Magdalena Charlotte Uhler

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New inclusive business models at the Bottom of the Pyramid

in emerging markets to create shared value

- a systematic literature review

A dissertation presented by

(B4051792 / S2848600) to

Newcastle University and the University of Groningen in partial fulfilment of the requirements

for the degrees of

MA Advanced International Business Management

at

Newcastle University Supervisor: Dr. Stefanie Reissner

MSc International Business and Management

at the

University of Groningen Supervisor: Drs. Henk A. Ritsema

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"Let us work in partnerships between rich and poor to improve the opportunities of all human beings to build better lives”

(Kofi Annan) Abstract

Emerging markets, the Bottom of the Pyramid (BoP) and inclusive business are terms of great interest these days. On the one hand, emerging markets provide attractive investment opportunities for multi-national companies (MNCs). On the other hand, the United Nations’ Millennium Development Goal of extreme poverty eradication aims to include the poor in the Global Value Chain (GVC). These aspects can be dealt with by inclusive business models bringing together the poor and MNCs.

This dissertation identifies and reviews current inclusive business models at the BoP in emerging markets and their approach to the concept of Creating Shared Value (CSV). This idea, developed by Porter and Kramer in 2011, intends to create benefits for both parties involved - MNCs and the BoP - while extending pure philanthropic activities.

A systematic literature review based on 39 academic articles published in diverse journals has been conducted, divided into a descriptive and a thematic review. The descriptive review provides an overview of the sample articles by analysing basic publication details, while the thematic review analyses the content of the articles. By doing so, the most frequently proposed inclusive business models are classified according to their area of application in six categories. This dissertation further illustrates the connection between current inclusive business models and the idea of CSV and presents benefits for MNCs as well as for actors at the BoP. Finally, valuable insights for the stakeholders involved in inclusive business models at the BoP in emerging markets are provided and avenues for future research suggested.

Acknowledgements

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Chapter 1: Introduction

This chapter sets the scene for this study by outlining the research context. It further introduces the research questions and presents the research process of this dissertation.

1.1 Context of the study

Since Prahalad and Hart (2002; 2004) claimed that there is much untapped purchasing power at the Bottom of the Pyramid (BoP), especially in emerging markets, multi-national companies (MNCs) increasingly seek to expand their business to the emerging economies. These markets are characterised by rapid growth, low income, a growing middle class and a general shift from state control to free-market regulation (Hoskisson et al., 2000; London and Hart, 2004). Mostly, the BRIC economies (Brazil, Russia, India, China) are classified as emerging markets, however, also the MINT countries (Mexico, Indonesia, Nigeria, Turkey) and CIVETS countries (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa) have to be mentioned. Several authors argue that no academic, practitioner or policy maker can ignore emerging markets as investment opportunity, test bed for new technologies and source of innovative business models (Hoskisson et al., 2000; Wright et al., 2005).

The BoP was originally classified as the 65% of the world’s population earning less than $2,000 per year leading to a by MNCs largely untapped or underserved market of 4 billion poor people (Prahalad and Hammond, 2002). More frequently, however, the definition of the BoP as the population earning less than $2 per day is used (Prahalad, 2004). While Prahalad himself acknowledged that there is no universal definition of the BoP, he states that the “four billion poor can be the engine of the next round of global trade and prosperity. Serving the BoP consumers will demand innovations in technology, products and services, and business models” (Prahalad, 2004: 2).

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business models are particularly aiming at consumers at the BoP in emerging markets, who despite earning a very low individual income hold large aggregate buying power (Prahalad and Hammond, 2002).

The development of MNCs increasingly focusing on doing business at the BoP has been facilitated by globalisation, increasing market liberalisation as well as new technologies (Frenkel, 2001). Emerging markets also increasingly try to attract Foreign Direct Investment (FDI), notably since the foundation of the World Trade Organization (WTO) in 1995, which decreased trade barriers (Morrison, 2011). However, there are many, and due to different stakeholder interests partially conflicting, possibilities and reasons to integrate the poor in the Global Value Chain (GVC).

MNCs, on the one hand, benefit from positive reputation effects when pursuing Corporate Social Responsibility (CSR) strategies as well as from economies of scale by new markets entries (Wagner, 2010). They can further make use of the profound, low-wage workforce. On the other hand, in order to make profit at all, MNCs have to be willing and able to adapt their strategies to local requirements and also face the problem of weak institutional environments in the host country (Eyring et al., 2011). These so called “institutional voids”, defined as “the absence of intermediaries that facilitate the functioning of the market” (Khanna and Palepu, 2010: 14), such as labour markets, product markets and capital markets, are particularly prevalent in emerging economies (Khanna and Palepu, 2010). Moreover, MNCs have to overcome the “liability of foreignness” (Hymer, 1976; Zaheer, 1995), which are the costs arising inter alia from the unfamiliarity of the environment and from coordination across geographic distance (Kindleberger, 1969). However, if MNCs successfully manage these challenges and are able to pursue stakeholders, such as shareholders, employees, customers and suppliers, to aim for a long-term strategy, moderate profits can be made (Seelos and Mair, 2007).

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(Karnani, 2008; Amold and Valentin, 2013). Some MNCs even use the relocation of labour-intensive production activities to emerging markets via local subcontractors to avoid entering into contractual relations with the workers in order to circumvent wage regulations, environment and work conditions they otherwise had to adhere to (Merk, 2011). Consequently, workers at the BoP remain in a vulnerable position (Frenkel, 2001).

It is controversially discussed whether or not the only social responsibility of a business is to use its resources and engage in activities that are designed to increase profits (Friedman, 1970). MNCs doing business with the poor face ethical problems if their engagement leads to an exploitation of the population at the BoP (Karnani, 2008, Davidson 2009). Thus, it has been claimed that MNCs besides fulfilling their economic responsibilities should take on their ethical and social responsibilities as well. (Freeman 1984; Davidson, 2009).

Porter and Kramer were taking the idea of CSR one step further and introduced the concept of Creating Shared Value (CSV) in 2011, emphasizing a different approach to generate profit from the BoP, which exceeds purely philanthropic activities. The CSV concept is based on the idea of “co-creation” and the fact that both parties, the BoP and MNCs, have to benefit from the business activities. This nascent approach demands for new inclusive business models to be developed to account for mutual benefits and the creation of shared value. However, in connection with shared value creation, questions about whether or not both parties benefit in equal terms and how benefits are measured can be raised.

1.2 Research questions

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1. What are current inclusive business models at the BoP in emerging markets to create shared value?

1.1 What definitions, theories, characteristics and methodologies have been applied to develop inclusive business models at the BoP in emerging markets?

1.2 What kind of benefits can the application of inclusive business models generate for stakeholders at the BoP as well as for MNCs?

1.3 Research process

In order to answer the research questions, current inclusive business models proposed in the existing literature are reviewed.

The research process of this dissertation is mapped in Figure 1.1 below.

Figure 1.1 Research process

The research background of this dissertation, in form of the concepts of CSR, CSV and inclusive business, is introduced in Chapter 2. Chapter 3 reveals the methodology of the systematic literature review including a pilot trial, while in Chapter 4 the results of the review are presented and analysed. The dissertation concludes with the final section in

Theory enhancing propositions  Recommendations Systematic literature review

Inclusive business models at the BoP

(definitions, theories, characteristics, methodologies)

Research questions

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which its contribution as well as possible limitations are noted and further recommendations for future research areas and practical implications given.

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Chapter 2: Theoretical background

In this chapter the theoretical background of this dissertation is established. The first part, more generally, presents the research theories underlying this study, focusing on the concepts of CSR and CSV. The second part, more specifically, describes the concept of inclusive business.

2.1 Underlying research theories

In this subchapter the theories underlying this research - CSR and CSV - are introduced and compared.

2.1.1 Corporate social responsibility

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2.1.2 Creating shared value

Based on the previous discussion, Porter and Kramers’ “value sharing concept” is used as basis for this work as both parties, MNCs as well as the actors at the BoP, should benefit from inclusive business models. The concept of CSV focuses on “the connection between societal and economic progress” (Porter and Kramer, 2011: 65). Consequently, it is taking away the spotlight from MNCs and moving the centre of attention more towards shared benefits for all actors involved, particularly at the BoP. It is argued that shared value can be created through three ways (1) through reconceiving products and markets (2) by redefining productivity in the value chain and (3) by enabling local cluster development (Porter and Kramer, 2011).

While the concept of CSV has not been announced until 2011, antecedents of this idea have been mentioned in the literature before, such as the concepts of “co-creation” and “mutual value creation” as well as “win-win situation”. One example is the study by Hart and Milstein (2003) focusing on sustainable value creation based on the concept of “mutual value” in 2003. Similarly, Prahalad introduces the idea of “co-creation” in his famous book “Fortune at the Bottom of the Pyramid” (Prahalad, 2004) in 2004 already. Even Porter and Kramer previously mention the idea of “co-creation” in their study on linking corporate competitive advantage to CSR in 2006 (Porter and Kramer, 2006) before introducing the concept of CSV in 2011.

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capitalism instead of simply donating money in order to successfully tackle social issues as capitalism is sustainable.This means that it is able to raise its own money, while, in contrast, there is never enough donated money to eradicate poverty through CSR measures. Therefore, business should focus on doing business and connect the organisations’ success with social progress in order to create economic value by simultaneously tackling social issues. (Porter and Kramer, 2011).

These examples show that there are immense differences between the concepts of CSR and CSV, however, ideally they should be performed in parallel (Porter, 2012). Lapina et al. (2012) argue that CSV should be seen as next step of CSR, however, the transition process will according to the authors be a lengthy one and they predict global MNCs adapting the CSV approach first. The main differences between the concepts of CSR and CSV are mapped in Table 2.1 below.

CSR CSV

Profits Separated from profit generation

Integral to profit maximisation

Financing Limited to allocated “CSR

budget”

Connected to entire company budget

Motivation External pressures and personal preferences

Internally generated and company specific

Focus Philanthropic, doing good Joint company,

community value creation

Table 2.1 Comparing CSR and CSV (based on Porter and Kramer, 2011; Lapina et al., 2012)

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2.2 Inclusive business (model)

In this subchapter more specific concepts used in this study are elaborated on with special attention to the concept of inclusive business.

Business model

The term “business model” originates from the context of data and process modelling for IT systems (Konczal, 1975) and gradually spread over different fields. While several authors state that there is no clear and consistent business model definition (Osterwalder et al., 2005; Baden-Fuller and Morgan, 2010; Dahan et al., 2010), mainly the definition by Osterwalder and Pigneur (2010) is used in the current literature. Therefore, their definition is applied in this dissertation as well, which is: “A business model describes the rationale of how an organization creates, delivers, and captures value” (Osterwalder and Pigneur; 2010: 14). Dahan et al. (2010) emphasise that a business model should not be confused with a strategy, as a strategy can be flexible, while a business model is a comprehensive and coherent description of a state (meaning the organisation’s situation).

Inclusive business

The extensive definition of inclusive business by “Endeva”, an independent institute that provides support for enterprises wishing to make use of inclusive business models, is followed in this research: “Inclusive businesses include low-income people in developing countries into their value chain as consumers, producers, employees and entrepreneurs, for the social economic benefit of both companies and those living in poverty. Companies gain new markets, increase their revenues, strengthen their supply chain and labour force, and gain innovation capacity. People in poverty gain access to jobs and income, to goods and services, they can improve their standard of living, manage risks better and enlarge their opportunities and choices” (Endeva, 2015). This definition includes the two-fold nature of inclusive business and the respective success factors or benefits for both parties.

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However, in line with Toledo-López et al. (2012), financial measures may not always be appropriate for assessing socially embedded or inclusive business. Therefore, other aspects, for instance the perceived benefits for the entrepreneur as well as social and environmental aspects, have to be considered, which might be more difficult to quantify though (Toledo-López et al., 2012). Taking this thought one step further to inclusive business models at the BoP, both parties – MNCs and the actors at the BOP – should benefit from inclusive business. However, this might take different forms as outlined in the definition of inclusive business, implying that benefit, especially for the population at the BoP, is not necessarily linked to profit.

The World Business Council for Sustainable Development (WBCSD) and the SNV Netherlands Development Organisation (2006) categorise inclusive business as mapped in Figure 2.1 below.

Figure 2.1 Economic and social benefits of inclusive business (WBCSD and SNV, 2006: 2)

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(2011), which is based on considering value creation through profit maximisation as integral part of the firm, can be linked to the concept of inclusive business.

In Subchapter 2.2 further concepts used in this study have been elaborated on, namely the term “business model” and the concept of inclusive business.

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Chapter 3: Methodology

In this chapter the research methodology of the systematic literature review is presented. First, the systematic literature review model to be applied in this study is introduced. Second, the single steps of the research development process are presented comprising the research gap, the research questions, the development of the review protocol as well as the pilot trial. Third, the based on the results of the pilot trial adjusted review protocol is applied, which allows for presenting the sample composition of the review.

3.1 Systematic literature review model

In this subchapter the systematic literature review model developed for this study is presented.

In this dissertation a systematic literature review, defined as “a method of collecting information to answer research questions or find out what is known about a particular topic” (Fink, 2014: 148) is conducted. Systematic literature reviews are particularly common in the field of medicine and health, however, they have become increasingly popular in other research areas, such as business and management, as well (Tranfield et al., 2003; Creswell, 2009). This development is reflected by the existence of review journals, purely focusing on literature reviews in the field of business and management, such as the “International Journal of Management Reviews”. Through the systematic literature review, common themes and current knowledge in the published literature are described and analysed to answer the research question as well as to identify areas for future research. Further advantages of systematic reviews are their replicability and possibility to be updated (Fink, 2014). They might even resolve controversy between conflicting findings and provide a reliable basis for decision-making (Mallett et al., 2012).

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value creation proposed by Porter and Kramer (2011) and its application in the business models to enable recommendations for future research.

The systematic literature review is conducted based on seven steps developed by Fink (2014) combined with three phases proposed by Tranfield et al. (2003). Tranfield et al. (2003) recommend to structure the systematic literature review among three consecutive phases (planning the review, performing the review and reporting) and several sub-stages (e.g. developing research questions and the review protocol). In comparison, Fink (2014) provides more detailed steps to be undertaken chronologically, leading to a less structured model. Thus, the steps proposed by Fink (2014) are combined with the sub-stages proposed by Tranfield et al. (2003) and allocated to the three phases. This allows for presenting a more comprehensive model including individual steps to be followed chronologically within three main phases.

The combined systematic literature review model is listed in Figure 3.1 below.

Figure 3.1 Systematic literature review model (based on Tranfield et al., 2003; Fink, 2014)

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major part of the review methodology including a pilot trial. Phase 2, “performing the review”, applies the developed review protocol, which allows for presenting the final sample composition in Chapter 3.3. Phase 3, “reporting”, is represented by the Chapters 4 and 5 comprising “findings and interpretation, implications and future research.”

In Subchapter 3.1 the systematic literature review model has been presented and its application in this study demonstrated.

3.2 Research development

This subchapter reflects Phase 1, “planning the review”, of the systematic literature review model presenting the research gap, followed by the research question and the development of the review protocol. Furthermore, the review protocol is tested by conducting a pilot trial, which allows for presenting the adjusted review protocol to be applied when performing the actual review.

3.2.1 Research gap

In this subchapter the research gap is presented, divided into two parts. Firstly, the research gap is identified and secondly confirmed by applying search terms to diverse databases.

3.2.1.1 Research gap identification

Muhammad Yunus, winner of the Nobel Peace Prize in 2006 for his idea of microcredit and microfinance, argued that a new business model is needed that aims to maximise social benefits rather than profits (Yunus, 2003; Yunus et al., 2010). Since then, new inclusive business models exceeding pure CSR activities of MNCs are becoming increasingly popular (Mair and Marti, 2009; Teece, 2010; London and Anupindi, 2012).

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possible business models in practise (e.g. Seelos and Mair, 2007; Blok et al., 2013). These findings, however, are very diffuse as research in this field is spread over a variety of different research areas (e.g. innovation, entrepreneurship, green business, ethics, marketing, politics, sociology). A structured overview of inclusive business models at the BoP is to the knowledge of the author still lacking, which has also been confirmed to the researcher by an expert in the field in a face-to-face conversation.

To fill this gap, this dissertation identifies, reviews and categorises current inclusive business models at the BoP in emerging markets and elicits their approach to the concept of CSV including its antecedents. While the concept of CSV by Porter and Kramer was not announced until 2011, antecedents of this idea, such as the concepts of “co-creation”, “mutual value creation”, or “win-win situation”, introduced in Chapter 2, might have already influenced current research.

Filling the research gap is important in order to identify avenues for future research that might stimulate further studies in the field of management and poverty reduction as it has been called for by Bruton et al. (2010).

According to Whetten (1989), research should have a significant impact and alter research practice. This dissertation contributes to existing knowledge and is interesting and relevant for multiple audiences it is aiming at. Audiences of this dissertation are academics (research adds to existing literature) and practitioners (research generates general knowledge inter alia for institutes involved in advising MNCs on establishing inclusive business models at the BoP in emerging markets, such as the German institute “Endeva”).Most importantly, however, it concerns MNCs and different stakeholders at the BoP, such as the population as well as NGOs and small local firms (research shows business opportunities).

3.2.1.2 Research gap confirmation

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AND “sustainable business”, “systematic review” AND “inclusive business” as well as “systematic review” AND “sustainable business” as the terms “sustainable” and “inclusive” seemed to be used interchangeably. Furthermore, the search terms “creating shared value” AND “systematic review” and “creating shared value” AND “systematic literature review” have been applied.

The results showed that sustainable business is mainly concerned with ecological aspects and innovation, while inclusive business focuses on social concerns in business, which is more closely related to the concept of creating shared value. Only one literature review by Adams et al. (2015) concerning sustainable business models was found using GoogleScholar. However, the review by Adams et al. (2015) is completely unrelated to CSV. It focuses on the development of sustainability-oriented innovation aiming to advise organisations on how to become sustainable by changing their internal values. As a result, none of the selected databases listed a review of inclusive business models in regard to the concept of CSV.

When additionally checking the Newcastle and Groningen University library databases, only the Newcastle library database showed three results using the search terms mentioned above. However, checking the abstracts carefully revealed that all of these articles concerned the automotive industry and are not connected to CSV, thus had to be excluded.

Furthermore, the International Journal of Management Reviews published in 2010-2015 have been scanned by using the search terms mentioned above with no additional results (Wiley Online Library, 2015) concluding that this dissertation is the first systematic literature review in this field.

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3.2.2 Research questions

In this subchapter the research questions aimed to be answered by conducting the systematic literature review are developed.

The overall theme of this dissertation is “management in developing countries”. According to Thomas (2004), this field of management studies is particularly interesting for MNCs seeking for business opportunities abroad, while benefitting from CSR strategies and its positive reputation effects. However, it is controversially discussed whether the population in the host country also benefits from these investments (Karnani, 2008; Davidson, 2009). According to Bruton et al. (2010) most of the management literature addresses how firms from developed economies compete in settings of poverty and as such focuses on large, mature firms. However, this dissertation tries to balance benefits for MNCs as well as for the population at the BoP by particularly taking into account possibilities for the poor, such as, for instance, employment opportunities. Thus, this research extends the prevalent CSR debate and theory and focuses on mutual value creation.

By doing so, one of the most pressing problems – poverty – and the aim to contribute to its eradication (Economist, 2014) is addressed. As the BoP is defined as the population earning less than $2 per day (Prahalad, 2004) and similarly the World Bank set the international poverty line to $1,90 per day in October 2015 (World Bank, 2015), it seems that reducing poverty through increasing income or generating income in the first place is the method of choice. In this regard inclusive business models could help the poor to leave the defined poverty area by providing employment opportunities. However, it has to be challenged whether an income just above the poverty line in reality leads to a significantly improved living standard of the poor. It is further questionable whether the poverty line should be solely determined based on income or additional “services”, such as, for instance, access to healthcare, might be an indicator as well (Brady, 2003).

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1. What are current inclusive business models at the BoP in emerging markets to create shared value?

1.1 What definitions, theories, characteristics and methodologies have been applied to develop inclusive business models at the BoP in emerging markets?

1.2 What kind of benefits can the application of inclusive business models generate for stakeholders at the BoP as well as for MNCs?

The first sub-question concerns the inclusive business models reviewed and is divided in four themes.

Firstly, the definitions of inclusive business are reviewed as there is no single general definition agreed on. Reviewing these definitions is aimed to provide an overview of the general understanding of inclusive business in the existing literature. Identifying whether or not the idea of CSV is already included in the definitions (and if so, how it is phrased) is aimed to prepare the ground for the following steps of the review.

Secondly, the theories used in the reviewed articles are discussed, aiming for eliciting if the theory of CSV by Porter and Kramer has already influenced current research and the creation of inclusive business models at the BoP. In this regard also antecedents of the in 2011 published concept of CSV are considered.

Thirdly, the characteristics of the business models are described in regard to their area of application. It is reviewed in which industry sector the business models are primarily applied in order to enable a categorisation.

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which subsequently allows the author of this study to identify possible research gaps and enables to recommend areas for future research.

The second sub-question particularly concerns the idea of CSV and which benefits the actors at the BoP and MNCs gain from these business models. In this regard it is further investigated if details in the literature about how the “shared value” is split between the parties involved are provided in order to critically review whether or not they benefit equally.

In Subchapter 3.2.2 the research questions for this study have been developed and explained in detail.

3.2.3 Review protocol development

In this subchapter the review protocol is developed, comprising information sources, search terms, practical and methodological screen as well as data synthesis.

After the first steps of the literature review model’s Phase 1, “planning the review”, a review protocol before retrieving the literature should be developed to minimize bias (Wright, et al., 2007). When conducting a literature review, it has to be considered that the review aims for a solid foundation, provides a good overview of the current state of research and connects the literature with the research question (Thomas, 2004). Thus, in a review protocol details about how the literature review is conducted, clearly indicating which research areas are targeted or excluded, should be provided to ensure transparency and replicability. Furthermore, details about how the sources and samples are selected should be given. (Tranfield et al., 2003)

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3.2.3.1 Information sources

In order to locate relevant studies in the existing literature a combination of approaches should be used, including inter alia applying search terms to electronic databases, handsearching journals and citation search (Popay et al., 1998). However, decisions about what to observe are unavoidable since it is impossible to observe everything (Bechhofer and Paterson, 2000).

In regard to the electronic databases used for the review, the EBSCO and JSTOR databases are selected by the author of this study, which are considered to be among the best digital libraries for academic searches. JSTOR currently includes more than 2,000 academic journals (JSTOR, 2015), while EBSCO consists of 375 full-text databases comprising more than 600,000 ebooks as well a subject indexes (EBSCO, 2015).For the purpose of this dissertation only articles published in academic journals are reviewed and the search is not restricted to specific thematic databases in order to obtain results in a variety of fields.

The selected databases are considered to be suitable for the research as they provide high-quality articles published in a variety of research areas but at the same time also include specialist databases in the field of business and management, such as, for instance, the EBSCO database “Business Source Premier”. In operational terms, the library databases of Newcastle and Groningen University are used to quickly search for and access articles.

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as according to Walters (2011) after the first 100 articles displayed a 40% drop off of the findings’ precision occurs.

Besides these approaches to locate applicable studies, also reference lists from relevant articles are scanned to elicit further applicable literature.

Moreover, additional papers are searched for in key journals (e.g. journal of business ethics), which is important to identify recent publications that have not been included in electronic databases yet (Popay et al., 1998).

In addition, key papers already identified to be included in the review sample are selected. Subsequently, articles that have cited these papers are searched for (citation searching).

Also, library shelves are browsed as well as books and online sources used to gain background knowledge and obtain more detailed information about the topic and the research field as advised by a librarian of Newcastle University.

3.2.3.2 Search terms

According to Counsell (1997), the search terms used to locate relevant literature for the review in the electronic databases should be based on the research question. Therefore, the concepts of CSV, inclusive business as well as the BoP are incorporated in the search terms. The search terms include a variety of approaches to the topic considering both sides - MNCs as well as the BoP - to ensure a balanced sample for the review.

Additionally, broad terms, such as “management and poverty“ and “social issues in management”, are chosen as more general approach to the topic representing the research background of this study as introduced in Chapter 1 and Chapter 2.

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When conducting the search, the code “Boolean/Phrase” is applied to define the search and to narrow the results. By applying the Boolean Operator “AND” it is ensured that all search terms are presented in the resulting record, which leads to a more focused search, particularly if the topic contains multiple search terms (Page, 1996).

3.2.3.3 Practical screen: inclusion and exclusion criteria

Solely searching for the selected search terms in databases generates a large number of records as search strings are highly sensitive (Fink, 2014). Thus, the results have to be narrowed down by inclusion and exclusion criteria to meet the specific requirements of the review.

The inclusion and exclusion criteria for this study are listed in Table 3.1 below.

Inclusion criteria Exclusion criteria

Articles published in academic journals specifically covering inclusive business models at the BoP in emerging markets

Papers that do not describe inclusive business models

Documents published in 2010-2015 Papers using inclusive in terms of

“inclusion” (mostly in the field of education) Documents that concern inclusive business

models and CSV and as such assist in answering the research question, even if they do not exactly use these terms

Documents entirely concerning NGOs

Documents concerning NGOs acting as partners in an inclusive business model

Papers entirely concerning inclusive business and serving the poor in developed countries

Documents have to provide sufficient information to help at least to answer parts of the research questions

Newspapers, magazines, conference proceedings,book chapters

Articles focusing on inclusive business models applicable for developing as well as developed countries

Articles not written in English

Duplicate copy of other documents

Table 3.1 Inclusion and exclusion criteria developed for the review

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Six inclusion criteria are developed for this study.

Firstly, articles published in academic journals specifically covering inclusive business models at the BoP in emerging markets are included in the sample. This means that the review is not restricted to specific journals as the topic is present in very diverse fields (innovation, entrepreneurship, green business, ethics, marketing, politics, sociology etc.). By making this decision, a broad and general overview of possible inclusive business models proposed in the existing literature is aimed to be achieved. The general approach to inclusive business at the BoP in the emerging markets (and not just one country) is chosen to allow for a comparison between the countries.

Secondly, for the review only academic articles published in 2010-2015 are included to particularly elicit new business models in this field.

Thirdly, papers that are concerned with inclusive business models and CSV but do not exactly use these terms are included in the sample. This criterion is particularly relevant to include papers concerned with antecedents of the concept of CSV. As the concept of CSV by Porter and Kramer was first announced in 2011, its antecedents, such as the ideas of “co-creation”, “mutual value creation” or “win-win situation”, might have been considered in journals published in 2010 already. Thus, after the publication of the concept of CSV, it is interesting to see whether Porter and Kramers’ work and striking idea has influenced future business models as their article has already been cited over 3,000 times in October 2015.

Fourthly, articles concerning NGOs acting as partners in a business model to cooperate with the BoP are included in the sample. Although NGOs are not primarily aiming for generating profit and as such cannot integrate the concept of CSV in a profit maximisation strategy, they might help MNCs to adapt to local requirements and be part of the business model and are therefore included in the sample.

Fifthly, documents have to provide sufficient information to help at least to answer parts of the research questions.

Sixthly, articles focusing on inclusive business models applicable for developing as well as developed countries are included, however, sufficient details about doing business in emerging markets, which are relevant for the review, have to be provided.

For this study seven exclusion criteria are developed.

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Secondly, papers using inclusive in terms of “inclusion” in the field of education and hence in an unrelated context, are excluded from the review. As an example, the term “inclusion” is frequently used in studies about including handicapped students in the educational system (e.g. Thomas, 2012) and as such unrelated to inclusive business models in emerging markets.

Thirdly, articles entirely concerning NGOs are excluded from the sample as only for-profit MNCs should be able to use the concept of CSV focusing on the idea that the complete profit-making process is constructed in a way that benefits the poor and the MNC and not just performing CSR activities by spending money.

Fourthly, papers concerning inclusive business models in developed countries and not in emerging markets are excluded from the review, as this study specifically aims to review the situation at the BoP in emerging markets.

Fifthly, newspaper and magazine articles, conference proceedings, and book chapters are excluded from the review to ensure reliability of the sources used. Therefore, the review is solely based on academic articles published in high-quality journals, which are mostly peer-reviewed.

Sixthly, duplicate copies of other documents found by applying the search terms to several databases are excluded from the sample.

Seventhly, only articles published in English are reviewed.

3.2.3.4 Methodological screen

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Criteria Description

Authenticity How genuine is the document/source in regard to soundness and authorship?

Credibility Amount of distortion to the document or source, which will affect its sincerity and accuracy.

Representativeness Survival and availability are two of the factors, which may limit the representation of documents.

Meaning How well will the researcher be able to understand the document?

Table 3.2 Evaluating secondary sources (adapted from Scott, 1990)

The criteria “credibility” and “meaning” developed by Scott (1990) applied to this study are exemplary described below.

In addition to Scott (1990), also Glaser and Strauss (1967) mention ensuring credibility to be essential for qualitative research in general. Therefore, when extracting data and synthesising the results as part of this systematic review, details about areas of future research, managerial implications and limitations mentioned in the reviewed articles are noted down in order to ensure the quality and credibility of the source.

To ensure meaning, the articles reviewed have to add a certain value to the research and as such have to be well-understood by the researcher (Scott, 1990). Thus, the article has to be well-structured and provide sufficient details about the background of the study including definitions and data sources to be considered as reliable source for the review.

Additionally, the systematic literature review is based on articles published in the prominent databases EBSCO and JSTOR as well as GoogleScholar within 2010-2015 to ensure high quality and currentness of the data reviewed.

3.2.3.5 Data synthesis

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26 Ref ID Year published Author(s) Journal title Publication title Theory

Content (in short) Field

Key words

Country business model was created for Inclusive business model (in short) Benefits for BoP and MNCs Methodology/ methods

Definition of inclusive business Future research Managerial implications Limitations Category Extraction decision Search date Source

Table 3.3 Data extraction sheet

This structured way to collect and comprise the identified data is considered to provide a comprehensive overview, which enables an efficient analysis of the findings.

In Subchapter 3.2.3 the review protocol has been developed, comprising information sources, search terms, practical and methodological screen as well as data synthesis.

3.2.4 Pilot trial

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3.2.4.1 Application and results Application

In order to test whether sufficient suitable literature for the review can be extracted and the a priori specified selection criteria are appropriate, several author recommend to run a pilot trial (Greenhalgh and Peacok 2005; Fink, 2014).

For this dissertation, a pilot trial using the EBSCO database has been performed on 06.07.2015 without journal restriction. The identified search terms have been applied to the titles as well as the abstracts, which resulted in 366 articles reported in total: “business at the BoP” (25), “social issues in management” (71), “management and poverty” (20), “inclusive business” (26), “inclusive business model” (1), “sustainable business model” (149), “inclusive business” AND “BoP” (3), “inclusive business model” AND “BoP” (0), “creating shared value” (67), “creating shared value” AND “inclusive business” (0), “creating shared value” AND “BoP” (4).

In a first step, the abstracts of the 366 articles found in the EBSCO database have been scanned, however, 44 articles met the inclusion criteria developed in Chapter 3.2.3.3 and were at least partly related to the topic under investigation. Articles that on the one hand concerned the topic but, on the other hand, provided insufficient details about the business model to answer the research question have been excluded.

In a second step, the 44 articles considered to be suitable for the review based on scanning the abstracts have been read completely. This entailed that besides meeting the inclusion criteria the article had to pass the methodological screen as well.

Results

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has been published in very diverse research fields and journals confirming the decision not to restrict the review to articles published in specific journals to gain a general insight about the current state of research in this field.

In regard to the concept of CSV by Porter and Kramer, only very few articles have been found in the database particularly using the term “creating shared value”. Thus, additional search terms approaching this concept more generally, such as “shared value” AND “BoP” or “mutual value” AND “BoP”, have been generated for the systematic review. Similarly, the term “base of the pyramid” as synonym of “bottom of the pyramid” should additionally be included.

Through the pilot trial, it became apparent that it is crucial to ensure that authors, although using the term “sustainable” instead of “inclusive”, have the same approach to and understanding of the topic and just used the terms interchangeably. Articles, which entirely focus on sustainable business models in regard to ecological aspects but do not consider the idea of creating shared value are not applicable for this review and should therefore be excluded from the sample.

The results of the pilot trial further showed that most of the published work is concerned with case study research. These cases were used to illustrate practise, which led to the decision to include them in the review, as they might assist with generating a theory (Eisenhardt, 1989).

Moreover, it turned out to be helpful to include literature reviews and meta-analyses in the sample to gain further insights and to elicit additional suitable papers.

3.2.4.2 Adjusted review protocol

Based on the results of the pilot trial, adjustments of the developed review protocol in regard to the search terms as well as the inclusion and exclusion criteria have been made.

Adjusted search terms

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been included resulting in two additional search terms “base of the pyramid” AND “inclusive business” and “base of the pyramid” AND “creating shared value”.

Adjusted inclusion and exclusion criteria

Based on the findings of the pilot trial, the inclusion and exclusion criteria for the systematic literature review have been adjusted and are listed in Table 3.4 below.

Inclusion criteria Exclusion criteria

Articles published in academic journals specifically covering inclusive business models at the BoP in emerging markets

Duplicate copy of other documents

Articles that cover aspects which are closely related to inclusive business models – such as case studies to exemplify practise

Papers that use the word sustainable in an unrelated context (mostly concerning ecological aspects)

Papers that use the terms “inclusive” and “sustainable” interchangeably

Papers using inclusive in terms of

“inclusion” (mostly in the field of education) Documents that concern inclusive business

models and CSV and as such assist in answering the research question but do not exactly use these terms

Articles entirely focusing on constrains when doing inclusive business at the BoP

Documents have to provide sufficient information to help at least to answer parts of the research questions

Papers that do not describe inclusive business models

Literature reviews and meta-analyses Articles not written in English Documents concerning NGOs acting as

partners in an inclusive business model

Documents entirely concerning NGOs Articles focusing on inclusive business

models applicable for developing as well as developed countries

Papers entirely concerning inclusive business and serving the poor in developed countries

Documents published in 2010-2015 Newspapers, magazines, conference proceedings,book chapters

Table 3.4 Adjusted inclusion and exclusion criteria for the review

In Subchapter 3.2.4 the pilot trial has been conducted and its results presented. Subsequently, based on the results, two components of the review protocol have been updated. The inclusion and exclusion criteria have been adjusted as well as additional search strings identified allowing for more concrete and comprehensive results to be achieved when conducting the actual systematic review.

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model. The research gap, the research questions and the development of the review protocol have been presented. Furthermore, a pilot trial has been conducted leading to adjustments of the review protocol to be applied when conducting the actual review.

3.3 Sample composition

By applying the adjusted review protocol to all databases, the actual review has been conducted, representing Phase 2 of the systematic literature review model. As a result, in this subchapter the sample composition of the systematic review is identified and presented, completing the methodology chapter.

Data sources

The search terms have been applied on 14.09.2015 to the selected databases EBSCO, JSTOR as well as the search engine GoogleScholar. The exact search terms applied to the selected databases and the results achieved through the different search methods are listed in Table 3.5 below.

Data sources

Search terms EBSCO JSTOR Google

Scholar

Total

business at the BoP 25 2 1 28

social issues in management 71 50 14 135

management and poverty 20 16 28 64

inclusive business 26 9 53 88

inclusive business model 1 1 2 4

sustainable business model 149 12 68 229

inclusive business AND BoP 3 4 2 9

inclusive business model AND BoP 0 0 0 0

creating shared value 67 54 103 224

creating shared value AND inclusive business 0 0 0 0

creating shared value AND BoP 4 3 0 7

mutual value AND BoP 3 6 1 10

shared value AND BoP 2 5 1 8

base of the pyramid AND inclusive business 5 2 1 8

base of the pyramid AND creating shared value 0 3 2 5

Additional papers* 132

TOTAL 951

*Identified through citation search, searching for papers in key journals (e.g. journal of business ethics), and browsing reference lists of key papers

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In total, 951 results have been displayed after applying the search terms.

In a first step, the selected inclusion and exclusion criteria have been applied to the abstracts of the 951 articles, revealing that 705 articles did not meet the specific criteria, which have therefore been excluded from the sample.

In a second step, the full-text of the remaining 246 articles has been reviewed. The review included the application of the inclusion and exclusion criteria as well as the methodological screen. Consequently, further 207 articles were eliminated. The detailed reasons for not including these articles are listed in in Table 3.6 below.

Reasons for excluding articles from research No. of articles Article did not meet the inclusion criteria after reviewed in detail 173 Article did not contain sufficient details about business model 17

Concentrates too heavily on MNCs 8

Unreliable source 5

Concentrates entirely on constraints when doing inclusive business 4

TOTAL 207

Table 3.6 Reasons for excluding articles from the study

As a result, 39 articles remained and represent the sample of this study, which are listed in Appendix A.

The data sources and the respective number of sample articles found, are listed in Table 3.7 below. The category “additional articles” comprises articles identified through citation search, searching for papers in key journals (e.g. journal of business ethics) and browsing reference lists.

Data sources No. of articles Additional articles 18

GoogleScholar 15

EBSCO 4

JSTOR 2

TOTAL 39

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Most of the literature relevant for the review has been found through the search engine GoogleScholar and additional articles, for instance identified through citation search.

Journals

The 39 articles included in the sample have been published in a variety of journals covering diverse research fields. Three articles have been published in the journal “Long Range Planning”, followed by 2 articles each published in the journal “Energy Policy” and “Journal of Business Ethics”. The remaining 32 articles have been published in 32 different journals, which are listed in Appendix B.

In Subchapter 3.3 the sample composition of the systematic review has been presented as final part of the methodology.

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Chapter 4: Findings and interpretation

This chapter represents the first part of Phase 3, “reporting”, of the systematic literature review model. It presents and discusses the research findings of this study. Following Tranfield et al. (2003), the chapter is divided into two parts – a descriptive and a thematic review. The descriptive review provides an overview of the reviewed articles by analysing basic publication details, while the thematic review analyses the content of the sample articles according to the subordinated research questions introduced in Chapter 3.2.2. This approach enables to answer the overarching research question: “What are current inclusive business models at the BoP in emerging markets to create

shared value?”, summarised in Chapter 5.

4.1 Descriptive review

In this subchapter the articles included in the sample are reviewed in regard to the years of publication, the authors of the papers as the well as the countries inclusive business models have been developed for.

4.1.1 Years of publication

Findings

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Figure 4.1 Years of publication

Interpretation

The number of papers published is relatively constant over the 5 years analysed with 5-6 papers published per year except of the year 2012, in which 11 of the 39 sample articles have been published. One explanation could be that the concept of CSV by Porter and Kramer has been published in 2011. Thus, in the commencing year authors might have been influenced by their work and used the idea as basis for their own research. However, as it usually takes several years for an article to be published, also antecedents of the idea of CSV, such as the concepts of “co-creation”, “mutual value creation” and “win-win situation” might have contributed to the proportionally high number of articles published in 2012.

In regard to the relatively small number of articles published in 2015 it has to be noted that the review was conducted in Mid-2015. Therefore, it is anticipated that further articles will be published in the second half of the year.

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to restructure their complete business, away from a defined CSR budget towards integrating the idea of CSV in all of their business areas as well as their respective corporate identity (Porter and Kramer, 2011; Lapina et al., 2012).

Furthermore, other concepts within the broad field of “sustainable business” seem to be prevalent at the moment. In the current literature the main focus lies on ecological aspects, such as gas emissions, solar and wind energy as well as deforestation (e.g. Yemiru et al., 2010; Rahut et al., 2015).

4.1.2 Authors

Findings

In regard to the authors of the articles, only 2 authors have published 2 papers of the 39 articles included in the sample. Mark Esposito and Sandeep Goyal published one paper about “Enabling healthcare services for the rural and semi-urban segments in India: when shared value meets the bottom of the pyramid” together with Amit Kapoor in 2012 (Esposito et al., 2012) and another paper named “Linking up: inclusive business models for access to energy solutions at base of the pyramid in India” again in conjunction with Amit Kapoor and additionally Mahadeo Jaiswal and Bruno S. Sergi in 2014 (Goyal et al., 2014). The remaining 37 papers have been published by 37 different authors.

Interpretation

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4.1.3 Countries

Findings

When reviewing the countries for which the inclusive business models have been developed, mostly India and the developing countries in general are mentioned (each 14 times). The category “developing countries in general” comprises of articles, in which several countries have been named. Within this category, China has inter alia only been mentioned once. The category “all countries” means, that the business model is suitable for developing as well as developed countries. However, in the articles it has been mentioned that the focus primarily lies on the application in developing countries. The number of articles representing the sample according to the country the business model has been developed for, is presented in Table 4.1 below.

Countries No. of articles

India 14

Developing countries in general 14

All countries 3 Bangladesh 2 Brazil 2 Cambodia 1 Kenya 1 Korea 1 Taiwan 1 TOTAL 39

Table 4.1 Countries inclusive business models have been developed for

Interpretation

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claim that this development should be seen critically. They state that doing business, for instance in China, has become increasingly expensive over to the last couple of years (O’Neill et al., 2005; Bajaj, 2010). Consequently, MNCs are looking for new countries to do business in and might take advantage of low income countries with weak governments and generally poor regulation (Khan, 2004; Karnani, 2008). However, it is debatable whether such a behaviour is adopted by MNCs investing in truly inclusive business models as an exploitative attitude of this sort is not compatible with the concept of inclusive business in its core.

Moreover, it is particularly interesting to observe that several articles are concerned with inclusive business models at the BoP that are applicable for developing as well as for developed countries (e.g. Zusman, 2011; Thompson and MacMillan, 2010). This finding might reflect the increasing interest of MNCs seeking to learn from the BoP and subsequently to apply the successful business model in their home markets, a phenomenon named “reverse innovation“ (Govindarajan and Ramamurti, 2011).

In Subchapter 4.1 the sample articles have been reviewed in regard to the years of publications, the authors as well as the countries the inclusive business models have been developed for. The findings have been presented and subsequently critically discussed.

4.2 Thematic review

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4.2.1 Inclusive business models

In this subchapter the findings of the review in regard to the first subordinated research question: “What definitions, theories, characteristics and methodologies have been

applied to develop inclusive business models at the BoP in emerging markets?” are

presented and discussed.

4.2.1.1 Definitions Findings

In order to gain an overview of the understanding of the concept of inclusive business in the field, the definitions of inclusive business have been reviewed. From 39 articles reviewed, only 6 articles give a definition of inclusive business (Bonnell and Veglio, 2011; Arora and Kazmi, 2012; Golja and Požega, 2012; Hahn, 2012; Halme et al., 2012; Virah-Sawmy, 2015). Of these 6 articles, 3 use the definition by the United Nations Development Programme (UNDP), while 1 article uses the definition by the WBCSD and SNV. The remaining 2 give a definition without citing a particular source.

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Article Inclusive business (model) definition

Arora and Kazmi (2012: 451)

Inclusive businesses integrate low-income individuals into value chains in various capacities, be it as consumers, producers, employees and

entrepreneurs. Thus, they bring the benefits of growth directly to low-income communities. (UNDP, 2008)

Bonnell and Veglio (2011: 2)

In essence, inclusive business models try to find synergies between

development goals and the company’s core business operations. Companies develop inclusive business ventures, that is, sustainable business solutions that expand access to goods, services, and livelihood opportunities for low-income communities in commercially viable ways.

Golja and Požega (2012: 23)

Inclusive businesses are entrepreneurial initiatives that are economically profitable and environmentally and socially responsible. Underpinned by a philosophy of creating mutual value, Inclusive Businesses contribute to improving the quality of life of low income communities by integrating them in the business value chain: as suppliers of services and/or raw material, as distributors of goods and/or services and as consumers, by offering goods and services to fulfil their essential needs at prices they can afford. (WBCSD and SNV, 2011: 10)

Hahn (2012: 51)

Inclusive business: This fundamental idea is mainly derived from the observation 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, both as consumers and as producers or distributors. (SNV and WBCSD, 2008) Halme et. al

(2012: 745)

Inclusive business models, are particular as they strive to achieve both financial and social aims (UNDP, 2010). The value proposition is expanded to provide benefit not only to the individual customer, but to the community of low-income people by making the value chain more inclusive.

Virah-Sawmy (2015: 1)

By definition, inclusive businesses are those that engage the poor along the entire supply chain: as clients and customers, but also on the supply side as employees, producers, and business owners. (UNDP, 2008)

Table 4.2 Inclusive business (model) definitions

Interpretation

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From the 6 articles listed above, which provided a definition of inclusive business, the definition by the UNDP has been applied by 3 authors: “Inclusive businesses integrate low-income individuals into value chains in various capacities, be it as consumers, producers, employees and entrepreneurs. Thus, they bring the benefits of growth directly to low-income communities” (UNDP, 2008). The definition by “Endeva” underlying this dissertation extends the UNDP definition by including concrete examples of benefits for the poor as well as MNCs. However, in essence both definitions stress the importance of involving the poor in the GVC by performing different roles. In 2010 the UNDP further acknowledged the importance of inclusive business models by defining them as being “particular as they strive to achieve both financial and social aims” (UNDP, 2010). This is in line with the definition of inclusive business by the WBCSD and SNV (2006), emphasising the combination of financial and social benefits, which has been used by 1 article. Hence, the idea of CSV in its core has not been fully included in the existing definitions yet. Shared benefits could be more clearly articulated by naming concrete benefits for both parties involved. Furthermore, MNCs altered role beyond pursuing pure philanthropic activities could be considered.

4.2.1.2 Theories Findings

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theory (Thompson and MacMillan, 2010) have been identified. The theories and concepts used are comprised in Table 4.3 below.

Theories No. of

articles (Social) innovation theory 7

CSV 6

Antecedents of CSV 5

CSR 5

(Social) entrepreneurship 5

Human rights 2

Inclusive business and CSR 2 Corporate citizenship theory 1 Franchising 1 GVC theory 1 Resource-based view 1 Stakeholder theory 1 Sustainability 1 Uncertainty 1 TOTAL 39

Table 4.3 Underlying research theories

Interpretation

Magdalena Charlotte Uhler - a systematic literature review New inclusive business models at the Bottom of the Pyramid in emerging markets to create shared value

New inclusive business models at the Bottom of the Pyramid

in emerging markets to create shared value

- a systematic literature review