over one year) in 2007.

Sustainabilit y is now built into new

products right from their conception.As the company produces substant ial

quantit ies of effl uent, the cost o feff luent treatment is a prime concern.

Businesses in the group cannot putforw ard new proposals unless theyinclude EHS cost considerat ions. In

the fut ure, customers will come toyou wit h the expectation that you

wil l just p ractise good EHS manage-ment, wit hout expecting to pay

extra for i t , says Rajesh Srivastava,president of t he fine chemicalsbusiness. Customers, he says, are

evaluating you against other compa-

nies in Ind ia and China who have thecost advantage What differenti-

ates us is the EHS.

To deal w it h eff luent s, as long ago

as 1984 the company set up t helargest waste-treatment plant in

the count ry for producing biogasfrom disti llery eff luent s. The energy

created now saves the companythe equivalent of 250 tonnes ofcoal a day. Part of the companys

bio-degradable waste is also usedto produce organic manure, which

is being used in progressivelyincreasing quant it ies by farmers

substi tu ti ng chemical f erti lisers.And part is also used f or cropirrigati on aft er treatment, as it

sti ll contains nut rients helpf ul f orplant and soil. But i t t ook tw o to

th ree years to convince the f armersthat the company was not merely

trying t o dump dangerous effl uenton them. Jubilant employed anagricultural technical university

to train t he farmers on newtechniques and to convey that t he

company w as genuinely int erestedin their w elfare. Jubilant made

the farmers part ners, says AshokGhose, the companys chief ofEnvironment , Health and Safet y.

Market Movers

CourtesyofJubilantOrganosys

15

An active pharmaceutical ingredient r elated t o central nervous system disorders. Novartis holds the patent for this for mulation.16 For more information on GRI application levels see the Sustainabili ty Reportin g Guidelinesavailable at ww w.globalreporting.org/Report ingFramework/G3Guidelin


28/48

Mrket Movers28

Conclusion

Jubi lant s business model i sbuilt on it s ability to provide

high value-added specialit ychemicals and qualit y research

and development services toclients in a cost-effective man-ner. Yet cost -compet it iveness

is a challenge in India wherecosts are higher t han in coun-

t ries like China and whereenvironmental regulati on is

becoming more stri ngent.However, Jubilant has succeededin int egrating management of

environmental issues th rough-out its operati ons and t hereby

reducing costs. Eff luent treat-ment costs, for example, are

built directly int o productdevelopment costs. The com-pany has also chosen t o use

molasses abundant ly availablein India as a by-product of sugar

production as its chemical feed-stock. Molasses has less cost and

supply volatility than the crudeoil-based feedstocks used byint ernati onal competit ors, and

is also more environm entall y-f riendly. Jubilant reuses wastes,

convert ing some t o biogas saving t he company money by

meeting i ts energy needs inplace of coal. Jubilant also usesbiodegradable eff luents for

crop i rrigation , which it sup-plies to the surrounding com-

munit ies for f ree, helping bu ildgood relati ons and reduce

operati ng risks.

aiming fo r the top

There is pressure on healt h-care

costs in all economies, and t hat

looks set to carry on pushingdrug p rices dow n. And t here isincreasing demand f or f aster and

more frequent new p roducts asexisting drugs come off patent andbecome generic. In that challenging

environment, Jubilant is hopingfor cont inued rapid grow th, based

on it s relatively low (though rising)cost base and it s abili ty t o ret ain

highly qualif ied scient ists.

It i s Jubi lant s aim t o be among

the top t hree in the world in allits major markets. The company is

close to being t he second largestproducer of pyridine17 and its

derivatives globally, catering

to leading pharmaceutical andagrochemical companies. Givenit s st rong customer relat ionships

and it s proven reliabili t y, Jubil ant

expects to be the market l eaderin t he near f utu re. In t he marketfor solid pol yvinyl it is thi rd in t he

wor ld wi th 75% of it s productionexport ed, mostl y for chewing gumto fi rms like Wrigley and Cadbury.

It holds a simi lar posit ion in themarket f or lat ex addi ti ves to tyres,

and it is the worlds second largestproducer o f carbamazepine. The

company acknowledges, however,that increasing gl obalisat ion andinternational competition are

going to require it t o compete withmult inationals not only f inancially,

but right across the t riple bot tomline of economic, social and

environmental performance.

To cont inue to build it s int erna-ti onal presence wil l require morecross-border t akeovers and the

positive image created by Jubilants

sustainability reporting and itsEHS activities help in making suchmoves. They also help in recruit ing

and retaining the top -notch scien-ti sts that are so vit al t o t he com-panys fu tu re.

As the company cont inues to

grow and expand internationally,the scrutiny of its activities will

almost certainly increase. Stricterenvironment al regulations arelikely in f uture, including t he EUs

new REACH legislation,18 whichhas recent ly come int o f orce.

Jubilant is well aware of thesechallenges and knows it will need

to innovate constant ly to meetnew requirements. As a fullyfledged member of the global

pharmaceut icals community,Jubi lant w ill also have to address

some of the most advanced andvexing issues facing the industry, in

the areas of bioeth ics and t he useof new technologies in research and

development.

Increasing globalisation and international competition are going to

require Jubilant to compete with multinationals not only financially,

but right across the triple bottom line of economic, social and

environmental performance.

BOx 6: INTEGRATION

17 Pyridin e is a basic organic chemical, a buil ding block and solvent i n agrochemical, pharm aceuti cal and o ther industr ies.18 REACH is th e Europ ean Union legi slati on on the Registr ation, Evaluatio n and Au thorisation of Chemicals. It is int ended t o standardise the w ay chemical substancesare evaluated for impacts on health and environment, and aff ects chemicals that are manufactur ed or import ed into the EU in quantit ies of greater th an 1 tonne.


29/48


30/48

Mt Ms

key

data

30

FoundedFounded in 1978 originally

as Vam Organics. It changedit s name to Jubi lant OrganosysLtd. in November 2001.

ownerSHIP STruCTure

Listed in Ind ia since 1981 shares are traded in Group B1

at the Mumbai Stock Exchangeand at t he Nat ional StockExchange of India

SeCTor

Pharmaceut icals, agrochemicalsand chemicals

HeadquarTerS

Noida, Uttar Pradesh

oPeraTIonS

Seven manufacturing locations:Gajraula (Uttar Pradesh),

Nanjangud (Karnataka),Roorkee (Ut tarakhand), Nira

(Maharashtra) and Samlaya(Gujarat) in India plus Salisbury(Maryland) and Spokane

(Washingt on) in the US

M arkeTS130 customers in more than

50 count ries worldw ide,including US, EU, Japan

M aIn CoMPeTITorSVertellus (USA), Koei (Japan),

Lonza (Swit zerland),Chang Chun (Taiw an),

Dr Reddys (India),Cipla (India),

Hisun (China)

eMPloyeeS

3,425

M arkeT SHareAminopyridines 75%

Lutidines & Collidines 56%Pyridine and Picoline ~ 40%

awardS and reCoGnITIon 2007-08: Golden Peacock

Award for CorporateGovernance

2006-07: Golden PeacockAward for Safety M anagemen(Gajraula unit )

2006-07: Nat ional Aw ardfor Excellence in EnergyManagement, Pharmaceuticalsector by Conf ederation ofIndian Industry (Nanjangud unit

2006-07: Gold Award f orSafet y Perfo rmance (Nira unitby Greentech

2005-06: Golden PeacockAward for Corporate SocialResponsibi lit y (Gajraula unit )

Jubi lant Organosys is an in tegrated pharmaceuticals indust ry player, one of the largestcustom research and manufacturing services companies in India. Jubilant has a presenceacross the pharmaceut ical value chain: f rom drug discovery, functional chemistry and clini cal

research services to custom research and manuf actu ring for advance in termediates, f inechemicals, act ive pharmaceuti cal ingredient s and dosage f orms.

FY02 FY03 FY04 FY05 FY06 FY07 FY02 FY03 FY04 FY05 FY06 FY07

400

300

200

100

50

40

30

20

10

0

126153

190

265331

436

510

17

27 29

55revenue (uSd M n) neT InCoM e (uSd M n)

CAGR f rom 2002 to 2007: 28.2% CAGR f rom 2002 to 2007: 62.1%

US dollar figures for revenue and net income calculated by authors based on Indian rupee figures supplied by company and averageannual Rs:US$ exchange rate from the Economist Intelligence Unit.

Company profile


31/48

Mrket Mvers

1. operti n eff iciency th rug h

envirnm ent ef f iciency

Measuring and benchmarkingenergy and resource consumpt ion,

Jubilant identif ied gaps andimproved performance wi thlinks to the bott om line.

Jubilant s use of sugarcane molas-ses as feedstock means lower costand greater reliabilit y of supply

compared with internationalcompetitors.

Jubi lant re-uses eff luents asproduction input s and fo r biogas,

which reduces operating costs.For example, biogas saves Jubilant

the equivalent of 250 tonnes ofcoal a day, wit h corresponding costsavings and lower CO2 emissions.

Current ly, the payback period forinvestment in biogas plant is

three years.

2. licence t perte f rmcmm unity devepment

Many facilit ies are in economicallybackward regions. Disparit ies

betw een employees and t he localpopulation plus general distrust

of the chemical industry couldcause tensions and disruption.

Jubi lant s part icipatory approachto social investment , however,

brings tangible benefit s: avoidanceof social conflicts, support from

farmers and ease in obtainingenvironment al clearances.

Jubi lant gained the trust ofgovernment, which started using

the company as a partner onvarious social pro jects.

The jubi nt orgn sys business cse t he t hree m st im pr t nt f ct rs

Here we highlight the three most important ways in which sustainability performance at Jubilant is influencing business

drivers and supporting business strategy.

3. access t cpit t hr ugh

tr nsprency nd sustin biit ygvernnce

Sustainabil it y, t ransparency and

audited report s give national andinternational investors confidencein t he company.

Majo r int ernational investo rs likeCitiGroup and General AtlanticPartners are considering Jubilants

sustainabili ty credent ials befo redeciding to invest.

As conf idence increased, inst it u-

ti onal investo rs increased t heirstake f rom 7% of Jubi lant s

shares in 2004 to 32% in 2006.

JUBILANT BUSINESS CASE MATRIx



OperationalEfficiency

Accessto Capital




SocialPerformance GovernancePerformance


32/48

Mrket Movers32

CASE: MAS

GOING BEyOND

desp i t e v io en t e thn icconf i ct n the remov o ft re pro tect io ns uner t he

Mu t i Fib re ar rngement(MFa), t his Sr i lnkn ppre

mnuf cturer hs th r ive i nrecent yers w hi e chmp ioni ngw om en s em pow er m en t .

In t he mid-1980s, Mahesh Amalean

was excit ed t hat his small t exti lebusiness on the island of Sri Lankahad won an order t o manufacture

dresses out of synt het ic fabri c fora subsidiary o f Limit ed Brands, a

huge American apparel company.Then a change in quot a restr ictions

meant that he could not f ulf i l t heorder. Mahesh had t o loo k aroundfo r someth ing else to manuf actu re.

He and hi s tw o younger br ot hers,Sharad and Ajay, had po oled al l

t heir savings a few years earlierand bought 40 sewin g machines.

They needed t o keep t hem bu sy.

On a visit t o M AST Indust riesof f ice in Sri Lanka, Mahesh spot ted

Nevert heless, M ahesh decided totry and manufacture it , and he

and hi s bro thers set out to seehow it was done. They travelledto Hong Kong and China t o gain

a deeper understandi ng of themanufacturing process.

Mahesh also went t o Ohio w here

he managed t o persuade senio rexecutives from Victorias Secretthat a coupl e of unknow n Sri Lank-

an ent repreneurs could produ ce

bras to th e very high standardsthat American consumers demand.With a vote of confidence from

Victori as Secret , t he b rot herscompany, MAS Hold ings, foundit self w it h access to American

cust omers and Sri Lankan work -ers. It w as a potent ially pow erful

combination.

Some t ime later, MAS learnt thata 120-year-old German companycalled Trium ph had t he top

technology f or manufacturi nglingerie and, tw o years aft er joining

We took the work to the workers, instead of the workers to

the work.

Mahesh Amalean, chairman, MAS Holdings

At t he time, however, westernbuyers were focused primarilyon p rice. China was just opening

up and t he cost of garmentswas fall ing sharply in real termsin bot h Ameri ca and Europe.

Besides, Sri Lanka w as no t abuyers natur al fi rst port of

call. For one t hing , wages th ereare higher than in ot her Asian

countries such as China, Vietnamand Bangladesh. Moreover, thecount ry has been embroiled i n a

civil confli ct i n t he nort h and east,which has kil led over 60,000 and

left close to a milli on homelesssince 1983.

Under such circumstances, it issurpr ising that t he brot hers stayed

at home. But the Amaleans areof sturdy clot h. From all account s,

Mahesh in part icular was driven bya vision t hat w ent beyond f inancial

performance. He used theopport unit y to create something

much bigger t han all of us, saysDeept hi De Silva, the groupshuman-resources director and a

man who, prior t o MAS, workedfo r 20 years in t he UK. He created

th is feeling t hat w e (and Sri Lanka)can be world class.

At t he time the company wasbeing set up, good textile w orkers

were hard t o f ind i n Sri Lankaslarger towns and cities. Moreover,

the urban infr astr ucture couldscarcely cope w it h a f urt her big

infl ux of labour the governmentit self w as tr ying t o encourage theapparel industr y to move to ru ral

areas. So MAS decided to locateit s plant s in t he count ryside. We

took t he work to t he workers,instead of the w orkers to the

work , says Mahesh Amalean.

a Victor ias Secret catalogue onthe desk of a senio r execut ivethat he w as meeting . Victorias

Secret was (and still is) one ofAmeri cas big gest ret ailers offashion l ingerie. Although lingerie

was out side t he quo ta system,Sri Lanka had no expert ise in

dealing w ith t he fine needleworkthat such products require.

hands w it h Victori as Secret , the SriLankan brothers struck lucky once

again. Triumph had been looking toset up a plant in sout hern India, but

the plan had just f allen through.The Amalean brot hers appeared at

an opport une moment and Triumphagreed to go into a joint ventu rewit h them. Somet imes things just

fall int o p lace, says Mahesh.


33/48

Market Movers


Companies that at tract t he bestpeople perform better thi s is trueregardless of w here you are in the

world.

From the beginn ing , MAS set outto be a good employer. In addit ion

to maintaining basic workp lacestandards (e.g. a limit on w orkinghours and overt ime, age lim it s, safe

working condit ions), MAS gives it sworkers over 90% o f w hom are

women benefits including freetr ansport and a decent breakfast

to start their day, insists thatmanagers eat in the same canteenas everyone else and provides

onsite health care services. To someextent they did i t because, as Ajay

Amalean, the youngest of the threebrot hers, puts it , it was the right

thing t o do. We had absolut ely noidea that 20 years dow n t he road,the things we w ere doing would be

call ed CSR.

But they did i t also because it madebusiness sense. Compan ies that

attr act the best people performbet ter this is t rue regardl ess of

where you are in t he world, saysSharmini Ratwatte, director of MASInvestments and a former board

member. Forbesmagazine recentl ydescribed its 12-acre campus near

Chennai in sout hern India: Past themanicured law ns and the pleasantsecurity guards is an air-conditioned

spacious workp lace, the magazinewro te, where there is a day

nursery and two nu rses to watchover t he well-being of employees

and t heir children. 19

Although the companys turnoveris high by western standards, itis only one-quarter of t he local

industr y average. Many womenleave to marry and then return

once their child ren are at schoo l.To persuade i ts workers to stay

for l onger, how ever, MAS askedthem what t hey would most like

it, as a company, to provide. Oneth ing t he workers suggested was

education, in particular educationin info rmation t echnology and theEngl ish language, and t he company

is now p roviding bot h.

The whole programme has becomeformalised int o someth ing MAS calls

Women G

Market Movers: Lessons from a Frontier of Innovation (December 2007)

Documents