Organizational Drivers for Social Alliance Formation in Bottom of the Pyramid Markets


Term Paper (Advanced seminar), 2013

25 Pages, Grade: 1,3


Free online reading

Index

LIST OF TABLES

LIST OF FIGURES

LIST OF ABBREVIATIONS

1 INTRODUCTION

2 THEORY
2.1 SOCIAL ENTREPRENEURSHIP
2.2 SOCIAL ORGANIZATIONS IN THE CIVIL SECTOR
2.3 SOCIAL BUSINESS MODELS
2.4 SOCIAL ALLIANCES

3 ORGANIZATIONAL DRIVERS FOR SOCIAL ALLIANCE FORMATION
3.1 THE BOP MARKET CONTEXT
3.2 MNE PERSPECTIVE
3.2.1 Organizational constraint #1: Market uncertainty
3.2.2 Organizational constraint #2: Formal institutional voids
3.2.3 Organizational constraint #3: Underdeveloped infrastructure
3.3 CSO PERSPECTIVE
3.3.1 Organizational constraint #1: Limited resources and capabilities
3.3.2 Organizational constraint #2: Socioeconomic insignificance
3.3.3 Organizational constraint #3: Sponsorship dependency

4 WASTE COMPOSTING IN BANGLADESH: WASTE CONCERN AND MAP AGRO
4.1 OVERVIEW OF SOCIAL ALLIANCE PARTNERS
4.2 BUSINESS MODEL OF SOCIAL ALLIANCE
4.3 CSO PERSPECTIVE: WASTE CONCERN
4.4 MNE PERSPECTIVE: MAP AGRO INDUSTRIES

5 CONCLUSION

REFERENCES

List of tables

TABLE 1: OVERVIEW OF ORGANIZATIONAL CONSTRAINTS IN BOP MARKETS AND THE CORRESPONDING MOTIVES FOR SOCIAL ALLIANCE FORMATION

List of figures

FIGURE 1: BM OF SOCIAL ALLIANCE BETWEEN WASTE CONCERN AND MAP AGRO

List of abbreviations

illustration not visible in this excerpt

1 Introduction

While developed world markets become increasingly saturated, multinational enterprises (MNEs) shift their focus towards developing economies for future growth (London & Hart, 2004). Until recently, a vast population of almost four billion poten- tial customers with an estimated purchasing power parity of more than $13 trillion in so called ‘bottom of the pyramid’ (BOP) markets was largely ignored as a business opportunity (Prahalad & Hart, 2002). However, by successfully entering these poor markets, MNEs can create a ‘virtuous cycle’: The greater the profits, the greater the incentive for MNEs to grow, and the more societal problems are alleviated, the more impoverished people join the market economy (Thompson & MacMillan, 2010).

Yet, to be successful, MNEs need a deep understanding of BOP markets, which significantly differ from their Western home markets (Prahalad & Lieberthal, 1998). As several academic studies have shown, one promising strategy for MNEs is to enter alliances with social organizations that are mutually beneficial for both partners (Austin, 2000; Drayton & Budinich, 2010; Prahalad & Hart, 2002; Seelos & Mair, 2007; Selsky & Parker, 2005). However, a comprehensive link between the main or- ganizational challenges in BOP markets and their alleviating factors provided through social alliances is still unclear in the scholarly literature. This leads to the following research question: “What are the organizational drivers for social alliance formation from a corporate and social organization perspective within BOP markets?”

The seminar thesis answers the research question in a three-step approach. In section two, the theoretical foundation describing the underlying concepts is provided. The third chapter aims to identify the main organizational constraints for each alliance partner and explains how social alliances can help to resolve them. Finally, the theoretical framework developed in section three is applied to an alliance example followed by a discussion of the findings and the conclusion.

2 Theory

Over this section we discuss the concepts of social entrepreneurship, social or- ganizations, social business models and social alliances. Specifically, we review their commonalities with conventional concepts, highlight their specificities and the defini- tions we adapt for the literature review of social alliance motives in section three.

2.1 Social entrepreneurship

Although the nascent field of social entrepreneurship (SE) has become of great relevance in the last decades for researchers and practitioners alike, the term SE com- bines two elements that have different meanings to different people (Dees, 1998). The social element can be broadly understood as helping others and more narrowly as combining hardly accessible resources to alleviate social problems (Mair & Martí, 2006). More specifically, social entrepreneurs aim to satisfy unmet basic human needs (Seelos & Mair, 2005) by targeting socio-economically deprived people that lack the financial means or political support to improve their well-being on their own (Martin & Osberg, 2007). The entrepreneurship element is widely regarded as the discovery, evaluation, and exploitation of profitable opportunities in product and fac- tor markets (Shane & Venkataraman, 2000). Therefore, the main difference between entrepreneurship and SE is that in entrepreneurship the creation of social value is a by-product of economic value creation (Venkataraman, 1997), whereas in SE social value creation is the primary objective.

Based on this delimitation, Dees (1998) defines SE as a social mission oriented venture for which economic value creation is a means to a social end and not an end in itself. Mair & Martí's (2006, p. 3) working definition proposes that SE is “a process involving the innovative use and combination of resources to pursue opportunities to catalyze social change and/or address social needs”. Whereas definitions of the con- cept vary in the scholarly literature, there are two agreed upon commonalities across all definitions. First, the main purpose of SE is social rather than personal or share- holder value creation. Second, value creation is achieved through innovative and new resource combinations (Austin et al., 2006).

For the purpose of this seminar paper, we follow the academic literature in focusing primarily on SE and its organizational forms within the nonprofit to for-profit spectrum in the civil and private sector. Hence, we adopt the definition of Austin et al. (2006, p. 2) of SE as an “innovative, social value generating activity that can occur within or across the nonprofit, business, or government sector”.

2.2 Social organizations in the civil sector

The ‘civil sector’, also termed ‘civil society’ or ‘social sector’, consists of nonprofit organizations (NPOs), nongovernmental organizations (NGOs) and social entrepreneurial ventures (SEVs) (Trivedi & Stokols, 2011).

Regarding SEVs, there are primarily two organizational forms discussed in the academic literature. The first is the concept of the social enterprise. Although there is no precise usage of the term, we follow the definition of Trivedi and Stokols (2011, p. 4) that social enterprises are “high-impact ventures that address long-standing socio- environmental problems […] and facilitate sustained positive change”. In this regard, social enterprises and NPOs/NGOs differ the most as the latter may not address en- during social problems or aim for positive social change (Trivedi & Stokols, 2011). Besides, whereas most NGOs are NPOs, social enterprises can be organized as non- profit or for-profit ventures, depending on their business model (Mair & Martí, 2006; Martin & Osberg, 2007). Hence, in contrast to traditional NPOs, social enterprises range on a continuum from purely philanthropic to purely commercial (Dees, 1998) where the boundaries between nonprofit and for-profit blur (Dart, 2004). In sum, so- cial enterprises can be socially and economically motivated, which is described as the ‘double bottom line’ (Emerson & Twersky, 1996). Both defining characteristic, the social purpose and double bottom line, set them apart from business enterprises.

The second type of SEVs, the social business, which has been popularized by Yunus et al. (2010), is similar to the concept of the social enterprise in that it seeks self-sustainability while trying to achieve a social objective. However, because a so- cial business succumbs a dividend payout constraint, its definition is more restrictive and has not yet been widely adopted in the scholarly literature (Huybrechts & Nicholls, 2012). Many academic studies on organizational drivers for social alliance formation interpret these forms interchangeably due to the varying terminologies of social organizations (Drayton & Budinich, 2010; Seelos & Mair, 2007; Selsky & Parker, 2005; Webb et al., 2010). Therefore, we use the term ‘civil sector organiza- tions’ (CSOs), the parent category of social organizations, as the unit of analysis to describe NPOs, NGOs and SEVs. The term CSOs is also used by Rochlin (2000) de- scribing non-rent seeking organizations that pursue a social mission.

2.3 Social business models

Zott et al. (2011) point out that the business model (BM) concept is character- ized by definitional obscurity and ambiguous usage in the academic literature, so that scholars have to be clear which BM concept they refer to for their research purposes. In general, the authors differentiate between three concepts based on a review of sev- eral literature streams. First, for studies on e-business the e-BM archetype is suggest- ed (Osterwalder & Pigneur, 2005). Second, the BM as an activity system should be adopted for studies on boundary-spanning and activity-based value creation (Zott et al., 2011). Third, scholars who inquire the commercialization of technological inno- vations may interpret the BM functionally and operationally as a cost and revenue architecture (Chesbrough & Rosenbloom, 2002).

To support the analysis of this paper, we consider the BM concept as an activity system and adopt the definition by Amit and Zott (2001, p. 511) in that “a BM depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities”. On the one hand, value creation can be achieved with either economic or social objectives (Seelos & Mair, 2007; Thompson & MacMillan, 2010). On the other hand, value creation encompasses business and industry boundaries (Amit & Zott, 2001) where BMs can also be “struc- tured by configuring the capabilities of two organizations into an alliance that is able to achieve several strategic objectives concurrently” (Seelos & Mair, 2007, p. 53).

In this context, a social BM comprises both, a social and an economic profit equation that are linked to social or environmental objectives. Whereas building a social BM is characterized by several particularities, such as stakeholder orientation, embedding a social goal (Yunus et al., 2010) or measuring social value (Pfitzer et al., 2013), common to configuring all BMs is the process of innovation, experimentation and cooperation (Yunus et al., 2010). Especially the last aspect, partnerships, has been of great relevance not only for building competitive advantage through resource complementarity (Dyer & Singh, 1998), but also for MNEs entering BOP markets and local CSOs (Brugmann & Prahalad, 2007; Seelos & Mair, 2007). In this regard, ‘co-creational’ and collaborative BMs try to address the distinct challenges of BOP markets (Dahan et al., 2010; Pfitzer et al., 2013; Prahalad & Ramaswamy, 2004).

2.4 Social alliances

According to Varadarajan and Cunningham (1995, p. 283), strategic alliances “entail the pooling of skills and resources by the alliance partners, in order to achieve one or more goals linked to the strategic objectives of the cooperating firms”. In gen- eral, this form of cooperation enables partners to co-develop products, share risk and resources, gain tacit knowledge and overcome market entry barriers (Gulati, 1998; Hitt et al., 2000). Therefore, alliances between corporations have become an im- portant tool for interorganizational cooperative strategies (Das & Teng, 2000).

Moreover, the concept of corporate social responsibility increasingly exposes MNEs to fulfill social requirements, such as human rights policies or safe working conditions (McWilliams & Siegel, 2001). Hence, corporations consider partnerships with social organizations in order to address the social impact on their strategic objectives (Rondinelli & London, 2003).

However, as the research field of social alliances is new and evolving, Selsky & Parker (2005) note that the terminology for this kind of collaboration varies and includes social partnerships (Nelson & Zadek, 2000; Waddock, 1991; Warner & Sullivan, 2004), social alliances (Berger et al., 2004), and cross-sector relationships (London et al., 2006; Wymer & Samu, 2003). We adopt the term social alliances of Berger et al. (2004) defining the sum of all voluntary collaborative efforts of actors from multiple sectors in order to solve a social issue by serving their own strategic objectives (Selsky & Parker, 2005; Waddock, 1991).

In addition to the aspects of strategic alliances, social alliances include two dis- tinctive characteristics. First, they consist of at least one CSO partner and second, they pursue non-economic objectives, which focus on improving social welfare (Berger et al., 2004; Drumwright, 1994). Even though objectives, cultures and operat- ing styles of social and corporate organizations are different (Rondinelli & London, 2003; Sagawa & Segal, 2000), the complementary strengths of the partners enables them to tackle complex problems, which could not be solved by organizations in one sector separately (Bryson et al., 2006; Drayton & Budinich, 2010; Waddock, 1991). Hence, social alliances have high strategic relevance for addressing key organization- al challenges in BOP markets (London et al., 2006; Wymer & Samu, 2003).

3 Organizational drivers for social alliance formation

In this chapter we first frame the BOP market context for corporate and social organizations. In the next step, we review social alliance drivers from the MNE and CSO perspective by identifying the organizational constraints that inhibit each organ- izational form from penetrating BOP markets successfully without partnerships.

3.1 The BOP market context

From a market viewpoint, BOP markets comprise people with an annual per capita income of less than $1,500. In this regard, they are separated from the middle and top of the pyramid, which include middle- and upper-income classes. BOP mar- kets are often located in least-developed and rural regions of developing and emerg- ing countries (Prahalad, 2006) and defined by certain market characteristics rather than by national boundaries (Webb et al., 2010). In particular, BOP markets are de- scribed by political and economic instability, corruption, geographical isolation, re- source scarcity and inexperience with consumption (Prahalad, 2006).

Regarding the organizational perspective, social problems in BOP markets present both daunting constraints and tremendous opportunities to MNEs worldwide (London & Hart, 2004; Pfitzer et al., 2013). First, even though individual incomes are low, aggregate buying power is enormous and presents fundamentally new sources of rapid growth (Prahalad & Hammond, 2002). Second, MNEs improve their innovation capabilities since products have to be tailored to unique market circumstances, which are distinct to those in Western markets (Nakata & Weidner, 2012). Finally, MNEs can reduce costs by outsourcing operations to low-cost labor markets and streamlining business structures (Prahalad & Hammond, 2002).

Due to their inexperience with the lowest segment of the income pyramid, tradi- tional partners, such as local MNEs, lack the required resource and capability com- plementarity (London & Hart, 2004). Therefore, non-traditional partnerships with CSOs, which by nature target socio-economically deprived communities, are vital to understand the BOP context and serve these markets better (Austin, 2000; Prahalad & Hart, 2002; Selsky & Parker, 2005). Likewise, CSOs profit from MNEs by gaining magnitude in the alleviation of social problems while attaining greater influence and fostering self-sufficiency (Austin, 2000; Berlie, 2010; Dahan et al., 2010).

3.2 MNE perspective

The greatest challenges that MNEs face when entering BOP markets are market uncertainty, formal institutional voids and underdeveloped infrastructure. Forming alliances with local CSOs is crucial in addressing these constraints successfully.

3.2.1 Organizational constraint #1: Market uncertainty

BOP markets are characterized by uncertainty about supply and demand (McMullen, 2011). In particular, customer needs are ill-defined (Porter & Kramer, 2011) while income constraints restrict the customers’ ability to pay (Seelos & Mair, 2007). Moreover, in such economies transactions are based on social instead of legal contracts (De Soto, 2000) with little protection of property rights. Therefore, MNEs often find it difficult to serve these markets effectively (Webb et al., 2010) as tradi- tional products, services and processes are inadequate (Seelos & Mair, 2007). In this context, social alliances reduce the uncertainty associated with BOP markets.

Given that CSOs have a strong social orientation in low-income markets, they provide market knowledge and deep insights into target customers and their cultural and consumption habits (Brugmann & Prahalad, 2007; Dahan et al., 2010; London & Hart, 2004). Hence, MNEs become empowered to learn what local customers really desire and can educate them about their product offering in order to create value (Webb et al., 2010). Rondinelli and London (2003) further note that due to enormous efforts to internally replicate the expertise held by CSOs, alliances may constitute the only option for most MNEs to access such knowledge. Also, because merging with or acquiring a CSO is highly unlikely.

In addition, extending the argument from above, MNEs have to innovate their BMs and products from the ‘bottom-up’ with local partners to prosper in BOP mar- kets (Brugmann & Prahalad, 2007; Chesbrough et al. 2006; London & Hart, 2004; Prahalad & Hart, 2002; Sánchez et al. 2006). Incrementally adapting a product’s price or functionality top-down is ineffective (London & Hart, 2004). CSOs understand the local business environment and are successful in customizing BMs to local conditions (Chesbrough et al., 2006). Therefore, co-creating custom solutions with CSOs from the bottom-up allows to better address social needs (Pfitzer et al., 2013).

3.2.2 Organizational constraint #2: Formal institutional voids

Whereas developed economies are primarily dominated by formal institutions (North, 1990), BOP markets are subject to formal institutional voids as they lack property rights and bankruptcy, contract and tax law (Khanna et al., 2005; Webb et al., 2010). Thus, economic exchange in BOP markets is conducted based on informal institutions such as social norms, trust and informal networks (De Soto, 2000), which deter MNEs from exploiting business opportunities as they lack the legitimacy and social capital required to operate within these markets (Webb et al., 2010).

By their nature, CSOs aim for social value creation by participating in subnetworks (Millar et al., 2004; Yaziji, 2004), creating organizational and institu- tional linkages (London & Hart, 2004; Millar et al., 2004) and empowering individu- als and communities (Trivedi & Stokols, 2011). Thus, CSOs possess both, social cap- ital and social embeddedness in informal networks (Millar et al., 2004; Sánchez et al., 2006; Webb et al., 2010). MNEs can leverage this social infrastructure and gain legit- imacy to enhance their reputation and establish commercial business ties (Austin, 2000; Dahan et al., 2010; London & Hart, 2004; Webb et al., 2010).

3.2.3 Organizational constraint #3: Underdeveloped infrastructure

Poor infrastructure regarding product, labor and capital markets as well as utili- ties, distribution and communication systems suppress business development above all in rural areas of BOP markets (Khanna et al., 2005; Prahalad & Hart, 2002; Rivera-Santos & Rufín, 2010; Webb et al., 2010). Consequently, MNEs incur high transaction and operating costs to market and distribute products and recruit trained human resources, making a profitable business very unlikely (Sodhi & Tang, 2011).

Access to and availability of products are two of the key aspects in serving lowincome markets (Prahalad, 2006). Therefore, CSOs have created large and fragmented sourcing and distribution systems that complement the value chains of MNEs (Chesbrough et al., 2006; Dahan et al., 2010; Sánchez et al., 2006).

Also, MNEs benefit from the marketing capabilities of CSOs. Raising brand awareness (Brugmann & Prahalad, 2007; Dahan et al., 2010) and informing, often uneducated and illiterate, consumers about product usage is pivotal in building a cus- tomer base (Chesbrough et al., 2006; Dahan et al., 2010; Rashid & Rahman, 2009).

Finally, due to their network ties, CSOs are instrumental in supporting MNEs in human resource (HR) recruitment and training (Chesbrough et al., 2006; Sánchez et al., 2006). Besides, established CSOs often themselves employ an educated work- force with university degrees and specialized technical expertise (Yaziji, 2004).

3.3 CSO perspective

CSOs operating in BOP markets are exposed to limited resources and capabili- ties, socioeconomic insignificance and financial dependency. The complementary strengths of MNEs in social alliances are vital to overcome these barriers effectively.

3.3.1 Organizational constraint #1: Limited resources and capabilities

In BOP markets, CSOs try to address a broad set of social issues with very limited resources, resulting in low social impact (Austin et al., 2006). Alliances with MNEs, that involve advantages in size and expertise, constitute a solution to this problem by enabling CSOs to leverage their social BM and service offering and thus to create more social value (Dahan et al., 2010; Seelos & Mair, 2007).

The primary resource that CSOs lack the most is financial capital. Hence, CSOs benefit from the financial strength of MNEs (Berlie, 2010; Rondinelli & London, 2003; Sakarya et al., 2012). In particular, CSOs increase their funding for scaling their business operations (Dahan et al., 2010; Drayton & Budinich, 2010) and for expanding their social programs faster to new regions (Austin, 2000; Sánchez et al., 2006). Besides, CSOs enlarge their seed capital base especially relevant for the initial stages of the social venture (Chesbrough et al., 2006). In addition, Berlie (2010) high- lights that MNEs commonly finance the joint activities and payroll of social alliances.

However, funds are only one element that MNEs can contribute to a social alli- ance. MNEs also provide access to needed capabilities along the value chain, which include managerial and technological expertise as well as know-how in marketing and operations (Berger et al., 2004; Dahan et al., 2010; Drayton & Budinich, 2010). Further, MNEs complement CSOs with a qualified work force by encouraging their employees in volunteering for social activities (Berger et al., 2004; Rondinelli & London, 2003). Finally, the potential leverage of MNEs enables CSOs to achieve economies of scale and thus to offer their social services on a greater magnitude (Austin, 2000; O’Regan & Oster, 2000).

3.3.2 Organizational constraint #2: Socioeconomic insignificance

As illustrated, CSOs generally lack critical resources to effectively realize their social objectives (Austin et al., 2006). Thus, to compensate their resource deficits, CSOs strive for various partnerships and large networks to be effective (Yaziji, 2004). In this way, CSOs secure their significance for society (Millar et al., 2004).

Greater visibility for social programs and a strong image are important objec- tives of social collaborations for CSOs (Rondinelli & London, 2003; Sakarya et al., 2012). In addition, CSOs can gain corporate, public and institutional impact. First, social alliances enable CSOs to influence business leaders’ thinking and corporate management practices (Rondinelli & London, 2003) and thereby foster social change in the corporate world (Fabig & Boele, 1999). Second, partnerships with MNEs im- proves the ability of CSOs to gain public support and influence public policy (Millar et al., 2004; Rondinelli & London, 2003). Finally, CSOs may become important insti- tutional actors (Doh & Teegen, 2002), providing them with the legitimacy to deepen relationships with private sector-players (Dahan et al., 2010; Millar et al., 2004).

3.3.3 Organizational constraint #3: Sponsorship dependency

CSO are operating in a highly competitive environment for financial capital with growing struggle for donors and grants (Weerawardena & Mort, 2006). Moreo- ver, government funding of CSOs has been reduced significantly in recent years (Berger et al., 2004). Therefore, the only economically viable survival strategy is the dilution of private and civil roles towards strategic collaboration (Millar et al., 2004).

In principle, MNEs bring an entrepreneurial attitude to CSOs (Chesbrough et al., 2006). By generating additional sources of revenue, CSOs reduce the dependence on government aid and private sector charity (Austin, 2000; Brugmann & Prahalad, 2007; Rondinelli & London, 2003). Thereby, the for-profit BM of MNEs enables CSOs to ‘exit’ their social ventures after they have become financially self-sufficient and to pursue new social missions (Chesbrough et al., 2006).

Table 1 summarizes the literature review on organizational constraints in BOP markets and the corresponding motives for social alliance formation from the MNE and CSO perspective. In the next chapter, we apply the developed theoretical frame- work to the social alliance example of Waste Concern and Map Agro in Bangladesh.

Table 1: Overview of organizational constraints in BOP markets and the corre- sponding motives for social alliance formation

illustration not visible in this excerpt

Source: Authors’ own analysis

4 Waste composting in Bangladesh: Waste Concern and Map Agro

In this section we begin with an overview of Waste Concern and Map Agro and describe their business model for addressing waste problems in Dhaka city, Bangla- desh. We then continue with analyzing the motives for forming the alliance from both organizational perspectives using the theoretical framework developed in chapter 3.

4.1 Overview of social alliance partners

With a population of more than 15 million people, Dhaka is one of the largest cities in the world, producing about 1.8 million tons of solid waste per year. Due to capacity restrictions of its central waste management, the Dhaka City Corporation (DCC) is only able to collect less than 40% of the total waste, which poses serious sanitation problems to urban residents. At the same time, the country’s soil is suffering from extensive chemical fertilizer usage (Rahman, 2011).

In response to these detrimental circumstances and neglected niche, Waste Concern (WC) was founded in 1995 by the two young social entrepreneurs Iftekhar Enayetullah and Maqsood Sinha as a research-based CSO in Dhaka City. Its hybrid for-profit and nonprofit social BM targets the social needs of solid waste removal from the Bengali population along with the exploitation of economic opportunities in the fertilizer market (Porter & Kramer, 2011; Rahman, 2011). Specifically, WC col- lects solid waste from households, decentrally converts the organic fraction into com- post and sells it as a substitute for chemical fertilizers (Zurbrügg et al., 2005).

Map Agro Industries (MA), a sister company of Alpha Agro Ltd., is the largest fertilizer trading company in Bangladesh. It supplies farmers with agro products through its countrywide distribution network in rural areas (Zurbrügg et al., 2005).

4.2 Business model of social alliance

WC’s decentralized community-based composting BM consists of several part- nerships including local communities, the Ministry of Environment and Forestry (MoEF), DCC, donors and MA (Rahman, 2011). For the purpose of this paper, we focus on the social alliance between WC and MA, which is outlined in figure 1.

In cooperating with MA to sell its entire compost to rural farmers, WC was able to achieve its social objectives by creating jobs for the urban poor, improving living quality and reducing soil degradation. Based on access to WC’s reliable supply chain and low procurement costs, MA was incentivized to invest in an enrichment plant, market the organic fertilizers and capture the economic profits (Seelos & Mair, 2007).

illustration not visible in this excerpt

Figure21: BM of social alliance between Waste Concern and Map Agro Source: adapted from Rahman (2011) and Seelos and Mair (2007)

4.3 CSO perspective: Waste Concern

To effectively eliminate the waste problems in Dhaka, the composting model of WC required access to the fertilizer market in Bangladesh. Hence, the social alliance with MA provided the necessary scale for the BM of WC (Seelos & Mair, 2007).

To overcome its resource and capability restrictions, WC initially intended to partner with the local government. However, the authorities were unsuited in terms of capital, staff, entrepreneurial know-how and technical expertise (Rahman, 2011). Therefore, in allying with MA WC added the important demand side factor to its BM by creating a new market for organic fertilizers (Seelos & Mair, 2007). With the agreement to purchase the entire compost produce of WC, MA did not only alleviate financial restrictions (Rahman, 2011), but also provided access to needed distribution and marketing capabilities (Webb et al., 2010). Thus, in accessing MA’s farmer con- sumer base WC was able to build and expand a cost efficient BM. In this way, WC furthermore generated funds for new composting plants (Gatewood & Boko, 2009).

The strong commitment of MA within the alliance also counteracted WC’s so- cioeconomic insignificance by creating a strong impact on the public and private business sector. This helped WC to replicate its concept to more than 68 cities and towns in Bangladesh by 2008 and augmented their national and international standing to higher levels. Based on its greater political influence, WC participated in enacting almost 30 environmental policies concerning waste disposal, water and sanitation. The improved reputation further allowed WC to establish other social partnerships, for instance with the Dutch company World Wide Recycling BV (Rahman, 2011).

In terms of financial dependency, WC diminished its reliance on donor organi- zations and extended its initial funding by generating a stable revenue stream from selling organic compost to MA (Seelos & Mair, 2007) and by attracting foreign direct investments (Rahman, 2011). Additionally, based on the alliance success with MA, WC diversified its revenue base and stimulated downstream competition through es- tablishing sales contracts with other MNEs. In sum, WC achieved its social objectives by creating new jobs at the community level (Seelos & Mair, 2007), improving crop yields and soil quality for famers (Yedla, 2007) and most notably implementing a sustainable management of organic waste in Dhaka city (Onogawa et al., 2005).

4.4 MNE perspective: Map Agro Industries

Although sales of organic fertilizers constituted about 25% of MA’s revenues by 2006, initially, the attractive growth opportunity had not been eagerly exploited by its management at the end of the 1990s (Seelos & Mair, 2007). However, several key factors based on the social alliance with WC facilitated a profitable market entry.

In terms of the market uncertainty constraint, WC gained profound insights about the waste problems in Dhaka city and the social consequences for its residents through field studies early in 1995. By piloting and fine-tuning the composting model from the ‘bottom-up’ with local community members and organizations (Rahman, 2011), WC provided a proven and tested supply side BM that reduced investment risk for MA. In addition, the labor-intensive, decentralized recycling approach secured cheap supply of compost, which further reduced MA’s business risk. Also, MA bene- fited from content residents that were willing to pay for WC’s waste collection ser- vice, which created a financially self-sufficient supply chain. Funding that WC re- ceived from international donor organizations such as UNDP or UNICEF for its so- cial value creation diminished MA’s financial risk as well (Seelos & Mair, 2007).

Regarding the constraint of formal institutional voids, WC’s goodwill from the government for alleviating Dhaka’s pressing waste problem and the approval by the MoEF for the commercial usage of its compost enhanced consumer acceptance criti- cal for MA to market the product (Seelos, 2008; Zurbrügg et al., 2005). Moreover, funding from donor organizations incentivized WC to be a dependable business part- ner and not to engage in corrupt and unproductive practices (Seelos & Mair, 2007).

Pertaining to the limitation of underdeveloped infrastructure, the greatest challenge for WC’s decentralized BM was the provision of land in the densely populated city for the composting plants. However, in easing the city’s budgetary restrictions for waste disposal, the government donated sites to WC, which substantially reduced necessary capital expenditures by MA. Besides elaborating a refined sourcing system, WC trained and mobilized poor urban workers into collecting, sorting and composting groups. Thereby, MA not only accessed a low-cost workforce (Rahman, 2011; Seelos & Mair, 2007), but also specialized technical expertise (Webb et al., 2010) and the entrepreneurial talents of the founders (Seelos, 2008).

In sum, the alliance between WC and MA rests on two separately managed and operated BMs with distinctive objectives and strategies that complement each other. In particular, MA provided the demand side factor for WC’s BM to reach a sufficient- ly large scale and meaningful social impact. In return, WC offered a low-cost supply chain approved and subsidized by the authorities and adjusted to the local require- ments. Therefore, resources and capabilities of CSOs crucial to the local context are often economically undervalued, which makes them strategically attractive for MNEs to overcome the organizational constraints of BOP markets (Seelos & Mair, 2007). Conversely, MNEs have the entrepreneurial means and infrastructure to bridge gaps in the value chains of CSOs and thus leverage their social BMs (Dahan et al., 2010).

5 Conclusion

Despite substantial organizational challenges, BOP markets constitute tremen- dous growth opportunities for MNEs. In order to exploit these newly recognized business prospects, social alliances with CSOs are a practicable and viable strategy for penetrating BOP markets. Thereby, both social and economic value can be created as each organizational form is encouraged to pursue its distinctive strategic objective.

To structure the scholarly literature on the field of social alliance formation, we first analyzed the particular organizational constraints that inhibit MNEs and CSOs from operating in BOP markets effectively. In a second step, the required comple- mentary resources and capabilities that generally motivate social alliance formation have been identified. Finally, we applied the developed theory framework to study the organizational drivers for the social alliance between WC and MA.

This paper yields several theoretical contributions to the research field. Specifi- cally, our conceptualization links distinct organizational challenges of BOP markets to their corresponding alleviating factors through social alliances. Additionally, prac- titioners can gain insights on how to manage the described constraints effectively. However, our conclusions are limited since the reviewed findings in the academic literature are mainly derived from exploratory case studies and little empirical analy- sis. Furthermore, different understandings of the social alliance concept among schol- ars decrease the explanatory power of their research. Therefore, scholars need to elaborate on their findings in a more methodical and coherent manner in the future.

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Details

Title
Organizational Drivers for Social Alliance Formation in Bottom of the Pyramid Markets
College
University of Mannheim
Course
MAN 720 Research Seminar Organizational Theory
Grade
1,3
Author
Year
2013
Pages
25
Catalog Number
V300065
ISBN (Book)
9783656965121
File size
723 KB
Language
English
Tags
organizational, drivers, social, alliance, formation, bottom, pyramid, markets
Quote paper
Konstantin Kugler (Author), 2013, Organizational Drivers for Social Alliance Formation in Bottom of the Pyramid Markets, Munich, GRIN Verlag, https://www.grin.com/document/300065

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