Supporting local economies

Does your business have a positive impact on the economy (or economies) local to its operations?

POOR Answers

No POOR answers have been published for this question.

Companies can support the local community by sourcing products and services from local businesses, targeting their hiring practices on the recruitment of local people, or tailoring and delivering their goods and services to local markets. This helps keep economic resources within the local area, creates local jobs and prosperity, and improves quality of life for all.

This is a strategy that is available to international companies, national chains and local entrepreneurs. It can be achieved in various ways, depending on the business and the type of activity. A local social enterprise may locate its entire value chain within one community, whereas a multinational corporation may support and build up local economies by concentrating large sections of value chains in particular geographical areas. For instance a supermarket may support the local economy by sourcing products sold in each of its stores from farms within a certain radius of each store.

The local multiplier effect means that when money is spent on goods and services within a local community, most of it remains in circulation within that community, usually in the form of money spent on other local products, inputs and services, and on staff wages. Generally, money used on goods and services that are not produced locally will immediately leave the locality or region. Some campaigners claim national chains, such as supermarkets, siphon as much as 95 per cent of their takings out of the locality. Therefore, by maximising the amount of the company’s value chain taking place within a local area, the organisation can preserve the amount of money kept within the local economy, enabling communities to benefit and become more prosperous, and ultimately more able to buy locally produced products and services.

A diverse local economy, providing secure employment and producing a range of goods, will be more resilient, self-reliant and sustainable. Consequently, local sourcing and hiring can be particularly important in invigorating economically depressed or vulnerable areas such as inner city neighbourhoods or rural communities. Sourcing locally may also help promote social cohesion, improve the quality of life for local people, promote customer loyalty, reduce the cost and environmental impact of transportation, and strengthen a company's relationships within the community.

However, all businesses must balance their necessary considerations of cost, quality and convenience with their ability to support the local economy. An evaluation of both benefits and drawbacks will inevitably show that certain activities are not feasible locally. Further, the desire to focus locally may conflict with other values and aspirations of a company. For example, sometimes the local choice isn't the best environmental one - tomatoes grown under the hot sun of Southern Europe, even when air-freighted to market, may have a lower carbon footprint than those grown in an artificially heated, poly-tunnel environment in Northern Europe.

Understanding these trade offs and finding the appropriate balance is an essential foundation on which businesses develop strategies and practices for supporting local economies.

Local

A definition of 'Local' will always be highly subjective and dependent on a company's geographical location and the nature of its operations. In rural California for example, people will travel for hundreds of miles in what they consider to be their local community, which contrasts significantly with most major cities where distances of a couple of miles, or even just a few streets, make all the difference.

Value chain

The 'value chain' of a company is the set of activities that are performed in order to deliver a product or service to the market. It consists of:

  • the supply chain, including raw materials produced by primary industries, non-material resources and the operations performed on them by intermediaries up until supplies are purchased by the company
  • the value delivered by the company itself through its product manufacturing, service development or other activities
  • the 'demand chain', through which the company's products or services reach their market through to final disposal, including the distribution and sales to customers by intermediaries
Local Multiplier Effect

The 'Local Multiplier Effect' is the increased value of money as a result of it circulating within an economy. If money is spent locally, additional benefit is accrued to the local economy, unlike when money leaves immediately, as is the case when it is siphoned off by large chains that do not work with local suppliers. Estimates show that money spent on locally produced products and services circulates up to three times more than money spent on external goods and services. This creates incomes for more local people and increases the value of the local economy. This effect is equal to that of external investment.

Answering YES

All Businesses MUST

Summarise the value chain of the business

Define 'local' relative to their operations, size, sector and value chain

Explain how their activities are focused locally, describing their approach or strategy, and providing examples

Explain any policies or practices which may have negative impacts on the economies local to their operations, and whether they have plans to scale down or mitigate any such activities

All Businesses MAY

State any philosophies or values which influence their approach to the economies local to their operations

Explain whether they have a written policy which describes their approach to the economies local to their operations, and whether it is publicly available

Describe the proportion of spend that is local or the percentage of company turnover that remains within the local community

Explain whether any of their operations are located in economically depressed or vulnerable communities

Describe if and how they influence others to support or strengthen the local economy

Provide any other relevant information

Answering NO

All Businesses MUST

Explain why they do not or cannot answer YES to this question and list the business reasons, any mitigating circumstances or any other reasons that apply

All Businesses MAY

List any practices that are relevant, but not sufficient to answer YES, such as sourcing some goods and services locally, but not as a matter of policy

Mention any future intentions regarding this issue

DON'T KNOW is not a permissible answer to this question

NOT APPLICABLE is not a permissible answer to this question

Version 2

To receive a score of 'Excellent'

Focusing activities to support local economies is fundamental to the business’s strategy

Examples of policy and practice which may support the EXCELLENT statement:

  1. Detailed policy in place which includes specific measurable targets that are regularly and publicly reported on
  2. This policy has high targets and is consistently implemented
  3. Staff and stakeholders are actively engaged in delivering this policy
  4. The company consistently spends a measurably high percentage of turnover with local suppliers, whenever possible
  5. The company is an example of best practice and actively champions concentrating activities locally to its suppliers, investors and competitors
  6. Effort is made to hire people from the local community at all levels, and policies are in place to encourage applications from local people
  7. The company seeks a strategy in which supporting the local economy is environmentally friendly, socially responsible and profitable, where this is not possible it prioritises supporting the local economy.
  8. Activities that are not situated in the local economy can be justified and are consistent with the company’s policies
  9. The company works closely with other businesses and the local council on how it can support the local economy.
  10. Particular effort may be made to expand activities in economically deprived areas in order to support that economy rather than relocating operations
To receive a score of 'Good'

The business is aware of the benefits of concentrating activities locally and is actively engaged in doing so

Examples of policy and practice which may support the GOOD statement:

  1. Consistent policy on supporting the local economy which includes measurable targets for improvement on which it regularly reports
  2. Commitment to best practice on supporting locally when cost, environmental, and other social considerations allow
  3. Staff and stakeholders are aware of the firm’s local sourcing policy
  4. A significant percentage of turnover is spent in the local community
  5. The company is able to justify its non-local activities, but does not generally publish this information
  6. Many of the staff are from the local community, and although jobs are advertised locally there is no consistent policy in place to encourage local applicants
To receive a score of 'Okay'

The business supports the local economy on an ad hoc basis, but not consistently and it is not prioritised over cost considerations OR supporting local economies is not relevant to the business

Examples of policy and practice which may support the OKAY statement:

  1. The business seeks to source some goods and services from local suppliers, but this is motivated by cost and or other profit driven concerns
  2. There is a policy on supporting the local economy, but this is limited, or reporting is limited
  3. There is commitment to improve on performance
  4. The company does employ some people from the local community, but they are mainly concentrated at lower tiers of the organisation or in precarious contracts
  5. Provides satisfactory explanation that supporting local economies is not relevant or applicable to the business
To receive a score of 'Poor'

The business has a negative impact on the economy (or economies) local to its operations

Examples of policy and practice which may support the POOR statement:

  1. There is little to no effort to support the local economy
  2. There is no policy in place, and staff are unaware of the issue
  3. Contracts with larger and/or multinational suppliers actively prioritised
  4. Promotes or campaigns on issues which may undermine the local economy
  5. Engages in PR activity to cover up or assuage its negative impacts
  6. There is little transparency in relation to supporting the local economy, and the company may be unwilling to disclose information
  7. Engages in activities without thought for the economic impact on the community, or which may lead to smaller, independent competitors to go out of business (such as operating as a price giver to local suppliers, cancelling contracts and/or closing down operations at short notice)
  8. Little effort is made to hire from the local population, and/or jobs that are created by the company are precarious, low paid or exploitative