Creation of shared value in cooperatives: informal institutions' perspective of small-sized banana growers from Colombia.
| Autor | Matos, Marcela Maestre |
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Introduction
The improvement of the quality of life of the least favoured communities has been particularly investigated in the last 20 years (Lashitew etal, n.d.). In 1999, an academic debate was initiated at the Digital Dividends Conference (Prahalad and Hammond, 2002a) on the inclusion of the poorest as "consumers" within the value chain. This initiative was led by C.K. Prahalad (Prahalad and Hammond, 2002b) under the construct of creative approaches to transform poverty into opportunity. This initiative aimed company executives, politicians, non-lucrative company directors and other interest groups to see poverty as an issue with attainable solutions (Pitta etal, 2008).
Authors such as Karnani (2007) and London and Hart (2004) supported this view that helping the poorest is the responsibility of the private sector. They also criticised "inclusion" because in practice, it proves to be a good opportunity for multinationals to penetrate new markets and not as a strategy to relieve poverty at the bottom of the pyramid (BoP) (London et al., 2010).
The strategy behind BoP, has been used to understand and analyse the role of the poor in the supply chains of the various sectors (Zomorrodi et al, 2019), as well as their linkage with other social concepts, such as social entrepreneurship (Acosta Veliz et al, 2018), the creation of shared value (SV) (Dembek et al, 2018) and innovation.
The BoP initiatives differ from traditional business initiatives since they take into account the position of the poor in the value chain, both as consumers and entrepreneurs (Karnani, 2009). Thus, the creation of SV is associated with the development of businesses and the mitigation of poverty (London et al, 2010).
The literature review of the concept of SV shows that its origin remains unclear (Maestre Matos et al, 2020), given the various scholars that claim authorship. However, there is a consensus on its linkage with the creation of a simultaneous economic and social value for the development of various business models, including BoP businesses.
The essential pragmatic and academic challenge of the concepts is to simultaneously create social and financial value when there is also interaction with uncontrolled external conditions (Kolk et al, 2014). The so-called BoP 1.0 approach of market potential as an economic segment (Karnani, 2007) becomes BoP 2.0 when economic realities and collaboration create capacities in poor regions (Dembek et al, 2019; Hart et al, 2016). The BoP 3.0 includes a proactive version of the business oriented to open innovation with collaborative ecosystems (Caneque and Hart, 2017).
The creation of business value is impacted by the institutional values (Williams and Vorley, 2015) that may increase or restrict their development according to the behaviour of individuals (North, 1991); and therefore, it is essential to identify the institutional factors (formal: provides "official" structure and informal: shared rules, usually unwritten) that are immersed in the BoP culture and help create SV among its members.
The BoP implies - in the case of emerging countries - to do business with small growers, considered the poorest in rural areas. This research focuses on informal institutions of small banana growers and the resulting creation of economic and social values. For Colombia, growers show financial poverty indicators reaching 38.6% and extreme poverty reaching 18.1%. This compared with population from urban areas (24.9 and 8.5%, respectively) (DANE, 2019). But poverty must be seen in economic and social perspectives and share value could support this endeavour. Thus, the research question is which are the informal institutions that support the creation of share value in BoP agri-businesses?
The case of study to answer this question uses small banana growers (BoP) in the Magdalena (northern region of Colombia). They represent 6.9% of the exported bananas in the region and the industry employs approximately 640 families (ASBAMA, 2017). They had to conform cooperatives to strength its bargain power in the whole value chain: backwards with suppliers of raw materials and forwards mainly with international trading companies (Maestre Matos et al, 2019). Additionally, the support of guilds (such as ASBAMA and AUGURA) and scientific institutions (e.g. research-institutions) at the region allows the composition of a cluster's type of organisation including both alliances and networks (Lombana, 2006) Finally, the innovation in process and marketing (e.g. organic and fair trade) are two of the competitive advantage developed by small growers (Forero-Madero etal., 2006; Garavito Hernandez and Rueda Galvis, 2021). Thus, the configuration of share value as declared by Porter and Kramer (2011,2006) are clearly identified in this case of study, since the quality of life and income of producers in this region have improved (Maestre Matos et al., 2019). However, the concept of SV is not free of criticism as shown in the literature review in the following section. Thus, the banana growers' case becomes important to recognise the social benefits of share value and not only as economic strategy. Therefore, this paper's objective is to analyse informal institutional factors that help create SV in BoP farm businesses, taking as a theoretical basis the new institutional economic theory and definitions explained by North's (1991) framework.
This research uses a mixed research design, as shown in section 3. This enabled us to test the hypotheses based on the literature review using a quantitative analysis of the structural equation modelling. Finally, qualitative analysis of the information validates previous outcomes.
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Literature review
In recent agribusiness literature related with the BoP, there is also an emphasis to the circular economy as a "model of production" and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended (European Parliament, 2015). Insofar, it holds all members of the chain responsible for making reasonable use of resources and using clean production models (Hamam et al, 2021). This is much in line with how the agricultural sector creates value, understanding that its methods, although it satisfies basic human needs, within the value-chain is not necessarily sustainable in the short term, and it must be changed to the long term (Sadovska etal, 2020). Moreover, as highlighted by German et al. (2020), issues such as land ownership and integration of local labour into global value chains do not necessarily have the degree of inclusion that is pursued by the BoP. In fact, the cases mentioned by the authors conclude that the pressure from governments to remove subsidies to small growers and the raising standards (with cost implications for producers), increase the exclusion gap. Frimpong-Boamah and Sumberg (2019) add that political value (e.g. due to historical employment history) can prevail over economic value and perpetuate highly inefficient industries. The positive perspective of value creation continues, by replacing philanthropy with stimuli to productive capacities, productive reconversion (Wisniewska-Paluszak and Paluszak, 2019), creation of clusters, transparency, collaborative work in planning, market intelligence and knowledge (Diamond et al, 2014).
The theoretical basis for this research is the concept of SV and the debate on its origin. This part includes a review of how informal institutions affect the creation of SV in bottom-of-the-pyramid business models.
2.1 Shared value (SV)
There is a debate of the origin of the SV concept: (1) Porter and Kramer (2002) as their first representatives; (2) it was as implicit concept in the application of the stakeholders theory (Strand etal, 2015) and (3) in the corporate social responsibility (CSR) company strategy (Crane et al, 2014). To understand this debate, some concepts issued by these scholars are shown.
Porter and Krammer (2002) were the first to mention that the economic and social objectives could be integrated into and form the company's corporate strategy known as SV. Although the same authors criticised the way in which organisations had implemented CSR, it has been concluded that the concept of SV proposed by Porter and Kramer in 2011 is the most popular of all theories. With regards to the stakeholder theory, some authors state that the achievement of the main purpose of creating value for all the stakeholders is the actual definition of SV (Strand et al, 2015). And, finally, the CSR defenders mention that the new trend for this strategy is to incorporate the economic and social values into the company processes (Ezzi and Jarboui, 2016; Zadek, 2005).
Among critics of the concept of SV and the new "great idea" of Porter and Kramer (2011), Crane etal. (2014) stated that the concept created by them was not very original and does not take into account any previous academic discussions.
Despite the differences on the issue of the origin, scholars provide some similar characteristics to the concept and define SV as the business integration of a created economic and social value (society and environment) by an organisation, thus generating positive impacts for all the stakeholders. In this sense, managers are expected to align their strategies in order to implement plans that provide a solution to the issues and interests of all the stakeholders (Muihlbacher and Bobel, 2019).
For the case of BoP businesses, the creation of an economic value can be measured by the income generated in the course of development of the business (Marquez et al., 2010), whereas the creation of a social value can be established by looking at the cooperative work being developed amongst members of the BoP and the improvement of their quality of life (Bustamante Moreno and Munoz, 2017; Van Haeringen and de Jongh, 2010).
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