Supply Chain Incentive Alignment in Bottom of the Pyramid environments

Abstract

Background: Alleviating poverty is critical for achieving sustainability (Zomorrodi et al., 2019). One business approach to alleviate poverty is the Bottom of the pyramid (BoP) approach which implies engaging the poor in doing business, and including them into supply chains with both profitability and poverty alleviation as objectives (Brix-Asala et al., 2021). The populations living in the BoP are generally outside of the global capitalism system (Khalid and Seuring, 2019), composing the poorest two-thirds of the world income pyramid which in turn translates to the more than four billion people living in poverty (Kirchgeorg and Winn, 2014) that are mainly located in developing countries (Khalid and Seuring, 2019). While Supply chain incentive alignment (SCIA) is argued to be a success factor for Supply chain management (SCM) implementation (Norrman and Näslund, 2019), its application on SC:s operating in the BoP environments is yet to be researched. This study is hence based on the literature gap found in the intersection of SCIA literature and BoP literature.

Purpose: The purpose of this study is to examine the implications of the BoP environment on SCIA, specifically for Multinational Corporations (MNC:s) operating in the BoP. The desired outcome is a conceptual framework that could help explain the phenomenon of SCIA in the specific context of the BoP environment.

Research questions: This study includes two research questions: 1) How does the BoP environment influence the supply chains of MNC:s operating in the BoP and is it likely that SC misalignments could occur due to its influence? and 2) What implications does the BoP environment have on supply chain incentive alignment?

Method: This study is qualitative and explorative and takes on a systems approach. An abductive research process was hence utilized to attempt theory elaboration on the topic of SCIA in the specific context of the BoP environment. Inspiration from Jabareen’s (2009) qualitative method to create a conceptual framework was followed, by utilizing both literature and interviews. Eight interviews were conducted with professionals working in MNC:s, nonprofit organizations, social enterprises, local companies, as well as academia, in different countries and contexts.

Theory: The frame of reference in this study includes literature on the BoP approach, literature on the BoP environment, literature on SCM in the BoP environment and literature on SCIA.

Results: The found literature proved that the BoP environment has significant influence on the SC:s of MNC:s, as the implications affect the SC structure, processes and managerial components of the SC. This in turn implies that SC misalignment is likely to occur due to the influence of the BoP environment. The analysis further provided 18 problem concepts identified from the five SC misalignment areas (hidden action, hidden information, incentive design, goal conflicts and differing business logics) and 15 solution concepts identified from the three SCIA areas (contract-, information- and trust based solutions), that were then connected to each other to develop the conceptual framework consisting of seven problem dimensions that influence SCIA in BoP environments and corresponding SCIA solutions to counteract them.

Conclusion: The seven problem dimensions that influence SCIA in BoP environments are: 1) Unreliable and unpredictable business and regulatory environment in the BoP, 2) Partnership with intermediaries and non-market actors in the BoP, 3) Importance of trust and transparency between MNC:s and BoP actors, 4) Power imbalance between MNC:s and BoP actors, 5) Differing contexts between MNC:s and BoP actors due to vulnerability and informality of BoP, 6) Information asymmetries and inefficient information flows and technology in the BoP and 7) Lower level of literacy, education and skills in the BoP. Identified SCIA solutions are e.g. creating incentives based on collaboration, risk sharing, education, training and alignment with BoP, creating clearer contracts and educating on its content and incentives, using certifications as rewards, aligning payment type and time with BoP conditions, sharing information frequently and transparently, reducing information asymmetries prior to contracting, leveraging available IT, involving NGO:s, reducing mistrust and proving good and long term intentions.

Contribution: This study has the theoretical contribution of a first attempt at filling the research gap observed on the area of SCIA in BoP environments and the empirical data in this study also appears to be the first that targets the area. This study also attempts to contribute to the perceived lack of theoretical generalization that appears to be common in BoP literature as stated by Basu et al. (2021). The contribution from this study to the industry is in terms of which areas to pay emphasized attention to when operating specifically in the BoP context and handling SCIA efforts. Organizations can utilize the framework in order to analyze and identify SC misalignment areas as well as to receive an understanding of the SCIA solutions suitable in the BoP to counteract them.

Popular Abstract

Targeting profitability and social impact in the poorest parts of the world by aligning the supply chain through the fair sharing of risks and rewards

A literature and interview study to create a conceptual framework on the yet-to-be-researched area of Supply Chain Incentive Alignment in Bottom of the Pyramid environments

By Rawan Yacoub for the Division of Engineering Logistics at The Faculty of Engineering, LTH, Lund University


The idea of multinational corporations (MNC:s) doing business with the poorest parts of the world with both profitability and poverty alleviation as objectives sounds appealing, however it is much more challenging to actualize due to the many changes that such environments pose on the supply chain (SC). Each time a SC undergoes significant change efforts, a misalignment is prone to occur. Supply chain incentive alignment (SCIA) in turn has the aim of realigning the risks and rewards in the SC when such changes occur. How could MNC:s align their SC:s with incentives to achieve both profitability and poverty alleviation?

The mentioned idea is the core of the so-called Bottom of the pyramid (BoP) business approach. Alleviating poverty has been found to be the most difficult global challenge while simultaneously being critical for achieving sustainability.

This study identified six main categories of implications from the vulnerable and poor BoP environment on the SC:s of MNC:s. The significant amount of SC changes found indicates that a SC misalignment is likely to occur when MNC:s enter the BoP, which in turn indicates the importance of understanding and adapting SCIA efforts in such environments. Seven problem dimensions connected to SC misalignment were identified specifically for the BoP: Unreliable and unpredictable business and regulatory environment, Partnership with intermediaries and non-market actors, Importance of trust and transparency between MNC:s and BoP actors, Power imbalance between MNC:s and BoP actors, Differing contexts between MNC:s and BoP actors due to vulnerability and informality of BoP, Information asymmetries and inefficient information flows and technology in the BoP and Lower level of literacy, education and skills in the BoP. These seven problem dimensions influence SCIA in BoP environments.

The identified SCIA solutions to target the mentioned problem dimensions suggest for MNC to e.g. create incentives based on collaboration, risk sharing, education, training and alignment with the BoP, create clearer contracts and educate on its content and incentives, use certifications as rewards, align payment type and time with BoP conditions, share information frequently and transparently, reduce information asymmetries prior to contracting, leverage available IT, involve NGO:s, reduce mistrust and prove good and long term intentions.

The problem dimensions and connected SCIA solutions are finally illustrated in a framework that can help MNC:s and other organizations to prepare, understand and implement SCIA efforts in the BoP to create fair and profitable partnerships as well as create positive social impact.

This study utilizes a qualitative method to create a conceptual framework by identifying concepts from eight focus areas in the context of the BoP (five SC misalignment areas and three SCIA areas) from literature as well as interviews with professionals from several contexts. The full study is published in the report "Supply Chain Incentive Alignment in Bottom of the Pyramid environments" at The Faculty of Engineering, LTH, Lund University.

• author: Yacoub, Rawan
• supervisor: Andreas Norrman
• organization: Engineering Logistics
• course: MTTM05 20222
• year: 2023
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: Supply chain incentive alignment, Supply chain incentives, Bottom of the pyramid, Base of the pyramid, Multinational Corporations
• report number: 6006
• language: English
• id: 9141895
• date added to LUP: 2023-11-30 18:31:51
• date last changed: 2023-11-30 18:31:51