Market systems shape and dictate how we produce, distribute, and consume goods and services. These systems are also key to development impact: To create meaningful economic opportunity in emerging markets, end global poverty, and grow sustainable, productive value chains, we need to transform market systems.
Today, multinational corporations (MNCs) are more motivated than ever to engage in market systems development (MSD)—that is, addressing market failures in a way that creates transformational and lasting benefits for the poor. In fact, many leading companies are already doing this work; they just call it by a different name. For MNCs, market systems development is about advancing their supply chain and corporate sustainability goals around the world.
Leading MNCs are acting to make progress on many of the same market systems challenges as the global development community, including stimulating and promoting better functioning local ecosystems of enterprises; identifying new ways to diversify and increase income for smallholder farmers; improving on-farm productivity and resilience; and opening up new markets to expand affordable goods and services for underserved populations.
In their efforts to transform markets, traditionally, the global development community has sought out ways to engage with and bring in the private sector. But we can also meet companies where they are, complementing and adding to their existing market systems development efforts.
To do this, it’s helpful to understand what motivates leading MNCs and the actions they are taking to drive market transformation.
Why and How Multinational Corporations are Engaging in Market Systems Development
We suggest three key ways that companies are advancing market systems development:
Companies exert influence within their supply chains and on local business partners.
MNCs are increasingly realizing that global risks—from climate change to COVID-19 to poor infrastructure in emerging markets—affect their ability to operate and thrive. Simultaneously, workforce and consumer demands are pressuring these companies to not just talk about what they will do, but take real, targeted action toward transforming their supply chains for greater sustainability.
As a result, a shift has emerged in how leading MNCs are approaching sustainability and social impact issues. Whereas before it was about developing a Corporate Social Responsibility (CSR) mission, today it is about integrating sustainability goals into core business strategy. For many MNCs, leading in sustainability and social impact is a means of seizing market opportunity and getting ahead of multiple supply chain and systemic risks.
To achieve this, MNCs are increasingly putting their energy, effort, and focus on their supply chains, to exert influence toward making the first mile more sustainable. These initiatives on the part of MNCs have reverberations up and down supply chains, and across industries: By pushing their suppliers and local businesses to adopt new and better practices, MNCs are shifting the system and creating changes that will also be seen across other overlapping corporate supply chains.
For instance, PepsiCo’s recent Global Development Alliance (GDA) with USAID seeks ways to integrate more women into the company’s agricultural supply chains and the businesses they work with. PepsiCo hopes to demonstrate the business case for these investments among peer companies, local partners, and other PepsiCo offices around the world. The partners hope to prove that leading in women's empowerment is also good business, by realizing previously untapped market potential.
MNCs look for ways to incentivize and engage a growing range of ecosystem actors.
Beyond focusing on their existing supply chains, MNCs are increasingly looking to form partnerships with other ecosystem actors who can help them solve some of the more complex social and market challenges they face. MNCs often have a comparative advantage in areas such as buying and production, but on stickier issues such as land rights and human rights, they need other actors to help them find and implement solutions.
As a result, we see MNCs innovating on the best ways to “crowd in” new ecosystem actors that are not part of their current supply chain yet can help fill critical knowledge, networking, or resource gaps.
An example: Through its acquisition of Pioneer Foods in South Africa, PepsiCo has set up an innovative development fund that has invited local NGOs and other market actors to approach the company with specific market challenges, proposed solutions, and lists of critical partners. Proposed challenges range from education to incubation/acceleration services for start-ups to helping transform farmers from subsistence to commercial farming. From there, Pioneer Foods is setting up consortiums of local actors who will implement new activities collectively.
This approach allows local actors to come up with the ideas—rather than the other way around—with the aim of building a stronger long-term market for PepsiCo to do business in and for the entire system to thrive.
MNCs invest in market systems analyses and stakeholder mapping in new markets to identify the right entry points and key partners.
More and more, we see that before an MNC will commit to entering a new market or investing in a new sustainability initiative, they want to know what the ecosystem looks like, who the current players are, the business motivations that will affect behavior and systems change, which sustainability challenges are ripe for tackling, and how specific projects and investments will further their goals. While the upfront investment in mapping and analyzing market systems may be greater, it helps companies identify and recruit the right partners to work on the right initiative, which leads to greater progress and more substantive market transformation.
Microsoft, under their Airband initiative, is bringing high-speed internet and connectivity to the most rural areas of the world. To achieve this ambitious goal, they are trying to build demand for services by partnering with and building up local internet service providers, energy access providers, telecom equipment makers, and other entrepreneurs in targeted countries to ready local systems, build more demand for their work, and design contextually relevant, cost-effective apps and services. Resonance has supported Microsoft in the mapping and analysis of new markets, helping to identify strategic entry points that would strengthen a country’s ICT enterprise ecosystem.
Driving Greater Impact on Market Systems Development
The global development community has an opportunity to work with the private sector to advance market systems development. By considering why and how the private sector is currently engaging in this work, we are better positioned to approach and partner with companies strategically and effectively.
We’d argue that the global development community can engage the private sector in market systems development in three primary ways:
- We can spur more activity by engaging MNCs in new partnerships and initiatives, bringing new companies in or engaging practiced players in new ways.
- But we also have a chance to amplify current MNC investments and activities by bringing in new ecosystem actors and resources, money, and knowledge inside—and outside—of a company’s supply chain. For instance, if a company is already engaging in their version of market systems development, players like USAID or local civil society can provide technical assistance, co-investment, and/or networking support to help make that company’s investments more effective or more targeted to what the system needs.
- Knowing what strategic actions MNCs are taking also allows us to fill gaps in their approach. The global development community can leverage its expertise to coordinate complementary activities that are very much needed, but that often fall outside the purview and work of an MNC, such as land tenure and human rights.
For market systems development, the impact we can unlock by strategically engaging with the private sector is unlimited. By forging new partnerships and combining knowledge and resources with companies, the global development community can drive greater innovation and make more progress toward market transformation and sustainable, inclusive development.