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Role of innovation in social value creation at bottom of the pyramid

  • 01-11-2017

Abstract- Many multi -national corporations (MNCs) are turning to emerging markets (EMs), due to stagnation and slow growth in the developed markets. In EMs, there is an untapped market called bottom of the pyramid, which is the largest and the fastest growing segment in the entire world. There is a big scope for MNCs to achieve success in EMs by focusing on innovation at BOP. The main objective of this paper is to identify and understand innovation dimensions that lead to social value creation in a BOP market. To achieve the above mentioned objective, the case studies from published literature were selected. We also draw on emerging research on BOP from the innovation and social entrepreneurship fields as well as from social value creation. The literature on marketing to the bottom of the pyramid was extensively reviewed and dimensions of innovation and social value creation at BOP were identified. Authors established relationships between these identified dimensions of innovation and social value creation in the form of research propositions. Finally, a model depicting relationships between above mentioned variables has been proposed. At the end, we have discussed some important implications for both theory and practice.

Keywords- bottom of the pyramid; BOP; innovations; social value creation.

Reference to this paper should be made as follows: Singh, A. and Kathuria, L.M. (2017) ‘Role of innovation in social value creation at bottom of the pyramid’, Int. J. Business Innovation and Research, Vol. 13, No. 1, pp.68–91.

Biographical notes-
Amanpreet Singh is an Assistant Professor at GNA Business School, GNA University, Phagwara, India. He has over eight years of industry, academic and research experience with organizations of repute. He has presented and published several papers in national and international conferences. Recently, he has submitted his PhD thesis in School of Business Studies, Punjab Agricultural University, Ludhiana, India. Out of his PhD research work, one of his papers was published in the journal Food Quality and Preference Elsevier with Thompson Reuter impact factor of 3.688 (on the basis of 2015 ratings). His current research interests include examining willingness to purchase branded products among low-income consumers and analysing marketing strategies to serve disadvantaged consumers.

Lalit Mohan Kathuria is a Professor at School of Business Studies, Punjab Agricultural University, Ludhiana, India; and has 20 years of rich teaching and corporate experience. He has published several research papers in reputed international journals like Food Quality and Preference; British Food Journal (Thomson Reuters rated journals), Competitiveness Review (Emerald), Journal of Food Products Marketing (Taylor and Francis), South Asian Journal of Management, International Journal of Indian Culture and Business Management , Global Business Review, etc. and also co-authored two books. His current research interests include analysing consumer behaviour, sector-specific competitiveness, and food marketing.
 
1.Introduction- Mobilisation of technology and capital has increased globalisation and fostered a paradigm shift in international business (Williams et al., 2011). Many multi-national corporations (MNCs) have turned increasingly to the emerging markets (EMs) (Omar and Williams, 2009; Hattori, 2011), due to stagnation and sluggish growth in the developed markets (Nakata and Sivakumar, 1997; London and Hart, 2004). The most fundamental reason for finding investment opportunities in EMs is that these countries constitute around 80% of the world’s population but just 20% of the world’s economic activity (Atale, 2012); and 75% of the expected growth in world trade over the next 20 years will be derived from these countries (Prahalad, 2012). In EMs, there is an untapped market called bottom of the pyramid (BOP) with per capita income less than $2 a day, which is the largest and the fastest growing segment in entire world (London and Hart, 2004; Prahalad, 2005; London et al., 2010). BOP market consists of 4 billion people with a combined total income of $5 trillion (Hammond et al., 2007). India and China, the two fastest growing countries in EMs, account for 60% of the BOP population of the world (Mohr et al., 2012).

However, BOP market represents tough challenges for firms because this market is largely plagued by hostile institutional environment with no or less access to sanitation, potable water, healthcare and low-level of literacy and income (Anderson and Billou, 2007; Karnani, 2007; Weidner et al., 2010; Tarafdar et al., 2012; Viswanathan et al., 2012; Alur and Schoormans, 2013; Petrescu and Bhatli, 2013). Consumers as well as firms at BOP have been facing serious institutional and operational constraints (London et al., 2010). In addition, BOP markets are characterised by under-development of economic, political and institutional environment (Sinkovics et al., 2014); and many other social problems as compared to developed markets (Acs et al., 2013).

Notwithstanding these constraints, mounting evidence across the globe suggests that firm’s participation at BOP can lead to substantial benefits for disadvantaged populations, while simultaneously providing opportunities for income generation for both firms as well as for BOP population (Prahalad, 2005; Nielsen and Samia, 2008; Anderson et al., 2010; Weidner et al., 2010). In order to fully leverage the opportunities offered by BOP, companies need both product and business-system innovations (Chakravarthy and Coughlan, 2012). Viswanathan and Sridharan (2012) also emphasised for innovations in product design, development and delivery for serving to BOP population. Thereby, BOP market represents a new source of innovation (Hart and Christensen, 2002); and global firms are recognising the implications of innovations at BOP for developed markets as well (Prahalad, 2012). However, the literature on BOP suggests that innovation for these markets differs from innovation for traditional western markets (Ernst et al., 2015).

Innovation carries deep effects on social and economic change in a given marketplace (Sorensen and Stuart, 2000); it also has a substantial capacity to create cumulative social value for its intended beneficiaries (Hazy et al., 2010). Social connections should matter more when institutional environment is hostile (De Mel et al., 2008). Therefore, firms need to focus more on social value creation rather than only on economic value creation in a BOP market. At BOP, profit driven firms lead to social exclusion of low-income population that may be termed as destructive entrepreneurship. For lifting BOP population out of the poverty line, there is a need for generating productive entrepreneurship that carries social benefits along with profitability of the firm (Baumol, 1996). However, prevalence of social problems in BOP markets paves the way for social value creation by firms in the underlying market. Due to several constraints, dimensions of social value creation in a BOP market turns out to be distinctive with respect to that in developed markets (Vega and Kidwell, 2007). Thereby, we need to be vigilant while identifying and defining dimensions of social value creation in a BOP market.

However, there is no agreement in the literature about specific dimensions of innovation and social value creation at BOP. Many authors have suggested the need for innovation in several dimensions of the BOP business models (see for instance, London and Hart, 2004; Prahalad, 2005; Weidner et al., 2010). From the existing BOP literature, three dimensions of innovation for firms operating at BOP have been identified, i.e., co-creation; coalition with non-traditional partners (NTPs); and building local capacity (London and Hart, 2004; Schuster and Holtbrügge, 2014). In addition, we adopt the definition of social value creation as an activity that leads to the realisation of any of the three core values of development, i.e., sustenance; self-esteem; and freedom from servitude (Todaro and Smith, 2011).

The present study aims to achieve the objective: to identify and understand innovation dimensions that lead to social value creation in a BOP market. Thereby, present paper seeks to make contribution to the existing literature on BOP by two ways. Firstly, we make an effort to identify dimensions of innovation by the firms in a BOP market. Secondly, it enriches our understanding of how the identified dimensions of innovation lead to social value creation in a BOP market. For this, we developed a model and research propositions around relationship between identified dimensions of innovation and social value creation. By doing so, we will be theoretically assessing what firms need to do in the area of innovation and social value creation while serving to a BOP market. To the best of our knowledge, this will be first conceptual study that studies the relationship between identified dimensions of innovation and social value creation in BOP markets.


 



The present paper is divided into six sections. Section 1 gives introduction about the study while Section 2 extensively reviews the existing literature related to identified dimensions of innovation, social entrepreneurship and social value creation at BOP. In Section 3, authors describe the methodology used for achieving the objectives of the study. Section 4 contains the detailed discussion about the research propositions drawn on the basis of existing literature and four cases selected from the published literature for the study. The conclusions and managerial implications are discussed in Section 5. Section 6 includes limitations and potentials for future research. Figure 1 highlights the model proposed by the authors, whereas Table 1 summarises the insights gleaned from the selected cases.

Figure 1    The proposed model depicting relationship between identified dimensions of innovation and social value creation at BOP



2.Literature Review- The present literature supports that innovation and social value creation are two organic parts of the business model formulation at a BOP market (Schuster and Holtbrügge, 2014; Sinkovics et al., 2014). Innovation is of vital interest to organisations (Dershin, 2010); and the existing studies on innovation are largely limited to the innovation at top of the pyramid markets such as North America and Western Europe (Ernst et al., 2015); but little attention has been paid to innovation (Iman, 2014); especially at BOP (Nakata and Sivakumar, 1997; London and Hart, 2004; Prahalad, 2005, 2012; Atale, 2012; Ernst et al., 2015). The present research on BOP has been by and large conceptual, qualitative or case based (see for instance, Prahalad and Hammond, 2002; Anderson et al., 2010; Elaydi and Harrison, 2010; Changco et al., 2011; Mohr et al., 2012; Prahalad, 2012; Viswanathan and Sridharan, 2012; Alur and Schoormans, 2013). However, these studies express varying results and suggest different recommendations for attracting BOP consumers. The BOP consumers represent a major population segment in the world (Prahalad, 2005; Hammond et al., 2007); and thus stand for substantial chunk of the total buying power of the population (Guesalaga and Marshall, 2008). However, an individual BOP consumer symbolises a very small portion of the buying power due to his/low-income. For this reason, the firms need to innovate for developing low-cost products for BOP consumers. Low-cost products alone, however, is not sufficient for successful innovation in these markets because consumers expect value for money and quality in return (Nakata and Weidner, 2012; Prahalad, 2012).

Ernst et al. (2015) described three dimensions of innovation at BOP, i.e., bricolage, local-embeddedness and standardisation. However, Ernst et al. (2015) skipped some of the most important innovation dimension for firms at BOP such as co-creation and building local-capacity that have been recommended by many authors (see for instance, London and Hart, 2004; Prahalad, 2005; Karnani, 2006; Waeyenberg and Hens, 2008; London et al., 2010; Sugawara, 2010; Weidner et al., 2010; Bharti et al., 2014). The sustainable success at BOP may be best achieved when firm engage BOP consumers as partners (Sánchez and Schmid, 2013) that creates mutual value for both firms and BOP consumers as well (London et al., 2010; Smith and Pezeshkan, 2013; Bharti et al., 2014). Whereas, building local capacity, i.e., contribution of valuable resources by firms in BOP market, is necessary to create sustainable success of the firms (London and Hart, 2004; Sánchez and Schmid, 2013). Venn and Berg (2013) also expressed co-creation and building local capacity as a facilitating condition for success of Philips Electronics in BOP markets. In that way, we cannot overlook co-creation and building local capacity while identifying dimensions of innovation at BOP.

The above discussion implies that low-cost products, bricolage, local-embeddedness and standardisation are not adequate dimensions of innovation at BOP. Thereby, we need to explore some other dimensions of innovation that cover the broader aspects of BOP business models. Drawing on the existing literature on the innovation at BOP, we argue that co-creation, coalition with NTPs and building local capacity are the suitable innovation dimensions at BOP. Many authors agree on these dimensions of innovation at BOP (see for instance, London and Hart, 2004; Anderson and Kupp, 2008; Schuster and Holtbrügge, 2014) that are discussed in detail as following.

2.1    Co-creation

Co-creation refers to the companies strengthening their internal resource base by incorporating external resources into the company and recruiting local BOP consumers and entrepreneurs in order to co-create innovative and appropriate solutions for BOP markets (London and Hart, 2004; Schuster and Holtbrügge, 2014). Co-creation is primarily concerned with developing methods to attain understanding of co-creation experiences so that firms can co-shape consumer expectations and experiences (Prahalad and Ramaswamy, 2004). It occurs through the integration of existing resources with those available from a variety of systems (Vargo et al., 2008). Many of the MNCs at BOP lack appropriate knowledge and expertise of the market (Prahalad, 2005; Karnani, 2006; Chikweche and Fletcher, 2012). For this reason, firms need to engage BOP individuals in the product design or manufacturing process in order to gain market acquaintance. Karnani (2006) opined that firms must treat BOP individuals as co-producers or co-creators rather than consumers. By co-creating products, firms find themselves socially embedded in the BOP consumers’ domain (Singh and Kathuria, 2013). Prahalad and Ramaswamy (2002) suggested four building blocks of co-creation, namely: dialogue, access, risk reduction and transparency. Dialogue helps the firms to understand the emotional, social, and cultural contexts that provide a platform to innovate. Consumers also want access without ownership and that can be profitable for businesses. But managing risk exposures and transparency is also necessary for consumers to become value co-creators (Prahalad and Ramaswamy, 2002).

2.2    Coalition with NTPs

Coalition with NTPs refers to dependence on the external partners by the firm (London and Hart, 2004; Schuster and Holtbrügge, 2014). This happens because BOP markets lack proper infrastructure and formal institutional environment (Weidner et al., 2010; Khanna and Palepu, 2011; Viswanathan et al., 2012); and traditional partners may lack relevant experience in these markets due to no or less social relationships with BOP individuals (Viswanathan et al., 2010; Chikweche and Fletcher, 2011). For overcoming these challenges, firms need to collaborate with NTPs like self-help groups (SHGs), non-government organisations (NGOs) and other local entrepreneurs (London and Hart, 2004; Prahalad, 2005; Chikweche and Fletcher, 2012; Landrum, 2014). In such collaborations, firms and NTPs contribute complementary capabilities, both intangible assets such as knowledge, reputation, and brand, and tangible resources, such as human capital, production capabilities and market access (Dahan et al., 2010). In BOP markets, social networks, not legal or formal contracts, dominate (Weidner et al., 2010). The successful firms at these markets have social orientation rather than pure commercial or profit maximisation orientation (London and Hart, 2004; Weidner et al., 2010; Viswanathan et al., 2012); and firms that develop partnerships are more likely to grow, than those adopt a traditional go-it-alone approach (Piperopoulos and Scase, 2009). These partnerships enable participating firms to create and deliver value in novel ways, while minimising costs and risks (Dahan et al., 2010).

2.3    Building local capacity

Building local capacity refers to improving the market conditions of BOP by firms such as investing in value chain, educating the local population, imparting training to local entrepreneurs, generating employment/business opportunities and/or by providing micro-finance to enhance affordability of BOP consumers (London and Hart, 2004; Schuster and Holtbrügge, 2014). Market environment at the BOP is largely prone to many malfunctions due to low-literacy, large-scale unemployment, poor infrastructure and lack of business skills (Anderson and Billou, 2007; Karnani, 2007; Tarafdar et al., 2012; Petrescu and Bhatli, 2013); therefore firms may attempt to strengthen capacity of BOP population. Prahalad (2005) explicitly rejected the corporate social responsibility or corporate philanthropy for improving market conditions of BOP. Instead, the firms need to consider societal performance by incorporating ‘local capacity building’ directly in their business models (London and Hart, 2004). By this way, the firms may share financial, technical and human resources with local population for improving BOP market conditions.

2.4    Social entrepreneurship

Social entrepreneurship has an instrumental role to play across the globe and this concept is gaining increasing recognition as agents of change (Narang et al., 2014). In literature, authors gave varying definitions of social entrepreneurship and there is no consensus on
 
description of this concept (Roper and Cheney, 2005). Mair and Martí (2006) and Morris et al. (2011) have given a comprehensive viewpoint about social entrepreneurship. These authors believe social entrepreneurship as a process that creates social value due to searching and providing solutions to social problems through the satisfaction of social needs, and the development of social goods and services. Austin et al. (2006) defined social entrepreneurship as innovative, social value creating activity that can occur within or across the non-profit, business, or government sectors. Hall et al. (2012) stated social entrepreneurship as where entrepreneurs play the role of change agents by developing a mission to create social and not just private value. These definitions underline the social value creation as the key outcome of the process of social entrepreneurship. In social entrepreneurship, social value creation appears to be the primary objective, while economic value creation is often a by-product that allows the organisation to achieve sustainability and self-sufficiency (Seelos and Mair, 2005). Social enterprise models underlie the creation of successful businesses at the BOP (Kamath et al., 2013). In an empirical study, Felício et al. (2013) found that social entrepreneurship has an effect on organisational performance, but this effect is weaker than effect of social value on organisational performance. The above discussion, therefore, suggests us to adopt social value creation as the parameter of focal concern for the present study.

2.5    Social value creation

Social enterprises primarily aim at creating social rather than financial value. However, depending on the social entrepreneurs’ underlying business model, financial value may be a secondary goal to help achieving the social value (Weber and Kratzer, 2013). Social value creation is the organic part of business model design at BOP (Sinkovics et al., 2014); because with such low-income, poor individuals are severely constrained in their ability to meet basic human needs (McKague and Tinsley, 2012). According to Austin et al. (2006), the main objective of the social value creation is to remove barriers to social inclusion or assisting those in needs in order to improve society. Sugawara (2010) stressed on three essential elements of BOP business, i.e., meeting the needs of the poor; generating income; and simulating independence. These three essentials are again likely to create social value at BOP. In this paper, we adopt three dimensions of social value creation as described by Todaro and Smith (2011), i.e., sustenance; self-esteem; and freedom from servitude. Sustenance can be defined as ability to meet basic needs such as food, shelter, healthcare, etc. Self-esteem touches upon dimensions such as dignity and legitimacy; whereas freedom from servitude refers to ability to choose from a wide range of options in wide range of areas in one’s life such as education, products, housing, etc. (Todaro and Smith, 2011). Social value creation seems to be primarily characterised as a behaviour that is not confined within the boundaries of an enterprise. It can occur within (internal) or outside (external) the firm (Austin et al., 2006). We may categorise social value creation into two parts:

a    internal social value creation, i.e., creating social value for employees, distributors or other stakeholders within the firm’s system

b    external social value creation, i.e., creating social value for consumers and other stakeholders outside the firm’s system.

3.Methodology- The main goal of this paper is to gain an understanding of how the firms at BOP innovate to create social value. In the present BOP literature, no previous study was found that established the relationship between dimensions of innovation and social value creation. We draw on published research on BOP from the innovation and social entrepreneurship fields as well as from social value creation. The literature on marketing to the BOP was extensively reviewed and dimensions of innovation and social value creation at BOP were identified. Authors established relationships between identified dimensions of innovation and social value creation in the form of research propositions. Finally, a model depicting relationships between above mentioned variables has been proposed in Figure 1.

3.1    Selection of cases

To achieve the above mentioned objective, the multi-firm case study method was adopted. Cases were selected from the published BOP literature. As there is no adequate or publicly available database of companies operating at BOP markets (Schuster and Holtbrügge, 2014); a purposive qualitative sample was selected rather than random, that is more suitable for such case-study methods (London et al., 2010). Moreover, Eisenhardt (1989) stated that cases should be selected on the basis of theoretical considerations rather than statistical reasons. Similar to the experiments, the case-study method impacts the expected results (London et al., 2010). Therefore, cases were selected on the basis of conceptual parameters related to the study. In total, four cases of firms operating at BOP, offering differentiated products and services, were selected. Moreover, the cases were drawn from areas related to daily life of BOP consumers that enabled us to achieve our objectives more comprehensively. The areas include durables, FMCG, telecom and healthcare. This was done to cover multiple strategic angles as firms launch BOP ventures with philanthropic as well as commercial intentions (Venn and Berg, 2013). Thereby, the present multi-firm case study allows in-depth analysis across various contexts such as dimensions of innovation and social value creation. It also enables the researchers to conduct both with-in case and cross-case analysis. The given with-in case discussion can be evaluated with respect to other similar cases that will enhance reliability and validity of the conclusions (Yin, 1981).

Out of the selected four cases, two are based in India and other two are from Bangladesh. It was observed from the BOP literature that more number of cases from India and Bangladesh has been reported because BOP population of these two countries represents about 88% of total BOP population in South Asia (Hammond et al., 2007); and India carries lead market potential for BOP innovations (Tiwari and Herstatt, 2012).


4.Research propositions- This section offers detailed discussion about research propositions drawn on the basis of theory and selected cases. For discussion, this section has been divided into three subsections. The first subsection explains the relationship between co-creation and social value creation; the second subsection outlines the relationship between coalition with NTPs and social value creation, and the third subsection deals with the building local capacity and social value creation. Towards the end of this section, Figure 1 highlights the model proposed by the authors, whereas Table 1 summarises the insights gleaned from the selected cases.

4.1    Co-creation and social value creation

Co-creation is the first identified dimension of innovation and firms must embrace the notion that consumers can become partners in the co-creation of experiences (Prahalad and Ramaswamy, 2002). In co-creation, firms need to develop direct interactions with consumers. The co-creation process must be centred on the consumer and encourage active participation in all aspects, including information search, configuration of products and services, fulfilment, and consumption (Prahalad and Ramaswamy, 2004). By this, firms learn more about the customer, more opportunities become available for them to further improve the relationship experience and enhance co-creation with customers (Payne et al., 2008).

BOP market confronts with many productivity and transactional constraints (London et al., 2010), consequently firms struggle with resource scarcity which differ significantly from those in developed markets (Schuster and Holtbrügge, 2014). These factors may discourage the BOP consumers to express their feelings and experiences with the firms. For this reason, firms should focus on co-creation with BOP consumers with a specific objective of understanding their expectations (Weidner et al., 2010); and/or with social value creation as a specific cause (Mohr et al., 2012). BOP is a source of self-reliant producers and consumers who can design and make products suitable for sale in both BOP and mature markets (Karnani, 2007). This could be the best way of uplifting the poor when firms somehow involve BOP consumers in manufacturing process (Singh and Kathuria, 2013). Co-creation enables BOP consumers to earn their livelihood, meeting basic needs; and makes them informed, aware, curious and knowledgeable (Bharti et al., 2014). Thereby, resource deprived population becomes dignified and can express their feelings, experiences, knowledge and skills about products and product development. Consequently, co-creation with BOP population helps firms to create social value in any of its three dimensions, i.e., sustenance, self-esteem; and freedom from servitude.

4.1.1  Godrej and Boyce

It is estimated that one third of India’s food is lost to spoilage because of a combination of frequent power cuts, heat, and high humidity (Chakravarthy and Coughlan, 2012). Keeping in view the problem of regular power supply shortage and fluctuation in India’s BOP market, Godrej and Boyce, a premier Indian consumer durable company, launched an innovative small-sized, battery-powered refrigerator; named it as ‘ChotuKool’ (Chakravarthy and Coughlan, 2012). The final product was outcome of co-creation process. ChotuKool was developed in close interaction with targeted BOP consumer segment to get insight into their needs, desired solutions and barriers to consumption (Tiwari and Herstatt, 2012). As a result, company offered its potential BOP consumers a low-cost refrigerator that could keep milk, vegetables and leftovers safe from spoilage (Whitney, 2010); thus, provided food storage safety to its users. Thereby, the firm created social value by addressing the following social constraint – the ability to meet basic need such as safety against food spoilage.

4.1.2  Bata Shoe Company

Rural sales programme (RSP) is a partnership between CARE and several MNCs, domestic companies of Bangladesh, including Unilever, Bata, Danone, Bic, Square Toiletries and Lalteer Seeds. RSP distributes a range of consumer goods door-to-door across rural Bangladesh, through a network of BOP women sales agents (the ‘aparjitas’ – means ‘a woman who does not accept defeat’) (Dolan et al., 2012). Bata also engaged ‘aparjitas’ in co-creation process for designing suitable shoes for targeted BOP market conditions. The ‘aparjitas’ informed the company that BOP people prefer to wear a shoe with hard sole because they walk on rough and uneven ground. Bata also came to know that BOP people intend to buy high quality shoes even at somewhat higher prices. Hence, co-creation by the firm was instrumental in developing low-cost and high-quality shoes suitable for BOP market conditions. The co-creation created social value in the following ways:

a    by providing affordable access to shoes by BOP people b helped to prevent illness

c    increased school attendance (as shoe wearing is a requirement of many schools) (http://www.worldfootwear.com/news.asp?id=229)

d    enhanced self-legitimacy (Dolan et al., 2012).

4.1.3  Grameen Phone

Muhammad Yunus, an economist who initiated the ‘Grameen’ (Grameen means rural) programme in 1976 to lend credit to Bangladesh’s BOP people without any collateral. He established Grameen Bank formally in 1983 (Yunus et al., 2010). By 1995, Bangladesh had poor telecom infrastructure as compared to neighbouring emerging countries of the region, with just two operating telephone lines per 1,000 people, overwhelmingly located in the cities (Chakravorti and Lane, 2010). At that time, in rural BOP market of the country, mobile network was no hardly available. In 1996, Grameen Bank established a telecommunication company, GrameenPhone, to provide telecom services across the country (Simanis and Hart, 2006). The firm engaged unemployed rural BOP women to sell phone call service in and around their area of residence (Fletcher, 2005). The firm provided an alternate but low-cost communication mean to BOP population. Mobile phone use lead to greater social cohesion and improved social relationships (De Silva et al., 2011). In this case, social value creation lies in the firm’s ability to provide low-cost access to basic service like telecom and enhanced ability to choose from a range of options.

Based on above considerations, we derive the following proposition:

P1    Co-creation by firms with BOP community is positively associated with any of the social value creation dimensions, i.e., sustenance; self-esteem; and freedom from servitude.
4.2    Coalition with NTPs and social value creation

In a globalised world, connecting firms to outer-circle stakeholders such as non-government organisations can be substantially rewarding (Maessen et al., 2007). Changing the existing value chain like partnering with NTPs is a powerful tool to create social value (Porter and Kramer, 2006). Existing traditional partners may lack the adequate knowledge and capabilities to have access to the BOP markets (London and Hart, 2004; Chikweche and Fletcher, 2012). MNCs offer technology, expertise, production facilities and methods of distribution whereas NTPs like SHGs and NGOs leverage and understand local economic, social and political contexts and systems (Follman, 2012). In such markets, the NTPs can work together to create new products and services, pioneer new delivery methods, improve the quality of existing products and services, and generate new value for the customers (Dahan et al., 2010). Business models resulting from these partnerships may create economic value, social value, or both (Dahan et al., 2010).

Larger retailers and wholesalers are often away from BOP consumers’ area of residence and often situated in the city. This means BOP consumers have to incur an extra cost in transport to shop from these outlets (Chikweche and Fletcher, 2011). Thus, traditional larger retail stores are not the solution for effective distribution to BOP consumers. Firms need to reorganise their formal distribution channels and require coalition with NTPs (Waeyenberg and Hens, 2008). London and Hart (2004) contended that coalition with NTPs at BOP will not only foster a superior understanding of the local needs, but also enables firms to combine commercial and social dimensions. Coalition with NTPs helps the firms to generate employment for BOP community, increase income by distributing and selling products effectively at BOP market. It also transfers knowledge and other benefits to BOP consumers (London and Hart, 2004). Through these collaborations, firms can gain social legitimacy in markets which view them with suspicion, enhance their product and/or service offerings and thus create more social value (Dahan et al., 2010).

4.2.1  Godrej and Boyce

Distribution of ChotuKool to BOP consumers was a challenge for Godrej; because many of its potential consumers live in remote areas (Whitney, 2010). Company partnered with BOP rural people who have been trained as salespersons, for distributing product to the end consumers. These intermediaries earned a commission of roughly $3 (approx. Rs. 180) per unit sold (Chakravarthy and Coughlan, 2012). Moreover, the company also collaborated with the Indian Postal Department in Gujarat state. As per this collaboration, a customer can order ChotuKool at the local post-office and product is shipped within one week directly to the customer’s doorstep even in remote areas (Saiyed, 2011). It eliminated the need for BOP customers to go to the city for buying ChotuKool. ChotuKool was about 50% cheaper than the next entry-level fridge available in the market (Chakravarthy and Coughlan, 2012). The coalition with NTPs created social value in the form of:

a    generating additional source of income for BOP intermediaries
b    providing an opportunity to BOP consumers in terms of using a low-cost branded refrigerator; that is a symbol of dignity and legitimacy for BOP consumers (Prahalad, 2005; Rajagopal, 2009).

4.2.2  Bata Shoe Company

Bata Shoe Company partnered with CARE Bangladesh, a NGO, which is the one of the largest development organisations in the country (Dolan et al., 2012). Bata runs 54 regional distribution centres around the country. Bata delivers shoes to these hubs, from where CARE Bangladesh collects them for finally delivering the shoes by motorbike or small car directly to the ‘aparjitas’ (Balch, 2014). The firm works with around 3,000 aparajitas to sell low-cost shoes door-to-door in BOP market of Bangladesh (McKague and Tinsley, 2012). Each aparjita receives around 10% to 15% commission for every pair of shoes sold (Balch, 2014). This partnership created both types of social value, i.e., internal (for aparjitas) and external (for BOP customers) as well. The internal social value was created by the ways of:

a    aparjitas openly sold Bata shoes in BOP market door-to-door which is restricted by traditions of the society (Hindstorm, 2011)

b    ruling-out the tradition, apajitas got freedom to work independently to generate livelihood, food security and self-esteem for their families (Dolan et al., 2012)

c    this lead to a greater degree of freedom of movement for aparjitas than they previously afforded in the society (McKague and Tinsley, 2012)

d    partnership helped aparjitas to improve their quality of life (McKague and Tinsley, 2012).

The firm’s external social value creation lies in offering an easy access to branded shoes at the doorsteps of BOP women consumers who may otherwise be restricted by custom from travelling to marketplaces (McKague and Tinsley, 2012).

4.2.3  Grameen Phone

The cost of mobile handsets has been observed as a major barrier for poor consumers to have access to telecommunication services. For overcoming this barrier, GrameenPhone found an innovative solution. The firm partnered with BOP women (known as GrameenPhone ladies), who got loan from Grameen Bank to buy a mobile handset (Fletcher, 2005); for providing rented call services to local BOP community that could not otherwise afford to own a mobile handset individually (Yunus et al., 2010). The success of this business model is based on partner GrameenPhone ladies that provided affordable telecom services to rural BOP population. GrameenPhone created internal social value by providing employment and business opportunities to BOP ladies (Simanis and Hart, 2006), who otherwise may not have any other opportunity to work (Chakravorti and Lane, 2010). The external social value was created by empowering BOP people with access to knowledge and information that boosted confidence amongst them (Alam et al., 2010).
4.2.4  Aravind Eye Hospital

The example of Aravind Eye Hospital highlights the coalition with NTPs as an important innovation dimension to promote healthcare service in a BOP market. Aravind recognised the value of partnerships with local communities and philanthropic organisations to gain scale, especially in reaching out to BOP patients in far-flung villages (Rangan and Thulasiraj, 2007). The hospital formed partnerships with non-traditional local organisations such as Lions and Rotary clubs to disseminate information about free eye check up camps organised by the hospital (Weidner et al., 2010). This partnership helped the hospital to organise camps at a huge level and identify potential patients for paid or free cataract surgery (Prahalad, 2005). Over the last 30 years since its founding, Aravind Eye Hospital has screened 22.37 million outpatients and performed 2.8 million surgeries (Rangan and Thulasiraj, 2007). The organisation’s social value creation lies in the following conducts:

a    millions of BOP cataract patients got free eye treatment b they could regain their vision fully

c    they could go back to earn livelihoods that restored their legitimacy in society (Prahalad, 2005).

Based on above considerations, we derive the following proposition:

P2    Coalitions with NTPs by the firms in BOP market is positively associated with any of the social value creation dimensions, i.e., sustenance; self-esteem; and freedom from servitude.

4.3    Building local capacity and social value creation

Many authors have stressed local capacity building as an essential innovation dimension for operating successfully in BOP markets (see for instance, London and Hart, 2004; Simanis and Hart, 2008; Reficco and Márquez, 2012; Schuster and Holtbrügge, 2014). To compete effectively, firms need to invest in building new infrastructure capabilities, as well as new functional and governance capabilities (Prahalad and Ramaswamy, 2004). Firms at BOP need to share its resources outside its boundaries for strengthening capacity of BOP population (London and Hart, 2004). Companies have to invest in development of value chain, local infrastructure, education of local population, employment generation and business opportunities. Schuster and Holtbrügge (2014) stated that the discussion on why companies should invest to in local capacity building is limited to an ethical perspective; however, the authors found that investments in the local capacity building are also reasonable from an economic point of view. Schuster and Holtbrügge (2014) found that local capacity building has a positive effect on organisational performance. However, London and Hart (2004) highlighted that building local capacity can leverage local social development at BOP. Therefore, we argue building local capacity has a significant impact on social value creation because improving market conditions of BOP is likely to create social value (such as ability to meet basic needs, enhanced dignity and legitimacy). We support this argument with following excerpts from the selected cases.
4.3.1  Bata Shoe Company

Bata Shoe Company generated business opportunities for aparjitas by employing about 3,000 of them for selling its products to BOP market of Bangladesh. Initially, aparajitas were not literate enough for calculating sales and managing accounts (Dolan et al., 2012). For this reason, company invested in providing basic literacy and sales training to aparajitas. A business that employs, trains and supports BOP community with no other alternative, automatically creates social value (Sinkovics et al., 2014). Thus, Bata managed to create social value by empowering aparjitas in terms of enhancing their literacy, ability to earn and acquiring business skills (Dolan et al., 2012).

4.3.2  GrameenPhone

GrameenPhone provided micro-credit facility to BOP women that created many micro-enterprises offering telecommunication services to others. The firm was first in the country to make huge investments for providing telecom connectivity in the BOP market. Consequently, it developed telecommunication infrastructure in the BOP market (Yunus et al., 2010). Availability of telecom service in the village enhanced BOP consumer’s ability to connect with their relatives and friends (Simanis and Hart, 2006). Thus, it was the first private sector initiative with an explicit purpose of rural poverty reduction (Alauddin, 2004). In addition, GrameenPhone also initiated a variety of activities, like free healthcare, preservation of ecosystems and partnership with the government agencies for developing saving habits in BOP community (Alam et al., 2010). The firm launched the safe motherhood and infant care projects for economically disadvantaged mothers and their infants nationwide. In education sector, the firm provides 100 merit scholarships to meritorious but underprivileged students; and partnered with the programme of ‘Bishsho Shahitto Kendro’ through which free books are distributed to low-income children (Alam et al., 2010). By these ways, the firm satisfies all the conditions of social value creation.

4.3.3  Aravind Eye Hospital

The hospital reinvested its profits to setup a chain of hospitals in Tamilnadu, a southern state of India (Rangan and Thulasiraj, 2007); that strengthened eye care infrastructure in BOP areas through outreach camps, internet kiosks and vision centres (Bhattacharyya et al., 2010). Aravind Eye Hospital had a distinguished contribution in increasing country’s capacity to perform cataract surgeries from about 1.2 million a year in 1991 to 1992 to nearly 5 million a year by 2006 (Rangan and Thulasiraj, 2007). By 2003, Aravind grew to become an eye-care chain with state-of-the art hospitals in five cities namely Madurai, Theni, Tirunelveli, Coimbatore and Pondecherry (Manikutty and Vohra, 2004). In all the five hospitals, the organisation employs most of the young nurses from BOP community that are barely passed high school (Rangan and Thulasiraj, 2007). The hospital by its nature, created social value by resolving the following social problems, i.e., issue of both unemployment and health. The internal social value creation of the firm lies in offering:

a    employment to BOP women that may not have found any meaningful employment in the village (Rangan and Thulasiraj, 2007)

b    free training about eye surgeries, free accommodation and a stipend to them (Prahalad, 2005)

c    a safe environment at Aravind Hospitals that results in good confidence and skills among them (Rangan and Thulasiraj, 2007).



The external social value was created by:

a    investing heavily in eye care infrastructure that helped BOP patients to sustain their eye vision and livelihood

b    providing a free eye-care destination that prevented them from exploitation by other private eye-care hospitals (Prahalad, 2005).

Based on above considerations, we derive the following proposition:

P3    Building local capacity by the firms in BOP market is positively associated with any of the social value creation dimensions, i.e., sustenance; self-esteem; and freedom from servitude.


5.Conclusions and managerial implications-The pursuit of BOP community in EMs represents an important new future direction for MNCs. However, within EMs, the real challenge for MNCs lies beyond reaching the wealthy elite (Prahalad and Hammond, 2002). Tapping into BOP populations can provide MNCs an opportunity to serve a fast-growing population that is potentially the most exciting growth prospect for them (London and Hart, 2004; Prahalad, 2005; Hammond et al., 2007; London et al., 2010). Several firms are exploring the economic opportunities at BOP (London and Hart, 2004); but innovation dimensions required to serve these markets have neither been examined extensively (Ernst et al., 2015); nor its relationship with social value creation have been studied. This study, therefore, sought to examine how firms pursue dimensions of innovation that may create social value at BOP. The aim of this study is to fill a gap in the literature by offering one of the first models describing relationships between dimensions of innovation and social value creation at BOP.

Based on the literature review of innovation, social entrepreneurship and selected published cases related to BOP, we propose that identified dimensions of innovation create social value. This may be first conceptual model depicting relationships between above mentioned variables. This exploratory study suggests that pursuing BOP market effectively requires review of innovation dimensions adopted by the firms. The innovation dimensions such as co-creation, coalition with NTPs and building local capacity appear to be important for creating social value at BOP.

The findings from the study have some important implications for both theory and practice. Implications at theoretical level primarily focus around the identification of dimensions of innovation and social value creation required to tap a BOP market. The identified innovation dimensions are: co-creation, coalition with NTPs and building local capacity. In addition, we also identify dimensions of social value creation at BOP, i.e., sustenance, self-esteem and freedom from servitude.

At practice level, managers need to understand and pursue the identified dimensions of innovation and social value creation for profitably serving the forgotten majority. For instance, managers of the firms may recognise that how they can co-create products with BOP community; partner with NTPs like NGOs and SHGs; and build local capacity in order to create social value for BOP population. It will allow managers to better access where and how their firms should be pursuing innovations at BOP markets. On the lines of these identified dimensions, managers may find themselves in a better position to make more sound decisions about developing or adapting existing product designs and distribution systems suitable for BOP markets.


6.Limitations and future research- The present study has drawn conclusions but with some limitations. The propositions were drawn on the basis of four cases from two BOP markets (India and Bangladesh) of South Asia. Conditions of one BOP market may not be same as of other BOP market (Prahalad, 2012). More number of cases from other BOP markets of the world may have yielded more precise results. Cases from other BOP markets would establish whether results from India and Bangladesh stand relevant for those markets as well. Therefore, one should be cautious while generalising findings of this study to other BOP markets of the world. Moreover, selection of cases from few sectors like durables, FMCG, telecom and healthcare may also hinder the applicability of findings of the study to firms offering products or services in a sector other than mentioned above. These limitations actually provide a basis for future research that may be undertaken by studying firms operating at other BOP markets of the world and offering some other products like food which is an important sector because BOP consumers spend a major portion of their income on food products (Hammond et al., 2007). Thereby, cases of firms offering food products to BOP consumers potentially provide an appropriate future research ground.

We have proposed a model on theoretical grounds, one way to undertake future research is to test the proposed model empirically. This may be done by the future researchers to seek manager’s opinion by conducting interviews with them or by formulating statements for each dimension. Another way could be to seek response of the BOP community about each proposition drawn.

In an empirical study related to non-profit social organisations, Felício et al. (2013) found that social value creation has positive, direct and significant impact on organisational performance. Moreover, Chattopadhyay and Shah (2014), and Augusto et al. (2014) found the positive effect of innovation on business performance in service and manufacturing organisations, respectively. The impact of ‘more-innovating firms’ on firm’s profitability and market share is higher with respect to ‘less innovating firms’ (Gupta and Gupta, 2014). However, no such empirical study, examining the relationship between innovation, social value creation and firm’s performance in BOP context was found. Thereby, relationship studied in the present study may also be extended to analyse effect of social value creation on firm’s performance in a BOP market that may be more practical from a manager’s point of view.

Acknowledgements

We are thankful to the anonymous reviewers for their valuable comments on the initial draft of this paper. The suggestions given helped us to improve the paper making it more enhanced and worthwhile for the readers.


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Author-
Amanpreet Singh*

School of Business Studies,

Punjab Agricultural University,

Ludhiana, India

and

GNA Business School,

GNA University, Phagwara, India

Email: bawejaman@yahoo.co.in

Email: amanpreet_singh@gnauniversity.edu.in

*Corresponding Author


Lalit Mohan Kathuria

School of Business Studies,

Punjab Agricultural University,

Ludhiana, India

Email: lalit_kathuria@yahoo.com

Email: lalitmohan@pau.edu



 



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