By: Craig Mascarenhas | Student at MIT | February 3rd, 2017

The CSV Index

Craig Mascarenhas
 

Creating Shared Value

The concept of Creating Shared Value (CSV) is conceived by Michael Porter and Mark Kramer in their 2011 Harvard Business Review article of the same name. They argue that CSV offers businesses and capitalism the next step towards progress, focusing on a broader approach for value creation, while simultaneously adding social, environmental, and economic value to their communities. The profitability of successful business models allows for far more scalable ventures towards alleviating social problems, in contrast to the problems that plague non-profit organizations. NGOs and Governments play important roles, as does Corporate Social Responsibility (CSR) within business models. However, for true creation of wealth and a sustainable social initiative, the profitability of business is necessary.

There are three ways firms can accomplish this: by reconceiving products and markets, redefining productivity in the market chain, and building supportive industry clusters at the company’s locations. Approaches towards that end are detailed over the years by proponents of the theory, led by the Harvard Business Review. There have been multiple cases of successful implementation of the CSV approach all over the world, with companies such as Wal-Mart, Nestle, Yara International, Johnson & Johnson, Unilever, and GE leading the way.

Why Quantify?

The concept of CSV is being put into practice in countries and markets around the world, within different economic and social environments, and with varying degrees of success. Economic growth has long proven a factor towards alleviating social and economic poverty in various regions, the proclivity regions have for the successful implementation of CSV is diverse. While a powerful concept, by the very nature of business attitudes and concepts, the risk-reward spectrum is dynamic from a spatial and temporal aspect. To this end, I created an index to quantify nations based on how well suited they are for applying CSV was conceptualized – and christened the CSV Index.

It is important, however, to take a step back and qualify the validity of a macroscopic index such as this for a concept that really works on a microscopic principle. While the index aims to provide an overall global picture of opportunity, it should not be forgotten that what constitutes social value has a diverse definition dependent on the stakeholders, as well as the fact that different trade borders, industries, and countries, ensure that there is a vast diversity to scenarios in new ventures. That said, the index tries to capture the important parameters on a macroscopic level. 

The Indicators

The indicators chosen to create the CSV Index are a blend of social, economic, and demographic parameters that appropriately contribute towards the make-up of factors that enhance the probability of success of this approach. These indicators themselves are created by me using a weighting of different factors explained below.

Population Factor Population is a strong indicator of the nation’s size of the market. While a country’s demographics is typically non-homogeneous, products and services tend to become ubiquitous within borders with market penetration, due to the unique regulatory, economic, social, and geographic constraints faced. Due to the nature of the CSV concept and the business it encourages, other over-defined indicators of market size such as urban population, percent of population with access to electricity, and other similar factors, were not considered to represent the size of market.

Population Factor

Market Growth Rate The Market Growth Index (MGI) measures the recent growth of a country’s GDP, industry, manufacturing, and services. The index aims to capture the direction of a nation’s market growth, and the prospects of growth on offer to business ventures. The ability of the market to continuously grow in the near-term is promising in regards to introducing a CSV mindset in those areas. The MGI is calculated from a weighted score of the CAGR of the GDP, industrial, manufacturing, and service sector growth rates over 5 years.

Market Growth Index

Social Lethargy Index The Social Lethargy Index is the opposite of the Social Progress Index (Michael Porter, et al). Whereas the Social Progress Index is a measure of how well a nation’s populations are in terms of social rights and conditions, the Social Lethargy Index quantifies how far they are from a “perfect” socially progressive society. SLI = 100 – SPI. It is important in the context of CSV as it indicates the quantity of social conditions that are lacking, and as such, offer an opportunity for solving those problems through a capitalist approach.

Social Lethargy Index

Market Potency Index The Market Potency Index (MPI) demonstrates how healthy a nation’s market, by taking into account the GDP per capita, the percentage of income that is disposable, and the household final consumption expenditure as a percent of the GDP. A healthy market environment not only increases chances of success, but improves the scalability and magnitude of business initiatives within.  
Market Potency Index

Economic Freedom The Economic Freedom Index rates nations based on their economic liberty, and offers a framework to capture economic and trade policy by measuring various parameters in different fields, including property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Economic freedom is related to the CSV Index due to the direct impact of economic freedom in the ability of a company to penetrate a certain country’s markets.

Economic Freedom Index

Market Receptivity The Market Receptivity Index (MRI) aims to capture the mood of a nation’s economic landscape in terms of openness to foreign involvement. It looks at trade as a percent of GDP, taxes on international trade, and imports of goods and services. This metric allows separation between high growth countries for ones that are receptive to international trade and services. 

Market Receptivity Index

Country Risk Country Risk is an indication of how risky it is to get involved financially in a country. It includes financial risk as well as political, sovereign, and credit risk. It uses credit ratings for countries as well as various indicators that calculate political and investment risk in a combined manner. This is relevant for any foreign investment and should be accounted for in an overall index.

Country Risk Index

The CSV Index

The above indicators that were identified as relevant to dictating the success of applying CSV principles to business in a country, were weighted and combined to form the CSV Index. The countries rated on the CSV index are shown below.

CSV Index

Countries such as India, Nigeria, Congo DR, Pakistan, Bangladesh, China, Vietnam, Indonesia, etc. noticeably have the highest values on the Index, and are similar in many ways. They are fairly low on the Social Progress Index, indicating a lot of social needs that require alleviating, combined with large, receptive, growing markets, that are mostly open to economic involvement. Other large markets with existing social problems such as Brazil and Russia also score fairly highly on the Index. It also allows for economically strong countries, such as the USA, with a large, potent, market that has near-zero risk and that is very economically free, a decent score on the Index. However, for the most part, socially secure countries tend to score on the lower end of the Index.

Top 10 CSV countries
Country CSV Index Score
India 93
Nigeria 90
Congo, Dem. Rep 83
China 79
Pakistan 75
Indonesia 74
Vietnam 73
Bangladesh 71
Mozambique 65
Liberia 58