DEVELOPMENT STRATEGIES
FOR THE 21ST CENTURY:
SOCIAL PROGRESS AND
COMPETITIVE GROWTH
Professor Michael E. Porter
Asunción, Paraguay
September 5, 2013
Social Progress Imperative
#socialprogress
HOW DO WE
MEASURE A
NATION’S
DEVELOPMENT?
Social Progress Imperative
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THE DUAL CHALLENGES OF DEVELOPMENT
Social
Development
Economic
Development
• In both economic and business development our understanding of success has been incomplete
• There is a powerful connection between economic and social development, both positive and negative
• Separating business and competitiveness from social progress and societal issues is a serious mistake
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ECONOMIC DEVELOPMENT DEPENDS ON COMPETITIVENESS
A nation (or state) is competitive to the extent that firms operating there are able
to compete successfully in the regional and global economy while supporting
high and rising wages and living standards for the average citizen
•
Competitiveness depends on the long-run productivity of a location as a
place to do business
- Productivity of existing firms and workers
- Ability to achieve high participation of working age citizens in the
workforce
•
Competitiveness is not:
- Low wages
- A weak currency
- Jobs per se
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WHAT DETERMINES COMPETITIVENESS?
Endowments
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the
use of endowments
Social Progress Imperative
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WHAT DETERMINES COMPETITIVENESS?
Macroeconomic Competitiveness
Endowments
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Social Progress Imperative
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WHAT DETERMINES COMPETITIVENESS?
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Endowments
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
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WHAT DETERMINES COMPETITIVENESS?
Microeconomic Competitiveness
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy
and the sophistication of local competition revealed at the level of firms, clusters, and
regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Social Progress Imperative
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WHAT DETERMINES COMPETITIVENESS?
Microeconomic Competitiveness
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy
and the sophistication of local competition revealed at the level of firms, clusters, and
regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Social Progress Imperative
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WHAT DETERMINES COMPETITIVENESS?
Microeconomic Competitiveness
Sophistication
of Company
Operations and
Strategy
Quality of the
Business
Environment
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy
and the sophistication of local competition revealed at the level of firms, clusters, and
regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
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IMPROVING THE QUALITY OF THE BUSINESS ENVIRONMENT
Context for
Firm
Strategy
and Rivalry
• Local rules and incentives that
encourage investment and productivity
Factor
(Input)
Conditions
• Access to high quality business
inputs
–
–
–
–
Qualified human resources
Capital availability
Physical infrastructure
Scientific and technological
infrastructure
– e.g. incentives for capital investments,
IP protection, sound corporate
governance standards
Demand
Conditions
• Open and vigorous local competition
− Openness to foreign competition
− Strict competition laws
• Sophisticated and demanding local
needs
Related and
Supporting
Industries
– e.g., Strict quality, safety, and
environmental standards
• Availability and quality of suppliers and
supporting industries
•
•
Many things matter for competitiveness
Successful economic development is a process of successive upgrading, in which the business environment
improves to enable increasingly sophisticated ways of competing
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WHAT DETERMINES COMPETITIVENESS?
Microeconomic Competitiveness
Sophistication
of Company
Operations and
Strategy
Quality of the
Business
Environment
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy
and the sophistication of local competition revealed at the level of firms, clusters, and
regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Social Progress Imperative
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WHAT DETERMINES COMPETITIVENESS?
Microeconomic Competitiveness
Quality of the
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy
and the sophistication of local competition revealed at the level of firms, clusters, and
regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Social Progress Imperative
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DEVELOPING CLUSTERS: TOURISM IN CAIRNS, AUSTRALIA
Public Relations &
Market Research
Services
Travel Agents
Food
Suppliers
Hotels
Tour Operators
Attractions and
Activities
e.g., theme parks,
casinos, sports
Property
Services
Maintenance
Services
Government Agencies
e.g., Australian Tourism
Commission,
Great Barrier Reef Authority
Local Retail,
Health Care, and
Other Services
Local
Transportation
Souvenirs,
Duty Free
Airlines,
Cruise Ships
Restaurants
Banks,
Foreign
Exchange
Educational Institutions
Industry Groups
e.g., James Cook University,
Cairns College of TAFE
e.g., Queensland Tourism
Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
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GEOGRAPHIC INFLUENCES ON COMPETITIVENESS
Nation
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GEOGRAPHIC INFLUENCES ON COMPETITIVENESS
Nation
Regions and Cities
• Regions are the most important economic unit for competitiveness in larger countries,
especially countries beyond subsistence development
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GEOGRAPHIC INFLUENCES ON COMPETITIVENESS
Neighboring Countries
“The
Neighborhood”
Nation
Regions and Cities
• Regions are the most important economic unit for competitiveness in larger countries,
especially countries beyond subsistence development
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WHAT DETERMINES COMPETITIVENESS?
Microeconomic Competitiveness
Quality of the
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy
and the sophistication of local competition revealed at the level of firms, clusters, and
regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Social Progress Imperative
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#socialprogress
WHAT DETERMINES COMPETITIVENESS?
Microeconomic Competitiveness
Quality of the
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Human Development
and Effective
Political Institutions
Sound Monetary
and Fiscal Policies
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy
and the sophistication of local competition revealed at the level of firms, clusters, and
regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
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MEASURING NATIONAL DEVELOPMENT
•
There has been a growing recognition of the need to go
beyond GDP in measuring a nation’s performance
•
A series of indexes have been introduced to do so:
- Human Development Index
- Millennium Development Indicators
- Happy Planet Index
- OECD Better Life Indicators
- Legatum Prosperity Index
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SOCIAL PROGRESS INDEX: DESIGN PRINCIPLES
• Separate from economic indicators
• Holistic framework
• Outcomes rather than inputs
• Relevant to all countries
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WHAT IS SOCIAL PROGRESS?
Social progress is the capacity of a society to
meet the basic human needs of its citizens,
establish the building blocks that allow citizens
and communities to enhance and sustain the
quality of their lives, and create the conditions
for all individuals to reach their full potential.
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SOCIAL PROGRESS INDEX MODEL
Social Progress Index
Basic Human Needs
Foundations of Wellbeing
Opportunity
Nutrition and Basic Medical Care
Access to Basic Knowledge
Personal Rights
Air, Water, and Sanitation
Access to Information and
Communications
Personal Freedom and Choice
Shelter
Health and Wellness
Inclusion and Equity of Opportunity
Personal Safety
Ecosystem Sustainability
Access to Higher Education
Does a country provide
for its people’s most
essential needs?
Social Progress Imperative
Are the building blocks in
place for individuals and
communities to enhance
and sustain wellbeing?
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Is there opportunity for
all individuals to reach
their full potential?
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SPI RANKINGS: 2013
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Social Progress Imperative
Sweden
United Kingdom
Switzerland
Canada
Germany
United States
Australia
Japan
France
Spain
Korea, Rep.
Costa Rica
Poland
Chile
Argentina
Israel
Bulgaria
Brazil
United Arab Emirates
Turkey
Dominican Republic
Colombia
Thailand
Peru
Mexico
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
24
Philippines
Paraguay
Tunisia
Georgia
Viet Nam
Jordan
China
Russian Federation
Kazakhstan
Botswana
Sri Lanka
Morocco
Indonesia
South Africa
Egypt, Arab Rep.
Ghana
Bangladesh
India
Senegal
Kenya
Rwanda
Mozambique
Uganda
Nigeria
Ethiopia
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SPI RANKINGS: 2013
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Social Progress Imperative
Sweden
United Kingdom
Switzerland
Canada
Germany
United States
Australia
Japan
France
Spain
Korea, Rep.
Costa Rica
Poland
Chile
Argentina
Israel
Bulgaria
Brazil
United Arab Emirates
Turkey
Dominican Republic
Colombia
Thailand
Peru
Mexico
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
25
Philippines
Paraguay
Tunisia
Georgia
Viet Nam
Jordan
China
Russian Federation
Kazakhstan
Botswana
Sri Lanka
Morocco
Indonesia
South Africa
Egypt, Arab Rep.
Ghana
Bangladesh
India
Senegal
Kenya
Rwanda
Mozambique
Uganda
Nigeria
Ethiopia
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SOCIAL PROGRESS INDEX VS. GDP PER CAPITA
Social Progress Imperative
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SOCIAL PROGRESS INDEX VS. GDP PER CAPITA
Social Progress Imperative
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SOCIAL PROGRESS INDEX VS. GDP PER CAPITA
Social Progress Imperative
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SOCIAL PROGRESS INDEX VS. GDP PER CAPITA
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OVERALL SPI VS. GOVERNMENT EXPENDITURE (% OF GDP)
Government expenditure source: 2013 Index of Economic Freedom
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THE SOCIAL PROGRESS INDEX: KEY FINDINGS
• Economic development is necessary but not sufficient as a
measure of national performance
• Some approaches to economic development are less effective
than others in advancing social progress, and even
counterproductive
• Just as economic development helps social progress, social
progress can enable sustainable economic development
• The amount of government spending (as a percent GDP) is an
incomplete explanation for social progress performance
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SOCIAL PROGRESS INDEX VS. GDP PER CAPITA
Paraguay
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SOCIAL PROGRESS PARAGUAY SCORECARD
OVERALL RANK 27
Basic Human Needs
32
Foundations of Wellbeing
32
Opportunity
19
Nutrition and Basic Medical Care
36
Access to Basic Knowledge
37
Personal Rights
22
Undernourishment
Depth of food deficit
Maternal mortality rate
Stillbirth rate
Child mortality rate
Prevalence of tuberculosis
44
42
34
38
32
25
Adult literacy rate
Primary school enrollment
Secondary school enrollment
Women's mean years in school
23
46
36
29
Political rights
Freedom of speech
Freedom of assembly/association
Private property rights
Women's property rights
26
12
1
35
1
Air, Water and Sanitation
38
Access to Information and Communications
34
Personal Freedom and Choice
27
Indoor air pollution attributable deaths
Outdoor air pollution attributable deaths
Access to piped water
Rural/urban access to improved water source
Access to improved sanitation facilities
Access to wastewater treatment
28
5
31
45
34
36
Mobile telephone subscriptions
Internet users
Fixed broadband subscriptions
Press Freedom Index
29
37
38
17
Basic religious freedoms
Contraceptive prevalence rate
Access to childcare
Freedom over life choices
1
9
43
36
Shelter
17
Health and Wellness
24
Inclusion and Equity of Opportunity
13
Availability of affordable housing
Access to electricity
20
25
Personal Safety
34
48
43
20
2
13
37
24
16
23
33
26
27
19
30
22
Equity of opportunity for ethnic minorities
Women treated with respect
Community safety net
Tolerance of immigrants
Tolerance for homosexuals
Homicide rate
Level of violent crime
Perceived criminality
Political terror
Life Expectancy
Obesity
Cancer death rate
Deaths from cardiovascular disease & diabetes
Deaths from HIV
Availability of quality healthcare
Ecosystem Sustainability
30
Access to Higher Education
27
Ecological footprint of consumption
CO2 emissions per capita
Energy efficiency (use per $1,000 GDP)
Water withdrawals per capita
31
11
49
8
Tertiary school enrollment
Female tertiary enrollment
25
27
*
Paraguay GDP per capita rank is 35th
among sample of 50 countries
*Safety net and tolerance and respect for minorities, women, and disadvantaged
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SOCIAL PROGRESS INDEX VS. GDP PER CAPITA
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OVERALL SPI VS. GOVERNMENT EXPENDITURE (% OF GDP)
Government expenditure source: 2013 Index of Economic Freedom
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THE SOCIAL PROGRESS IMPERATIVE: DRIVING TO ACTION
The Social Progress Imperative is not just an Index, but a
global effort designed to catalyze action at the country
level. It aims to form and support National Committees of
leaders and stakeholders in each country, and work jointly
with them to mobilize policy changes and private sector
initiatives.
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THE ROLE OF THE NATIONAL COMMITTEE
•
Interpret and disseminate country level priorities for social
progress improvement
•
Pursue policy changes in priority areas for social progress,
through cross-sector collaboration
•
Foster improvements in local data collection and relevant
research
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THE ROLE OF BUSINESS IN SOCIETY
•
Only business can create wealth and prosperity
•
Business is facing growing scrutiny as the cause or a
contributor to many of today’s societal challenges
•
Corporate social responsibility efforts are greater than ever,
but the legitimacy of business has fallen
•
Government and NGO’s alone lack sufficient resources
and capabilities to fully meet social challenges
We need a new approach
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THE ROLE OF BUSINESS IN SOCIAL AND ECONOMIC PROGRESS
Corporate Social
Responsibility
(CSR)
Philanthropy
•
Donations to worthy
social causes
•
Volunteering
Social Progress Imperative
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Compliance with
community standards
•
Good corporate
citizenship
•
“Sustainability”
•
Mitigate risk and
harm
39
Creating Shared
Value
(CSV)
•
Address societal
needs and challenges
with a business
model
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SOCIAL NEEDS AND ECONOMIC VALUE CREATION
Environmental
Improvement
Energy Use
Education
Water Use
Skills
Company
Productivity
Community
Economic
Development
Health
Affordable
Housing
Worker Safety
• Social deficits create economic costs for companies
• Social needs represent the largest market opportunities
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CREATING SHARED VALUE IN PRODUCTS AND MARKETS
JAIN IRRIGATION SYSTEMS
• Drip irrigation equipment for small farmers in Africa and India
• Serves more than 4 million farmers worldwide as of 2012
• Reduces water use by over 40%
• Enables higher crop yields that improve food security while
raising farmers’ income
• Jain is now a $820 million company that is rapidly growing
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SHARED VALUE IN THE VALUE CHAIN
FIBRIA, BRAZIL
•
Fibria, a large manufacturer of pulp for paper, utilizes planted eucalyptus
trees rather than native and old growth forests
•
The company supports and encourages small-scale producers near its mills
to plant eucalyptus in conjunction with other crops, assisting them with
technical training and inputs
•
Fibria achieves far greater resource efficiency versus old growth forest
production, with eucalyptus yielding 30 times higher yield per acre of wood
pulp
•
Small scale producers contribute 27% of the raw material volume utilized in
Fibria mills, improving efficiency
•
4000 households have significantly increased their income
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PARTNERING FOR SHARED VALUE
NGOs
•
•
Hold business accountable
Seek donations
•
Partner with business to implement
and scale shared value solutions
Government
•
•
Regulate how businesses
operate
Operate social programs
•
Tax businesses
Foundations
•
Donate to charitable causes
Competitors
•
“Brand” social initiatives
Social Progress Imperative
• Regulate to encourage market
solutions
• Partner to deliver shared value
solutions to social services
• Jumpstart market solutions through
minimum purchases or subsidies
• Invest in infrastructure to enable
shared value approaches (e.g. roads,
skills)
• Invest with companies, NGOs and
government to enable shared value
solutions
• Partner on business environment
improvements
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CREATING SHARED VALUE: DECIDING WHERE TO CONCENTRATE
NESTLÉ
Nutrition
Rural
Development
Water
• Opportunities to create shared value are inevitably
tied closely to a company’s particular businesses
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FROM PRODUCT TO PURPOSE
Traditional Positioning
New Positioning
Nestlé
• Food and Beverage
Company
• Nutrition Company
Nike
• Footwear Company
• Health and Fitness Company
Thermo
Fisher
• Scientific and Laboratory
Instruments Company
• Making the World Healthier,
Cleaner, and Safer
• A broader sense of social purpose opens up new opportunities for growth and
profitability, while motivating and attracting employees, consumers, business partners,
shareholders, and the public
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REDEFINING CORPORATE PURPOSE
DANONE
•
Danone realized that it had drifted away from its origins as a manufacturer of healthy
foods
•
•
•
•
Sold off its beer, meat and cheese units
Refocused the company on dairy and water
Acquired medical nutrition and baby foods businesses
Created Innovation Committees in business units to provide “healthy food for as many
people as possible”
Vision
Mission
The ‘dual economic and social’ project,
creating economic value by creating
social value
Social Progress Imperative
Bringing health through food to as many
people as possible by refocusing on four
complementary business lines and
expanding into fast-growing new regions
46
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THE PURPOSE OF BUSINESS
•
Our purpose in business is to create shared value for society, not economic
value for its own sake
•
Businesses acting as businesses, not as charitable givers, are arguably the
most powerful force for addressing many of the pressing issues facing our
society
•
Shared value will give rise to far broader opportunities for economic value
creation
•
Shared value thinking will drive the next wave of innovation, productivity,
and economic growth
•
A transformation of business practice around shared value will give purpose
to the corporation and represents our best chance to legitimize business
again
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THE SOCIAL PROGRESS COMMITTEE IN PARAGUAY
• Paraguay has taken the lead among
countries applying the SPI as a formal
measure of national performance
• The government issued a Presidential
Decree on July 26, 2013, making the SPI
an official measure of national
performance
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THE SOCIAL PROGRESS NETWORK: PARAGUAY COMMITTEE
Paraguay has already organized a local committee to deploy SPI at all levels
•
La Asociación de Empresarios Cristianos
(ADEC)
•
La Federación de la Producción, la
Industria y el Comercio (FEPRINCO)
•
•
•
La Fundación Paraguaya
•
•
Fundación Avina
La Fundación Moisés Bertoni
La Fundación Desarrollo en Democracia
(DENDE)
La Universidad Católica- Programa de
Maestría en Administración de Empresas
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THE SOCIAL PROGRESS COMMITTEE IN PARAGUAY
• The local social progress committee has
already started work in three priority
areas
• If we get more of you to join the effort, we
could expand and deal with many more.
• These priorities are:
–
Nutrition (meet the nutrtional needs of
1,000,000 additional paraguayans)
–
–
Water and sanitation
Shelter
Social Progress Imperative
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THE ROLE OF BUSINESS IN SOCIAL PROGRESS
• Now it is time for business leaders in Paraguay to walk
alongside government in fostering social progress, in creating
many instances of shared value, and in developing the
competitive strategies that will lift this country to its full potential
• The new government creates an opportunity for a new publicprivate relationship
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Social Progress Imperative
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