A Study on the Relationship Between BOP Orientation and Firm Performance: An Abstract

Abstract

A large proportion of the population in developing countries have low incomes and resources, are illiterate, and inexperienced with consumption (Prahalad, 2006). Scholars label this group of people as the bottom of pyramid (BOP) consumers (Prahalad, 2006). As competition intensifies for the middle- and high-income consumers and sales growth slows as a result, more companies switch gears to pursue the BOP consumers, who are enormous in number but deprived of both income and literacy, thus presenting both challenges and opportunities for marketers (Nakata & Weidner, 2012). However, beyond the insights on the external market opportunity and the costs and risks of serving the BOP consumers, extant literature offers little knowledge about the internal firm capability, which allows firms to capture the opportunity while reducing the costs and risks. This paper aims to address the above research gaps. Based on the strategy tripod view (Peng et al., 2008, 2009; Peng, 2009), we structure and test a conceptual framework that delineates the performance impact of the firm capability to serve the BOP population (BOP orientation) and how the effect varies across both the institutional environment and the task environment in China, the world’s largest emerging market. From the strategy tripod view (Peng et al., 2008; Peng et al., 2009), firm resources or capabilities, institutional factors, and industry conditions join forces to determine firm strategic choices and market performance. This theoretical lens parallels Oliver’s argument (1997) that firm heterogeneity and competitive advantages primarily depend on how firms manage the institutional context of rent-generating resources and capabilities. Extending this proposition, we contend that firms’ capability to serve the BOP consumers (BOP orientation) in both the institutional environment and the industrial environment creates variations in firm performance in emerging markets. Following prior research on emerging market, we focus on the unique institutional environment of government support and legal inefficiency in the world’s largest emerging economy, China (Fang, 2011; Li & Atuahene-Gima, 2001; Sheng et al., 2011), and the industry conditions of competition intensity and technological turbulence (Jaworski & Kohli, 1993; Porter, 1985; Suarez & Lanzolla, 2007). Based on the strategy tripod view, we aim to first examine the direct effect of BOP orientation on firm performance and second the advantages and limitations of this firm capability in contributing to firm performance under different institutional and industrial environments. We used multi-informant survey method to collected data from 296 Chinese manufacturing firms to test the hypotheses. We find that BOP orientation exerts a positive effect on firm performance, and such effect is contingent on both the institutional environment (government support and legal inefficiency) and the task environment (competitive intensity and technological turbulence). Specifically, both government support and competitive intensity enhance, whereas legal inefficiency reduces the positive effect of BOP orientation, and technological turbulence has an insignificant influence on the effect of BOP orientation. These contingent effects essentially reveal the opportunities and the challenges faced by firms targeting the BOP market.