building base of pyramid ecosystem

7/30/2019 Building Base of Pyramid Ecosystem

1/44Electronic copy available at: http://ssrn.com/abstract=1659794

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BUILDING THE BOP PRODUCER ECOSYSTEM:THE EVOLVING ENGAGEMENT OF FABINDIA WITH INDIAN HANDLOOM

ARTISANS1

J RAMACHANDRAN

2

Corporate Strategy & Policy Area

D-103 Office Blocks

Indian Institute of Management, Bangalore

Bannerghatta Road

Bangalore

INDIA

PIN: 560076

Tel: (91) (80) 2699 3080

e-mail:[email protected]

ANIRVAN PANT

Corporate Strategy & Policy AreaIndian Institute of Management, Bangalore

Bannerghatta Road

Bangalore

INDIA

PIN: 560076

Tel: (91) 98860 91224

e-mail: [email protected]

SAROJ KUMAR PANI

Corporate Strategy & Policy Area

Indian Institute of Management, Bangalore

Bannerghatta RoadBangalore

INDIA

PIN: 560076

Tel: (91) 98860 91224

e-mail: [email protected]

Forthcoming in the Journal of Product Innovation Managementspecial issue on Creating

New Products and Services for and with the Base of the Pyramid

1 The authors gratefully acknowledge the contribution of Shubha Patvardhan in the development of this paper. Herinvolvement was critical to the emergence of the arguments presented in this paper. The authors are also thankful to theGuest Editor, Professor Cheryl Nakata, and two anonymous reviewers for their constant encouragement and insightfulcomments throughout the review process. This research was partially funded by the British Council office in India. Weare also grateful for the assistance provided by Mr. Hasit Shukla and his team at Reliance ADA Group.2 Corresponding author


2/44Electronic copy available at: http://ssrn.com/abstract=1659794

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AbstractRecent research on the Base of the Pyramid (BoP) has called on firms to initiate market-driven

interventions directed at the BoP population with the objective of identifying and pursuing mutually

profitable means of attaining meaningful poverty alleviation outcomes. In response, firms as well as

scholars have engaged at length with the creation of new products and services for the BoP consumer

but paid far less attention to the BoP producer a member of the BoP population who creates value

by producing goods and services for sale in non-local markets. Additionally, extant studies have

largely focused on snapshot views of BoP interventions by firms, thereby limiting our understanding

of the emergence of meaningful poverty-alleviating outcomes over time from these interventions.

This paper seeks to redirect attention towards the dynamic of the long-term engagement between the

firm and the BoP producer. Using rich case data from Fabindia an Indian handloom retailer this

paper examines how the engagement between Fabindia and communities of handloom artisans in

India has persisted over a period of five decades. We found that, even as it encountered changes in

the external environment and pursued newer organizational goals, Fabindia repeatedly renewed its

engagement with handloom artisans and facilitated progression in poverty alleviation outcomes.

Building on the insights from the case study, this paper presents a process model that highlights the

role of innovative management practices in sustaining engagements between firms and BoP

producers over time. Additionally, this paper proposes the concept of the bridging enterprise a

business enterprise that originates at the intersection of specific BoP communities and the

corresponding non-local markets as an interpreter and innovator reconciling the interests of

stakeholders across the pyramid.


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Introduction

Over the last several years, observers have drawn the attention of firms around the world to

the need for innovative, contextualized, and sustainable strategies of engaging profitably with the

poor (London and Hart, 2004; Prahalad, 2005; Simanis and Hart, 2008; Viswanathan, Seth, Gau and

Chaturvedi, 2009). Discussions on this issue have centered on the needs, the constraints and the

unique resources of the base of the pyramid (BoP): a term that refers to the approximately four

billion people of the world with a per capita income of less than $2 per day (Prahalad and Hammond,

2002; Prahalad and Hart, 2002), the majority of whom live outside the confines of the formal

economy (London, 2008). Our agenda, in this paper, was to study two inter-related aspects of

meaningful economic engagement between firms and BoP communities that have, hitherto, received

limited attention. First, we focused on the BoP producer a member of the BoP population who

creates value by producing goods and services for sale in non-local markets rather than, as is

common, the BoP consumer (London, Anupindi and Sheth, 2010). Second, we examined the

persistence of the engagement between a firm and BoP producers over a long period of time rather

than the incidence of a one-time intervention in the BoP by the said firm. Our emphasis is on the

dynamic of the long-term engagementbetween a firm and BoP producers. In adopting this focus, we

seek to address two significant gaps in the extant literature that has been preoccupied with snapshots

of one-time interventions by firms engaging primarily with BoP consumers.

An exclusive focus on specific one-time interventions in the BoP promotes a static view of

BoP engagements. This precludes us from attending to the impact, on the engagement, of changes in

the external environment or in the goals and objectives of the parties to the engagement. A shift in

the research focus towards the study of the long-term engagement and the dynamic relationship

between the firm and the BoP community may help us better understand the sustainability, or rather,

persistence of BoP interventions over time. Accordingly, in this paper, our emphasis is not on any


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specific one-time intervention in the BoP but on the dynamic of the long-term engagementbetween a

firm and BoP producers.

A long-term engagement between a firm and a BoP community (of producers) is meaningful

for the community only if it leads to significant poverty-alleviating outcomes. It would be pertinent

to recall Daviron and Pontes (2005) coffee paradox. They pose the question: At a time when

coffee has emerged as a fashionable drink among developed country consumers willing to pay

premium prices for a cup of coffee at their favorite coffee chain, why do we witness a dramatic

decline in the international coffee prices received by developing country producers? The coffee

paradox compels us to recognize that linkages to prosperous non-local markets need not, by

themselves, serve to create poverty-alleviating outcomes for producers of goods and services living

in low-income contexts. A review of the BoP literature helped us identify three distinct poverty-

alleviating outcomes that may emerge for BoP producers as they engage with firms to overcome

their constraints. These outcomes, which we term as substantive outcomes, are access to market,

access to organization, and access to ecosystem.

To understand what sustains mutually profitable engagements between firms and BoP

producers over a long duration, and how substantive outcomes are enabled through such ongoing

engagements, we studied the case of Fabindia Overseas Private Limited (Fabindia), an Indian

retailer of handloom and handicraft products. Fabindia has engaged with communities of BoP

producers across the country for a period of nearly fifty years and, therefore, provided us a valuable

research site to examine the evolution of a long-term relationship between a firm and BoP producers.

Our study offers several insights into the persistence of an engagement between firms and

BoP producers, the emergence of substantive outcomes for BoP producers, and the role of innovative

management practices in renewing the engagement. As Fabindia adapted to changing business

circumstances and changing organizational goals, it provided enhanced substantive outcomes for the

BoP communities it engaged with and, interestingly, reconceptualized the role played by the BoP


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producers. Indeed, our study highlights that the label BoP producer itself encompasses varying

conceptualizations of BoP producers held by the firm depending upon their level of entrepreneurial

expectations from the producer. This study also suggests that the long-term persistence of the

engagement between the firm and BoP producers depends upon the congruence between the

ideological centrality of the BoP engagement to the firm and the level of economic symbiosis

between the firm and the BoP producers. Congruence between ideological centrality and economic

symbiosis, we find, induces the firm to repeatedly renew the existing engagement with BoP

producers through the identification and deployment of innovative management practices. Finally,

building on our case findings, we present the concept of the bridging enterprise as an organizational

form founded on a business model that makes mediation between the BoP context and the

corresponding non-local market critical to its inception and its continued existence.

This paper is divided into six parts. In the next section, we draw upon the extant literature to

provide the conceptual foundations for our subsequent arguments. Following that, we discuss the

context of the research and provide an overview of our data collection and analysis procedures. Next,

we present a chronological narrative of the evolution of the engagement between Fabindia and

handloom artisans and identify the emergence of substantive outcomes for the artisans over the

course of the engagement. In the subsequent section, we present a process model that highlights the

role of innovative management practices in renewing the engagement between the firm and BoP

producers over time. Finally, we conclude with some thoughts about possible directions for future

research.

Conceptual Foundations

A review of the BoP literature suggests that firms look at BoP communities in terms of two

broadly defined roles consumers or producers (London, 2008; Rangan et al, 2007). Accordingly,

initiatives by firms directed at engaging the BoP can be classified into consumer-oriented BoP

interventions and producer-oriented BoP interventions. Consumer-oriented BoP interventions are


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those that aim to sell products and services to low-income sections of the population specified as

BoP communities. As an illustration, consider Patrimonio Hoy, the saving and credit scheme

initiated by the Mexicos Cemex. The scheme allowed the urban poor to add one room to a house at

a time and, thereby, enabled them to optimally use their low and irregular income for securing proper

housing (Letelier, Flores and Spinosa, 2003).

Producer-Oriented BoP Interventions

Producer-oriented BoP interventions, on the other hand, have the objective of collaborating

with BoP communities to create new goods or services or to help existing BoP producers overcome

their production and marketing challenges in non-local markets (London, 2008). For example, at

Moga (India), Nestle has entered into a partnership with local BoP communities to develop a steady

supply of milk a critical input for Nestles operations. In the Nestle Milk District, working under

the guidance of Nestle personnel, BoP producers were able to acquire know-how, enhance

productivity and, ultimately, secure a better standard of living (Porter and Kramer, 2006).

Consumer-oriented BoP interventions have received far greater attention, from scholars and

practitioners, than producer-oriented BoP interventions. Recently, however, we have witnessed

growing criticism of the narrow, consumption-based understanding of local needs and aspirations

(Simanis and Hart, 2008: 2) and of the romanticization of the poor as value conscious consumers

(Karnani, 2007). In a wide-ranging critique of consumer-oriented BoP interventions, Karnani (2007)

argues that the best way towards market-driven poverty alleviation is through producer-oriented BoP

interventions that can enhance the income-generating capabilities of the poor rather than merely

accessing their untapped purchasing power. The Nestle Milk District, cited earlier, is an example of

such an intervention. Indeed, BoP contexts have been recognized as hotbeds of entrepreneurship that

are propelled by the compulsion of BoP communities to find creative ways of supplementing their

incomes (Banerjee and Duflo, 2007; Viswanathan and Rosa, 2007).


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As greater attention is paid to producer-oriented BoP interventions, researchers have moved

to examine specific constraints faced by BoP producers and how these challenges are being

overcome by the firms that partner with them (London et al, 2010). Complementarily, we present a

three-fold classification of the substantive (poverty-alleviating) outcomes that may emerge for BoP

producers as they engage with firms in an attempt to overcome their challenges in the production of

goods and services for non-local markets.

Outcomes for BoP Producers

De Soto (2000) observes that poverty denies the poor access to the institutions of capitalism

(e.g., property rights) and dents, thereby, their ability to use their meager assets in a fair and effective

manner. Therefore, any substantive outcome from a BoP intervention must enhance, on some

dimension, the ability of the BoP producers to access and benefit from the formal economy.

Traditionally, formal economic systems have been viewed as comprising two interacting elements:

markets and organizations (cf. Simon, 1991). More recently, scholars have proposed ecosystems,

i.e., networks of markets and organizations, as a third element of economic systems (Iansiti and

Levien, 2004). Correspondingly, in this paper, we classify substantive outcomes (i.e., those that have

significant poverty-alleviation consequences) for BoP producers into access to market, access to

organization, and access to ecosystem.

Access to Market

Economists agree that there are two kinds of markets product markets and factor markets.

Product markets are markets where finished goods and services are bought and sold. Factor markets,

on the other hand, are markets where factors of production, i.e., the resources and raw materials

required for the production of goods and services, are bought and sold. BoP producers face

substantial hurdles in accessing both product markets and factor markets. They find it difficult to

freely access factor markets due to their debilitating resource constraints and lack of sizable,

recognized assets (London et al, 2010). Any BoP intervention that reduces the effective distance


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between BoP producers and the factor markets by creating resource channels into the BoP or by

lowering their burden of credentials will help enhance their access to factor markets. BoP producers

also face significant barriers in selling their goods and services in the product market. They are often

handicapped by poor last mile infrastructure (e.g., transportation facilities, access to points of sale,

etc.) and a lack of awareness of trends in customer requirements and specifications (Hart, 2007;

London et al, 2010). Firms can help BoP producers gain access to product markets by investing in

procurement and transportation and by collating customer requirements and communicating these

specifications to the producers.

Access to Organization

Markets in the formal economy are, typically, constituted according to the needs and

preferences of top-of-the-pyramid consumers (London and Hart, 2004). They may not be, therefore,

sensitive to the peculiarities of the context in which BoP communities produce goods and services

and the constraints they face in production (cf. Viswanathan and Rosa, 2007). BoP producers need

access to organization in order to acquire and develop, on an ongoing basis, capabilities for

competing in factor and product markets

In other words, capability development requires the establishment of value-adding

relationships between firms and BoP producers where the relationship is characterised not by purely

market transactions but by a degree of internalization of the interests of BoP producers into the firm

organization. In order to capture higher value for their products in the non-local markets that they

access, BoP producers need access to organization, i.e., access to structural mechanisms that can, on

one hand, represent their collective interests and voices in non-local markets and, on the other,

leverage scale to invest in capability development (cf. Hart and Sharma, 2004). In using the term

structural mechanisms, we refer to the adaptation of the firms organizational structure and

processes in order to meet the representational and collective needs of BoP producers (cf. Olsen and

Boxenbaum, 2009).


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Access to Ecosystem

Ecosystems possess characteristics of markets as well as organizations and are, yet, neither.

They are networks of complex interdependencies and mutual responsiveness between competitors,

collaborators, buyers and suppliers, resource-providers and resource-seekers (Arnould and Mohr,

2005; Iansiti and Levien, 2004; Moore, 1996). Central to the notion of the ecosystem is the idea of a

keystone organization or a leader-firm, such as Microsoft or eBay, providing a common vision to the

ecosystems members and possessing a stable and predictable set of common assets (Iansiti and

Levien, 2004: 73). These assets often refer to specialized knowledge of or unique access to the

innovation (or set of innovations) that provides a junction for the various interests of the different

members of the said ecosystem.

The notion of the ecosystem is very useful in the study of BoP innovations and represents a

more complex substantive outcome than either access to market or access to organization for two

reasons. First, ecosystems are resilient in the face of the failure of individual members or the

derailment of particular relationships (Iansiti and Levien, 2004). Second, access to ecosystem can

enhance the quality of access to market and to organization because it can enable access to a broader

set of markets, better collective representation and a higher potential for knowledge spillovers.

Innovative Management Practices

Over the last few years, scholars have called upon firms to initiate unconventional innovation

trajectories oriented towards serving newer opportunities in the BoP (Hart and Christensen, 2002;

London and Hart, 2004). Discussions, in the literature, on BoP innovations have related primarily to

innovations in product and process technologies (Anderson and Markides, 2007; Hart and

Christensen, 2002; Seelos and Mair, 2007). Technological innovation may be defined as an iterative

process initiated by the perception of a new market and/or new service opportunity for a technology-

based invention (Garcia and Calantone, 2002).


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However, a few scholars have also drawn attention to innovations that focus, not on product

and process technologies aimed at creating new markets for products and services, but on the

organizational structures, management practices or functional routines that facilitate the initiation

and renewal of a relationship between firms and BoP constituents (Milstein, Hart and London, 2007;

Olsen and Boxenbaum, 2009). We build on this latter perspective on BoP innovation by orienting

our study towards management innovation - a relatively under-researched form of innovation

(Birkinshaw, Hamel and Mol, 2008: 825).

The origins of management innovation lie in an initiative aimed at furthering organizational

goals and leading to a difference in the form, quality, or state over time of the management

activities in an organization, where the change is a novel or unprecedented departure from the past

Birkinshaw et al. (2008: 826). The term relates not to new management practices adopted off the

shelf by organizations but to those that emanate from within the focal organization as a consequence

of its high level of adaptation to the specific context of the management challenge. The units of

management innovation are management ideas (at an abstract level) and practices, processes,

techniques, and organizational structures (at an operational level) (Birkinshaw et al., 2008).

Furthermore, Birkinshaw et al. (2008) emphasize that management innovation would, typically

correspond to management practices that are not only new to the organization, but also new to the

state of the art in management models. As an example of management innovation, consider the

spaghetti organization of Oticon Inc., which was aimed at increasing employee entrepreneurial

behavior and bypassing the negative influences of hierarchy (Birkinshaw et al, 2008).

In this paper, we use the term innovative management practices to refer to a management

innovation where the practice is new to the organization (but not necessarily to the state of the art)

and emerges from the specific context of the management challenge faced by the organization.


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Research Setting, Data and Methods

We use a qualitative mode of inquiry that emphasizes inductive reasoning to gain insights

into the studied process (Lincoln and Guba, 1985). We believe this was an appropriate choice for two

reasons. First, the BoP context itself introduces opacity. Each BoP intervention is deeply embedded

in its own unique social, economic and cultural context (Sanchez, Ricart and Rodriguez, 2005). It is,

therefore, important that the research design be able to manage the rich, contextual textures of the

phenomenon under study (Viswanathan and Rosa, 2007). Second, the thrust of our inquiry was on

the location and comprehension of innovative management practices that helped sustain the

engagement over time. Case studies and inductive logic are appropriate for the study of historical

processes with entangled causal forces (Lee, 1999).

Research Setting

Our field research was conducted at Fabindia, a leading retailer of handicraft products in

India with a strong focus on handloom fabrics and garments. Fabindia was founded in 1960 as an

export house and has evolved today into a full-fledged retailer with design capabilities with an

annual turnover of Rs. 3 billion (~ USD 59 million) (as of March 2009). We were intrigued by

Fabindias sustained growth in a stagnant traditional industry as well as its apparent success in

making traditional handloom garments fashionable in urban India. Furthermore, we came across

several articles in the business press where Fabindia was commended for its unconventional business

model of engagement with BoP producers (e.g., Business Today, 2008;Business Week, 2009). This,

coupled with Fabindias fifty-year-old history as a retailer of handloom products in India, suggested

that it presented an appropriate site for an examination of the dynamic of long-lasting engagements

between firms and BoP producers, and the role of innovative management practices in renewing such

engagements.

Handloom weavers have an ancient lineage in India. In the early years of the eighteenth

century, Mukund (1992: 2058) observes, Indian handlooms were virtually clothing the world.


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However, the colonization of India and the rising imports of machine-made fabrics into India from

the nineteenth century onwards led to the collapse of local handloom ecosystems consisting of yarn

makers, dyers, weavers, embroiderers, master-artisans and their patrons. This drove the majority of

weavers into alternate occupations or into starvation. In an evocative passage in Das Kapitalon the

plight of the Indian weavers, Marx (1977 [1867]: 558) wrote: The misery hardly finds a parallel in

the history of commerce. The bones of the cotton-weavers are bleaching the plains of India.

Following independence, the Government of India attempted to revive this traditional Indian

industry through a variety of policy measures, but with indifferent success. Practitioners of

traditional handloom techniques continue to subsist in conditions of deep poverty (Business Today,

2007). Some of the problems handloom weavers face today can be traced to their household-based

subsistence-oriented production, poor demand for their products, competition from powerlooms

(small weaving factories that generally utilize mechanized or semi-mechanized means of

production), poor educational levels, lack of access to market information, absence of skill

development, and bureaucratic inefficiency and corruption (Liebl and Roy, 2003; Niranjana, 2001).

In such a sector, described as doomed to decline (Niranjana, 2001), Fabindia presently

coordinates a network of over 35000 independent artisans who contribute to a portfolio of nearly

57000 stock keeping units that it retails through its growing network of 107 retail stores across India

and two stores abroad.

Data Sources

Our primary sources of data were semi-structured interviews. We interviewed twenty

informants in all. Fourteen of our interviewees were Fabindia managers and directors, including the

Managing Director (CEO) (interviewed twice). We also interviewed the head of the All India Artisan

and Craft Workers Welfare Association and the head of a Supplier Region Company set up by

Fabindia and the local artisans. Separately, we interviewed four master-weavers based in Amroha, a

town in north India. For selecting interviewees inside Fabindia, we employed snowball sampling,


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i.e., we asked our initial set of interviewees to suggest others who, in their opinion, might help

address our research concerns. Of the four master-weavers, two had been associated with Fabindia

for over 20 years and two for less than 5 years.

The interviews focused on the nature and objectives of the Fabindias involvement with

artisans, the business model developed by Fabindia for the said purpose, the challenges faced and

how, if at all, those challenges were overcome. Interviews with the master-weavers were directed

towards gauging their own interpretation of their ongoing relationship with Fabindia. All interviews

were conducted by one of the authors along with an associate. Further, all interviews were between

one and a half to two hours in length, were recorded with the consent of the interviewees, and were

subsequently transcribed. Interviews with the master-weavers were conducted at their homes in

Hindustani, a common dialect of Hindi in which the interviewing author and his associate were

fluent. These interviews were then transcribed into English. All other interviews were conducted in

English. Contact summary sheets were prepared, as suggested by Miles and Huberman (1994), for all

interviews in order to capture key ideas discussed during the interviews as well as immediate

impressions.

Our supplementary data came from a variety of archival sources. These were: 1. all

newspaper and magazine articles on Fabindia retrievable from India Business Insight Database, 2.

status reports from the Government of India and from non-governmental organizations on the Indian

handloom sector, 3. internal documents from Fabindia (as were made available to us).

Data Collection and Analysis

Between 2006 and 2007, we collected supplementary data on Fabindia from public sources

(as mentioned above). This gave us a sense of the history and operations of Fabindia. Subsequently,

we secured access to Fabindia and conducted interviews during 2007-08. During 2008, we collected

additional secondary data from public sources as well as from inside Fabindia. In 2009, we


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conducted a second set of interviews with Fabindia executives as well as with artisans associated

with Fabindia.

We carried out detailed data analysis, following the first phase of interviews, in three steps

using guidelines provided by Miles and Huberman (1994). First, we sought data reduction by

condensing the data and arranging it into a chronological account. Data reduction was initially

conducted with reference to the classification of substantive outcomes discussed earlier. This helped

provide a cohesive narrative of events by explicating links between events, innovative management

practices, and the respective substantive outcome (market/organization/ecosystem). Second, having

developed a thick chronological account, we sought to rearrange the data in order to understand the

underlying processes that explained shifts in the engagement between the BoP producers and

Fabindia over time. Over several iterations between the data and the emergent process model, we

refined our understanding of the case, tightened the linkages between events and substantive

outcomes, and converged on the process model reported later in this paper. Third, during the second

phase of interviews, we sought to verify the emerging dynamics and probe unanticipated themes

latent in the data collected in the first round. Our primary intent was to verify, at this stage, rather

than to explore. This is in conformity with Miles and Hubermans (1994) basic analytic cycle of

moving from inductive to deductive as interpretations firm up. Throughout this process, our

supplementary data helped us triangulate informant claims (cf. Jick, 1979) and flesh out the

narrative. As the narrative embodies sequence and time, it is naturally suited to the development of

process theories and explanations (Pentland, 1999: 717). As we analyzed the data and drew

inferences, we sought to ensure that data were triangulated and member checks were secured. In

the case narrative below, we have tried to infuse thick descriptions of the data by using

appropriately contextualized quotes from the interviews. Overall, we sought to enhance the

trustworthiness of the inferences (Lincoln and Guba, 1985) and meet the criteria for validation of

naturalistic generalization (Stake, 1995).


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Case Analysis

In this section, we present a chronological narrative of the evolution of Fabindias

engagement with handloom artisans. This narrative is organized along the successive emergence of

each of the three substantive outcomes discussed in a previous section (see Table 1 for illustrations).

The organization of data with reference to the relative salience of different substantive outcomes in a

particular period of time, allows for ease of presentation and corresponds to a close approximation of

the complex nature of the evolving engagement between Fabindia and the handloom artisans.

------ Table 1 about here ------

Enabling Access to Market (1960 1992)

Fabindia was founded in 1960 by John Bissell, a buyer at the American departmental store

Macys, who came to India on the invitation of the All India Handicrafts Board to examine market

opportunities for traditional handicraft artisans in India. John Bissell was reportedly amazed at the

paradoxical simultaneity of the rich variety of handloom fabrics and craftsmanship styles in India

and the deep poverty of the handloom artisans. The solution, as Bissell saw it, lay in leveraging the

traditional skills of artisan communities while helping them secure a better standard of living. After

his contract ended, Bissell stayed back and set up Fabindia in New Delhi. Fabindias objectives were

inscribed into its credo, which Bissell wrote at that time:

In addition to making profits, our aims are constant development of new hand-woven

products, a fair, equitable, and helpful relationship with our producers, and the

maintenance of quality on which our reputation rests.

Fabindia began by sourcing handloom home furnishings from local artisans and then selling

them to several overseas retailers. Then, in 1976, Fabindia opened a retail store in an up-market

neighbourhood in New Delhi. The store stocked items from Fabindias export catalogue but was

intended primarily as an exhibition hall for handloom and other handicraft products. To the surprise

of the Fabindia staff who had not expected any significant domestic demand, the retail store proved


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to be rather successful and sales grew steadily year after year. The Fabindia staff noted that

customers at the retail store in those days were, typically, thrifty intellectuals, artists, and journalists

who strongly identified with the Gandhian ideology of self-reliance through khadi (coarse home spun

cloth). John Bissell, who had acquired a fondness for wearing kurtas (loose traditional Indian shirt),

decided to introduce a line of mens handloom kurtas at the firms sole retail store. As this initiative

proved hugely successful in the retail store in New Delhi, the firm started a line of ready-to-wear

ethnic garments for women. In spite of these successes, Fabindia did not open any new retail stores

between 1976 and 1994 and chose, instead, to focus on the stable export market.

An innovative management practice initiated in Fabindias experimental retail store during

this period related to the format in which garments were sold. Traditional Indian attire ofsalwar-

kameezand pyjama-kurta (trouser and shirt for women and men respectively) are typically sold in

pre-matched sets. Fabindia, however, started selling them individually which allowed its customers

to mix and match the trouser and the shirt across a wide range of prints, colours, and designs. Over

time, it emerged that Fabindias practice of selling them individually had three advantages. First, it

reduced the number of items rejected on quality criteria as the company did not need to reject a pair

(of upper and lower garments) when only one of them contained a flaw, a very high likelihood given

the craft mode of handloom production. Second, it helped Fabindia avoid the problem of having to

mark-down prices, a standard practice among garment retailers. Third, it eased the pressure on the

customers wallet as the customer did not need to buy a pair of garments. This was an important

factor given the profile of Fabindias customers at that time.

During this first phase in Fabindias evolution, i.e., from 1960 to 1992, it initiated an

engagement with small groups of artisans by providing them access to (non-local) markets on a

sustained basis. John Bissell was convinced that it was necessary to intervene in the lives of the

handloom artisans and provide them opportunities for regular employment while utilizing their

traditional skills. Fabindias experimental retail initiatives also helped expand access to market for


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handloom artisans in India. The retail store in New Delhi not only provided a small window for

Fabindias artisans into the urban domestic market in India but also acted as a laboratory where

Fabindias innovative mix-and-match retail format was first tested. Overall, Fabindias engagement

with handloom artisans, though rather narrow in scope at this time and limited to procurement of

handloom products and payment of fair returns, was crucial to the provision of access to market for a

large number of BoP producers.

Enabling Access to Organization (1992 2003)

While this business model kept Fabindia profitable and helped provide a context-sensitive,

skill-based livelihood to artisans, the venture was vulnerable since Fabindia relied entirely upon

demand from the overseas retailers. A crisis in 1992 exposed its vulnerability on this count.

Following its acquisition in 1992 by a Swedish group, Habitat a UK-based interior design

firm that accounted for the bulk of Fabindias exports abruptly stopped buying from it. Fabindia

suddenly found itself unable to maintain its ongoing commitment to the artisans. Around this time,

William Bissell, John Bissells son, took over the management of the company. He realized that

Fabindias objective of profitable partnership with artisan communities was unsustainable unless

Fabindia secured its own direct channels to the market. On the firms outlook at that time, William

Bissell recalled,

Those years were tough. The rug had been pulled from under our feet. It then struck

me that for the last thirty years we had been selling under somebody elses label.

Over the next few years, Fabindia tried to reduce its dependence upon exports and moved, cautiously

at first, to explore the domestic market. The company opened its second store in Delhi in 1994. It

followed it up with three more stores in other Indian cities between 1994 and 1998. Fabindias retail

expansion coincided with significant shifts in urban consumption patterns in India. Following the

liberalization of the economy and rapid economic growth, a newly prosperous consumption class

emerged with a taste for the aesthetic appeal of handloom garments. For these consumers, Fabindia


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was one of the few retailers of authentic handlooms.By frequently reviewing the design offerings

and ensuring authenticity, Fabindia grew beyond a handful of loyal customers whose purchases were

grounded in Gandhian ideology to a wider group of regular customers spanning age groups and

income levels.

However, unlike the earlier set of customers who were satisfied with the ideological value of

wearing handloom products, Fabindias new class of customers demanded consistency of quality and

colour in handloom garments. This forced Fabindia to confront one of the fundamentals paradoxes of

handloom production. To a substantial extent, lack of consistency of quality and colour is intrinsic to

the craft mode of handloom production which made it difficult, if not impossible, to produce large

quantities of a particular design or product without variations in quality or colour. Fabindia

undertook a two-pronged approach to address this problem.

On the retail side, Fabindia sought to educate the customers. Posters in retail stores informed

customers that subtle variations in colour, texture, and finish were unavoidable, and indeed shaped

the attractiveness and uniqueness of handloom products. This policy continues till today. For

example, when we visited a store in Bangalore in 2008, we came across a poster that said:

Lets not think of an irregular weave or print as a defect. Handloom by definition

means glorious uncertainty when it comes to uniformity.

On the production side, Fabindia discovered that not all causes of inconsistency lay in the

fundamental characteristics of craft production; some were traceable to the poor infrastructural

support available to handloom artisans. For example, cases of colour fastness were traced to lack of

adequate washing of fabric in the dyeing phase in the case of artisans from drought-prone areas of

Rajasthan in Western India. Realising that washing facilities in that region were exorbitantly priced

due to scarcity of water, Fabindia directly negotiated with washing units in those locations and made

them accessible to the artisans. Likewise, Fabindia initiated a policy of providing cash advances to

their handloom producers in order to help them tide over their inability to obtain working capital and


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ensuring that they were able to buy yarn and other raw materials without taking recourse to usurious

local moneylenders. Further, to improve the marketability of the products, Fabindia recruited

designers to work closely with the artisans during the design and production stage. Bissell summed

up Fabindias dual-pronged approach:

We are still going to tell the customer that what might seem as defects are inherent to

the hand-woven fabrics, yet we want to ensure that the artisans are doing their very

best to ensure quality.

During this period, there was a growing realization within Fabindia that their organizational

structure and processes needed to be better attuned to the constraints of the producers on one hand,

and the demands of the customers on the other. Accordingly, a series of adjustments were introduced

into Fabindias organization in the early years of the 2000s. Central warehousing was set up in New

Delhi to meet country-wide retail store requirements. This reduced the burden on artisans of planning

production and delivering merchandise to different outlets across the country and also ensured better

control by Fabindia over supplies. Also, for each product category (mens garments, ladies

garments, rugs and upholstery), a separate buyer was appointed. The responsibilities of the buyer

were to collate country-wide requirements, distribute orders among artisans, and liaise with designers

to develop new products while leveraging the varying ethnic traditions in different parts of India.

Over these years, urban customers came to see the classic yet contemporary Fabindia look

coupled with the freedom to mix-and-match the garments as an opportunity to express their

individual creativity and to make their individualized style statement. The reasonable prices of

Fabindias garments and the distinctiveness of the designs and fabrics, we found, led to the

recognition of Fabindia as an affordable fashion brand.

During this second phase in Fabindias evolving engagement with handloom artisans, i.e.,

from 1992 to 2003, there was a substantial enhancement in the access to market that Fabindia was

able to provide the artisans. Left stranded by the acquisition of Habitat, Fabindia gradually opened


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stores in all the major cities in India. In imbuing handloom garments with connotations of ethnic

fashion, Fabindia was able to attract a new generation of customers who were unconcerned about the

ideological implications of wearing khadi garments. As the Fabindia team discerned the emerging

consumer preferences in India, they also interpreted and communicated these preferences to the

artisans so that these insights could be incorporated into the design and production cycle.

As Fabindia expanded its retail presence in India, Bissell and his colleagues realized that

exploiting the potential for handloom sales in the domestic market required a closer organizational

engagement with artisans in order to understand their constraints and identify specific solutions.

Their gradual acquisition of a native capability (cf. London and Hart, 2004) in the handloom

artisans context helped them intervene more meaningfully in handloom production systems leading

to the provision of access to organization for handloom artisans. By assigning teams of designers

and buyers to work with the artisans, Fabindia sought to develop the contemporary character as well

as the production quality of the artisans output. Fabindia was able to leverage its growing retail

chain in order to represent the artisans unique abilities as well as their difficulties to a new

generation of customers unfamiliar with the intrinsic inconsistency of handloom production.

Fabindia also adapted its organizational structures in order to acquire a greater sensitivity to the

constraints faced by artisans as well as their capability limitations and to better address these

constraints. Fabindias Head of Marketing recalled how she had experienced Fabindias concern for

the interests of the artisans in her early days in the company:

When I first came here, I refused to accept one shipment of upholstery fabric

because the sample was 2 shades darker. I was promptly told by the Head Office:

Look, the poor man has spent 4 weeks weaving 50 meters of fabric. Are you really

sure you wouldnt be able to sell it? I was horrified. Why should I sell something that

is not the best to our customers; I was then gently told: The producer is important as

well.


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Enabling Access to Ecosystem (2003- )

By 2003, Fabindia had reached a turnover of Rs. 473 million (~ USD 10 million) while

partnering with almost 11,000 artisans. Around this time Bissell and his colleagues decided to

address a problem faced by all handicraft retailers the absence of recognition of handicrafts as

distinctive, value added products. Bissell said,

What was a revelation to me was that we had reduced our product to a commodity. It

was no longer a hand woven craft, whose value lay in the craft! It was not just about

Fabindia, but about the precarious position of our crafts in the market. I remember a

cartoon, which showed a T-shirt factory in China. The first set of T-shirts was bound

for a famous US discount retailer, the second for a well-known brand with the

appropriate logo embroidered on the left hand side of the chest. Both T-shirts cost

about 0.85 USD to make; the first was to sell for about 5 USD, while the second one

with the logo was to retail at 40 USD. Having worked in the crafts sector for the past

fifteen years in India, I was struck by the point that the cartoonist was making. The

power of the brand to convince the potential buyer to spend a large amount of money

.was a reminder of our failure to create value for our products.

Bissell and his colleagues realized that handloom products needed a distinctive identity in the

market to distinguish them from machine-made garments and imbue handloom products with

connotations of higher value and specialized human skill. Such an initiative required the cooperation

of a large number of stakeholders in the handloom industry. Fabindia worked with an assorted group

of craft retailers and activists to set up the All India Artisans and Craft Workers Welfare Association

(AIACA). Established in 2003 with the objective of expanding the domestic market for traditional

craft products and improving the living conditions of artisans, AIACA drove the Craftmark

Initiative. Retailers of handmade products could now seek certification of their handmade processes

and use the licensed Craftmark logo to denote their product as a genuine Indian handloom product.


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By 2009, 42 retailers of handicraft products were using the Craftmark label, giving them a common

identity and a sense of community. The Executive Director, AIACA, informed us,

We are not certifying quality at the moment. We are only certifying that handmade

processes have been followed in the production process. Today all prominent craft

retailers such as Anokhi, Bandhej and Fabindia are licensed users of Craftmark. They

tag the logo onto their merchandise.

While seeking wider recognition for and appreciation of handloom products through the

Craftmark initiative, Fabindia continued to work on upgrading the capabilities and skill sets of their

handloom artisans. For example, they found that the combination of a buyer to estimate and specify

demand requirements and a designer to develop contemporary designs in keeping with those

requirements was not working effectively. Often, designs could not be easily translated into products

because of production constraints peculiar to the handloom industry. Fabindias designers, who were

trained at the countrys mainstream design and fashion institutes, were largely unaware of the

peculiarities of the fabrics and the production methods used by the handloom artisans of a particular

region and, therefore, were not able to anticipate these problems. To address this challenge, Fabindia

created a cadre of domain specialists who would work alongside designers in each of the firms

product lines. While the designer would be responsible for the look of the product, the domain

specialist would be responsible for technical aspects of production, such as the functionality of the

design, grading, fabric thickness, regional idiosyncrasies, and so on. To ensure consistency in the

process, a Product Selection Committee was instituted with powers to supervise the work of

designers and domain specialists.

The growing popularity of the Fabindia brand declared the Retail Brand of the Year in 2004

by one of Indias leading business newspapers prompted the firm to extend the range of products

retailed in its stores and seek to interpret for their customers the symbolism and ideology behind

Fabindia products. Bissell reasoned:


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We believe that the way we consume shapes the world we live in. If you live what

you believe and you believe in the basic principles of rural employment, then you will

end up being a Fabindia customer.

Consequently, Fabindia started retailing organic foods and a range of handcrafted,

environment-friendly furniture made by traditional artisans. The new range of products retailed by

Fabindia was sourced from the same communities with whom Fabindia had built up deep

relationships over the past few decades. However, in expanding its scope to cover organic foods as

well as furniture, Fabindia moved to engage not only with handloom weavers in these communities,

but also with farmers and woodwork artisans. Bissell and his colleagues believed that the

enlargement of the scope of handicraft products retailed by Fabindia would enable them to partner

with a larger group of artisans, attune the larger group to contemporary market sensibilities, and

develop a wider customer base while retaining fidelity to their ideological beliefs.

With their ventures into organic foods, handcrafted furniture, and later, bodycare products,

Fabindia began to see itself as a lifestyle retailer with a country-wide presence. Drawing up fresh

plans for expansion, Fabindia planned to set up 150 new retail outlets and to generate an additional

100,000 local employment opportunities for artisans. Fabindias Head of Systems explained the

challenging task that this objective posed,

Handloom and hand crafted products in retail at such a scale did not exist before. We

were operating in an uncharted territory and setting benchmarks.

This ambitious plan, however, confronted the inability of the artisan communities to scale up

their operations to match Fabindias plans. Bissell and his colleagues came around to the view that

the viability of the handicrafts sector, and indeed, uninterrupted growth for Fabindia itself, was

inextricably tied to the self-sufficiency and financial independence of the artisan community.

Bissell and his colleagues then conceived of what has come to be known as Supplier Region

Companies (SRCs). SRCs were designed as community-owned enterprises set up in collaboration


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with artisan communities which would coordinate the operations of artisans, weavers and craft

workers in a particular geography (typically seven to eight districts with similar handicraft traditions)

and involve them as shareholders in the enterprise. Each regional SRC would specialize in the

handloom and handicrafts traditions characteristic of that region. The SRCs would provide access to

common facilities, implement standard systems for production and delivery, train artisans, and

consolidate supplies from the regional cluster that they covered. Supplies for all of Fabindias

product categories textiles, garments, organic foods, body products, and furniture from a

particular region would be sourced through the regional SRC. They would, in short, manage all the

upstream operations of the value chain leaving Fabindia free to focus on the downstream operations.

While Fabindia committed to buy up a substantial portion of each SRCs production, the SRCs were

free to sell their production to any retailer. This gave the artisans significant freedom to decide how

to manage their production and distribution.

As the idea was rather radical, the Fabindia management team wanted to make sure that the

artisans understood how their relationship with Fabindia would undergo a change. The Head of

Fabindias investment subsidiary (which was set up to manage Fabindias equity stakes in the SRCs)

recalled:

We made detailed presentations [to with artisan communities across the country]

about the entire value chain. We wanted to emphasise that greater margins come from

value addition. We wanted them to understand that instead of supplying fabric, if they

could turn out finished garments, they could appropriate a larger proportion of the

value. We also wanted them to understand the costs associated with retailing of the

product and the significant investment we are making towards it. Their response was

overwhelming.

As the SRC initiative started rolling out, Fabindia planned on involving local artisan

communities in setting up 100 SRCs across the country. Each SRC had a Board of Directors that


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included representatives from Fabindia as well as local artisans from the region. As each SRC took

off, Fabindia took a 26%-49% equity stake while local artisans held at least 26% stake and the rest

was held by employees of the SRC and external investors. Explaining Fabindias longer term

objectives, the then Head of the investment subsidiary said,

The ultimate goal is to have them [SRCs] operate as 100% community owned

companies. Our intention is to consolidate the artisan community, support them, help

them find their feet and then gradually pull out - not to treat them as subsidiaries.

Fabindia will not increase its stake beyond 49%. The Memorandum of Association of

the SRCs explicitly stipulates this.

The establishment of SRCs across the country was expected to encourage Fabindias artisan

partners to actively engage in entrepreneurial activity and seek profits. Fabindias Product Selection

Committee centrally determined monthly requirements and, depending upon the region specificity of

the requisite fabric, design, or technique, allocated orders to the appropriate SRC. On receiving an

order from Fabindia, the SRCs would distribute the order among their members through a

transparent bidding process. For each order, SRC members competed over individual chunks of

orders and collaborated across the entire scope of the order.

By mid 2009, more than a dozen SRCs were in operation. While the concept of the SRCs had

much in common with cooperative forms of organization, they were devised as a hybrid of

community-managed cooperatives and shareholder-owned corporations. During our interviews,

Bissell argued that co-operatives were commendable for their community participation aspect, but

that such forms of organization discouraged entrepreneurial behaviour, were vulnerable to

obstructionist tactics, and did not create new, liquid assets for the poor. They had, therefore, little

impact with regard to poverty alleviation. The SRCs were, on the other hand, designed specifically

with a view to creating liquid assets for their members.


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The primary distinction between the SRCs as for-profit entities and cooperatives was that the

SRC members were shareholders who could realise the value of their stock by means of a share

valuation and trading mechanism. To impart liquidity to the shares the SRCs were, as yet, not listed

in any stock exchange trading among the members of the local artisan communities was arranged

twice a year and, during this period, members could buy or sell shares. Many of the SRCs had

already declared dividends thereby sharing the wealth generated with the communities in which they

were embedded. The prices of shares in the SRCs had increased significantly. For example, the share

price for the Amroha SRC rose from Indian Rupees 100 in 2007 to Indian Rupees 250 in 2009.

The artisans themselves seemed optimistic about the long term gains that they expected from

the SRC model, although they acknowledged that they did not yet fully understand the working of

the SRC. When we asked a master-weaver if he hoped that his business would benefit through his

membership of the regional SRC, he said:

Hope keeps the world spinning! We hoped, that is why we invested in the shares of

the SRC. We have faith in Fabindia. We have complete trust in them and they have

always done right by us.

During this current phase in Fabindias evolution, i.e., from 2003 onwards, Fabindia

enhanced the quality of access to market and access to organization accessible to handloom artisans.

Fabindia enlarged the scope of its products to include handcrafted woodwork, organic food items,

and organic body products. These diversification initiatives helped Fabindia deepen its linkages in

the communities it worked with by linking up woodwork artisans and farmers to non-local markets.

Concurrently, Fabindia sought to refine the quality of access to organization that it gave to the

artisans by instituting more context-sensitive organizational structure and processes to interpret

market demand while reconciling it with producer constraints.

During this period, the Craftmark initiative by Fabindia convened competitors, collaborators

and non-governmental agencies in the Indian handloom sector to agree on a trademark of


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authenticity, thereby developing a common differentiating label for handloom products in the retail

market. Moreover, small handloom producers could now enjoy a greater degree of independence, if

they so desired, from large retailers by simply adopting the Craftmark label a growing brand and a

valuable public good for the handloom industry. By encouraging fresh entrepreneurship, greater

competition, and higher market prices for handloom products, the Craftmark initiative encouraged

more BoP producers to take entrepreneurial risk. Likewise, the creation of SRCs led to the co-

ownership of the business model by Fabindia and the artisan communities and afforded the artisan

communities a greater share in the value created through the sale of handicraft products in non-local

markets.

Together, the SRC network and the Craftmark initiative facilitated the inception of a robust

ecosystem consisting of interdependent producers of a variety of goods. The constituents of this

ecosystem included the various regional SRCs across the country, small as well as large artisan

entrepreneurs, a variety of non-governmental organizations, independent artisan groupings with

linkages to individual SRCs, AIACA, and Fabindia itself as a keystone organization holding together

the valued assets of the ecosystem. The valued assets that enabled Fabindia to play the role of a

keystone organization were its brand reputation, a nation-wide retail chain, five decades of

experience in the handloom industry, and the trust of the diverse constituents mentioned earlier. The

element of trust, which is crucial for the effectiveness of any keystone organization, was

consolidated by the participation of Fabindia in the creation of Craftmark as a public good brand

that may compete with the Fabindia brand in the handloom retail sector. It was also strengthened by

the independence granted to the SRCs from Fabindia whereby the former could sell their output to

any other retailer (as long as there was no infringement of Fabindia designs) while Fabindia itself

provided them a guarantee of merchandise purchase. By helping to magnify the scale and scope of

Fabindias retail operations and decentralizing collective representation and capability development,

the SRC initiative represented the enhancement of access to market and access to organization


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through the provision of access to ecosystem. Thus, Fabindia emerged, during this phase as a

keystone organization holding together a nascent, diverse community-based ecosystem centred on

BoP producers spread across the country.

Discussion

In examining the evolution of Fabindia and its engagement with BoP artisan communities

over five decades, we found evidence that as Fabindia adapted to external crises, changing

environments, serendipitous opportunities, and new organizational goals, it enabled substantive

outcomes for the BoP producer communities it worked in and, interestingly, reconceptualized the

role playedby the BoP producers it engaged with.

As an export house during 1960-1992, Fabindia enabled access to market for handloom

artisans by linking them up with buyers in foreign countries. As a handloom retail chain during

1992-2003, Fabindia continued to provide access to market (with a domestic focus) but also enabled

access to organization for handloom artisans by facilitating capability development and interpreting

handloom work for non-local customers. In recent years (2003- ), as a nationally recognized brand

for handloom products, Fabindia facilitated access to ecosystem for thousands of handloom and other

handicraft artisans through two specific initiatives: Craftmark and the SRC network.

Our discussions with artisans revealed how Fabindias continued engagement with local

communities not only enhanced income levels for existing artisans but also attracted others earning

subsistence incomes who were then trained in handloom work. Still others sought out disappearing

traditions of handloom in their families and approached Fabindia with demonstrations of these dying

skills. Over time, these artisans emerged as collaborators and competitors, as buyers and suppliers to

each other, recreating an artisan ecosystem and benefiting from rising income levels. The shift

towards a better life is captured in the words of a master-weaver we met in Amroha:

When we were young, my brother and I would go to school and make beedis [an

indigenous cigarette in which tobacco in rolled in dried leaves] later in the day. My


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Uncle then got an order from Fabindia. He was not able to complete the order. He told

my father that I cant do this work please take it under your name. He informed

Fabindia and transferred the order to us. We did dyeing and bleaching on the cloth

and started from there.We worked with our father. After a while, I set up my own

unit. I would also do my own delivery to Fabindia. It was very nice. We would deliver

our goods and get paid by the evening! Bissell saab would say, Dont keep them

waiting. Pay them quickly so that they can go back to work. We depend upon

them.. In thirty years, a lot has changed. Our area is a lot more developed. Now if

you look at the children here, you cant tell the difference between the rich kids and

the kids of weaverswe are able to give our children a better life.

Going by the BoP literature, firms conceptualize BoP constituents as either of two

consumer or producer. The Fabindia case suggests that the label BoP producer encompasses finer-

grained conceptualizations that can, potentially be held by firms intervening in the BoP context.

During the first two phases of its evolution, Fabindia held low entrepreneurial expectations from its

BoP producers. That is, Fabindia did not expect the BoP producer to share the risk (e.g, capital risk,

inventory risk, etc.) specific to the business model but sought to exercise substantive control over the

output of the BoP producer. In the ongoing third phase, however, Fabindias management has

relatively high entrepreneurial expectations from its producers. Through the device of the SRC, the

BoP producers have taken over the responsibility for a large part of the upstream risk (capital risk

and inventory risk) while also regaining control over their output (as decision-making is

decentralized onto the SRC). In other words, BoP producers emerged as more entrepreneurial in the

ongoing third phase of their engagement with Fabindia.

The distinction between producers, based upon the entrepreneurial expectations that the firm

has of them, is a nuance that is missing in the BoP literature and the terms producer and

entrepreneur have often been used interchangeably. Introducing the mechanism of the firms


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entrepreneurial expectations allows us to focus on the level of business model risk assumed by the

BoP producer. This, in turn, indicates the degree of BoP entrepreneurship fostered by the said

business model. Entrepreneurial development enables economic and social empowerment, thereby

enhancing the ability of BoP communities to control their lives (Xavier, Raja and Nandhini, 2007).

While entrepreneurship in the sense of deploying capital and possessing full residual claims over

the earnings is widely prevalent among the poor, it is actually intimately tied to their consumption

needs and tends, therefore, to be sporadic and very small scale (Banerjee and Duflo, 2007; Sridharan

and Viswanathan, 2008). Kotler, Roberto and Leisner (2006) argue that unless the poor are provided

the means to cope with entrepreneurial risk, they will choose to invest in low-risk, low-return activity

rather than high-risk high return activity. The SRC initiative was critical to providing Fabindias BoP

producers the means to cope with entrepreneurial risk.

Based upon our case analysis of the evolution of the engagement between Fabindia and

handloom artisans over five decades, we propose a process model (See Figure 1) that seeks to

explain the persistence of the engagement between a firm and BoP producers even as the contours of

the engagement keep evolving. The persistence of the engagement is essential for the emergence of

substantive outcomes for BoP producers from the relationship and provides a context for BoP-centric

management innovation. We illustrate the model with reference to the emergence of SRCs.

------ Figure 1 about here ------

In our model, the shift can be traced back to a disruption of the engagement, as perceived by

the firm. Around 2003, Bissell and his colleagues embarked upon a plan to accelerate Fabindias

retail store growth by setting up more stores in more cities and in different store formats. As Fabindia

sought to expand on massive scale, it found its weavers unable to meet the demands being placed

upon them by the expansion plan. Fabindia also found that it needed to focus its energies on the

downstream activities, i.e., managing the Fabindia brand, and its retail front-end operations.

Accordingly, Fabindia engaged in an interpretation of the challenge posed by the opportunity


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perceived by them and the crisis engendered by the inability of the artisan communities to scale up

their production in order to keep pace with Fabindias expansion.

In interpreting the environmental stimulus, the firm in our model is mindful of both the

industry context as well as the BoP context of its relationship with BoP producers. The industry

contextrefers to the industry domain in which the firm operates in the non-local market(s). The BoP

contextrefers to the peculiarities of the environment in which the BoP producers subsist, in terms of

their distinctive needs, skills, and constraints (London and Hart, 2004; Viswanathan, 2007). In the

industry context, there was an attractive opportunity since handloom products were being

increasingly regarded by Indian customers as lifestyle products, impelling Fabindia to expand both

the scale and the scope of their retail operations. However, the BoP context specified constraints,

such as the producers lack of growth capital and an inability to rapidly upgrade production

capabilities. These constraints restricted Fabindias ability to attend to the opportunity presented in

the industry context and rendered the current form of Fabindias engagement with its BoP producers

untenable.

In order to bring about reconciliation between the opportunities presented by the industry

context and the constraints embedded in the BoP context, the firms management needs to consider

and appraise two definitive aspects of their engagement with BoP producers. These twin aspects are,

the degree of ideological centrality of the engagement to the firms ethos and the degree of economic

symbiosis between the firm and the BoP producers. Ideological centrality is the self-referential

appraisal by the firms management of the importance to the firm of engaging meaningfully in the

economic lives of BoP producers. The firms management would need to ask themselves: How

central is the BoP engagement to our conceptualization of ourselves as an organization? Does it

define who we are? Fabindias credo, written up in the early days of the organization by its founder

John Bissell, gave a central role in the organizations objectives to the maintenance of a fair,


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equitable and helpful relationship with our producer. Through the years, Fabindias initiatives

reveal an attempt to stay true to this ethos.

Economic symbiosis refers to the degree to which both parties create value for themselves out

of the engagement such that neither could access the said value independent of the engagement. The

firms management would need to ask themselves: How gainful, in economic terms, is the

engagement between ourselves and the BoP communities we partner with? In the case of Fabindias

engagement with artisan communities, the element of economic symbiosis has only become stronger

with the passage of time. Artisan communities across India are now able to secure better prices for

their products and continually upgrade their capabilities and skill sets because of their ties with

Fabindia. On the other hand, Fabindia itself is able to sustain the authenticity of its alternate lifestyle

appeal in the minds of its customers because of its exclusive dealings with makers of handicraft

products. Clearly, the engagement between Fabindia and artisan communities exhibits a significant

level of economic symbiosis.

Ideological centrality without economic symbiosis may lead to transformation of the market-

based intervention into a non-market intervention, for example, in the form of corporate

philanthropy. Economic symbiosis without ideological centrality may lead the firm to search for

alternate partners more appropriate to the changed non-local market scenario or revised

organizational goals. In either case, a disengagementof the relationship between the firm and the

BoP producers may be expected. However, ideological centrality coupled with economic symbiosis

propels the firm to look for innovative ways of reorganizing the existing engagement while retaining

the partnership. As William Bissell explained,

The challenge for Fabindia is to produce world-class textile products without

resorting to capital-intensive methods of production as that will leave out the artisans,

defeating the very purpose of our existence. Our fidelity to our ideology does not

constrain us it brings out the best in us.


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When the engagement retains high significance in terms of ideological centrality as well as

economic symbiosis in spite of the changed circumstances, the firm may seek to reorganize the terms

of the engagement through innovative management practices that can help to sustain the engagement

in a meaningful manner. This calls for a phase of experimentation where the firm seeks out and

consider various alternative management practices and examines their effectiveness with regard to

the desired objective of retaining the valued relationship. The concept of SRC provides an

illustration of an innovative management practice. Through a process of experimentation, whereby

pilot projects were undertaken in a few districts, Fabindias management devised the concept of the

SRCs. The SRCs represented a fusion of specific management practices borrowed from the co-

operative form of organization as well as from the corporate form of organization. This innovative

mode of organization seemed capable of easing the pressure on Fabindia of investing in and

managing the upstream operations and freeing up Fabindia to focus on the downstream operations.

As individual elements of the innovative management practice are clarified, the practice

undergoes full deploymentacross all relevant points of interface in the engagement. For example,

when it appeared that the distribution of orders by the SRC to local artisans may lead to accusations

of favouritism, a transparent bidding mechanism was introduced. As the success of this mechanism

became evident, it was incorporated into the subsequent rollout of SRCs across the country. The

deployment of the innovative management practice is antecedent to the stabilisation of the

engagementon new terms. Thus, following the rollout of the SRCs across the country, Fabindias

terms of engagement with the artisans suggests a reconceptualization of the artisans as producers

from whom Fabindia holds higher entrepreneurial expectations than before.

It must be noted that the experimentation and deployment stages for the innovative

management practice are iterative as the firm tries out new ideas for managing the engagement and

testing them to find the appropriate solution. Also, when the innovative management practice is new

to the state of the art in management models, it may, over time, be adopted by other organizations


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facing similar challenges, leading to widespread diffusion of the underlying management innovation

(cf. Birkinshaw et al. 2008).

Four points, worthy of closer observation, emerge from this process model. First, the

idiosyncrasies of the industry context in the non-local market which the firm links to the BoP

producer play an important role in shaping the evolution of the relationship over time. This point has

been neglected in the BoP literature. At the surface level, Fabindia was operating in the material

apparel retail industry. However, a closer look suggests that, by virtue of its ideological emphasis on

protecting traditional arts and the skill-based livelihoods of artisans, its guarantee of authenticity, and

its facilitation of personalized style, Fabindia was seeking to imbue its products with symbolism

resulting in customer interpretation of the Fabindia brand as affordable fashion. From this

perspective, Fabindia can be seen as operating in the realm of cultural industries. Lawrence and

Phillips (2002: 431) observe that managing in cultural industriesis not about efficiently producing

a product but about creating and maintaining an organization that can produce and sell meaning.

The challenge that firms in cultural industries face is to develop organizational capabilities in

managing the symbolic aspects of products in such a way that they are perceived as valuable by

customers over an extended period of time (Lampel, Lant and Shamsie, 2000; Lawrence and Phillips,

2002).

The move towards creating SRCs as intermediaries between Fabindia and the artisan

communities can, thus, be viewed as an attempt at resolution of the contradiction inherent in

simultaneously infusing symbolism into the downstream marketing and retail activities and

efficiency into the upstream craft-based production activities. The SRCs not only helped Fabindia

share upstream risk and responsibilities with decentralized, artisan-centric organizations, but also

benefited the artisans by enabling them to access the higher value captured in symbolism-driven

downstream business activities. This is a point that deserves closer attention and benefits from an

analogical reference. We have mentioned, earlier in this paper, Daviron and Pontes (2005) coffee


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paradox. The paradox refers to the dramatic fall in international coffee prices received by

developing country producers at a time when coffee has emerged as an expensive and fashionable

drink among developed country consumers. They argue that the explanation of the paradox lies in

that the output of coffee producers is evaluated on material attributes while the output of speciality

coffee retailers in developed countries is evaluated on symbolic attributes, enabling the latter to

entirely capture the value from the retail of coffee drinks. The SRC initiative, on the other hand,

provided an innovative solution that shared the symbolic value captured downstream with upstream

producers.

Second, while the literature has emphasized the importance of mutual value creation, there is

little consideration of the dimensions of the engagement between the firm and the BoP communities

that influence its persistence and renewal in the face of environmental change. We suggest here that

the reconciliation of the BoP relationship with ongoing environmental changes requires the

simultaneity of ideological centrality and economic symbiosis. The salience of only one of these two

elements in the relationship suggests opportunistic mutual value creation and may lead to the

degradation of the relationship under changed circumstances.

Third, the extant literature has concerned itself largely with the BoP interventions of firms

that already exist in the formal economy and seek to create new engagements with the BoP as

consumers or producers. This may be attributed to the dominant focus in the literature on the

activities of multinational enterprises and the challenges they face in locating new markets or new

sources of supplies (Wheeler et al, 2005). The Fabindia case allows us to propose an alternate,

bottom-up concept of organization, i.e, the concept of the bridging enterprise. We define the

bridging enterprise as one that originates at the intersection of the BoP communities that it works

with and the non-local markets that it serves. Such an enterprise, by definition, bridges the formal

and informal economies or local and non-local markets (Arnould and Mohr, 2005; Hart, 2007;

London, 2008). Further, the strategies of the bridging enterprises would be expected to reveal an


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ingraining [of] product-relevant social good in businesses.wherein customer and societal welfare

concerns permeate business activities and move to the center of strategic planning (Viswanathan et

al., 2009: 406).

However, unlike the typical intervening firm discussed in the literature, the bridging

enterprise does not have a history of operation prior to its engagement with the BoP. Moreover,

while a bridging enterprise inevitably contains social entrepreneurial elements, not all social

entrepreneurship ventures can be called bridging enterprises because they may well be contained

wholly inside the BoP context. Indeed, the bridging enterprise is founded on a business model that

makes mediation between the BoP context and the relevant non-local market critical to its inception

and, importantly, its continued existence. An important facet of such mediation is the education that

the bridging enterprise provides BoP producers and non-local consumers about each other3. As

discussed earlier, on one hand, Fabindia educated urban Indian customers about the inherent

uncertainty and inconsistency of handloom production and, on the other, educated handloom artisans

about customer expectations regarding acceptable levels of quality and consistency. Since the

bridging enterprise straddles right from its inception two distinct contexts of production and

consumption, it is in a unique position to act as an interpreter and innovator for stakeholders across

the pyramid.

Furthermore, the bridging enterprise is not the same as a keystone organization. A keystone

organization a concept that exists in the literature is a firm that is able to provide leadership to a

business ecosystem based on its access to specialized knowledge that provides a common platform

for the varied interests of the members of the ecosystem. A bridging enterprise a concept we

introduce in this paper is a firm that originates (in the sense of having no prior history of operation)

at the intersection of BoP communities and non-local markets. A bridging enterprise can act as a

3 We are grateful to an anonymous reviewer for drawing our attention to this point.


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keystone organization only when it is able to provide access to ecosystem for BoP producers and

other ancillary agents.

An important question that arises from the concept of a bridging enterprise is as follows: how

can the emergence of such organizations at the intersection of BoP communities and non-local

markets be facilitated? Partly, the identification of an opportunity that can be addressed by a bridging

enterprise is the product of serendipity, ideological beliefs, and entrepreneurial inclination. These

elements are amply demonstrated in the establishment of Fabindia by John Bissell, a buyer at Macys

who, on a trip to India, was struck by the paradoxical richness of craft traditions and the economic

poverty of the artisans themselves. However, in spite of the happy confluence of serendipity,

ideological beliefs, and entrepreneurial inclination, an idea for a bridging enterprise may die in the

absence of financial and strategic support at the inception stage. An important role can be played

here by an emerging breed of social venture capital funds that aim to support innovative ideas

about economic engagement with the BoP (cf. Outlook Business, 2010). Indeed, Fabindia itself sold

an equity stake in 2007 to a social venture capital fund, Wolfensohn and Co. LLC, in order to fund

their retail expansion.

Fourth, our case study provides evidence that the conceptualization and deployment of

innovative management practices was crucial to the persistence of the ongoing relationship between

Fabindia and artisan communities. In the early years, the adoption of the mix-and-match retail format

for garments rapidly expanded the number of customers who were willing to buy handicraft products

because such a format lent itself to the articulation of individualized style statements by customers.

Later, the constitution of designer-buyer-domain expert teams in each product line enabled Fabindia

to simultaneously address customer expectations while retaining sensitivity to producer constraints.

The SRC initiative combined elements from the cooperative and corporate forms of organization to

create liquid assets for producers and provide them entrepreneurial opportunities while leaving

Fabindia free to focus its energes on downstream value-adding activities.


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Our focus, in this paper, on innovative management practices complements the dominant

focus in the literature on innovation in product and process technologies. In the extant literature, calls

for disruptive innovation involving the BoP have typically emphasized the development and

commercialization of radical new products and services that provide high value to the customer at

considerably low costs to the producer (Anderson and Markides, 2007; Hart and Christensen, 2002;

Seelos and Mair, 2007). Our orientation, however, was towards management innovation (Birkinshaw

et al., 2008). With this orientation, we identified the innovative management practices that emerged

as Fabindia sought to manage the interplay of ideological centrality and economic symbiosis in its

engagement with handloom artisans. Each of these practices hi

building base of pyramid ecosystem

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