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Journal of Management Studies 49:4 June 2012
doi: 10.1111/j.1467-6486.2012.01042.x
Impact at the ‘Bottom of the Pyramid’: The Role of
Social Capital in Capability Development and
Community Empowerment
joms_1042
813..842
Shahzad Ansari, Kamal Munir and Tricia Gregg
Judge Business School, University of Cambridge
abstract Rooted in the notion of inclusive capitalism, the Bottom-of-the-Pyramid (BoP)
approach argues for the simultaneous pursuit of profit and social welfare by creating markets
for the poor. This idea has been both celebrated and criticized in the literature. We do neither
in this paper. Instead, by leveraging insights from Amartya Sen’s work on capability
development and the literature on social capital, we offer a more socially embedded and
community-centric BoP approach. By redefining poverty not just as a lack of income, but also
as a lack of ‘capabilities’ in Sen’s sense that can be developed through leveraging social capital,
we offer a systemic framework for understanding the societal impact of business-driven
ventures in the BoP and empowering BoP communities through these ventures. Specifically,
we argue that any business initiative in the BoP ought to be evaluated on the basis of whether
it advances capability transfer and retention by (a) enhancing the social capital between a
particular community and other more resource rich networks, and (b) preserving the existing
social capital in the community.
Keywords: Amartya Sen, bottom of the pyramid, capabilities, capitalism, community
wellbeing, corporate social responsibility, income, networks, poverty alleviation, public–private
collaboration, social capital, social entrepreneurship
INTRODUCTION
A growing chorus of scholars (e.g. Delios, 2010; Guthrie and Durand, 2008; Hinings and
Greenwood, 2002) has argued that it is crucial for corporations to think beyond economic returns and take a more active and expanded role in society. In the face of broad
and deep-seated socio-economic and environmental problems, such as poverty, hunger,
social injustice, and climate change, partly a result of corporate activities, companies
are increasingly being asked to use their corporate ingenuity for providing innovative
Shahzad Ansari is also a Visiting Assistant Professor at the Rotterdam School of Management, Erasmus
University.
Address for reprints: Shaz Ansari, Judge Business School, University of Cambridge, Cambridge CB2 1AG, UK
([email protected]).
© 2012 The Authors
Journal of Management Studies © 2012 Blackwell Publishing Ltd and Society for the Advancement of Management
Studies. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street,
Malden, MA 02148, USA.
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solutions to these problems (Margolis and Walsh, 2003). The sheer magnitude of these
problems has inspired a turn towards using all available resources, including corporate
resources, rather than just public and not-for-public resources (Waddell, 2000).
In this emerging global wave of concern about the daunting problems that have
emerged within the 21st century capitalist system, and the perceived inefficacy of modernization and dependency approaches to reduce persistent poverty, market based
solutions have emerged as a possible alternative (Roxas and Ungson, 2011). These
solutions are aimed at aligning the dynamism of the commercial world with the wellbeing
of the disadvantaged. For example, the economist Rosenweig (1998) has implored
businesses to invest in developing countries, not necessarily for altruistic reasons, but
because this investment makes good business sense. Similarly, marketing scholars,
Mahajan and Banga (2006) refer to ‘The 86 Percent Solution’, arguing that mainstream
theories taught in business schools apply primarily to a mere 14 per cent of the developed
world and that new market-based strategies are timely solutions to the needs of the
majority. Much attention among these market-based approaches has been focused on
the ‘Bottom of the Pyramid’ (BoP)[1] proposition for corporate-led poverty alleviation for
people who earn less than $2 per day. This notion centres largely on enterprise-driven
strategies that incorporate social goals along with traditional profit-maximizing objectives and urges businesses to look towards unconventional and potentially high growth
markets – vast untapped BoP communities – for future revenue streams (London and
Hart, 2004; Prahalad, 2002). The BoP approach suggests that by applying market logic
in BoP communities, corporations may be able to significantly reduce poverty and
radically improve the lives of billions of people, not only by selling affordable products
and services to low-income customers, but also by giving them employment and business
opportunities (Simanis and Hart, 2008). The central thesis is that poverty eradication is
reconcilable with a profit-maximizing objective within an enterprise-based market
system. In the growing stream of research that has built up around this notion, multinational corporations (MNCs) are often seen as potential catalysts for wealth creation in
poor communities, which are sometimes referred to as ‘the bottom billion’ (Collier,
2007), ‘subalterns’ (Chaudhuri, 2010), and ‘subsistence marketplaces’ (Viswanathan,
2007).
However, a growing number of scholars have questioned key assumptions underlying
the BoP proposition and the role of business in poverty reduction (Banerjee and Duflo,
2007; Karnani, 2007a, 2007b). They argue that marketizing social welfare will bring
neither profitability for corporations nor prosperity for the poor, as the actual BoP
‘market’ is much smaller and MNCs’ actions in this space contribute to creating nonessential desires rather than meeting fundamental consumer needs (Davidson, 2009).
Some have even described the BoP proposition as a ‘discursive curtain’ that masks
unequal power relations in its folds by depoliticizing corporate interventions in the lives
of the poor (Arora and Romijn, 2011).
Our purpose is to neither celebrate nor denounce all BoP initiatives. As we illustrate
in this paper, the social value of businesses initiatives in the BoP is often unclear and
difficult to evaluate. Although the BoP literature has evolved towards an increasingly
refined approach towards poverty alleviation, no clear theoretical framework for BoP
community empowerment has yet emerged. We argue that this is due to an incomplete
© 2012 The Authors
Journal of Management Studies © 2012 Blackwell Publishing Ltd and
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understanding of poverty alleviation and the role of business in empowering BoP communities. So rather than applauding or denouncing the concept as a whole, we aim to
differentiate between initiatives that appear to genuinely help a community and those
that do not (Hall et al., 2012; this issue). We do this by engaging with the extensive
literature in development and sociology, in particular with the concepts of capability
development (Sen, 1985) and social capital (Putnam, 1995) that allow us to view BoP
initiatives from a community rather than only a corporate perspective.
In his seminal work on poverty, Amartya Sen (1983, 1985) argued that the economic
wellbeing of the poor was best understood through their capabilities rather than through
more traditional economic concepts, such as choice and desire fulfilment. This led to the
‘capabilities framework’ for the evaluation of individual wellbeing, an approach that
departed from traditional welfare approaches typically equating wellbeing with either
opulence or utility (Nussbaum, 1988; Robeyns, 2003; Sen, 1999). As the poor acquire
and develop more capabilities, they may be able to take advantage of economic and
social opportunities. However, capability building and diffusion in less privileged contexts is no easy task; the poor are often isolated from the resources required to do so and
there is a lack of collective action often necessary to achieve development goals (Evans,
2002; Krahn et al., 2009). To this end, sociologists, such as Putnam (1993), development
scholars such as Woolcock and Narayan (2000), and management scholars such as
Nahapiet and Ghoshal (1998) have argued that social capital is a necessary ingredient for
community development and may provide the necessary bridge between the poor and
the resources available through external groups or institutions.
Building upon this work, we argue that any BoP initiative ought to be evaluated on the
basis of whether it advances capability transfer, diffusion and retention by (a) enhancing
the social capital between a particular community and other more resource rich networks, and (b) preserving the existing social capital in the community. This is in line with
calls to integrate insights from diverse disciplines for understanding the interplay among
businesses, government, and civil society in order to develop a more inclusive approach
to growth (Barney, 2005; Mahoney and McGahan, 2007). We contribute by extending
conventional notions of BoP wellbeing and empowerment, and illustrating the benefits of
business investment in social capital and capability building in BoP communities. While
BoP scholars have begun to emphasize the need to nurture relationships and develop
‘native capabilities’ in BoP communities (e.g. London, 2009), their notion of capabilities
and community wellbeing still appears to emphasize income generation and traditional
economic remedies for poverty alleviation. While increase in income can enhance
capabilities, especially at lower income levels, it need not be seen as the ultimate yardstick
of development or wellbeing. And, if it leads to social disruption, income growth may
reduce rather than enhance wellbeing. By redefining poverty not just as a lack of
financial resources but also as a lack of capability and social capital, we offer a systemic
framework for understanding the societal impact of BoP ventures and empowering BoP
communities through business-driven ventures.
Next, we review the BoP approach and introduce the capabilities and social capital
approaches to community welfare. We then examine the effect of BoP ventures on
capability development through the mechanisms of bonding and bridging social capital
and offer a systemic framework. We conclude by offering some future research directions.
© 2012 The Authors
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‘BOTTOM OF THE PYRAMID’ APPROACH AND SOCIAL WELFARE
Since many multinational corporations are often perceived to be the primary drivers
behind the world’s social and environmental problems, they have come under considerable scrutiny and pressure to pursue a more inclusive, conscientious, and responsible
type of capitalism (Korten, 2001; Margolis and Walsh, 2003), also referred to as supercapitalism (Reich, 2007). With many government sponsored poverty alleviation programmes degenerating into global ‘charity’, rather than serving to build local and
sustainable self-reliance (Burkey, 1993; Sachs, 2005), the focus seems to have shifted
from how businesses cause socio-economic and environmental problems to how businesses can be part of the solution to these problems. Despite massive financial aid
(an estimated $2.3 trillion over five decades), closing the poverty gap remains a huge
challenge (Easterly, 2006) and scholars have called for more rigorous testing of social
initiatives to reduce poverty (Banerjee and Duflo, 2011). The call for applying commercial business principles to social problems is also in line with recent developmental
strategies advocated by leading international development institutions (UNDP, 2008).
These bodies have called for a more significant role of the private sector, in addition to
governments and non-profits, to meet the Millennium Development Goals of widespread
and sustainable development. As Hahn (2009) argues, the burden of social welfare rests
with MNCs, which have superseded governments in their ability to enforce rights,
creating a moral obligation to ‘do good’. And, not only do MNCs have an ethical
mandate, they also have the capabilities and global reach to coordinate the various
institutions and resources required for building capacity in developing countries and
generating economic growth through affordable innovations (Hart, 2007).
A core argument of the BoP approach is that MNCs can earn more profits by directly
providing social goods and services to the BoP. Many of the world’s poor are ‘underserved’ due to various market imperfections, such as local monopolies, and end up
paying higher prices for basic goods and services than wealthier income groups – as
indicated by the poverty penalty index (PPI) (Mendoza, 2011). Yet, the private sector has
tended to view the poor as a market segment with little if any profit potential. However,
the vast BoP segment may have significant latent purchasing power, and resource-rich
MNCs can mobilize this power through focusing on affordability, access, and availability
(Prahalad, 2006). The argument therefore, invokes a ‘win–win’ scenario: profits for
business enterprises that successfully serve this erstwhile ignored market segment, while
the impoverished benefit from goods and services that are specially designed for their
needs.
Critique of the Original BoP Approach
By treating the BoP as consumers, MNCs are seen to be taking the first step in facilitating
economic inclusion and social empowerment. Yet, there are limits to the extent to which
capitalism can be extended to adopt an idealism of inclusion. Scholars have recently
argued that there may be no ‘pot of gold’ in the world’s most challenging markets not
meant for every type of business (Karamchandani et al., 2011). Also, in many BoP
ventures, ‘communities are framed as target markets’, and ‘shared commitment’ with
© 2012 The Authors
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other parties is lacking (Simanis and Hart, 2009, pp. 79–82). Karnani (2007b) argues that
the BoP are vulnerable to exploitation through marketing and are not made aware of the
significant opportunity costs and externalities of buying goods and services. For example,
the wide availability of micro-credit may disrupt traditional community self-reliance,
while enhancing debt dependence and reliance on retailers (Bateman, 2010). Seelos and
Mair (2007) argue that giving the BoP the opportunity to buy more does not reflect their
ability to afford more. Similarly, Karnani (2007a) writes that corporations should not
push branded products at vulnerable BoP consumers that are in fact expensive substitutes for traditional products supplied by local producers. Without adequate understanding of the BoP context, introducing markets may create new vulnerabilities and disrupt
rather than enhance social harmony (Karnani, 2007a; Khan et al., 2007). Thus, merely
providing more goods and services may not achieve economic inclusion and poverty
reduction originally suggested in the BoP approach.
In light of these criticisms (Davidson, 2009; de Soto, 2000; Sachs, 2005; Seelos and
Mair, 2007; Warnholz, 2007), the BoP strategy literature has recently evolved from
viewing the BoP as ‘consumers’ or ‘producers’ in the value chain to seeing them as
‘partners’ engaged in the co-creation of entirely new businesses that generate mutual
value (London, 2009). Inspired by insights from community and participatory development approaches (e.g. Chambers, 1983), this ‘bottoms up’ approach argues that BoP
ventures must be driven by poor people’s needs as perceived by them (Arora and
Romijn, 2011). It also emphasizes the need for corporations to collaborate with local
agencies and NGOs, as well as ‘fringe stakeholders’ with essential knowledge, skills, and
experience (Simanis and Hart, 2009). Some of the literature has also now started to
include themes pertaining to the development of skills in the BoP (Hart, 2007; Karnani,
2007a; Kirchgeorg and Winn, 2006). However, these advances in the literature still lack
emphasis on meaningful social evaluation of BoP initiatives. For example, London (2009)
and Hall et al. (2012; this issue) argue that to assess ‘success’, businesses engaging with the
BoP continue to focus on traditional economic indicators such as the amount of money
invested and the quantity of products distributed, rather than on how well their activities
translate into social welfare on the ground.
Towards a More Community-Centric BoP Approach
Despite the evolution in the BoP discourse, we still have few truly grounded studies of
BoP initiatives (Kolk et al., 2010). In particular, we lack a sufficiently rich understanding
of the transformation that such initiatives bring about in various communities (Arora and
Romijn, 2010, 2011). Most would agree that BoP communities should not be reduced to
business opportunities (e.g. Anderson and Billou, 2007; Anderson and Markides, 2007;
Prasad and Ganvir, 2005; Vachani and Smith, 2008). They would also agree that
listening to the ‘voices of the poor’ (Narayan et al., 2000) should be an essential part of
BoP studies. And yet, we know very little about the lives of the extremely poor: the
choices they face, the constraints they grapple with, the challenges they meet (Banerjee
and Duflo, 2007; Khan et al., 2007) and their ‘systems of exchange’, which are not
always price-based (Biggart and Delbridge, 2004) and may implicate other systems of
normative qualification that assign value or worth (Boltanski and Thévenot, 2006). In
© 2012 The Authors
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particular, often left out of the picture is whether business involvement in the BoP
community actually creates or destroys existing social value from the community’s
perspective (including capabilities, socio-economic equity, and self-respect rather than
just financial profitability). It is only through a grounded understanding of how povertystricken communities survive that we can begin to appreciate what works and what
doesn’t across BoP initiatives, and avoid using the wrong measures to assess community
welfare such as simply the amount of money invested.
What then should we be looking out for in poor communities? Given business’s lack
of understanding of deep poverty, we advocate drawing on development studies and
sociology to expand the BoP proposition. We draw on Sen’s capability approach to
understand what sustainable poverty alleviation in BoP communities entails. Since very
often the primary form of capital in BoP communities inhabited by low-income citizens
is social rather than financial, with a feeble presence of state and market, leveraging
social capital is often highly effective in engaging low-income segments (Reficco and
Márquez, 2009). We therefore, also draw on the social capital literature – including
its sociological origins (e.g. Putnam, 1995) and management extensions (e.g. Nahapiet
and Ghoshal, 1998) – to provide a potential mechanism for building capabilities and
alleviating poverty.
We argue that this approach is reasonable because Sen’s work and certain streams of
social capital (cf. Narayan, 1999; Scott, 1976; Woolcock and Narayan, 2000) stem
directly from crucial studies on deep poverty, as experienced by BoP communities. In
addition, social capital could be an appropriate vehicle for developing capabilities since
Sen’s approach is about an individual’s capability to do certain things and social capital
concerns collective or the community’s capability to do things, where capabilities are also
the properties of groups rather than only individuals (Evans, 2002; Stewart, 2005). But
what insights can Sen’s capability approach bring to the BoP literature? And, how can
leveraging social capital foster capability development among the poor?
The Capability Approach
Sen’s freedom and capability approach (Dreze and Sen, 1989; Sen, 1985, 1999) offers a
completely different perspective on development of impoverished individuals and one that
has so far been absent from most BoP studies. The approach has reconceptualized
economic development. It argues that real incomes are an analytically inadequate metric
for making welfare comparisons, and that the utilitarian efforts to reduce wellbeing and
economic development to only real incomes as a means of satisfying preferences are
equally inadequate. Key components of the approach are discussed below.
Income as a means to freedom. Conventional BoP strategy literature suggests that providing
employment for the unskilled and generating general consumption may be enough to
‘empower’ the BoP to lift themselves out of poverty. For Hammond and Prahalad (2004,
p. 36), ‘lack of choice is what being poor is all about’. In contrast, the capabilities
approach suggests that income or consumption are the ‘means’ rather than the ‘ends’
towards achieving what people truly value as individuals or groups. While increase in
© 2012 The Authors
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income can enhance capabilities, especially at lower levels of income, it cannot be
considered, in itself, the ultimate yardstick of development or wellbeing.
The ‘capabilities approach’ rejects conventional utilitarianism and places itself firmly
in the following: Aristotle’s theory of political distribution and his analysis of eudaimonia
(human flourishing) (Nussbaum, 1988; Nussbaum and Sen, 1993); Rawls’ (1971) Theory
of Justice and his emphasis on self-respect and access to primary goods; Isaiah Berlin’s
(1958) concept of liberty; and Amartya Sen’s famous 1985 treatise on wellbeing and
freedom that criticizes traditional welfare economics for typically associating wellbeing
with either opulence (income, commodity command) or utility (happiness, pleasure,
desire fulfilment).
The problem with utility. Before Sen, wellbeing was largely viewed in terms of utility, which
can be further decomposed into three categories: choice, happiness, and desire fulfilment. Sen
(1985, p. 188) however, noted that ‘we must conclude that none of the interpretations of
utility (pleasure, desire-fulfilment, choice) takes us very far in pinning down wellbeing or
the living standard’. Starting with choice, he notes that any individual’s choice can be
motivated and manipulated by several factors other than a sense of wellbeing, including
those that may be counterproductive to health and emotional stability. Additionally, he
argues that the availability of choice does not indicate whether the real needs of the poor
are being met. Several studies highlight that a much larger share of the poor’s income
could be spent on essential nutrition or education, but is instead dedicated to imitative
consumption and use of products such as alcohol and tobacco (e.g. Banerjee and Duflo,
2007). If companies see BoP consumers as a potentially profitable market, those consumers may aspire to buy products beyond their basic needs, thereby reducing their
wellbeing. It is thus inappropriate to assume that the expressed preferences are truly in
the poor’s self-interest and we need to focus on people’s capabilities to choose the lives
they have reason to value.
In addition, happiness or pleasure often reflects a person’s mental state rather than the
physical state, and is therefore, a problematic metric for wellbeing. For example, despite
abject poverty and lack of material possessions, a person may be able to claim to be
relatively happy since his or her happiness may be more dependent on perceptions of
intangibles, such as family or community relationships. Also, material possessions alone
do not guarantee economic welfare (Sen, 1999). Desire fulfilment can, instead, be
counterproductive when it leads to excessive spending on luxuries, leaving little for
necessities.
Capabilities as freedom. These considerations suggest that neither opulence nor utility
constitute or adequately represent human wellbeing and deprivation. Given the inadequacy of these measurements, Sen argued that wellbeing should instead be measured
through a combination of the ‘functioning’, or doing of individuals, and their ‘capabilities’, or their capacity to realize those functionings (Sen, 1985, 1999). Functionings refers
to what an individual may value doing or being, from elementary ones, such as being
adequately nourished, to complex ones, such as having self-respect, while capabilities
refers to the ability to achieve feasible functionings. A focus on functionings would
suggest the same level of deprivation for an individual who starves as a result of fasting
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and an individual who starves for lack of access to food (Sen, 1992), even though the
former has a different ‘capability set’ than the latter (the first can choose to be well
nourished in a way the second cannot). In other words, a functioning is an achievement,
whereas a capability is the ability to achieve. ‘While functionings are, in a sense, more
directly related to different aspects of living conditions . . . capabilities, in contrast, are
notions of freedom in the positive sense: what real opportunities you have regarding the
life you may lead’ (Sen, 1987, p. 36). While Sen acknowledges the importance of
expanding both functionings and capabilities, he places more emphasis on capabilities,
arguing that people differ in their capacity of conversion of goods into valuable achievements due to personal factors such as age, gender, disabilities, and illnesses, and various
social arrangements.
Capability is seen as the functional alternative to the economic notion of opportunities
expressed through income or commodities (Gasper, 2007). Valuing only one ‘one homogeneous good thing’ (such as income in which everyone’s overall advantage can be
judged and compared without considering variations in personal circumstances) severely
reduces the range of social evaluation (Sen, 1999, p. 77). As a result, economic wellbeing
is only truly improved when both the possibilities for what one can do are expanded and,
more importantly, the ability to realize those possibilities is developed. Therefore,
Sen (1983, p. 168) challenges us to reshape the problem of poverty from ‘a failure to
reach some absolute level of capability’ into ‘the issue of inequality of capabilities’.
Reconceptualizing development as the expansion of people’s capabilities (i.e. their ability
to do things that they have reason to value) implies a quite different set of allocation
decisions than the traditional real-income framework by involving people in the setting
of economic priorities and growth strategies.
BoP research and capability development. Doubtless, more recent BoP approaches mark an
advance towards social and economic development by focusing on providing more
employment opportunities for the BoP. However, from the capability perspective, this
change provides only a partial solution to poverty alleviation. More jobs may expand the
functionings of the BoP, but it does not address the problem of expanding capabilities in
the BoP. In fact, much empirical evidence, as shown later in the paper, suggests an
increase of jobs in unskilled rather than skilled domains. It thus appears that the BoP
concept limits itself to addressing only the lesser half of the capability view on poverty
alleviation, namely expanding functionings, while generally ignoring the issue of expanding capabilities. Taking Sen’s work into consideration, a more comprehensive BoP
approach would need to emphasize issues related to capability building.
But how can BoP ventures contribute to capability development? Sen (1999) has
posited certain ‘means and ends’ for achieving capability development, such as political
freedom, transparency, and protective security. However, these means are mostly
directed towards public policy and action and generally appear beyond the scope of BoP
ventures. Also, Sen’s analysis focuses on individual people’s capabilities to live the type of
life they value, but does not provide the necessary link between the influences of
individual and collective capabilities in shaping values and opportunities (Evans, 2002).
In less privileged contexts, individual capabilities are insufficient to produce change and
collective capabilities are often necessary to achieve development goals.
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Since social capital provides an important lens through which to examine issues of
cooperation and reciprocity for the public good (e.g. Krahn et al., 2009), we turn to
scholars such as Woolcock and Narayan (2000) and Stewart (2005) to broaden Sen’s
focus on individual capabilities. These scholars have argued that an important route for
community development is through social capital, often the primary form of capital in
BoP communities. Since BOP settings are often characterized by opaque information
flows, organizations seeking to develop BOP market initiatives must find ways to leverage
local bonds, friendships, traditions, and leaderships that form part of the community’s
social capital. Below, we describe how social capital comes to be an important means for
increasing and retaining capabilities within BoP communities. In particular, we emphasize the role that bonding and bridging social capital plays in capability development.
Social Capital as a Means for Capability Expansion and
Community Stability
The importance of social capital for poverty alleviation has been established by anthropologists such as Scott (1976), who demonstrated how peasant communities survive on
norms of collectivity which spring from social capital. Community resources are effectively allocated as children, the elderly, and the ill are collectively cared for and gifts and
loans of food, land, and livestock are distributed among the needy. This culture of
reciprocity rooted in social capital ensures collective insurance and creates a social safety
net for community members. While social capital is particularly important for the
day-to-day survival of a poor community (Moser, 1996; Narayan, 1995), it can also
help address challenges faced by the community over time. For example, strong community relationships can help resolve future disputes since established norms of trust and
respect allow for better communication and coordination within a group (Schafft, 1998;
Varshney, 2000). Additionally, social cohesion helps communities collectively take
advantage of new opportunities by encouraging collaborations based on reciprocity,
while simultaneously reducing the opportunity for opportunism and corruption (Isham,
1999).
Bonding and bridging social capital. Social capital can also strengthen community identity
and foster community welfare by enabling participants to work together more effectively
in pursuing shared objectives (Putnam, 1995). The poor may have a close-knit and
intensive stock of group cohesion – ‘bonding’ social capital that they can leverage to ‘get
by’ (Briggs, 1998; Holzmann and Jorgensen, 1999), but they often lack more diffuse and
extensive intergroup relationships – ‘bridging’ social capital – deployed to ‘get ahead’
(Barr, 1998; Kozel and Parker, 1998; Narayan, 1999). Bonding social capital stems from
core ties that tend to be high in closure, trust, and shared norms, while bridging social
capital stems from more peripheral ties that tend to be high in unique resources and
information (Burt, 2001). Bonding social ties form the core network, often the primary
source of interpersonal contact. Bridging ties may include some core network members,
but bridging is more likely to come from weak ties outside of the core (Granovetter, 1973).
Until recently, the importance of social ties in economic development has been largely
ignored as economic theory has focused primarily on the mechanics of capitalist systems
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(Moore, 1997). However, this view has begun to shift as research has shown that social
capital can be effectively used to advance development in poor communities (Van
Bastelaer, 1999). Portes (1998) specifically argued for the need to foster bridging social
capital in poor communities to enable access to resources such as experts, employment
opportunities, and financial capital. Identifying the conditions under which the many
‘positive aspects of bonding social capital in poor communities can be harnessed and its
integrity retained’, while simultaneously enabling the poor gain access to formal institutions and a more diverse stock of bridging social capital (Woolcock and Narayan, 2000,
p. 233), are argued to be essential for community development.
This highlights a primary concern of social capital scholars, namely that market-based
structures can destroy social capital in poor communities. For example, Adler and Kwon
(2002) argue that ideologies based on individualism and liberal economics are inherently
at odds with the principles of social capital, which focus on community bonds, family ties,
and reciprocity as key resources for survival. As a result, communities can become
fragmented and left without traditional resources for basic survival. This potentially
alarming outcome has not been acknowledged in the BoP literature, as no work has yet
systematically explored the impact of BoP ventures on the social capital of the communities they operate in. In fact, a cursory review of the existing empirical literature, which
follows later in this paper, would suggest that MNC involvement may have even eroded
important traditional relationships in BoP communities.
Social capital and capability development. We argue that MNCs can play a crucial and
necessary role in building bridging social capital between the BoP, business and other
organizations for transferring and diffusing capabilities. By using social capital as a
mechanism for capability building, MNCs can transmit capabilities at not just the
individual but also the community level through a mutually reinforcing process of
learning and transfer. But, how can MNCs fulfil this role? We draw on the work of
organizational scholars (e.g. Brown and Duguid, 1991; Granovetter, 1973) who have
long acknowledged that even among comparable organizations or within a single organization, knowledge and capabilities transfer, absorption, and integration are immensely
challenging (Zahra and George, 2002). Knowledge, especially the tacit, uncodified, and
socially embedded type, is often embodied in practitioner narratives and collective
experiences and can only be transferred when individuals are given access to the specific
socio-cultural context and are accepted within the ‘communities of practice’ (Brown and
Duguid, 1991; Lang, 2004). Scholars (e.g. Gooderham et al., 2011; Nahapiet and
Ghoshal, 1998; Starkey and Tempest, 2004; Zahra, 2010) have emphasized the importance of close links between knowledge or intellectual capital, and the social capital of
organizations. Since MNCs may already have extensive experience in using social capital
to build organizational capabilities, we argue that they can also have an important
impact by using social capital to build BoP capabilities. In fact, we argue that many of the
same social capital principles that organizations use can be applied to interactions
between the BoP and MNCs. We now turn to insights from the social capital literature
to provide a fruitful expansion of the BoP literature, which has paid relatively little
attention to the social dimensions of capabilities transfer.
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Components of social capital and knowledge exchange. Social capital represents the sum of the
actual and potential resources embedded within, available through, and derived from
the network of relationships to enable coordination and cooperation for the benefit of the
whole (Adler and Kwon, 2002; Portes, 1998). Social capital can be broken down into
three components; structural social capital – network ties and network features such as
network density and configuration; relational social capital – trust and the type of relationship; and cognitive social capital – shared language, identities, beliefs, and norms
(Bolino et al., 2002; Cicourel, 1973; Nahapiet and Ghoshal, 1998). For example, structural social capital may be characterized by certain leaders who occupy central positions,
or form focal points in the entire group, affecting the network configuration. Examples
of relational social capital include family ties, friendship, business relations, or rapport
with co-workers. Each of these relationships implies a different level of closeness and
trust. Cognitive social capital is often manifested in the use of specific language and
codes. For example, certain words within an organization may have different, or no,
meaning outside the organization.
These three components of social capital need to be created and maintained between
the BoP and businesses to enable capability transfer, exchange, and recombination.
For example, structural social capital facilitates conditions of accessibility to various
parties for exchanging and transferring knowledge, increasing the exchange opportunity
(Nahapiet and Ghoshal, 1998). Since meaningful exchange requires at least some sharing
of context between the parties to the exchange, cognitive social capital facilitates conditions of accessibility and recombination and gives individuals the ability for exchange
by providing a common basis for the transaction. The ability to exchange knowledge
however, does not necessarily translate into the willingness to exchange knowledge. One
explanation lies in the relational dimension of social capital, since the extent to which
knowledge is valued and exchanged varies with the level of trust and shared norms
(Boisot, 1995; Boland and Tenkasi, 1995; Campbell, 2006) that affect not only access and
ability to exchange and recombine knowledge, but also the willingness to do so (Tsai and
Ghoshal, 1998).
Factors leading to generation of social capital. Given that social capital plays a crucial role in the
exchange and transfer of knowledge or intellectual capital both within and across
business organizations, BoP ventures are likely to be effective if they cultivate social
capital between communities with needs and resource-rich businesses. Scholars have
argued that social capital may be generated through four main factors: time, interdependence, interactions, and closure (Coleman, 1990; Nahapiet and Ghoshal, 1998). Since its takes
time to build trust and norms of cooperation, relationship stability and durability are key
features affecting the motivation to engage in exchange. Interdependence refers to how
embedded an individual is in the social network. As embeddedness increases, interdependence increases and vice versa. High levels of social capital are developed in contexts
characterized by high levels of mutual interdependence (Coleman, 1990), and social
capital is eroded when people depend less on each other. Frequent interactions are also
a precondition for development of social capital (Bourdieu, 1986) as they can generate
expectations and norms of reciprocity (Coleman, 1988; Putnam, 1993). Social capital
increases rather than decreases with use, and cognitive and relational dimensions of
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social capital accumulate in contexts with more space for conversations and interactions.
Lastly, closure refers to the density and particularity of the network (Adler and Kwon,
2002; Lin, 1999). Networks with high closure create a sense of identity and often result
in shared language, common rituals, and codes (Boland and Tenkasi, 1995), leading to
high levels of cognitive and relational social capital.
But where does the BoP literature stand with regard to preservation and development
of social capital for capability building? BoP scholars have begun to emphasize the need
to nurture relationships and develop ‘native capabilities’ in BoP communities (e.g.
London, 2009). However, their ‘means’ for developing capabilities and enhancing community welfare are rooted in traditional economic measures for poverty alleviation,
primarily income generation. For example, many of the case studies cited in these studies
tend to equate economic aspirations with community capabilities and emphasize income
growth and its impact on ‘capabilities’. While income growth is surely important, wellbeing and empowerment are not simply the consequence of an increase in income.
Indeed, income and consumption are ‘means’ rather than the ‘ends’ towards achieving
what people value as individuals or groups. While studies (e.g. Bhattacharyya et al.,
2010) have shown that businesses can generate additional income for BoP through
innovative business models that involve the poor as value producers, it is worth examining the long term impact of these initiatives on building capabilities, enhancing welfare,
and truly empowering the BoP communities. Indeed, no clear framework has yet
appeared for increasing the likelihood of generating such an impact. Also, existing
empirical examples, reviewed below, do not seem to demonstrate significant capabilities
transfer and development. The examples below are not meant to validate or discredit the
BoP approach, but rather to effectively expose some of the tensions within the model.
EFFECT OF BoP VENTURES ON SOCIAL CAPITAL
How do BoP Ventures Affect Bonding Social Capital?
Given the importance of bonding social capital, there is a serious concern that BoP
ventures, like other Westernized pro-poor initiatives before it, may threaten local culture
and independence without providing the promised economic or societal advantages
(Gordon, 2008). Warnholz (2007) states that there is no clear evidence that MNCs will
always be more efficient and responsive than the entities comprising the existing informal
economy at the BoP. In fact, Karnani (2007a) asserts that MNCs’ entry will crowd out
small businesses, which are better suited to meeting the needs of the BoP on account of
their local embeddedness and knowledge of the community. If this is true, BoP businesses
may be actually destroying the social capital of the community by breaking existing ties
between members who have built a rapport to meet each other’s needs in the informal
economy. Additionally, MNCs might displace local norms or values by creating formal
market structures where none existed before. This potential destruction of bonding social
capital may seriously impact the survival of the BoP community. Although businesses
may not consider this to be within the scope of their activities, there is no reason why
social capital should be ignored in BoP ventures. Since the BoP, vulnerable to exploitation and limited purchasing power, are not ‘ordinary’ consumers, firms’ responsibilities
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to them are beyond the mere ordinary (Davidson, 2009), and they need to be mindful of
the wider implications of their ventures, including how they influence social capital. They
may also be able to defuse local resistance and generate greater legitimacy for their
activities.
Regarding the creation of formal market structures in BoP communities, scholars have
even criticized the much celebrated innovation of microfinance in BoP space as driven
by the global ideology of neoliberalism and the ‘withdrawal of the state from welfarist
policies’ (Bateman, 2010; Karim, 2008, p. 6). Unterstell and Alves (2006) argue that the
wide availability of micro-credit is detrimental to the BoP since it enhances debt dependence and reliance on retailers. Like a ‘lottery ticket’, a few successful cases instil the
promise of making a windfall though numerous others simply get further indebted
(Karim, 2008). Also, non-payment of a loan instalment threatens a woman’s honour and
shame in some places, such as rural Bangladesh, and households try their best to pay on
time, often borrowing money from other sources for paying the instalment (Karim,
2008). Similarly, given the meagre incomes and non-existent savings, microloans may be
used to address family emergencies rather than manage a business. Thus, there is a high
risk that BoP households get trapped on a debt-treadmill, while living and working in an
environment that lacks state-provisioned safety nets. In effect, this subjugation to the
market may replace the societal ties and reciprocity in the community, leaving BoP
members defenceless in such situations (Bateman, 2010). Microcredit thus has the potential to destroy bonding social capital by replacing reciprocal relationships in the community with a reliance on outside creditors. Recent studies on the effectiveness of
microfinance have noted that while microloans helped poor entrepreneurs boost profits
in their businesses, they have little impact on health, education, average consumption,
women’s decision making, or self-reported well-being (Banerjee and Duflo, 2007; Karlan
and Zinman, 2011). Microcredit may therefore not be the miracle that is sometimes
claimed on its behalf, even if it promises to lift households out of poverty.
Furthermore, Karnani (2007a) writes that BoP products often fail to meet any critical
needs, and sometimes even perpetuate social wrongs. Given that consumers have inadequate protection, flooding them with non-essential products may damage social
harmony. To illustrate, the sale of Hindustan Unilever’s ‘Fair and Lovely’ skin whitening
face cream, a profitable brand, may have hurt the cause of social welfare, as it tied
women’s self-esteem to conformity with a beauty stereotype in India. Admittedly, the
norm of valuing fair skin already existed in the BoP community. However, instead of
purposely exploiting this negative norm that was harming the bonding social capital of
the community for financial benefit, Hindustan Unilever could have tried to rebuild
some of the social capital lost by advocating healthier images of women or, at least, avoid
further degradation of social capital.
Even within the fledgling market structure created at the BoP, businesses may not
always be beneficial for local employment. For example, although Smart Communications has used local micro-businesses to sell airtime in urban areas in the Philippines, it
has also developed over-the-air top-up applications for mobile phone users in rural
locations (Anderson and Billou, 2007). Thus, even in the case where informal employment has been partly compensated with formal employment opportunities, businesses
may end up excluding many BoP members. Social capital may then be damaged as the
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mutual relationships in these informal economies are lost. Building social capital requires
MNCs to ‘seek out the unheard voices of those representing the BoP, to promote
development as defined by the local people, to track their triple bottom line within the
BoP and to modify the unintended negative impacts of their BoP approaches’ (Landrum,
2007, p. 7). However, Gardetti (2005) notes that most corporations have difficulty
perceiving the BoP as a source of knowledge, resulting in a failure to build trust with local
communities. Consequently, instead of raising the poor’s standard of living, business
activities might end up damaging bonding social capital in BoP communities and
hamper collective survival.
How do BoP Ventures Affect Bridging Social Capital?
While the effects of business activities on bonding social capital within the BoP may be
debatable, there appears to be more evidence that these ventures have done little to build
bridging social capital between the BoP and the larger economic community. Although
the shift to the ‘new’ BoP model has emphasized the need for MNCs to include the BoP
in product development and adaptation by giving them the opportunity to ‘co-create’
rather than remain passive consumers (Kirchgeorg and Winn, 2006; London and
Hart, 2004; Ricart et al., 2004), the execution of these efforts has been problematic. For
example, the launch of the ‘BoP Protocol™’, established through a BoP Learning
Laboratory at Cornell University (cf. http://www.BoP-protocol.org), emphasizes mutual
respect and deep dialogue to build indigenous or ‘native’ BoP capabilities and become
embedded in local context (Hart, 2008). However, the case studies presented appear to
emphasize brand recognition over building personal relationships with BoP members.
The description of the ‘relationship’ between the S.C. Johnson venture in Nairobi and
local teenagers reads more like a mere exchange of goods, as teenagers agree to wear
branded clothing in exchange for using the company’s truck. Thus, while S.C. Johnson
has created some structural social capital with these teenagers, the relational social
capital is superficial at best and there appears to be no development of cognitive social
capital. Without nurturing all three aspects, the bridging social capital needed for
capability transfer is less likely to be developed.
Furthermore, while there are some cases of MNCs striving to include the BoP in other
areas of the value chain, this ‘inclusion’ often appears to be the use of cheap labour rather
than bridging social capital. For example, to advertise and sell their products in remote
areas, Hindustan Unilever typically employs rickshaws, canoe salesmen, and even street
performers, since most BoP members may lack media access (Anderson and Billou,
2007). Although these MNCs are providing local employment opportunities, these jobs
appear to create merely an arm’s length relationship between the MNC and the BoP,
and provide few opportunities to build a meaningful network of personal relationships.
They involve neither relational nor cognitive social capital building between the MNC
and BoP.
Additionally, the benefits of BoP inclusion, even in slightly higher value-added segments of the production, remain questionable. For example, Prasad and Ganvir (2005)
write that Tata consultancy partnered with NGOs to design and produce much needed
water filters in India involving BoP members who attended two day training sessions on
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assembling the filters. While this was a successful example of technology transfer, there
were indications that the manufacturing steps were essentially ‘de-skilled’, compromising
the filtration quality in order to be comprehensible to the BoP. Also, just two days of
training appears to be hardly sufficient for transferring important skills and knowledge,
much less building reciprocal relationships. It is thus doubtful if the project had contributed to creating lasting partnerships.
Another such example includes the group of BoP initiatives called e-Inclusion
launched by Hewlett-Packard (HP) under former CEO, Carly Fiorina in Cost Rica,
South Africa, India, and Brazil (McFalls, 2007). The South African i-community was a
three year joint venture between HP and local government agencies to provide basic
computer and business training for the BoP by piloting new multi-user desktop configurations. However, the short-term commitment of the project frustrated the local community and the termination of the e-Inclusion programmes at the CEO’s departure left
participants feeling like ‘guinea pigs’ (Schwittay, 2009). Once the joint venture ended,
HP abandoned its multi-user platform development, fearing it would cannibalize sales of
its standard single user computers. And, while the project was supposed to build BoP
capabilities through extensive interactions, it was entirely directed by HP with no input
from local participants who felt marginalized (McFalls, 2007). Thus, while the project
goals were centred on relationship building, empowerment, and deep involvement with
the BoP, its execution failed to create bridging social capital between the MNC and the
locals, resulting in its ultimate failure.
Further concerns about low bridging social capital emerge from an empirical study by
London et al. (2010), which attempted to classify BoP ventures according to inclusion
strategies. Their work demonstrated that such ventures fell into three broad categories:
streamlining existing BoP products, introducing existing BoP products into non-local
markets, and opening new markets by producing non-local products locally. However,
despite the optimism, it is not clear that the BoP ventures described and classified are
meeting the primary social goal of inclusion. While such enterprises may help some parts
of the BoP connect to a wider consumer and supplier base, these relationships appear
superficial and limited to the mechanics of buying and selling. Thus, although there has
been an attempt to build structural social capital, little appears to have been done to
build relational or cognitive social capital. Again, without the latter two components, it
seems unlikely that the bridging social capital will be strong enough to create capability
building opportunities for the BoP.
In light of these examples, several scholars in the BoP space (Arnould and Mohr, 2005;
Gardetti, 2005; Seelos and Mair, 2007) have noted that the social goals of such ventures
are more likely to be met if both the BoP and MNCs are able to build relationships
and establish mutual trust. Local and federal governments can also play a key role in
encouraging socially inclusive BoP ventures. In their analysis to address why only some
entrepreneurial activities in the Brazilian tourist industry bring positive effects, Hall et al.
(2012; this issue) show the benefits of projects that focus on social inclusion rather than
short-term profitability. By focusing first on a smaller, family-oriented domestic market
that provided opportunities for local subsistence farmers and other impoverished entrepreneurs within the value chain, the city of João Pessoa was able to avoid many of the
problems in nearby Recife that focused on more lucrative international tourism. While
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this led to a less profitable industry, attempts at preserving and fostering local social
relationships provided more productive entrepreneurial opportunities for a wider range
of people, and potentially laid the foundation for longer term socially beneficial international tourism that could compensate for initially lower commercial viability. While
these examples do not go as far as to use the social capital terminology, it indicates that
the BoP scholarship is beginning to recognize the importance of building social capital
for capability development.
We argue that extending the BoP business concept through a social capital driven
capability development framework is a crucial step towards realizing the societal goals of
such ventures. Although BoP scholars have begun to explore the role of community
relationships and capabilities for poverty alleviation, it has not yet been systematically
incorporated into the literature. Furthermore, identifying capability development as the
primary target for BoP ventures within the context of social capital helps ground the
vaguer social benefits that the concept claims to achieve by providing concrete channels
for capabilities development. We offer a framework for enabling capability development
in BoP communities through building and preserving intra-group bonding and intergroup bridging social capital. If BoP ventures, we argue can generate greater bonding
and bridging social capital, then they will likely increase knowledge transfer to BoP
communities, leading to capability building among these communities.
TOWARDS A SYSTEMIC FRAMEWORK FOR BoP VENTURES
In this section, we offer a framework for enabling capability development in BoP
communities through building and maintaining intra-group bonding and inter-group
bridging social capital. To reiterate, we are using Sen’s definition of capabilities – the
ability to achieve functionings – rather than the strategy literature’s definition – the
ability to dynamically adapt to a changing environment. As we have argued, four main
factors – time, interdependence, interactions, and closure – facilitate the generation of each of the
three dimensions of social capital. Social capital can foster the development of capabilities in a community by affecting the conditions necessary for capabilities exchange and
recombination to occur (Adler and Kwon, 2002; Coleman, 1988; Nahapiet and
Ghoshal, 1998). These conditions include: opportunity for exchanging knowledge
through access to businesses; the anticipation of mutual value to be gained by both
parties; and the ability and motivation to exchange knowledge. Creating and maintaining social capital is only the first step in the process of building capabilities in the BoP,
which includes transfer and dissemination of knowledge and skills. Figure 1 depicts a
framework for building capabilities in BoP through the mechanism of social capital.
If BoP ventures can increase the four factors that generate social capital, then they
will likely foster structural, relational, and cognitive social capital. And, if BoP ventures
can generate greater social capital, then in turn, they will likely increase knowledge
transfer to the BoP (Austin et al., 2007), eventually leading to capability building among
the poor. While we consider the three dimensions of social capital separately for the
sake of analytical clarity, they are interrelated and mutually re-enforcing. Different
combinations of factors generating social capital can facilitate building all three dimensions of bonding and bridging social capital and developing local capabilities.
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MNC1
Third
parties
MNC 2
Bridging
social capital
transfers
capabilities
between
groups
Bonding social
capital
disseminates
capabilities
within group
MNC 3
BoP Community
Figure 1. Social capital as a means for capability development
If businesses strive to preserve the integrity and positive aspects of existing bonds, ties,
trust, and reciprocal relationships – bonding social capital – in the BoP, they can increase
motivation to learn, internalize, and disseminate newly acquired capabilities amongst
members. As some of the examples illustrated, some BoP ventures end up displacing
local norms and values by imposing an individualistic or neo-liberal ideology that is less
likely to lead to collective learning and capability building within the BoP community.
Leveraging rather than disrupting existing intra-group bonding social capital, therefore,
increases the likelihood of new capabilities being retained by the community as a whole,
rather than by a small subset of individuals.
To maintain and reinforce structural bonding social capital, businesses can work to
sustain existing community roles and interdependencies. Social capital increases with
high levels of mutual interdependence and decreases when people depend less on each
other (Coleman, 1990). If businesses engaging in BoP ventures can avoid disrupting
existing social structures and local interdependencies and reciprocities among BoP
members and preserve structural stability, they can provide the confidence necessary for
the BoP community to internalize new capabilities using existing intra-group channels.
Furthermore, if businesses communicate through locally influential community
members, who can then utilize their network position to demonstrate and encourage
collective learning throughout the group, it can help diffuse potential resistance and
increase capability retention.
Structural social capital is more likely to be preserved if businesses strive to preserve
and develop relational social capital – leverage the strength of existing ties, especially key
ties of influential members with the rest of the group rather than attempt to restructure
the existing relationships and governance norms of a community. The social harmony
preserved may enable new capabilities to flow from one community member to another
in a way that does not significantly disrupt existing inter-personal relationships. Relational social capital affects not only access and ability to exchange and recombine
knowledge, but also the willingness to do so through creating mutual obligations and
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S. Ansari et al.
expectations (Tsai and Ghoshal, 1998), and if businesses strive to maintain the existing
relational bonding social capital, it can lead to wider diffusion of capabilities within the
BoP community.
Since meaningful exchange within the BoP community requires retaining its shared
context, closure – preserving the density and particularity of a network – can maintain
cognitive social capital. If businesses preserve and foster cognitive bonding social capital by
being respectful of local social codes, traditions, values, and identities, it may maintain
cultural cohesion in the community. This, in turn, may allow community members to
learn, internalize, diffuse, and retain newly acquired capabilities. To sum, business
engagements that preserve and reinforce different types of bonding social capital are
likely to precipitate a collaborative learning environment needed for building capabilities
at the community and individual levels. This can lead to the diffusion and retention of
new capabilities in the BoP. Stating the argument as a proposition:
Proposition 1: Preserving and reinforcing intra-group bonding social capital – structural, relational, and cognitive – is likely to increase the diffusion and retention of new
capabilities within the BoP community.
At the same time, businesses can play a role in generating a more diverse stock of
inter-group bridging social capital through building connections between a specific BoP
community and diffuse external parties. This can enable BoP members to access new
resources and capabilities, such as expertise, knowledge, skills, financial capital, and
other institutional information to ‘get ahead’. Also, as Rufín and Rivera-Santo (2008)
argue, BoP networks are more likely to be characterized by the presence of ‘structural
holes’ or ties that bridge sections of the network which otherwise would remain unconnected (Burt, 2001), that need to be connected to bridge the gap that exists between
participants in the formal and informal sectors. As some of the examples indicated, many
BoP ventures have done little to diffuse mistrust and scepticism towards outsiders and to
foster bridging social capital between the BoP and external parties. In most cases, this
appears to hinder cooperation and effective capability building. So, instead of viewing
the BoP as anonymous consumers or employees, BoP businesses engaged in BoP ventures can engage in familiarizing themselves with local community leaders, regularly
interacting with community members, and utilizing local words and phrases in communication. This can facilitate the building and transfer of capabilities as bridging social
capital is created between MNCs and BoP communities.
Interdependencies and personal contacts can multiply as the BoP becomes more
embedded in business-led initiatives such as immersion or training programmes, creating
social embeddedness through building structural social capital. In particular, BoP ventures
can focus on creating strong ties with locally influential community members to facilitate
capability transfer. Also, to increase structural diversity in a network, and enable BoP
accessibility to wide ranging resources and capabilities, businesses may collaborate with
local partners such as NGOs or government agencies and use more ‘interactive’ rather
than ‘isolated’ business models that combine, integrate, and leverage the ecosystem’s
capabilities (Sanchez and Ricart, 2010). In turn, local partners can facilitate the growth
and strength of network ties by stipulating minimum local employment thresholds
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and offering incentives for capability transfer initiatives (Amsden, 2001). Creating
social embeddedness through network ties and increasing structural diversity by
engaging multiple parties facilitates conditions of accessibility and increases the exchange
opportunity.
Additionally, businesses can foster relational bridging social capital through repeated
and increased interactions with the BoP over time by encouraging its employees to
frequently engage with the local community and by sponsoring corporate outreach
programmes. Such initiatives can be as formalized regular meetings and informal interactions with community leaders. Sustained contact, both within and outside the community boundaries, can generate mutual trust and reciprocity and build relational
bridging social capital. Increasing familiarity with the local community and in-depth
knowledge gained through local institutions may reduce the liability of foreignness and
establish a sense of buy-in from the concerned parties that increases motivation to share
knowledge and build capabilities.
Finally, increasing engagement with local players such as NGOs and regulatory bodies
that are already familiar and trusted in the local context can play a role in familiarizing
businesses with the local cultural context and increasing cognitive bridging social capital.
If BoP ventures encourage the concerned parties to use local words and phrases, and
learn about indigenous traditions and customs, such as celebrations and holidays, then
over time, it can allow local communities to gain a sense of shared commitment and
responsibility for the project, and increase the motivation to build and transfer new
capabilities.
To sum, business engagements that build different types of bridging social capital are
likely to generate a diverse learning environment for key members and others in the BoP
community. This can lead to greater transfer of new capabilities to the BoP. Stating the
arguments as a proposition:
Proposition 2: Building inter-group bridging social capital – structural, relational, and
cognitive – is likely to increase the transfer of new capabilities to the BoP community.
Focusing on social capital allows for a strong theoretical basis to advocate the benefits
of business engagements for capability development in the BoP. While we have emphasized increasing the structural, relational, and cognitive dimensions of social capital, our
main argument is that businesses engaged in BoP ventures need to examine how their
operations build inter-group bridging social capital without damaging existing intragroup bonding social capital in the BoP for effective capability development and BoP
empowerment. Indeed, bonding and bridging social capital may be seen as complementary (Woolcock and Narayan, 2000). If businesses focus on fostering and maintaining
both types of social capital, it is likely to lead to the empowerment of a wider group of
people through capability diffusion and retention (see Figure 2).
BoP empowerment comes from building bridging links between the BoP and business
and other external parties, which allows for capability transfer, while sustaining community bonding so that those newly transferred capabilities can be absorbed and utilized
by a greater number of BoP members. However, it is possible that while a BoP venture
does not actually erode bonding social capital within the BoP, it also does not connect the
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Preserve
832
Bonding Social Capital
Exploitation of
Existing BoP
Capabilities
Empowerment
through
Capability
Building
Destabilization
of Current BoP
Capabilities
Erode
Stagnation of
BoP
Capabilities
Erode
Bridging Social Capital
Preserve
Figure 2. Impact on BoP by social capital type
BoP with other opportunities or sources of knowledge in the outside world. In this case,
MNC operation may result in exploitation of the BoP community’s existing capabilities
for short-term profitability, as illustrated in the example of Unilever’s advertisements
through street performers. Finally, MNCs may be able to create bridging links to the BoP
by plugging the BoP into international supply chains or enabling them to expand their
networks widely but, at the same time, erode local social capital. This scenario could
destabilize the BoP and undermine their collective survival and growth. Therefore, true
BoP empowerment must involve both creating bridging social capital and preserving
bonding social capital.
The exact mechanics of capability transfer and dissemination through social networks
are not made explicit in this work, but represent the next step in our proposed framework. Businesses may be able to both identify and motivate key people to learn certain
skills. These key people can, in turn, be incentivized to utilize the bonding social capital
and educate other people in their community. This will increase the likelihood that
capabilities are not merely acquired and retained by dominant members in the community but also diffuse more widely. Businesses can also increase bridging social capital by
connecting the BoP with more diffuse external networks for new capabilities transfer.
Admittedly, the ability to absorb new capabilities may rest on other factors, such as prior
knowledge and absorptive capacity (Cohen and Levinthal, 1990) or combinative abilities
(Van den Bosch et al., 1999). However, building social capital is still an important first
step in the process providing channels of access to business capabilities (Lang, 2004; Tsai,
2001). Since this framework allows businesses to measure and utilize social capital, we
suggest that businesses adopt a preliminary metric based on their ability to change the
relative levels of social capital. While this will largely depend on the specific context, BoP
ventures should aim to increase bridging social capital while maintaining, or possibly
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even increasing, bonding social capital. However, this represents only an intermediate
step in achieving the larger goal of capability building in the BoP. Ultimately, the success
of the venture depends on its effect on the economic and social well-being of the BoP in
terms of Sen’s capability approach.
For the purpose of theory building, we have somewhat simplified the arguments.
However, they are meant to demonstrate how a BoP venture can operate within a system
of different individuals, organizations, and institutions that can simultaneously work
together to co-create value and contribute to capability building. The framework we
offer suggests that businesses operating in the BoP need to examine their activities from
a holistic perspective that may help identify areas not only of potential synergies but also
of potential conflicts.
DISCUSSION
The increasing numbers of BoP initiatives aimed at impoverished communities in developing countries suggests the need to develop a more nuanced understanding of the
dynamics of this ‘market’. We have questioned the assumption that increasing consumption and generating unskilled employment improves social welfare. Reversing global
poverty requires a profound change in prevalent assumptions about growth, development, and progress with regard to the relationship between enterprises, governments,
and communities, where poverty is not simply equated to a deficiency of income or lack
of access to new products and services. Our analysis of the literature, both theoretical and
empirical, indicates that BoP ventures have not yet clarified their contributions to the
social welfare of the population they are striving to serve. We drew upon Sen’s capability
approach to argue that social welfare is unlikely to improve without giving the BoP the
ability to pursue new opportunities. At the same time, without fostering a socially
enabling context for knowledge transfer, it is unlikely that business ventures would build
capabilities among the BoP. Indeed, the social capital literature indicates that knowledge
and capabilities transfer is highly dependent on the social context and generating social
capital can facilitate capability building in the BoP.
At a broader level, ‘capable’ or empowered communities can add to the plurality of
choices and solutions in the battle against global poverty, where market-based solutions
are being increasingly offered as viable alternatives to more traditional state-centric
approaches for poverty alleviation. We agree with BoP advocates that poverty alleviation
is not fundamentally irreconcilable with enterprise-based solutions. Indeed, given their
increasing economic and political clout, global corporations will have to take responsibility
not just for economic but also for social and environmental issues (Scherer and Palazzo,
2011). While the BoP approach is a welcome step in this direction, in order to benefit the
poor, it needs to be more community-centric and focus on building capabilities in BoP
communities. Indeed, BoP empowerment can occur only when business and government
include communities as equal partners within a collaborative process of co-evolution.
Contributions
We offer at least two contributions to existing understandings of the BoP approach. First,
we bridge the currently business-centric BoP proposition and some of the empirical
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evidence from BoP ventures with research in development economics – in particular,
Sen’s capability approach and the social capital literature – to argue for a reconceptualization of certain aspects of the BoP approach to make it more community-centred.
Akin to bringing marginalized producer communities into the company value chain,
such as through the Fairtrade certification system that seeks to empower producers by
ensuring they receive fair terms of trade (e.g. Reinecke, 2010), MNCs ought to include
community wellbeing in evaluating BoP projects. The current notion of capabilities in
the BoP approach, however, still appears to rely heavily on income generation and
traditional economic remedies for poverty alleviation and community wellbeing. While
increase in income can enhance capabilities, it is not, in itself, the ultimate yardstick of
development or wellbeing (especially where labour is in surplus, an economic wage may
fall far short of what would be a living wage). Indeed, poverty alleviation is as much a
social and political issue as it is an economic one; it cannot be reduced to only increasing
incomes alone, while ignoring critical issues of social, political, and ethical importance. In
fact, increasing incomes at the cost of social disruption of the community may decrease
rather than enhance overall wellbeing. By redefining poverty not just as a lack of income,
but also a lack of capabilities in Sen’s sense and proposing social capital as a means for
capability development, we offer a novel (albeit more challenging for MNCs) way for
empowering BoP communities. Second, we offer a systemic framework for a communitycentred BoP approach, where businesses engage other organizations and the BoP in
order to build social capital and enhance capabilities in the BoP. Our framework enables
evaluating the overall contribution as against an income-based contribution of a business
venture in a BoP community for a better understanding of its impact on the community.
LIMITATIONS AND FUTURE RESEARCH DIRECTIONS
Although we have emphasized several positive aspects of the capabilities approach and
social capital to make our argument, it is worth noting some limitations as well. The
capabilities approach has been criticized for lacking a coherent list of important capabilities, high informational requirements, giving insufficient attention to the means of
freedom and lacking a complementary theory of obligations, entitlements, and human
capital and the values and motives that influence action (Gasper, 2007; Nussbaum, 1988;
Sugden, 1993). Also, while Sen has criticized the choice-based utilitarianism of economics, he does not explore how those with greater economic and political clout over the
production of culture that shapes preferences may exercise a more subtle form of
‘unfreedom’. By controlling access to and the type of information that is required for
evaluating the range of ‘choices’ available, these elite players such as global MNCs may
promote particular preferences and priorities that are different from those people have
reason to value. This could therefore, subvert people’s ability to choose the lives they
have reason to value and undermine ‘development as freedom’ (Evans, 2002).
Also, the use of social capital to establish capability development may be problematic.
For example, ‘excessive’ social capital can result in the formation of cliques which hinder
community capability development. Strong associations borne out of social capital can
lead to homophily and ‘knowledge hoarding’ or the exclusion of particular groups from
the knowledge sharing process (Argote et al., 2003; Edelman et al., 2004; Portes, 1998).
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Given that, at times, social capital can be exclusionary, certain members of the BoP may
receive more benefits than others, depending on their degree of engagement. Furthermore, building social capital is not costless and may require continual investment over
time (Adler and Kwon, 2002). While the engagement of third parties will defray some
costs, the long term costs of maintaining social capital compared to the long term benefits
of capability development remain unclear. Future empirical research can explore this
aspect through longitudinal studies of the cost and benefits of resources spent by various
parties, public and private. Also, since social capital is a public good (Coleman, 1988),
free-riding and other collective action problems may reduce its overall effectiveness in
facilitating capability development.
More research is therefore needed to understand whether sub-groups exist in the BoP
and how they are likely to be affected. Communities are not always ‘warm and fuzzy’
(Watts, 2006, p. 47) and homogeneous, but also have a space for contestation characterized by power inequalities, tribal allegiances, social hierarchies, and conflicting
agendas. The power relations among BoP communities, as well as the national and
global currents of corporate capital, information, and ideologies, may provide opportunities but also create new vulnerabilities, and can therefore significantly influence the
practice and outcome of a BoP project (Arora and Romijn, 2011).
Since a certain degree of cooperation is necessary between dominant community
members and external parties for effective capability transfer, the dominant group’s
interests could be legitimized and attributed to a whole community and the views of
non-dominant groups in a community may get excluded (Chhotray, 2004; Mosse, 2001).
Uncritical usage of the terms ‘community’, ‘participation’, and ‘co-creation’ may ignore
the wider politico-economic developments, reflected in local contestations for survival
that filter into everyday lives of the poor.
Finally, corporate actors have much wider stakeholder fields that influence their
behaviour and willingness to engage with BoP communities. Even internal organizational challenges can pose barriers to bringing BoP projects from idea to action, even
within high profile MNCs that are traditionally accustomed to business models serving
the top of the economic pyramid and enhancing shareholder value (Karamchandani
et al., 2011; Olsen and Boxenbaum, 2009). The jury is still out as to whether marketbased solutions towards a new conception of inclusive capitalism as suggested by business
reformists will replace traditional conceptions of maximizing shareholders’ interests.
More work is needed to study the motivations of corporate actors to participate and
validate the socio-economic benefits which can also accrue beyond the BoP. It cannot be
simply assumed that corporate actors would engage in fostering social capital and
capability-building in BoP communities rather than simply ride the BoP bandwagon to
pursue short-term interests. It would thus be worthwhile to identify some of the collective
strategies for effecting behavioural changes in how corporate actors engage with BoP
communities.
Having said that, we believe that corporate led, social capital driven capability-building,
in conjunction with an active role of the state and civic bodies, can bring about significant
change in poverty alleviation. We have suggested an inclusive BoP approach that does not
attempt to impose universal values, but rather is sensitive to local context, safeguards
community participation and social harmony, and empowers BoP communities.
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Research Agenda
We suggest several areas for future research. While scholars have begun to offer new
directions in this growing space (Bruton, 2010; Kuriyan et al., 2008; London, 2009;
Munir et al., 2010; Rivera-Santos and Rufin, 2010; Walsh et al., 2005), BoP is still in a
pre-paradigmatic state of development as an academic field. Much remains to be examined about key research questions, appropriate methodologies, available datasets, and
theories for identifying and analysing BoP strategies and their impact on profits and
community welfare (Anand et al., 2005).
Regarding the application of the capabilities framework, fortunately there is considerable precedent regarding its operationalization. Alkire (2007), Nussbaum (2000), and
Robeyns (2003) have all generated lists of human capabilities based on certain international conventions, experts’ opinions, and participatory approaches that listen to the
voices of the poor. Some capabilities are harder to measure than others, and attempts to
put them on a metric may be problematic. Three alternative approaches are proposed by
Sen (1999): (1) the direct approach – directly examining and comparing vectors of
functionings and capabilities through total comparison, partial ranking, or distinguished
capability comparison; (2) the supplementary approach – continued use of traditional
interpersonal comparisons in income spaces supplemented by comparison of functionings or use of variables other than income; and (3) the indirect approach – adaptation of
the familiar space of incomes by using variables such as education levels for calculating
‘adjusted’ equivalent incomes in terms of capability achievement. Another well known
measure is the human development index that, rather than concentrating on only a few
traditional indicators of economic progress (such as gross national product per capita),
provides a wealth of information about how human beings in each society live and what
substantive freedoms they enjoy (Sen, 2010). Finally, the human development and
capability association (HDCA) also suggests measures of capabilities (cf. http://www.
capabilityapproach.com/index.php).
There is also considerable precedent regarding the measurement and operationalization of social capital (e.g. Narayan and Cassidy, 2001). It is important to understand the
short term versus long term effects of BoP ventures on the bonding social capital of a
community. In-depth interviews with BoP members and their immediate contacts at
businesses, government agencies, and NGOs may uncover a range of social relationships
and interactions and the different types of social capital. Large-scale questionnaires may
be used to create detailed network maps, which may help identify current and potential
intellectual and social capital flows. Furthermore, quantitative studies can evaluate such
constellations by utilizing and adapting some of the methodologies of the social networks
literature (e.g. Kilduff and Tsai, 2003). Longitudinal studies may be able to establish
whether bonding ties can be restructured to accommodate business values in the long
term. Additionally, network analysis may provide insights into the breadth and density of
structural social capital in existing BoP ventures and how these ties evolve over time.
Ethnographies may also be useful to study which groups or sub-groups are the most
affected by business activities in a community. Qualitative research may inform what
types of barriers exist in creating structural, relational, and cognitive social capital
between businesses and the BoP for effective capability transfer. Future research may be
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837
able to provide more detailed understanding of when and how the complementarities
between bonding and bridging social capital can be used to accelerate capability building
in the BoP.
Finally, more work is needed to understand the impact of poverty alleviation on
environmental sustainability. Although BoP communities tend to put fewer burdens on
the ecological environment than the top of the pyramid, poverty alleviation may still lead
to environmental problems (e.g. Hart, 2008). However, if one assumes that poverty and
a high population growth rate are connected, measures to reduce poverty could benefit
the environment if they retard population growth (Hahn, 2009). There is growing
consensus that economic, social, and environmental issues are intertwined and must be
addressed together as part of an interdependent system (e.g. Dienhart, 2010). Capability
building in BoP communities therefore needs to be pursued in an environmentally
sustainable manner to preserve the community relationship with its local ecosystems.
ACKNOWLEDGMENTS
We are very grateful to the Editor, Professor Anita McGahan, and the two anonymous JOMS reviewers
for their insightful comments and suggestions on previous versions of this manuscript. We also thank
Johanna Mair, Juliane Reinecke, three anonymous reviewers of the Academy of Management (AOM) 2011
conference, and the participants at the AOM session where this paper was presented.
NOTE
[1] In more recent studies, the letter ‘B’ in the abbreviation (BoP) was changed to ‘Base’ to convey the
positive idea of a platform as against ‘Bottom’ that was seen as derogatory to the poor (Arora and
Romijn, 2011).
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