Evaluating supply chain constructs in the base of the pyramid environment

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Abstract

Fostering business activities has been advocated as a more appropriate strategy, replacing aid-based initiatives for achieving sustainable economic development of underprivileged societies. However, the little familiarity with the working of supply chains serving the respective markets is obstructing our efforts to devise suitable strategies to promote corporate activity in underdeveloped areas. The paper aims to critically evaluate applicability of established supply chain management related constructs in base of the pyramid market setting. An interviewer-administered questionnaire was used to collect data in 60 face-to-face interviews, with buyer–supplier dyads, focusing micro-entrepreneurs in Pakistan. We used partial least squares algorithm (SmartPLS 3) to fit a structural equation model to the data. Communication emerged as prime driver construct linked to tactical purchasing, technological integration with customers, technological integration with suppliers and supply chain partner development. The paper, while extending largely formal market–focused supply chain literature to informal settings, enriches our understanding of related phenomena in base of the pyramid markets. Findings of the paper will not only assist practitioners in grasping dynamics of business-to-business markets at the base of the pyramid but will also aid in understanding causality of certain supply chain management practices. The paper is among first contributions to evaluate business-to-business interactions among micro-entrepreneurs in the base of the pyramid markets employing a survey methodology.

Introduction

Development through commerce agenda of the base of the pyramid (BoP) entails augmenting economic activity in poor consumers’ markets. Over the years, scholars have attempted to identify the characteristics of this unique business environment, presenting novel business models, emphasizing need for innovation, developing case studies and problematizing case of BoP (Ausrød et al., 2017; Dembek et al., 2018; Patnaik and Bhowmick, 2020). However, Ansari et al. (2012, p. 836), pointing at absence of a sound theoretical infrastructure to aid in further development of BoP research, argued that “BoP is still in a pre-paradigmatic state of development as an academic field.” The extant study responds to this observation and by presenting a theoretical framework developed in context of BoP contributes towards evolution of BoP as a field of academic enquiry (Smith and Hitt, 2005). Furthermore, BoP literature has mainly focused on business-to-consumer (B2C) issues. Little effort has been made to study business-to-business (B2B) situations, and even less to investigate functioning of supply chains in BoP markets. Consequently, the relevant literature remains short of elaborating conduct of supply chain management related practices particularly effecting performance of indigenous BoP businesses. Furthermore, overview of BoP literature reveals that empirical studies investigating B2B supply chains at BoP are virtually nonexistent (Kolk et al., 2014; Jia et al., 2018). On the other hand, supply chain management literature focuses predominantly on formal and developed markets (Hall and Matos, 2010; Schneider and Wallenburg, 2013; Silvestre, 2015).

Lack of focus on evaluating upstream part of supply chains in contemporary BoP literature and low number of survey-based studies limit our understanding of B2B business environments in BoP markets. Although the literature admires importance of indigenous businesses in driving the economic activity at BoP, it seems strange that BoP researchers have yet to investigate the supply chains (Sodhi and Tang, 2016). This study was designed to provide the first evidence concerning relevance and relations among selected supply chain constructs in a B2B market in BoP markets. Research question for the study was, whether a selected group of theoretically relevant supply chain constructs is empirically relevant in B2B market setting of BoP.

In operations and supply chain management–related research, surveys have been frequently employed (Sachan and Datta, 2005). By adopting survey methodology, this paper aims at making a contribution to filling methodological void created by mainly case study–based BoP research (Kolk et al., 2014). Supply chain model developed in this study is first step in BoP theory-building. The model considers buyer–supplier dyads as unit of analysis. Suppliers in this study were small manufacturers, and buyers were represented by retailers selling utility items to end consumers. Nine supply chain management–related constructs were examined (Table 1).

Different facets of purchasing have been evaluated in context of calls to consider BoP as a source of suppliers (Perez-Aleman and Sandilands, 2008; Reficco and Márquez, 2012). Similarly, this study evaluated three purchasing-related constructs: strategic purchasing, tactical purchasing and purchasing performance. Communication appeared as prime driver in the model, influencing as many as five other constructs but was not manipulated by any constructs (Silvestre, 2015). Centrality of communication in model represents highly social nature of BoP business environment. The model depicts superior purchasing performance as key outcome of a well-coordinated dyadic relationship at BoP. Furthermore, model also helps understand causality of such constructs as supply network structure, supply chain partner development and technological integration with suppliers (Nair et al., 2018). We contribute to evaluating applicability of the respective constructs by contemplating the present understanding of supply chain phenomena in resource-scarce informal market conditions (Nilakantan et al., 2019).

Remainder of the paper is structured as follows: In following section, literature and supply chain constructs are introduced. Literature review section is followed by an elaboration of research methodology. Findings are presented next. Discussion section presents novelty of research and the model and describes study limitations and future research directions. Conclusions are drawn in final section.

Section snippets

Literature review

The term BoP refers to bottom tier of world income pyramid signifying participants and actors in informal markets in developing economies. Institutional voids that impact efficiency of these markets serving less privileged consumers remain a prime feature of BoP (Parmigiani and Rivera-Santos, 2015). BoP researchers advocated for considering BoP as a source of suppliers and strategies to integrate BoP producers in global supply chains (Hahn and Gold, 2014). However, literature targeting the

Purchasing performance

Indigenous micro-entrepreneurs can potentially play a vital role in economic outlook of their communities, by making their purchasing activities more inclusive (Kistruck et al., 2013; Rosca et al., 2019). Purchasing to create inclusive business opportunities in such a context is at forefront of achieving sustainable and socially inclusive growth at BoP (Halme et al., 2012). Furthermore, importance of socialization for supply chain integration has been well established in related literature (

Unit of analysis

Indigenous businesses serving BoP markets remain engines of economic activity in the communities (Arnould and Mohr, 2005). Engrained in social fabric, by providing earning opportunities and fulfilling the daily utility requirements, indigenous micro-entrepreneurs can truly be regarded as lifeline of subsistence societies. Accordingly, for this study, micro-entrepreneurs operating as manufacturers (suppliers) or retailers (buyers) were taken as the unit of analysis.

Among the methods frequently

Findings

To examine significance of paired co-relations shown in PLS model, a bootstrapping procedure at 0.05 level of significance was run (Hair et al., 2014). Results of bootstrapping are shown in Table 7.

Bootstrapping results showed that 6 out of 22 paired correlations could be considered statistically significant (see Fig. 7). This led us to conclude that empirical results of the study signify 6 hypothesized correlations out of 22 shown in Fig. 8. Statistically significant paired correlations

Discussion

Although this context is novel, it is interesting that the mainstream BoP literature has mainly ignored the core supply chain–related phenomenon in BoP contexts (Khalid and Seuring, 2019; Kolk et al., 2014). Also, the purchasing and supply management related practices have not been fully evaluated in context of the informal markets. The disjoint of both streams of research has kept both the academicians and practitioners from developing theoretical foundations or appreciating the constructs

Conclusion

Understanding dynamics of buyer–supplier interactions is critical for increasing supply chain efficiency at BoP. Supply chains of formal markets have been extensively studied and constructs exhaustively evaluated. However, unique business environment at BoP warrants a reexamination of concepts for their suitability to satisfy the novel demands of informal markets. This study empirically evaluated a selected group of supply chain constructs for their relevance in BoP setting. Results of the

CRediT authorship contribution statement

Raja Usman Khalid: Writing - original draft, Formal analysis, Data curation, Methodology. Stefan Seuring: Conceptualization, Supervision, Writing - review & editing, Writing - original draft. Ralf Wagner: Methodology, Writing - review & editing.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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