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

Author:Attique ur Rehman, Muhammad Shakeel Sadiq Jajja, Raja Usman Khalid, Stefan Seuring
DOI:https://doi.org/10.1108/IJLM-03-2020-0143
Pages:829-863
Publication Date:13 Oct 2020
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 worldsfour 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 pyramidgained 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 goodand 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-venturingby 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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