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There is money at

the Bottom of the

Pyramid

BACHELOR THESIS WITHIN: Business Administration NUMBER OF CREDITS: 15 ECTS

PROGRAMME OF STUDY: Marketing Management AUTHOR: Gloria Awortwe, Amanda Utbys & Yuting Zou JÖNKÖPING May 2020

Exploring critical business activities in a Sustainable

Business Model at the Bottom of the Pyramid

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Bachelor Thesis in Business Administration

Title: There is money at the Bottom of the Pyramid Authors: Gloria Awortwe, Amanda Utbys & Yuting Zou Tutor: Ziad El-Awad

Date: 2020-05-18

Key terms: Business Models, Sustainable Business Model, Bottom of the Pyramid, Business Activities

Abstract

Prahalad and colleagues conceptualized the term Bottom of the Pyramid (BoP) in 1998. The BoP is a group of people or markets that have a per capita income at or below US$1,500 or US$2,000 per annum. Despite this, the advocated and underlying claim of the concept’s research is that, through financially profitable operations by firms, poverty can be mitigated in these markets. In the following years, scholars have estimated that with the growing number of middle-class individuals in these BoP countries, their collective purchasing capacity is approximately 5 trillion US dollars. Thus, companies are encouraged to rethink and reshape their business models to overcome these countries’ challenges and develop innovative products and services that meet, and possibly exceed the basic needs of the BoP people. Arguably, traditional business model activities explained in the Business Model Canvas (BMC) are considered to be on the extreme end of profit-seeking, with less attention to the social context, which in the case of BoP is of major relevance. In recent years, Sustainable business model (SBM) is a theme that has attracted the attention of scholars. The purpose of the study was to develop a conceptual framework of the critical business activities in the SBM for the BoP market.

Therefore, the study was based on the concept of Sustainable business model, and adopts an inductive approach allowing for theory to be developed from the empirical data collected in research. The findings showed that (1) partner micromanagement, (2) developing multi-beneficial products, (3) aiming to develop the local social state through capitalising on local skills, (4) adopting low-margin-high-volume strategy and (5) developing creative revenue streams emerged as the notable business activities distinctive to BoP markets. The conceptual framework based on these five activities can inspire and lead more companies to enter the BoP market to join the poverty alleviation objectives.

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Acknowledgements

The authors would like to express their appreciation to all who have been a part of the process of this thesis. First and foremost, we would like to thank our tutor, Ziad El-Awad for his constructive feedback and overall guidance throughout the proceedings.

Secondly, thank you to all the company representatives who opened up to us and contributed with their experiences and reflections on the research topic. We acknowledge that without their participation, this paper would not have materialized.

Lastly, we would like to thank all our seminar group members for contributing with their reflections, advice and constructive feedback.

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Table of Contents

1.

Introduction ... 1

2.

Literature Review ... 4

2.1 Business Models... 4

2.2 Sustainable Business Models in the BoP Market ... 5

2.3 Gaps in Literature ... 7

3.

Research Methodology ... 9

3.1 Research Philosophy and Philosophical Assumptions ... 9

3.2 Research Approach and Research Design ... 10

3.3 Sampling ... 10

3.4 Data Collection... 12

3.5 Data Coding and Analysis ... 13

3.6 Limitations of Methodology ... 15

3.7 Ethical Considerations ... 15

4.

Empirical Findings and Analysis ... 16

4.1 Micromanagement of Partners ... 16

4.2 Creating Multi-Beneficial Products ... 18

4.3 Local Social Development ... 20

4.4 Adoption of Low Margin Strategy to Ensure Low Prices ... 22

4.5 Creation of Innovative Unique Revenue Streams and Payment Conditions... 23

4.6 Conceptual Framework of Critical Business Activities for the BoP ... 26

5.

Conclusion and Discussion ... 28

6.

Contributions ... 30

7.

Limitations and Future Research ... 31

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1. Introduction

_____________________________________________________________________________________

In this section the research topic will be introduced and the purpose of the research.

______________________________________________________________________ Prahalad and colleagues conceptualized the term Base/Bottom of the Pyramid (BoP) in 1998 (Kolk, Rivera-Santos, & Rufin, 2014). The BoP is a group of people or markets that are mostly in the least developed or developing countries and characterized to have a per capita income that is below US$1,500 or US$2,000 per annum (Prahalad, 2005). The essential and underlying claim of the research conducted on the concept is that, through financially profitable operations by firms, poverty can be mitigated in these markets. In other words, there is the overall acceptance among the concept advocators, that firm operations while aspiring for financial profitability can synchronously help eradicate poverty.

The World Trade Organization (WTO) reports that two-thirds of its 164 members are still developing or emerging markets (including Nigeria, India, Bangladesh), while 36 of its member countries are the least developed countries (LDCs) (including Tanzania, Haiti, Yemen). The commonality among these member countries’ markets is that in comparison to developed markets, they are distinct socio-politically, economically, demographically and culturally, as well as to each other (Jun, Lee, & Park, 2013). Most importantly, together they form a large proportion of the Bottom of the Pyramid (BoP) market. In addition to their mega size, they have an accelerating population growth, show a demand for innovative products and services expansion, and have an increasing number of middle-class individuals (Nagy, Bennett, & Graham, 2019). Arguably, their huge numbers summed up represent a notable target market that offers potential product/service opportunities for multinational companies, and even smaller ones, striving for competitiveness and profitability (Jun et al., 2013). A research by Hammond, Kramer, Katz, Tran and Walker (2008) approximates the collective purchasing power of the now 4 billion people to be over 5 trillion US dollars.

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Finding these opportunities and developing sustainable (environmental and/or social) solutions is seen to be a major twenty-first century problem (Brehmer, Podoynitsyna, & Langerak, 2018). Though Prahalad and colleagues (2005) suggested and exemplified various companies as being successful in the BoP market in the past years, challenges and complexities are still hindering new entrants from simultaneously alleviating poverty while being profitable (Dembek, York, & Singh, 2018). The Business Model Canvas (BMC) is a popular tool for designing business models providing common terms for discussing business models in practice (Coes, 2014). Arguably traditional business model activities explained in the BMC are considered to be on the extreme end of profit-seeking, with less attention to the social context, which in the case of BoP is of high relevance (Morioka, Bolis, Evans & Carvalho, 2017). As a result, scholars have been seeking to strike a better understanding of Sustainable Business Models (SBM) as a new alternative model that could bring forward a better integration of profits and the social context. Although not intended for the BoP markets initially, scholars have suggested that it might be better suited for the BoP market and its complexities than previous traditional business models (Bocken, Short, Rana, & Evans, 2014; Brehmer et al., 2018; Dembek et al., 2018; Morioka et al., 2017). Unlike the traditional business models, SBM does not pursue short-term profit maximization (Dentchev et al., 2016; Dembek et al., 2018), but rather encourages companies to reflect on their corporate social responsibilities and the different ways in which they could bring forward societal impact. At the current state, the view on SBMs used in BoP markets is somewhat conflicted and fragmented. Although scholars seem to agree that implementing an SBM is far more suitable for a BoP market compared to a traditional business model, some argue that SBM literature is still too embedded in monetary-driven paradigms. This paper particularly aims to inspire firms to explore the social goals within the SBM such as job creation, education, affordable and clean energy, that improve the lives of the people in these markets.

The aim of this paper is therefore to contribute to current SBM literature by exploring the critical business activities that contribute to a sustainable business model targeted at operating in BoP markets. The key research question answered in this research is: What

are the critical business activities to be considered in a Sustainable Business Model for the Bottom of the Pyramid? It is believed that through this framework lenses,

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that need inclusion in their business models and business planning in general. It will further encourage and allow organizations to pursue profit maximization whilst relying on socially sustainable strategies mitigating poverty.

Given the lack of research on the business activities that contribute to a socially sustainable business model, we intend to be inductive in this study. In doing so, we apply an interpretivist philosophical approach through which we focus on theorising from our data, where we contribute to a better understanding of sustainable business models. We collect data from a multiple case-study of six companies currently operating in a BoP market. From each company, one to two representatives well-acquainted with their business model is interviewed using open and semi-structured questions and finally drawing conclusions using thematic analysis. Through our results, we contribute to research on business models in three ways. First, we contribute to the expansion of the business model field, specifically on Sustainable Business Models. Secondly, we explore the critical activities of business models for the BoP. Thirdly, we provide a reference for subsequent research on business activities in the BoP market. The following sections will give enlightenment on the literature reviewed entailing an overview of traditional business models in comparison to the sustainable business model. Following will be the research methodology encompassing data collection, research sampling and research limitations. Concluding will be the empirical findings and analysis.

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2. Literature Review

_____________________________________________________________________________________

The purpose of this chapter is to provide the theoretical background to the topic of Business Models and Sustainable Business Models for the BoP. Table 1 below

illustrates the previous research on these topics. Concluding a section with the research gap is explained.

______________________________________________________________________

Table 1: Literature Review Themes

Adopted by Awortwe, Utbys & Zou (2020)

2.1 Business Models

All businesses, whether for-profit or not, have some type of business model (BM) as a core tool for organizational operations. The term “business model” has till date been defined in many ways by scholars (Angeli, & Jaiswal, 2016; Zott, Amit, & Massa, 2011). It is been defined as a logic (Chambers & Patrocínio, 2012), an approach and a blueprint (Demil & Lecocq, 2010), a tool (Sort, & Nielsen, 2018), a platform (Nielsen, & Bukh,

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2013) as well as an activity system (Amit & Zott, 2012) for organizational proceedings. In spite of this unclear and fragmented consensus on the definition, which Chambers and Patrocínio (2012) state is contributing to increasing confusion, there are clear underlying themes that create a connection among these definitions. These include that business models (a) revolve around organizations’ operational activities which tend to be interconnected and or interdependent, (b) aim at value capture and value creation from and for stakeholders respectively, and (c) are used or can be used as some type analysis unit (e.g. assessing performance). Assessing value for example, across a variety of sector boundaries, Chambers and Patrocínio (2012) classify value into four major types namely, economic (quantifiable financial profit), social (positive societal benefits), environmental (reduction of negative environmentally related externalities) and public (citizen inclusiveness). They add that value-creating in BMs can even have multitudinal interpretations managerially. Demil and Lecocq (2010) believe that BMs are organizational approaches that synthesize the literal meaning of ‘model’, following it as an ultimate blueprint for creating value, or transformational, in that they are innovation focused and require continuous refinements and not necessarily sustainable from their foundation.

2.2 Sustainable Business Models in the BoP Market

The Sustainable Business Model (SBM) is a type of business model distinguished by the ‘sustainability’ factor in the model design. SBM for the BoP market provides a new perspective on business models in that it raises poverty to a broad social issue and not just another market segment (Dembek et al., 2018). The main difference between SBMs and traditional BMs is that SBMs are broadly defined as social, environmental, and of economic value, and considers multiple stakeholders, not just customers (Dembek et al., 2018). Adopting the broader value definitions in the SBM can indeed help create opportunities for innovation, thereby using a broader approach to poverty reduction (Bocken et al., 2014; Dembek et al., 2018). Sustainable business models are usually combined with the three bottom lines (i.e., social, economic, and ecological responsibility) (Stubbs., 2017), and take into account the broad interests of stakeholders, including environmental and social aspects.

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It became apparent that most of the research of SBM in recent years have been based on or initiated by the eight archetypes developed by Bocken et al. (2014). The archetypes include maximizing material and energy efficiency; creating value from ‘waste’; substituting with renewables and natural processes; delivering functionality rather than ownership; adopting a stewardship role; encouraging sufficiency; re-purposing the business for society/environment; and developing scale-up solutions. These archetypes have the function of assisting companies in formulating a Sustainable Business Model. Bocken et al. 's (2014) research brings together the literature in various fields of SBM by classifying and developing a universal language that can be used to accelerate the development and advancement of sustainable business models in research. However, this research has some limitations due to the use of partial data from grey literature, that is, unofficially published scientific information produced by governments, private firms, or universities as articles in academic journals (Karolinska University, n.d.). In addition, the archetypes emphasize more environmental sustainability.

Morioka et al. (2017) criticized the eight archetypes, arguing that the limitations led to the inability to guarantee that all the evolved businesses are systematically sustainable, especially in terms of ‘creating value from ‘waste”, there may be ‘isolated programs instead of being integrated into core business.’ To further identify the characteristics of business sustainability in practice, Morioka et al. (2017) consider value proposition, value creation and delivery system, and value capture as the three main components of a Sustainable Business Model. The research further states that the ‘value’ is not only representing a financial perspective, but also the creation and delivery of so-called ‘sustainable value,’ which includes environmental, social, and financial elements simultaneously (i.e., the triple bottom line). It can be argued that the sustainable value creation considers relevant benefits to each stakeholder in the SBM to some extent. Following this research, Brehmer et al. (2018) further explored how practically firms/organizations develop their SBMs through these three elements (i.e., value proposition, value creation, and value capture and delivery systems). The research findings showed that environmental sustainability is mainly reflected in value creation, while social sustainability is mainly reflected in the content of value capture. Moreover, social sustainability in profit organizations and non-profit organizations is usually

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achieved through the imbalance of value exchange, and this imbalance will be compensated for elsewhere in the business model. Similarly, the research by Brehmer et al. (2018) also focused on environmental and social sustainability.

At present, there is not much research using the SBM lens for a BoP context specifically. Rosca et al. (2017), following the previous study of the eight archetypes of Bocken and colleagues (2014) further studied how frugality and reverse innovation achieve sustainable development in the BoP market. The study analysed social, environmental, and economic aspects and found that most existing products or services were developed in order to solve the existing BoP social problem. It was proposed that the solution is to limit the products and services to basic functionalities and items to provide higher value at low cost and low prices. However, this study draws on similar characteristics of the existing sustainable business model but does not dig into understanding the critical business activities that organizations take for developing a sustainable business model when targeting a BoP market. Rosca, Arnold and Bendul (2017) followed by Dembek et al. (2018) in the following years studied how the business model for solving poverty in BoP creates lasting value for various stakeholders such as the poor, non-profit organizations and partners. They believed that companies need to recognize the complexity of the poverty problem in the BoP market and focus on solving it rather than adapting existing or already developed products or services. Additionally, Dembek et al. (2018) believe that combining multiple value creation logics in one business model can also bring great potential to create value for multiple stakeholders.

2.3 Gaps in Literature

Prior literature illustrates SBM as a tool or a blueprint that can assist companies to better address the complexities of a BoP market. Current literature however indicates that there is conflict in the recently emerged topic. Some scholars believe that SBM literature is still too monetary driven and embedded in monetary paradigms (Morioka et al., 2017), meaning that the sustainable business model does not sufficiently include all TBL elements. Others suggest that profitability is not commonly seen as the primary goal of a sustainable business model; that corporate profits and competitive advantage are very vague (Bocken et al., 2014). Bocken et al. (2014) further argue that it is a necessity for

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firms to include profitability in their business model in order to achieve a long-term viable and surviving business. In other words, non-profit organizations are not considered to be sustainable enough in terms of the triple bottom line as they commonly receive external funding (Bocken et al., 2014).

Arguably the sustainable business model is still very abstract in literature and is currently lacking a framework to provide an overview of critical business activities and relationships similar to those explained by the Business Model Canvas. Hence, this study aims to contribute to existing SBM literature by exploring the critical business activities that contribute to a sustainable business model and its applicability in BoP markets.

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3. Research Methodology

_____________________________________________________________________________________

In this section the methodological choices of the research will be explained. Concluding are two sections related to limitations of the methodology and ethical considerations.

_____________________________________________________________________________________

3.1 Research Philosophy and Philosophical Assumptions

According to Collis and Hussey (2014) the philosophical assumptions of ontology and epistemology are what underpins the research philosophy of the research. Across research, the nature of reality is perceived differently and adopts different beliefs on what is true (Levers, 2013). This research takes on an interpretive stance as we believe that multiple forms of reality can exist synchronously and can be interpreted differently amongst individuals (Levers, 2013). In other words, we believe that an objective reality cannot be truly captured as reality is shaped by how the individual perceives reality (Collis, & Hussey, 2014). Through this research the focus is to explore and interpret the different reflections of firms, on the business activities they perceive to be critical for its operations in the BoP market. In alignment with Gioia, Corley, and Hamilton (2012) we argue that individuals in organisations which are operating in a BoP context are the “knowledge agents” in which their individual experiences and knowledge can be theorised upon to generate and to advance existing theories. Thus, the objective of this study is to investigate some critical business activities of for-profit companies operating in BoP markets from its primary knowledge sources, that is, existing companies in action in the market.

For this qualitative study, a relativist ontology is adopted to define our nature of reality. In other words, we take on the belief that perceptions of individuals cannot be separated from the social environment, or context, in which they exist (Collis, & Hussey, 2014). In alignment with Levers (2013, p. 2) we argue that “reality is human experience and human

experience is reality”. Although, we also acknowledge that each perception of reality is

rather subjective, hence adopting the epistemological assumption of subjectivism. As data will be derived from individuals’ own stories and experiences, it will be highly influenced

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by both by the observed (the individuals), as well as the observer (researcher) (Levers, 2013). Nonetheless, the aim is to gather and develop a rich in-depth understanding of which business activities are considered critical for the firms’ operations and how these are carried out more practically, by minimising the distance between the company cases and us as researchers.

3.2 Research Approach and Research Design

According to Saunders, Lewis, and Thornhill (2009) and Collis and Hussey (2014) there are two fundamental research approaches namely, inductive and deductive research logic. The logic of the research which this study adopts is an inductive approach allowing for theory to be developed from the empirical data collected in research. Further, it allows us to move from the very specific and subjective empirical data, to more general observed patterns. The intention is to develop a conceptual framework of the critical business activities in the SBM for the BoP market and to capture novel insights rather than to prove a hypothesis. Thereafter, from observing the empirical reality from the company representatives, theory was developed with exploratory and inductive logic.

3.3 Sampling

For this research a purposive sampling technique was used to select cases. The cases were selected from two organisations Inclusive Business Sweden and Gothenburg University (GU) Ventures, as well as one case from our personal social network of business contacts. Inclusive Business Sweden specialises and brings together organisations that for example, are dedicated to eradicating poverty and reducing pollution emissions in different forms of entrepreneurship and investments (Inclusive Business Sweden, 2020). The second organisation, GU Ventures, is an institution that cooperates with the University of Gothenburg and invests in pioneering entrepreneurs to transform “scientific

breakthroughs into thriving businesses” (GU Ventures, n.d.). Inclusive Business Sweden

and GU Ventures both possess a wide pool of partnering ventures who mainly are striving for sustainability in terms of social and environmental development. Together the two organisations’ portfolios summed up to 126 partnering organisations.

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Subsequently, all organisations were screened upon which two criteria needed to be fulfilled. Firstly, the firm had to be striving for generating profit, hence all NGOs or government owned organisations were sieved out. Secondly, the firm needed to be serving a BoP market with a socially oriented product or service. For the product (or service) to be considered as socially oriented it had to tackle a social issue such as poverty, hunger, sanitation, clean water, or access to energy. After screening the initial 126 organisations, 31 companies were regarded to be suiting as cases for this research. Following, the 31 firms were contacted via email where they were informed about the purpose of this research and requested to participate in an interview. Among them, nine contacted companies replied, with seven companies who gave positive responses and were willing to participate. A summary of the number of companies contacted is illustrated in Table 2 below.

Table 2: Number of Companies Contacted

Adopted by Awortwe, Utbys & Zou (2020)

Due to the current situation of COVID-19, one company who initially was planned to participate decided to withdraw to focus on other more urgent business matters. Consequently, a sixth company from one of the author’s existing networks was reached out to. Further, the company representatives that were selected from each company were required to be well acquainted with the organisation's major operational aspects and business model structure to ensure that the data collected would be reliable. Hence, with this in mind we purposely chose to interview co-founders, CEOs, and board members as these were believed to be the most knowledgeable on companies’ business models. In total, nine company representatives were interviewed. In Table 3 below, a summary of the case companies and company representatives can be found.

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Table 3: Interviewed Companies, Company Representatives & Brief Information

Adopted by Awortwe, Utbys & Zou (2020)

We chose only to include companies that met all four criteria of accessibility, availability, willingness to participate in the study and their geographical proximity (Etikan, Musa, & Alkassim, 2016).

3.4 Data Collection

For this multiple case study, data was collected through nine in-depth interviews with eight different company representatives. This method was adopted in order to understand differences and similarities in the business models of these organizations, as well as analysis within and across the individual cases (Gustafsson, 2017). Due to the current COVID-19 pandemic all interviews were held via Skype. The interviews were conducted with open-ended and semi-structured questions allowing room for the company representatives to speak freely. This is believed to have facilitated a richer and a more in-depth understanding of the responses of the company representatives. Whenever it was deemed necessary, we asked follow-up questions where clarification was needed or to further develop statements made by the company representatives.

At the beginning of each interview, the company representative was informed about the purpose and aim of the research to ensure that the responses aligned with the scope of research. Thereafter, the company representative was asked to give a brief background about themselves, who they are, what they do, and their previous experience. This enabled us to build rapport with the company representative with the aim of them feeling more comfortable and familiar in the interview environment. During the interview, the

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company representatives were asked about what business activities they believed were important for its business operations, and business activities that they could not do without. Further, they were asked why it was so that they believed these business activities to be important as well as more practically how these were executed.

All interviews were held in English. Since a majority of the company respondents have to communicate in English with its partners and customers, it was believed that this would not affect the responses negatively although most company representatives were Swedish. The length of the interviews spanned from 50-90 minutes and were all recorded to ensure that any statements or comments made by the participants were not changed and remained accurate. After transcribing and reading through the data collected, additional interviews with other active company representatives were requested to discuss their take on the themes identified as well as give multidimensional and or unmentioned insights hence applying a snowball sampling method.

3.5 Data Coding and Analysis

This research adopted a thematic analysis method which is used to identify, analyse, and interpret themes in qualitative data, giving room for flexibility and suitable for both big and small sample size (Clarke & Braun, 2017). Using a thematic analysis, we aimed to comprehend and interpret the interviewees’ ideas and conclusions with the purpose of generating themes from important or interesting parts in alignment with the objective of this research. Based on the six-phase guide for executing a thematic analysis by Braun and Clarke (2006), the interview data was first transcribed and read through by each of the authors. This was done in order to ensure that statements made by interviewees and used by the authors were as accurate as possible and that no information was left out. When all interviews had been transcribed, any data deemed unnecessary or irrelevant was reduced. The data was then added to the software programme MAXQDA which allowed us to code and organise the empirical data. All three authors coded each of the nine conducted interviews individually. This was done as assurance that as many first order concepts as possible were identified from the empirical data hence, reducing the risk of any important information being missed. All individual codes were then combined and compared. Thereafter, any coded segments that were identified twice, or more, were

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integrated into one initial code. The combined initial codes amounted to a total of 327 that were grouped into 12 first order concepts. These concepts, however, did reveal themes that fell under general business model activities such as partnerships, key resources and cost management. Following that, codes that were not specifically considered critical business activities for a BoP market were sieved out. Examples of such activities were partnerships, which indeed is a necessary business activity a firm would need to implement, but that is related to business operations in any market and not BoP markets specifically. These first order concepts were later compiled into nine second order categories where the relationship between the initial first order codes became clearer. With the nine second order categories compiled it was possible to distinguish and compare the critical business activities that the six companies conduct in their operation in the BoP markets. In figure 1 below the data structure is illustrated.

Figure 1: Data structure

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3.6 Limitations of Methodology

Qualitative studies are commonly critiqued by the absence of unanimity for assessing its quality (Leung, 2015). Due to the nature of qualitative data, which is dealing with information, which is non-numerical, results have to be interpreted by the researcher. With the need for human interpretation, subjectivity follows to some extent (Leung, 2015) which can be viewed as a bias. However, with our relativist belief we argue that reality is always perceived differently amongst individuals hence, we acknowledge that it is a possibility that empirical results can be interpreted differently among researchers. Nevertheless, to deal with this limitation we have in this chapter provided our rationale for our methodological choices of this study to allow for full transparency to increase the credibility of the research. Additionally, Collis and Hussey (2014) suggest that conclusions that are drawn upon from explorative studies are of a more tentative nature rather than final. For this research, we acknowledge that further research might have to be conducted for the results to be verified as there is no previous research on this specific aspect of sustainable business models for the BoP market. Finally, data, due to the epidemic situation of COVID-19, all interviews are conducted online, which results in the inability to control the interview environment and observe the nonverbal behaviour of the respondent.

3.7 Ethical Considerations

In accordance with the ethical guidelines suggested by Collis and Hussey (2014) several measures have been taken to ensure trustworthiness of our research as well as the integrity of individuals who have participated in the study. All company representatives who agreed to partake in this study have been given full transparency and clear communication of the purpose of the research and what their responses will be used for. Additionally, at the beginning of each interview all company representatives were allowed anonymity if desired. This, to respect the privacy of the individual as well as for the firm. Moreover, after each of the interviews had been conducted and an analysis of the empirical data had been conducted a copy was sent to each of the company representatives so that any information that was linked to them individually, or to the firm could be verified as well as giving a second opportunity to be anonymous.

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4. Empirical Findings and Analysis

_____________________________________________________________________________________

This section covers the empirical findings of the study and the analysis of these findings. The findings cover five critical business activities summarised in a conceptual

framework in the last part of this chapter.

______________________________________________________________________

4.1 Micromanagement of Partners

The empirical findings showed that four of the case companies engaged in some type of micromanagement of its local partners. This micromanagement was mainly linked to the need of educating the partner about the product or the assembling of the product. The underlying reason for the micromanagement stemmed from, for example, the lack of knowledge for the functionality of a new type of product unknown to the local partners and hence, needed education on. This was the case for Make It Green whose founder Lukong Pius described as the following:

“We can’t do without conferences, getting information and being up to date and getting, also meeting and training people on how to use our products. And creating demos on how to use biochar in the soils or in the water and so on and so forth. We can’t do without such activities.”

During his interview, Pius emphasized the need of educating his partners but also the end customers on how to use their product in order for them to have knowledge on the operation of the stove and the benefits it provides into the consumer’s daily life. A similar view was held by Eddie Bjelton, owner of KONSEB, who expressed it in the following:

“...the very important part and most of it is teaching. Because the equipment itself it's simple, it's nothing too difficult, but to run it, to understand, and doing the correct processes is the issue...So, they (the partners/customers) feel that quite much knowledge is necessary, since they had no school knowledge from the beginning.”

For Bjelton and Pius, the issue was not that the product was too complex, but rather the novelty of the products’ technology for its partners, hence leading to the need for

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education. Bjelton further pointed out during the interview that many of the local partners that KONSEB had partnered with showed generally low education levels initially. As a result of this further education and training was necessary for assembling of the product and for further maintenance of the product.

For MTI Investment however, the emphasis of the company’s micromanagement is to ensure that the local partners’ operations are running administratively smoothly and ethically. CEO Pontus Engström described the activity as:

“For example, in Theory X and Y, in Sweden we believe that we can delegate things to people and they in turn deliver what we ask of. That is a little difficult. We have to do a little bit of micro-management that we want to in this context. We do have certain entrepreneurs that are very able to run with things but not all the time. Sometimes we do micromanagement and sometimes we don’t.”

Engström explained that any firms they are partnering with, which also are the firms receiving investment funds from MTI Investment, all are required to have at least a university degree. This to ensure that all partnering firms and entrepreneurs show understanding and dedication to their firm’s growth. Through experience, Engström also noted that partnering firms where the entrepreneurs possessed a university degree seemed to show greater potential to grow and sustain the business. Although, even though the partners do in fact fulfil the criteria of education, Engström pointed out that a handful of MTI’s partners still need micromanagement, something the company did not expect before entering the market. He further commented:

“We offer them capital and know-how and valuable corporate governance expertise that they didn't have before, we are putting in place very simple frameworks such as cash flow forecasts. We put together strict processes that haven't been seen before.”

Exactly what Engström meant with “processes that haven’t been seen before” is not clear if it refers to a process up until now that has not been known to partnering firms seeking to operate in BoP countries, or unknown to firms in the BoP market. If the latter, this could imply that entrepreneurs and firms that are somewhat established in the market have

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very little exposure to management and business operations, hence the need for micromanagement to be applied.

A third company representative who emphasised a need for micromanagement was CTO and founder, Robert Sagulin from Cleancook. Sagulin mentioned during the interview that it was a necessary business activity for Cleancook to visit its manufacturing facility in South Africa, where parts of the Cleancook stoves are made. During his interview Sagulin said the following:

“I’m also at least once going to the customers’ sites when they decide to buy a sub-assembly concept, what we call our flatpacks. It comes in and then I make sure they set up an assembly table and they have some manufacturing equipment…so they can put the stoves together.”

For Cleancook, the emphasis is not so much on educating the partners on the manufacturing process, but rather on managing that the right equipment is being used and assembly tables’ setting up. Arguably, for all four companies, the business activity of managing some parts of the local partner’s operations is necessary when being present in the BoP market.

4.2 Creating Multi-Beneficial Products

A few of the company representatives interviewed reported that creating products that offer multiple benefits to the customers in the BoP market is something new entrants should strive for. After segmenting based on observable variables such as culture, region, socioeconomic situation and unobservable ones such as lifestyle choices, values and psychographics (Wedel, & Kamakura, 2012), new entrants could focus on designing products that are technically simple. Zeschky, Widenmayer and Gassmann’s (2015) paper is among the numerous studies that explore product innovations in these markets. The authors use the term “frugal innovation” to mean innovative products/services with non-traditional cost advantages that respond to resource constrained consumers. These products are usually made out of cheaper and unsophisticated materials and are mostly limited in functionalities.

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A well-known example of such innovation is Tata Nano, a car without air conditioning, anti-lock brake, air bags, power steering and other features introduced in India for the middle-class. Other examples can be found in the microfinance (Grameen Bank), mobile technology (The M-PESA program), and healthcare (General Electric) industries etc. (Petrick, & Juntiwasarakij, 2011). The goal of these products is to create high value while meeting basic needs; in other words, creating “good enough” products that function reliably in challenging environments. Fred Davis, managing director of Invetech Australia interviewed in Petrick & Juntiwasarakij’s (2011) study, expands on the product design for BoP consumers and advises that the product should not only be affordable but also repairability must match local skills. The company Again for example working with sewage systems has simplified their product to be accessible by their customers taking into consideration the local knowledge and abilities. Mikael Olsson the founder and owner of Again explains:

“I mean a Swedish citizen, having a country-house or something like that, they want to go to the toilet and then press a button and then yeah …That costs a lot of money and you need to have CE certification from the European Union. And in poorer countries like Bolivia it’s fantastic to have such fantastic equipment we offer them. It’s easy to use, very few moving parts but it needs a lot of quite simple work to add the additive and collect the urine etc. but that is normal for them.”

The company KONSEB gives consultation on solar drying. The founder, Eddie Bjelton acknowledges the challenge of low literacy in these countries which is reflected in the designing of the products.

“…I present solutions. Of course, I’ve tried to design simple equipment and simple systems to make it easy to run because they are not so educated so they ignore technical knowledge... So that's why I try to design a simple system which would be easy to run in and would be stable…”

With the aim of attaining a successful market orientation, companies serving the BoP market focus on creating products that when sold, customers can generate additional income. OlsAro who aims for a sustainable agriculture provide viable seeds to customers who harvest and sell the produce to gain their income. Make It Green for example developed a BioGrill and BioCooker allowing customers who purchase it to sell their

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biochar (a soil enhancer and water purifier) after grilling and cooking to others for agricultural purposes. Pius explained it as the following:

“I talked about enlarging the chain, so you don’t just cook and have food, but you cook and get something which you can do these things (agriculture) with because you have the need. And when you do these things (sell the biochar) you save money, and that raises your income, and you prioritized that for other things.”

This is also the case of Again. Mikael Olsson stated

“We can say that the operator of the sanitation plant could earn money instead of paying money. Because they have to pay for our reactors, but the products which are produced by our reactors, they can sell it to someone who could use it or an intermediate.”

The ultimate purpose of developing products and services for BoP individuals is to provide affordable product alternatives that meet basic needs. The companies involved in the research take a step further and develop products that meet basic needs in various different ways. Not only do these products meet some basic needs, but some can become a source of income for the customers.

4.3 Local Social Development

The third theme derived from the interview data is the local social development of the

BoP market. In order to define social development, Auerswald's (2009) research shows

that social development can be divided into the following dimensions, financial, reputational, ethical value, consumer surplus, positive externalities, and the enhancement of human capabilities. Many scholars believe that public welfare projects or governmental funding are the fundamental solutions to poverty, ignoring the lack of stable financial resource channels in the BoP market, coupled with limited income or large fluctuations (Gebauer, Haldimann, & Saul, 2017). Moreover, the BoP market has special restrictions, such as lack of education and asymmetric information (Sinkovics, Sinkovics, & Yamin, 2014). Therefore, public welfare decisions and subsidies invested by local governments and non-profit companies alone cannot sustainably transform the restrictions of the BoP market. Arguably, this requires companies to develop solutions that can help the BoP

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market obtain additional social benefits. One highly recommended solution from the empirical data for developing the local social environment is to generate local employment. Lukong Pius from Make It Green explained the following in the interview:

“We need to think of investing in people, creating jobs and sharing wealth with people in the nation, in the world, at large...I believe that the capacity to create money is by working. And if people don’t work it’s going to be difficult for them to have and to demand for certain qualities... if people don’t work their quality will either stay the same or drop down. So, I believe that job creation is the only thing to make people succeed and have more money.”

Since Make It Green has not yet established a retail store in the local area, they only provide parts or core technologies to assemble or produce locally for the local market in the countries they serve. Therefore, Make It Green believes that creating employment opportunities for local people on the basis of saving on the company’s transportation costs, can help local people increase their income, thereby achieving both economic and social benefits. Lukong Pius from Make It Green puts it in the following way:

“They want to get empowered, we should make them empowered by making them

have money, by offering an economic activity that gives them financial benefits. And that is why we target women most of the time. Stoves, of course, they (women) are the ones cooking in most of these areas.... "

Karnani (2011) argues that the poor need productive jobs that lead to higher income. In other words, instead of treating the poor only as customers from the beginning, companies should aim to increase the sources of income and increase the efficiency of the overall labor market in the BoP. Essentially, by being employed by these companies operating BoP markets, employees can learn new technologies, broaden their horizons, and ultimately improve their employability. Furthermore, as the local employees increasingly scale up, it creates an opportunity for enterprises to increase the brand's awareness and subsequently capitalize on them meeting corporate social responsibility. Arguably, employees or local residents can help build the company's reputation after being exposed to production or logistics and transportation. The following statement is from Lukong Pius of Make It Green on the subject:

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“Giving people jobs (in the BoP market) can create good credibility for us, we make good names...”

Therefore, paying attention to the social development in the BoP market and establishing links between the poor and the growing market can bring long-term positive effects to the employed people and their families, and at the same time will bring positive public praise to the enterprises.

4.4 Adoption of Low Margin Strategy to Ensure Low Prices

A fourth major theme that was highly emphasized by the company representatives was the need for costs to be as low as possible. To aim for low costs is not an uncommon practice for businesses operating outside of the BoP market. However, the motive for maintaining low costs was found to be different for the businesses operating in a BoP market. The empirical data showed that three out of the six companies emphasized a need to maintain or to further lower production and transportation costs. However, none of the company representatives expressed that the motive for doing so was to increase margins as one could have thought. Ted Örbrink explained Cleancook’s motive as the following:

“Our products are not high margin, and low volume, it's the opposite. We have low margin, but we need high volume to be successful…If you lower the cost of the stove, then it is possible (for the customers) to make a purchase…”

Örbrink also made the following statement regarding the firm’s aim of reducing costs further:

“Maybe that is also true that we have gone from serving the absolute bottom of the pyramid to somewhere slightly higher, at least initially until we can have a steady production, a lower cost of production which can help us lower the price even more and thereby penetrate even lower. “

A similar view was held by Mikael Olsson from Again and Lukong Pius from Make It Green where both company representatives expressed the need to aim for as low costs as possible, for example by locally assembling the products in order to reduce transportation costs. Similar to the view of Örbrink, cost reduction was not an activity the companies

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aimed for in order to be able to achieve larger profit margins but to lower product prices, which in turn increases market share. From these statements and insights, it can be argued that firms operating in a BoP market are in fact not aiming for increased margins to generate higher profits. Instead, there is an aim for the opposite effect, namely, to reduce the margins. It seems that the underlying motive for doing so is to achieve lower prices that are more affordable to the customers that are served in the market. In his interview Örbrink further mentioned that by doing so, it could be possible to penetrate the market even further, reaching a larger sized market.

4.5 Creation of Innovative Unique Revenue Streams and Payment Conditions

The fifth critical activity concerns the creative designing of unique revenue streams. In alignment with the view of Bocken et al. (2014), this paper supports the view that it is a necessity for firms to strive for financial profitability in order for the organisation to survive. Board Chairman Trond Randøy from MTI Investment comments the following on the necessity profit for a business:

“It’s like a human. If you don’t have oxygen, you can have the best heart, you can have anything fantastic, but there are certain things that are necessary in the short term and constantly need to be there. And that is the profitability and the ability to generate money.”

Although the individual purchasing power of customers in the BoP market is indeed lower compared with individuals in developed markets, Prahalad (2005) believes that the massive population of BoP overthrows this assumption that the collective purchasing power of the BoP market is low. Despite the economic constraints of individuals in the BoP, firms can find creative means to make economic profits by for example, evaluating and determining when the consumers have access to money.

From the experience of Lukong Pius from Make It Green, he is of the view that:

“Usually people don’t lack money, but they lack the disposition and the orientation and prioritization of what they can do with the money”.

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“I don’t 100% agree that people who live in third world countries don't have the purchasing power. They do, it's just that they don't have a big amount of money to spend at one time. They normally have $1-3 in their pocket every day, but they never have a lot of money at once.”

This empirical insight aligns with research conducted by Nagy et al. (2019), arguing that there is money present at the BoP, however firms may need to rethink and restructure revenue streams to be able to capture the existing money. For example, for the lower bottom of the pyramid that is mostly associated with the agricultural sector, the empirical data pointed out that money is particularly accessible to the individuals during harvesting of seasonal crops. Lukong Pius from Make It Green explains:

“In the agricultural sector you see that obviously people are going to have money when they have these products (crops) and sell them.”

Once it has been established when money is mostly available and accessible to these consumers, firms need to be able to harness it. From the interviews, two main approaches emerged for generating new revenue streams appropriate for a BoP context. Firstly, the approach adopted by Cleancook is explained by Ted Örbrink as the following:

“The core of the business idea is that the stove is not really the profit vehicle for our customers, the stove is only there to make money for the fuel … Our products are not high margin, and low volume. It's the opposite. We have low margin, but we need high volume to be successful.”

With this idea in mind, lowering the price of the stove is made profitable since the fuel, which is sold on a continuous basis, will be the operating activity generating revenues for Cleancook and its partnering retailers. Arguably, smaller amounts of money at different points in time could be more manageable for BoP consumers and subsequently, allowing for a greater acceptance of the product/service.

Decreasing the price to a low enough level for the consumers might not always be feasible. Arguably, profitability and acquiring economies of scale is essential for a company’s survival and thus new entrants may struggle initially as they may not be able to reach out to a large enough market. Hence, the ability to generate unique revenue

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streams is of utmost importance for the firm’s economic viability. This critical business activity emerged clearly through the interviews. From the interviews a commonly mentioned strategy for doing so is through the use of carbon credits, which offers an opportunity for products which reduce greenhouse emissions and pollution to gain a long-term cashback in the future. In short, the tons of carbon emissions that have been prevented from polluting the atmosphere can be sold in the form of carbon credits. They can in turn be purchased by organizations or individuals who wish to compensate for emissions in their own supply chain (Fairtrade, n.d.) hence making their products environmentally friendly. Make It Green and Cleancook both utilize the carbon credits strategy as a part of their revenue streams approach. Co-founder of Make It Green stated the following:

“If you reduce emissions, you can be compensated. That is to say, if you have a project that shows an account and is certified to reduce emissions, then you can be compensated for doing that job … Carbon credits became lucrative and much more to the understanding of the general public (since the Paris Agreement) … We have seized that opportunity, and we use it as a form of our revenue stream.”

However, Co-founder and CTO Robert Sagulin from Cleancook describes the process as slow and encourages organisations to be patient, but that it allows an opportunity for new revenue streams generated from other sources than customers. However, money from generated customers purchasing Cleancook’s stoves are through upfront payments, in the interview he explained their method as the following:

“Working in this market you have to be cautious… Payment conditions are extremely important and it’s basically only pre-payment or letter of credit to ensure that you get your payment.”

The completely opposite approach is adopted by OlsAro where payment from customers are collected only after their biomolecular technology has generated crops that the customers are able to sell. When the crops have been sold, a royalty fee is then paid to OlsAro, still giving room for the customers to earn some profits on the difference between what the crops are sold for and the royalty fee that is paid.

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4.6 Conceptual Framework of Critical Business Activities for the BoP

From the analysis on the empirical data, it became apparent that five business activities were considered to be more distinctive than others. These five activities were namely, (1) Micromanagement of partners, (2) Creating multi-beneficial products, (3) Local social development, (4) Adoption of low-margin high-volume strategy, and (5) Creation of innovative revenue streams. Figure 2 below visually illustrates these critical business activities in a conceptual framework.

Figure 2: Conceptual framework of critical business activities

Adopted by Awortwe, Utbys & Zou (2020)

The first essential recommended activities included partner micromanagement. This emerged as critical as the companies found themselves either being majorly responsible for the education of their partners in terms of managing the partners’ own companies (as was the case of the micro financing and home appliances companies). The second recommended activity was developing a multi-beneficial product. This activity was notable as it entailed the ability of companies to develop individual products/services that have several benefits to the end users, such as creating income for the companies’ customers themselves. Aiming to develop the local social state through job creation through capitalising on local skills; realistically, people can have higher economic ability

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when they have a stable source of income. Fourthly, it is recommended to consider low margin strategy in business models for the BoP. The low margin approach aims at lowering operational costs as much as possible by for example, producing locally, in order to decrease product/service prices and thereby, naturally attaining a larger market share through selling high volumes. The product/serve innovation urged in the BoP market extends as far as creating innovative revenue streams and payment conditions. This fifth activity emerged as a curbing mechanism for the challenge of low income. From the experiences of the companies, subsidies from NGOs, pay-after-harvest, paying in instalments and buying shares in customer’s companies, are examples of payment options suitable for individuals in the BoP market. The elements in this conceptual framework are not interdependent on each other but rather, parallel as they can all be simultaneously carried out by existing and new business in the BoP market. However, it should be noted that these business activities are interlinked with one another, this is represented by the circle in the framework. This implies that as one business activity is carried out in a firm, it is very likely that one, or more, of the suggested activities follow.

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5. Conclusion and Discussion

_____________________________________________________________________________________

This chapter aims at concluding and discussing the findings of this research.

______________________________________________________________________

The bottom of the pyramid (BoP) markets are characterised by their low-income capacities, their lacking in infrastructure and their heavy dependence on external aid (Karnani, 2011; Mendoza & Thelen, 2008; Mair & Marti, 2009). Despite the undisputed states of these markets, companies from different industries, are discovering ways and means to position themselves in the BoP markets with the aspiration of mitigating poverty while synchronously making economic profit. Scholars have evaluated, argued and estimated that with the growing number of middle-class individuals in the BoP countries, these countries' collective purchasing capacity is approximately 5 trillion US dollars (Hammond et al., 2008). Thus, a growing number of companies are encouraged to explore these BoP markets to develop products and services that meet, and possibly exceed, the needs of these individuals by reshaping and rethinking their business models to overcome the market’s challenges. Scholars have applied the concept of sustainable business models to the development of BoP business models in recent years (Bocken et al., 2014; Morioka et al., 2017; Rosca et al., 2017; Dembek et al., 2018). Unlike traditional business models, sustainable business models consider the social, environmental, and economic aspects of value creation by multiple stakeholders, not just end customers (Dembek et al., 2018). As a result, it has been the interest of the authors to explore this advocated phenomenon of a sustainable global change and attempts go in depth to answer the research question: What

are the critical business activities to be considered in a Sustainable Business Model for the Bottom of the Pyramid?

The prominent and underlying element in the Sustainable Business Models are the sustainability factors (the social, economic and environmental or a combination), integrated into it from its foundation. With that said, it is worth mentioning that there is the possibility of the traditional business to subsequently evolve to be more socially, economically and environmentally (or a combination) sustainable due to trends such as corporate social responsibility and meeting the United Nations’ Sustainable Development

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Goals. The companies involved in this research are Swedish owned companies serving the BoP market with micro financing, home appliances, sanitation and agricultural solutions and thus, the report drew conclusions and outlined a framework from the companies’ experiences conducting their business operations.

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6. Contributions

_____________________________________________________________________________________

This section aims at highlighting the contributions of this research.

______________________________________________________________________

This research has a theoretical contribution to the expansion of the business model field and provides a reference for subsequent research on business activities in the BoP market. This study analysed the successful experiences of six Swedish companies in the BoP market and summarized five critical business activities customized for the BoP market. Subsequently, a conceptual framework tailored for the BoP market was developed based on the five business activities that emerged from the analysis. By drawing on the framework we developed, we can inspire and lead more companies to enter the BoP market to join the poverty alleviation objectives.

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7. Limitations and Future Research

_____________________________________________________________________________________

This section aims at highlighting the limitations and suggestions for further research.

______________________________________________________________________

A limitation we recognized with this research is that the companies selected for this research are relatively successful in the BoP market under the condition of being able to make profits. Even if this was not an intention of this study, in future research, scholars can choose companies with failed experience to compare with those who are successful to find new perspectives. On the other hand, the conclusions of the multi-case study design are insufficient to produce statistical significance. Therefore, more samples should be evaluated to verify and supplement the framework of this study. Data can be collected from a more significant number of companies, and a quantitative approach can be used to analyse and verify the relationship between this framework and corporate performance.

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8. Reference list

Amit, R., & Zott, C. (2012). Creating value through business model innovation. (Strategy in Changing Markets: New Business Models)(Report). MIT Sloan

Management Review, 53(3), 41–49.

Angeli, F., & Jaiswal, A. K. (2016). Business model innovation for inclusive health care delivery at the bottom of the pyramid. Organization & Environment, 29(4), 486-507. https://doi.org/10.1177/1086026616647174

Auerswald, P. E. (2009). Creating Social Value. Stanford Social Innovation Review, 7(2), 51–55. Retrieved from http://search.proquest.com/docview/217170171/ Bocken, N., Short, S., Rana, P., & Evans, S. (2014). A literature and practice review to

develop sustainable business model archetypes. Journal of Cleaner

Production, 65, 42–56. https://doi.org/10.1016/j.jclepro.2013.11.039

Braun, V., & Clarke, V. (2006). Using thematic analysis in psychology. Qualitative

Research in Psychology, 3(2), 77–101.

https://doi.org/10.1191/1478088706qp063oa

Brehmer, M., Podoynitsyna, K., & Langerak, F. (2018). Sustainable business models as boundary-spanning systems of value transfers. Journal of Cleaner

Production, 172(C), 4514–4531.

https://doi.org/10.1016/j.jclepro.2017.11.083

Chambers, E., & Patrocínio, M. (2012). Business Models and Value Creation: A Case Study of New York City Economic Development Corporation. (Master's thesis, Umea School of Business, Umea, Sweden). Retrieved from http://www.diva-portal.org/smash/get/diva2:504145/FULLTEXT02.pdf.

Clarke, V., & Braun, V. (2017). Thematic analysis. The Journal of Positive Psychology:

Qualitative Positive Psychology. Edited by Kate Hefferon and Arabella Ashfield, 12(3), 297–298. https://doi.org/10.1080/17439760.2016.1262613

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Coes, D. H. (2014). Critically assessing the strengths and limitations of the Business

Model Canvas. (Master’s Thesis, University of Twente, Enschede, the

Netherlands). Retrieved from http://essay.utwente.nl/64749/

Collis, J., & Hussey, R. (2014). Business research: a practical guide for undergraduate

& postgraduate students (4th ed., pp. 4-8, 39, 42-50, 110). Basingstoke: Palgrave Macmillan.

Dembek, K., York, J., & Singh, P. (2018). Creating value for multiple stakeholders: Sustainable business models at the Base of the Pyramid. Journal of Cleaner

Production, 196, 1600–1612. https://doi.org/10.1016/j.jclepro.2018.06.046

Demil, B., & Lecocq, X. (2010). Business model evolution: in search of dynamic consistency. Long range planning, 43(2-3), 227-246. https://doi.org/10.1016/j.lrp.2010.02.004

Dentchev, N., Baumgartner, R., Dieleman, H., Jóhannsdóttir, L., Jonker, J., Nyberg, T., … van Hoof, B. (2016). Embracing the variety of sustainable business models: social entrepreneurship, corporate intrapreneurship, creativity, innovation, and other approaches to sustainability challenges. Journal of

Cleaner Production, 113(C), 1–4.

https://doi.org/10.1016/j.jclepro.2015.10.130

Etikan, I., Musa, S. A., & Alkassim, R. S. (2016). Comparison of convenience sampling and purposive sampling. American journal of theoretical and applied

statistics, 5(1), 1-4. https://doi.org/10.11648/j.ajtas.20160501.11

Gebauer, H., Haldimann, M., & Saul, C. (2017). Business model innovations for overcoming barriers in the base-of-the-pyramid market. Industry and

Innovation, 24(5), 543-568.

Figure

Table 1: Literature Review Themes
Table 2: Number of Companies Contacted
Table  3:  Interviewed  Companies,  Company  Representatives  &  Brief  Information
Figure 1: Data structure
+2

References

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