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Business-Nonprofit Partnerships at the Base of the Pyramid:
Creating value for whom?
Master Thesis by Haitske van der Schee 1st Supervisor: Dr. A. Kourula Student number: 10551727 2nd Supervisor: Dr. M Vock MSc Business Administration, Strategy Track Submission date: June 29, 2015 Word count: 18.453
2 Statement of Originality
This document is written by Haitske van der Schee, who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is
3 Abstract:
Scholars state that partnerships with nonprofit organisations catalyzes the value creation process when companies enter the base of the pyramid. However, the theoretical framework about the value creation process in partnerships at the bae of the pyramid is just starting to be developed. At this early stage, it is not known how, and what type of partnerships create value at the base of the pyramid. To add to the theoretical framework development, this study explores how base of the partnerships create social value for the poor and economic value for the company. Furthermore, it is researched whether the value creation process is affected by the type of partnership. This is done by studying social responsibility reports and websites of the Global Fortune 50 companies and of nonprofit organisations. By doing so, it is found that in most base of the pyramid initiatives, partnerships are established. It is also found that many initiatives are implemented by more than one nonprofit partner, and initiatives are therefore implemented through networks. Another interesting finding is that more intensive partnerships create more social and economic value than less intensive partnerships. However, many intensive partnerships are established in practice that do not create much value. These findings can help managers make decisions how they want to create social and economic value and in what type of partnership they should be engaged in.
Acknowledgements
I would like to show my sincere gratitude to Prof. Kourula for the inspiring meetings we had and for showing me the way in the base of the pyramid literature. I am grateful that he gave me the freedom to research the topic that I found most interesting, and corrected me in this process when it was needed. I would also like to thank Khadija van der Straaten for sharing her experience with me about which data is available about the topic. This gave me the direction I needed when I started the thesis. I would also like to thank my sister, who kept me focused during the research process and for proofreading my final draft.
4 Table of Contents Abstract ……….………...…... 3 Acknowledgements...……….……… 3 1. Introduction………....…... 5 2. Literature Review………..……... 9
2.1 Business alleviating poverty………... 9
2.2 The concept of the base of the pyramid……….. 10
2.3 Social value: how the poor benefit.……… 10
2.4 Economic value: how companies benefit ……….. 13
2.5 Challenges entering the base of the pyramid………. 15
2.6 Partnerships to overcome the challenges……… 16
2.7 Different types of partnering.……….… 18
3. Methodology……… 22
3.1 Research design………... 23
3.2 Research instruments and procedures………... 24
3.3 Strategy data analysis………... 26
3.4 Strengths and limitations of the research design………. 33
4. Empirical Findings ………. 34
4.1 Company involvement at the base of the pyramid……… 35
4.2 Descriptive information about the partnership……….. 38
4.2.1 Company level……… 38
4.2.2 Initiative level……… 39
4.2.3 Partnership level……… 40
4.3 Social value creation………. 48
4.4 Economic value creation……….. 54
4.5 Type of partnership……… 62
4.6 Social and economic value creation and the type of partnership……….. 67
5. Discussion and Conclusion……….……. 73
References……… 80
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1. Introduction
“I think the best way of doing good to the poor is not making them easy in poverty, but leading or driving them out of it.”
Bejamin Franklin, 1766
Background:
Currently, a business-nonprofit ‘partnership boom’ is taking place (Dahan et al., 2010) as the number of partnerships in which a company partners with a nonprofit organisation is rising (C&E, 2010). Such cross-sectoral partnerships are established to combine resources of partners to solve problems from which both for-profit and nonprofit partners can benefit (Seitanidi & Crane, 2008). These cross-sectoral partnerships intend to create both social value for society and nonprofit organisations, and economic value for companies (Austin & Seitanidi, 2012). In addition, the base of the pyramid approach intends to create both social and economic value (Prahalad & Hart, 2002; London & Hart; 2004; Kolk, Rivera-Santos & Ruffin, 2013). Thus, there is a similarity between the business-nonprofit partnership and the base of the pyramid approach. Therefore many scholars in the base of the pyramid research field prescribe companies who enter the base of the pyramid to engage in business-nonprofit partnerships to create both social and economic value. With this partnerships, companies can create economic value by tapping into the market potential of the poor that is estimated on $4 billion by Prahalad and Hart (2002), as well as alleviating the poor out of poverty by including them into the global market which can improve their standard of living.
Research Problem
Prahalad and Hart (2002) state that a win-win situation can be made at the base of the pyramid through partnerships by creating social as well as economic value. However, social
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and economic value can be created in many different ways. This is shown by Benjamin Franklin who states that social value can be created through comforting the poor or by leading them out of poverty. Similarly, partnerships can create economic value for firms in distinct ways. Economic value can be created by the reputational benefit of activities in which companies engage on top of economic value by targeting the poor as their supplier. This clearly shows that partnerships can create value at the base of the pyramid in various different ways.
Research gap
Although the peer-review literature field on how partnerships create value is maturing (Austin & Seitanidi, 2012) and more articles are published on the base of the pyramid (Kolk, Rivera-Santos & Ruffin, 2013) there is still a gap between these research fields. The development of a theoretical framework about how partnerships create value at the base of the pyramid is still at an early stage. At this stage, some case studies and some best practices are already presented by scholars (Dahan et al. 2010), however these are incidental cases which are mainly positive stories. Systematic research has rarely been done (Proctor & Vorley, 2008).
Even more, there is no clarity about how the poor are targeted in the partnerships at the base of the pyramid (e.g. Prahalad & Hart, 2002; Karnani, 2007) and it is unknown what is the best way to target the poor in social and economic sense. Similarly, there is no certainty about how partnerships create economic value. These uncertainties show that it should be explored in which different ways the poor are targeted and how companies engage with the poor.
Furthermore, although theoretical frameworks have been built on how different types of partnerships with different intensities create value, these theoretical frameworks are rarely
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tested in practice in a way other than case studies (Austin & Seitanidi, 2012). Therefore, it is unclear how different types of partnerships create value in practice.
Research Question
This thesis will systematically look how business-nonprofit partnerships of the Global Fortune 50 companies at the base of the pyramid create social and economic value to add to the development of a theoretical framework about how partnerships at the base of the pyramid create value. As all companies of the Global Fortune 50 are looked at, this research goes beyond examining success stories. To do so, this thesis will answer the following two questions
What kind of social and economic value do business-nonprofit partnerships create at
the base of the pyramid?
Is the social and economic value creation affected by the type of partnership?
Closer scrutiny and more knowledge of processes of the value creation in co-creation is needed for theoretical advancement and practitioner guidance (Austin & Seitanidi, 2012). This research is done by studying corporate social responsibility reports and company websites of the Global Fortune 50 companies. The established partnerships by these companies to enter the base of the pyramid will be analyzed. In total 118 partnerships are found within 27 out of the 50 companies. All are examined on how they create social and economic value, and if possible, it is examined what type of partnership it was.
Objectives
This research aims to combine the partnerships literature with the base of the pyramid literature. This will be done by combining the underlying assumptions about value creation in of the base of the pyramid literature, with underlying assumptions about value creation in the
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partnership literature. By doing so, value creation processes are examined out of both different research fields, and later they are combined. Although theoretical studies already made a start in combining both fields, only few empirical studies have been done. Therefore, this study aims to provide an empirical methodological contribution to give insights in how partnerships are studied at the base of the pyramid.
This thesis also aims to give directions to scholars who are building a theoretical framework on how partnerships create value at the base of the pyramid. Building a theoretical framework needs directions from practice. The outcome of this study gives insights on how the poor are mainly targeted in practice. Also, it gives insights about how the poor are mainly incorporated in the daily operations of the company. This could help defining a starting point for a theoretical framework.
Even more, this study aims to provide a systematic empirical research, in which not only best practices are presented. As all partnerships at the base of the pyramid from companies from the Global Fortune 50 companies are examined, a wider view is presented about how value is created in partnerships. This goes beyond presenting best practices and provides an overall view on the subject.
Furthermore, this study aims to give insights to practitioners by showing what type of initiatives and what type of partnerships create more social and economic value. In this way, practitioners are able to recognize what kind of partnerships are likely to be more fruitful and thus they can take this into consideration when establishing future partnerships themselves.
Also, it will be investigated whether the win-win situation proposed by Porter and Kramer (2006), in whom maximum social value and maximum economic value is created in business-nonprofit partnerships, does actually exist.
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The next section gives a literature review in which it is described how social and economic value can be created through partnerships. The following section describes how the value creation process in partnerships are examined in an empirical study. Afterwards, the findings are discussed, followed by the discussion and conclusion.
2. Literature Review
This section will first show how multinationalsengage with the base of the pyramid (BoP), and describe the intended outcomes of those engagements. Then, the role of the partnerships in which the multinationals engage to enter the base of the pyramid are explained.
2.1: Business alleviating poverty
Currently four billion people live on less than $2 a day. This group of people is the largest and poorest socio-economic group in the world and therefore is ‘the base of the pyramid’ of the world population (Prahalad & Hart, 2002). Alleviating the base of the pyramid out of poverty has mainly been the focus of the public sector and governmental institutions (Schuster & Holtbrüge, 2014). Low purchasing power, ineffective distribution systems, corruption, violent conflicts and low skilled workforces have restrained multinationals to enter the markets of the poor (Kolk & Lenfant, 2010). This group is therefore excluded from the modernity of our globalized civilized societies and cannot enjoy choice of products and financial services (Hall et al., 2012).
However, from the beginning of this millennium, more interest has been shown by multinational companies in this low-income market (Kolk, Rivera-Santos & Ruffin, 2013). Pioneering multinationals have set up business activities that have created economic and social value simultaneously (Prahalad, 2005). By including the base of the pyramid into their
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business models, companies also benefit themselves by expanding their market or by getting wider access to raw materials, while simultaneously improve the standards of living of the people who live in poverty, which creates a win-win situation (Bitzer & Glasbergen 2015; Blok, Sjauw-Koen-Fa & Omta, 2013, London & Hart, 2004). This is in line with the notion of different international organisations such as the World Bank and the United Nations, who state that companies are of great importance when addressing social issues (Newell & Frynas, 2007). Entering the market of the base of the pyramid is an opportunity to ‘do well’ by creating economic value and to ‘do good’ by creating social value, which is seen as a radical idea by many (Simanis & Milstein, 2012).
2.2 The concept of the base of the pyramid
The original idea of the base of the pyramid by Prahalad and Hart (2002), who came up with the concept, is that a large untapped consumer market, of which multinational companies are able to benefit. Simultaneously those multinationals can improve the standard of living of the poor by entering those markets. This opportunity was seen by Prahalad as a underexplored chance to make profit from this new market of people who were entering the market for the first time while simultaneously alleviate the base if the pyramid out of poverty. He proposed that entering the market of the base of the pyramid is a market-based solution to poverty alleviation (Simanis & Milstein, 2012) and therefore, addressing global problems therefore became a matter for multinational companies as well (Kolk & Lenfant, 2010). The base of the pyramid approach provides a new window of opportunity to create social value through market solutions.
2.3 Social value: How the poor benefit
The original concept developed by Prahalad and Hart (2002) entails that social value is created in base of the pyramid initiatives as a by-product of the business opportunities.
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They state that enabling the poor to buy adapted products with different quality-cost balances makes their lives of higher quality by including them into the global market, and therefore eradicate their poverty.
However, it has been argued by Karnani (2007) and other opponents (e.g. Ricart et al., 2004; Dahan et al. 2010; Ireland, 2008) that providing more comfortable products to the poor, they cannot alleviate the base of the pyramid out of poverty as offering new products does not increase their purchasing power. To achieve poverty reduction and sustainable economic and social development, the creation of productive employment is essential, Karnani describes. For the base of the pyramid to be able to buy an adapted product, they first need to access and be able to pay for power. Furthermore, it is stated that the poor could even be exploited by the multinationals harming them, when the poor substitute the new purchases of more important utilitarian good for a luxury good (Agnihotri, 2013). As Agnihotri (2013) describes: “A poor person might also end up paying monthly installments for a television from Casa Bahia rather than saving money for future investments in education or health care” (p. 592). This shows that there is a debate on how base of the pyramid initiatives create social value.
Solving Karnani’s criticisms on Prahalad and Hart (2002) view of eradicating poverty, London and Hart (2011) state that companies are not supposed to do business at the base of the pyramid, but to do business with the base of the pyramid, meaning that companies are encouraged to partner with the poor by considering them as entrepreneurs, producers, distributers, employees or suppliers (Kolk, Rivera-Santos & Ruffin, 2013; Sinkovics, Sinkovics & Yamin, 2014). Doing business with the poor, the purchasing power of the base of the pyramid will be increased (Ricart, et al., 2004). As lack of employment and a discontinuous flow of income underlies at heart of poverty (2005), considering the poor as a partner instead of consumers, eradicate poverty more efficiently and creates more social value for the poor. This shows that the concept of London and Hart (2011) is an inversion of
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the originally proposed concept by Prahalad and Hart (2002) as the former considers social value as the aim of the initiative whereas the latter states that social value is the by-product of entering the base of the pyramid market (Simanis & Milstein, 2002). Although the concepts differ in the abovementioned respect, they still have the similarity that they are both market-based solutions for poverty eradication.
In contrast to the market-based solutions, Kolk, Riversa-Santos & Ruffin (2010) show many philanthropic base of the pyramid initiatives, meaning that the poor are not approached as an opportunity for growth or profit, but as an opportunity for charitable actions (Godfrey, 2005; Simanis & Milstein, 2002). In such actions, the poor are considered as recipients of products or services, getting services or products for free. When the base of the pyramid is targeted by companies in a philanthropic manner, the activities are outside their own business and no economic benefit is intended, other than improved social reputation and employ engagement (Kourula & Halme, 2008). The activities take place outside the corporate strategy. Such base of the pyramid initiatives are considered to have lower social impact than when the poor are targeted as consumer or employee, as aid is not considered as a sustainable practice in the long term according to Jenkins (2005). He states that when the poor are a recipient of products or services, the base of the pyramid is not considered as a long-term stakeholder for the company, as the company has no incentive to commit to them in the long term. This is also illustrated by Blowifield and Frynas (2005) who show that philanthropic actions of companies are not monitored thoroughly. They elaborate that the company cannot be sanctioned for promises that are not kept if not monitored. Without the backup of a financial incentives for the company, the philanthropic base of the pyramid imitative probably receives lower commitment and eventually die out. This shows that the poor cannot count on a sustainable solution that will alleviate poverty.
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This illustrates that the base of the pyramid could be approached in different ways, which creates different levels of social value (table 1). Approaching the poor as recipient of free products or services can create the lower social value. Considering the poor as a paying consumer will create more social value as the company will be having more incentives to relief the poor by including them into the global market. Finally, when approaching the poor as partner, it will create more social value than when considering the poor as consumer, as considering the poor as partner will lead to an increase of their purchasing power.
Table 1: Different ways of targeting the poor and the level of social value creation
The poor targeted as Recipient Consumer Partner
Level of social value --- --/++ +++
How it creates social value
Short term poverty relief
Long term inclusion in the global market
Increasing purchasing power
2.4 Economic value: How companies benefit
Besides creating social value for the poor, base of the pyramid initiatives most likely add economic value for the company when the initiative will increase profit or enable growth. Different levels of value can be created with base of the pyramid approaches. Porter and Kramer (2006) describe three levels of economic value that can be created through corporate social responsibility initiatives.
First they describe different initiatives that generate social value, that do not add to the company’s competitive advantage. These initiatives addressing generic social issues mainly involve sponsorships and funding of those initiatives. They elaborate that ‘writing a check (p. 7)’ undermines the active role the company is able to play in creating economic value through social initiatives. In line with this, Kourula and Halme (2008) state that the benefit of philanthropic donations is not a better position in the market, but only a reputational benefit
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and employee engagement is expected. Aguinis and Glavas (2012) furtherly state that only goodwill and employee engagement is created in these type of initiatives. Providing sponsorships and funding, limits therefore the economic value for the firm.
Porter and Kramer (2006) demonstrate that more economic value is created through social responsibility initiatives when those initiatives go beyond sponsorships and funding. Going beyond sponsorships and funding is attained when the social responsibility initiatives significantly affect the company’s activities. This is achieved when the company invests its resources to impact the value chain of its operations. In this process, companies have to take a critical look on its operations, and examine where they create social value. Investing in these operations, the company makes its value chain more efficient and therefore uses its resources in a more productive way (Porter, 19965; Jenkins, 2005). Implementing social responsibility projects that will make its chain more efficient is considered as an investment for the company. Therefore, this type of initiative will create more economic value for the firm than when they only provide sponsorships and funding.
Porter and Kramer furtherly explain that more economic value for the company is created, when the company adapts its business model to increase the social value around its business. They explain that the social responsibility in the day-to-day practices benefits the company. This way, the initiatives are used strategically to gain competitive advantage. However, adapting the business model to fit the base of the pyramid market, asks for radical changes (Prahalad, 2005). Kolk, Rivera-Santos and Ruffin (2013) also state that multinational companies cannot just copy-paste their business models that they use in the developed world for developing nations. Radically adapting business models do not only mean evaluating business and only evaluating productivity potential. As Prahalad and Hart (2002), Kolk, Rivera-Santos and Ruffin (2013) and Dahan et al. (2010) show, that not only the business models have to be adapted but a completely new understanding of business is needed.
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Companies that do business with the poor have to change from Western ‘the bigger the scale, the better’ reasoning to a more local approach to understand the small-scale operations of the poor to meet the demands of the local and cultural responsiveness (Prahalad & Hart, 2002; Ricart et al. 2004). Ricart et al. (2004) elaborates on this, stating that incremental adaptation of base of the pyramid business models is not effective.
This illustrates three levels of economic value that can be created by and for the company (table 2). When the company only provides philanthropic donations, the expected benefit for the firm will only be reputational benefit and employee engagement. If companies invest in initiatives that have positive impact on the efficiency of the value chain, the company creates more economic value. More economic value is created when the base of the pyramid is incorporated in their business model, than when the company invests in the value chain, because competitive advantage is increased.
Table 2: Different actions of the company and the level of economic value creation
The poor targeted as Philanthropic
donations Investing in the value chain Adapted business model Level of economic value --- --/++ +++ How it creates economic value Reputational benefit and employee engagement
A more efficient value chain.
Creating competitive advantage.
2.5 Challenges entering the base of the pyramid
Focusing on social or economic value, engaging with the base of the pyramid brings up challenges as the conditions in this market are different from those in high-income markets (Rivera-Santos & Rufin, 2010; Dahan et al., 2010). Ricart et al. (2004) points out the importance of a different approach of handling operations in the company, as more partners and smaller partners are involved in base of the pyramid initiatives. Also, Hahn and Gold
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(2014) state that the process of recognition of business opportunities is different in base of the pyramid markets from the process of opportunity recognition in the developed world, due to institutional distances and high institutional voids. Furthermore, it is assumed that the modes of entry to those markets and operational structures will follow the patterns of the developed countries (Dahan et al., 2010).
Due to these different and complex circumstances, it is stated that the inclusion of the poor something that cannot be done through one single actor, as many links have to be made between local entrepreneurs and the domestic, regional and global market system (Proctor & Vorley, 2008). Multinational companies must be locally informed to approach the poor (Rein & Scott, 2009), when doing business with the base of the pyramid. Companies have to invest to clearly understand the local circumstances, contextual implications and specific conditions, what is even more important in developing countries than doing business in Western countries. Companies have to understand small-scale and local operation contexts with a world-scale capability view (Prahalad & Hart, 2002). This shows that companies should carefully understand the local circumstances, when they apply their global capabilities. Partnering with other stakeholders improves knowledge exchange and could overcome this knowledge gap (Rein & Scott, 2009; Berger et al., 2004).
2.6 Partnerships to overcome challenges
To overcome such challenges, some companies partner with nonprofit organisations (NPOs). Business-nonprofit partnerships have emerged as a ‘powerful vehicle’ to creating social and economic value (Austin & Seitanidi, 2012; Dahan et al. 2010; Doh & Teegen, 2002; Googins & Rochlin, 2000). The rise of such types of partnerships is an ongoing trend, appearing in different sectors, contexts and industries (C&E, 2010). Companies listed at the Interbrand’s Best Global Brands Ranking are involved in 11 to 50 or more partnerships with value creations as the legitimizer. The partnerships arise as multiple actors and help to achieve
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more than an individual organisation, especially when challenges regarding entering the base of the pyramid in the less developed countries should be addressed (Austin & Seitanidi, 2012). According to Austin and Seitanidi (2012), the emergence of business-nonprofit collaboration is explained using knowledge based views, as it is tacit knowledge that companies are searching for in the partnerships. Sharing tacit knowledge, leads eventually to more value creation.
Many base of the pyramid scholars have recognized that there is a linked interest between business and NPOs to cooperate when entering the base of the pyramid market (e.g. Prahalad & Hart, 2002; Pitta et al., 2008; Ricart et al., 2004; London & Hart, 2004; Kolk, Van Tulder & Westdijk, 2006). Multinationals create value in the partnership as the nonprofit provide them knowledge about social issues at local level, expertise in stakeholder management and help them to access the new markets which are under uncertain conditions and resource constraints (Hahn & Gold, 2014; Schuster & Holtbrügge). NPOs are embedded in these undeveloped markets thanks to social efforts they have carried out in these areas for decades. They understand the local institutions and the beliefs regarding the value of a certain products or service in a certain context (Pitta et al., 2008; Chesbrough et al., 2006). They also have experience with daily norms of local citizens at the base of the pyramid (Dahan et al, 2010; Hahn & Gold, 2014; Pitta et al., 2008). Also, the partnership provide the multinational company preferential regulatory treatment, so that institutional voids are overcome (Austin & Seitanidi, 2012; Rivera-Santos, Rufin & Kolk, 2012). This means that the nonprofit function as a critical source of key market information for the multinational companies. Therefore, the NPOs add stability of international investment projects (Doh & Teegen, 2002).
Simultaneously, the NPO benefits from the cooperating with the multinationals. Multinationals have larger amounts of capital and they have more leadership and managerial skills from which the nonprofit benefit (Rondinelli & London, 2003). Furthermore, NPOs
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benefit from the large-scale and global production capabilities, global sourcing opportunities and relationship with global and local suppliers (Googins & Rochlin, 2000). Also, they tap into the ownership of distribution systems of the multinationals. NPOs use the legitimacy of the multinational regarding other private sector players (Dahan et al., 2010). Therefore, more NPOs tend to cooperate with for-profit companies, although historically this has been controversial and sometimes considered as sleeping with the enemy (Rondenelli and London, 2003; Hoffman, 2009).
Due to the rise of global capitalism, the decreasing role of government and the weakened status of the civil sector, multinational companies and NPOs found common grounds, resulting that boundaries between profit- and NPOs are blurring (Austin & Seitanidi, 2012; Hoffman, 2009).
2.7 Different types of partnering
Business and nonprofit partnerships co-create value when companies enter the base of the pyramid market (Kolk, 2013). However, there are different kinds of partnerships that lead to different kinds of value (Austin & Seitanidi, 2012). The partnerships have 1) different forms, 2) create different levels of economic and social value and 3) the actors exchange resources in different ways.
According to Austin and Seitanidi (2012) business and nonprofit partnerships are placed on a collaboration continuum, to describe the type of the partnership. On one end of the continuum, partners in their partnerships barely relate to each other, which they call a transactional partnership. On the other end, the partners collaborate rather highly intensive, which they define as a strategic partnership. Rondinelli and London (2003) and Googins and Rochlin (2000) also provide such continuums that moves from low-intensity to high intensity management alliances to describe the nature of the relationship of the partners. In the
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continua proposed by Austin and Seitanidi (2012), Rondinelli and London (2003) and Googins and Rochlin (2000), three forms of partnerships are distinguished: the transactional partnership (low intensity partnership), the interactional partnership (medium intensity partnership) and the strategic partnership (high intensity). Austin and Seitanidi (2012) show in their framework that the more intensive the partnership is, the more external change in the system is likely to be achieved. This means that more economic and social value can be created. Also, more innovations can be invented and implemented when partnerships are more intensive. They also state that in such kind of partnerships synergistic value are more predominant. This is due to the fact that there is conjoined value co-creation instead of sole value creation, which would happen when the partnership are not intensive. Intensive and integrative partnerships is more aspiring and leads to more significant social change, according to Austin and Seitanidi (2012). The three forms of partnerships with their different types of created value and the different capabilities added to partnership by the actors is furtherly explained.
Actors do not intensively cooperate in a transactional partnership (Austin and Seitanidi) (table 3). As Googins and Rochlin (2000) describe, this kind of partnership is mainly a mutual transfer of resources, in the sense that there is only a reciprocal exchange, instead of an intensive cooperation. This reciprocal exchange means that the company provides the NPO with a resource, and the NPO provides the company with a resource in return. No interaction, conjoining or co-creation of resources takes place. In such a partnership the multinational provides a generic resource, like money and the NPO offers another generic resource as visibility in return (Rondinelli & London, 2000). Austin and Seitanidi (2012) exemplify that in such a low-intensive kind of partnering, the multinational is the giver and the nonprofit is the ‘doer’. These partnerships are particularly short-term in nature and are a single event as no long commitment is made (Austin and Seitanidi, 2012).
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Such a partnership is rather categorized as philanthropy instead of an engagement that creates a high amount of social value by transforming the way multinationals do at the base of the pyramid.
In an interactive partnership (table 3), there is more conjoining of resources from both parties (Austin & Seitanidi, 2012). This means that the resources of the company and the NPOs are put together to make the initiative work. Instead of a transaction of resources, the resources are conjoined. This means that higher intensities of cooperation, as more interaction takes place when the resources are conjoined. The conjoined resources are also more specific than in a transactional partnership (Rondinelli & London, 2000). The resources are complementary assets like specific knowledge and capabilities, or infrastructure or certain specific relationships are exchanged, instead of generic resources (Austin & Seitanidi, 2012). In such partnership, the NPOs provide the company with trustworthiness, relational capital, and problem solving capabilities. Simultaneously, the company provides the NPO with a global company network, coordinating capabilities and specific technological knowledge (Austin & Seitanidi, 2012). In these type of partnerships, the NPO provides the company with certifications, name and logo licensing of the activities of the company (Rondinelli & London, 2000). In return the company transforms its daily operations so that it benefits the poor. These partnerships are used for the company to be able to target the poor as consumer. Nonprofit organisations help distributing the company’s product in areas where the company normally does not market their products (Dahan et al. 2010). This process is done in an interactive process between the two parties. Therefore, some organisational compatibility is needed to make such partnerships work (Austin & Seitanidi, 2012). These partnerships normally take place for longer time periods than the transactional partnerships, but the responsibilities of the actors are formally assigned and the timetable is predetermined (Austin & Seitanidi, 2012).
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In an integrative partnership (table 3) the actors are exchanging very specific resources, such as networks and technical expertise (Rondinelli & London, 2003). In these types of partnerships co-creation takes place, meaning that new capabilities are developed together (Austin and Seitanidi, 2012). To be able to do this, the values of the actors are connected (Dahan et al. 2010). Such partnerships are transforming society when they come up with innovations that have the aim for social betterment. In such cases, the multinationals provide unique capabilities, specific resources and add to the knowledge creation that the actors produce together. The cooperation with the nonprofit helps the companies with more political power. The association with the nonprofit speeds up approvals for licenses that the company need (Rivera-Santos and Rufin, 2010). The NPO provides the multinational with legitimacy to operate. Such con-joined programs attract talented human resources for the company (Ambec & Lanoie, 2008). The partnership is more complex and arises more organic (Kolk, 2013). To foster innovation, the responsibilities of the actors are not perfectly assigned (Austin & Seitanidi, 2012).
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Table 3: Different forms of partnerships
Transactional Interactive Strategic
Impact --- --/++ +++
Type of partnership Mutual reprocity if
resources
Conjoining resources Co-creating resources
Function of the partnership
Funding and sponsorship Licensing. Cause-related marketing. Marketing of products in the ‘south’
Innovation of business models
Skills added of NPO Generic
(Practical knowledge. Implementer) Complementary (Relational capital. Problem solving) Specific (Awareness of social forces. Specialized technical expertise. Political power)
Skill added of business Generic
(Funding. Generic skill)
Complementary (Specific knowledge, capabilities, relationships, networks) Specific (knowledge creation, networks, production capabilities)
Level of social value for society
Low
(Philanthropy. The poor as recipient)
Moderate (Enhances living conditions of the poor)
High
(Transforms the industry. The poor as partner)
Level of economic value for company
Reputation. Enhancing its daily operations. Entering the consumption market of the poor.
Profitable business models to enter base of the pyramid
Duration Single event Longer event. Clear
assigned responsibilities. Predetermined duration. No clear determined responsibility and duration. Sustained commitment. Sustains organic
Source: Derived from Austin & Seitanidi (2012), Rondinelli and London (2003) and Googins and Rochlin (2000), Kolk (2013).
This clarifies that different types of partnerships have different types of outcomes. Therefore, different kinds of partnerships have different kinds and levels of social and economic value creation, which is investigated empirically in this thesis.
3. Methodology
This section will first describe research design. Then, a description will be presented on how the data was collected. Subsequently, a data analysis strategy will be described.
23 3.1 Research design
This research is done to get an overview about how the poor are targeted and how the company involves the BoP initiatives in their business models through partnerships. This research is an exploratory type of study. Since these empirical insights help developing a theoretical framework. Therefore, this further refines the partnership and the BoP literature, based on empirical insights.
The unit of analysis is value creation in partnerships at the BoP. Consequently, the unit of analysis is an action, instead of a measurable variable that is easily quantified. Therefore, an interpretivism approach is used (Gephart, 2004). Until now, there are no clear hypotheses about this unit of analysis to compare the newly retrieved data. Therefore, this research aims to understand the situated meanings of value creation in partnerships in the context of the base of the pyramid. Additionally, the study is in-depth and analyses at specific issues. It examines and articulates the process of value creation in partnerships. Due to the lack of a widely accepted theoretical framework, due to the interpretivism view that should be taken, due to the unquantifiable unit of analysis, a qualitative method is best suited to answer the defined research question (Yin, 2009).
The research question is approached by a multiple case study, as there is no clear boundary between the phenomenon (value creation in business-nonprofit partnerships) and the context (the BoP). The unit of analysis, (namely; value creation in partnerships) is investigated through the multiple perspective of economic and social value creation and the kind of partnership. According to Simons (2009), such a complex and unique unit of analysis requires a case study. This is a unique unit of analysis, because the research aims to study how particularly multinational companies do this in projects, instead of companies or projects in general. Thus, specific projects of multinational companies, are analyzed on different units. Therefore, this research uses an embedded multiple case design. The cases were studied
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concurrently, which makes it a parallel study. However, the units on which the partnerships are analyzed were adjusted during the process of data gathering. This means that this research uses an abductive approach.
3.2 Research instruments and procedures
The companies of which the partnerships are investigated, are the top 50 multinational companies from the Global Fortune 50 (2014), because the original idea of the base of the pyramid proposition proposed by Prahalad and Hart (2002) was targeting these kind of companies. Even more, these companies have an outreach beyond their own boarders and therefore are more likely to be involved with initiatives in developing countries. Also, multinational companies have greater social and economic impact (Waddock, 2008), which makes them more valuable to study. As we are interested in the social and economic value creation of partnerships, we are more interested in companies that are having high value creation and large impact. Multinational companies have this large impact compared to small or medium sized enterprises. Focusing on the companies that have higher level of value creation, the sampling can be seen as critical sampling.
From the top 50 companies from the Global Fortune 500 four companies (Fannie Mae, Exor Group, Berkshire Hathaway and China Construction Bank) are excluded from this study. The first three excluded companies do not have sustainability reports or sustainability webpages, because the company’s subsidiaries report on sustainability instead of the parent company itself. China Construction Bank was excluded because the company only reports about sustainability in the Chinese language.
Some BoP initiatives are excluded from this study as well. First, volunteer programs are excluded in the study, as these are not considered by scholars (e.g. Porter & Kramer, 2006; Van Cranenbourgh & Arenas, 2004). The initiative must have aims to create at least
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some extent of economic value for the company to be able to consider it as a base of the pyramid initiative, otherwise it is only corporate social responsibility. Second, Initiatives targeting the poor in developed nations in North America, Europe, Australia and Japan are also excluded in this study, because it is expected that there are less institutional voids (Kolk, 2013) and thus better infrastructure to solve social problems is present in those nations. If better infrastructure to address social problems is present, the social value creation process is less represented in the data. As the sample is a form of critical sampling, it is chosen to only include BoP initiatives in this sample with an extreme situation with big institutional voids, so that it is easier understood how the initiative adds social value for the community. Third, Initiatives that have the purpose of disaster relief are excluded. This research focuses on how companies improve the living of the poor in its daily operations, instead of researching how the poor is helped after disasters.
Partnerships established with microfinance institutions are included in this study, even though they might have a profit oriented approach. This is done because these organisations have the aim to create social value as well as economic value. Therefore, the activities of the microfinance institution are seen in this study as a base of the pyramid initiative and therefore, it is interesting to study how companies partner with such organisations.
Data to determine how the poor are targeted, how companies includes the base of the pyramid initiatives in its daily operations and what type of partnerships are established, are gathered through publicly available information. The methods gathering this data are described in table 4.
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Table 4: Steps to gather data
1. Company websites were examined.
2. Social responsibility reports, sustainability reports, governance reports, corporate social responsibility
reports or corporate citizenship reports are gathered. If such reports were not publicly available, social responsibility or sustainability section on the corporate website are used. Companies were excluded if such a sections were not present on their websites Companies with these reports or sections in languages other than English were also excluded.
3. These reports or social or sustainability section of the website for base of the pyramid initiative are
analyzed. An initiative is only considered to be included in this study when the initiative is targeting the poor, the vulnerable, the disadvantaged or when it is stated in the report that the initiative’s aim is to reduce poverty. This has to be stated explicitly.
4. Explicit project name of initiative are noted down and in which countries the initiatives take place. If
neither a specific project name nor a specific country explicitly stated, the initiative is excluded from the study, as the initiative will not provide specific search terms to be able to gather more information.
5. The project name or the project and its geographic location from step four is typed into the search engine on
the company’s website. If the company does not have a search tool, then the search terms are used to get information through the google search engine to retrieve more information on the project. When searched through google, only webpages of the company website are used to extract data. The initiative is included in this study when information about the initiative is sufficient to be able to get a good understanding of the initiative for the poor and how it creates economic and social value.
6. When having more information from the company’s website, the researcher will look whether the company
did partner in the initiative. All partners that are named on the company webpages will be reported.
7. The seventh step is to go the websites of the reported nonprofit partners are visited. Then, the company’s
name is used as search term in the nonprofit organisation’s website. When the nonprofit organisations does not have a search engine, google will be used. The company’s name, the nonprofit organisation’s name and the project name/geographic region are typed into google. Only hits from google redirect to the nonprofit organisation’s website are used.
This data gives a snapshot of a specific unit of analysis, of a breadth sample. The next section describes how this data is analyzed.
3.3 Strategy data analysis
The data about the value creation of the partnership was coded on 23 different units (table 5). Those elements can be categorized in five types of information 1) descriptive information about the company, 2) descriptive information about the partnership, 3) information about how social value is created, 4) information about how economic value is created 5) and information about what type of partnership was established.
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Table 5: coded units
1. Descriptive information about the company
- In which country is the company’s headquarters located - In which industry does the company operate
- How many companies are involved in base of the pyramid initiatives
2. Descriptive information about the partnership
- Does the company generally state that it partners with nonprofit organisations, in the report - Number of initiatives in which the company partners with a nonprofit organisation
- Amount of partnerships per initiative - Is it a multi-stakeholder initiative
- Which country is the nonprofit organisation’s headquarters located - Is this nonprofit organisation a government organisation
- Where does the initiative take place
- In which industry does the initiative take place
3. Social value
- How are the poor targeted (recipient, consumer, partner)
- In which part of the value chain are the poor included in the initiative
4. Economic value
- What is the business outcome of the initiative (sponsorship, investing, business model) - Are the company’s operations present at the region where the initiative takes place
5. The type of partnership
- Which activities are done by the company in the initiative
- Which activities are done by the nonprofit organisation in the initiative
- Which skill is added to the initiative by the company, and are the skills generic, complementary or specific for the initiative
- Which skill is added to the initiative by the nonprofit organisation, and are the skills generic, complementary or specific for the initiative
- How are the skills of the company and the nonprofit organisation exchanged (mutual reprocity, conjoining, co-creation)
- What is the duration of the partnership (single event, longer event, determined event) - What kind of partnership is it (transactional, interactive or strategic)
- What is the function of the partnership (funding, licensing, innovating etc.)
How the gathered data is and how the data is analyzed is described below. This will be presented in the order of the five categories described above.
Descriptive information about company
To gain insights about which kind of companies partner with nonprofit organisations to execute a base of the pyramid initiative, the following descriptive information about the company is gathered.
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- Data is gathered about whether the company is involved in base of the pyramid initiatives.
- The country in which the headquarters are based is used as the origin of the company - Specific information about the industry of the company is also reported, based on the
industry definition of the Global Fortune 500. The energy and commodity industry are merged to one industry as well as insurance types. Furthermore, no difference is made between banking branches.
With this data, the number of companies involved in BoP initiatives are established. Even more, it is analyzed whether companies in certain industries or certain countries are more involved in base of the pyramid initiatives than others for industries and countries with more than three cases in one country or industry category (n>3). Also, with this procedure, the total number of base of the pyramid initiatives is obtained within the Global Fortune 50 (table 6).
Table 6: Descriptive company involvement at base of the pyramid
Data Analysis
BoP Initiatives Number of initiatives reported by the Fortune 50
Origin company Companies in which countries involve in base of the pyramid initiatives Industry Companies in which industries involve in base of the pyramid initiatives
Descriptive information about the partnership
To gain insight about the type of nonprofit organisations that companies partner with, descriptive information is analyzed about the specific partnership. For this, the following data is gathered about the partnership:
- The nonprofit organisations with its project names.
- Remarks about whether the company generally states that it partner with NPOs. When the company notifies that it partners with nongovernmental or governmental organisations, it is reported that the company generally states that it partners with NPOs. This data is retrieved from sustainability reports or sustainability webpages.
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- Whether the company has overlapping daily operations of the company with the activities of the BoP initiative.
- Is the partnership a multi-stakeholder initiative, meaning that other for-profit companies or other NPOs, not reported with its whole name, are also involved in the partnership? This information is withdrawn from the website of the NPO.
- The country of origin of the NPOs is reported. This is defined based on where the NPOs headquarters are located, as reported on the nonprofit company’s website. - Data is gathered on whether the NPO is a governmental or nongovernmental
organisation. An organisation is considered as government when the organisation is under direct control of the state, meaning that governmental agencies or central banks are not considered as government. This means that only regional governments and governments of states are considered as government.
- Last, the industry in which the initiative takes place is reported.
With this data, it is analyzed how many companies engage in business-nonprofit partnerships. When having data about whether they generally report that they partner with nonprofit, it is know whether the companies have partnering with NPOs in its company values. Also, it is analyzed in how many base of the pyramid initiatives partnerships with NPOs are established. Moreover, it is analyzed whether the activity of the initiative in which a partnership is established has something to do with the activities of the company. Furthermore, it is analyzed whether companies in certain industries or certain countries partner tend to partner more than others. Again, only industries and countries will be analyzed when the industry or country category has more than three companies in its classification (n>3). Also, it is examined how many partnerships per initiatives are established, and the
Patterns about the different combinations of the partners in multiple partner partnerships are detected. Moreover, it is analyzed whether companies mainly get involved in
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stakeholder initiatives (including other for-profit organisations) and what project types are implemented with more stakeholders. Thereafter, it is analyzed whether companies mainly partner with NPOs that have the same origin as their own, or whether they mainly partner with organisations that are based in countries where the initiative takes place. Even more, it is analyzed how many companies partner with governmental organisations. Knowing in which industries and countries the initiatives take place, it is investigated whether in certain industries more partnerships take place with governmental partners. To consider whether there is overlap in the activities of the firm and the activities in the initiative, general activities of the company are noted in the sustainability report or website and it is evaluated whether these reported activities have overlap with the activities in the initiative. All these analyses (table 7) all give insights in how companies partner.
Table 7: Descriptive type of nonprofit organisations with which companies partner
Data Analysis
Companies that partner
What is the amount and type that the company partners in BoP initiatives?
Stating they partner with nonprofits
Do the companies has partnering in its company values?
The partnership What for kind of initiatives is the business-nonprofit partnerships established?
Activity overlap Do activities in the BoP initiatives overlap with activities of the daily operations of the company?
More partners Is the partnership with two parties or is it multi-stakeholder initiative?
The partnership What are the number of initiatives that company partners with nonprofit organisations, by industry and country of the company? How many partnerships are in those initiatives, and are there any patterns in combinations of partnerships when more partners are involved?
Multi-stakeholder initiative
In what type of projects are other for-profit or other nonprofit organisations as well involved?
Origin NPO partner
Are there any patterns about the origin in partner considering same country company, country of initiative or other?
Government In how many BoP initiatives is the government involved and are there in certain countries more partnerships with the government and/or in certain industries? In which kind of initiatives do companies prefer to partner with the government?
Descriptive information about the partnership gives insights in which activities companies partner with nonprofit organisations.
31 Social value
The gathered data of BoP initiative is used to evaluate how the poor is approached, namely as recipient, consumer, or partner. It is analyzed whether the poor receives goods or service to evaluate that the poor is targeted as recipient. Also, it is investigated whether the poor are targeted as consumer of a good or service for which they have to pay. Furthermore, it is analyzed whether the poor is targeted as a partner, meaning that they are employed by the company or have any other kind of commitment to the firm (table 10). These criteria are derived from the literature review (chapter 2) and according to these criteria, the extent of social value is determined (table 10).
Table 10: Analyzing social value
Coded Criteria in the data Analysis
Recipient The poor as: Recipient of goods (food, housing etc.) or services (education, medical treatment).
Lower social value
Consumer The poor as: targeted to pay for certain goods or services, for which they should pay.
Social value
Partner The poor as: Employed, distributer, supplier of goods or services, researcher or producer
Higher social value
Differences between the three kinds of social value creation will be looked at. It is also analyzed whether the poor is targeted differently per industry. Also, it will be analyzed whether the poor is targeted in different ways in different continents.
Economic value
Economic value that is created for the company through the partnership is determined by whether the company engages in a base of the pyramid initiative as a charitable action that stands apart from the operations of company (table 11). Such actions are mainly funding and sponsorship activities. It is analyzed whether the base of the pyramid initiative is an investment in the value chain, by making it more efficient or whether an adaptation in the
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business model of the firm is made to be able to implement the initiative. According to these criteria, the economic value is determined.
Table 11: Analyzing economic value
Coded Criteria in the data Economic value (analysis)
Charitable action Sponsorship or funding activity. Stands loose from the daily operations of the firm.
Lower economic value
Investing When the company does something for the poor that will also directly or indirectly influence the business in its value chain.
Economic value
Adatpted business model.
When the initiative is incorporated into the business model of the company.
Higher economic value
It is also analyzed how the companies create economic value through the initiative, meaning that it will be analyzed how the initiatives take place in contrast with the daily operations of the firm. It is also analyzed whether the economic value creation process is different per industry. Also, it will be analyzed whether initiatives that create lower or higher economic value will also create higher or lower social value.
Type of Partnership
Besides a descriptive analysis, an analysis is performed on what for certain types of partnerships are present in the global Fortune 50. Data is gathered on activities that companies and the nonprofit organisations do in the initiative and how they divide their responsibilities to execute initiatives. Which activities companies and nonprofit organisations do, give insight on which skills they add to the partnership. In turn, this will give insight on whether these skills are generic, complementary or specific for the initiative. Knowing which skills are added to the initiative, skills are classified as a generic resources, complementary or specific resources for the initiative (table 8). This information determines whether the partnership is transactional, interactive or strategic.
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Table 8: analysis partnership type, type of skills
Coded Criteria in the data Partnership type (analysis)
Generic Company: Funding, generic capability Nonprofit organisation: practical knowledge
Transactional
Complementary Company: Capabilities, relationships,
Nonprofit organisation: awareness of social forces
Interactive
Specific Company: specific knowledge, networks, knowledge creation production capabilities, specialized technical expertise
Nonprofit organisation: specific knowledge, networks, knowledge creation production capabilities, specialized technical expertise, political power
Strategic
Furthermore, it is analyzed whether the partnership leads to mutual reprocity of resources, whether the resources are conjoined or co-created for the partnership (table 9).
From here, data about the exchange of resources and time span of the partnership are used to classify whether the partnership is transactional, interactive or strategic, based on Austin & Seitanidi (2012), Rondinelli and London (2003) Googins and Rochlin (2000) and Kolk (2013). Furthermore, it will be analyzed whether the social and economic value creation is affected by the type of partnerships.
3.4 Strengths and limitations of the research design
In this thesis, I aim to provide insights in the kind of value creation in business-nonprofit partnerships. Therefore this study examines details and richness in various cases and a large n-study is appropriate. The number of partnerships considered is large. Due to a long chain of evidence, construct validity is warrented. The newly retrieved data gives a thin description about a broad and large sample. A form of triangulation would have been suitable, but due to
Table 9: analysis partnership type, exchange of resource
Coded Criteria in the data Partnership type (analysis)
Mutual reprocity
Company funds the project. Nonprofit organisation implements the project.
Transactional
Conjoined resources
Project on which companies joined there existing resources to work on the project together.
Interactive
Co-creation of resources
Project that demanded creation of new skills and resources.
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short time-span of this project, there was not enough time to consider other research designs. Another possible weakness is the use of only publicly available documentation, which might give a narrow view on the topic.
This study has a large sample of partnerships (118), however the partnerships come from a small sample of companies (27). These companies are mainly involved in three particular industries and have its origin mainly in three countries. Therefore, this study is not able to represent ‘multinational companies’. This study mainly represents multinational companies from these three industries and countries.
It should also be mentioned that all gathered data come from company and NPO’s websites. Therefore, it is not certain that when a company does not report about BoP initiatives or partnerships, the company indeed does not engage in such activities. Another limitation of gathering data from these websites is that companies and NPOs might only share positive stories. Therefore, this study gives a rigid overview how companies report about the partnerships in the BoP, but care should be taken to generalize the findings about how the companies create value in the BoP.
It should also be noted that in some BoP initiatives it is not clear how the initiative creates social and economic value. When companies partner with NPOs to host a conference about poverty alleviation or when a research is done about how microfinance improves lives, the BoP initiative is included in the study to analyze how the companies partnered, but is excluded in the analysis of how initiatives create social and economic value.
4. Empirical findings
First, an analysis of company involvement at the base of the pyramid will be presented. Subsequently, an analysis of the descriptive information about the partnership will be given.
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Then, the social and economic value created in the business-nonprofit partnerships will be described. Thereafter, the different types of partnerships will be presented. Subsequently, it will be described whether, and how the type of partnership affects the kind of value created in the partnership.
4.1 Company involvement at base of the pyramid
It is analyzed in which industry the base of the pyramid initiatives mainly take place in the sample. In the sample of 46 companies, the numbers of companies are highest in the petroleum refining industry, the industry of motor vehicles and banking industry, with respectively 14, 7, and 5 companies. This means that more than half (56,5%) of the sample belongs to one of these three industry groups. From the 46 companies, 27 companies report on BoP initiatives. From these 27 companies, more than halve (66,7%) of the companies are from one the three industries described above. Interestingly, in the petroleum refining industry, only halve of the companies are report on BoP initiatives, whereas in the banking sector all companies report on BoP initiatives. From the motor vehicle and parts industry five out of seven companies report about BoP initiatives (figure 1).
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Figure 1: companies involved in base of the pyramid initiative by industry
There is a trend in the number of BoP initiatives per industry (table 13). The number of initiatives per company in the petroleum and banking industry lays between the 2,7 and 2,9, whereas the number of initiatives in the motor vehicles and parts industry is 1,75.
Table 13: Number of reported initiatives per company, by industry
Mean Petroleum
refining
Banking Motor vehicles
Number of initiatives per company
2,7 2,9 2,6 1,75
Also, it is analyzed which companies based in which countries mainly engage in BoP initiatives in the sample. Out of the sample of 46 companies, 34,8% of the companies have its origin in the US, followed by China with 13,0% and France with 10,9%. These three countries together therefore represent 58,7% of the sample. Only eight of the sixteen American companies are involved in BoP initiatives, whereas in China four out of six
