The Economic Imperative of Sustainable Growth
Why balancing short-term financial gain against long-term economic strength makes business sense.
The key driver for any business owner is the financial viability of their business. No-one builds a business to watch it fail. This economic imperative drives choices around the profitability of the business.
This means that in an ideal world, businesses would manufacture, produce, or procure the materials for their business at the lowest possible cost to maximise profit realisation. The globalisation of economies has enabled businesses to source lowest-cost inputs regardless of location. And for larger businesses, their scale enables negotiation strength to capture these lowest input cost opportunities that drive financial gains.
This is all well and good from a shareholder perspective, but what of the broader group of stakeholders?
Are businesses accountable to stakeholders outside their area of work?
In defining stakeholder, this would be any internal or external individuals or group of individuals who are impacted by the business.
In recent past there has been a sustainability focus mainly driven by large corporate businesses within the broader stakeholder arena, highlighting environmental sustainability. Currently when you hear the word “sustainability” your frame of reference will likely be this environmental focus. Environmental sustainability is critical to ensuring the protection of limited natural resources to support the ongoing viability of businesses.
What we argue for here is an extension of the frame of reference to include economic sustainability. Economic and environmental sustainability are symbiotic concepts, and each needs the other to survive.
A balance of the environmental and economic sustainability is important here, and if businesses truly embody the essence of sustainability, there will likely be synergies across these two terms.
A strong economic environment is essential for all businesses to thrive in the long term:
- Every business needs customers who buy their goods and services and these customers need to be economically active and will source their economic power outside of these larger organisations.
- In weaker economic conditions customers will be unable to purchase the goods and services that these companies offer.
An argument for the positive effects on globalisation could be made here, such that these economies would be globally interdependent versus locally dependent, but this is not true in many markets, particularly in developing countries.
If we cannot rely on economic globalisation to support the long-term consumer purchasing power, how then can businesses ensure the sustainable viability within their own markets?
The easy answer is that they should focus efforts to source inputs locally. However, this is neither wholly practical nor is it viable.
With this answer, these medium and large businesses potentially forego their purchasing power to source the lowest-cost inputs thereby increasing the pressure on their financial returns. The result of which will likely be materially increased input costs that will drive up selling prices, potentially putting these outside the financial ability of customers
What about legislation?
At this point, you might reflect that the economic development of emerging businesses is the responsibility of the legislative bodies within that market.
While it is true that the cornerstone of economic market strength requires a healthy and growing small and medium enterprise (SME) sector and that legislation to support small business growth is central to the health of this sector, these businesses require more than a legislative and a “ticking the box” approach to truly thrive.
Nowhere is that truer than in South Africa, however the SME sectors in this market still struggle to gain traction.
In South Africa Broad-Based Black Economic Empowerment (BBBEE) is an example of legislated requirements being insufficient to drive economic freedom within SME sectors. BBBEE is a multifaceted and complex topic, and the success or failure of these legislated measures cannot be laid at the feet of large companies due to broader systemic issues. However, this should not be the reason behind which companies shelter to avoid the perceived sacrifice of their profitability.
A finely tuned strategically focused balance is required
The real answer requires a strategic balance between short-term financial business success and long-term economic market strength.
If we assume that large businesses cannot control the broader systemic issues driving the lack of economic empowerment, and that these companies embrace the benefits of sustainable economic strength, the answer lies in integrating a balanced approach to strategic planning.
What does this mean?
This means that businesses would need to place as central the idea of supplier and enterprise development within their own supply chains.
What this looks like for each business depends heavily on the business structure, the industry, and the economic goals of that business, however it is possible, and requires a paradigm shift within the strategic focus on businesses.
It is only in focusing on strategies and tactics that balance the business’ short-term financial viability with long-term broader industry and market economic health that we create a positive cycle of success and wealth.
At WB Diverse Solutions we believe that few more inspirational goals than playing a part in ensuring that tomorrows children have a stronger starting point than their parents before them. Just one step forward is what is required to drive generations of continued improvement and success.
What will you do to support that one step?