Poverty, Base of the Pyramid and Corporate social responsibility

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Poverty, Base of the Pyramid and Corporate social responsibility

This first section introduces the progressive shift in the vision of solutions to global poverty which increasingly adopted a market-based perspective. Then it focuses on Base of the Pyramid strategies as an opportunity for multinational enterprises to step in this global agenda. Finally, it reviews the literature on Corporate Social Responsibility, on a motivation and a performance standpoint.

Development and market-based solutions

Changing views on poverty and solutions to development

Populations living in extreme poverty and deprivation are among the most vulnerable. One might notice a progress in poverty reduction. By 2011, global extreme poverty had declined to 17 percent compared to 43.6 percent in 1990, leaving still more than 1 billion people confined to live on less than $1.25 a day (World Bank, 2015). In late 1990 a fundamental shift occurred in the conceptualization of poverty, away from an income perspective, to a more multidimensional phenomenon. Multidimensional poverty is made up of several factors that constitute poor people’s experience of deprivation. Tackling poor health, lack of education, inadequate living standard, lack of income, disempowerment, poor quality of work or threat from violence would contribute to gaining “capabilities” (Sen, 1992). in 2014, more than 2.2 billion people – more than 15 percent of the world’s population – are either near or living in multidimensional poverty (UNDP, 2014). This multidimensional view can be found in many World Bank reports and is central to the Millennium Development Goals (MDGs) and the newly established Sustainable Development Goals (SDGs), where income poverty is now apprehended but as one factor alongside hunger, education, water, sanitation or energy. It is noteworthy that In 2011, the United Nations Development Program highlighted how continuing failure to slow the pace of global warming could jeopardize poverty reduction, because the poorest communities are also the most vulnerable to consequences of climate change such as the rising temperatures and seas (UNDP, 2011).
The solutions for poverty eradication and development fit in a longstanding ideological debate between two economics schools (Banerjee & Duflo, 2011). On the one hand, economists like Sachs argue that poor populations face endemic problems such as soils infertility or diseases that contain them into a “poverty trap” (Sachs, 2005). The only possible way is to redistribute wealth from developed to developing countries through aids that specifically address these challenges. On the other hand, tenants of a liberal-inspired approach as Easterly (2001) and Moyo (2009) highly criticized development aid in its perpetuation of dependent institutions and BoP and CSR: Why they interact and how corrupted governments. According to them, a free market will lead to broader economic growth and as a consequence to poverty alleviation. However, low-income populations also face market failures that preclude them from development notably in areas related to education, healthcare and credit (Stiglitz, 1989).
As a consequence of this shift towards a broader definition of poverty and the perceived inefficacy of modernization and dependency approaches to reduce poverty, a growing number of development actors have been promoting pro-poor growth at a microeconomic scale (Banerjee & Duflo, 2011). The OECD (2006) defines it as “a pace and pattern of growth that enhances the ability of poor women and men to participate in, contribute to and benefit from growth.” This was accompanied with an emphasis on market based solutions to better include low-income people to the traditional economy both as consumers and producers (Mendoza & Thelen, 2008). While this approach is not new, as international development organizations and NGOs have been focusing on developing business skills of farmers or entrepreneurs for a long time (World Bank, 2005), one can notice a recent focus on private actors that find innovative solutions on the ground to overcome market and government failures (Cooney & Shanks, 2010).

 A new landscape of social innovation actors

A whole new field of private actors has emerged adopting commercial purposes to achieve societal objectives such as poverty alleviation, health and education provision or climate change resilience. The term “social innovation” has been mobilized to describe business ventures that can take “community needs as opportunities to develop ideas and demonstrate business technologies, to find and serve new markets, and to solve long-standing business problems” (Kanter, 1999). The proliferation of sometimes overlapping terminologies such as “social enterprise,” “social entrepreneurship,” and “social finance” might blur the understanding of the social innovation field, but highlights the emergence of a new industry and new types of actors all across the value chain, from investment to field implementation.
Social enterprises (Dacin, Dacin, & Tracey, 2011; Mair & Marti, 2006; Seelos & Mair, 2005) and microfinance organizations (Battilana & Dorado, 2010; Bédécarrats, 2013) have taken the lion’s share among academia. They redefine the objective of commercial organizations from maximization of shareholder and financial value to maximization of stakeholder and societal value while ensuring economic self-sustainability. Despite the diversity of these ventures that adopt practices from both for-profit and not-for-profit sectors (Mendoza & Thelen, 2008), they all require financial resources to start-up, grow, and go to scale. In parallel of the emergence of social innovation ventures, a new class of social finance actors tries to answer their specific needs (Moore, Westley, & Nicholls, 2012). Social enterprises are no longer solely tied to grants and contracts from government agencies or foundations as primary sources of financial support. In between the traditional philanthropy and mainstream investing, the nascent “impact investing” funds are seeking “non-financial impact, typically in the form of social and/or environmental impact, and financial return, which requires at least the preservation of the invested principal but can allow for market-beating returns” (Höchstädter & Scheck, 2014, p. 12). While all the actors mentioned above are relatively new, more traditional multinational enterprises are also stepping into this new landscape of private actors tackling societal issues.

Changes in the role of multinational enterprises to development

A growing number of scholars have urged multinational corporations to think beyond economic returns and take a more active and expanded role in society beside public and civil society organizations resources (Ansari, Munir, & Gregg, 2012). While corporations have been often accused of being at least partly responsible for the global socio-economic and environmental problems, they are increasingly asked to use their innovation and financial capacities for providing solutions to these problems (Margolis & Walsh, 2003). The Global Compact launched in 2000 by the United Nations illustrates the emphasis on mitigating the impact of business on human rights, labour conditions, the environment and corruption. Jenkins (2005) supports the idea that the emergence of corporate responsibility as a more proactive contribution in the development agenda as to be seen in the context of the changing views of the international agencies towards a greater emphasis on the social dimension of development rather than solely economic growth.
Development agencies have come to see CSR as a way to reconcile support for private enterprise and a market-based approach with their core objective of reducing global poverty. This shift culminated in the adoption in September 2015 of the United Nations Sustainable Development Goals (SDGs) for the period 2015-2030. Unlike the Millennium Development Goals (MDGs) they replaced, the private sector has been involved in their creation, alongside civil society, academia and research institutions (UN, 2014). As a consequence, some of the new SDGs directly address the activities of the private sector: goal 8 aims at promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all; goal 9 promotes inclusive and sustainable industrialization. Moreover, specific poverty dimensions are addressed, which also impact broader industry sectors: goal 7 is to ensure access to affordable, reliable, sustainable and modern energy for all; goal 6 promotes the availability and the sustainable management of water and sanitation for all. Far from being solely a stakeholders’ demand for MNCs to join the global development agenda, the convergence of the civil society organizations, the private and the public sector represents a unique opportunity for MNCs to further develop the markets where they operate.
For some years, the segment of the world’s poorest population has increasingly gained attention in multinational corporations and received support from the development sector. This is illustrated with the recent term “Inclusive Business” promoted, for instance, by the United Nations Development Programme, which defines it as models that “include the poor on the demand side as clients and customers, and on the supply side as employees, producers and business owners at various points in the value chain” (UNDP, 2008, p. 2). This overarching concept encompasses market-based solutions tackling social issues such as Bottom (or Base) of the Pyramid (BoP) strategies.

Multinational corporations at the Base of the Pyramid

Since the early 2000’s, multinational corporations have embraced the possibility to find growth or strategic opportunities by targeting poor population markets while contributing to alleviate poverty. This appealing challenge was popularized by strategic management scholars leaded by C. K. Prahalad (Prahalad & Fruehauf, 2004; Prahalad & Hammond, 2002; Prahalad & Hart, 1999, 2002). According to them, firms might deliver quality products and services to the four billion potential consumers – the so-called “Base” or “Bottom of the Pyramid” (BoP) – whose incomes do not exceed USD 3 000 per year measured in purchasing power parity. While Prahalad and Hart (2002) initially estimated that their aggregated purchasing power represented an untapped market size of USD 13 trillion, later thorough studies refined this assumption to USD 5 trillion (Hammond, Karmer, Katz, Tran, & Walker, 2007). First reviews of BoP strategies agreed on distinguishing “BoP 1.0” and “BoP 2.0” (Munir, Ansari, & Gregg, 2010; Perrot, 2010), which respectively adopt a “market capture” approach in order to increase sales and profits, or a “market creation” approach leading to disruptive innovation.

Capturing the fortune through a commercial approach

From a theoretical perspective, the BoP concept was built initially on a deep business rooting in the sense that “the basic economics of the BOP markets are based on small unit packages, low margin per unit, high volume, and high return on capital employed” (Prahalad & Fruehauf, 2004, p. 24). Innovation is described as a key aspect to overcome barriers that BoP populations face in the act of consuming, namely affordability, availability and accessibility. In his seminal book, Prahalad further explains that “fine-tuning current products and services and management practices […] is a recipe for failure” (Prahalad & Fruehauf, 2004, p. 48). For instance, the initiative launched by Unilerver’s Indian subsidiary, Hindustan Lever Ltd. (HLL) – now becoming famous in the literature – proposed a reformulated detergent, called Wheel, sold in single-use package and introduced it into an adapted distribution channel of small retailers, making it accessible to low-income population. According to Hart (2007, p. 143), HLL reached in 2007 a 40% share of the detergent market in India, testifying for a successful competitive advantage position of the firm. On the societal side of the BoP proposal, Prahalad argues that BoP populations will benefit from a social and economic transformation thanks to the consumption of an increased choice of products and services provided through market mechanisms. Prahalad provides some cases like the e-Choupal venture providing access to market information for rural Indian farmers through information and communications technologies leading to a greater productivity of plantations and better retail prices. However, his work remains elusive on the causal link between market inclusion and social transformation. Adopting a rather neo-liberal positioning, poverty alleviation through BoP strategies should be considered merely as a positive externality of consumption.
The initial BoP proposal faced a wave of criticism among academia highlighting that no market exists or that projects do not actually target the poorest (Karnani, 2007; Warnholz, 2007). The capacity of selling new products and services to the poor has been also rejected as a relevant poverty alleviation approach. BoP populations should be rather included into the business models in order to raise their income (Karnani, 2006). Over marketing towards poor consumers has been also denounced for bringing non essential desires rather than meeting fundamental consumer needs. As an illustration, ‘Fair and Lovely’ skin whitening face cream – another brand of HLL – has been highly criticized for not serving the broader social welfare of BoP populations. Arora and Romijn (2012) go one stage further in stating that the positive discourse in fighting poverty would hide unequal power relations by depoliticizing corporate interventions in the lives of the poor.
A second set of the literature emphasized on the societal role of BoP strategies with a focus on poverty alleviation and development impacts of business ventures. This led to the distinction of a “BoP 2.0” approach taking into account its criticisms (Ansari et al., 2012). The paradigm of the BoP concept shifted with the “BoP protocol” focusing on its capacity to economically empower low-income populations through skill building and co-venturing in a bottom-up approach (Simanis & Hart, 2008). BoP populations are not only seen as consumers but as resilient suppliers, distributors and entrepreneurs that need to be included in the value chain. Such BoP approaches focuses on cross-sector partnerships as a key condition to create markets at the Base of the Pyramid (Murphy, Perrot, & Rivera-Santos, 2012; Reficco & Márquez, 2012). Non-governmental organisations (NGOs) and social enterprises have been identified by some authors as key stakeholders in reaching population needs and building acceptance of new products and services thanks to their anchorage in social and cultural systems (Brugmann & Prahalad, 2007; London & Hart, 2004; Seelos & Mair, 2007). Internally speaking, such societal-oriented ventures will require patient capital and long-term commitment from the company (Karamchandani, Kubzansky, & Lalwani, 2011; Kennedy & Novogratz, 2011). Firms are advised to set protected BoP entities similar to an investment in R&D as a mean to operate outside traditional short term business metrics and constraining procedures (Simanis & Hart, 2008). The corporate value creation discourse shifted towards a rather long-term perspective by suggesting that BoP markets represent strategic renewal opportunities, from which innovation could also nourish saturated mature markets (Faivre-Tavignot, Lehman-Ortega, & Moingeon, 2010), while constructing companies’ ethical rationale (Hahn, 2009).
Whatever a financial or societal value maximization perspective adopted for BoP strategies, one can observe a real craze from corporate practitioners. Member MNCs of the World Business Council for Sustainable Development consortium further reasserted this double value creation objective by stipulating that inclusive business “seeks to contribute towards poverty alleviation
[…] while not losing sight of the ultimate goal of business, which is to generate profits” (WBCSD & SNV, 2008). This reasserts the proximity of BoP strategies with corporate social responsibility, which is reviewed in the following section.

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From motivations to outcomes of Corporate Social responsibility

No one can deny today that corporations are accountable towards both their shareholders and their stakeholders, either internal (i.e. their employees) or external (i.e. their clients, suppliers, civil society organizations). Since one of the first description of Corporate Social Responsibility (CSR) provided by McGuire in 1963, it has been widely accepted that “The idea of social responsibilities supposes that the corporation has not only economic and legal obligations but also certain responsibilities to society which extend beyond these obligations” (McGuire, 1963, p.144, cited in Carroll, 1991). One can also observe a proliferation of competing, complementary and overlapping concepts such as corporate citizenship, business ethics, stakeholder management and sustainability to describe the field of corporate responsibility. Nonetheless, CSR remains a dominant, if not exclusive, term in the academic literature and in business practice. In the dissertation, we consider CSR based on the definition adopted by the European Commission (2001) as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. Therefore, we assume that CSR goes beyond complying with laws and regulations and cannot be solely assimilated to charity as it can be described in some of the Anglo-American literature. That said, one can differentiate two lines of research describing CSR, first from a motivation standpoint that looks at ex-ante normative strategic positions of the firms, and second from an outcome perspective that tries to apprehend its ex-post performance and the value it creates.

Corporate social responsibility motivations

Historically speaking, authors have highlighted three eras to describe the motivations for conducting CSR from an initial ethical positioning of company’s leaders to an increasingly utilitarian perspective (Arjaliès, Goubet, & Ponssard, 2011; Capron & Petit, 2011; Lee, 2008). Table 0.1 illustrates the three eras of CSR strategies. First, a Business Ethics trend emerged in the early 1950’s in the USA. Inherited from the paternalistic vision of the firm, such responsible concern is based on the personal ethics of a business leader who will pursue unexpected philanthropic initiatives after ensuring its economic and legal responsibilities (Carroll, 1979). Related activities like charity, sponsorships, or employee voluntarism actions would correspond at “doing good”. As a consequence the firm would benefit mainly from an image and reputation improvement.
Second, a Business and Society trend emerged in the late 1970’s. It positions the company as a social institution created by the society and towards which it must answer (Wood, 1991). It was characterized by Freeman’s (1984) stakeholders theory which provided an operational guideline for managers to integrate stakeholders’ interests within their business activities, while limiting their negative impacts on them. As an example, corporations can adopt a responsive or compliance approach to integrate and anticipate regulations and environmental constraints. More proactive mitigation of their environmental or social footprint can also lead firms to lower their costs. Such an adaptive response to stakeholders’ expectations would correspond at “doing well”. As a consequence companies would gain their so-called “license-to-operate” by improving their legitimacy.
A third trend has emerged since the 1990’s that confronted corporations with major social and environmental global stakes. This perspective questions the role of the firms, alongside the civil society and the public sector, as an entity evolving in – and depending on – a sustainable society (Capron & Petit, 2011). Corporations are not only economic and political actors but also social actors. Referred as the Business Case trend (Vogel, 2006), it apprehends societal stakes as a source of strategic innovation and competitive advantage. The business case for CSR has been defined as the opportunity for a company to “perform better financially by attending not only to its core business operations, but also to its responsibilities toward creating a better society” (Kurucz, Colbert, & Wheeler, 2008, p. 84). This definition highlights the win-win contract between corporations and the society, for which simultaneous value creation is a cornerstone. In this line of thought, Porter and Kramer (2011) coined more recently the term “creating shared value”. They illustrated three main eras of applications: reconceiving products and markets to answer unmet societal needs in the global economy; redefining productivity in the value chain to mitigate footprint and save costs; or enabling local cluster development to improve local productivity and business environment. Such a restructuration of the value created between the business and the society would correspond at “doing well by doing good”. As a consequence of tackling societal issues, corporations might therefore nourish their economic performance.

Table of contents :

INTRODUCTION
1 Poverty, Base of the Pyramid and Corporate social responsibility
2 Research questions on the interaction between BoP and CSR
3 Research context and methodology
4 Thesis contribution
5 References
CHAPTER 1: Corporate Social Responsibility Boosts Value Creation at the Base of the Pyramid 35
1 Introduction
2 Towards and integrated CSR-BoP model. A review of successes and failures
3 Empirical strategy and data
4 Cross-case analysis
5 Discussion of the findings
6 Conclusion and suggestions for further research
7 References
Appendix: Company cases summary
CHAPTER 2: Managing Base of the Pyramid as a Business Opportunity: A Longitudinal Field Study
1 Introduction
2 Relationship between CSR and strategy, implications for the management of BoP
3 Research context and methodology
4 Longitudinal field Study of Schneider Electric
5 Discussion of the Findings
6 Conclusion and suggestions for further research
7 References
CHAPTER 3: Managing Societal Performance of Impact Investing: An Action Research Inquiry
1 Introduction
2 Literature overview on institutional pressures and theoretical framework
3 Research context and methodology
4 Research findings on responses to institutional pressures
5 Discussion of the findings
6 Conclusion and suggestions for further research
7 References
Appendix: Questionnaire on institutional antecedents
CONCLUSION
1 Why and how BoP interacts with CSR
2 Suggestions for further research
3 References

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