Becoming trusted at the base of the pyramid

Private sector firms approaching the BoP market must focus on building trust […}.” , and Hart 2007, p.213 emphasizes that “the key to success in the BoP is trust […] because the poor are

Strategies for the Base-of-the-Pyramid

Becoming trusted at the Base-of-the-Pyramid

Dr Patrick A.M Vermeulen

Prof Dr Jac L.A Geurts

a BoP case in Tanzania and confirmed five variables causing trust: outset manifestation, reciprocity, consistency, adaptation to institutional framework and communication Moreover the results of this thesis show that the relation between the variables and the actual processes that account for the

relationship between the concerning variables are determined by the context of the BoP

“Cooperation is sustained by the shadow of the future” (Axelrod, 1984)

Preface

This master thesis presents the results of an inductive research on “strategies for the base of the pyramid” I conducted the preparing and concluding parts of the research at Tilburg University and the field research in Tanzania The finished thesis brings along ambivalent feelings On the one hand, it means the successful ending of a fruitful period of studying On the other hand, it means the end of working on a subject that inspired me increasingly, day after day However, as Jac Geurts spoke to me reassuring: “it’s just like a boomerang, it will return to you once again”

The thesis has its origins in the strategy classes of Patrick Vermeulen and Jac Geurts Their

enthusiastic introduction of the Base of the Pyramid made many hearts beat faster, and “Strategies for the Base of the Pyramid” became a very interesting thesis subject Hence, I want to thank both Patrick and Jac for their impassionate classes More specifically, I want to thank Patrick for his professional supervision His feedback was always quick, clear and to the point It was not only helpful to conduct better research, but also taught me to sharpen my vision in general

Furthermore I want to thank Harrie Hendrickx from Unilever, who supported me in studying the Allanblackia case - which was perfect for my thesis - and connected me to the right people One

of these people was Fidelis Rutatina from NDTL Fidelis introduced me to the real world of Allanblackia and to Tanzania in general He is the best host in Tanzania one could imagine Next,

I want to thank Godfrey Nkongolo who not only helped me translating the interviews, but also guided me during the trips across Tanzania

Of course, I owe the results of this thesis to all the interviewed people Hence, I thank all the community members I interviewed and their villager leaders I also want to thank, Maria and Tom from FaiDa Mali, Ndanshau from SNV and Doris from ICA I admire them for their dedicated work to create a better life for the people in Tanzania

I am also very grateful to all the people that have read my thesis and thought along with me, with special thanks for their critical feedback to Michel Bachmann and Chris van der Schoor

Peter Grootveld

Nijmegen, January 2009

Table of contents

1 INTRODUCTION 5

2 THEORETICAL BACKGROUND 10

2.1 Organizing the trust literature 10

2.2 Trust defined 11

2.3 Antecedents of trust 11

2.4 Trust in BoP studies 17

2.5 Insights from other studies 20

2.6 Comparing visions on trust building 21

3 METHODOLOGY 24

3.1 Research design 24

3.2 The case 25

3.3 Data collection 26

3.4 Data analysis 29

4 RESULTS 32

4.1 Introduction 32

4.2 Build trust incrementally 32

4.2.1 Outset manifestation 33

4.2.2 Manage reciprocity 36

4.3 Consistency 41

4.4 Manage communication 42

4.5 Adapt to institutional framework 44

4.6 An overview of the results & a BoP trust building model 49

5 DISCUSSION AND CONCLUSION 51

5.1 Introduction 51

5.2 The suitability of prevailing trust literature 54

5.3 Comparison with the BoP literature 55

5.4 Conclusion 57

5.5 Limitations 58

5.5 Further research 59

6 REFERENCES 59

1 Introduction

“If we stop thinking about the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up” (Prahalad, 2004, p.1)

This proposition is illustrative for the increasing signs of interest in the possibility of doing business in developing countries and alleviating poverty at the same time

The websites and annual reports of fortune global-500 companies show that nearly all of them are to a certain extent serving the poorest of our world, the so-called “base of the pyramid” (hereafter: BoP) Wal-Mart, for example, moved into the Mexican retail banking sector According to themselves, not only to ‘sell more stuff’ but also to compete against the

entrenched domestic businesses that are not fulfilling local demand And as the New York

Times (2006) stated affirmatively: “Poorer Mexicans have been largely shut out of

traditional banks by minimum balances, high fees and intimidating paperwork Community banks barely exist” Another illustrative example is Unilever It notifies on its website that

their deep roots and early engagement in BoP markets gave them valuable experience in meeting the needs of BoP consumers For instance, one of Unilevers oldest brands is

“lifebuoy”, once launched in the UK as an affordable soap Today it is mainly consumed in BoP countries Nearly half of the sales take place in rural Asia, where hygiene issues such as hand washing are of vital importance for whole communities Another ‘BoP-aware’ company

is DSM This multinational proclaims they started three concrete ‘Base of the Pyramid’

projects in India this year According to their website these projects will focus on the topics: increased production of milk, better nutrition and the development of sustainable construction materials Like this, numerous other examples of companies entering the BoP can be found

Strategies to enter the BoP are also increasingly subject of interest in Academia In 2002 an

article named the fortune at the bottom of the pyramid caught not only the eye of the corporate

world, but attracted also many scholars of different disciplines In this article Stuart Hart and C.K Prahalad capture the division of the worlds purchasing power parity in a pyramid with four consumer tiers They sketch the top tier as a saturated market accommodating about hundred million people earning more than $20.000 a year The bottom tier consists of more than four billion people with an annual per capita income of less than $1500 Thereupon, they

state that although these bottom tier people are poor, they represent an underserved trillion dollar market Hart and Prahalad continue in their article with quashing the prevailing assumptions why these people should not be seen as potential consumers for western

multi-companies and subsequently they draw attention to a few crucial elements to create a

commercial infrastructure in developing countries For instance, they assume that the poor can afford and do have use for the products and services in developed markets and they argue that

it is crucial to pay special attention to improvement of access to these products Considering the scholars innovatory train of thought, it is not surprising that many colleagues reacted on

Prahalad and Hart by publishing articles in line with The Fortune at the Bottom of the

Pyramid Some of them primarily in a critical way (e.g Jenkins, 2005; Crabtree, 2007;

Karnani, 2007) and others elaborated on Prahalad’s and Hart ‘s ideas by studying certain aspects of the BoP proposition, or by approaching it from a specific angle For example, it is studied how to create successful business models for entering the BoP (London, 2007; Seelos

& Mair 2007), how corporations and NGOs can partner successfully to learn from each other (Brugmann & Prahalad, 2007), how a BoP perspective can complement other poverty

reduction programs (London, 2007), alternative perspectives on BoP concept are explored (Jaiswal, 2007) and there is even a BoP protocol, helping organisations step by step to launch

a BoP venture (Simanis & Hart, 2008)

It seems convincing that the BoP philosophy receives increasing and mainly positive attention

by both academics and business managers However, it is not all roses in the BoP markets Among the high number of organizations that entered the BoP, there are also many examples

of failed initiatives A typical example is the Word Shoe project of Nike In its attempt to supply low priced shoes to the low-income-populations in China, it failed in meeting its sales goals According to McDonald et al (2002), Nike was unsuccessful in reaching the target consumer because its business model was not based on an emphatic understanding of the context Stuart Hart (2007) has put forward that if Nike had started with a pre-commercial period of engagement, deep listening and building trust with local parties, it would have had a greater chance of being successful in resolving the contradictions between its used business model and the one required to serve the low-income-populations of China And even if a BoP venture seems to have success in the beginning, it can still easily fail to meet its targets The detergent product ‘Wheel’ of Unilevers subsidiary Hindustan Lever Ltd (HLL) perfectly illustrates this failure to make a BoP initiative grow The business model was based on single serve packaging, low-cost production, and distribution through small local companies

Although rapid growing sales figures were visible in the beginning, the business model was not suitable to reach 500 million potential customers in rural villages After a few years

HLL’s rapid growth began to stagnate In 2004, the HLL share price ended up in a downward spiral, and shed over 25 percent within 3 months (Financial Express, 2004) HLL became aware that it had to integrate deeper into the local communities to reach the 500 million

people Hence, “Project Shakti” came into existence: through women’s self help groups, HLL trained thousands of entrepreneurial women in building a local HLL micro-franchise This project has resulted in both income creation for the female micro-entrepreneurs and the

possibility of reaching the 500 million previous unreachable customers

The interested reader has probably considered what might be essential if a MNC wants to be successful in entering the BoP Consulting the BoP literature to explore this matter, results in finding many factors that influence the consolidation in the alien BoP market London and

Hart (2004) make a fundamental point with respect to becoming successful: “Business

strategies that rely on leveraging the strengths of the existing market environment outperform those that focus on overcoming weaknesses” All of the BoP scholars seem to comply with

the proposition that it is necessary for MNCs to become integrated in the concerning context and hence they have to collaborate with local governments, local NGOs, local firms and local individuals Furthermore, literature suggests that MNCs have to develop a learning process with the local people in order to create relevant ideas for products or services that the people really need and to obtain other needed knowledge about the local context Frequently

mentioned is the importance to have local companies and individuals taking over a part of the MNCs activities and include them in supply chains Logically, this creates income generation

in local communities and hence eradicates poverty And indeed, also the earlier described examples of BoP initiatives leads one to suspect that involving local communities in BoP ventures calls for special attention and even determines the success of the venture Unilever

brings its soap hand in hand with education on hygiene and according its website, it “visits each village several times, engaging all parts of the community”, Nike failed because it didn’t

engage with the local community and HLL began to meet its objective not before it started to collaborate intensely with rural women

It might be clear that collaboration with diverse local parties plays a major role in becoming successful at the BoP Consequently, the next question would be: how to collaborate with local parties in this new market? Also this question is broadly discussed by BoP scholars and

the ever returning key word in this discussion is “trust” For instance, Stuart Hart (2007,

p.213) states: “unleasing the wellspring of innovation at the BoP(…) requires developing a personal relationship of trust, understanding and respect through which new possibilities for locally-embedded businesses can emerge” In the same line, his colleague Simanis et al (2008) mentions that the corporate team will depend heavily on the trust they have to obtain,

because it will enter the local community as an outsider Some imminent phrases in BoP publications attach even more weight to “trust” because they could have the reader presume that trust building in a developing country brings along more barriers than just differences in

cultural background For example, Prahalad (2004, p.20) notices that “Both sides- the large firms and the BoP consumers- have traditionally not trusted each other The mistrust runs deep Private sector firms approaching the BoP market must focus on building trust […}.” , and Hart (2007, p.213) emphasizes that “the key to success in the BoP is trust […] because the poor are frequently exploited by predatory lenders and unscrupulous vendors.”

The importance of collaborating with local partners and the striking statements about trust in the BoP literature raise undeniable inquisitiveness about the way in which trust is build in the BoP Surprisingly, there is no empirical research aimed at a MNCs trust building process with the people in the remote communities Statements are mainly conceptual or derived as side effects from other studies To the best of my knowledge, not even one of the BoP articles refers to the mature field of organisational trust research Trust is, after all, recognized in several scholarly disciplines as a crucial element in business partnerships McEvily et al (2006) designate various viewpoints Referring to Arrow (1974) they mention that economics argue that trust is an essential ‘lubricant’ necessary for even the simplest forms of economic exchange Strategy researchers believe that trust is a strategic resource providing a source of sustained competitive advantage (Barney & Hansen, 1994) and other organisational

researchers describe trust as a governance form which helps organisations to coordinate its economic activity (Powell 1990) It could be well conceivable that findings in general trust research are applicable in BoP ventures and help MNCs to become successful in their mission

to create new markets and eradicate poverty at the same time Hence, departed from the

mature field of trust research this thesis sets out to explore:

how western multinational companies build trust with local communities in developing

countries

The importance of trust building is obviously discussed in the BoP literature, but it falls short when it comes to the actual process of trust building with local partners Consequently,

answering the research question will contribute to closing this important gap Besides closing the gap, it will also hold the proposed methods for launching BoP ventures in general against the light An interesting question is if these methods, for instance the ones elaborately

discussed in the BoP protocol by Simanis and Hart (2008), are fostering the trust building process as well But there is even more theoretical relevance Also within the mature field of trust research is the context of the BoP unknown Hence, answering the research question will provide insight in the applicability of the long standing trust antecedents in the context of the BoP Then there is the more practical point of view The outcome of this thesis is valuable for MNCs in search for the crucial relationship with local people in the yet untapped new market

It will provide a model that can be used by MNCs as a guideline to build a trusted relationship with local partners at the BoP

The theoretical framework will first expound on the mature field of organisational trust

research Subsequently, the conversely juvenile field of BoP research will be turned inside out

to make an inventory of ideas on trust building living in this academic domain Also the literature from the development field and on cross cultural collaborations will be shortly visited to derive potentially important insights for this thesis

2 Theoretical background

2.1 Organizing the trust literature

Many interesting but not always convergent streams of trust research have developed among scholars (Bachmann and Zaheer, 2006) Already for decades, but especially at the moment of writing (2008), trust in economies is a much discussed topic Also trust in (groups within) societies is studied a lot (Bachmann and Zaheer, 2006) and even within organisations trust is studied on various levels

Why is trust that interesting to study? It was already discussed in the introduction that trust is

a key factor in collaborations McEvily et al (2003) pointed out that economics define trust as

an essential ‘lubricant’ necessary for all forms of economic exchange, strategy researchers believe that trust is a strategic resource providing a source of sustained competitive advantage and other organisational researchers describe trust as a governance form which helps

organisations to coordinate its economic activity In addition, Larson (1992) claims that trust reduces the extent of formal contracts needed Furthermore, trust determines the likelihood of future cooperation (Williamson, 1993), lowers transaction costs (Gulati, 1995), induces

desirable behaviour (Madhok, 1995) and facilitates dispute resolution (Ring & Van de Ven, 1994) Trust appears to be a broadly discussed concept, so it is important to be clear about the context in which trust is studied and what is meant by the concept of “trust”

This thesis explores how companies can become trusted by people within developing

communities Hence, this theoretical background will go more deeply into how companies can become trusted by individuals However, trust in a company appears to be closely

connected with trust in an individual For instance, Zaheer et al (1998) conducted empirical work on the relationship between trust in a specific individual dealt with, and trust in that individual’s organisation They found that there is a significant relation between these two levels of trust Trust in the organisation is a result of trust in individuals from the concerning organisation With respect to this relation, McEvily et al (2003) found evidence that negative experience with individuals from a collective have even more impact on the trust in the

concerning organisation Hence, the focus will be on both trust building between individuals and between organizations and individuals

2.2 Trust defined

According to the “ISI web of knowledge” it was Morgan and Hunt (1994) who published the

most cited article with respect to organizational trust They conceptualize trust as existing when one party has confidence in an exchange partner’s reliability and integrity (p.23) The

second most cited article is published by Mayer et al (1995) Their definition is more

comprehensive: “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party” (p.712) In the

second part of their definition, Mayer et al explicitly mention the irrespective relation

between trust and the ability to monitor the other party In this thesis, monitoring is seen as an important part of trust building Several scholars claim that the instrumental or functional value of trust, lies in its power as a risk-coping strategy in social relationships (Koeszegi, 2004) and hence monitoring could be an important part in the concept of trust Furthermore, monitoring is also seen as a way to create routine in the contact between partners and also make parties critically reflect on the partnership This way adjustments in the relationship can

be made on time (Sabel,1993) Lewicki and Bunker (1995) proclaim that the presence of monitoring could be a measure to determine the extent of trust Besides monitoring, there is another point of attention There is a difference between plans and actions In this sense, trust

is found in actions, not in words Hence, in this thesis trust will be described as the found willingness of a party to be vulnerable to the actions of another party based on the

expectation that the other will perform a particular action important to the trustor

2.3 Antecedents of trust

This section will discuss relevant ideas and antecedents of trust, found in prevailing trust literature

Incremental trust building and reciprocity

Two of the most often discussed points of interest in the trust literature are reciprocity and incremental trust building (e.g Creed & Miles,1996; Johnson et al., 1997; Larson, 1992)

Das & Teng (1998) mention that theorists (e.g Bowman & Hurry, 1993) propose incremental resource commitments as the preferred strategy when risk and uncertainty levels are high In that sense they note, trust is the accumulation of prior satisfactory experiences (Gulati, 1995; Luhmann, 1988) Also Burt and Knez (1996) discus trust building as an incremental process

Citing Blau (1968, p.454) they summarizes the process as follows: social exchange relations evolve in a slow process, starting with a minor transaction in which little trust is required because little risk is involved and in which both partners can prove their trustworthiness This enables them to expand the exchange process in their relation and hence, after a certain

period, they can engage in major transactions Thus, the process of exchange leads to the trust required for it in a self-governing fashion Lewicki and Bunker (1995) call this insight in the behaviour of the trusted partner “knowledge-based trust” There is a willingness to rely on the other person because of direct knowledge about this persons behavior Knowledge-based trust

is grounded in the predictability knowing the other party sufficiently well so that the other’s behavior is anticipatable Knowledge-based trust relies particularly on information about the other

Part of reciprocity is the way in which benefits of a partnership are divided Das & Teng (1998) derive insights from Adams (1963) equity theory of motivation This theory suggest that people have a strong need to maintain their sense of equity in exchange relationships In this context it means that the all parties benefit from the collaboration in accordance with the amount of resources they bring in On occasion, this feeling of getting an equal return on investment can even be more important then maximizing the synergy of the collaboration (Ring & van de Ven, 1994) At the other side, if there is a high level of trust, partners tend to

be more flexible in getting an unequal share of the collaboration’s results for a short time When there is inequity felt for a longer term, tension will arise and trust will decrease So, for successful trust building, profits need to be distributed in an equal manner

Das & Teng (1998) linked reciprocity also with risk taking They explain that trust researchers usually link risk taking with trust to notify that trust leads to risk taking (e.g Coleman, 1990) However, from another perspective, Das and Teng suggest that trust and risk taking forms a reciprocal relationship because risk taking increases the level of trust When it is visible that one of the parties within a relationship takes a risk in trusting the other, the other tends to feel incumbent upon the other to behave in a trustworthy manner So risk taking is a way to show one another his trustworthiness Again, in this technique of trust building, people will not at once take a lot of risk in the hope that it will cause reciprocal trust from the other party

When partners get used to each other, they slowly develop a customary way of working Van Ees & Bachmann (2006) introduce the concept of “extended trust” This form of trust is not

really build on personal contacts, but is rather grounded in patterns of routines and rules, which people use to predict their partners future behaviour This would mean that over time, trust is not only determined by personal contact and (cultural) similarity of partners, but can also be based on norms produced by and integrated in an institutional framework (Arrighetti

et al., 1997)

The first steps

Knowing that trust is subject of reciprocity and is build incrementally, doesn’t say much about what a MNC could do when it first enters a remote community in a developing country However, the trust literature also proposes ideas about the very beginning of a partnership To start with, even without any direct assignable factor, the extent to which a person trust one

another can vary Mayer et al (1995) explain this by the difference in people’s propensity to

trust, or in other words, the tendency to which a person will trust another before having any information This propensity can differ per person, but is also often dependent on culture

Das & Teng (1998) suggest a more tangible step to take in order to build a trusted

relationship, namely locating a partner with a good reputation This might provide the first piece of evidence to take some initial trust (Barney & Hansen, 1994) Mayer et al (1995)

suggest that another way of becoming trustworthy is showing your ability As expounded in

the definition of trust, trusting one another, means being vulnerable to the actions of the other The willingness to be vulnerable will partly be determined by the extent to which a party is really able to fulfil its promises According to Mayer et al (1995) this ability depends on the specific technical skills and competences needed for the situation

Lewicki & Bunker (1995) describe the whole process of trust building and divide it in phases The first phase they distinguish is “calculus-based trust” This trust is derived from

consistency of behaviour that leads to expectations that the other party will behave

predictably; this trust could be determined by the perceived costs and benefits from staying in the relationship vs the costs and benefits of cheating on the relationship Calculus-based trust

is sustained through a clear deterrent which is likely to occur if trust is violated

Communication

Another, more generic antecedent for trust that is often discussed by trust scholars in varying ways, is communication By studying relationships between 204 independent automobile tire retailers and their suppliers Morgan and Hunt (1994) found, among other factors,

communication as significant antecedent to trust Communication was defined as the formal and informal sharing of meaningful and timely information between parties Also Das & Teng (1998) suggested communication and information exchange as a point of attention during trust building Partners can avoid conflicts by constantly discuss differences Van Ees & Bachmann (2006) describe communication as an antecedent to trust in the same way, but more specifically They discuss that interpersonal trust builds on frequent face-to-face

contacts Two arguments endorse this proposition; misplaced trust tends to be low because information about the potential trustee is available and untrustworthy behaviour can

immediately be sanctioned

Bacharach and Gambetta (2001) introduce communication from a somewhat different point of view They propose that many trust precursors as suggested in the literature indeed influence the trust in a relationship, but the extent of the effect of the precursor is dependent on the extent in which the precursor is noticeable to the other party For instance, a person or

organization can be very capable to carry out certain activities, but the other party must also

be acquainted with this capability In other words, the performative acts of self-presentations influence the effect of the trust enablers Bacharach and Gambetta call the signals that form the empirical basis from which the trust-giver makes the decision for the first move in the development of trust ‘manifesta’ Hence, communication in the form of manifesta can be seen

as a moderator variable between other precursors and trust Creed & Miles (1996) describe the function of communication in a way that perfectly fits in the point made by Bacharach & Gambetta They state that communication facilitates the process of proving trustworthiness and credibility to each other

Not only communication between the trustor and the trustee influences the trust within a relationship Mayer et al (1995) notice that also the credible communications by others

determines the extent to which a party trust one another

Summarized, communication can be seen as an independent variable influencing trust from various viewpoints It can also be seen as a moderator variable, determining the impact of other dependent variables

Integrity and consistency

The earlier described research by Morgan and Hunt (1994) on independent automobile tire retailers and their suppliers also pointed out that integrity plays a major role in trust building Not surprisingly, they state that opportunistic behaviour lowers the level of trust within a business relationship Opportunistic behaviour is adopted from Williamson (1975) and

defined as self-interest seeking with guile Also Mayer et al (1995) portray ‘integrity’ as an important factor in trust building activities According to them, integrity is determined by the consistency in past actions of a person, the credible communications about a person and to which extent actions are consistent with words This is also a good example in which one factor is complementing another Communication is associated and preceding to integrity

Norms, values and friendship

When partners share values, they are more committed to the relationship (Morgan & Hunt,

1994) Mayer et al (1995) portray this commitment as benevolence, determined by the

specific attachment to a person Also Creed & Miles (1996) recognize this mechanism, but describe their point a little bit more specifically and appoint characteristic similarity as an enabler of trust between parties Special attachment is not only created by existing similarity but also by adapting to each others norms values and needs Das & Teng discuss “interfirm adaptation” as a trust building technique Trust is earned from partners if one adapts to the needs of cooperation in partnerships (Heide & John, 1992) A willingness to do this, even if it means financial or other concessions, would earn trust from the partner Consequently,

making adaptations according to the needs of the partner catalyses the process of trust

building However, an attachment or commitment cannot already exist at first sight As

discussed before, Lewicki and Bunker (1995) divide the trust building process in several phases Trust in the last and most solid phase is called identification-based trust, and is created because parties develop a social bond with each other based on mutual appreciation of each others needs Identification-based trust is also created by having collective identity,

collocation of personnel, creating joint products or goals, and commonly shared values

An overview

Trust research has been very popular the last decades Many research, however, is conducted on different levels of analysis, from different viewpoints and certainly not as a coherent whole A great overlap is visible in the factors that explain how trust is built and many similar concepts are given a different name To create an orderly overview of the above described trust literature, and

to gain insight in the overlap, a table with the discussed antecedents is presented below The trust building antecedents are divided in five main categories

Trust antecedents Authors

Incremental trust building and reciprocity

• Experience of reciprocity

• Prior satisfactory

• Longer time positive experiences

• Anticipatable behaviour of other

• Risk taking

• Incremental commitment

• Slow process of exchange

• Equal return on investment

• Routine & Rules

Creed & Miles 1996 Gulati, 1995 Van Ees & Bachmann 2006 Lewicki & Bunker 1995 Das & Teng 1998 Bowman & Hurry, 1993 Burt and Knez, 1996 Das & Teng 1998 Van Ees & Bachmann

The first steps in trust building

• Propensity to trust

• Locating a partner with a good reputation

• Possibility of deterrence if trust is violated

• Skills and competences

Mayer et al 1995 Das & Teng 1998 Lewicki & Bunker 1995 Mayer et al 1995

Communication

• Communication

• Frequent face-to-face contact

• Communication and information exchange

• Manifesta (trustworthiness is noticeable)

• Credible communications of others

Morgan & Hunt 1994, Creed & Miles 1996 Van Ees & Bachmann 2006

Das & Teng 1998 Bacharach & Gambetta Mayer et al 1995

Integrity & consistency

• Lack of opportunistic behaviour

• Integrity (consistency in behaviour)

Morgan & Hunt 1994 Mayer et al 1995

Norms, values & friendship

• Institutional framework

• Shared values

• Benevolence (special attachment)

• Similarity

• Social bond because of mutual appreciation

• Adapt to norms, values and needs of each other

Arrighetti 1997 Morgan & Hunt 1994 Mayer et al 1995 Creed & Miles 1996 Lewicki & Bunker 1995 Das & Teng 1998

2.4 Trust in BoP studies

The BoP phenomenon as discussed in the introduction is a very recent one and literature on the subject seems to develop increasingly So far, most of the publications, especially the earlier ones, are rather prescriptive and normative, i.e provided information is not profoundly based on empirical evidence Trust building practises are mentioned a lot, but largely to

emphasize the importance of it or as a side effect of other practises and not because it is

specifically studied how to build trust Hence, this part of the theoretical framework is used to explore ideas and initial findings on trust building in publications about strategies for the BoP

Already the first article speaking in terms of BoP, “the fortune at the bottom of the pyramid” (Prahalad & Hart, 2002), notices the importance of building a personal relationship with “the

poor”, or as they describe, to “build a local base of support” They exemplify this

proposition with the situation in which a sunflower-seed company threatens the existing power structure within the community by empowering some of the poor involved in the

company As a result, two of the companies offices were burned and local politicians revolted against the firms seed business After investing in the community with training, education and supply of farm inputs, they improved the relation with the farmers Nowadays they are seen as

a friend and the political opposition has vanished With respect to the creation of business relationships, London & Hart (2004) mention the informal character of BoP economies and that relationships in informal economies are grounded primarily in social, not legal contracts Informal, social boundaries often dominate over formal legal documentation they continue, and hence trust cannot be obtained by having the backup of enforceable legal systems

Consequently, insight in social infrastructures is necessary to successfully operate in this business environment

By interviewing MNC managers from four multinationals involved in BoP market entry, London & Hart discovered that western companies can receive legitimacy of local people by collaborating with non-traditional parties or people Seelos and Mair (2007) emphasize the value of collaborating with trustable partners by discussing a case in which the Norwegian telecommunications company Telenor partnered up with the Grameen Bank, which was

founded by Muhammad Yunnus, the 2006 Nobel Peace Prize winner Together they founded for-profit ventures bearing Grameens name The objectives of both organisations could be pursued by this venture The venture became successful for a greater part thanks to the well

know Grameen brand Other important non-traditional partners are for example the so called

“fringe stakeholders” (Hart, 2007) like individuals and small companies in local communities Based on experiences of organisations like Nike, Shell and the Word Trade Organisation, Hart

& Sharma (2004) state that firms can develop intimacy and trust with fringe stakeholders by generating complex interactions Complex interactions are explained as interactions in which managers from MNCs empathize with diverse and disconfirming perspectives of these

stakeholders and try understand their culture, thought processes and language

In another BoP related article, Hart and London (2005) explain the success of Grameen Bank and Honey Care Africa because of their embeddedness in the BoP communities By building partnerships from the ground up with local entrepreneurs, NGOs and local governments, they created a web of trusted connections through which they became integrated in the local

communities Creating embeddedness takes a lot of time, but brings along the advantage that

it cannot quickly be duplicated by competitors Also Wheeler et al (2005) discuss the

importance of a trust-based, densely networked environment According to their examination

of 50 case studies, it are the development organisations who can act as catalysts for these partnership opportunities by convening dialogues between local and international businesses Arnould & Mohr (2005) go more deeply into the functioning of embedded ties Natural

channels in BoP markets are embedded in relationships and networks For being successful at the BoP, they contend, it’s critical to create an understanding of the embedded ties in a

community and to cultivate and mobilize them They state that trust in these networks is often produced by culturally specific, familial, ethnic and religious ties When a dominant actor is granted decision-making authority on behalf of the community, it is likely that he has

developed the ability to mobilize the embedded relationships and norms In addition, Stuart Hart (2007) mentions the importance of avoiding a short-term commercial agenda He

underpins this statement with an example of Cemex In order to find possibilities for a home building business in Mexico, Cemex managers had to live in shantytowns for six months One

of the managers said “they had to remove the cement chip from their brains” which led to

unanticipated insight in how they could serve the real needs of the communities This, in combination with the long term stay created the crucial trust with the local people Finally BoP ventures become trusted over time, when the (financial) outcomes are felt by the ventures local partners and the community in which it operates (London, 2007)

It appears that the BoP literature contains quite some ideas about how trust is built with local people in communities of developing countries The table below shows a summary of the salient catalysts appointed by BoP scholars

Invest in the relationships by providing training, education and

farm inputs

Prahalad, 2004

Create insight in, and use social infrastructures, often

determined by culturally specific, familial, ethnic and religious

ties

London & Hart, 2004; Arnould & Mohr, 2005

Become related with trustable people or brands London & Hart, 2004; Seelos & Mair, 2007

Create complex interactions by empathizing with diverse and

disconfirming perspectives local people and try to understand

their culture, thought processes and language

Hart & Sharma, 2004

Take the time to create a web trusted connections by building

partnerships from the ground up with local entrepreneurs

Hart & London, 2005

Avoid short-time commercial agenda’s Hart, 2007

Have the local people feel the financial outcomes London, 2007

The above listed trust building activities are put forward by academics based on their general studies on BoP phenomena without departing from prevailing trust literature However,

prevailing trust research could contain many trust enabling factors which are also relevant for

companies entering the BoP market

2.5 Insights from development studies and research on cross-cultural collaboration

Non-governmental organisations have many experience with building trust in the concerning context A salient view within the field of development research, which is likely to be useful for the BoP proposition, is the importance to distinguish formal and informal institutions (i.e Leach et al 1997) Informal institutions are socially embedded and exist because of the shared acceptance of the actors involved To become trusted, it is important to anticipate on the informal institutions Participatory Rural Appraisal (PRA) is a suitable approach to make use

of informal institutions (Chambers, 1994) Hence, insights from this approach could also be valuable for private corporations working in local communities PRA is used for

development projects and programmes and involves the knowledge, opinions and perception

of rural people Robert Chambers (1994) claims that by using this approach, rural people are more willing to collaborate and provide high valid and reliable information He puts forward

the following shifts in mechanisms to achieve the pursued collaboration: “from etic to emic, closed to open, individual to group, verbal to visual, measuring to comparing, and from extracting information to empowering local analysts”

Next to the lesson from development studies, insights can be derived from research on cross cultural collaboration between private corporations Although dealing with a corporation is different that dealing with an individual or a community, there is some similarity with respect

to overcoming cultural differences

Child and Faulkner (1998), discuss that there is more risk and uncertainty involved in

collaborations between parties with a different nationality Cross-national differences between partner firms with respect to culture, law, politics, and trade policy give trust an extra

important, but also fragile role in the collaboration (Child and Faulkner,1998) Cultural

barriers obstruct initial trust building because (potential) partners are less able to rely on interpersonal similarity, common background and experience These obstruct the contribution

to the mutual attraction and the willingness to work together (Mayer et al., 1995)

Other research shows that the precursors of trust as described earlier, are applicable in

different cultures, but the extent to which factors influence trust differ across cultures For example, Schoorman et al (2007) argues that task-oriented cultures as found in European countries, seem to have a high initial trust of strangers and therefore a high propensity to

trust Conversely, relationship-oriented cultures, like in African countries, need time to

develop a relationship prior to working on the task

It turns out that cultural differences obstruct trust building and hence a more specific approach

is needed in the concerning context There are several studies that show how parties in cultural collaborations can overcome these barriers in general For example, Johnson et al (1997) studied trust enablers in an international cooperative alliance between Japanese and U.S partners and found significant trust enablers They state that transactions crossing

cross-cultural boundaries are calling for “cross-cultural sensitivity” which is the firm’s awareness of cultural differences and the ability to manage them This statement was based on research of several scholars in several types of relationships (e.g Johnson et al., 1997) So, in addition to the already discussed “interfirm adaption” of Das & Teng (1998) a partner must not only invest money, managerial effort and time in creating an understanding of the partner's needs, but also in understanding and managing its culture Cultural sensitivity depends on the ability

to relate to cultural counterparts and colleagues, the understanding of the other culture, the ability to adapt, received sensitivity training, and the willingness to communicate and make relationships in the other culture Johnson et al (1997) found the lack of cultural adjustment

as a major reason for failed cross cultural collaborations

2.6 Comparing visions on trust building

The literature on BoP, development and cross cultural collaboration shows similar ideas about trust building, but often on studied within different contexts, on different levels or formulated

in different ways However, these ideas can be subdivided into the categories of antecedents

as found in the general trust literature In other words, lifting these ideas to a more abstract level of observation, make them fit almost perfectly within the findings of the prevailing trust research By doing this, it is subsequently possible to discover if specific antecedents from the trust literature are more popular within the BoP and related fields than others If this is the case, it will possible to discuss the findings of this thesis more precisely in the light of the studied literature The tables on the next page present how this subdivision can be made

BoP literature Trust literature

Invest in relationships by providing training,

Education and farm inputs

Incremental trust building and reciprocity

- Longer time positive experiences

Norms, values and friendship

- adapt to norms, values and needs of partner, integrate in institutional framework Become related with trustable people or brands The first steps in trust building

Locate a partner with a good reputation Create complex interactions by emphasizing with

diverse and disconfirming perspectives of local people

and try to understand their culture, thought processes

and language

Communication

- communication and information exchange

- frequent face to face contact

Take the time to create a web of trusted connections

by building partnerships from the ground up with local

entrepreneurs

Incremental trust building and reciprocity

- incremental commitment

Norms, values and friendship

- adapt to norms, values and needs of each other

- create social bond because of mutual appreciation

Avoid short-time commercial agenda’s Incremental trust building and reciprocity

- longer time positive experience

- slow process of exchange

- incremental commitment Have local people feel the outcomes Incremental trust building and reciprocity

- equal return on investment

Development literature Trust literature

Anticipate on informal institutions Norms, values and friendship

- adapt to norms, values and needs of partner, integrate in institutional framework

Involve knowledge opinions and perception of rural

people: “from etic to emic, closed to open, individual

to group, verbal to visual, measuring to comparing,

and from extracting information to empowering local

analysts”

Norms, values and friendship

- adapt to norms, values and needs of partner, integrate in institutional framework

Communication

- communication and information exchange

- frequent face to face contact

Cross cultural collaborations literature Trust literature

The extent to which factors influence trust differ

across cultures

Norms, values and friendship

- adapt to norms, values and needs of partner, integrate in institutional framework

Transactions crossing cultural boundaries are calling

for “cultural sensitivity” which is the firm’s awareness

of cultural differences and the ability to manage them

Norms, values and friendship

- adapt to norms, values and needs of partner, integrate in institutional framework

Cultural sensitivity depends on the ability to relate to

cultural counterparts and colleagues, the

understanding of the other culture, the ability to adapt,

received sensitivity training, and the willingness to

communicate and make relationships in the other

culture

Norms, values and friendship

- adapt to norms, values and needs of partner

- benevolence (special attachment), integrate

in institutional framework

Communication

- communication and information exchange

- frequent face to face contact

The three discussed disciplines show an apparent conformity to the importance to adapt to norms values and needs and the necessity to integrate in the institutional framework of the (potential) partner Also communication is mentioned a lot as an essential factor It will be

interesting to study if these factors also stand out in practise The absence of many other trust enablers mentioned in the general trust literature, does not mean that those factors are not applicable in BoP ventures Hence, the next chapter will describe the used methodology, departed from, but not bounded to the factors stood out in the tables above

3 Methodology

3.1 Research design

The introduction and theoretical framework pointed out that trust building in the context of the BoP is a relatively new phenomenon According to Eisenhardt (1989), a qualitative case study is appropriate to understand relationships between variables within an unknown context

Also George & Bennett (2005) state that “an unfamiliar context requires a detailed

consideration of contextual factors, which is extremely difficult to do in statistical studies, but

is common in case study” Consequently, to inductively identify causal paths and potentially

new variables, a “heuristic” case study approach is chosen to explore trust building processes

in the BoP (George & Bennett, 2005, p.75) Since the amount of time was limited and suitable cases to study were not proximate, a single-case research design is used to conduct the

research The theoretical framework provided potentially suitable concepts which could be useful to guide the research Hence, methodological insights are derived from the “grounded theory” approach (Glaser & Strauss, 1967) Grounded theorists, do not construct theory by testing hypothesis, but have theory slowly emerge by creating an interplay between data collection and analysis (Charmaz, 2006) Data collection is often started by using “sensitizing

concepts” Charmaz (2006) states that “these concepts give you initial ideas to pursue and sensitize you to ask particular kind of questions about your topic” In this thesis, the trust

antecedents on page 16 are used as sensitizing concepts and are used to determine the initial interview questions The section about data collection shows examples of the initial interview questions

The selection of the studied case is based on two kinds of criteria The first kind are criteria to select a genuine BoP case Hence, this thesis used a case that meets the criteria of the BoP-as-

producer venture, as described by Ted London (2007): “a scalable profit-oriented venture, operating in the informal economy, catalyzed by external participation and co-created with those at the BoP, that connect BoP producers of goods and services to non-local markets”

The second kind of criteria had to indicate that there is a relationship of trust between the MNC and the local people within the BoP communities The definition of trust, as outlined in the theoretical framework (p.11) is used to determine the actual presence of trust in the case

This means that the local people had to be willing to be vulnerable to the actions of Unilever based on the expectation that Unilever would perform a particular action important to the local parties The next section provides an elaborated case description

3.2 The case

About ten years ago a Dutch Unilever manager re-discovered an edible oil that could be abstracted from the nuts of the African Allanblackia tree After profound research in the laboratory, it seemed that the oil from this Allanblackia nut had very good characteristics for soap, shampoo, butter and all kind of other products produced by Unilever However,

Unilever found that this Allanblackia tree only grows in difficult passable areas in African countries and was therefore hard to obtain Hence, it was decided to developed supply chains for this oil, in which they would collaborate closely with the people in the remote areas where the Allanblackia tree grows In first instance to have them collect, dry and sell the nuts, but nowadays also to manage nurseries where techniques are explored on how to grow the

Allanblackia tree as quick as possible In the near future, farmers in the communities will have the Allanblackia tree as a new crop on their farm land Unilever has the advantage that it has offices all around the world Therefore it was possible to involve Tanzanian Unilever people in the Allanblackia activities in Tanzania Next to it, Unilever’s strategy is to organize supply chains in a sustainable manner, which means that activities should not have a negative impact on people or the environment Consequently, one of the first steps taken was the

involvement of the international NGO called SNV SNV worked with communities through local NGOs and defines its task as “connecting people’s capacities” In this situation it meant that SNV deployed several NGOs to reach the communities located in the areas where

Allanblackia trees grow Unilever also involved a NGO that promotes the conservation of the forests in Tanzania and is connected to the government, to cover that side of the picture As a synergetic team, communities were approached and local people were moved to create the supply chain These local people received trainings on all kind of subjects The trainings were related to Allanblackia, but also to other, more general business subjects At this very moment

in Tanzania, the Allanblackia supply chain is managed and executed solely by Tanzanian people The supply chain is beneficial to all parties At the one side, it creates businesses for people in remote villages and hence eradicates poverty in the poor African countries At the other side, it creates an efficient way for Unilever to obtain the oil that is very useful for them This thesis studied the way in which this supply chain was created in Tanzania in order to obtain a clear understanding in which way Unilever managed to build trust in local

communities

3.3 Data collection

To acquire a comprehensive insight in the trust building process in the Allanblackia case, several involved parties are interviewed At the one side, Unilever representatives and the NGOs are interviewed to discover the used strategy to create willingness to collaborate among the villagers In addition, several relevant documents are collected At the other side, the villagers and their leaders are interviewed to see how the strategy defined by Unilever and the NGOs is received in the villages As it comes to building theory from case studies, purposive sampling is preferred rather than random (Eisenhardt, 1989) Hence, interviewees from the villages are selected based on the criteria (a) location, (b) role in the project, (c) years

involved and (d) gender The interviews, together with the documents provided a broad view

on the trust building process

The following data was collected:

12 interviews with villagers who supply Allanblackia nuts or manage nurseries

o Villagers are selectively sampled to secure variety in gender and village

2 interviews with village leaders

4 interviews with NGO representatives

1 interview with the Tanzanian Allanblackia manager

1 interview with the Dutch Allanblackia manager

1 memorandum of understanding between Unilever and their Tanzanian country partners

1 report of mobilization visits of Unilever and NGOs made in the villages

1 Allanblackia local market survey report

1 annual report of the strategic partners

2 minutes of strategic meetings

The interviews were semi structured The first questions were aimed on discovering if trust was really present in the relationship by compare relationship aspects with the trust definition

as derived from the literature: the found willingness of a party to be vulnerable to the actions

of another party based on the expectation that the other will perform a particular action important to the trustor Hence, the first questions were about the way in which village

members turned out to be vulnerable to the actions of Unilever and what particular action Unilever would perform that was important to them All interviewed villagers mentioned the

Do you think that Unilever has the right skills and competences to do what they promised?

- Which skills and competences are needed?

- Can you name specific situations in which Unilever showed these skills and competences?

- How did your opinion about the skills and competences of Unilever evolved? What particular things happened that it evolved like that?

Do you feel connected with Unilever because you have shared values?

- If so, which shared values?

- Do you think this is important?

- Can you give me some specific examples in which Unilever showed these values?

- How did these shared values evolved? What particular things happened that it evolved like that?

Do you feel connected with Unilever because of friendship?

- If so, how was this friendship created? If not how could this friendship be created

- Do you think it’s important to have a friendship?

- Can you give me some specific examples in which Unilever showed this friendship?

- How did your friendship with Unilever evolved? What particular things happened that it evolved like that?

Have their been persons in you acquaintances that had an influence on your decision to collaborate

with Unilever/party like family, friend, village members etc.?

- How important is the opinion of these persons, like family, friends, village members, etc in making your decision to collaborate?

- Are there particular persons in your acquaintances who’s opinion is of special importance to you?

- What would you have done if this persons recommended you not to collaborate with Unilever?

investment of time and efforts as the factors that made them vulnerable Creating a new

source of income was mentioned as the action that was important to them

Following Charmaz (2006), sensitizing concepts were used to determine the subsequent questions Hence, interviewees were asked in which way they experienced:

The first steps Unilever took to approach them

Unilever’s adaptation to their norms, values and friendship

the communication by Unilever

Unilever’s integrity and consistency

the increase of Unilever’s and their own investments in the relationship

Furthermore, interviewees were asked about factors in general that made them willing to collaborate with the Allanblackia project The text box below shows four random examples of questions based on the sensitizing concepts

Conducting the interviews

The 12 interviewed villagers and the 2 village leaders did not understand English Therefore, interviews were conducted in association with a translator During these 14 interviews,

questions were asked in English and directly translated into Swahili Next, answers were given in Swahili and translated back into English directly To secure the proper interpretation

of the questions by the translator, the questions were first translated on paper from English to Swahili by the translator and subsequently cross-checked by the Tanzanian country manager The other interviews with the 4 NGOs and the Tanzanian country manager are conducted in English and the interview with the global Allanblackia manager is conducted in Dutch

The context in Tanzania is very different from the west, both the physical environment and the cultural aspects By living with Tanzanian people it became easier to understand the communities’ taken-for-granded assumptions and rules and hence could give a better

understanding of the case (Charmaz, 2006) In analyzing the results, this information is used

to shape the idea of the context where necessary

Strategic intentions (of Unilever)

Forming of a country executive team

Research on economic, political and social situation

Trust building in the communities

Communication

In the end, it resulted in more that 17 hours of interviewing with 20 different people (see list

in paragraph 3.3) All these interviews were digitally taped with a memo recorder

Subsequently, the recorded interviews are transcribed with an application called F4

To bring meaning to the data, all transcribed interviews and the obtrusive data were analyzed with Atlas.ti The concepts described above are not used during the coding process This could have obstructed the open attitude towards the data and neglected important information about Unilever’s actual activities that cause trust building processes Hence, an initial coding process as suggested by Charmaz (2006, p.47) was used The objective was to reduce the data

by deriving the processes and activities that Unilever used to build trust To achieve this, data was coded “incident to incident” (Charmaz, 2006, p.53) by looking for and preserving actions from all parties involved in the Allanblackia project This part of the coding process resulted

in 330 quotations coded with 46 different codes Next, to determine the adequacy of these codes, a focussed coding process is carried out (Charmaz, 2006, p.57) The trust codes

appeared to have a fairly great overlap and interconnection Hence, the 46 codes were reduced

to 14 codes that made the most analytic sense In some cases this meant that a group initial codes fit in another initial code and in other cases a new focussed code was made to embrace

a group of initial codes The 14 focussed codes are formulated as mechanisms The concept

“mechanism” is derived from Campbell (2005), who explains mechanisms as “the processes that account for causal relationships among variables Mechanisms are the nuts, bolts, cogs, and wheels that link causes with effects” An example of a mechanism that emerged from the

focussed coding process is “manage transparent communication”

The formulated mechanisms were, however, no isolated factors that caused the trust

separately The interconnection between the mechanisms and the temporal ordering played an important role in the process of trust building Hence, a theoretical coding process (Charmaz,

2006, p.63) is used to specify the relationships between the mechanisms This resulted in ordering the mechanisms on a theoretical, higher level of abstraction The mechanisms are subdivided into theoretical variables based on “higher level consequences” and “temporal ordering” The next page shows an example of the coding process

Quotation (330) First code

(46)

Mechanism (14)

Theoretical Variable (5)

“First good communication among the actors, frequently

communication, you have to communicate, you have to continue

communication, communication is a key If you stop

communicating you then you start raising suspicion and probably

people will start moving their own direction”

“Yes, you build that personal relationship Fidelis was very

respectful, listening to them, even if they were talking about things

that didn't had a connection to AB in any sense, he listened and

consulted and tell them something And if he knew he couldn't do

what they asked, he will tell them: I'm sorry Say the truth Its so

important, its a very simple rule in everyday life, but companies

dont do it They make promises they cant fulfil.”

Communicate clear and constantly

“A part from all this, the farmers trust is gained during gross margin

analysis For them to understand the business idea, are we making a

profit or not So showed them the costing, this is about making it

clear, about showing them there is money here You can get some

money, this is about the company getting up in that huge meeting

and talking about the contract, and discussing, they dialog, and the

most important: the company must not default”

“Because you just tell them: this is how the AB seeds are being sold

at the international market, this is the costs which are involved,

transporting it from here to Netherlands, and this is the costs which

is involved in processing it to be an edible oil, and this is how its

going to be sold By then it was a sort of estimation, it was a future

thing but it was an investment You're not selling anything, you're

not bringing anything it was money being used to develop the

supply chain So it was very transparent right from the beginning,

farmers were told, this is how much is going to be paid and then,

because these seeds were not being sold at all Now I remember the

first place, when we came in people got 150 shillings per kilo But

that has just been increasing, now its 250 So the farmers are like, if

they believe in you, and they see there is no hidden agenda, I think

they don’t have a problem with working with anybody”

Create insight

in the project

Transparent communication Communication

4 Results

4.1 Introduction

The process of trust building took and still takes place in different phases, on different levels, and in different ways This widespread existence of trust indicates that trust building starts already before the beginning of a BoP venture, and continues to be interwoven in all details of the relationship as long as it last The next paragraphs discuss five factors that influenced the trust building process and their specific role Three of the factors are recognized as

independent variables, one factor as a moderator variable and one factor as both an

independent and moderator variable Furthermore, the accompanying mechanisms that

account for relationships among the trust building factors and trust itself are discussed

4.2 Build trust incrementally

“Our relationship is more than a business relationship, because they know us and they trust

us That trust has taken years to build”

This quote of the Dutch Allanblackia manager characterises the importance of building trust

in an incremental way Unilever experienced that people increased their trust bit by bit and scheduled the first year to build trust In the beginning just a few people in the villages

decided to collaborate In general the villagers first wanted to see what happened Hence, they started to put little efforts in the project and once they experienced the returns of Unilever, they started to put more and more efforts in it The company have to be aware of the

importance of building trust incrementally even before starting the project, because the

strategic intentions influence the whole process for as long as it last The quotes in the table below reflect the experiences of the people involved in the Allanblackia project and endorse the incremental way in which trust is build

Incremental trust building

“already in the beginning it was clear that we wanted a long term relationship, and this is something that shines through in all behaviour, things that you say but also what you expect