UNIDO PARTNERSHIP WITH PRIVATE BUSINESS

U N I D O P A R T N E R S H I P

W I T H P R I V A T E B U S I N E S S

Rationale, Benefits, Risks and Approaches

Proceedings of an Expert Group Meetingheld at the Vienna International Centre on 30 and 31 October 2000

UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATIONVienna, April 2001

Copyright © 2001 by the United Nations Industrial Development Organiza tion (UNIDO) First published 2001

The designations employed and the presentation of material in this publication do not imply the

expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial

Development Organization concerning the legal status of any country, territory, city or area, or of

its authorities, or concerning the delimitation of its frontiers or boundaries. The opinions, figures

and estimates set forth are the responsibility of the authors and should not necessarily be considered

as reflecting the views or carrying the endorsement of UNIDO. The designations ‘developed’ and

‘developing’ economies are intended for statistical convenience and do not necessarily express a

judgement about the stage reached by a particular country or area in the development process.

Mention of firm names or commercial products does not imply endorsement by UNIDO.

Material in this publication may be freely quoted or reprinted, but acknowledgement is requested,

together with a copy of the publication containing the quotation or reprint.

This document has not been formally edited.ii

During the past few years, the business community has increasingly come to be rec-ognized as a leading agent of economic andsocial development in general, and industri-al development in particular. This has givenrise to a growing appreciation by both multi-lateral and bilateral development organiza-tions of the need to enter into partnershipswith private enterprise as a means of mutu-ally reinforcing their respective activities. Itis in this spirit that the Secretary-General ofthe United Nations, Mr. Kofi Annan, haslaunched the Global Compact, and thatnumerous sister organizations within theUN system and national development coop-eration agencies in the donor countries haveestablished various forms of public-privatepartnership programmes.

I am pleased to say that UNIDO has been atthe forefront of these efforts to create devel-opment-oriented partnerships with the busi-ness community. Soon after assuming officein December 1997, I declared that workingwith the private sector would be one of myhighest aspirations and priorities. Within ayear we had initiated a pilot project to devel-op the automotive component industry in theWestern Region of India through a multi-sectoral partnership bringing together FIAT,INSEAD, the Prince of Wales BusinessLeaders Forum, the Automotive ComponentManufacturers Association of India (ACMA),the Automotive Research Association ofIndia (ARAI), the Government of India andUNIDO. In the meantime, this very success-ful pilot project has been extended to coverthe Southern Region as well, and new corpo-rate partners, including Ford and AshokLeyland, have been brought into the fold. Inaddition, a number of other partnership pro-jects have been initiated, including a projecton electronic supply chain management inthe Mercosur region (to be undertaken jointly with Ericsson) and a project on the

development of the two and three wheelerindustry in Nigeria (to be undertaken incooperation with the Indian firm Bajaj).

Having gained valuable insights into thestrengths and weaknesses of such a partner-ship approach to development cooperationthrough these operational activities, UNIDOhas begun to take steps to formalize a con-ceptual framework to guide the programme inthe future. To supplement the lessons learnedfrom its own experiences, UNIDO hosted anExpert Group Meeting on 30-31 October2000 to draw on the experience and expertiseof a wide range of researchers and practition-ers in the field of industrial development,from both the public and private sectors. Overthe two days of the Meeting, the participantsoffered very informative presentations on thescope for collaboration between the UnitedNations and the business community, the roleof public-private partnerships in economicand industrial development, the activities ofTNCs in SME development through theirsupplier and vendor development pro-grammes, and the potential contribution ofofficial development agencies to the integra-tion of developing-country SMEs into globalvalue chains.

These presentations, and the lively andinstructive discussions to which they gaverise, are summarized in this document. Assuch, it offers a valuable contribution to thestill embryonic but increasingly topicaldebate on the rationale, benefits, risks andapproaches of partnerships with the busi-ness community in development-relatedactivities.

Carlos Magariñosiii

Foreword by Carlos MagariñosDirector-General of UNIDO

v

1 Introduction 1

1.1 The background to the Expert Group Meeting 11.1.1 The UN and partnerships with private business 11.1.2 The Global Compact and the Millennium Declaration 21.1.3 Partnerships in manufacturing and the role of UNIDO 3

1.2 The objectives and structure of the Expert Group Meeting 4

2 Proceedings 5

2.1 October 30, Session 1: The context 52.1.1 Presentations 52.1.2 Discussion 11

2.2 October 30, Session 2: Enhancing the developmental impact of TNC-SME partnerships through the participation of public-sector development agencies 122.2.1 Presentations 122.2.2 Discussion 18

2.3 October 31, Session 1: Meeting the divergent needs of the various stakeholders 202.3.1 Presentations 202.3.2 Discussion 25

2.4 October 31, Session 2: Guidelines for UN-business partnerships 262.4.1 Presentations 262.4.2 Discussion 29

Table of contents

vi

3 UNIDO and the future of partnerships: a summary of key issues 31

3.1 The main findings of the Meeting 313.1.1 The Global Compact 313.1.2 Partnerships between TNCs and SMEs 313.1.3 Guidelines for UN-TNC partnerships 32

3.2 Areas to be explored further 333.2.1 Other partners in development 333.2.2 Changes in the UN system 34

3.3 Action points for UNIDO 343.3.1 Following up the suggestions made at the Meeting 34

Annexes 37

I Programme of the Expert Group Meeting 37II List of participants 41

1.1.1 The UN and partnerships with private business

The leading role of the private sector in economic development in general, and indus-trial development in particular, has becomemore pronounced during the past decadedue to the poor results of public sector-leddevelopment strategies and the redefinitionof the role of the state from an agent of eco-nomic planning to a provider of an enablingenvironment.

Through the rapidly advancing processes ofglobalization and market liberalization,international flows of private capital haveincreased sharply in recent years. While thebulk of these flows has remained confinedto the developed regions of the world, therehas nevertheless been a dramatic increase inthe flow of private capital to the developingand transition economies since the early1990s. Foreign direct investment (FDI),which accounted for 20 per cent of all finan-cial flows from developed to developingcountries in 1991, accounted for almost halfof these flows in 1998.

In this changing global environment, link-ing its own limited resources to those of private business has become a strategicnecessity for the UN development system.Clearly, the reasons for such a linkageextend beyond the issue of funds: partner-ships with the private business sector canhelp to leverage UN development efforts byenhancing access to markets, technologies,and specialized expertise. In this broaderperspective, fostering UN/business coopera-tion becomes an issue of effectiveness and

impact; it turns into a question of sustain-ability of development cooperation effortswithin the market logic.

The business community has also begun torecognize the potential benefits of such part-nerships. This partly reflects a growing needof large transnational corporations (TNCs)to respond to social pressures and demandsfor greater accountability to diversifiedgroups of stakeholders. Increasingly, majorTNCs are now complementing conventionalindicators of financial profitability withindicators accounting for environmentalsustainability and social responsibility, giving rise to the concept of the ‘triple bottom line’.

Corporate social responsibility can be tenta-tively defined as ‘the continuing commit-ment by business to behave ethically andcontribute to economic development whileimproving the quality of life of the work-force and their families as well as of thelocal community and society as large’

1. Its

key dimensions are thus related to humanrights, decent work conditions, environmen-tal protection, community involvement, andsupplier relations. It assumes establishedprocedures allowing continuous monitoringand reporting to all stakeholders. Partner-ships between business and those affectedby its operations are an integral element inthis new inclusive approach to corporatestrategy making.

1

EXPERT GROUP MEETING ON

UNIDO PARTNERSHIPWITH PRIVATE BUSINESS

1 Introduction

1.1 The background to the Expert Group Meeting

1World Business Council for Sustainable

Development (WBCSD), Stakeholder Dialogue on CSR, The Netherlands, 6-8 September 1998.

This gradual convergence of interestsbetween public-sector development agen-cies and the corporate world is giving rise toa growing emphasis on public-private part-nerships (PPPs) as a vehicle for promotingeconomic and social development, from thelocal to the international level. In the creation of the framework conditions for economically, socially and environment-ally sustainable global development, UN agencies can play a particularly importantrole.

1.1.2 The Global Compact

The Secretary General of the United Nationshas frequently expressed his strong commit-ment to the development of partnershipswith the private sector. The Global Compact,launched in 1999, is a UN-sponsored plat-form for promoting good corporate practicesin the areas of human rights, labour and theenvironment. It provides a basis for dialoguebetween the UN, business, labour and civilsociety on improving corporate practices inthe social arena and can become an effectiveinstrument for fighting the negative conse-quences of globalization. The basic philoso-phy of the Global Compact is reflected in theUN’s Millennium Declaration, adopted bythe UN General Assembly in September2000, which emphasizes the need to ensurethat globalization benefits all the world’speople.

The Global Compact is not a code of conduct; monitoring and verification of cor-porate practices do not fall within the mandate or the institutional capability of theUnited Nations. It does not ask companies totake over the responsibilities of govern-ments. But neither can it be used to shieldbusiness from criticism. On the contrary: ithighlights the global citizenship qualities ofcorporations and opens up opportunities fora focused, constructive dialogue.

The Global Compact is rooted in theUniversal Declaration of Human Rights; theILO’s Fundamental Principles and Rights at Work; and the Earth Summit – Agenda

21 principles on the environment. Its NinePrinciples are:

• Human rights1 Businesses should support andrespect the protection of internationallyproclaimed human rights; and 2 Make sure they are not complicit inhuman rights abuses.

• Labour3 Businesses should uphold the free-dom of association and the effectiverecognition of the right to collective bargaining;4 The elimination of all forced andcompulsory labour;5 The effective abolition of childlabour; and6 Eliminate discrimination in respect ofemployment and occupation.

• Environment7 Businesses should support a precau-tionary approach to environmentalchallenges;8 Undertake initiatives to promotegreater environmental responsibility; and9 Encourage the development and diffusion of environmentally friendlytechnologies.

Participation in the Global Compact impliesthat a firm should:

• Issue a clear statement of support andengage in public support for theCompact;

• Post a concrete example of progress madeand lessons learned on the GlobalCompact website

2once a year;

• Undertake activities that further the real-ization of the principles in partnershipwith UN organizations.

Globalization is a factof life. But I believe wehave underestimatedits fragility. The problem is this: Thespread of the marketoutpaces the ability of societies and theirpolitical systems toadjust to them, letalone guide the coursethey take. Historyteaches that such animbalance betweenthe economic, socialand political worldscan never be sustainedfor very long.

Kofi Annan

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EXPERT GROUP MEETING ONUNIDO PARTNERSHIPWITH PRIVATE BUSINESS

2The UN’s website which brings together

activities, issues and information related to theGlobal Compact is www.unglobalcompact.org.

1.1.3 Partnerships in manufacturing and the role of UNIDO

Globalization brings new challenges as wellas opportunities to manufacturing enter-prises in the developing and transitioneconomies. Macro-economic stabilizationand an effective institutional architectureare not sufficient conditions for ensuringthe prosperity of their industrial enterprises.The key constraints to the growth of smalland medium enterprises (SMEs) in particu-lar are imposed by their limited ability toaccess and absorb the know-how that willallow them to meet the demand of today’smarkets.

Partnerships with international corporationsare one way to overcome these constraints.TNCs can provide the financial, technologi-cal and management resources to helpdeveloping country enterprises raise theircompetitiveness and gain access to newmarkets. For UNIDO, with its mandate tosupport industrial development in develop-ing countries and economies in transition, itis therefore logical to bring transnationalcorporations into the ambit of its activitiesand promote such partnerships.

UNIDO’s relations with business have hith-erto mainly been linked to the recipientcountries of aid; there were few partnershipswith globally operating corporations fromOECD countries or global business organi-zations. This pattern is changing. A novelpartnership was concluded in 1998 withFIAT S.p.A. to promote the automotivecomponents industry in India (see Section2.2.1). In November 2000, a partnership wasconcluded with Ericsson Consulting toexplore issues in the field of informationtechnology applications for industry in thedeveloping countries. Other initiatives, part-ly at the conceptual stage, include:

• A partnership programme for environ-mentally sound two- and three-wheelervehicles in Nigeria;

• Linking technical cooperation and privateequity funding in Africa;

• Electronic supply chain management formanufacturing SMEs in the Mercosurarea;

• A programme to encourage exporters inSouth Asia to adopt the ‘triple bottomline’ approach.

This is not the place to discuss the details ofthese initiatives; the brief descriptions makeit clear that they cover developmental, socialand environmental issues. UNIDO, in otherwords, is not just a passive supporter of theGlobal Compact. Because of its worldwidepractical experience with industrial develop-ment and its approach to development thataims at integrating competitiveness, employ-ment and environmental issues in a sustain-able manner, the organization is activelyhelping to realize the Compact’s principles aswell as the goals set by the MillenniumDeclaration.

UNIDO is aware that partnerships with private enterprise entail risks. There are twomain types of risk:

• Different basic philosophies. UN agenciesmay have become more market oriented,but the common good and not the marketremains the final determinant of theirdevelopment objectives. The triple bottomline notwithstanding, the first objectivesof private enterprises are profit maximiza-tion and shareholder value.

• UN agencies must maintain a high degreeof neutrality and remain honest brokers.It is feared by some that the partnershipswill result in undue private-sector influ-ence and will weaken drivers of corporateresponsibility such as government regula-tion, collective bargaining and certainforms of civil activism. In addition, it hasbeen pointed out that there is no indepen-dent monitoring of the implementationand results of partnerships.

3


To ensure that the development impact ofpartnerships with the private sector is maxi-mized and to avoid the risks, UNIDO is for-mulating guidelines for global partnerships(see Section 2.4.1). The preparation of suchguidelines and of a conceptual/analyticalframework for partnerships can benefit fromthe experience and expertise of others in thefield of industrial development. With thispurpose in mind, UNIDO’s Private SectorDevelopment Branch (PSD) organized anExpert Group Meeting at the ViennaInternational Centre on 30-31 October 2000.The Meeting helped to intensify contactswith major practitioners and researchers inthe public and private sector, and has estab-lished UNIDO as a major participant in theresearch and debate on operational and con-ceptual issues related to public-private part-nerships for development.

The topics selected for discussion at theMeeting were:

• The rationale for public-private partner-ships in promoting industrial development;

• The benefits and risks of such partner-ships for each partner;

• The approaches to be adopted by UNIDOin establishing and sustaining partner-ships with private business.

The different issues were addressed in foursessions, each session consisting of a seriesof presentations followed by discussions.

Session 1 of the Expert Group Meeting setthe scene by highlighting some major conse-quences of the acceleration of the process ofglobalization during the 1990s, especially forthe developing and transition economies.The session also assessed the impact onindustrial development of particular supplierand vendor development programmes ofTNCs, with presentations by several leadinginternational corporations on their respectivesupplier/vendor development programmes

and their evolution in response to the global-ization process. They also shed light on the(potential) role of public-private sector part-nerships in this particular context.

Session 2 discussed the issue of the contri-butions that public-private partnerships canmake in more detail. Specifically, the ses-sion looked at the benefits of such partner-ships for (i) enhancing the developmentalimpact of classical supplier/vendor relation-ships established by international corpora-tions with developing-country SMEs; and(ii) extending the sectoral and geographicalscope of these relationships by helping tocreate conducive business environments.They addressed these benefits in both con-ceptual and empirical terms and providedcase studies of specific partnerships linkingnational, multilateral and bilateral develop-ment agencies with the private sector.

Session 3 focused on the possible challengesassociated with the establishment and mainte-nance of public-private partnerships, both on ageneral policy level and with regard to theneed to reconcile the different, and potentiallydivergent, expectations and requirements ofthe individual partners and other stakeholders.The presentations included a review of policy-level issues and the risks of such partnerships,and also covered the issue of appropriateselection criteria for business partners. Inaddition, representatives of several businessorganizations were given an opportunity topresent their interests and expectations.

Session 4 addressed the issue of guidelines tobe adopted by UN organizations to ensurethat partnership programmes with privatebusiness are appropriately formulated and canbe successfully implemented. The Sessionincluded presentations by representatives oforganizations that have already establishedfirm guidelines for this purpose and an intro-duction of the draft Guidelines for BusinessPartnerships being prepared by UNIDO.4


1.2 The objectives and structure of the Expert Group Meeting

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For UNIDO, the incentives for partnershipswith business are in:

• Linking up UNIDO programmes withcommercial activities in developing andtransition economies, enhancing theirdevelopmental impact;

• Generating additional resources for projects;

• Access to technical and managerialexpertise.

One problematic issue is that commercialactivities tend to concentrate on the moredynamic and advanced developing coun-tries; a major challenge for UNIDO will beto ensure that industry in the least developedcountries also benefits from internationalpartnerships.

For private enterprise, the incentives would be:

• The positive image of working with theUN system and adopting its globallyaccepted norms and standards;

• Access to the UN’s global informationnetworks;

• Better access to policy makers and keyinstitutions.

Mr. Andreas Blüthner Trade Law AdviserBASF AG

The successful implementation of the prin-ciples of the Global Compact will lead towin-win situations. But this requires a cooperative attitude among partners rather

We do believe that linking TNCs andSMEs is a very power-ful mechanism toensure that the global-ization process andforeign investment arefirmly rooted in thedomestic economies.

Wilfried Lütkenhorst

We have to search forsynergies, win-win situations and solutions instead of ideology, redeploymentand confrontation,guided by the spirit ofthe Global Compact.

Andreas Blüthner

2.1.1 Presentations

Mr. Wilfried Lütkenhorst Director Private Sector Development BranchUNIDO

The relationship between the UN and busi-ness is no longer antagonistic; both partieshave found a common ground for action, as demonstrated by the support of the international business community, nationalbusiness associations and individual TNCsfor the Global Compact. With regard toUNIDO, the relationship with enterprisehas moved far beyond the procurement ofexpertise and equipment for projects tojoint design and implementation of pro-jects, such as the partnership with the automotive component industry in India(see the presentation by Mr. Kai Bethke inSection 2.2.1).

The basic characteristics of a successfulpartnership are:

• Agreement on joint objectives;• A collaborative relationship to achieve

the objectives, with a clear definition ofroles;

• Shared responsibility and accountabilityfor the outcomes.

In addition:

• The partnership must be an instrument,not an end in itself;

• The benefits should exceed the costs; and• The benefits must be shared fairly.

2 Proceedings

2.1 October 30 Session 1: The context

6


than a confrontation of different develop-ment philosophies. The areas where TNCscould make a contribution are:

• Foreign direct investment resulting intechnology transfer and employment generation, increased competitiveness offirms and of the country as a whole, andcontributing to a country’s nationalproduct;

• Promotion of best practices in the fieldsof efficient production, environmentalprotection and employment. (BASF, as akey enterprise in the chemical industry,participates in the industry’s ResponsibleCare Initiative.)

In the specific area of supply chains, thebasis for a sustainable partnership is a solu-tion-oriented dialogue between the partners.TNCs can contribute to the introduction ofGlobal Compact principles by helping toaddress:

• Unsafe working conditions in SMEs;• Violations of human rights (which can

have a negative impact on business, forexample if discrimination results in thesub-optimal use of labour skills, or if theuse of child labour leads to consumerboycotts).

UNIDO ought to play a stronger role in theGlobal Compact because of the organiza-tion’s well-established relations with the private sector and its worldwide experiencewith projects in different cultural settings,involving different economic and socialactors. UNIDO’s deeper involvement couldhelp improve cooperation among the UN’sspecialized agencies, stimulate the adoptionof higher labour standards, etc., by SMEs,and strengthen the UN’s impartial status asan honest broker.

Mr. Josef SchleicherDirectorInternational Affairs and Public PolicyDaimlerChrysler AG

For DaimlerChrysler AG, social and eco-nomic aspects of business operations are

intertwined. Peace, democracy, culture andsports contribute as much to the well-beingof people as economic growth, and aretherefore essential for creating a high-quali-ty labour force and strong markets for con-sumer goods. Being a car producer, environ-mental issues are also a serious concern forthe firm. The firm fully supports the GlobalCompact and has a strict code of conduct.

Practical activities resulting from the firm’sphilosophy include, among others:

• The Global Road Safety Partnership, con-cerned with road safety for children andwith programmes in a number of devel-oping and transition countries;

• Participating in the Clean Air Initiative,with the Global Environmental Facility,to improve the air quality in the megaci-ties of Brazil, Mexico, Egypt, India andChina;

• Fuel Cell Technology development, whichis to result in zero emission engines;

• Development of manufacturing processeswhich minimize resource use and areenvironmentally friendly.

The firm also assists small suppliers inincreasing efficiency and competitivenessthrough the Special Supplier RelationsDepartment.

UNIDO could make a major contribution inthe field of industrial human resource devel-opment: successful integration in a supplychain requires that SMEs have a well-trainedlabour force and competent managers.

Mr. Pascal RogerSenior Vice President for InternationalAffairsGroupe Suez Lyonnaise des Eaux (SLdE)

SLdE’s core business is related to energy andwater supply, communications and waste services, and half of its business is interna-tional. There are three reasons why it hasjoined and supports the Global Compact:

• The services provided by the firm meetbasic human needs;

Building globally competitive productsand offering future-oriented servicesrequires the use of the unique talent ofevery employee in our workforce.

Josef Schleicher

7


must assume corporate social responsibili-ties. In the case of SLdE, this means usingits expertise in public health related (sanita-tion and water supply) issues to contribute tothe objectives of the Global Compact.

Mr. Sujit Chowdhury Secretary-GeneralWorld Summit of Young Entrepreneurs

The World Summit of Young Entrepreneurswas created in 1993. The Seventh WorldSummit of Young Entrepreneurs, held inSeptember 2000, was supported by UNagencies, UNIDO among them, and a num-ber of TNCs. Over 360 young entrepreneursfrom 97 countries took part in the event,which included training sessions and oppor-tunities for direct business contacts. Theevent was covered extensively by printedand electronic media. The Seventh Summitresulted in 123 joint ventures.

The diagram on page 8 shows which expec-tations the young entrepreneurs had of thesejoint ventures. The creation of new jobsclearly ranked first, before increased salesand technological upgrading. Although jobcreation is not possible without increasedsales and although this is the view of a smallsample of entrepreneurs, it should be kept inmind, when discussing the benefits of TNC-SME partnerships, that the latter have theirown priorities, which are not necessarilythose of the larger partner or the agencysupporting the partnership.

The Summits are not restricted to those whocan physically attend them. An Internet por-tal and an online Virtual Trade Show allowfull participation from anywhere in theworld; the latest tool is an interactive learn-ing programme on joint venture opportuni-ties. These help to reduce thresholds andensure wide representation: 30-40 per centof participants in the summits are women.Apart from promoting business-businesscooperation, the Summit has also estab-lished a dialogue on the concerns of youngentrepreneurs with governments and multi-lateral and financial organizations.

• Through its international presence, thefirm is confronted with many globaliza-tion issues;

• Public-private partnerships are an integralpart of its business.

The type of services provided commit thefirm to human, social, environmental andethical responsibilities: it has taken chargeof water and waste in a number of majorcities in developing countries; it has institu-tionalized a worker/employer dialogue; itadheres to the principles of good gover-nance and transparency; and while environ-mental responsibilities are evident given thenature of its work, SLdE also undertakesresearch on climate change and renewableenergy.

The partnerships in which SLdE is involvedare based on a Delegated ManagementSystem under which the public sector retainsultimate control over public services. A suc-cessful public-private partnership requirestransparency, financial sustainability, a bal-anced allocation of responsibilities and flex-ibility, and needs to be well prepared (ahasty decision to join forces with the privatesector to improve an ailing service is likelyto lead to trouble). Such public-private sec-tor partnerships can make a great contribu-tion to meeting basic needs by:

• Helping to overcome limited public-sector investment capacity;

• Reducing costs through greater effi-ciency;

• Facilitating the mobilization of externalexpertise;

• Increasing motivation, stimulating train-ing and job mobility for staff in utilities;

• Establishing a client-centred approach inthese services.

Globalization leads to defensive and evenhostile reactions among many people, andthere is a real risk of increasing the gapbetween rich and poor. On the other hand,the process is irreversible and does have apositive effect on worldwide economicgrowth. In order to ensure that positive atti-tudes towards globalization prevail, TNCs

The real challengetoday is to have aclear sharing andunderstanding of theresponsibilities of the private and public sector so that every-one can mobilize the best of their competences.

Pascal Roger

The Global Compact must not rest as aGlobal Compact, butmust also be aNational Compact.

Sujit Chowdhury

8


There are a number of benefits of UN-privatesector cooperation from the perspective ofthe challenges faced by young entrepreneurs.These may be summarized as follows:

• Removal of macro-economic and regula-tory obstacles;

• Better institutional support capacities(among others for management trainingand entrepreneurship development);

• Better integration of the informal sectorinto the mainstream of the economy (e.g. by facilitating access to financialresources);

• Creation of platforms for informationsharing and networking.

Mr. Hubert SchmitzProfessorInstitute of Development Studies

Globalization has opportunities and dangers.The danger is becoming locked in a ‘race tothe bottom’ by trying to compete on the basisof low wages, labour and environmentalstandards; the opportunities lie in upgradingof products, processes, etc., and in reposi-tioning a firm in the global economy. To be awinner in the globalization process, the size

of a firm does not matter; what matters isbeing part of the right network (which needsnot always be global). The key question thenis: what does a firm have to offer to its part-ners? The next question then is: do TNC-SME partnerships help to upgrade SMEs?

Upgrading can take four forms:

• Process upgrading;• Product upgrading;• Functional upgrading (improved design,

etc.);• Inter-sectoral upgrading (using existing

competence to move into new activities).

In addition, a TNC-SME relationship canhave beneficial effects with regard to social(labour) and environmental standards.

In global value chains, it is possible to dis-tinguish between two main types: producer-driven chains and buyer driven chains; thetechnologically more sophisticated indus-tries are predominantly found in the formercategory (see Table 1 opposite).

In both cases, there are opportunities forSME development through process andproduct upgrading. Functional upgrading is

It is not the large TNCsthat are the winnersand the local SMEsthat are the losers ofglobalization; in fact,the losers are likely tobe the isolated enterprises and the winners those that arewell connected andbelong to networks.

Hubert Schmitz

ATTAINING TECHNICAL LEADERSHIP

IMPROVING MANUFACTURING EXCELLENCE

IMPROVING PRODUCT DESIGN

ADOPTING PARTNERS’ BEST PRACTICESAND IMPROVING PROCESSES

ADVANCED TECHNOLOGICAL KNOWLEDGE

PROVIDING AND ENLARGING A SALES NETWORK

INCREASED EMPLOYMENT GENERATION

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Anticipated benefits foreseen by entrepreneurs after engaging in joint ventures

12%

12%

22%

28%

40%

50%

84%

9


unlikely, as the lead firm will control designand marketing (the profits, nowadays, arenot so much in the material product as in theintangible qualities added to it). Indirectly,the general stimulating effect of a partner-ship may enable an SME to graduate to successful designs for domestic or regionalmarkets (South-South cooperation may alsomake it easier for SMEs to develop in thisrespect). Inter-sectoral upgrading can takeplace as skills and know-how in subcon-tracting SMEs grow; but it will not normal-ly be an explicit objective of the lead company.

The overall message is that the developmenteffects of a partnership will rarely be suchthat an SME in a developing country canventure independently into global marketsfor high-value products; however, the long-term learning effects must not be underesti-mated, and these may help the SME sector indeveloping countries reach a critical levelfrom which they can graduate to sophisticat-ed products for world markets. For this tohappen, it is essential that SMEs do notbecome locked into a relationship with asingle TNC; rather, they should explore thedevelopment potential of different partner-ships in different sectors.

UNIDO can play an important role in help-ing SMEs to benefit from global valuechains by:

• Preparing self-help materials (guidebooks, videos);

• Providing policy advice on involvementin global value chains and the strength-ening of domestic value chains;

• Advice on avoiding lock-in;• Involving global firms in technical assis-

tance projects; • Exploring the possibilities of e-business

partnerships through infomediaries;• Clearly defining its role in international

partnerships vis-à-vis other UN organiza-tions.

Ms. S. Y. FoongPurchasing DirectorIntel Technology Sdn. Bhd.

Intel Malaysia is a producer of microproces-sors, motherboards and other key compo-nents of computers. It works with a largesupplier network; 65 per cent of the firmsare now Malaysian. Intel’s procurementneeds range from IT supplies to packagingmaterials. Over the years, the complexity of

Table 1: Differential characteristics of producer-driven and buyer-driven value chains

Characteristics Producer-driven chains Buyer-driven chains

Driver of global chains Industrial capital Commercial capital

Core competencies R&D; production Design; marketing

Sectors Consumer goods, Consumer non-durablesintermediate goods, capital goods

Typical industries Automobiles, computers, Apparel, footwear, toysaircraft

Ownership Transnational firms Local firms, predominantly in developing countries

Main network links Investment based Trade based

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We believe in being agood corporate citizenwherever we operate,and to develop thetechnological capac-ities of our suppliers in collaboration with government and othersupporting bodies. Our ultimate goal is to develop our SME suppliers to a pointwhere they are nolonger SMEs.

S. Y. Foong

the operations entrusted to subcontractorshas continuously increased.

In selecting a potential supplier, Intel looksfor:

• Competitiveness of products (quality,price, delivery, safety);

• Capability (technical, material, process);• Stability (long-term enterprise vision,

financial);• Resourcefulness (management, human

resources, staff training).

To ensure top quality in all procurementareas, Intel is running a Supplier Develop-ment Program for existing and new suppliers.This programme, carried out in cooperationwith other Malaysian training initiatives, isbased on the SMART approach of incremen-tal improvement. SMART stands for:

• Sourcing for suppliers who meet its cri-teria;

• Matching support to the requirements ofthe project in which the subcontractor isinvolved and provision of initial trainingto new suppliers;

• Allocating new opportunities to subcon-tractors whose capabilities have improved;

• Refining (continuous improvement)through training and coaching;

• Total solutions that subcontractors willeventually be able to supply, even at aglobal level.

The company also encourages the localiza-tion of production, the participation ofdomestic suppliers in its international pro-jects, and even their search for other part-ners, domestically and internationally.

Intel works with the Malaysian Governmentand various support institutions, which playan essential role in ensuring the success ofIntel’s efforts to strengthen the supplier basethrough effective policies and a good busi-ness environment, a well-developed educa-tional and training system, good infrastruc-ture, financial and fiscal support measuresand promotional activities such as trade mis-sions. A Community Advisory Panel com-posed of key stakeholders has been estab-lished to ensure continuous feedback.

SSMM

AARRTTOTAL Solution �

Supplier, Global �Supplier

EFINE through �training and coaching

LLOCATE and �increase opportunities �appropriately

ATCH to business needs �and provide initial training

OURCING for suppliers who are �willing and capable

Intel's Supplier Development Model'SMART' Approach

Harvesting

Nurturing

Seeding Gov

ernm

ent a

nd�

supp

ortin

g bo

dies

11


choice in a concrete situation. This wouldimply more active involvement of the spe-cialized agencies. Because of its technicalexpertise and practical orientation, UNIDOcould in many cases be involved in Compactimplementation projects. As the UN’s indus-trial development organization, UNIDOwould also be well placed to assess theeffectiveness of TNC partnerships withdeveloping countries and their firms from aCompact perspective.

Another major theme of the discussion wasthe development impact of TNCs on theirsuppliers. Is functional upgrading reallyimpossible? Two cases illustrating the oppo-site were mentioned: a Philips subcontractorin Malaysia has established itself as a majorPhilips contractor in Hungary, and Motorolahas shifted design capacities to SMEs inMalaysia. The fact that Malaysia was men-tioned is no accident. TNCs will usuallylook for suppliers among the more advancedSMEs in the more advanced developingcountries; know-how transfers must be prof-itable to the investing firm. Barriers to func-tional upgrading are likely to be lower insuch countries, where TNC-SME interactionmay result in the growth of a critical mass ofknow-how and a business culture allowing anext generation of firms to enter world mar-kets. Functional upgrading must thereforebe seen in a time perspective as well.

The effects of upgrading are also likely todiffer among industries within the two basiccategories mentioned in the presentation ofHubert Schmitz. In addition, corporate philosophy, a country’s business environ-ment and Government support are cruciallyimportant for creating a climate in whichTNCs will promote innovation in SMEs.Finally, external support to SME groups canplay a role, as several UNIDO projects inLatin American and other countries haveshown.

Apart from business development aspects,the social aspects of TNC-SME relationswere discussed. TNCs can help subcontrac-tors to revise their codes of conduct, butshould take great care not to impose such

2.1.2 Discussion

Much of the discussion centred on theGlobal Compact. Is it really something thatopens up new perspectives on development,or just a framework for ‘repackaging’ exist-ing UN priorities? It was felt by some thatthe direction and objectives of this initiativeshould be defined more closely in consulta-tion with the corporate sector, to ensure thatit receives wide support from private busi-ness. On the other hand, the fact that nearly50 companies attended the meeting at whichthe operational phase of the Compact waslaunched indicates that business is increas-ingly accepting corporate social responsibil-ity for global development. This is alsounderlined by the endorsement given to theplatform’s objectives by 19 Asian employ-ers’ organizations at the 5th Asia-PacificHigh Level Employers’ Conference inOctober 2000. The larger the number offirms participating in the Global Compact,the more other enterprises will be stimulat-ed to follow their good example.

What are the TNCs’ reasons for participat-ing in initiatives like the Global Compact?Social stability is a long-term business inter-est. The Compact supports the efforts ofTNCs to integrate social and environmentalcriteria in their partnerships with local sub-contractors; it will also help to promote con-sensus-building as well as international net-working on these issues. The use of theGlobal Compact website to display bestpractices and successes will not only makegood examples available worldwide on acontinuous basis, but also raise the publicprofile of corporations. Promoting theCompact’s Principles through concreteaction on a project-by-project basis woulddemonstrate that it is not a straitjacket forcorporate conduct. In the long term, thePrinciples should become part of normalbusiness ethics through a gradual process.

With regard to the role of individual UNorganizations in promoting the Compact, itwas suggested that all UN organizationsshould take the lead in promoting theCompact wherever it would be the logical

12


codes. This is often resented by local SMEsand their workforce alike – partly as a resultof the unequal relationship, partly becauseof the fact that not all TNCs invest sufficientresources in the SMEs to make it possiblefor them to comply. Codes of conduct inagricultural value chains have been knownto result in farmers leaving such chains

‘The main idea of theUNIDO PartnershipProgramme has beento develop an alterna-tive model for delivering technicalcooperation becausethe classical relation-ship between donors,national governmentsand multilateral implementing agenciesdoes not meet theneeds of SMEs entering into globalvalue chains.’

Kai Bethke

because their circumstances did not allowthem to comply with, for example, childlabour codes. TNCs should therefore try toimprove human rights by demonstrationrather than by imposing norms. In this con-nection, it is also important to find ways ofworking with NGOs, which are often criticalof TNCs.

2.2 October 30Session 2: Enhancing the developmental impact of TNC-SME partnerships through the participation of public-sector development agencies

2.2.1 Presentations

Mr. Kai BethkeTechnical AdviserPrivate Sector Development BranchUNIDO

The Partnership Programme Approach hasbeen developed by UNIDO to serve as amodel for economically viable and sustain-able technical assistance that would focus onquality, efficiency and international compet-itiveness. Within the sector targeted, theapproach seeks to achieve:

• Technological and managerial learningeffects;

• Increased domestic resource use in pro-duction;

• Increased productive employment andincomes.

A Partnership Programme project willaddress problems of SMEs in specificindustries in an integrated way. A multi-disciplinary project team in which all keyplayers are represented ensures that thestrengths of each partner are used to developeffective and sustainable solutions. Spec-ifically, the contributions made by the different partners are:

• Engineers from TNCs: design, implemen-tation and guidance of training in SMEsand of local engineers;

• Host Government: political endorsement,financial support, national ‘ownership’;

• Research institutes/universities: exposeSMEs to best practices, technical train-ing, enterprise diagnoses;

• Business associations: information ontarget sector, help create sustainablenational support services;

• NGOs: ensuring that issues like sustain-ability are properly addressed in inter-national investments;

• UNIDO: identification and negotiation ofagreements between partners, centralinformation node, expertise on SMEdevelopment.

The diagram opposite summarizes theapproach adopted by the UNIDO Partner-ship Programme to achieve the desireddevelopmental results by combining the dif-ferent strengths of the various partners.

The first project being realized under theProgramme is the Partnership Programmefor the Automotive Component Industry inIndia, initiated with FIAT S.p.A. in 1998.Other participants in the programme includethe Government of India, the Automotive

• More effective use of shop floor space(gains of 45 per cent);

• Machine down time reduced by 60 percent;

• Reduction of rejection rates by 92 percent;

• Reduction in throughput time of 25 percent;

• Turnover increases of 40 per cent;• Reduction of absenteeism: 39 per cent.

In addition, improvements have taken placein areas such as financial management, anda general change of mind set in the firms hasbeen noted.

Mr. Jean-Pierre BrouquilDirectorInternational Business DevelopmentMagneti Marelli

Magneti Marelli, a FIAT subsidiary, is aleading automotive component producerwith 52 plants worldwide. In the experience

Lengthening the valuechain is a must in ourjob – we must exter-nalize our technologiesand service, but this isonly possible if theindustrial environmentis structured enoughto be able to absorbthis externalization.

Jean-Pierre Brouquil

13


Research Association of India, theAutomotive Components ManufacturersAssociation of India, the Prince of WalesBusiness Leaders Forum, the Europeanmanagement school INSEAD, as well asother business partners including Ford,Ashok Leyland, and Sundaram-Clayton Ltd.

The overall aim is to instill a culture of con-tinuous improvement in SMEs covered bythe programme, through intensive shop floortraining, seminars and workshops, and studytours. In the first phase, the focus is on mak-ing SMEs more efficient by eliminatingwaste through the introduction of produc-tivity indicators and raising awareness/know-how of waste and quality manage-ment, etc. In the second phase, social andenvironmental concepts are introduced inthe firms. So far, the participating firmshave recorded the following averageimprovements directly related to production:

• Reductions of one third in material useand lead times for tooling up;

Target Companies

• Shop floor training �• Long-term follow-up activities �

provided by national experts (Junior Engineers)

• Enterprise training �• Training of national experts (Junior Experts) �

provided by international experts (Senior Engineers)

UNIDO Partnership Programme (Design, Implementation)

UNIDOCivil �Society �

Organisations

Industrial �Corporations Government Research �

Institutions

Request from Government or Business Community

14


of this firm, global sourcing is not fully pos-sible because of administrative, customs andtax barriers; local sourcing is therefore aprerequisite for operations. Partnershipsbetween TNCs and public-sector agenciesare a new approach to developing supplychains with local firms. Public sector agen-cies can help to facilitate the spread of thedevelopment effects of TNC-SME linkagesand the dissemination of effective models ofTNC-SME cooperation.

Partnership programmes should cover thewhole value chain. At present, they focus onproduction and servicing, but the pro-grammes can also have an important devel-opmental effect by building up an enter-prise’s vision of the future, helping to iden-tify its core business and increasing its man-agerial expertise. While SME developmentthrough partnerships needs a structuredapproach, it will always be an empirical,heuristic process. Through support servicescovering all key enterprise aspects, an SMEcan become a valuable specialist in a valuechain; care should however be taken not tobecome overdependent on operating withinone value chain.

In the FIAT Group, the dissemination ofknow-how to local SMEs involves:

• Implementing a Vendor DevelopmentProgramme Package (VDPP) that reflectsthe multicultural character of the TNC(this is essential to make it workable);

• Supporting the implementation of theVDPP by training and employing localexperts, ensuring an understanding of thebusiness culture of the country;

• Showcasing participating companies anddisseminating the experience (this is forexample being done in the India pro-gramme).

The rapid growth of e-commerce is of majorimportance to the development of supplychains. Information technology facilitatesthe integration of SMEs in global supplychains, widening their exposure to marketsand technologies and optimizing the flowsof goods and information within the chains. E-commerce helps to lengthen the value chains,which implies that the role of SMEs can bestrengthened, and it can help to disseminategood subcontracting practices, which will con-tribute to sustained economic development.

ABOUT VALUE CHAIN

PARTNERSHIP PROGRAMME TARGET

CURRENT STATUS

INDUSTRIA

LISATIO

N

PRODUCTION

SERVICIN

G

COMMERCIAL

TRANSACTION

MARKET

APPROACH

PROJECT

DEVELOPMENT

Ms. Lorraine RuffingChiefTechnology and Enterprise BranchUNCTAD

The UN Conference on Trade andDevelopment (UNCTAD) presentationfocused on the types of linkages that have apotential for increasing SME competitive-ness and the role of the various stakeholders.In entering into partnerships, a governmentshould be aware of the types of linkage thatare likely to have the greatest impact onSME development. The main types are:

• Backward linkages. These can result inproductivity gains, factor cost reductions,flexibility in responding to changingdemand volumes and flexibility inresponding to different product require-ments; the first and the last of these havethe greatest development impact;

• Linkages with technology partners. Witha few exceptions, these are still limited todeveloped countries;

• Forward linkages with customers. These rarely lead to technological innova-tion;

• Spillover effects. These include know-how and skill transfers resulting from jobchanges; transfers of new managementtechniques, etc.

The TNCs having the greatest developmentimpact will have comprehensive outsourc-ing strategies. These are interested in acountry’s strategic potential rather thancheap natural resources, and will attachgreat importance to long-term intensivecooperation with local firms, graduallyupgrading their capacities, as well as inhelping to create an environment for busi-ness in which innovation is stimulated.

In a partnership with a government, suchTNCs will therefore be particularly interest-ed in its efforts in the areas of HRD, infra-structure and business climate; in selectingan SME, the attitudes of its management(forward looking, flexible, efficient) and thereliability of the firm are the most importantfactors.

To support international partnerships, UNC-TAD is running the Empretec programme inLatin America. Focusing on high-potentialSMEs, the programme provides training,business services, credit and national/international networking facilities. In UNC-TAD’s view, apart from helping to prepareSMEs for international partnerships, anoth-er important role for UN organizations is the dissemination of best practices in thisfield.

Mr. Boonler SomchitExecutive DirectorPenang Skills Development Centre

The Penang Skills Development Centre(PSDC) is a non-profit society which allincorporated companies in Malaysia canjoin. Founded in 1989, it now has 85 mem-bers and ran 522 courses in 2000. Its mis-sion is to promote shared learning (lowercosts, more interaction) for the manufactur-ing and services sectors. Services aredemand driven, being determined by theneeds of TNCs operating in Malaysia andlocal firms. The Malaysian Government andPenang local government (providing politi-cal will, facilities, and financial and fiscalsupport), the industrial sector (offering lead-ership of the initiative, know-how and tech-nical resources, member fees and other sup-port) and academia (providing consultancy,training and research) have joined forces inPSDC. Its Chief Executive Officers areselected from major firms, most of whichare in the electronics and engineeringbranches. A large number of TNCs with apresence in Malaysia have joined the initia-tive. In addition, some countries give bilat-eral support.

The training programmes cover a widerange of technical and management issues.Apart from increasing skill levels, PSDCalso looks at possibilities for careeradvancement in major TNCs. In addition,PSDC has working groups for total produc-tion management, senior-level HRD issuesand best practices in global supplier development programmes. By the end of

Developing countriesmust … adopt a targeted programmeto attract foreign directinvestment, and targetthose TNCs which aremore likely to have adevelopmental philosophy ... to develop local links.

Lorraine Ruffing

15


We must convince theTNCs to share their learning with SMEs, but we must also beproactive enough tostrategically meet andsupport the TNCs’ business requirements.

Boonler Somchit

September 2000, over 60,000 people hadtaken part in over 3,000 courses.

Over the years, industrial HRD require-ments have increased. Malaysian industrieswill continue to move up the value chain;correspondingly, PSDC is adapting its train-ing courses and will soon be offering,among others, an MA in engineering, courseson software simulation, and e-learning formanagement skills. Not all of these coursesare provided at PSDC; there are partnershipswith, for example, Warwick University inthe UK for MA courses.

In March 2000, PSDC launched the GlobalSupplier Programme for Malaysian compa-nies, together with a number of global companies and the Government. The figurebelow shows how PSDC views the relation-ship between and the roles of the main par-ticipants in the programme.

The philosophy behind this programme is:the more capable a country’s SMEs are, themore likely it is that TNCs will initiate part-nerships. In the programme, SMEs areadopted by TNCs, who transfer technologies

and skills and monitor SME progress. So far,8 TNCs and 9 SMEs in the electronics indus-try have declared their intention to adopt it.PSDC’s plans for the future are: to launchthe programme in other parts of Malaysia aswell; to study foreign examples to providebenchmarks for local industries; and to cre-ate training programmes for domestic designand development capabilities.

What are the lessons from the PSDC experi-ence?

• An initiative like PSDC needs the cooper-ation and commitment of the businesssector; it must be fully endorsed by localand federal government; and SMEs mustbe willing to change;

• Developing the initiative requires atraining programme that meets businessneeds; a willingness on the part of TNCsto act as mentors for SMEs; and an in-built mechanism for assessing progress;

• As maturity is reached, it is essential toremain focused and enthusiastic, to keepup with technological development, andto ensure that the training offered con-tinues to be of real value for business.

16


Our ApproachEndorsement

TNC SME

Government

Incentives

SHAREResource

& Expertise

Commitmentto undertake

transformation

Mr. Gavin McGillivraySenior Financial AdvisorEnterprise Development DepartmentDepartment for International Development UK

The Business Linkages Challenge Fund is tobe launched early in 2001. It is a scheme forallocating grants through competing inter-national tenders, with a focus on Central andSouthern Africa, South Asia and theCaribbean. It is strongly focused on povertyalleviation through competitive private sec-tor activities. Its objectives are:

• To encourage and support linkagesbetween enterprises in developing coun-tries and domestic or internationalpartners;

• To enhance information flows, sourcing,cooperation, market access and flexibilityin supply and demand response indomestic and foreign markets.

The Fund is group oriented: a project mustbe submitted by at least two entities. Publicsector or civil society organizations canshare in Fund support, but every projectmust be led by a business entity. It encour-ages cost and risk-sharing projects, capacitybuilding, access to information (for exampleon potential joint venture partners) and ini-tiatives to promote regulatory reform. In thisway the Fund will enable enterprises to cap-italize on opportunities in domestic andglobal markets. Greater competitiveness andsustainability of developing country enter-prises should result in increased growth,incomes and employment opportunities forthe poor.

One possible area where economic, socialand environmental objectives could beattained would be organic farming: groupsof small developing country farmers couldfind niches in the very rapidly growinginternational market for organic foodthrough links with large importers or super-market chains who can help them withissues such as quality control, storage andmarketing.

Assessment of bids and eligibility of pro-jects are made by independent panels withrepresentatives from industry and academia.Assessments are based on:

• Quantitative and qualitative impacts on theincomes and livelihoods of poor people;

• Sustainability and replicability; • The involvement of local entities in all

project stages;• The mobilization of additional private

sector resources (applicants must con-tribute at least half of the project costs);

• Absence of adverse effects on local com-petitors, society or the environment;

• Compatibility with in-country policies of the Department for InternationalDevelopment.

The strengths of the approach used by theFund lie in leveraging scarce resourcesthrough co-financing and in the fact that it isdemand driven: the best proposals thatanswer the criteria are funded, the Fund hasno specific development programme of itsown. It stimulates innovation and new part-nerships, decisions are fast and transparentand it is expected that the projects will havestrong demonstration effects, resulting inmore poverty alleviation activities.

Mr. Albrecht Graf von HardenbergExecutive DirectorCentre for Cooperation with the Private Sector, and Mr. Thomas FinkelProject Manager AsiaDeutsche Gesellschaft für TechnischeZusammenarbeit (GTZ)

The GTZ is the German Government’sagency for implementing technical assis-tance projects, covering all sectors of technical assistance. The creation of strate-gic partnerships for sustainable develop-ment represents a paradigm shift in techni-cal assistance. Development cooperation is no longer the preserve of a specializedministry, but affects all government depart-ments (as shown in the increasing links with

The Business LinkagesChallenge Fund is ademand-drivenmethod [which] is ...quite unusual for aidorganizations. We have become soaccustomed over theyears to think that wehave the best ideas.Here, we’re actuallysaying to the privatesector: ‘Come forwardwith your best ideas’.

Gavin Mc Gillivray

17


The problems of worldpoverty have reacheda dimension where no single actor canguarantee solutionsalone – there is anobjective need forcooperation and part-nerships between thepublic and private sectors, including civilsociety organizations.

Albrecht Graf vonHardenberg

peace keeping) and has also become impor-tant for the private sector, which under-stands that sustainable global developmentserves its own long-term interests. In public-private partnerships (PPPs), GTZ aims atintegrating economic, social and environ-mental concerns.

PPPs became an integral part of GTZ’s workin 1999, and are now an element in about100 projects. PPPs are organized on two levels:

• In a pilot programme, where experienceand best practices are gathered, theprivate sector is made aware of the newinstrument and included in projectsdealing with specific practical develop-ment problems;

• The next, more difficult step is involvingthe private sector in improving the framework conditions for sustainabledevelopment in the GTZ’s partner coun-tries. This means, for example, involvingbusiness associations in the establishmentof social standards.

In this context, it is essential to select privatesector partners who will support the GTZ’slong-term objectives for all-round sustain-able development. Therefore, project pro-posals submitted under the PPP programmehave to meet four criteria:

• Subsidiarity: the programme only fundsprojects the companies would not other-wise get involved in;

• Private sector contribution: this shouldusually be 50 per cent of project costs interms of funding and staff;

• Compatibility with the developmentpolicy objectives of the German Govern-ment;

• Complementarity of public and privatesector contributions to ensure efficiencyand speed.

The programme is attracting an increasingnumber of entrepreneurs and business asso-ciations interested in integrating develop-ment policy issues in their strategies. Theycan be divided in four groups:

• Firms seeking to enter or expand devel-oping country markets;

• Firms wanting improvements in inputsimported from developing countries;

• German firms with subsidiaries in devel-oping countries;

• German firms wanting to upgrade thesocial and environmental standards oftheir suppliers.

The range of firms extends well beyondTNCs: medium-sized German manufactur-ers and domestic mail order houses are alsofound among the new partners of GTZ.

2.2.2 Discussion

Although they can evidently make a strongcontribution to successful international part-nerships, the replicability of SME trainingcentres such as PSDC was questioned.Several negative examples were mentioned.A training centre can only be successful if anumber of factors is met simultaneously: acertain level of development that ensuresthat a sufficient number of SMEs are poten-tial TNC partners; a very supportive govern-ment (political will, financial contributions,fiscal incentives) that helps to create a con-ducive environment (effective industrialstrategy, HRD, physical infrastructure) butdoes not intervene in the actual operationsof the centre; a curriculum that reflects thedemand for skills and know-how in dynam-ic industries; and a real partnership betweenpublic and private sectors. Finally, theapproach used must reflect the specific situ-ation and needs of the country and the SMEsector in question – in that sense there canbe no single ‘model’.18


A German mail order house has made itcompany policy to check that suppliersobserve environmental and social stan-dards. Together with GTZ, it is providingtraining on these issues in 60 Chinesesupplier companies, which are to beaudited at a later date.

There is a clear role for international orga-nizations like UNIDO in promoting thistype of support infrastructure for SMEupgrading. Most developing countries havenot reached a stage where domestic capaci-ties are adequate for successfully initiatingthis type of activity. International organiza-tions can advise governments and the busi-ness community on the right strategy forpartnership building and the support mecha-nisms needed. They can mobilize expertiseand resources. Because of their worldwidecontacts, such organizations are also able toidentify good partners; and their status andneutrality will help to build bridges betweenlocal and international partners. Once part-ners have confidence in each other, it alsobecomes easier to introduce social and envi-ronmental issues.

While centres such as PSDC are obviouslyvery useful, private sector efforts for SMEdevelopment are now part of business cul-ture as well. The impression that old-fash-ioned subcontracting (mainly focusing oncheap supplies) still predominates may leadto an overemphasis on independent facilitiesfor SME upgrading. But in many industriesthat now rely heavily on outsourcing, long-term self-interest demands that there is astrong developmental element in TNC-SMErelationships, and that social and environ-mental issues are addressed as well.

Obviously, public sector involvement in ini-tiatives to upgrade SME capabilities shouldnot compete with private sector efforts, but

limit itself to areas where complementaryefforts are needed. Distortion of competition(between SMEs participating in a partner-ship programme and those that do not) canbe prevented: the programme can focus onprojects that improve the overall businessenvironment, open new markets or expandexisting ones, or benefit an industry branchas a whole.

Various aspects of the relationship betweenaid organizations and private firms in part-nerships were also briefly discussed:

• From the point of view of business, UNorganizations are still quite bureaucratic;they should become more flexible andbusinesslike.

• A complex problem that may emerge isthat of the intellectual property rights of,for example, innovations resulting froman R&D-based partnership.

• The issue of guidelines should beapproached with great caution, and theyshould not be imposed on private enter-prises.

• The creation of actual TNC-SME partner-ships must be left to the firmsthemselves; the suppliers of externalassistance should restrict themselves tocreating a basis for successful partnershipbuilding.

Finally, it was noted that partnerships shouldbe exactly that: a relation between equals,not a one-way street from donor to recipientor from TNC to SME.

19


2.3.1 Presentations

Mr. Peter UttingResearch CoordinatorUN Research Institute for SocialDevelopment (UNRISD)

In a UN context, partnerships with businessshould not only be equitable and transpar-ent, but also have a social and ethical dimen-sion. Apart from economic development,corporate responsibility and accountabilityshould therefore be objectives as well.Partnerships are increasing as a result of fivetrends or forces that may not serve privateand public interests equally well:

• The dominance of neo-liberal ideologyadvocates a reduced role for the state andderegulation. Voluntary initiatives havebecome the preferred way for encour-aging business to act responsibly.Partnerships may be used to furtherweaken the regulatory role of govern-ments and inter-governmental bodies.

• Partnerships are also a result of the trendto ‘complex multilateralism’, in whichthe private sector and civil societyassume important roles in governance.While broader participation in decision-making has its good sides, it also opensthe way to power struggles among dif-ferent parties.

• Corporate governance is responding toglobal competition by, among others, ini-tiating dialogues with stakeholdersoutside business, such as UN agencies.This may improve corporate image andrelations world wide, but may in the finalanalysis have more to do with boostingcompetitiveness than promoting humani-tarian and developmental goals.

• Philanthropy and sponsorship fund manyworthy causes, but are also a key elementin corporate strategies to fend off criticism

and enhance the public image of large cor-porations irrespective of whether theiractual behaviour merits a good reputation.

• The corporate sector has become a poten-tially important source of funding as aconsequence of the UN’s financial crisis.There is a danger that its agencies maycompromise their principles and stan-dards in the search for funding.

Partnerships may therefore not be win-winrelationships. Four types of problems (ofteninterrelated) have arisen in UN-businesspartnership practice:

• Partnerships may have unpredictable out-comes because of an uneven balanceamong partners with different agendas.Will efforts to persuade 1000 privatefirms to join the Global Compact duringthe next two years be matched by similarefforts to enlist other stakeholders, suchas NGOs?

• In executing their mandates, UN organi-zations must not be influenced byexternal interests. TNCs can exercisegreat financial and political power, andthere are examples of attempts at ‘institu-tional capture’ – that is, undue influenceover the decision-making processes ofpublic-interest organizations.

• The need for external resources maycause UN organizations to overlook cor-porate activities that can be legitimatelyquestioned. Self-censorship has occurredin some agencies, undermining theireffectiveness and reputation as indepen-dent advocates of human rights and equaldevelopment opportunities.

• While some UN organizations have fairlystrict criteria for selecting business part-ners, others exhibit a certain naïvety,assuming that almost any TNC can be avaluable partner; guidelines are some-times vague.

While many partner-ships have lofty goals,it is not at all certainwhether such goalswill be realized. Muchwill depend on the balance of forces within the partnershipand the type of powerstruggle which takesplace as the differentactors interact toadvance their specificagendas.

Peter Utting

20


2.3 October 31Session 1: Meeting the divergent needs of the various stakeholders

To a large extent, these problems are causedby the lack of monitoring and evaluationcapacity in the UN system. This could beremedied by a central UN entity. Alter-natively, individual agencies could createtheir own analytical capacities in informa-tion systems, and could undertake consulta-tions with trade unions, NGOs and otherorganizations doing research on the corpo-rate sectors. In this way, problems may beavoided and the UN may establish workingrelations with the corporations that genuine-ly promote broad-based development.

Mr. Hans HofmeijerTask ManagerManagement Support Unit in the Office of the Executive Director,EmploymentInternational Labour Organization (ILO)

The ILO’s Declaration on FundamentalPrinciples and Rights at Work addresses thecommitments of member states to freedomof association and collective bargaining,abolition of child and forced labour and theelimination of discrimination in employ-ment. In many cases, private entities contribute to the realization of thePrinciples.

The ILO’s Private Voluntary InitiativesProgramme helps to translate the ILO’s prin-ciples into company practices promotingdecent work and life. There is commonground with corporate social responsibilityinitiatives, particularly across global supplyand service chains. Programme activities aredeveloped and implemented in cooperationwith all key stakeholders. Assistance doesnot address labour issues within specificfirms, but is given on a sectoral or widerbasis.

With the international federation of sportinggoods producers and local producers inPakistan, the ILO has concluded an agree-ment to reduce child labour in the industry.This has resulted in a clear reduction ofchild labour and the introduction of moresophisticated operations in a number oflocal firms. The ILO emphasizes that it isessential to work with the local stakeholdersto address social issues effectively.

The key questions confronted by theProgramme are:

• What do principles that inspire interna-tional labour standards mean in businessterms?

• Why should business care about thosevalues?

• What steps can business take in the work-place and the community of operation?

• What instruments guide the worldwiderealization of the principles?

Services available under the Programmeinclude:

• Access to up-to-date information bycountry, labour issue and other fields onlabour laws and practices, their relation tointernational standards, and sector-basedactivities of TNCs and domestic enter-prises;

• Training modules, materials and fieldprogrammes for promoting decent workin the workplace and the community ofoperation;

• Field projects bringing together nationaland international stakeholders to create acorporate culture of decent work.

• Programme activities are inspired by a tri-partite dialogue with public and privatesector leaders in more than 170 countriesas well as global industry leaders, NGOs

We [The ILO] are apartnership – we werecreated in 1919 as apartnership betweengovernments andemployers’ and work-ers’ organizations.

Hans Hofmeijer

21


With the international federation of sporting goods producers and local producers inPakistan, the ILO has concluded an agreement to reduce child labour in the industry. Thishas resulted in a clear reduction of child labour and the introduction of more sophisti-cated operations in a number of local firms. The ILO emphasizes that it is essential towork with the local stakeholders to address social issues effectively.

and other UN agencies. The Programmeserves as the ILO Secretariat for the UNGlobal Compact, and the ILO showcasesexamples of good company practice onthe Compact website. The ILO howeverstresses that support to local, national andsub-regional business development mustcontinue to complement that given toglobal supply chain building.

Mr. Julian ParrDirectorAsia and the Middle EastPrince of Wales Business Leaders Forum

The Forum, set up in 1990, is supported bymany leading international companies andoperates in over 30 countries. Recognizingthat business is about shareholder valueadded and societal value added, its missionis to promote responsible business practicesthat benefit business and society interna-tionally through projects which may aim atimproving the enabling environment, promot-ing capacity building and mutual learningamong local partners, or delivering practicalsolutions. Projects have, among others,

helped to improve labour standards in theVietnamese shoe industry and managementpractices in the textile industry in Bangladesh.

The Forum’s partners are, as the diagrambelow shows:

• The public sector and intergovernmentalorganizations (including UNIDO, in thecontext of the automotive componentproject in India referred to in Section2.2.1);

• The market sector;• Civil society.

Its work is structured around:

• Processes: advocacy, brokerage, capacitybuilding and dissemination of best prac-tice;

• Settings; country, business sector, gov-ernment and civil society level;

• Themes: education, enterprise, environ-ment, health and human rights;

• Cross-cutting aspects: sustainable eco-nomic development, social cohesion,human resource development and gover-nance standards.

Why partnerships?Because the currentchallenges are far too complex for oneindividual sector todeal with andresources are limited.By pooling resourcesone can achieve moreand gain long-termsustainability.

Julian Parr

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The State

Civil Society The Market

Who are the partners?International

Government Organisations

NationalGovernment

Local Government

CBOs NGOs SMEsBusinessAssociations

MNCsNCs

'Concerned Citzens'

An effective partnership is based on select-ing the right partnership issues and partners,equitable sharing of risks and benefits, andgood communication. It needs a strategyframework setting out project elements (pro-posal, roles and responsibilities, time sched-ule, resources needed, accountability) andreview, audit and revision requirements(measurement and monitoring, audit andrevision procedures, exit strategy). Essentialnon-material inputs include: imagination,individual initiative, good will and persever-ance. These are particularly important forovercoming actual and perceived obstaclesto cooperation between business, the publicsector and civil society.

A common agenda for business and the UNmust recognize their different basic perspec-tives on the global economy: for the UN,security and sustainability come first; forbusiness, return on investment and competi-tiveness. The Global Compact provides aplatform where both parties can engage in adialogue on activities that promote universalvalues as well as thriving markets.

Mr. Maximilian Burger-ScheidlinExecutive DirectorInternational Chamber of Commerce (ICC) in Austria

The ICC’s members include, apart fromnational Chambers of Commerce, interna-tional corporations, banks and legal firms.Its philosophy is free global trade and self-regulation by a responsible business sector.The ICC’s activities are based on these twobasic points: it lobbies internationally forfree trade; promotes cross-border coopera-tion among firms; has drafted rules andmodel contracts for international trade(rules on e-commerce and certificates oforigin are under negotiation); provides arbi-tration and mediation services; and hasdrafted codes of business ethics. For theICC, global subcontracting, training forglobal markets, joint lobbying for free tradeand crime avoidance/business ethics are themain areas of cooperation with UNIDO.

In the eyes of the ICC, a thriving globaleconomy needs more than the removal oftrade barriers. It will require:

• Recognizing stakeholder value alongsideshareholder value;

• Taking account of environmental sustain-ability: industries that pollute are not costeffective - and therefore not competitive -in the long run;

• Accepting corporate social responsibility:this will increase worker motivation;reduce costs by preventing commercialcrime (in the USA, money laundering,fraud and forgeries are estimated toreduce GDP by 10 per cent); and increaseinvestment by removing the deterrent ofcorruption.

Another key factor is a strong SME sector.TNCs need capable SME partners. The ICChelps local SMEs with various kinds ofadvice, for example on international com-petitiveness and successful export strategies,cross-cultural negotiation skills and the cru-cial changes in mindsets. To be a successfulpartner, high productivity is more importantthan low labour costs.

Mr. Brent WilsonSenior AdvisorInternational Organisation of Employers(IOE)

The IOE is an umbrella organization of 123national employers’ federations. It has linkswith the ILO. For its members, partnershipshave always been essential: they are thebasis of business alliances and agreementswith labour organizations. Increasingly,however, business is building partnershipswith groups that are not its traditional part-ners: UN organizations and NGOs. This is aresult of the availability of new informationtechnologies, the globalization of enterpriseoperations, and global training systems. Aregular dialogue with people from differentcultures and in different types of organiza-tions has become an integral part of doingbusiness.

Why should a localelectrician be interna-tionally competitive?Because ... if a smallfirm is not internation-ally competitive, theTNC [locating in thatcountry] will not beglobally competitiveand therefore willprobably move beforetoo long.

Maximilian Burger-Scheidlin

Today’s world isbecoming too small for either employers orthe UN to avoid eachother and ways mustbe found whereby a professional durablerelationship can beestablished.

Brent Wilson

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The UN has traditionally dealt with nationalgovernments and is still in the process ofdefining its position vis-à-vis other stake-holders in world development. There arenegative perceptions of business in the UN,and vice versa. The Global Compact is seenby global business, and the IOE in particular,as a welcome sign of fundamental changes,even if it will take some time before they arefelt throughout the UN system.

An effective, productive new relationshipwill require:

• Identification of the right business part-ners (individual firms or associations; nooveremphasis on high-profile companies;balance between developed, developingand transition country firms);

• Formulation of transparent selection cri-teria by the UN and stability ofpartnerships;

• Clear understanding of each other’sobjectives; clear definition of roles andaccountability; realistic goals.

• Dealing with potential conflicts ofinterest right at the start;

• Adaptation of partnerships to the specificrequirements of individual cases;

• Clear, simple guidelines which evolvefrom project practice;

• Making the partnerships positive, sharedlearning experiences;

• Professional partnership management.

The general expectation of business will bethat UN organizations will make clear, fastdecisions and deliver promptly, and will notinitiate partnerships for financial supportalone. They should also realize that businessis business, and that it cannot take onresponsibilities of governments in areassuch as social or environmental standards.On the other hand, business cannot expectthe UN to act as a shield for corporationsthat act irresponsibly or do not maintainacceptable standards. It should be willing toshare knowledge and experience and under-stand that development projects take time.

Partnerships with UN organizations do offerbusiness a possibility to explore new oppor-

tunities; with clearly defined roles and seri-ous commitment, both parties will benefitgreatly, along with the countries and indus-tries targeted by the partnerships.

Mr. Jon VeaDirectorInternational AffairsConfederation of Norwegian Business andIndustry (NHO)

Norwegian enterprise, always outward look-ing because of the limited domestic market,has become strongly internationalized dur-ing the past decade: the major Norwegianfirms sell three-fourths of their output inforeign markets and most of their employeeswork in foreign subsidiaries. In terms ofpolitical stability, HRD and informationtechnology (IT) infrastructure, Norwayranks among the best countries in the world,and therefore is a competitive location forfirms operating in the global IT-based econ-omy. Additional important competitive factors identified by NHO are the attentiongiven to environmental and social issues andthe performance of the public sector.

Globalization has its negative sides, andtherefore NHO emphasizes corporateresponsibility:

• NHO participates in a forum on corporatesocial responsibility with the NorwegianGovernment, the trade unions and NGOs,with the aim of finding a commondenominator;

• It has published documents on businessethics, human rights, the prevention ofcorruption and environmental protection;and

• It is encouraging its counterparts inseveral developing countries to take upthese issues by organizing round tablesand preparing translations of the docu-ments.

• It takes part in UN, EU, Nordic andOECD activities on these issues.

In the opinion of NHO, this is quite simplygood business: investors now require that

Reputation manage-ment has become akey word for manycompanies, and that isalso why corporateresponsibility hasbecome so important.These are no longerquestions that can beignored or describedas ‘soft values’; theseare core questions forvery many companies.

Jon Vea

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countries have clear positions on corporateresponsibility; corruption is a great risk tothe reputation of firms; employees expecttheir firms to be socially responsible; citi-zens/consumers are more conscious ofsocial and environmental problems; themedia have a great influence in these areasand now reach every corner of the globe.

NHO strongly encourages partnerships withprivate enterprise in developing countries.Apart from the more conventional businesspurposes (joint ventures, enterprise develop-ment, innovation), such partnerships alsocover health, social issues and know-howtransfer. In addition, NHO provides adviceon good governance, for example in the areaof environmental policies. Private-sectorpartnerships could also involve NGOs,although negative perceptions will have tobe overcome first; NHO plans a conferenceon this subject in 2001.

The outcome of all this in Norway has beena more positive attitude towards businessand NHO’s vision is that strong attention tocorporate responsibility could actually bepart of a ‘Norwegian brand’, leading to apreference for Norwegian firms among cus-tomers – because they are responsible andtrustworthy.

2.3.2 Discussion

Meeting the divergent interests of the vari-ous stakeholders requires that parties makeefforts to understand each other and adapt toensure efficient cooperation. There must bea clear consensus on what a partnership ismeant to be before one can formulate guide-lines for it. It was not clear that the termmeant the same to all participants in themeeting. Right now, there are widely differ-ent approaches to partnerships, and theGlobal Compact, which is intended providea global common ground for them, is stillinsufficiently well known.

The emergence of that common groundcould be promoted by publicizing new part-nerships and examples of good practice

widely - without turning such publicity intoa marketing exercise. Again, the GlobalCompact website would be a good instru-ment for this purpose. It was also suggestedthat UNIDO could organize a regular yearlymeeting to exchange experiences on the sub-ject.

Transparency is a precondition for a suc-cessful partnership. Should it apply to theinternal organization of the partners as well?It is difficult to draw a line here: a UNagency cannot work with, for example, armsproducers, and therefore TNCs will have tobe open about their agendas, internal struc-ture, and areas where corporate responsibil-ity might need improvement. On the otherhand, working productively with businessmeans that intergovernmental organizations(and the public sector in general) mustbecome more open and less bureaucratic.For effective partnerships, the business sec-tor also needs more clarity about the internaldivision of labour within the UN system.

The issue of partnership monitoring wasextensively discussed. How can theCompact’s progress and the participatingTNCs be assessed? UN agencies coulddevelop internal capacity for this purpose,or a separate UN body could be set up. Thebusiness sector is reluctant to accept exter-nal monitoring, for two reasons:

• There is already a strong tradition of self-monitoring and independent assessmentsin private enterprise through, forexample, trade associations;

• It is not clear who will monitor the UNagencies, as they are accountable only togovernments.

A good selection of partners will help:working with TNCs that lead the way interms of corporate responsibility is likely tominimize the need for monitoring. Many ofthem already take the long-term view thatshareholder value plus stakeholder value isgood for business, even if they have notalways made this very clear to the rest of theworld. Working with such TNCs will alsohave a good demonstration effect. 25


Increasing the acceptance of global stan-dards in developing countries will often be amajor challenge, as there is often littleawareness of corporate responsibility. A dif-ficult question in this context is the respon-sibility of TNCs for the standards applied bytheir subcontractors. It may help to rewardcompanies subjecting themselves to volun-tary scrutiny, by posting the outcome on theGlobal Compact website, or possibly byawarding a global ‘quality seal’. This couldalso have a high demonstration value.

Finally, an integration of social and environ-mental objectives with economic develop-ment objectives is necessary to ensure thesustainability of the development process,and is therefore a long-term interest of allstakeholders. Therefore, while all partieshave their own objectives and priorities,none of them should deliberately excludeany of the three elements of sustainabledevelopment. Much, however, remains to bedone in the UN system and in private enter-prise to achieve this integration.

People might thinkthat we have put the cart before the horse in starting the PartnershipProgramme before weset up the Guidelines.However, we feel thatin our approach weare benefiting fromlearning by doing,through the actualoperation of the pilotprojects.

Sarwar Hobohm

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2.4 October 31Session 2: UNIDO guidelines for private-sector partnerships

2.4.1 Presentations

Mr. Sarwar HobohmIndustrial Development OfficerPrivate Sector Development BranchUNIDO

For UNIDO, partnerships can serve a widerange of purposes: staff exchanges; researchand training; advocacy and awareness cam-paigns; tapping financial contributions andtechnical expertise; and the execution ofjoint projects. The UN system’s experiencein contacting and working with the privatesector is limited. UNIDO is in the vanguardin this respect.

Successful partnerships require:

• Clearly defined and realistic objectives,and an understanding and acceptance ofthe commitments and expectations of allpartners;

• The right partners. The complexity ofglobal business networks may make ithard to ascertain whether a potentialpartner’s activities conflict with UN prin-ciples. Therefore, clear criteria and goodscreening mechanisms for business part-ners are needed.

• Appropriate management mechanismsand institutional capacities. UNIDO isestablishing these;

• Reducing bureaucracy in the UN system.UNIDO is addressing this issue in thecontext of its administrative reform pro-gramme.

UNIDO started developing guidelines forpartnerships with the private sector (that is:for-profit enterprises) in mid-2000. Thestarting point are the UN SecretaryGeneral’s Guidelines of July 2000 which laydown the principles governing UN-privatebusiness cooperation: advancement of UNgoals; clear delineation of responsibilitiesand roles; maintaining integrity and inde-pendence; no unfair advantage to any party;transparency.

These principles must be operationalized sothat specific issues of a practical nature canbe addressed: such as the way in whichbusiness contributions are acknowledged (toensure integrity and impartiality); the use ofUN agency emblems; and the nature of insti-tutional and staff links with the private sec-tor. To do this effectively, partnership guide-lines should cover:

• Ethical, legal and financial issues;• Procedures;• Monitoring, assessment and evaluation

mechanisms;• Information-sharing among partners.

Guidelines can be developed in two ways:they can be drafted before a partnership pro-gramme is initiated, or they can be the resultof a process of learning by doing; in bothcases, the experiences of others are valuable.Whatever the approach used, guidelinesmust be relevant and flexible, and regularrevisions must ensure that changes in theexternal environment are reflected. Theyshould also be consistent among UN agen-cies, and the agencies should share informa-tion on best practices.

Mr. Peter MasonSenior AdvisorOffice of the Executive DirectorUN Children’s Fund (UNICEF)

UNICEF is completely dependent on volun-tary contributions, one third of which comefrom the business sector. UNICEF workswith both local and global companies.Another way in which business has a greatimpact of the organization is in its approachto management: a large UN organizationcannot be effective and work efficiently if itis not run in a business-like way. Staff in topUNICEF positions often have businessexperience, and employees of large firmsoften do volunteer work for UNICEF.

The business sector increasingly takesaccount of the interest of other stakeholdersin development. Corporate responsibility isgood for long-term business. Still, UN orga-nizations and enterprises work on differentprinciples: the first are driven by the princi-ples of the UN Charter, the Convention onHuman Rights, etc., the second by the prof-it motive. The challenge is to recognize theintersections, and guidelines are needed toexploit the opportunities found at theseintersections in a way that contributes to theobjectives of the UN.

A mutually beneficial partnership dependson the nature of the project, the character ofthe enterprise and the terms of the relation-ship. Business benefits particularly in termsof long-term returns to investment: the UNcontributes to peace, social stability andgood governance; specialized agencies likeUNIDO help to create private sector capaci-ties (training, management skills, cleanerproduction techniques, etc.). The benefits ofUN agencies are in the areas of investment incritical development areas; expertise for pro-ject implementation and development policyformulation; and resource mobilization.

There are four criteria for UNICEF partner-ships:

• The alliance should support UN/UNICEFobjectives;

• UNICEF’s neutrality and honest brokerrole should be guaranteed;

• A critical attitude towards the partnershould be possible;

• The partner will not receive preferentialtreatment.

Three basic questions are asked in screeningpartners:

• Does the enterprise subscribe to the UN’sethical standards?

• Is the alliance appropriate to the objec-tives of the project?

• Are there sufficient benefits forUNICEF?

UNICEF will not initiate partnerships withfirms that cannot guarantee that they andtheir affiliates do not engage in activitiesviolating the UN Charter and other interna-tional agreements on human rights. Thisexcludes, for example, enterprises manufac-turing arms or tobacco products, using childlabour or violating the charter on marketinginfant formula foods.

Up to a certain level, field offices canapprove partnerships; beyond that, they needthe approval of a high-level committee atUNICEF headquarters. Partnership selec-tion is supported by information from

The heart of the matteris the exercise of duediligence. The UNmust look carefully atcompanies. This doesnot mean putting themunder a microscope,fixing them with adegree of scrutiny that few of us couldpass. Rather, it meansidentifying organiza-tions whose behaviouron balance shows evidence of a willing-ness to exercise cor-porate responsibility.

Carol Bellamy, ExecutiveDirector of UNICEF, asquoted by Peter Mason

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services specializing in analyzing firmsfrom the point of view of ethical investment.The UNICEF Intranet gives full informationon experiences with partnerships.

Mr. Roy WiddusManagerInitiative on Public-Private Partnerships for HealthGlobal Forum for Health Research (GFHR-IPPPH)

The GFHR is an international foundation.The World Health Organization (WHO),World Bank, UNICEF, the internationalassociation for the pharmaceutical industry,developing countries, bilateral organizationsand NGOs are all represented on its Boardof Governors. IPPPH is primarily concernedwith collaborations that go beyond the tradi-tional ‘buyer-seller’ or ‘grant maker – grantrecipient’ relationship; they are closer to thejoint venture category.

Public-private partnerships are important forthe health sector in the developing countriesbecause market failure is common andbecause public sector capacities are limited.They can meet health needs where indepen-dent public and private sector action will notsolve the problems. Apart from coordinationof traditional roles, partnerships can help toimplement policies formulated by the publicsector.

The WHO considers partnerships with pri-vate business (and other stakeholders in thehealth sector) essential for achieving itsobjectives. Its experience shows that there isno universal model for them: structure,degree and nature vary over time and byissue. Of course, the organization’s indepen-dence from particular private interests andcredibility as the major international healthpolicy maker must be safeguarded. Workingwith business therefore requires guidelinescovering:

• Accountability to member states, pro-viders of funds, beneficiaries, etc.;

• Representation of stakeholders;

• Valuation of contributions;• Goals and motivations;• Measuring results (progress, success,

impact – especially on the health of thepoorest).

Practical experience with public-privatepartnerships has taught the followinglessons:

• They should build on, not replaceexisting institutions or structures;

• Goals should be aligned;• Form follows function;• Trust among partners is a key issue;• Contributions and activities must be

clearly defined;• Benefits may differ for each partner, but

must be balanced.

Ms. Berangere MagariñosProject Officer and Partnership ExpertPartners in Action ProgrammeUN Staff College

The UN Staff College emphasizes the impor-tance of cross-sectoral partnerships as a newmechanism for global governance, a broadstrategy for change led by the SecretaryGeneral, and a catalyst for UN reform. Suchpartnerships include all key stakeholders:governments, NGOs and the business com-munity. They enable the UN to become abridge between the state-centric world ofgovernments and intergovernmental organi-zations and the multi-centric system of civilsociety and the corporate sector. To raiseawareness of the benefits of partnerships, theUN Staff College is planning to organizeworkshops in Romania, Malaysia andMalawi.

Cross-sectoral partnerships can contributeto UN reforms in terms of:

• Encouraging changes in the UN system’sinternal culture (greater openness, lessbureaucracy);

• Increasing motivation of staff throughinvolvement in partnerships with a diver-sity of actors;

WHO legal officersdon’t see any particu-lar universal model forpartnership arrange-ments. In fact, everyone of the arrange-ments – WHO isinvolved in about sixty– has a different mix of attributes and structure.

Roy Widdus

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If we in the UN want tobe a good partner forbusiness, we need tochange ourselves – tochange how we work,how we operate, howwe think and how weopen ourselves to theoutside world.

Berangere Magariños

• Increasing openness to the world throughinteraction with different stakeholders;

• Contributing to renewed operational andnormative legitimacy;

• Renewing the UN’s leadership through aninflux of people with new visions of theUN’s role.

In the process, guidelines have an importantfunction, as the diagram above shows:

• They help to institutionalize the processof change;

• They ensure a balance between politicallegitimacy and performance legitimacy(the ‘why’ and ‘how’ of UN operations);and

• They facilitate the implementation of UNreform strategies by providing a frame-work for the debate with staff and thedevelopment of partnership brokeringcompetence.

For an effective process of UN reform, it is necessary to encourage debate andexchanges in all agencies and mechanisms toshare experiences and information through-out the UN system.

2.4.2 Discussion

There are two basic approaches to guide-lines: formulating a comprehensive set thatprovides clear rules for all relevant partner-ship issues versus an incremental processbased on practical work in projects thatallows for flexibility but no doubt risks acertain ‘fuzziness’.

Many private-sector participants werewary of comprehensive guidelines. Theyfelt that it would be better to let themdevelop gradually in the course of pro-jects, using private-sector capacity forself-monitoring as an instrument, so that asystem of good business practice for part-nerships can develop and the improvementof social and environmental standardsbecomes an accepted part of business cul-ture. Such an approach implies that flexi-bility is essential and that therefore thoseinvolved in executing a partnership pro-gramme must be able to take autonomousdecisions. An additional advantage of theprocess-oriented approach is that it helpsto build trust, which is always time-con-suming. 29


Guidelines

From strategy to implementation

Performance legitimacy Political legitimacy

Open the debate with staff Define and develop competence

Why we are doing thingsHow we are doing things

Cultural and structuralchange process

Partnerships as catalyst for reform

Guidelines as indicators of change

Again, complex partnership guidelines maynot be needed if there are clearly definedobjectives and good criteria for selectingpartners, including their corporate responsi-bility record. In this respect, most UN agen-cies still have much to learn - also in termsof sending clear and consistent signals toprospective business partners. They shouldtherefore not rush into partnerships. For thescreening of partners a joint UN databasecould be drawn up, and agencies could drawup profiles of candidates for specific pro-jects, as UNICEF does. Consultations withNGOs or other organizations that know theindustry in question are another possibility.

Even with the best guidelines for selectionthere will always be a risk of selecting inap-propriate partners. Therefore clear guide-lines are also needed for terminating a part-nership. Problems can however often besolved by open discussion, and complexguidelines may stand in the way of doing so,as shown by the example of a UNDP part-nership in Angola which could have beensaved by consultation among the partnersbut for an inflexible system of guidelinesand monitoring drawn up before the project.

Suggestions for UNIDO’s future role inTNC-SME partnerships included:

• Acting as an honest broker;• Policy and implementation advice;• Helping governments to target the right

foreign investors;• Preparing SMEs for a role in value chains;• Multicultural training;• Replication/dissemination of good prac-

tice;• Concrete, sector-specific partnership

initiatives at the country level.

To some degree, these would constitute anextension of its existing activities.

Given the fact that UNIDO is running a suc-cessful partnership programme in India andis making preparations for several others,the question was also asked whetherUNIDO should not become a partner in theGlobal Compact. Finally, participants againemphasized the usefulness of a UNIDOforum where partnership experiences can beexchanged.

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3.1.1 The Global Compact

From the point of view of the GlobalCompact, the increasing recognition of theinterdependence of all actors in globaldevelopment is encouraging. Globalizationhas triggered defensive and even hostilereactions among many people. There arelegitimate concerns about its effects on thegap between the rich and the poor and itsimpact on the natural environment. Generalacceptance of globalization trends and amore equitable distribution of their benefitswill, among others, require that TNCsaccept their responsibilities as stakeholdersin sustainable development and acknowl-edge the role of others.

The positive response of a growing numberof enterprises to the Compact is a good sign,but some uncertainty with regard to theUN’s motives for launching the Compactdoes remain in the world of business.Partnerships should be more than a means toget funding for UN-led projects, although inpractice that may be what is most urgentlyneeded. The UN should therefore make veryclear what the benefits for business of join-ing the Compact are.

3.1.2 Partnerships between TNCs and SMEs

The international firms present all stressedthat establishing business partnerships indeveloping countries or transition econ-omies now means looking at a wide range offactors. Low production costs are not themain issue; the point is whether a local sup-plier is capable of providing a product and aservice that is competitive in all respects(timely delivery, etc.). Low labour and envi-ronmental protection costs are no shortcutsto long-term competitiveness. In addition,there is increasing pressure on firms fromconsumers, NGOs and the media – mainlyin the developed countries, but increasinglyelsewhere as well – to maintain acceptablesocial and environmental standards. Formany TNCs, integrating social and environ-mental concerns in their strategies quitesimply makes good business sense.

A long-term view of industrial developmentmust therefore be an inclusive view: theregulatory framework for the economy,training and education, physical infrastruc-ture, social stability and environmental concerns are all of key importance. In thelong-term view, any sharp distinction 31


3 UNIDO and the future of partnerships: a summary of key issues

3.1 The main findings of the Meeting

The Expert Group Meeting may be consid-ered as part of work in progress. Partnershipswith the private sector are a new develop-ment for UNIDO, and the UN system as awhole is still finding its way to a balancedapproach. Inevitably, in the discussion on therationale, risks and benefits of such partner-

ships and on UNIDO’s approach and role,there were loose ends and unanswered ques-tions. This chapter will therefore not onlysummarize the main findings of the Meeting,but also outline some issues that need moreattention. Both will help to set an agenda forfuture action and discussion.

between public and private benefits maybecome blurred. The business sector there-fore needs to recognize the developmentalroles played by governments, NGOs, tradeunions, civil society in general and interna-tional and bilateral aid organizations.

Different types of industry have differentinterests in exploiting the possibilities ofvalue chains and SME upgrading. The moresophisticated the industry (engineering,electronics, etc.), the more likely its need forsophisticated partners. The TNCs with thegreatest development impact tend to bethose with a comprehensive outsourcingstrategy. They will be interested in a coun-try’s strategic potential, not just in cheapresources, and their partnerships can havestrong development effects in terms of technology transfer and social and environ-mental standards. In the less sophisticated,consumer non-durables industries, TNCs aremore likely to want a simple, standardizedproduct from their subcontractors, and thedevelopment effects will be more limited.

Global business partnerships in the moresophisticated industries will tend to be lim-ited to the more advanced SMEs in themore advanced developing and transitioncountries. To deploy their own potentialfully, subcontractors in such countriesshould avoid becoming locked into a rela-tionship with a TNC. The increasing impor-tance of global markets and partnershipsshould not blind other countries and SMEsto the development potential of domestic orregional markets and of cooperating withlocal firms or medium-size firms fromdeveloped countries.

While business partnerships are a major fac-tor in raising the competitiveness andsocial/environmental standards of SMEs,their scope is necessarily limited by the cri-terion of profitability. Most SMEs in devel-oping and transition economies are not yet(potentially) attractive business partners.UN organizations can advise governmentsand the business community on the rightstrategy for partnership building and thesupport mechanisms needed. They can

mobilize expertise and resources. Becauseof their worldwide contacts, such organiza-tions are also able to identify good partners;and their status and neutrality will help tobuild bridges between local and internation-al partners. In short, an organization likeUNIDO can make a crucial contribution topreparing countries and enterprises for part-nerships with foreign investors.

3.1.3 Guidelines for UN-TNC partnerships

Like any other partnership, partnershipsbetween UN organizations and TNCsrequire guidelines. How detailed shouldsuch guidelines be? The idea that compre-hensive guidelines are needed is partly areflection of a certain uneasiness felt in mostparts of the UN system about close involve-ment with the private sector. The primaryobjectives of international business and UNorganizations are and will remain different.Bureaucratic and legalistic traditions in theUN system may also feed the perceived needfor detailed guidelines. Private business,however, is by nature reluctant to subjectitself to detailed external rules, and in thiscase that reluctance is fed by the commonperception of the UN as an inflexible,inscrutable bureaucracy.

It is obvious that too great an emphasis oncomprehensive guidelines by UN agencieswill be an obstacle to the growth of TNCpartnerships. The discussions suggested twoways in which this problem can be solvedand which are not mutually exclusive:

• Formulation of simple basic rules, fol-lowed by a process in which guidelines(or codes of conduct) evolve through apragmatic dialogue based on the realitiesof business and development in differentcountry contexts.

• A thorough screening of potential busi-ness partners (for which detailed internalguidelines may be formulated), focusingon TNCs that can be considered rolemodels of corporate responsibility; clearideas about what the cooperation should32


achieve. Guidelines for an actual partner-ship can then be fairly simple.

A continuous dialogue with the businesssector will help to build trust between theUN system and private enterprise, whichagain will reduce the need for formalizedrules. It may also contribute to the creationof a more open and businesslike culture inthe UN system, which in turn may encour-age firms to be more open about their ownagendas, and contribute to making corporate

responsibility a part of everyday businessethics through a gradual process and thedemonstration effect of good practice.

Finally, better communication among andwithin UN agencies is needed, among othersto ensure that guidelines are consistent andconsistently applied – and that the econ-omic, social and environmental aspects ofdevelopment are effectively integrated intheir work.

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3.2 Areas to be explored further

3.2.1 Other partners in development

Traditionally, the UN is a forum for govern-ments and has depended on their support.The Global Compact and the Expert GroupMeeting convened by UNIDO show that theUN is seeking wider support for the execu-tion of its global development mandate. TheUN’s efforts to secure widespread businesssupport for the Global Compact should bematched by similar efforts to involve theremaining stakeholders in development, inaccordance with the opening words of theCharter of the UN: ‘We the peoples of theUnited Nations’. NGOs and civil societyplay a key role in ensuring that the socialand environmental aspects of developmentare recognized (NGO pressure, for example,is responsible for the introduction of suchstandards in a number of global supplierchains), and the state of civil society is adeterminant of a country’s business climate.Sustainable development is unthinkablewithout them.

The Expert Group Meeting targeted TNCs.The buyer-driven chains among these,although invited, were absent. Their interestin supplier development may be compara-tively limited; but they do represent a veryimportant type of business link for SMEs

and can initiate process and product upgrad-ing. These links therefore need more atten-tion, also for the transfer of good social andenvironmental practice. The positive out-come of meetings such as the present oneand – more importantly – a sustained processof UN-TNC interaction (and wide publicityfor examples of successful cooperation)should stimulate the interest of other TNCs.

In addition, partnerships between localfirms or between SMEs in developing ortransition economies and medium-size firmsfrom developed countries can also haveimportant effects. The latter are more depen-dent on the local business environment thanTNCs and therefore tend to prefer the moreadvanced countries; but for the same reasonthey are likely to have more intensive linkswith the local economy. Domestic marketsare essential for enterprise development –there is little evidence that firms succeed inglobal markets before having gathered expe-rience and strength locally. Market know-how is readily accessible, and in spite of for-eign competition, global design standardswill often not be needed.

The above means that one should take thebroadest possible view of the private sectorin promoting business networking, integrat-ing social and environmental issues. The

fact that many national employers’ associa-tions in Asia now support the GlobalCompact (see Section 2.1.2) is encouraging.A start should be made with exploring theviews of the SME sector. This can take var-ious forms: national UN offices could orga-nize workshops with national associations;in addition, e-conferences are a low-costformat for global exchanges.

3.2.2 Changes in the UN system

The discussions repeatedly returned to theUN system’s readiness for internationalpartnerships. But continued reforms of theUN system are not the only condition forproductive relations with private business.Less bureaucracy and greater openness arealso essential (i) for a fruitful dialogue withNGOs and civil society; (ii) and to enablethe UN to respond effectively to trends ininformation technology and decentralizeddevelopment, which challenge the validityof traditional hierarchies. Working effective-

ly with the new partners will require a betterunderstanding of them, which can for exam-ple be achieved through staff exchanges andby selecting more candidates for seniorpositions from among capable people with aprofessional career in business or NGOs.Working with all stakeholders also implies abetter integration within the UN system ofthe economic, social and environmentalobjectives of development.

As a consequence of its traditional way ofworking, the UN has not been very adept atpublicity in the past. UN agencies will bemore often in the limelight when workingwith a wide range of stakeholders in devel-opment, many of whom have a sophisticatedunderstanding of the use of the media. TheUN’s role in creating the conditions for andpromoting a holistic approach to long-termdevelopment may not be a glamorous one,but it can be more assertive about the suc-cesses achieved, not in the least to increasesupport for its work.

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3.3 Action points for UNIDO

3.3.1 Following up suggestions made at the Meeting

Directly connected to the purpose of theExpert Group Meeting was the suggestionthat UNIDO could organize a platform fordiscussion of experience and issues relatedto partnerships between business and theUN. As the UN’s specialized agency forindustrial development, UNIDO would bethe natural choice for such a platform. Witha minimum of organization and cost,UNIDO’s website could be adapted to sup-port that platform function in a very shorttime. E-mail conferences would be anotherlow-cost way of organizing a debate on part-nership issues. The use of electronic mediawould also facilitate the involvement of awider selection of stakeholders.

In addition, a number of areas of concreteUNIDO action in connection with public-private partnerships were suggested:

• Acting as an honest broker;• Policy implementation and advice;• Helping governments to target the right

foreign investors;• Preparing SMEs for a role in value

chains;• Multicultural training;• Replication/dissemination of good prac-

tice;• Partnership initiatives at the country

level.

These activities are partly covered byUNIDO’s existing programmes, or could bean extension of them. UNIDO already

works closely with business groups such aschambers of commerce and industry associ-ations, and promotes partnerships of variouskinds in its support programmes.

UNIDO regards the business community,the research community, bilateral donorsand other agencies of the UN system asstrategic institutional partners. Workingwith UNEP, ILO and OHCHR in the contextof the Global Compact, UNIDO can help toensure the integration of economic develop-ment and social and environmental issueswithin the UN system. However, if socialand environmental issues are to be fullyintegrated, then closer contacts also need tobe established with NGOs and civil societyorganizations.

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Presentations by:

Mr. Wilfried LütkenhorstDirectorPrivate Sector Development BranchUnited Nations Industrial Development Organization

Mr. Andreas BlüthnerTrade Law AdvisorBASF AG

Mr. Josef SchleicherDirectorInternational Affairs and Public PolicyDaimlerChrysler AG

Mr. Pascal RogerSenior Vice President for International AffairsGroup Suez Lyonnaise des Eaux

Mr. Sujit ChowdhurySecretary-GeneralWorld Summit of Young Entrepreneurs

Professor Hubert SchmitzInstitute of Development Studies

Ms. S. Y. FoongPurchasing DirectorIntel Technology Sdn. Bhd.

Discussion

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Annex I: Programme of the Expert Group Meeting

Monday, 30 October 2000 9.00 a.m. – 1.00 p.m.

Session 1: The Context

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Monday, 30 October 2000 2.00 p.m. – 5.30 p.m.

Session 2: Enhancing the developmental impact of TNC-SME partnerships through the participation of public-sector development agencies

Presentations by:

Mr. Kai BethkeTechnical AdvisorPrivate Sector Development BranchUnited Nations Industrial Development Organization

Mr. Jean-Pierre BrouquilDirectorInternational Business DevelopmentMagneti Marelli

Ms. Lorraine RuffingChiefTechnology and Enterprise BranchUnited Nations Conference on Trade and Development

Mr. Boonler SomchitExecutive DirectorPenang Skills Development Centre

Mr. Gavin McGillivraySenior Financial AdvisorEnterprise Development DepartmentDepartment for International DevelopmentUK

Mr. Albrecht Graf von HardenbergExecutive DirectorCenter for Co-operation with the Private SectorDeutsche Gesellschaft für Technische Zusammenarbeit (GTZ)andMr. Thomas FinkelProject Manager AsiaDeutsche Gesellschaft für Technische Zusammenarbeit (GTZ)

Discussion

Tuesday, 31 October 2000 9.00 a.m. – 1.00 p.m.

Session 3: Meeting the divergent needs of the various stakeholders

Presentations by:

Mr. Peter UttingResearch CoordinatorUnited Nations Research Institute for Social Development

Mr. Hans HofmeijerTask ManagerManagement Support Unit in the Office of the Executive Director, EmploymentInternational Labour Organization

Mr. Julian ParrDirectorAsia and the Middle EastPrince of Wales Business Leaders Forum

Mr. Maximilian Burger-ScheidlinExecutive DirectorInternational Chamber of Commerce - Austria

Mr. Brent WiltonSenior AdvisorInternational Organisation of Employers

Mr. John VeaDirectorInternational AffairsConfederation of Norwegian Business and Industry

Discussion

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Tuesday, 31 October 2000 2.00 p.m. – 4.30 p.m.

Session 4: UNIDO Guidelines for Private-Sector Partnerships

Presentations by:

Mr. Sarwar HobohmIndustrial Development OfficerPrivate Sector Development BranchUnited Nations Industrial Development Organization

Mr. Peter MasonSenior AdvisorOffice of the Executive DirectorUnited Nations Children’s Fund

Mr. Roy WiddusManagerInitiative on Public Private Partnerships for HealthGlobal Forum for Health Research

Ms. Berangere MagariñosProject Officer & Partnership Expert Partners in Action ProgrammeUnited Nations Staff College

Discussion

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Mr. Kai Bethke Technical Advisor, Private Sector Development Branch, United Nations Industrial DevelopmentOrganization

Mr. Andreas Blüthner Trade Law Advisor, BASF AG

Mr. Jean-Pierre Brouquil Director, International Business Development, Magneti Marelli

Mr. Maximilian Burger-Scheidlin Executive Director, International Chamber of Commerce – Austria

Mr. Sujit Chowdhury Secretary-General, World Summit of Young Entrepreneurs

Mr. Thomas Finkel Project Manager Asia, Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ)

Ms. S. Y. Foong Purchasing Director, Intel Technology Sdn. Bhd.

Mr. Albrecht Graf Executive Director, Center for Co-operation von Hardenberg with the Private Sector, Deutsche Gesellschaft

für Technische Zusammenarbeit (GTZ)

Mr. Sarwar Hobohm Industrial Development Officer, Private Sector Development Branch, United Nations Industrial Development Organization

Mr. Hans Hofmeijer Task Manager, Management Support Unit in the Office of the Executive Director, Employment, International Labour Organization

Mr. Wilfried Lütkenhorst Director, Private Sector Development Branch, United Nations Industrial Development Organization

Ms. Berangere Magariños Project Officer & Partnership Expert, Partners in Action Programme, United Nations Staff College

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Annex II: List of Participants

Mr. Peter Mason Senior Advisor, Office of the Executive Director, United Nations Children’s Fund

Mr. Gavin McGillivray Senior Financial Advisor, Enterprise Development Department, Department for International Development, UK

Mr. Julian Parr Director, Asia and the Middle East, Prince of Wales Business Leaders Forum

Mr. Pascal Roger Senior Vice President for International Affairs, Group Suez Lyonnaise des Eaux

Ms. Lorraine Ruffing Chief, Technology and Enterprise Branch, United Nations Conference on Trade and Development

Mr. Josef Schleicher Director, International Affairs and Public Policy, DaimlerChrysler AG

Mr. Hubert Schmitz Professor, Institute of Development Studies

Mr. Boonler Somchit Executive Director, Penang Skills Development Centre

Mr. Peter Utting Research Coordinator, United Nations Research Institute for Social Development

Mr. John Vea Director, International Affairs, Confederation of Norwegian Business and Industry

Mr. Roy Widdus Manager, Initiative on Public Private Partnerships for Health, Global Forum for Health Research

Mr. Brent Wilton Senior Advisor, International Organisation of Employers

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UNIDO PARTNERSHIP WITH PRIVATE BUSINESS

Documents

Transcript of UNIDO PARTNERSHIP WITH PRIVATE BUSINESS