Sustainable entrepreneurship in the African beer industry.

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Sustainable Entrepreneurship in the African Beer Industry

Gijs Derkzen × Keizersgracht 699 III × 1017DW × Amsterdam × 5694507 × 0641595525 Manihot esculenta

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I. Introduction

1.1 BACKGROUND

In this thesis, research is conducted on sustainable entrepreneurs, both corporate and independent, and their sustainability programs in the African Beer Industry. In general, entrepreneurs are predominantly viewed as innovators and subsequent market makers. As a consequence, sustainable (corporate) entrepreneurs encounter market barriers in the process of leveraging innovation of a product, process or service. Therefore, this research will specifically focus on the market barriers that sustainable entrepreneurs encounter when implementing their sustainability programs in the African Beer Sector. Overcoming such a market barrier will lead to the creation of entrepreneurial opportunities.

In the existing literature of sustainable entrepreneurship (Dean and McMullen, 2007; Cohen and Winn, 2007; Pacheco, 2010) an explanation is found for overcoming market barriers. A review of this literature teaches us that market barriers are often surpassed by a change in extant policy and norms or a (new) technological invention. But a description of which sustainable entrepreneurial elements are most successful in effectuating those changes could not be found in the contemporary literature. Therefore, I will elaborate on the distinctive role of the (corporate) entrepreneur in the execution of sustainable entrepreneurial initiatives.

Through scrutinizing the existing sustainability programs of international beer brewers and independent sustainable entrepreneurs in the African Beer Sector, I seek to establish the divergence between the market barriers to sustainable entrepreneurship encountered by corporate and independent entrepreneurs.

Market barriers to sustainable entrepreneurship

Generally spoken, firms that continuously seek a more sustainable production process face various market barriers that do not allow them to exploit their innovations. The existing market barriers are often related to the status quo of current dominant technologies and corresponding (incumbent) interests. Nevertheless, international brewers remain committed to working on more sustainable products and programs. However, sustainable corporate entrepreneurs still encounter diverse market barriers that prevent them from changing the industry dramatically. In general, small firms and new entrants are responsible for the diffusion of sustainable (entrepreneurial) initiatives in an industry, and these entrepreneurs (executors) are extremely critical in this first stage of sustainable industry transformation (Hockerts and Wustenhagen, 2010). Levi et al. (2010) add to this that small and medium enterprises play a critical role in experimenting with and commercializing new

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4 technologies. Furthermore entrepreneurial activity is vital for the development of innovations and technologies (Schumpeter, 2003). Schumpeter defines entrepreneurship as ‘the development of product based on product and process innovation, and the consequent market making by fulfilling demands and needs through marketing those products’. The market barriers used in this thesis originate from the articles of Dean and McMullen (2007), Cohen and Winn (2007) and Pacheco (2010).

Sustainable entrepreneurs need to exploit opportunities for their company and create income by extending the company’s business. According to Rumelt (2005), entrepreneurial income is gained through the discovery or intervention of new resource combinations or patterns of demand. Those new resource combinations and marketing efforts initially lead to the creation of uncertainty, from which entrepreneurs (and subsequently companies) obtain their income. Yet, sustainable (corporate) entrepreneurs working on sustainable solutions in the African Beer Industry face another set of uncertainty or opportunity. They need to work with social and environmental resources that have a public and non-excludable character (Pacheco, 2010). A more critical note is made by Dean and McMullen (2007), they claim that individual firms create a gap between what is favorable for them and the society at large. They argue that this discrepancy is caused by the self-interested behavior of the individual firms. They are not willing to invest in procedures or products that will be more sustainable, if other industry participants do not take similar measures, because of the negative influence on their profit. If there is not a collective incentive for all industry participants and the individual incentive for one participant to develop a more sustainable process, it remains unfeasible for an individual firm to change towards more sustainable processes.

1.1 PROBLEM DEFINITION

After studying existing literature (Dean and McMullen 2007, 2010; Cohen and Winn, 2007; Miles et al., 2008; Pacheco, 2010; Spangenberg, 2005; Goodland, 1995; Littig and Giesler, 2005; Anand and Sen, 2000; Schumpeter, 2003; Sarasvathy et al., 2010) it becomes clear which tasks sustainable corporate entrepreneurs should execute; they need to generate growth through new sustainable product, process, market, or strategy innovations. By doing this, they push innovations in their company to a higher level. Those innovations should enable corporate entrepreneurs to leverage environmental marketing and sustainable business practices to improve the corporate status and create a competitive advantage. According to Miles et al. (2008) this should be based upon 1. desirable social attributes of the product; 2. a lower cost structure that reflects enhanced production and marketing efficiencies; or 3. layering of both environmental marketing based differentiation and cost advantages. In this process where market barriers constantly occur, successful sustainable

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5 (corporate) entrepreneurship appears once those barriers are cleared and opportunities are created. In order to be more successful, sustainable (corporate) entrepreneurs need to learn how to tackle those market barriers to sustainability. However, some of those activities are not in their core business and are related to government regulation, industry norms and property rights (Pacheco et al., 2010).

This thesis focuses on which market barriers to sustainability exist in the African Beer Market, independent the size of the company (both small and large firms/companies). Based upon the articles of Dean and McMullen (2007), Cohen and Winn (2007) and Pacheco (2010) the following seven barriers to sustainability for sustainable (corporate) entrepreneurs can be identified in the market environment; 1. market power of monopolies; 2. the existence of information asymmetries on both the supplier and the consumer end of the market; 3. the non-excludability and possible rivalry of public goods; 4. negative externalities of production; 5. flawed pricing mechanisms of exhaustible and non-renewable resources for production input and output; 6. inappropriate government intervention protracting unsustainable practices in terms of social and environmental resources; 7. inefficient resource allocation of firms. These barriers have been designed for general purposes and may not be applicable to the African Beer Market specifically.

According to Cohen and Winn (2007), Dean and McMullen (2007) and Pacheco (2010) the following market-based activities are formulated in order to overcome these barriers; increase efficiency of resource allocation, introduction of new products and technologies and supplying information regarding product attributes or unutilized production possibilities. The same authors argue that opposed to the market environment, non-market activities that could overcome market barriers to sustainability are; developing property right schemes, reducing transaction costs through establishing or modifying institutions; motivating change to public policy; changing industry norms; overcoming legal restrictions to entry. This research focuses on the barriers confronted by sustainable (corporate) entrepreneurs in the market environment. Especially in Africa activities ‘outside’ the market environment are quite influential and not transparent and therefore difficult to get a (scientific) grip on for an outsider. For this reason, the focus will be on sustainable corporate entrepreneurial programs in the African beer market that effectuated changes and altered market barriers into possibilities for critical innovations in the African Beer Industry.

1.2 RESEARCH AIM AND RESEARCH OBJECTIVES

In this thesis the focus will be on the engagement of sustainable entrepreneurs attempting to overcome market barriers to sustainability in the African Beer Industry. This research will contribute to the existing corporate entrepreneurship and sustainability literature by analyzing a specific case in

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6 a particularly difficult environment. Lastly, an attempt is made to create a better understanding of the different sustainable measures small and larger companies are able to implement in their strategies. More specifically, through the analysis of case studies of three different firms (small and large) the role of the sustainable (corporate) entrepreneurs in order to successfully overcome market barriers to sustainability will be clarified.

The main research question in this thesis is:

Which market barriers to sustainability in the African Beer Industry do sustainable entrepreneurs encounter and are these specific to the corporate entrepreneur or the independent?

In order to answer the research question the following research objectives are formulated: Research objectives:

o Create an accurate profile what sustainable (corporate) entrepreneurship is about. o Explore and describe the market barriers to sustainability in the African Beer Industry. o Identify and describe the relationship between sustainable (corporate) entrepreneurs in the

African Beer Industry and their impact on local farmers and sustainable innovations; sustainability programs.

1.3 STRUCTURE OF THE THESIS

After having presented the central problem to this thesis, the research objectives and the final research aim the structure of this thesis will now be set out. This first chapter introduces the concepts and research aim, this concise guide should give a well-structured introduction for the potential reader. In the second chapter an extended overview of the literature available on the different sustainability topics will be given. It is key that the reader precisely knows what sustainable corporate entrepreneurship is, and what different types there are. Only then can a clear interpretation of the problem definition be made. Additionally, the theoretical backgrounds of the critical entrepreneurial elements and entrepreneurial success will be described. The third chapter clarifies the methodological approach used for this research. The case study methodology, process of researching, data collection and interview style will all be explained. In the fourth chapter, the results of the case study analyses are presented, those findings will then be linked to the conceptual framework. The fifth chapter will be used to discuss the findings, the discrepancies between the literature and the practical cases that were studied will be highlighted. Additionally, the managerial implications, limitations and eventual possibilities for future research will be discussed. The last chapter recapitulates the most import findings and contains the conclusion.

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II. Literature Review

2.1 SUSTAINABILITY

In the last two decades the word sustainability is more often seen and heard in our daily lives. In the beginning of the nineties Solow (1991) already referred to sustainability as a buzzword. But as this term became much more established many countries, institutions and companies started to grapple with the same problem; what is sustainability precisely, and specifically, what does sustainability mean for this particular sector, nation, or region? For this reason I first deplore the mystification of the term “sustainability”, because in general most people do not precisely know where they are talking about when using this (broad) term. In general we can assume that when there is no sector, region or nation specified people refer with the term ‘sustainability’ to ‘global sustainability’. This global sustainability captures three different fields; social, environmental, and economic sustainability.

The three different fields which can be identified are environmental sustainability, focusing on caring for the environment, social sustainability, where the focus lies on bettering social community structures and economic sustainability, where the focus lays on sustainable economic growth. This encompasses the ability to let more people profit from the same economic situation; meaning more people are able to generate their own income. According to Goodland (1995) those three different types must kept separate in order to clearly define the different sustainable components. He argues that this may help to organize the actions required to approach global sustainability in real life. Each type of sustainability is a complex, dynamic, self-organizing and evolving entity in its own right, making the coupled system one of tremendous complexity. This system is only able to be sustainable when the three subsystems maintains its capability to survive and evolve, while the inter linkages of the subsystems must enable a permanent co-evolution (Spangenberg, 2005). Littig and Giesler (2005) add to this that all three pillars need to be treated equally. They also conclude that “human needs cannot be sufficiently met just by providing an ecologically stable and healthy environment, but that - if a society is indeed committed to sustainability - the equally legitimate social and cultural needs ought to be taken care of as well. Economic, social, and cultural conditions, efforts, and values are deemed to be resources that also need to be preserved for future generations” (Littig and Giesler, p.67, 2005). Another line of argument presumes that ecology, economy, and social matters are three individual - albeit connected - systems, which will have to remain stable in the long term so as not to jeopardize the achievements of civilization.

For that reason this literature review first clarifies the three linked and overlapping fields of sustainability, before contemplating deeper on each particular division. Subsequently I will shift to

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8 sustainable development, afterwards I emphasize towards sustainable corporate entrepreneurship. A large part of this literature review will focus on cases and subsequent successes of sustainable corporate entrepreneurship as this will provide the first basis for this research.

2.1.1. Environmental Sustainability (ES)

A simple definition of environmental sustainability can be found in the article of Goodland (1995, p. 10) as “maintenance of natural capital”. A more recent definition can be found in the article of Schneider, Kallis and Martinez-Allier (2010) which relates environmental sustainability to resource depletion. In their article Schneider et al. (2010) state that environmental sustainability relieves the pressure on the overload of source and sink capacities. Both Goodland and Schneider refer with their definitions to the constitution of two fundamental environmental services; the source and sink function. Goodland and Daly (1996) make those functions clear in a more practical way with the input-output rule;

Output Rule (sink function): The waste production should not exceed the permissible assimilative absorb capacity of the local environment. The limits of waste processing are met when this process harms the future waste-absorptive capacity or other important services.

Input Rule (source function): a. Renewables: harvest rates of renewable-resource inputs should be within the regenerative capacity of the natural system that generates them. b. Non-renewables: “depletion rates of non-renewable resource inputs should be equal to the rate at which renewable substitutes are develop by human invention and investment. Part of this proceeds from liquidating pursuit of sustainable substitutes” (Goodland and Daly, 1996, p. 1008).

During the period over which environmental sustainability (“maintenance of natural capital”) is required the source and sink function must be maintained unimpaired. According to Goodland (1995) environmental sustainability is a set of constraints of those four major activities (pollution, waste assimilation, use of renewable and non-renewable resources) that regulate the scale of the human economic subsystem. Naturally the paths of nations, institutions or companies that approach sustainability will not be the same. Although most parties act according to the source and sink function, the balance of attention differs between out- and input that will be needed to achieve ES. In order to concretize the vision of Goodland (1995) he gives the following examples; some countries need to control their pollution, some countries must bring their harvest rates of their renewable resources down (e.g. tropical timber exporting countries) and other need to bring down their population below carrying capacity and reduce the consumption per capita. In this ongoing fight to canalize the equilibrium between the sink- and source side industrial countries should lead in

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9 devising paths toward sustainability. In his article Goodland (1995) argues that OECD-countries should act first and take the lead, besides an enlightened self-interest this is also their moral obligation. Furthermore developed countries already consumed their fair share of environmental sink capacity as well as source capacity. Last but not least, the OECD-countries are much richer than the developing world and therefore able to afford the transition to a sustainable world.

In order to elaborate further on environmental sustainability Goodland and Daly (1996) created four degrees of environmental sustainability. The degrees are developed to review the level of substitution among the types of capital. Goodland and Daly (1996) recognize four kinds of capital: human made, natural, human and social capital.

Weak environmental sustainability: Weak ES is maintaining total capital intact without regard to the partitioning of that capital among the four kinds. This means that natural capital could be converted into human-made capital or artifacts without damaging the environment.

Intermediate environmental sustainability: In addition to maintaining the total level of capital undamaged, attention should be given to the proportion of the different capital parts. Furthermore there should be serious efforts in order to define critical levels for each type of capital. Most important is to monitor the patterns of development and stop when one kind of capital is being depleted. Important is to stress the fact that it does not matter if another form of capital is accumulated. According to Goodland and Daly (1996) we need a mix of the different kind of capitals in order to have a full functioning system. This is caused by the fact that we still do not know where the critical limits for each type of capital lie.

Strong environmental sustainability: Strong ES requires the separation of different kinds of capital. Draining oil should first be invested in order to guarantee that this energy will also be available for the next generations. This implements that natural and human-made capital are not perfect substitutes, but complements in most production functions. The example of a lumber mill is given by Goodland and Daly (1996). The timber mill is worthless without the complementarity of a forest. Absurdly environmental strong sustainability: This degree is obviously the most radical one, assuming that humanity won’t use any non-renewable resources at any time. For renewables only the over mature portion of stock is harvested.

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10 Thus, investing in natural capital is needed to maintain the productivity of all previous economic investments in human-made capital. This assures that the natural capitalist stock is rebuilt, more over this includes the stocks that were already limited. In a more operational way this translates into the following the three actions;

1. Regeneration. Encourage natural growth by reducing the current level of exploitation. 2. Relief of pressure. Invest in projects that relieve pressure on natural capital stocks. A tree

plantation will spare the depletion of a natural forest.

3. Increase of efficiency. Increase the efficiency of products (solar cookers), infrastructure services (more economical toilets) and lifestyle (less carnivorous diets).

2.1.2. Economic Sustainability

According to Goodland and Daly (1996) the most common accepted definition of economic sustainability is ‘maintenance of capital’. Herewith they refer to the idea that capital should remain intact. Anand and Sen (2000) add to this definition that economic sustainability is often seen as a matter of intergenerational equity and wealth-driven. The most recent definition and criteria are found in the Spangenbergs’ article (2005).

Goodland (1995) links economic sustainability towards the efficiency of the use and production of goods and its production process. He emphasizes the idea that human-made capital and its surrogate (money) need to embrace the other three forms of capital (natural, social and human). Until recently economics didn’t need to concern with natural capital because it was not scarce. This new scarcity arose because the scale of the human economic subsystem has been out growing its supporting ecosystem. With regards to the traditional economic criteria (allocation and efficiency) a third criterion should be added, scale. This criterion of scale constrains the phenomenon of ‘throughput growth’, the ongoing flow of material and energy (natural capital) from environmental sources to sinks, via the human economic subsystem (Goodland, 1995).

According to Anand and Sen (2000) the preoccupation with commodity production, wealth and financial success is thoroughly embedded in professional economics. They argue that perhaps leading economists prefer to concentrate more on the characteristics of overall material success than on the deprivation and development of human lives and the natural environment. This leads to deep-seated failure of an un-biasedness judgment of the viability of an economic sustainable system. The exclusive concentration on wealth maximization ignores the different possibilities of converting the means of income into the ends of good and livable sustainable lives.

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11 Spangenberg (2005) considers that a sustainable economy should not undermine the sustainability of the systems it is interacting with its own viability, namely the economic sustainability of the economy. In the figure below the inter-linkages of the economic system are visualized;

In his ‘Orientor Theory’ he notes the following criteria that can be used to describe the sustainability of the economy;

 stressing the needs for diversity and redundancy of economic structures, processes and technologies.

 emphasizing the need for a balanced exchange with other economies in physical, as well as in monetary terms, as otherwise, the co-existence orientor would be violated by undermining the effectiveness orientor of other systems.

 highlighting the innovation potential in its technical, economic, social and institutional perspective.

 demanding adequate contributions to the quality of life, the viability of the institutions, social cohesion and a sound environment as conditions for the economic sustainability of the economy.

 providing criteria for the social, institutional and environmental sustainability of the economy.

On the next page I exemplify the sustainability-relevant aspects of a simple economic process by Spangenberg (2005). He illustrates the impact of all four dimensions of capital.

The economy;

must not risk its economic sustainability – therefore it must also be environmentally, socially and

institutionally sustainable. Social capital. Every economy needs suitable institutional conditions to be economically sustainable. Human capital. An economically sustainable economy needs human resources. Natural capital Environmental sinks

and sources are indispensable for an

economically sustainable

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12 “If a new machine (man-made capital) replaces skilled workers, this may be an effective substitution regarding production and value creation, but in terms of resource consumption (environmental capital), income generation (social capital) and skills training (human capital), the outcome is definitively different, a fact which is not captured as long as all impacts are reduced to their function in the production process, and measured according to the assumption of strong comparability”. (Spangenberg, 2005, p. 50)

2.1.3. Social Sustainability

Now I will elaborate on the last pillar of ‘social sustainability’. Looking at the available literature the impression is given that the definition is a little vague, at least more difficult to define than environmental and economic sustainability. According to Littig and Griessler (2005), who analyzed many national and international social sustainability concepts, the selection of indicators is frequently not founded in theory but rather in a more practical way of understanding ‘plausibility’ and current political agendas. This is strengthened by the fact that a clear theoretical concept of social sustainability is still missing. Social sustainability in existing concepts, for example used in politics, are ‘social standards’, ‘institutional sustainability’ and ‘demographic rights’.

Social aspects play a relevant role in obtaining the best possible ecological effects. Social processes shape the relationship between humans and nature. According to the three-pillar model sustainable development can not only be achieved when humans create an ecologically stable and healthy environment. Besides an environmental equilibrium, humanity can only be fully committed to sustainability when the social and economic resources are preserved for future generations as well. Goodland and Daly (1996) share the opinion that social sustainability only will be achieved by systematic community participation and strong civil society. This moral capital requires maintenance and replenishments by shared values and equal rights, and by community, religious, and cultural interactions.

Littig and Griessler (2005) attempt to reduce the lack of sociological theory in the concept of social sustainability. They argue that ‘needs’ conceptualizes the interplay of society and nature. In order to develop humanity in a sustainable way we should allow our satisfaction for existing ‘needs’ to be available on a long term as well. But the ‘needs’ that are essential for a decent life obviously vary per definition. Naturally ‘needs’ can be seen as a primarily ‘necessity’ (food, housing, clothing, health care) but this definition can also be extended with needs such as education, recreation/leisure and social relationships. I like to use the broader scope of this definition, because then an individual person will be able to take responsibility to start a decent life.

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13 The second factor that plays a central role in a social sustainable environment is work. The satisfaction of needs, which consists of the exchanges between nature and society, is fulfilled by some kind of work (paid and unpaid labor, care work, etc.). Furthermore work is also the primary organizational and structural principle of society (Littig and Griessler, 2005). There are three interdependent functional systems that are essential for shaping and controlling the relationships between society and nature; Economics (material reproduction), Politics (political decision making and implementation) and Cultural System (cultural practices and interpretative patterns). This leads to the following summary of social sustainability by Littig and Griessler (2005)

‘Social sustainability is a quality of societies. It signifies the nature-society relationships, mediated by work, as well as relationships within the society. Social sustainability is given, if work within a society and the related institutional arrangements; - satisfy an extended set of human needs, - are shaped in a way that nature and its reproductive capabilities are preserved over a long period of time and the normative claims of social justice, human dignity and participation are fulfilled.’(Littig and Griessler, p.72, 2005)

The concepts of ecological sustainability call for a politically induced shift towards a more environmentally friendly way of life (e.g., by means of a socio-ecological tax reform), which will at the same time also lead to some positive socio-political effects (e.g., reduction of working hours, gender equality). Combining ecological and social objectives will clearly make it easier to implement ecologically motivated control measures, additionally it also reduces political and cultural resistance (win-win constellations). Yet, even though such interventions can quite reasonably be expected to have positive socio-political effects, the main focus of this approach is still on obtaining the best possible ecological effects (Littig&Griessler, 2005).

2.1.4. Sustainable Development

The term “sustainable development” was introduced into the political agenda through the Brundtland Commission Report (Brundtland, 1987). Although this report doesn’t give a precise definition of the term, the quotation that is normally used as a point of departure states:

“Sustainable development is a development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland, 1987, p. 43).” According to Anand and Sen (2000) the idea of sustainable development arose essentially from concerns relating to the overexploitation of natural and environmental resources. Accordingly they stress the growing concern that future generations should receive the same kind of attention that the ones in the present generation get. The ‘common future’ is defined as a development that

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14 meets the needs of the present without excluding future generations to meet their own needs. In order to make sure that the road towards a common future is sustainable the three fields of sustainability should be integrated together (Goodland, 1995).

Goodland (1995) contemplates that the priorities of development differ per approach to reach the ultimate goal of sustainable development. In his article he argues that priorities of development are usually said to be the reduction of poverty, illiteracy, hunger and disease. But those are quite contrary towards the goals of environmental sustainability; briefly maintaining environmental sink and source capacities unimpaired. In the economic debate, sustainable development is seen as a mean to narrow the gap between rich and poor or more specific to maintain a permanent income for humankind, generated from non-declining capital stocks. This means that natural, man-made and social capitals are seen as essential criteria to obtain sustainable development. Spangenberg (2005) simplifies in other words that continuous and long-term sustained growth is assumed to be a part of the concept of sustainable development of the economy by most authors nowadays.

Littig and Griessler (2005) emphasize that that the Brundtlandt report (see above) demands the combination of ecological, social, economic, and – something which is often ignored – institutional aspects of sustainability. In their article they refer to those different areas as ‘pillars’, they distinguish two different models; the one-pillar and multi-pillar model. According to the authors sustainable development is operationalized through the relationship between the different pillars. Sustainable development should allow the satisfaction of existing needs in the long term, which means that sustainability ought to be directed towards the relationships between nature and society. These relationships should not just be functional for a short period of time but also make it possible for future generations to meet their needs. Based on the concept of needs 'sustainability' is a genuinely anthropocentric term (Littig and Griessler, 2005).

Schaltegger and Wagner (2011) conclude that companies who contribute most to the sustainable development of society and economy if their core business relates to solving environmental and social problems, if they supply environmentally and socially superior products and innovations substantially influence the mass market and society. This means that a positive sustainability influence requires a substantial contribution to sustainability progress, for which sustainable innovations are needed. Real improvement is made when production processes, products and services are superior. The contribution gets even more substantial when firms are able to gain large market influence, caused by a large market share or the influencing of competitors and other market actors (suppliers) to adopt superior sustainability solutions. Another form of solid contribution can

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15 be found through social (trend, fashion, values) and political (opinions, institutions, regulations and frameworks) impact.

2.1.5. Sustainable Corporate Entrepreneurship

Since the Brundtland report (1987) on sustainability and the recognition of the buzzword by Solow in the beginning of the nineteen nineties the perception and understanding of sustainability has changed. Nowadays environmental concerns are reshaping the behavior of global organizations. In their article Menon and Menon (1997) envisioned that the demand and influences of the environmental movement were evident in the dollar value size of the environmentally conscious market place. Furthermore they argued that regulatory concerns regarding environmental impact of corporate processes should influence the corporate strategies. According to Sabatini (2007) most of the corporate strategies do pretend to make no sacrifices in their attempt to demonstrate the world that they care about the environment, especially because profits are to be made by selling all kind of ‘green’ products. Regardless of their tangible environmental benefit or not. This point towards a more hypocritical perspective of commerce’s interest in sustainability by companies.

During the 1990’s the most important tools to create a sustainable competitive advantage to leverage environmental marketing were, a) desirable social attributes of the product. b) a lower cost structure that reflects production and marketing efficiencies or, c) a layering of both environmental marketing based differentiation and cost advantages. So the most important incentive for sustainable corporate managers was to justify the (marketing) costs for their sustainable business practices. Today, we see that the consumers, governments and NGO’s are demanding more accountability from the corporations regarding social, economic and environmental issues. Caused by the public concern of rising energy costs, commodity prices skyrocketing and a growing public worry about the dangers of climate changes (Miles et al., 2008). Adler (2007) argues that executives are becoming more and more interested now in ‘simultaneously reducing energy, environmental, social, regulatory and commodity costs while improving product quality, production capabilities, and the social, financial and ecological performance reputation of the firm’. Adler (2007) refers to Zadek (2004), by suggesting that “the trick for companies is to be able to predict and credibly respond to society’s changing awareness of particular issues” and at the same time generating profits through enhancing the firm’s capacities. According to research (Miles and Covin, 2000) firms that focus and adopt a more strategic approach to environmental and social responsible issues gain a superior reputation and stronger competitive advantage that results in a stronger market value for the firm. These days, environmental responsibility and social accountability cannot be viewed as simple social issues. According to Miles et al. (2008) efficient, profitable, environmentally, and socially responsible

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16 business strategies and processes have become the business imperatives for the early part of the 21st century. This unites with the corporate visions of the beer companies I researched. They implemented corporate social responsibility (CSR) strategies to leverage sustainability and entrepreneurship to work on a superior perceived value for their customers. The African Beer Industry provides an example in which the pressure of sustainability is widespread throughout its supply chain. A beer is normally made from water, starch source (malted grain), hops and yeast. Some of those ingredients are not only scarce (water), but also need to travel half the world (carbon footprint) before being processed in an African beer plant. This negative impact of the beer industry is likely to escalate due to income rises in developing countries and the forthcoming demand for alcoholic beverages (Mahajan, 2008). On the other hand this enables African beer brewers to think differently and face an attractive opportunity that has many sustainable implications. How to create a beer that is economically viable, socially suitable and environmentally acceptable?

In order to excel in a sustainable strategic decision making process, Morris et al. (2008) created a framework of sustainable corporate entrepreneurship; based on balancing financial metrics/economic performance, environmental stewardship and social accountability. “Meaning that sustainable corporate entrepreneurial (SCE) initiatives are corporate entrepreneurial (CE) activities designed to harness innovation within the firm’s strategies, products, processes, or business definition while fostering some aspects of sustainability”. Additionally, this will demonstrate how SCE offers a different path for value creation and competitive advantage.

As mentioned in above paragraphs, sustainability can be seen as an emerging cultural imperative that forces corporations to reevaluate their tactics and strategies in light of the impact on long-term economic performance, environmental management and social norms. In order to work out one framework for sustainable corporate entrepreneurship, Miles et al (2008) combined the humble definition of Placet et al. (2005) for sustainability with the typology of corporate entrepreneurship (Morris et al., 2008). Resulting in the multidimensional figure below and the following definition; “SCE is the process of leveraging innovation of an organization’s products, processes, strategies, domain, or business models to discover, assess and ultimately exploit attractive economic opportunities created by latent and manifest environmental problems and/or social responsibility issues”.

Because this thesis also discusses sustainable entrepreneurs that are independent and not corporate, but aims to compare them to each other, the same definition is used for sustainable entrepreneurs in general.

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According to Miles et al. (2008) a firm is classified to have adopted SCE if there is evidence of all three sustainability components; social accountability, responsible environment and long-term economic performance. Furthermore a significant presence of innovation regarding products, processes, strategies, domain or business model should be applied.

As with ‘sustainability’ it is important that each component of sustainable corporate entrepreneurship is equally important. In practice this means that managers constantly need to balance the components against each other. Meaning a sustainable corporate entrepreneur in an African brewery needs to find out the right balance in order to cope with economic viability, environmental stewardship and social accountability.

More practical this means that that a company that focuses on a more environmental approach at the expense of economic prosperity for its stakeholders is in an economically unsustainable position. Similarly, companies that put economic prosperity above social accountability do not have a social or political sustainable policy in the long run.

2.1.6. Sustainable Innovations and Entrepreneurship

According to Schumpeter (2003) entrepreneurship can be seen as economic development at it most purest form, accordingly sustainable corporate entrepreneurship is the driving force behind sustainable development in firms. As mentioned before Schaltegger and Wagner (2010) add to this that sustainable corporate entrepreneurs are the main actors who realize sustainability innovations

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18 for the mass market. On top of that they conclude that organizations that strive to develop themselves in sustainable entrepreneurial ways make a larger sustainable contribution to the market and society. A successful impact requires sustainable innovations (Schaltegger and Wagner, 2011). Both sustainability innovations and sustainable innovations (Larson, 2000) are means to substantially decrease negative human impact on the environment and to increase the quality of life for human beings.

Markides and Geroski (2005) argue that sustainable innovations have a predominantly radical character; they are disruptive for consumer and producer. Schumpeter (2003) defines a disruptive sustainable innovation as an invention that creates favorable market conditions for entrepreneurs, more precisely; a new-market is created and the old innovation market destroyed. Schaltegger and Wagner (2010) add to this that a disruptive innovation can be “providing attractive products with unique benefits in what was a mature industry characterized by a focus on scale and production costs”. The stage of sustainable transformation of an industry is determined by the number of disruptive sustainable innovations in a specific industry (Hockerts and Wustenhagen, 2010). A (radical) sustainable innovation challenges the status-quo in an industry, this innovation potentially starts an innovative process where sustainable innovations follow-up each other. Naturally many of those new innovations are not as radical as the breakthrough, but they contribute to the diffusion of the original radical innovation in an industry. Hockerts and Wustenhagen (2005, p. 489) give the following types of sustainable innovations which are carried out by the entrepreneurs;

- The development of markets for radical sustainable innovations through product innovation. - Up-scaling of the application of radical sustainable innovations through product and process

innovation.

- The development of the niche markets through product innovation. - Mass-marketing through process innovation.

Earlier I mentioned that most entrepreneurs execute their activities by setting up a business (Ebner, 2003), although many entrepreneurs are also active in existing companies. Foss and Klein (2004) conclude that most sustainable entrepreneurs are active in start-up companies and small firms rather than in large companies. Nevertheless this research will foremost focus on sustainable entrepreneurship in larger companies, also referred to as corporate sustainability entrepreneurship (Hockerts and Wustenhagen, 2010). However, Schaltegger and Wagner (2010) argue that sustainable entrepreneurs are most influential in small firms, their core activity is developing and exploiting sustainable innovations. For this reason I will focus on the specific business units or departments of

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19 (international) companies which implement the exploitation and development of sustainable innovations in the African Beer Industry.

Now we should determine the conditions when sustainability innovations are likely to emerge spontaneously in a market system and what kind of firms are most probably involved. Schaltegger and Wagner (2011) conclude that the beneficiary dimensions for innovations are mostly private and socially related; the defined sequence of product and process innovations, existence of complementarity assets and the means to protect the innovation against third party knowledge spill overs are underlying explanations for sustainable innovation. Contrariwise, dominant logic for entrepreneurship is that of opportunity recognition and exploitation (Shane et al, 2000).

2.2 MARKET BARRIERS

According to Pacheco et al. (2010) sustainable corporate entrepreneurs encounter a great divergence between the self-interested behavior of their firm and the public and non-excludable character of social and environmental resources they exploit. Companies’ interests often conflict with what is favorable for the society as a whole. It is common that a company doesn’t implement the desired sustainable improvements, when other industry participants also evade their sustainable responsibilities. Often those responsibilities are accompanied by the fear of negative competiveness and the profitability of a company. This results in an (corporate) atmosphere where collective incentives are lacking, with the consequence that sustainable measures are not implemented. Pacheco (2010) supports the findings of Dean and McMullen (2007) and claims that without solid regulation or collective alignments of individual and collective incentives in the contemporary system of economic institutions, no contribution will be made by sustainable corporate entrepreneurs to sustainability. This phenomenon is called ‘the green prison’. In order to avoid the formation of such a ‘green prison’ sustainable corporate entrepreneurs always need to overcome the market barriers that prevent them from a more sustainable approach. If their company is not willing to tackle some of the sustainable problems, it is very plausible that other companies also quit their combat against a similar problem. (Dean and McMullen, 2007).

2.2.1. Market Barriers to Sustainable Entrepreneurship

In order to provide a framework to analyze the different sustainability programs, seven different market phenomena are distinguished that initially create seven market barriers to sustainability by Dean and McMullen (2007), Cohen and Winn (2007) and Pacheco (2010) . Obviously opportunities arise when those barriers are surpassed. According to above authors the following market phenomena/barriers can be defined;

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20 Inefficient firms

Cohen and Winn (2007) state that an sustainable entrepreneurial opportunity occurs when a firm is not able to reach its full potential, more precise, they refer to an inefficient firm ‘in case firms exert the inability to reach more than a fraction of the potential efficiencies available’. This barrier created by inefficient firms can be mastered by first order economizing, Cohen and Winn (2007, p.38) give the example of reducing economic waste and inefficiency through combining demand and supply components in a more efficient way. Another example of how the inefficient firm barrier can be surpassed is by the creation of new technologies or processes in the production process or the supply chain.

Public goods

When there is a (growing) discrepancy between private costs and social costs of public goods this is caused by the market barrier of sustainable entrepreneurship. Public goods have the ability to be non-excluded and for that reason free of charge. However, some public goods are eager to surpass others, which often lead to diminishing quality of the public goods. Dean and McMullen (2007) argue that different quality of the public good results in resource degrading incentives. The only way to overcome this imposed barrier of public goods is to develop property right schemes for former public (non-excludable) goods developed and convert them into excludable goods. This can only be implemented through political mechanisms and technological mechanisms.

Monopoly power

Monopoly power become a market barrier when in a concentrated market only one firm or a small group of firms (oligopoly) dominate the market and use their monopoly power on other participants. According to Dean and McMullen (2007) this market barrier to sustainable entrepreneurship arises when private benefits exceed social benefit, due to under-provision and overpricing. A monopoly can be initiated by government restrictions of competition (statutory) or a monopoly can have a more natural character, which is often induced by (spatial) concentration of resources. Obviously monopoly power provides a competitive advantage to firms with unsustainable practices. Through introducing new (disruptive) technologies or new legal restrictions to entry Dean and McMullen (2007) argue that the barrier created by monopoly power can be overthrown.

Imperfect information

As we discussed earlier provides asymmetric information sustainable opportunity. Two different types of imperfect information are distinguished by Dean and McMullen (2007). First they outline the imperfect knowledge of producers about demand and supply conditions, which results in

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21 unutilized production possibilities. Second, they identify the imperfect knowledge on the consumer-side regarding the nature of products or service attributes. This results in unutilized demand conditions. This imperfect information barrier can be surpassed by “exploiting opportunities that result from the discovery of knowledge regarding market supply or demand conditions due to lacking information on e.g. product or process technologies, sources of inputs, and customer needs or preferences” (Dean and McMullen, 2007, p. 66). Additionally, awareness creation can overthrow this barrier by exploiting the opportunity that is created by the lack of knowledge from customers regarding product and service attributes.

Externalities

Market barriers are created only by negative externalities, this means that costs of an activity are not correctly reflected in the prices of products and services and are not credited to the person or organization carrying on the activity (Black, 1997, p. 169). Those negative externalities can be caused by irregular incentives that are the results of unassigned property rights and transaction costs. North (1990) refers to transaction costs as “costs which measure the valuable attributes of what is being exchanged, and the costs of protecting rights and policing and enforcing agreements”. Moreover are these costs dependent on institutions, those instruments determine which attributes have value, as well as how rights are protected, policed and enforced. These institutions that establish the height of transaction costs, thus also determine the occurrence of externalities.

Inappropriate government intervention.

Governments often intervene the market through taxes, subsidies and other economic incentives providing firms or industries with support, which often results in inappropriate government intervention and thus a market barrier (Dean and McMullen, 2007). Through these government interventions a firm can remain its competitive advantages and is not forced to change its unsustainable practices. In order to overcome this barrier of inappropriate government intervention government incentives (subsidies, taxes, etc.) should be changed.

Flawed pricing mechanisms

Cohen and Winn (2007, p. 41) define a flawed price mechanism as a market barrier to sustainable entrepreneurship when the pricing mechanisms do not account for the actual depletion of a resource and the subsequent destruction of the market. Especially in case of input and the forthcoming and needed ecosystems for output, exhaustible or non-renewable resources are extremely vulnerable. Through the introduction of altering economic incentive structures, such as

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22 taxation or penalties or new (disruptive) technologies the barrier of flawed pricing mechanisms can be overcome.

2.2.2. Overcoming Market Barriers

According to Dean and McMullen (2007) the key for getting out of this ‘green prison’ is to overcome the barriers that prevent markets for social and environmental resources from efficient functioning. Thus market barriers limit sustainable entrepreneurs to make good use of their innovations and therefore provide a safe haven for incumbent industry participants to continue their business with unsustainable practices. (Cohen and Winn, 2007; Dean and McMullen, 2007). The earlier mentioned market barriers that put this green prison into effect are the same barriers which disable (corporate) sustainable entrepreneurial processes. When such market barriers are passed, profitable opportunities could arise.

Three core elements are central to entrepreneurial processes; innovation, uncertainty and opportunity. Schumpeter (2003) defines an entrepreneur as an agent who is constantly occupied with the innovation and development of new combinations of productive means. Those combinations are based on new resource combinations as well as new patterns of demand. Entrepreneurial products are innovations and lead initially towards the introduction of a new

Source: Cohen and Winn (2007), Dean and McMullen(2007) and Pacheco et al (2007). (In: Sustainable

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23 (quality of a) good or process. ‘These innovations stand per definition in direct competition to all exiting products that could satisfy the same needs; stand in indirect competition to all existing products when demand changes in favor of the new; or are complementary to old goods’ (Schumpeter, 2003, p.83). Ebner (2003) adds to this that often entrepreneurial activities are carried out through the foundation of a new company, financed by risk-taking capitalists, with the vision to develop and introduce their innovations to the market, herewith entrepreneurs try to make an entrepreneurial profit.

This eventual profit is based upon ‘uncertainty’. When an entrepreneur starts with developing and executing their innovation there is no guarantee that their initiative becomes a success. Sarasvathy et al. (2010) define uncertainty as the ‘gap’ between an innovation and the market that will come into existence based on it. The opportunities that arise could generally be divided into three categories;

1. Entrepreneurial recognition opportunity. An opportunity is recognized in an extant market condition through optimizing this opportunity is exploited.

2. Entrepreneurial discovery opportunity. Through asymmetrical information in extant market conditions opportunities arise. Those are exploited through the introduction of new demand and supply elements to the market.

3. Entrepreneurial creation opportunity. This opportunity is created in new markets and market conditions. Entrepreneurs benefit when breaking the inertia of persisting traditions, team up with strategic partners and win the confidence of future consumers.

Uncertainty as a concept has been thoroughly linked to opportunity, as has overcoming market barriers. The entrepreneur is successful when uncertainty is turned into an opportunity, which can be exploited. Market barriers are such uncertainties.

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24 2.3 CORPORATE SUSTAINABILITY VS. INDEPENDENT SUSTAINABLE ENTREPRENEURS In order to define and categorize successful sustainable entrepreneurship I will now focus on its potential success. Schaltegger and Wagner (2011) argue that the core motivation of sustainable entrepreneurship can be defined as ‘contributing to solving societal and environmental problems through the realization of successful businesses. This means that in a corporate environment the corporate entrepreneur is mainly responsible for the realization of this business. More precisely, we can conclude that a sustainable successful corporate entrepreneurial strategy enables “environmental stewardship, social responsibility, and economic prosperity for both the organization and its stakeholder” (Placet et al., 2005). The level of success for the sustainable (corporate) entrepreneur is determined by the inter-relation and support of the three aforementioned goals. Furthermore both authors stress that sustainable entrepreneurship is highly dependent on the realization of sustainability innovations, which are aimed at the mass market and provide benefit to the larger part of society. But because market barriers may be specific to corporate environments, they may not be adequately covered by this approach. Sustainable entrepreneurs who are not corporate, but independent in nature may have to face different challenges.

In order to realize (radical) sustainable innovations successful entrepreneurs should meet the unmet demand of a big group of stakeholders. According to Freeman (1984) stakeholders are groups or individuals that materially affect or are affected by a company’s activity. Friedman et al. (2002) add that that the demand of stakeholders goes beyond narrow economic interests of shareholders and are the ultimate sources of entrepreneurial activities to develop sustainable innovations. Dean and McMullen (2007) go even further by arguing that the stakeholders demand creates paths for discovery and exploitation for future sustainable entrepreneurship.

Schaltegger and Wagner (2011) characterize sustainable entrepreneurship as entrepreneurial activities, which are less oriented towards (sustainable) management systems, but focus primarily on the personal initiative and skills of the entrepreneurial person or team to realize large-scale market success and societal change with environmental or societal innovations. However, in this thesis our unit of analysis is the sustainable (corporate) entrepreneur’s engagement with the market barriers. In practice this means that some of the sustainable entrepreneurs are subjected to corporate management systems, while other independent are more likely to be influenced mostly by their stakeholders. Thus, the success of the sustainable corporate entrepreneurs depends largely on the freedom that is provided by its firm. Only than the corporate entrepreneur could make use of its entrepreneurial attitude and combine this with their strong environmental and social values. But the independent entrepreneur is limited only by market realities.

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25 Schaltegger (2002) adds that an entrepreneur should get the chance to show their personal mastery and is free to act creatively. Problems don’t exist, only challenges arise. A successful corporate entrepreneur should be able to blend his strong personal goals, vision and behavior in the company’s goals. This raises the plausibility that successful corporate entrepreneurs are more difficult to find at larger firms than smaller companies. Subsequently this means that a small innovative start-up supplying environmentally and/or social beneficial products and services has a bigger potential to initiate a change in an incumbent market. The biggest organizational challenge of corporate sustainable entrepreneurship is to integrate environmental performance into the economic business logic (Hockerts and Wustenhagen, 2010). Considering that some products, services and organizational innovations are limited in their success and effects due to influence from unfavorable market conditions, sustainable corporate entrepreneurs should focus on those limiting market issues and subsequently on improving market conditions, by overcoming barriers.

But before concentrating on external market conditions, the primary focus should be on the internal structure of a company. In order to survive the current competitive markets firms need to be ‘hale and hearty’ from the inside, meaning internal (financial) structures need to be self-sustainable. So besides reflecting a sustainable character and associating behavioral patterns, the financial picture needs to be sustainable as well. Many companies are not able to subsist only on donations and subsidies. A pretty standard objection to adding sustainable services or products to the business is that this brings higher costs (Ambec and Lanoie, 2008). Although others argue that a properly designed environmental product or innovation can lower the cost of a product or improve value. Environmental success

Dean and McMullen (2007) argue that sustainable entrepreneurship is successful when environmental degradation is reduced. This approach resembles the thoughts of the environmental sustainability pillar that I discussed before. The authors state that this environmental degradation is a market failure, a view that corresponds with Cohen and Winn (2007) who argue that market failures stimulate sustainable entrepreneurship. Dean and McMullen (2007) also agree with Porter and van der Linde (1995) that those arising opportunities can be both reducing environmental degradation and profitable at the same time. In this same article Dean and McMullen (2007) present the market barriers earlier mentioned. Sustainable entrepreneurs are successful when overcoming those market barriers by transforming market failures into entrepreneurial opportunities.

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26 Economic success

Measuring success in sustainable entrepreneurship is also possible in relation with economic growth. Here the focus is on human development, wealth creation (Anand and Sen, 2000) and economic structures, innovative possibilities and the contributions to the quality of life (Spangenberg, 2005). Entrepreneurship is an important instrument in order to achieve economic growth (Wennekers and Thurink, 1999). These authors identify three different levels; the individual, firm and macro level. Most important is that all those different levels are interconnected and need to collaborate in order to create entrepreneurial success. More precise; on an individual level people need to have the right attitude and skills and should be able to take action. Firms need to be innovative; follow start-ups, explore new markets and access new products or process innovations. On a macro level the most viable idea must be selected out of the competitive variety of ideas. By interconnecting those three different levels impact can be created through self-realization and personal wealth, firm performance and competitiveness to economic growth and therefore to economic sustainability (Wennekers and Thurink, 1999).

Social Success

According to Martin and Osberg (2007) a social entrepreneur is ‘truly’ social by differentiating itself through its value proposition. They state that an social entrepreneur aims for creating value in the form of large-scale, transformational benefits that accrues either to a significant segment of society or to society at large. Most of the times the social entrepreneur focusses on an underserved, neglected or highly disadvantaged part of the population. Furthermore Martin and Osberg (2007) identify three different components that make an entrepreneur successful:

1. Identifying a stable but inherently unjust equilibrium that causes the exclusion, marginalization, or suffering of a segment of humanity that lacks the financial means or political clout to achieve any transformative benefit on its own;

2. Identifying an opportunity in this unjust equilibrium, developing a social value proposition, and bringing to bear inspiration, creativity, direct action, courage, and fortitude, thereby challenging the stable state’s hegemony.

3. Forging a new, stable equilibrium that releases trapped potential or alleviates the suffering of the targeted group and through imitation and the creation of a stable ecosystem around the new equilibrium ensuring a better future for the targeted group and even society at large”.

It is likely that corporate sustainable entrepreneurship is different form independent sustainable entrepreneurship and the market barriers they face may be different. Because of the way in which success is defined, corporate and independent sustainable have different starting points for their reasoning for developing strategies. Because this thesis aims to elucidate specifics about a particular

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27 market, it seems prudent to control for these differences, and perhaps even allow the different perspectives to more clearly define the issue at hand.

The proposed conceptual model for this thesis:

The market barriers have been designed from a general sustainable entrepreneurial perspective, but does this model apply to this specific industry, which is based in a specific continent. Are certain barriers more likely to be encountered by sustainable entrepreneurs, or is this an artifact of said entrepreneurs’ particular characteristics, i.e. whether they are corporate entrepreneurs beholden to a corporate hierarchy and ultimately shareholders’ demands, or if they are independent, whether they are mostly driven by paths created by stakeholders and limited by market realities?

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III. Research Design

3.1 RESEARCH METHODS

Now I briefly discuss the methodologies used that leaded to the results in this thesis. Additionally I elaborate on the methods used for collecting data and the interpretation of those results. This thesis has an explorative character, meaning that there is no existing body of literature that focuses on the critical success elements of sustainable corporate entrepreneurship in the African Beer Industry. Therefore my thesis seeks for new insights and already existing phenomena are verified again. The inductive approach in this study firsts collect data and afterwards propose new theories with this data. The data collected will subsequently lead towards a model that should exemplify the factors that help engage successful entrepreneurship in the African Beer Industry.

The qualitative nature of the thesis is based upon a profound understanding of the sustainable corporate entrepreneurial field in which the different actors handle. In order to deliver a thesis which covers all different aspect in the African field of sustainable entrepreneurship it is crucial to work with a descriptive qualitative data research. The description of Cooper and Schindler (2006) clarifies best why qualitative research is so important, “an array of interpretive techniques which seek to describe, decode, translate, and otherwise come to terms with the meaning, not the frequency, of certain more or less naturally occurring phenomena in the social world”. Sustainable corporate entrepreneurship in Africa is a phenomenon that is difficult to reproduce in numbers. During my research period I was not able to get my hands on any concrete quantitative content. The researched international breweries share some numbers for specific projects, but all of those projects show positive outcomes and the origin is difficult to verify. Previous literature review made clear that a critical success element for a sustainable corporate entrepreneur can be found in the level of independency a corporate entrepreneur receives from its company. My personal working experience taught me that big corporations do not deviate from their company policy or vision, resulting in a structured and hierarchical organization with not much freedom for entrepreneurial movement. For this reason I decided to interview, next to two corporate entrepreneurs from international breweries, two more independent sustainable entrepreneurs. One is a managing director of a smaller sustainable firm, the other is an independent sustainable (agricultural) entrepreneur. This should offer the necessary counterweight to the established corporations. However the two international breweries produce more than 40% of the total amount of beer sold in the African beer market, so every sustainable initiative can have a big impact in the African Beer Industry.

Sustainable entrepreneurship in the African beer industry.

Sustainable Entrepreneurship in the African Beer Industry

Table of Contents

I.

Introduction

II.

Literature Review

III. Research Design