The Strategic Potential of Community‐Based Hybrid Models: The Case of Global Business Services in Africa

• Author: Chacko G. Kannothra,Stephan Manning,Nichole K. Wissman‐Weber
• Date: 01 February 2017
• Published date: 01 February 2017
• DOI: http://doi.org/10.1002/gsj.1147

THE STRATEGIC POTENTIAL OF COMMUNITY-

BASED HYBRID MODELS: THE CASE OF GLOBAL

BUSINESS SERVICES IN AFRICA

STEPHAN MANNING,*CHACKO G. KANNOTHRA, and

NICHOLE K. WISSMAN-WEBER

College of Management, University of Massachusetts Boston, Boston,

Massachusetts, U.S.A.

Research summary: Firms in latecomer economies, such as Sub-Saharan Africa, often

have limited success with traditional business models. We explain why it can be more fea-

sible to adopt a hybrid model in such a region that combines profitability with serving

local communities, e.g., by promoting inclusive employment or by targeting underserved

markets. Sub-Saharan Africa supports hybrid models and social enterprises mainly

through local community resources (e.g., labor, market ideas), community organizations

giving access to such resources, and experience with business-community alliances.

Hybrid models can benefit from such conditions when business clients and governments

support the social mission and when firms are ready to target niche rather than main-

stream markets. We illustrate the business potential of hybrid enterprises based on the

case of ‘impact sourcing’in global businessservices in Kenya and South Africa.

Managerial summary: As a latecomer economy, Africa faces persistent difficulties with

catching up in global markets. This study examines the strategic potential of

community-based hybrid models, which balance market profitability with social impact

in local communities. Focusing on the global business services industry in Kenya and

South Africa and the practice of ‘impact sourcing’(the hiring and training of disad-

vantaged staff servicing business clients), we find that while regular providers struggle

to compete with global peers, hybrid model adopters manage to access underutilized

labor pools through community organizations, and target less competitive niche client

markets. We further identify key industry-, institutional-, and firm-level factors that

affect hybrid model adoption. Findings have important implications for research on

catch-up processes in latecomer economies, hybrid models, and global business ser-

vices. Copyright © 2016 Strategic Management Society.

INTRODUCTION

Prior business and development research has

shown sustained interest in ‘catch-up’processes in

emerging economies (Altenburg, Schmitz, and

Stamm, 2008; Lorenzen and Mudambi, 2013). We

understand the ‘catch-up’processasthecontinu-

ous interplay of natio nal economic policies, indus-

try dynamics, and firm capability development

toward greater competitiveness of local firm popu-

lations within and across industries. Prior studies

have focused in particular on entrepreneurial activ-

ities as well as learning, upgrading, and innovation

within firm populations in support of catch-up

Keywords: outsourcing; Sub-Saharan Africa; impact sourcing;

hybrid organizations; local communities

*Correspondence to: Stephan M anning, Colle ge of Manage-

ment, University of Massachusetts Boston, 100 Morrissey

Boulevard, Boston, MA 02125, U.S.A. E-mail: stephan.

manning@umb.edu.

Copyright © 2016 Strategic Management Society

Global Strategy Journal

Global Strategy Journal, 7: 125–149 (2017)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1147

(Amiti, 2001; Bresnahan, Gambardella, and Saxenian,

2001; Gereffi, 1999; Humphrey and Schmitz, 2002;

Saxenian, 2005). This research has also been

extended into Africa (e.g., Abdulai, Youngsun,

and Junghoon, 2012). Yet, scholars are quite skep-

tical about the ability of African businesses to

‘catch up’with global competition by upgrading

and innovating (The Africa Report, 2012). While

global cost pressure has led to a concentration of

production in Asia and has created barriers to

catching up (Altenburg et al., 2008), new business

models that have emerged in Africa, such as

mobile payment, have not made African busi-

nesses more competitive globally (Ozcan and

Santos, 2014). According to an observer from a

major consulting firm, Africa has yet to find its

niche in global markets (The Africa Report,

2012). In addition, a recent World Bank study

estimated that, on average, African firms tend to

be 20–24 percent smaller than firms from other

regions and, hence, have a reduced potential for

job creation (Iacovone et al., 2014). Reasons for

such firm-level disadvantages have been attribu-

ted to lack of infrastructure, access to finance,

and political competition (Harrison, Lin, and Xu,

2014). This seems even more challenging today,

since Africa, as a latecomer, faces global compe-

tition not just from Western but increasingly

from other emerging economies.

At the same time, prior studies indicate that Sub-

Saharan Africa especially has been a fruitful ground

for social entrepreneurship (Harris et al., 2013;

Rivera-Santos et al., 2015), bottom-of-the-pyramid

(BoP) strategies (Kistruck and Beamish, 2010;

Kistruck et al., 2013a), and corporate social respon-

sibility (CSR) initiatives (Gruber and Schlegel-

milch, 2015). This is because, traditionally, African

businesses have been strongly embedded in local

communities, supporting socially oriented projects

through innovative means, such as engaging with

community groups or partnerships across sectors,

that are better able to bridge problems of poverty

and social or environmental concerns (Bitzer et al.,

2015). By ‘local community,’we mean locally

bounded groups of people with shared social ties,

economic backgrounds, histories, knowledge,

beliefs, morals, and customs (Kepe, 1999). Perhaps

more than other regions, Sub-Saharan Africa has

accumulated experience in community-oriented

development initiatives (Juselius, Møller, and Tarp,

2014; Simplice, 2014) involving government, pri-

vate business, NGOs, and community organizations

(Kolk and Lenfant, 2013). As a result, African busi-

nesses have become very involved with develop-

ment and social agendas (London and Hart, 2004;

London, Anupindi, and Sheth, 2010).

It is, therefore, not surprising that African firms

are among the early adopters of so-called hybrid

business models (Holt and Littlewood, 2015),

i.e., business models combining profitability goals

and social missions (Battilana and Lee, 2014;

Smith, Gonin, and Besharov, 2013). Specifically,

we focus here on what we call ‘community-based

hybrids,’i.e., hybrid organizations that not only

serve local communities but also make extensive

use of community resources in order to serve

regional or global markets with their products and

services (see also Holt and Littlewood, 2015).

While prior research has focused on the social

impact of hybrid models in Africa (Rivera-Santos

et al., 2015), we know little about the business

potential of hybrid models, especially in globally

distributed industries and markets. Therefore, we

ask: under what conditions is the adoption of

hybrid models a feasible strategic opportunity for

firms that serve international clients from a late-

comer economy such as Sub-Saharan Africa?

We investigate this question in the context of

the increasingly important global business services

industry, which provides various services to glob-

ally distributed clients, such as tech support, call

centers, financial services, and software develop-

ment. This industry has expanded into Africa in

recent years (Abbott, 2013; Manning, Larsen, and

Bharati, 2015). Within this context, several African

service providers have become pioneers of the so-

called impact sourcing (IS) model—hiring and

training of staff from disadvantaged groups in soci-

ety for global business services (IAOP, 2014;

Rockefeller Foundation, 2013). So-called impact

sourcing service providers (ISSPs) are an excellent

example of community-based hybrids, as they not

only serve, but also ‘utilize,’disadvantaged com-

munities as resources. Based on data from induc-

tive field studies in Kenya and South Africa and

using an extended version of the tripod model of

strategic analysis (Peng, Wang, and Jiang, 2008;

Peng et al., 2009), we find that while many regular

providers in Sub-Saharan Africa have struggled to

stay competitive versus players in India, the Philip-

pines, and other emerging economies, firms adopt-

ing IS have learned how to serve niche clients—

both globally and regionally. Yet, while certain

local resource conditions, such as underutilized

126 S. Manning, C. G. Kannothra, and N. K. Wissman-Weber

Copyright © 2016 Strategic Management Society Global Strategy Journal, 7: 125–149 (2017)

DOI: 10.1002/gsj