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Inclusive Business Models and Social Value Creation in the Fashion Industry:
An Exploratory Study of Social Enterprises in Cambodia and Nepal
June 08, 2020
Research Master International Develoment Studies
University of Amsterdam
Marijke Huzen
Student Number: 12287660
marijkehuzen@gmail.com
Supervisor: Dr. N.R.M. Pouw
Second Reader: Dr. J.M. Bavinck
Wordcount: 34.599
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Acknowledgements
First and foremost, I want to extend my gratitude to all the participants in generously sharing their inspiring stories. I also want to thank the interpreters that have helped me to conduct the interviews. Furthermore, I would like to thank Nicky Pouw for her constructive feedback and guidance as a supervisor and her support in choosing this thesis topic. I would also like to acknowledge Maarten Bavinck, as the second reader of this thesis, thank you for taking the time to read this.
I also want to express my gratitude to my friends and family for their support and patience. To Carmen and Sharon for coming along for an adventure in Nepal and to those who I met along the way who made the experience so much more special.
To
Belle and Tatjana, I am so happy we were in this together, even if in the end, it was from a distance. To my roommate Dorine, who had to hear me talk about the same subject almost every day for over a year. Thank you for always listening. And last but not least, a special thank you to my parents for their never ending support in everything I set out to do.3
Abstract
An increase in the demand for alternative business models in the fashion industry has resulted in business innovation and alternative business models, one of which is the inclusive business model. Though there is an increasing amount of literature on the role of inclusive businesses in the agricultural sector, comparatively little has been said its potential within the fashion industry. This study seeks to understand how inclusive business models in the fashion industry can create social value and contribute to improving the livelihood of the low-income workers integrated in the value chain. Drawing on qualitative interviews with founders of fashion brands and manufactures in Cambodia and Nepal and semi-structured interviews with employees, this paper highlights several ways in which these businesses can create social value. By providing decent working conditions and developing capabilities, these businesses are able to contribute to an enhanced standard of living and a sense of empowerment for the workers in their value chain. Furthermore, the results emphasize the importance of collaboration among local and international actors as well as partnerships with organizations and governments. This paper contributes to an understanding of the socio-economic development opportunities within the fashion industry and could help increase the uptake and scale of inclusive business models. Keywords: Cambodia, fashion industry, inclusive business model, Nepal, social value creation
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List of Figures
Figure 1: Comparison of Business Types and Initiatives. Source: DaNa facility (2018) Figure 2: Conceptual Model
Figure 3: Overview of Business Structures
Figure 4: Overview of the Nationalities of Entrepreneurs Figure 5: Integration of Value Creation and Value Spillover Figure 6: Adapted Conceptual Model
List of Tables
Table 1: Overview Respondents
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List of Abbreviations
ADB Asian Development Bank B2B Business to Business B2C Business to Customer BFC Better Factories Cambodia BoP Bottom of the Pyramid CMT Cut-Make-Trim
CSR Corporate Social Responsibility EBA Everything But Arms Agreement FDI Foreign Direct Investment GDP Gross Domestic Product HRW Human Rights Watch
iBAN Inclusive Business Action Network ILO International Labour Organization
LANGO Law on Associations and Non-Governmental Organizations MFA Multi Fibre Agreement
MNCs Multinational Corporations NGO Non-Governmental Organization SDGs Sustainable Development Goals
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Table of Contents
Acknowledgments 2
Abstract 3
List of Figures and Tables 4
List of Abbreviations 5
1.
Introduction
9
1.1 Employment and Exploitation in the Fashion Industry 10
1.2 Research Question and Research Approach 12
1.3 Limitations to the Research 12
1.4 Thesis Structure 13
2.
Theoretical Framework
14
2.1 Globalization and the ‘Race to the Bottom’ 14
2.2 Inclusive Development and the Role of the Private Sector 16
2.3 The Rise of Corporate Social Responsibility 16
2.4 Social Entrepreneurship and Social Enterprises 17
2.5 The Bottom of the Pyramid and Inclusive Business Models 18
2.5.1 Bottom of the Pyramid Theory 19
2.5.2 Inclusive Business Models 20
2.6 Inclusive Business Models in the Fashion Industry 21
2.7 Conclusion 24
3.
Research Methodology
25
3.1 Research Questions 25
3.2 Epistemology and Ontology 26
3.3 Methods 27
3.3.1 Research Design 27
3.3.2 Unit of Analysis and Units of Observation 27
3.3.3 Sampling 27
3.3.4 Participants 29
3.4 Data Collection Methods 29
3.4.1 Semi-structured Interviews with Fashion Businesses 30
3.4.2 Structured Interviews with Employees 30
3.4.3 Document and Website Analysis 31
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3.6 Ethical Considerations 31
3.7 Limitations of the Research 32
3.8 Conclusion 33
4.
Research Context
34
4.1 Cambodia 34
4.1.1 Historic and Political Context 34
4.1.2 Social and Economic Context 35
4.1.3 Labour Market and Employment in Cambodia 36
4.1.4 Garment Industry in Cambodia 36
4.1.5 NGOs and Social Enterprises in Cambodia 37
4.2 Nepal 38
4.2.1 Historic and Political Context 38
4.2.2 Social and Economic Context 38
4.2.3 Labour Market and Employment in Nepal 39
4.2.4 Garment Industry in Nepal 40
4.2.5 NGOs and Social Enterprises in Nepal 41
4.3 Conclusion 41
5.
Business Profiles of Inclusive Business Models
43
5.1 Business Structures 43
5.2 Business Establishment 46
5.2.1 Founders 46
5.2.2 Entrepreneurial Motivation 48
5.2.3 Mission and Vision Statements 49
5.2.4 Self-identification of Business Model and Legal Registration 50
5.2.5 Funding and Business Growth 52
5.3 Conclusion 52
6.
Inclusive Business Strategies and Social Value Creation
54
6.1 Business Strategies and Social Impact 54
6.1.1 Inclusion of Low-income People as Employees 54 6.1.2 Providing Different Forms of Employment 57
6.1.3 Living Wage and Financial Stability 57
6.1.4 Decent Working Conditions 59
6.1.5 Professional and Personal Development 60
6.1.6 Holistic Approach 62
6.2 Environmental Strategies and Impact 63
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6.3.1 Business Scale and Team Size 64
6.3.2 Long-term Vision and Exit Strategies 65
6.4 Conclusion 66
7.
Challenges and Trade-offs
68
7.1 Identifying Challenges within the Business 68
7.1.1 Skill-level of Employees and Work Environment 68
7.1.2 Finances, Sales and Marketing 69
7.1.3 Infrastructure and Institutional Frameworks 71 7.2 Overcoming Challenges through International Networks 71 7.3 Trade-offs between Different Business Objectives 73 7.3.1 Trade-offs between Social and Economic Objectives 75 7.3.2 Trade-offs between Social, Economic and Environmental Objectives 75 7.3.3 Trade-offs between Short-term and Long-term Objectives 75
7.3.4 Trade-off Mitigation and Value Spillover 76
7.4 Conclusion 79
8.
Conclusion
80
8.1 Answering the Main Research Question 80
8.2 Theoretical Reflection and Contributions to the Literature 81
8.3 Adapted Conceptual Model 83
8.4 Methodological Reflection and Suggestions for Future Research 85 8.5 Recommendations for Inclusive Businesses in the Fashion Industry 86
8.6 Policy Recommendations 86
9.
Bibliography
88
Appendix I 96
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1. Introduction
“It isn’t enough to just look for quality in the products we buy, we must ensure that there is quality in the lives of the people who make them”
– Orsola de Castro
(Founder and director of Fashion Revolution)
In 2015, the UN launched the Sustainable Development Goals (SDGs) that define global priorities to guide nations, policy, organizations and companies to continue the work that started with the Millennium Development Goals. The SDGs provide a vision for sustainable development with 17 targets to achieve a more inclusive, sustainable and prosperous world by 2030 (Gilbert & Nelson, 2018). The SDGs cover a range of global challenges and there is an increased emphasis on pursuing inclusive development. Inclusive development is described by the Asian Development Bank (ADB) as “growth coupled with equal opportunities” (Rauniyar & Kanbur, 2010, p.456). Other scholars add that inclusive development is centered around empowering marginalized people through equal opportunities including social and ecological wellbeing (Gupta et al., 2015; Pouw & Gupta, 2017). The focus on inclusive development is the result of a growing recognition that although economic growth is a necessary condition, growth on its own is insufficient to eradicate poverty and promote human well-being as economic growth does not guarantee that everyone benefits equally and possibly overlooks poor and marginalized groups (Cook, 2006; Rauniyar & Kanbur, 2010).
The dynamics between economic growth, poverty, inequality and inclusive development are complex, but it is broadly recognized that labour and employment play an important role in achieving inclusive development. Especially in developing countries where labour is often the main source of income for people. However, not all forms of paid work are empowering or contribute to inclusive development. According to the International Labour Organization (ILO), an estimate of 8% of the global employed population lives in extreme poverty and many still live close to the poverty line despite being employed (ILO, 2019a). This indicates that not only the creation of jobs but also the quality of jobs is important which includes fair wages, safe and healthy working conditions, equal promotion opportunities and access to social protection systems. This need for decent work opportunities is also reflected in the SDGs with SDG 8 specifically aiming to “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all” (UN, 2019). The quality of employment and labour conditions are critical elements for achieving inclusive development as exploitative forms
10 of employment could actually and up being more disempowering and could reinforce inequalities (Cook, 2006; Kabeer et al., 2013).
One of the sectors which illustrates that not all paid forms of work are empowering is the fashion industry. The fashion industry has been an important source for generating export-led economic growth in developing countries and through its highly labourintensive work the industry provides millions of people with employment in garment factories. However, the industry also pushes workers at the bottom of the value chain into unsafe, forced or abusive conditions. The fashion industry illustrates why economic growth and the creation of jobs is not sufficient to reduce poverty and promote human well-being, but that the quality and pattern of growth and employment is also of importance (Kabeer et al., 2013).
1.1 Employment and Exploitation in the Fashion Industry
The fashion industry is an interesting and important industry as it affects 100 percent of the population. We as people all influence the fashion industry through the choice of clothing we buy and by how we wear, take care and dispose of our clothing. In turn, the fashion sector is also uniquely influenced by consumer preferences, consumption patterns, cultural trends and seasonal changes. The fashion industry is one of the sectors that has changed dramatically as a result of globalization. Fueled by a culture of consumerism, the industry evolved from made-to-order clothing by local tailors to the mass-production of ready-to-wear fashion characterized by increased volume, speed and consumption of clothing.
The rise of global trade has prompted fashion brands to shift their production to countries with lower wages and less regulations, which are often developing countries. This outsourcing of production has enabled developing countries to grow their export industry and attract foreign direct investment. The garment industry has been a main contributor to economic growth in countries such as China, India, Vietnam, Bangladesh and Cambodia (Hajaraih et al., 2019). Because the garment industry is highly labour intensive, it also provides employment to millions of people, mainly attracting young women. However, many of these women work in precarious work conditions and there have been reports of widespread human rights abuses in garment factories.
The majority of fashion brands are organized as a buyer-led global value chain where design, production and retail are spread globally and take place in different locations. Most fashion brands do not own the manufacturing factories but work with contracts and subcontracts. As a result the value- and supply chains in the industry have become complex networks of producers, buyers, sellers and consumers. Because of the complexity of supply chains and the outsourcing of production to countries with less regulations, and often ineffective enforcement of labour laws,
11 the working conditions in garment factories have deteriorated with a lack of international governance to address these issues.
In 2013, the Rana Plaza factory in Bangladesh that produced clothing for different well-known global fashion brands collapsed. More than 1200 people died and another 2500 were injured (Hajaraih et al., 2019). This disaster brought worldwide attention to the unsafe working conditions many garment workers are forced to work in. Various organizations started campaigning for better working conditions and protection for workers. Although the increased awareness over the last decade has resulted in positive changes within the industry with a greater focus on the social and environmental impact of business practices, human rights violations and precarious conditions are still prevailing throughout the fashion industry. Workers are not being paid minimum wage, there are deaths and accidents as a result of violations of health and safety regulations, women workers report sexual harassment and violence in the factories, and trade unions are restricted in their ability to organize and fight for the rights of workers (Human Rights Watch, 2019). Furthermore, the fashion industry continues to account for a significant amount of greenhouse gas emissions and is responsible for depleting or polluting forest and water sources and filling up landfills.
It has become clear that the current business models and business practices are not sustainable as both people and the planet suffer as a result of how clothes are produced. There is a need for radical and systemic change throughout the industry and there is a growing interest and demand for new and innovative business models that focus on providing decent working conditions. This research focuses on the inclusive business model that aims to create a positive social change by including poor and marginalized populations in the value chain of the business as suppliers, producers, consumers or employees. Though this business model has mainly gained traction in the agricultural sector, it has also become more popular in other sectors, and is started to be applied in the manufacturing sector and more specifically in the fashion industry as well. Research by Ghosh and Rajan (2019) suggests that inclusive businesses in the manufacturing sector could possibly contribute to achieving several SDGs, but research on inclusive businesses in the manufacturing sector, and more specifically in the fashion industry that includes the poor as employees, is limited to only single case studies. This research tries to expand on the knowledge gap by looking at businesses in the fashion industry that aim to create social value by actively including poor and marginalized people in the value chain of the business.
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1.2 Research Question and Research Approach
This research seeks to contribute to the knowledge gap concerning inclusive business models in the fashion industry by answering the following research question: ‘How can fashion brands and
manufacturers that use an inclusive business model contribute to social value creation?’. This
research focuses on fashion businesses that actively include marginalized people in the value chain as employees, and by providing decent working conditions aim to improve the livelihoods of employees. This study builds on data collection that took place between October 2019 and January 2020 in Cambodia and Nepal. The data consists of qualitative interviews with entrepreneurs, managers and employees of businesses in the fashion industry that use an inclusive business model, and provides insight in the experiences of workers who are included in the value chain. Cambodia and Nepal are both countries that have high rates of informal and precarious employment and for which decent work opportunities could make a significant contribution to inclusive development. Increased information on how companies with an inclusive business model could contribute to an improved livelihood for workers could inspire and assist future entrepreneurs in implementing an inclusive business model and help guide national and international policy in supporting these kind of businesses.
1.3 Limitations to the Research
Before continuing with an overview of the theoretical framework and a discussion of the findings of this research in the next chapters, it is important to note that this research is subject to various limitations that should be taken into account. The results of this study are based on data of businesses that were selected by the researcher based on information from websites and social media, and participation to this study took place on a voluntary basis. This means that the sample used in this study has been dependent on the subjective opinion of the researcher, the online presence and visibility of the fashion brand and the willingness of the brand to participate in the study. As a result, there is a high likelihood of a selection bias where the sample consists mainly of internationally focused and successfully established businesses, which does not represent the full spectrum of fashion brands that use an inclusive business model. Furthermore, the research findings are based on data of businesses in two different research locations. As every country has its own characteristics the results of this study may not be fully transferable to the situation in other countries and contexts.
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1.4 Thesis Structure
The next chapters will provide the theoretical framework and methodology for this research and a discussion of the results. Chapter 2, the theoretical framework, discusses the dynamics of globalization and the ‘race to the bottom’ in developing countries with a focus on the conditions in the fashion industry. This is followed by an explanation of the concepts of corporate social responsibility, social entrepreneurship, and a conceptualization of inclusive business model based on the bottom of the pyramid theory. In Chapter 3 the methodology of the study is discussed including the research questions and the data collection approach. Chapter 4 presents an overview of the research locations and discusses the current situation in the countries Cambodia and Nepal regarding the economic context and the labour market. Chapter 5 gives an overview of the findings from the research regarding the motivation of entrepreneurs for establishing the business, and the mission and vision within these businesses. Chapter 6 discusses the various inclusive business strategies that are implemented and the social impact of these strategies for the workers included in the businesses. Chapter 7 provides an overview of the challenges encountered by the entrepreneurs and the trade-offs that take place between social, economic, and environmental objectives. Lastly in Chapter 8, the main research question is answered and an adapted conceptual model is provided based on the findings of this study. This chapter concludes with recommendations for future research and policy.
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2. Theoretical Framework
This chapter gives an overview of the literature and theoretical debates surrounding the process of globalization, inclusive development and the role of the private sector. Special attention is given to the relation between business practices and the impact for employees at the bottom of the value chain, specifically in the fashion industry. Section 2.1 starts with a broad overview of the impact of globalization on emerging economies, followed by a discussion in section 2.2 on inclusive development and the role of the private sector. Section 2.3 continues with a discussion of corporate social responsibility practices and section 2.4 gives an explanation of the concept of social entrepreneurship. Section 2.5 introduces the theory of the ‘bottom of the pyramid’ from which the idea of inclusiveness in businesses emerged and resulted in the concept of ‘inclusive business model’. This is followed by the conceptual model for this research. Section 2.6 discusses the potential of inclusive business models in the fashion industry and section 2.7 concludes this chapter.
2.1 Globalization and the ‘Race to the Bottom’
Globalization can be described as the move towards a global economy with an increased integration of markets and cultures between countries. The process of globalization has transformed the world’s production and labour markets. As a result of lifting trade barriers and expanding trade flows there has been a rapid expansion of global markets and an increase in activity from large multinational corporations (MNCs) (Barrientos, 2000). Many MNCs have relocated their production activities to developing countries with less restrictive labor legislation which creates competitive advantages for corporations (Scherer & Smid, 2000). This process has allowed developing countries to integrate in the global economy and to start engaging in export-oriented industrialization, specifically in the more labour-intense sectors such as the garment and footwear industries and the agricultural sector (Gereffi & Memedovic, 2003). However, this change in the structures of trade, production and employment, has had varied implications for the countries and people involved.
A value chain framework can offer a useful tool for exploring the implications of a globalized economy. A value chain consist of the full range of activities that are needed to transform a product or service from conception, through production, to the delivery to consumers and the final disposal afterwards (Kaplinsky, 2000). These activities that are part of the value chain can be divided among different firms or carried out by a single firm. In the context of globalization, activities that comprise a value chain are often carried out on a global scale, creating a global value chain (GVC) (Gereffi & Fernandez-Stark, 2011). Using a GVC framework can help to understand how global industries, such as the fashion industry, are organized and how value is
15 added from design to production to the selling of the product. The GVC framework takes into account the power relations and market relations that influence the outcomes of globalization (Jenkins, 2004). By looking at value-adding activities, a GVC analysis can help to understand how business decisions affect economic and social value creation in different countries and for different stakeholders (Gereffi & Fernandez-Stark, 2011).
Focusing on developing countries, the impact of globalization and GVCs has been much debated (Nadvi, 2004). On one side of the debate, scholars state that globalization has positive impacts for economic growth in developing countries what results in poverty alleviation. It is argued that the increased trade liberalization and foreign investments results in more opportunities for economic growth in developing countries which, through a ‘trickle down’ effect, automatically generates a rise of incomes for the poor (Dollar & Kraay, 2002). Moreover, the rise of GVCs and the outsourcing of production to developing countries has created significant employment and income opportunities for the poor (Nadvi, 2004). However, though it is acknowledged that the outsourcing of production to developing countries provides a venture point for economic development, the assumption that economic growth will lead to an improved livelihood for the poor has been questioned.
Critics of the positive effects of a global economy argue that although economic globalization has led to development opportunities for low-income countries, there is evidence of exploitation of workers at the bottom of the value chain (Barrientos et al., 2011; Mayer & Pickles, 2010). Because corporations are constantly looking for competitive advantages, and moving their supply chain to the countries with the most competitive rates, it creates a ‘race to the bottom’ for workers worldwide (Lee & Gereffi, 2015). The race to the bottom hypothesis proposes that globalization leads to the erosion of labour standards to keep up with global competition resulting in unsustainable working conditions (Scherer & Smid, 2000; Singh & Zammit, 2004). The world-wide competition and the aim to attract foreign capital leads governments and companies to disregard irresponsible cooperate practices to secure their place on the global market, which ultimately impacts workers negatively (Scherer & Smid, 2000). Barrientos et al. argue that although there is clear evidence that globalization leads to the creation of jobs, “the relationship between the quantity and quality of employment is poorly understood” (Barrientos et al., 2010, p. 323). This debate shows how globalization has led to many employment opportunities in developing countries but that through business-as-usual practices, that prioritize profit-maximization, these employment opportunities have not led to the empowerment of employees but instead to the exploitation of workers. This sparks the question how businesses can change their practices to make a positive social and environmental impact.
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2.2 Inclusive Development and the Role of the Private Sector
Awareness on the negative impacts of globalization and the limitations of solely focusing on economic growth has sparked an interest in pro-poor growth, inclusive growth and inclusive development. While pro-poor growth and inclusive growth are focused on generating economic opportunities for all parts of the population, inclusive development goes beyond just economic growth and also focuses on social and ecological concerns, human well-being and creating equal opportunities (Gupta et al., 2015). In past decades, development issues were mainly regarded as the responsibility of the state, but with the transformation to a global economy, the influence of nation states has decreased. Although the economy had become global, social and political institutions have been falling behind with a lack of international governance to address the negative impact of globalization (Scherer & Smid, 2000). As a result, there has been call for the private sector to take responsibility and to play an active role in achieving sustainable and inclusive development.The inclusion of the private sector in the development agenda has also been reflected in the SDGs where businesses, governments and civil society have equally been called upon to contribute to sustainable development (Scheyvens et al., 2016). The rising awareness on the negative effects of business-as-usual have inspired more ethical, sustainable and responsible business practices that focus on social value creation. Social value creation can be understood as positive change in the wellbeing of disadvantaged individuals as a result of social interventions (Kroeger & weber, 2014). There has been an increase in initiatives that focus on how businesses can contribute to sustainable development and poverty alleviation through social value creation. This research looks more closely at how businesses are able to create social value. The next sections will first discuss initiatives in the private sector that are aimed at sustainable and inclusive development before a more specific discussion of the focus of this research, inclusive business models in the fashion industry.
2.3 The Rise of Corporate Social Responsibility
In the 1990s Corporate Social Responsibility (CSR) emerged as a critique on corporate practices (Jenkins, 2005). CSR can be described as the voluntary actions undertaken by companies in which they integrate social and environmental concerns in their business operations, and take responsibility for their impact on society and the environment (Prieto-Carrón et al., 2006). In the CSR discourse the business case for CSR is emphasized, focusing on the potential win-win situation of maximizing benefits for stakeholders while reducing negative impacts of business practices to a minimum (Gereffi & Lee, 2016; Malik, 2015). Because CSR can take different forms
17 and focus on a wide range of aspects within the business, it is not linked to distinct outcomes but should be seen as “an approach that helps business manage its relationship with society” (Blowfield, 2007, p.693).
With the growing interest in CSR practices, efforts have been made to measure the impacts of CSR initiatives. Though there are many claims made by companies and organizations about the positive and negative effects of CSR, there is not much evidence available on the outcomes for society and the environment, specifically for poor and marginalized people, local communities and the natural environment that are the intended beneficiaries of CSR practices. Research on CSR is mainly focused on the economic impact and possible benefits for the business itself (Blowfield, 2007). There is especially a lack of information about the impact of CSR in developing countries. The CSR agenda in developing countries is primarily driven by external forces such as international buyers, foreign investors and international media (Ali et al., 2017). It is argued that CSR is mainly a top-down exercise that does not take into account the realities of the context in developing countries and tends to overlook the voices and interests of the poor and marginalized workers (Barrientos, 2000; Belal & Momin, 2009).
Further critique on CSR focuses on the inherent limitation of the voluntary basis of codes of conduct. The implementation of CSR practices and their effectiveness rely on self-regulation without the presence of an international regulatory body to enforce any rules or practices or to sanction deviant behavior (Scherer & Palazzo, 2011). Moreover, it is argued that CSR is increasingly being used as a way to establish a more positive business image and attract more customers (Pope & Wæraas, 2016). The use of CSR as a ‘business tool’ further sparks the debate on the ability for corporations to contribute to development as they argue that since the priority for these companies remains profit maximization, companies would be unwilling to make meaningful trade-offs to create a social impact (Prieto-Carrón et al., 2006). Skepticism with regards to the effectiveness of CSR has shifted the focus from MNCs to the potential of social enterprises that integrate social value creation as core objective.
2.4 Social Entrepreneurship and Social Enterprises
In the discourse on the relationship between business and society, social enterprises have come to play an important part in trying to bridge business models with societal needs. Though there are different definitions of social entrepreneurship, ranging from very narrow to very broad, there is a consensus that social entrepreneurship is the pursuit of new opportunities within business or organizations to create social value rather than to aim for maximum profit in the traditional sense (Volkmann et al., 2012). The literature on the topic of social entrepreneurship uses different terms
18 that are closely related. ‘Social entrepreneurship’ can be seen as varied socially innovative initiatives ranging from for-profit to voluntary organizations. ‘Social entrepreneurs’ describes the individuals creating and developing these initiatives and organizations whereas ‘social enterprises’ can be described as a “subset of such activities in which commercial models are used as the vehicle by which social objects are achieved” (Huybrechts & Nicholls, 2012, p.33). The concept of social entrepreneurship is related to CSR practices in the sense that both approaches integrate social and environmental concerns within the business realm and look for innovative solutions. However, in corporations where CSR practices are implemented the ultimate goal remains profit maximization whereas with social entrepreneurship the social mission is the primary objective (Prieto-Carrón et al., 2006).
Though social entrepreneurial activities go a long way back in history, academic research in the field of social entrepreneurship and social businesses just started growing in the late 1990s and gained popularity in the first decades of the 21st century. Social enterprises can take many forms ranging from non-profit to for-profit ventures and wide spectrum of different structures and business models. The literature on social entrepreneurship covers a range of topics, but only a small part of research focuses on the merging of social and economic value creation in the same organizational structure, in a so called hybrid social enterprise model (Wilson & Post, 2013). While traditional thinking sees social and economic value creation as paradoxical and resulting in necessary trade-offs, the literature on hybrid business models suggests that through innovative and conscious strategies, social and economic value could actually be mutually reinforcing (Emerson, 2003; Mair & Schoen, 2007). However, it has been stressed that the processes in which economic and social value creation are integrated needs to be examined more closely (Wilson & Post, 2013). Research from Mair and Schoen (2007) shows that social value creation could potentially be increased by integrating the targeted beneficiaries in the supply chain. This current research will explore this by focusing on the inclusive business model that integrates poor and marginalized people into the value chain. The inclusive business model can be seen as a hybrid social enterprise that combines economic and social value creation in one business venture.
2.5 The Bottom of the Pyramid and Inclusive Business Models
The concept of inclusive business models has been gaining more attention by organizations and academics in the aim to achieve inclusive development. The concept of inclusive business was first mentioned by the World Business Council for Sustainable Development in 2005 (Likoko & Kini, 2017) and builds on the theoretical ideas of the ‘Bottom of the Pyramid’. This theory is first discussed before turning to a conceptualization of the inclusive business model.19
2.5.1 Bottom of the Pyramid Theory
Within the bottom of the pyramid (BoP) theory the world’s population is illustrated in the form of an economic pyramid in which the top of the pyramid consists of the smallest group with largest purchasing power and the bottom of the pyramid is the largest group with the smallest purchasing power. The people at the BoP are those who live in poverty and often have been ignored by the private sector and economic markets (Prahalad & Hart, 2002). The BoP theory was introduced by Prahalad and colleagues in 2002 and suggests that there is ‘fortune at the bottom of the pyramid’, meaning that by targeting the BoP as consumers, firms are not only able to contribute to poverty alleviation by offering products and services to the poor, but also will lead to profits for the company.
Some scholars are apprehensive about the potential of the BoP approach as they state that the combining of economic with social objectives could lead to unrealistic business expectations and the focus on too many objectives will result in failure to achieve any of the objectives (Agnihotri, 2013). Scholars also argue that targeting the BoP as customers could potentially lead to unethical practices and exploitation of the BoP population. The BoP are vulnerable consumers as they are not only poor in income but also in terms of education and experience in evaluating advertising (Sharma & Nasreen, 2017). Davidson (2009) argues that the marketing and selling of non-essential products to the BoP raises ethical issues as money spent on these products reduces the amount of money left for more essential goods such as food and education.
Critics suggest instead that, in order to create positive impacts for the BoP, the population should be treated as producers, suppliers or employees instead of merely as consumers (Agnihotri, 2013; Karnani, 2007). Kummitha (2017) states that including the poor into the value chain of companies will lead to opportunities and resources that are needed to participate fully in economic, social and cultural life which will affect the lives of the poor and their access to fundamental rights. However, as mentioned before, integrating the poor into the value chain of businesses is not sufficient. Improving the livelihoods of the poor demands innovation at business level and new business models where decent working conditions are a central focus (Hahn, 2012). It is built on this theoretical framework, of including those at the BoP in the value chain of the business, that the concept of inclusive business emerged. The idea of inclusiveness in business models is based on the idea that business activities “can contribute to the long-term goal of poverty alleviation by embedding the neglected poor parts of the world population into efficient value chains and market structures” (Hahn, 2012, p.50).
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2.5.2 Inclusive Business Models
The inclusion of the BoP into core business activities as consumers, producers, suppliers or employees is translated into the idea of an inclusive business model. The inclusive business model is a key concept within the inclusive development approach as it aims to generate sustainable and decent income generating opportunities for poor and marginalized people (Golja & Požega, 2012). Hanh (2012) argues that integration of the poor in the value chain not only leads to financial improvements, but indirectly has an effect on aspects of “recognition, self-respect and inclusion” (Hahn, 2012, p.60). This idea corresponds closely to the aims within inclusive development that not only focuses on economic growth but also on human rights and wellbeing.
Figure 1, a model adapted from DaNu facility (2018), provides an overview of where the inclusive business model is situated compared to other business models and initiatives concerning the integration of financial and social returns. As the model shows, commercial businesses are more focused on financial returns while social enterprises prioritize the social mission and take on for-profit or not-for profit business models. The inclusive business model can be seen as a hybrid social enterprise as it combines both social and economic objectives in one business venture. Inclusive businesses are for-profit businesses in which specifically the integration into the value chain is used to make a social impact and to improve the livelihood of people and contribute to poverty alleviation.
21 Though there is a broad consensus that an inclusive business indicates the integration of low-income people in the value chain of a business, there is debate on when exactly a business can be deemed inclusive as definitions on inclusive business vary. There is for example no standard of how many ‘poor people’ should be included in the value chain, or what amount of social impact is enough for a business to be considered an inclusive business (Wach, 2012). Inclusive business models can take on different forms, operate at different scales and can be developed by entrepreneurs or within already existing companies (Gradl & Knobloch, 2010). Whereas in the original conceptualization of the BoP by Prahalad the MNCs played a central role, scholars are increasingly looking at small companies and social entrepreneurs for creating a social impact through business activities (Hahn, 2012; Kolk et al., 2014).
Research on the impacts of inclusive businesses has mainly focused on the agricultural sector, where the BoP is included as suppliers and producers. Other sectors have remained neglected or limited to single case studies. A gap exist in the literature concerning the social impacts of inclusive business strategies and the willingness and extent to which business need to make trade-offs between profit generation and the inclusion and social impact for those at the BoP (Likoko & Kini, 2017; Hanh, 2012). This current study aims to contribute to the body of knowledge on inclusive businesses by focusing specifically on inclusive business models in the fashion industry and exploring how these businesses are able to combine social and economic objectives within one business venture. The next section discusses inclusive business models as an alternative to the fast-fashion industry, which is the focus of this study.
2.6 Inclusive Business Models in the Fashion Industry
As mentioned in the introduction chapter (Chapter 1), the fashion industry has been a particular important sector for developing countries to enter the global economy by engaging in export-oriented production. As a result of the labourintensive production, the garment industry created many direct and indirect employment opportunities, specifically for low-skilled women workers (Nadvi, 2004). The fragmentation of the value chains, with GVCs controlled by leading international buyers and production outsourced to manufacturers and subcontractors in developing countries makes it complex and difficult to monitor working conditions and enforce labour laws.
The culture of fast-fashion has put enormous pressure on the industry and the factories that are producing the clothing. Suppliers are being pushed by brands to deliver clothing faster and at cheaper rates (Human Rights Watch, 2019). As a result, factories compromise on labour practices to stay competitive which impacts workers’ wages, working hours, contracts and health
22 and safety. Workers face pressure to reach production targets, are subject to intimidation and verbal abuse, and report being restricted in their toilet breaks and meal breaks to save on production time (Human Rights Watch, 2019). As conditions in garment factories have gained worldwide attention, there has been a growing movement of consumers and investors who are concerned with the conditions in which clothing is made. However, the current fast-fashion industry has been designed to maximize profits, no matter the consequences for workers and the environment. To challenge the traditional economic model there is a need for new and innovative business models that not only pursue economic goals but also social and environmental value (Todeschini et al., 2017). This has encouraged the emergence of sustainable business models that focus on circular economy, zero waste practices and the use of new and more sustainable materials (Pal & Gander, 2018).
To combat the social issues and human rights violations in the industry entrepreneurs in the fashion industry are establishing social enterprises and adopting inclusive business models in which social value is integrated as a core objective. Research suggests that inclusive business models in the manufacturing sector could potentially contribute to achieving various SDGs such as SDG 1: no poverty, SDG 5: gender equality, SDG 8: decent work and economic growth, SDG 17: partnerships and SDG 12: responsible consumption and production (Ghosh & Rajan 2019). One of the platforms for inclusive businesses, the Growing Inclusive Markets initiative, reports on a single case study of an inclusive business model in the fashion industry. The case study focuses on garment manufacturer Denmor Garments operating in Guyana that provides employment to women from impoverished rural communities. The report argues that the business has been successful in increasing education and literacy, improving health and hygiene and contributing to personal empowerment for the women working included in the business (Richards, 2008).
Except for single case studies there has been little research on inclusive business models in the manufacturing sector and garment industry. According to report by the ADB, inclusive business models in the manufacturing sector, such as the fashion industry, are difficult to characterize as the main mode for inclusion is to integrate the BoP population as employees (Dietrich, 2018). The current practices in the fashion industry, that result in widespread human rights violations, show that solely including the BoP as employees is not sufficient to achieve inclusive development, but that decent working conditions are a key element to improve the livelihood and well-being of employees. As is reflected in the inclusive business literature, there is uncertainty about what elements and practices businesses need to implement to be deemed an inclusive business and how these business models are able to successfully contribute to a better standard of living for the BoP included in the value chain.
Figure 2 provides an overview of the conceptual model used in this study to help explore how the business model and business strategies result in social value creation. This model also
23 indicates the sub-questions within this study that are further discussed in Chapter 3. By exploring the different business elements shown in the conceptual model, this research aims to contribute to the literature by providing insight in the different ways that inclusive business models in the fashion industry, that include the BoP as employees, can contribute to social value creation and an improved livelihood for the employees. This study also aims to contribute to the theoretical knowledge concerning the combining of social and economic value creation in one business venture, through exploring challenges within the inclusive business model and trade-offs that occur between different objectives that potentially influence the ability of businesses to create social value.
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2.7 Conclusion
This chapter provided an overview of the impact of globalization on developing countries and inclusive development. Where historically nation states have been seen as responsible for development issues, the private sector has increasingly been held responsible for their impact on society and the environment. This has resulted in the implementation of CSR practices and the search for business invitations in which the aim is to combine economic growth with the creation of a positive social impact. The idea of including the poor as consumers and as producers has led to new business models, including the inclusive business model where low-income people are included in the value chain of the company. Though some research has been conducted on the social impacts of inclusive business models within the agriculture, there is a lack of research on inclusive business models in the fashion industry and in the context of developing countries. The current research contributes to this knowledge gap by studying different fashion businesses in Cambodia and Nepal that use an inclusive business model. This research aims to provide information on the different forms and practices these models implement and how these businesses are able to create social value for the employees involved. This study also aims to contribute to the theoretical knowledge gaps in the literature on hybrid social enterprises and inclusive business models and explores if and how trade-offs occur as a result of the integration of social and economic objectives within the same business venture.
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3. Research Methodology
This chapter discusses the methods and methodologies applied in this study. This chapter starts in section 3.1 with the main research question and its corresponding sub-questions that are the focus of this research. In section 3.2 the underlying epistemological and ontological approaches to this research are explained. This is followed by an overview of the research design in section 3.3 with a detailed explanation of the unit of analysis and the sampling of participants. Section 3.4 provides information on the different methods of data collection followed by an elaboration on the data analysis in section 3.5. Section 3.6 continues with the ethical considerations within this research and section 3.7 discusses the inherent limitations that are part of this research. This all is concluded in section 3.8.
3.1 Research Questions
To address the knowledge gap within the literature surrounding inclusive businesses in the fashion industry and its potential to make a social impact, this research aims to answer the following research question: ‘How can fashion brands and manufacturers that use an inclusive
business model contribute to social value creation?’. To answer this research question, five
sub-questions are addressed. These sub-sub-questions explore the business side by focusing on the perspective of the business owners (sub-question 1-4), while also addressing the perspective of the workers in the value chain (sub-question 5).
1. What are the motivations of entrepreneurs to use an inclusive business model? 2. What inclusive business strategies do fashion brands implement in their value chain?
3. What challenges occur in using an inclusive business model in the fashion industry?
4. What trade-offs occur between economic and social value creation (and possibly environmental value creation)?
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3.2 Epistemology and Ontology
The philosophical position taken in this research is that of critical realism. From a critical realist perspective it is believed that the world does not only consists of events and experiences, but that there are underlying structures and power relations that create the conditions for the perceived and experienced phenomena (Patomäki & Wight, 2000). Critical realists make a distinction between three domains of the social world and reality; the empirical, the actual and the real world (Bhaskar, 1978). The empirical are the elements of reality that are experienced, the actual are elements of reality that occur but are not necessarily experienced, and the real world is composed of deep structures and mechanisms that generate the elements or reality and can only be understood by looking at the empirical and the actual (McEvoy & Richards, 2006, p.69). Looking at the GVCs and working conditions in the fast-fashion industry for example, we can measure and observe certain things such as low wages, overtime or short contracts (the empirical), and we can trace these events to the management and mechanisms within garment factories (the actual) but to really explain these events we need to understand underlying power structures of capitalism and the ability and position of MNCs to put pressure on factories that lead to precarious working conditions (the real).
Applying critical realism to this current research, the aim is to explore how the inclusion of the BoP as employees in the value chain can lead to social value creation and livelihood improvement for the BoP. The focus is not on measuring the exact outcomes of social value creation and livelihood improvement of the BoP, but on understanding mechanisms that could lead to social value creation and to identify which factors contribute to the ability of businesses and entrepreneurs to create social value. This research has an exploratory nature and therefore takes a constructivists approach in the data collection. The data collection focuses on the experiences and interpretation of the actors involved in the businesses in this study, either in the position of entrepreneur/founder or employee (the empirical), with the aim to explore and understand a shared phenomenon on a deeper level (the actual and the real). Using a constructivist approach and qualitative data collection methods that takes into account multiple perspectives, this research acknowledges not only the subjectivity in the experience of the respondents but also the subjectivity of the researcher in interpreting the data (Charmaz, 2006). To enhance the reliability and validity of the findings, triangulation is used where the qualitative data methods were combined with field observations, secondary data and integration of theory to strengthen and confirm the results of this research (McEvoy & Richards, 2006).
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3.3 Methods
3.3.1 Research Design
The purpose of this research is to gain more insight in the social impact that fashion businesses are able to make by using inclusive business strategies. As there is limited evidence on the social impact of inclusive businesses in general as well as a lack of research on inclusive businesses in the fashion industry, this research is exploratory in nature. In order to answer the research questions of this study, a two-phase fieldwork research was conducted with the first phase focusing on the role of fashion businesses in which qualitative interviews were conducted with the founders of the businesses. In the second phase of the study employees of the participating businesses were interviewed to capture the experience of the workers. The interviews with employees were conducted with the help of an interpreter using structured interviews. After data analysis the results of these two phases were compared and integrated.
3.3.2 Unit of Analysis and Units of Observation
Following the main research question, the unit of analysis and the main focus of this study are fashion companies that use an inclusive business model or inclusive business strategies to create a social impact. The aim of this study is to understand how businesses, with certain strategies and activities, are able to create social value within the company. The social value creation that takes place has influence on the wellbeing and work conditions of the employees in the business. Because social value creation involves both the businesses and the workers, the units of observation in this research can be divided in two groups with two different perspectives. The first unit of observation zooms in on the business side and focuses on the founders of the businesses or business management as to understand why the business was established, what the objectives of the business are, and to understand underlying motivations and ideas. The second unit of observation are the workers in the value chain of these businesses. Because the participating businesses are using an inclusive business model, the workers at the businesses are often low-income people for which the business is trying to make a positive impact.
3.3.3 Sampling
This research uses nonprobability sampling in which the samples are selected through purposive sampling. Purposive sampling means that the units of observation have been selected based on the researcher’s judgement about which cases would be representative for the research
28 population (Babbie, 2015). In this research the focus is on fashion businesses that implement an inclusive business model. In order to identify and contact these businesses, information found on the website of companies or on their social media accounts was used to decide if they fit the characteristics of an inclusive business. Because the literature on inclusive business models does not indicate a clear set of criteria for when a business can be deemed ‘inclusive’, three guidelines for finding potential participants were used. First, corresponding to the main characteristics of an inclusive businesses model, businesses should deliberately try to include low-income people in their value chain and provide them with decent work with the underlying motivation that by doing so, the company is contributing to an enhanced standard of living for those people. Second, businesses are or aim to be self-sustaining and economical viable and thus do not rely on external funding. Lastly, within the sampling there was a specific focus on businesses that have their production in developing countries as to understand how these businesses could fit into the broader debate on the contribution of the private sector to inclusive development.
Businesses that met these criteria were approached to participate in the study. The first sampling round took place before the fieldwork period abroad and focused on businesses that are based in the Netherlands to enable face-to-face interviews. The purpose of this first sampling round was to establish contact with businesses where it would be possible to visit the production site and interview employees. After establishing contact with two businesses, one with the production site in Cambodia and one with the production site in Nepal, a second round of sampling took place with a specific focus on these two research locations. During the fieldwork period there was a continuous search for other potential participants in Cambodia and Nepal using social media like Facebook and Instagram, and visiting stores, local fairs and markets in order to establish more contacts and identify more fashion brands that fit the criteria for this research. Snowball sampling was also used to find more participants. However, the businesses that were mentioned by participants were often already identified which did confirm that the sampling techniques were successful in capturing potential participants.
For the second unit of observation several participating businesses were asked for the possibility to interview the workers in their value chain. Due to time constraints or due to practical barriers, such as the need for an interpreter, not all businesses were asked to participate in this second phase. Furthermore, due to time constraints from the business side, the majority of businesses that were asked to participate in this phase of the research declined, did not respond or only allowed for a small number of workers to be interviewed. Because of these sampling techniques and the dependency on the willingness of businesses to participate in both the first and second phase of the study, this research has some significant limitations, which will be further discussed at the end of this chapter in section 3.7.
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3.3.4 Participants
The data collection took place between October 2019 and January 2020 in Cambodia and Nepal. For the first unit of observation consisting of the fashion companies, interviews were conducted with founders or other key persons within the business. The respondents are from 21 different companies located in Cambodia and Nepal. For the second unit of observation, twelve employees from three different companies were interviewed in both Cambodia and Nepal. In addition, this study also takes into account information from interviews with two organizations providing assistance and trainings to social entrepreneurs. Table 1 provides an overview of the data collection and respondents in this research.
3.4 Data Collection Methods
The data collection consists of semi-structured interviews and structured interviews, as well as secondary data such as the information on websites of brands and impact reports. Lastly, field observations were used to see if the information obtained from the interviews corresponded with what was observed on the work floor when visiting the different production locations. Combining these methods allowed for triangulation and a more robust understanding of the research topic.
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3.4.1 Semi-structured Interview with Fashion Businesses
The first part of the research focused on the perspective of the fashion companies that use an inclusive business model. Due to the exploratory nature of the research questions, a qualitative approach is well suited to gain a better understanding of the different perspectives and underlying motivations for establishing and running these businesses. To answer the sub-questions (sub-question 1-4), semi-structured interviews were conducted among founders, managers or other persons at key positions within the businesses. Semi-structured interviews are interviews where a prepared set of questions or an interview guide is used (Drever, 1995). The prepared questions functioned as a guidance during the interviews, but room was allowed for the interview to unfold in a conversational manner which provided participants with the chance to address topics that they regarded as important.
The questions prepared in advance focus were based on the operationalization table (Appendix I) and included topics like entrepreneurial motivation, business strategies, challenges and trade-offs. This interview guide was constantly updated with insights gained from conducted interviews such as questions concerning relationships between local and foreign actors and partnerships between businesses and non-governmental organizations (NGOs). The interviews ranged from half an hour to over an hour and were conducted at the production site or retail store of the fashion business. After obtaining informed consent of the participants, each interview was recorded and later transcribed.
3.4.2 Structured Interviews with Employees
For the second part of this study, structured interviews were used to gain an understanding of the perspective and experiences of the employees at the participating businesses (sub-question 5). Because of language barriers, the interviews with employees were conducted with the help of an interpreter. To facilitate good collaboration between the researcher and interpreter the choice was made to use structured interviews with a fixed set of questions, although there was space for asking additional questions. The structured interviews focused on the experience of employees, the working conditions and job satisfaction. The interviews with the employees took place at the workplace or production site with permission of the founders or managers of the businesses.
To keep as much flow in the interview as possible, the introduction of the research was led by the researcher but after the signing of the informed consent, the interpreter took the lead conducting the interviews while translating the answers after each question to allow for additional questions or clarification whenever deemed necessary. Three different interpreters have assisted during the data collection. All were briefed beforehand with clear instruction to
31 create a strong collaboration during the interviews. For every interview an informed consent was first signed by the participant, thereafter the interview was recorded and transcribed.
3.4.3 Document and Website Analysis
Where available, secondary data such as impact reports and information from websites and social media was collected. This data was used to identify how companies present themselves online and what measures of social impact they have reported. The secondary data was compared to the data collected during the interviews to look for possible inconsistencies or to provide extended information on the business objectives, business practices and social impact (sub-question 1, 2 and 5).
3.5 Data Analysis
All collected qualitative data was analyzed using ATLAS.ti qualitative data management software. Before coding, thematic codes were identified according to the different sub-questions and the operationalization table (Appendix I). After establishing a coding scheme the transcripts were coded according to the coding scheme (deductive) while leaving room for open coding whenever needed (inductive). Different coding cycles were conducted to discover themes in the data. The different methods and units of observation were coded separately and only compared and integrated at the end of the data analysis.
3.6 Ethical Considerations
There have been several ethical considerations to take into account for this research. While the businesses participating in this research are, in theory, aiming to provide fair and decent work, the relationship between the company and the workers could be sensitive and it is important to be aware of what information can be shared between the two parties and what not. The interviews with the businesses and employees have been conducted on voluntary basis and before each interview the research was explained and an informed consent was signed. The businesses have been asked for permission for using the name of the company and the name and function of the respondent. The employees have been promised full anonymity. However, even though all data will be anonymized there might be a possibility of deductive disclosure where participants can be traced back through data containing detailed information (Kaiser, 2009). Especially since most of the companies participating are small companies with only a few employees. Because the data
32 contains information about the experiences and perspectives of the workers on the business they work for, disclosing information could harm the position of the workers. It is therefore crucial to be careful with what data of the study can and cannot be disclosed with the participating businesses.
Throughout the analysis and interpretation of the data it has been important to take into account my own positionality as a researcher as well as my own subjectivity. Being female and western could have worked as an advantage when interviewing the founders of the businesses, as the majority of founders were foreign and therefore shared a similar background. While conducting the interviews with employees however, this could have created a barrier. Sharing a similar background as the founders and asking questions about their experience working for the business could have increased the assumption that I was associated with the business and founder instead of being seen as an independent researcher. This could have enhanced the possibility of socially desirable answers as employees might be afraid the answers would be reported back to their boss. To counter this assumption before every interview, with help of the interpreter, I explained my position as a researcher, stating clearly that the research is conducted independently of the business and that the answers given would stay anonymous and would not be reported back to the founders or other persons in the company.
3.7 Limitations of the Research
This research knows several limits. First and foremost, a significant limitation to this study has been the dependency on companies to be willing to participate in the study. This could have led to a sampling bias in which only companies that felt confident in their business practices wanted to participate in the research and companies with lesser business practices might not willing have been willing to participate. This could have led to a more positive perspective on the companies and their practices than is reflected in reality. The same is true for whether or not companies allowed their employees to take part in the research.
Furthermore, another related limitation within this study is the fact that the answers given by both the companies and by workers in the interviews were vulnerable to a social desirability bias. A social desirability bias indicates the tendency to present a favorable image when giving answers on questionnaires or in interviews (Van de Mortel, 2008). The companies that are participating in this study profile themselves as companies with high labour standards and ethical practices and to protect this image the companies might not have been willing to disclose any information that could indicate any practices that are less sustainable or ethical. The data collected among the workers included in the value chain was also vulnerable to social desirable
