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Value creation through the use of BoP strategies at the Base of the Pyramid

Haan, M.A. de (2014) Value creation through the use of BoP strategies at the Base of the Pyramid.

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Abstract:The Base of the Pyramid (BoP) is a relatively new area of research in which many assumptions still need empirical substantiation. In this research it was decided to focus on the link between use of a BoP strategy and the type of value created for the private firm. The research started by reviewing the current literature on the Base of the Pyramid in order to understand the intricacies of this particular market. This gave us insight into the opportunities and difficulties associated with it. This also led us to identify three main elements of a BoP-strategy that should be incorporated into any business model when entering the BoP. These elements are Co-creation, Local and Non-Traditional Partnerships and Building Local Capacity. This then formed the answer to our first sub-research question “What is an appropriate strategy for the BoP ?” The next question that demanded attention is “What classifications of value exist?”. In order to answer this question we discussed a multitude of perspectives on value and what is defined as the source of value within these perspectives. As this research focuses on understanding how entering the BoP-market impacts the value created at the firm, this research demanded a classification of value that allows for capturing its multi-dimensionality at the level of the firm. Therefore it was decided to continue to focus on the neo-social system theory of the firm. Within this theory of the firm, there are four main functions that are identified as the essential for the survival of the firm, each with an associated type of capital the firm must possess. These are economic, strategic, cultural and social capital. The creation (or destruction) of value is identified as the in or decrease of these four capitals over time. When combining the insights on the BoP and the associated strategies and the classification of the four types of capital it was possible to form propositions on how the three main elements of a BoP-strategy will affect the change in the four capitals or in other words value creation. Based on knowledge of the BoP and main elements of a BoP-strategy the proposition was formed that all four types of capital would be positively affected by the implementation of a BoP-strategy. This was then the starting point for the empirical part of the study in which four case-studies in the water sector were examined. Through a combination of participation observation, desk research and interviews a case description was formed. The cases were rated on the extent to which they had implemented the BoP-strategies and the extent to which their capitals had changed after attempting to enter the BoP-market. The analysis of the cases led to several insights which were identified in the cross-case analysis section. First of all the cases showed that if the BoP-strategies were implemented this was associated with a positive change in all four capitals. When BoP-strategies were not implemented we found little increase in social capital and even a loss of economic capital. However we did find a positive change in cultural and strategic capital. When examined more carefully we find this change in cultural and strategic capital is different from that found in cases which did implement the BoP-strategies. Namely when BoP-strategies are not implemented, entering the BoP-market still leads to a positive change in reputation in the home market. As for cultural capital, it is found that the activities in the BoP-market provide a great motivator for employees and even a tool for development. P a g e | 4 Secondly a fourth type of BoP-strategy was identified that appeared in the two successful cases and was lacking in the non-successful cases, namely Designing for Local Scale. This fourth BoP-strategy refers to the emphasis on building scale locally, so that economies of scale can be achieved locally, rather than only on global scale. Having a local presence or liaison is crucial in this respect. Finally it was also found that the success of the two cases that did implement the BoP-strategies was facilitated through the build-up of the appropriated social capital. In other words, the development of the right type of social capital enables the development of the other type of capitals when entering the BoP-market. The BoP-strategies, amongst other things, appear to prescribe what type of social capital should be built up. The results from this study strongly indicate that private firms entering the BoP are wise to incorporate all four BoP-strategies in their entry strategy. Firms doing so will be more likely to see an increase in all four capitals of their firm when entering the BoP. Aside from the practical implications of the study it has led to new insights for two research fields. First of all it answers the call of Hart and Dowell (2010) for both more empirical research and the application of theoretical frameworks to the research area of the BoP, thereby fortifying and expanding upon the current knowledge about this market. Secondly it has advanced our understanding of the neo-social system theory of the firm. Application of this theory to a new area has led to the insight that there appears to be an order in which the capitals are increased when entering a new market, at least within a BoP environment. The right type of social capital becomes the gateway to the increase of the other capitals of the firm.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:https://purl.utwente.nl/essays/65008
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