Sourcing for the Base of the Pyramid: Constructing Supply Chains to Address Voids in Subsistence Markets

Abstract

Substantial work has described downstream distribution systems for subsistence markets, but little is known about how upstream supply chains support these efforts. We suggest that a multinational corporation (MNC) entering these markets must resolve the institutional voids in product, labor, and capital markets, as well as address issues of regulatory ambiguities and the lack of contracting mechanisms that exist at the raw material, manufacturing, distribution, and marketing stages of the supply chain. We analyze the nature of these voids and their challenges, map them onto the value chain, discuss their interconnections, and suggest that they do not impact all firms equally. We provide examples from the food, beverage, and textile industries of how four firms have addressed institutional voids in constructing their supply chains. We conclude by providing implications, both across the value chain and regarding the trade-offs of partnering with non-profit agencies. Our analysis highlights the importance of going beyond the broad impact of the institutional environment to understanding its more nuanced and multi-faceted effect on supply chains.

Keywords: Subsistence markets, base of the pyramid, sourcing, supply chains, institutional voids

JEL Classification: M14, L11, L23, D24