Creating Shared Value in Indonesia: The case of Grundfos LifeLink

Abstract

This dissertation takes its point of departure in the apparent theoretical contradiction contained in the now infamous Creating Shared Value (CSV) theory, where Porter & Kramer encourage the private sector to engage in the salvation of societal issues in developing countries (DC). However, they also state, that the ‘location’ of the country should be at a certain level, in terms of stable and capable formal institutions. Such institutions are rare to encounter in emerging and developing markets. Thus, this dissertation explores how imperfect formal institutions in DCs and EMs pose a challenge for the successful implementation of a CSV strategy. An in-depth case study is performed of the Danish pump manufacturer Grundfos, and their introduction of Grundfos LifeLink (GLL) to the institutional complex Indonesian market. The Grundfos LifeLink products are specifically designed to target rural and poor areas in DC’s, and is thus a prime example of a CSV practice. The formal Indonesian water institutions are explored through a thorough institutional analysis, drawing on developmental state theory by Peter Evans, Tuong Vu, and Whitfield and Buur, in order to compare our institutional findings with the assumptions contained in the CSV theory and the specific practice of GLL. Thus, through a deductive research approach and a multilevel analysis of obtained primary and secondary data, we conclude that the formal institutions of the Indonesian water sector contains severe obstacles for GLL to succeed with a CSV approach, due to 1) a fragmented political system, where clear regulation and transparency is lacking, 2) politicians are unwilling to introduce sound and financial sustainable governance of the water sector, due to fear of public outcry of increasing prices, 3) corruption, rent-seeking behaviour, and lack of capacity characterises especially the local level governments, which makes the cooperation with them difficult for GLL, and finally, 4) the state-business relations is lacking efficient cooperation to implement sound developmental policies. Consequently, we argue that formal institutions play a vital role in making a CSV strategy succeed, and thus further research is needed on how to make the different elements of formal institutional obstacles operationalised in the CSV framework, where we suggest an approach for further research.