Inclusive Business and Poverty Alleviation: Understanding the Factors that Constrain and Enable Firm Interactions with the Poor

Abstract

There are more than a billion people living in poverty throughout the world, with some considering the total number to be as high as four billion, or about half the world’s population. On the face of it, poor people with limited funds would appear to be of little interest to the private sector, yet there has been increasing interest in the topic in recent years. This interest is particularly concerned with achieving a win-win scenario where both business and the poor benefit. Research involving the business-poverty interface at the micro level has only really started to emerge in the past decade and is disparate, and theoretical development is lacking. Furthermore, there has been limited empirical research that examines this phenomenon from the perspective of the firm and the poor. This thesis includes three papers that address these issues.

Paper 1 presents a detailed review of relevant literature and proposes a definition of inclusive business that involves the private sector expanding access to livelihood opportunities and products and services in commercially viable ways. I argue that inclusive business is both normative and instrumental, meaning that integrative management is critical to achieve benefits for both the firm and the poor. The paper presents a conceptual framework of inclusive business that explains why and how firms adopt inclusive business. The framework incorporates the role of formal and informal institutions, which play a critical role in both enabling and constraining inclusive business efforts.

Paper 2 presents the results of an empirical study that examines the firm’s experience of inclusive business using Scott’s (2008) pillars of institutions. I conducted an in-depth study of five firms involved with inclusive business in Vanuatu, an island country in the Pacific with a complex institutional environment. An analysis of interviews with managers demonstrates that formal institutions (regulative) act as a catalyst to encourage firms to interact with the poor, however weak formal institutions and informal institutions (cultural characteristics and social norms) inhibit a firm’s inclusive business efforts.

Paper 3, also an empirical study, examines the relationship between inclusive business and poverty alleviation using Amartya Sen’s capability approach. Through an analysis of interviews with poor stakeholders of the five case study firms and multidimensional poverty data for each stakeholder, the results show the importance of an institutional environment that supports inclusive business. Furthermore the results suggest an association between capacity building and poverty alleviation.

Taken as a whole, this research program contributes to the theoretical development of the business-poverty interface by developing the concept of inclusive business and presenting a framework supported by empirical evidence for understanding the constraints, mechanisms and outcomes of inclusive business. The research also contributes to institutional theory by examining interactions between institutions and providing evidence that informal institutions are prominent in the study context. The results also contribute to research on institutional change and points to the potential for firms to influence the institutional environment, in contrast to other institutional research that tends to examine how institutions shape firm behaviour.