The impact of institutional voids on risk and performance in base-of-the-pyramid supply chains

• Pages: 829-863
• DOI: https://doi.org/10.1108/IJLM-03-2020-0143
• Date: 06 October 2020
• Published date: 06 October 2020
• Author: Attique ur Rehman,Muhammad Shakeel Sadiq Jajja,Raja Usman Khalid,Stefan Seuring
• Subject Matter: Logistics,Management science & operations

The impact of institutional voids

on risk and performance in

base-of-the-pyramid supply chains

Attique ur Rehman

UVAS Business School, University of Veterinary and Animal Sciences,

Lahore, Pakistan and

Suleman Dawood School of Business, Lahore University of Management Sciences,

Lahore, Pakistan

Muhammad Shakeel Sadiq Jajja and Raja Usman Khalid

Suleman Dawood School of Business, Lahore University of Management Sciences,

Lahore, Pakistan, and

Stefan Seuring

Supply Chain Management, University of Kassel, Kassel, Germany

Abstract

Purpose –Base-of-the-pyramid (BoP) markets are frequently characterized by institutional voids. However,

it remains unclear how institutional voids impact corporate and supply chain risk and performance. This

intersection will be analyzed in this paper.

Design/methodology/approach –This paper presents a systematic literature review of 94 BoP papers

published between 2004 and 2019 in peer-reviewed, English-language journals available on Scopus. Drawing

upon established frameworks for examining institutional voids, supply chain risks and BoP performance,

frequency, and contingency analyses are conducted. Contingencies are established to provide insights into the

associations between different constructs from the selected frameworks.

Findings –Supply chain risks are pervasive in the BoP discourse, especially when BoP markets are

characterized by institutional voids. The frequency analysis of the constructs suggests that the key supply

chain risks discussed in the BoP literature include social risk, credit risk, product market and operating

uncertainties,knowledge and skill biases and decision-maker risksdue to bounded rationality. The contingency

analysis suggests that institutional voids are associated with supply chain risks that affect performance.

Researchlimitations/implications –A theoretical frameworkaligning three research streamsin the context

of BoPcalls for future studies to test the causalityof highlighted constructsthat are significantly associated.The

analysis is confinedto the constructs that are taken into account based on specificconceptual frameworks.

Practical implications –The study provides practitioners with a framework to manage supply chain risks

in BoP-related firms to enhance firm performance. Managers can use key dimensions of supply chain risk, such

as the product market, the input market and operating uncertainties, to evaluate performance in the BoP

context.

Originality/value –Specifically, this research has strengthened the inquiry of supply chain risks in the

presence of institutional voids that may have an impact on firm performance

Keywords Supply chain risk, Base of the pyramid, Institutional voids, Content analysis, Firm performance

Paper type Research paper

1. Introduction

There isa continuing interest of researchersin supply chainsthat are increasingly exposedto a

high level of disruption(Chang et al., 2015;Zsidisinand Ritchie, 2009), especiallyin the context

of developingcountries. A largeproportion of these countrieshave low per capita income, fewer

resources and a different consumption pattern as compared to other segments of the market.

The supply chains of this market segment experience high-level risks due to informal

institutions (London et al.,2010), a weak infrastructure, scarce resources (Viswanathan et al.,

2007), a lack of communication systems and the unique needs of low-income consumers in

Base-of-the-

pyramid

supply chains

829

Received 25 March 2020

Revised 12 June 2020

11 August 2020

Accepted 9 September 2020

The International Journal of

Logistics Management

Vol. 31 No. 4, 2020

pp. 829-863

© Emerald Publishing Limited

0957-4093

DOI 10.1108/IJLM-03-2020-0143

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/0957-4093.htm

subsistence markets (Prahalad and Hammond, 2002;Rivera-Santos et al., 2012). Academics

have referred to thissegment as the base of the pyramid (BoP; Prahalad, 2002).

BoP is generally referred to as “the world’sfour billion consumers who live on $5 or less per

day”(Fawcett and Waller, 2015, p. 233). The BoP-related research has developed from the

seminal consumer-focused domain to a more contemporary producer perspective (Gold et al.,

2013;Karnani, 2007a). Karnani (2007a,b) stressed the importance of developing the BoP

population as potential producers to servethe needs of subsistence markets. The BoP market

(including BoP consumers and producers) is largely characterized by voids in business

processes and the related supply chains (Parmigiani and Rivera-Santos, 2015;Rivera-Santos

et al., 2012). Khanna and Palepu (1997) have identified five types of institutional voids: (1)

product markets, (2) labor markets, (3) capital markets, (4) regulations and (5) contracts. The

existence of these voids in supply chains (Parmigiani and Rivera-Santos, 2015;Wu and Jia,

2018) may expose firms to increased,supply chain risks, especially in the emerging economies.

However, to date, there has been limited research on how institutional voids (constraints)

trigger supply chain risks and consequently affect performance in the context of BoP markets

(London et al., 2010;Parmigiani and Rivera-Santos, 2015;Seelos and Mair, 2007). Despite its

pivotal importance towards overall business risk, the role of supply chain risk driven by

institutional voids has not yet been addressed in the supply chain literature. Though supply

chain risks have been widely researched in the context of developing countries (Davarzani

et al., 2015;Enyinda et al., 2010;Moradeyo, 2018;Tukamuhabwa et al., 2017), this area is still

under-researched in the context of BoP markets and emerging economies. According to the

World Bank (2016), the informal market segment (BoP) contributes more than 50% to the

gross domestic product (GDP) of the developing countries. For that reason, BoP has acquired

the attention of academics for over a decade, and concerned literature has focused on

economic growth and competitive strategies (Kuada, 2016), sustainable supply chain

management (Khalid et al., 2015), consumer behavior (Subrahmanyan and Tomas Gomez-

Arias, 2008) and business models and market creation vis-

a-vis deep poverty (Seelos and

Mair, 2007). However, researchers have yet to study the supply chain risk in the BoP,

especially in the context of institutional voids characterizing BoP markets.

Through a systematic literature review (SLR), the purpose of this paper is to answer the

followingresearch question: How are institutionalvoids associated with supply chainrisk and

firm performance in BoP context? SLRs allow for transparency and replicability (Carter and

Washispack, 2018;Tranfield et al.,2003). Following the key guidelines for conducting SLR

providedby Durach et al. (2017) and qualitycriteria proposed by Carterand Washispack (2018),

we have presented a theoretical framework based on the constructs drawn from established

frameworksof institutional voids, supplychain risks and firm performance(Rao and Goldsby,

2009;Kaplan and Norton, 1999;Khanna and Palepu, 1997). This has helped us enrich the

theoretical basis of supplychain risk and firm performance literature in the contextof BoP.

To answer the research questions, we have used a conceptual theory building approach

and have analyzed three streams of research in the context of BoP literature. To this end, the

paper reports findings of an SLR of 94 BoP papers selected for the coverage of institutional

voids, supply chain risk and firm performance issues. The papers were coded against the

constructs developed by Rao and Goldsby (2009),Kaplan and Norton (1999) and Khanna and

Palepu (1997). This allowed us to relate supply chain risks to the performance of BoP firms in

the presence of institutional voids. We contribute to the BoP and supply chain literature by

associating institutional voids, supply chain risks and firm performance on theoretical

grounds. Furthermore, the findings of the paper contribute towardsa better understanding of

how different institutional voids expose BoP firms to supply chain risks that affect firm

performance.

This paper is structured as follows. The next section provides the reader with basic

terminology and conceptual framing for the key constructs. Section three elaborates on the

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research methodology that is employed to conduct a literature review. The fourth section

presents the results of our SLR. We categorize our findings related to supply chain risk in the

BoP context into frequency- and contingency-related findings. The fifth section provides a

comprehensive discussion, after which a brief conclusion is provided along with the

limitations of the study.

2. Key terminology and conceptual framing

This section provides an overarching view of key concepts of institutional voids, supply

chain risks and performance in the context of the BoP environment, which helps us develop a

conceptual framework for this SLR.

2.1 Key terminology

2.1.1 Supply chains in BoP environments. The term “base of the pyramid”gained attention as

a result of the seminal work of Prahalad and Hammond (2002), who used the term to refer to

individuals who are excluded from global capitalism (Arnold and Williams, 2012). Initially,

the BoP research called for the formal corporate sector in developed countries to engage in

business activities in developing economies by “selling to the poor”(Simanis et al., 2008, p. 58).

Karnani (2007a, p. 1,352) critically questioned the capitalist role of multinational corporations

in BoP markets that were “doing well but not doing good”and stated that the only way to

alleviate poverty was to focus on the poor as producers rather than as a market of consumers.

This new notion in the context of BoP was termed “business co-venturing”by Simanis et al.

(2008, p. 64), who broadened the landscape of BoP research, constituting an important

development in BoP theory (Tate et al., 2019). The supply chains involve all the key activities

associated with the flow and transformation of goods from raw material to the final product

and the distribution of these products through various channels until they reach the end

consumer (Mentzer et al., 2001). To serve the subsistence market, the supply chains must be

adapted to the needs of BoP.

2.1.2 Institutional voids. All supply chains are entrenched with a set of institutions that

provide foundations for economic exchange, formal laws and practices that ref lect

transparency, the protection of property rights and market efficiency (North, 1990;Mair

and Marti, 2009). If these formal institutions are absent, are weak or have limited enforcement

power, this will result in the creation of gaps that may affect market efficiencies. As BoP

markets are characterized by their exclusion from mainstream markets, such gaps in the

business ecosystem become inevitable (Webb et al., 2010). Khanna and Palepu (1997, p. 41)

named these gaps “institutional voids,”defined as a “lack of formal institutions that are

necessary to support business operations.”Scholars have extended this concept and have

concluded that BoP markets are affected by institutional voids (Mair et al., 2012;Rivera-

Santos et al., 2012). According to Parmigiani and Rivera-Santos (2015), these voids affect

organizations at the dyadic (between individual buyers and sellers) and network levels (multi-

tiers). Product markets and contracting voids occur at the dyadic level, while capital markets,

regulations and labor markets voids exist at the network level. Table 1 summarizes the

descriptions of typical institutional voids.

2.1.3 Supply chain risks. Extant literature discusses supply chain risk in terms of supply

risk (Zsidisin, 2003), information flow, material flow and product flow risk (J€

uttner et al., 2003;

Peck, 2006), as well as micro- and macro-level risks (Ho et al., 2015). Table A1 gives a

comprehensive overview of various definitions of supply chain risk in the literature.

Supply chain risk is a mature research stream with diversity in the categorization of risks

(Sodhi et al., 2012). Supply chain risks have been attributed to various sources, such as

environmental factors; organizational factors (J€

uttner et al., 2003); physical, financial,

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pyramid

supply chains

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