Institutional Interconnections and Cross-Boundary Cooperation in Inclusive Business

Inclusive business (IB) is becoming increasingly important as a means to alleviate poverty and inequality in the world, one of the most significant goals set forth by the Sustainable Development Goals (SDGs). Many companies have been engaging in IB projects. Even so, why are only a limited number of projects reported to be successful? IB involves complex situations, since it tries to achieve contradictory goals of solving social issues and generating a decent level of profit for sustainability. This often requires partnering with social-issue-oriented organizations by developing cross-boundary cooperation, as well as the need to associate with local partners and the poor in developing countries, who have different institutional backgrounds from multinational corporation (MNC) managers in developed countries. IB clearly involves people with diverse institutional backgrounds to develop cooperative relations. The biggest cause of IB failures seems to be MNCs’ difficulties in overcoming institutional differences vis-à-vis local partners and the poor, and interconnecting different institutions among diverse partners in an IB project. By conducting case studies of seven relatively successful IB projects in India, Ghana, and Tanzania, this book explores answers as to how companies overcome institutional differences, interconnect diverse institutions, develop cross-boundary cooperation, and successfully fuse business and social goals, namely, how they develop institutional interconnections. This chapter also briefly introduces the book’s structure and presented cases.

In contrast to the MDGs' top-down approach, the SDGs took the bottom-up approach of participants, creating an open space for soliciting their aspirations, efforts, creativity, and commitment. Inclusive business (IB), identified as the key means to alleviate poverty and inequality in developing countries, undeniably struggles in this space to find new ways of thinking and management to achieve a suitable balance between serving social needs and achieving business sustainability. However, multinational corporations have not yet made significant achievements, due to a biased orientation of including the poor into their system of developed countries' institutions. From a neutral position, not asking who includes or yields to whom, this research project proposes to use the concept of institutional interconnections and its various analytical factors to examine how diverse partners are interconnected to overcome institutional differences. Differences in interconnections are hypothesized to differentiate IB's socioeconomic effects and poverty alleviation.

A Novartis social business in India completely separated the activities of its social and business units—the former engaging in raising the health awareness of villagers and encouraging them to visit free health camps, while the latter developed affordable medicine delivered directly to village pharmacies. Connections between these units were made through open and fluid market-type mechanisms, and by appealing to the needs and interests of villagers with incentives. This synchronized business model was developed partly because Novartis believed in villagers' self-initiated behavior for health improvements, which made it not interfere into marginalized institutions, and more significantly because it used its internalized control and coordination systems with clear goals of social contribution in operating the business unit. Consequently, Novartis achieved economies of scale, business sustainability, and social contribution.

Cross-boundary cooperation with shared goals and values involving the poor has been argued as an indispensable means for inclusive business (IB) success. Cooperation may become dynamic, especially when exploratory and creative attempts with effective cooperative learning among partners can be realized. Even so, not many companies have reported successful in building the cooperation. One case, providing clean, affordable drinking water to the poor in Tanzanian rural villages, suggests that a delegated and grassroots-based approach in cooperation with a highly trustworthy local partner can successfully promote cooperative learning and transfer know-how in both operations and management. This approach also stimulates local and self-initiated activities for expanding water facilities and generating local businesses in an area where employment is scarce. Deviation from mainstream-institution-based operations and management is one example of institutional interconnections that enable the rural poor to self-manage projects and stimulate self-initiated business activities, consequently contributing to rural development and sustainable development goals.

United for Hope (UfH) is an NGO and social enterprise hybrid that aims to build a prototype for an economically sustainable and progressive “smart village.” This case study focuses on their social enterprise pillar, with specific attention given to UfH's clean water, solar energy, menstrual hygiene, and social tourism projects. This case analyzes how these projects developed and how UfH has adapted its strategies multiple times in its drive to create economically sustainable business models.

UfH has managed its start-up stage by pivoting to adapt. It was seen that UfH had to adapt its strategies multiple times in response to market realities—particularly related to government interference in markets. This case shows that multiple offerings can be an effective strategy to help spread the higher risk often encountered in IB. The need to manage the choice between external partners and internal capacity building, along with the need for expectation management of employees and funders, is also discussed. It is hoped that this analysis of how UfH navigated its start-up phase will provide insights for those who are considering IB entrepreneurship in India and other markets.

Healthcare for the poor in India has traditionally been a domain of public services. New business models based on cross-boundary cooperation between stakeholders are unique in their attempts to be inclusive, affordable, and viable. This chapter studies the process of cross-boundary cooperation by analyzing partnerships in Aravind Eye Care System (Aravind), a renowned eye care service delivery in southern India, known for its low cost, high quality, and high volume. Through the use of ethnographic narratives, one sees the process of partner selection, achievement of network goals, and cooperative learning—as well as the way these factors influence inclusivity and affordability in eye care. The chapter attempts to understand how values like empathy and compassion, integral to healthcare services, get transmitted outside the boundaries of the participating organizations and become embedded in the extended network. The chapter is divided into two sections. The first shows how Aravind has attempted to scale up compassion by partnering with local organizations in Tamil Nadu, the state where it primarily operates. The second part examines the process of blurring organizational boundaries where Aravind extends its services to other hospitals in India and elsewhere. Atypically, Aravind gives away its knowledge to these hospitals.

Access to pure drinking water is considered as a basic human right and part of the United Nations' Sustainable Development Goals. India ranks poorly in terms of providing universal coverage of potable water to its citizens. This case highlights the challenges faced by the private sector in providing purified drinking water for a diverse country like India with many geographical regions (and their corresponding water impurities) and differing levels of economic prosperity (making sustainability tougher for private companies) by focusing on Waterlife India Private Limited (WLIP). WLIP is a for-profit social enterprise that sells drinking water in rural hinterlands and urban slums at a very affordable price of US$0.006 per liter. Since its inception in 2008, WLIP has evolved to become a major player in the fragmented Indian affordable drinking water industry. Sustainability of the WLIP business model is based on a unique public–private partnership template in which three parties come together—a corporate sponsor who bears the cost of the water filtration equipment; community governance bodies like panchayats or municipalities, which give a sense of operational legitimacy to the model; and WLIP as the driving force of the network. This business model is unique for three reasons: suitable incentive mechanisms with proper alignment of interests among various stakeholders; optimization of the water-filtration plant equipment to community demand; and achieving the delicate balance between standardization of processes and customization in offerings to the operating context. Alignment of partner interest is the principal differentiator that also ensures accountability and impact.

What does it take to effectively implement an inclusive business in the agro-processing industry? The author examines the experiences of two agro-processing firms in Ghana. The literature indicates that any business that combines employment opportunities with expanded output of goods and services is both socially and economically beneficial. The author found that the creation of new markets for local suppliers, expanded output of goods and services, and the development of new markets for formerly undetected needs and wants—both domestic and international—offered prospects of transforming the lives of the poor through creation of wealth and dignity.

Given the complexity of inclusive business (IB) to combine social contribution and business sustainability, companies make strategic choices. One multinational corporation (MNC) avoided interconnections with villagers and used only market-based relations with stimulants and incentives in the market. Another one delegated management completely to local partners, succeeding in stimulating the poor’s self-initiated economic activities. MNCs seem to have difficulties in handling institutional interconnections. In such cases, market-based relations or delegating management to the local partners were found to be highly effective for covering missing capabilities. One foreign NGO, despite its well-developed institutional interconnections with the locals, is struggling to develop markets for its social enterprises. In contrast, one local trust successfully cooperated with many local partners, appealing to local institutions (values and beliefs). Also, poor farmers felt the social contributions of two local companies by being incorporated into the companies’ supply chains backed by their corporate social responsibility (CSR) orientations and activities. Hence, both foreign and domestic organizations seem to succeed in IB by embedding their projects to their original institutions and developing diverse mechanisms to compensate for missing capabilities. One exception is a local company which successfully coordinated MNCs’ CSR activities, local communities, and governments. However, its success is owing to governmental regulation for CSR contribution. In general, though restricted by institutional backgrounds and business orientations, each case tried to create a fit between business models and its contingencies, achieve scale (at the level of communities, nations, or the global market) and business sustainability, and generate socioeconomic effects.