The favela effect: Spatial inequalities and firm strategies in disadvantaged urban communities

Research summary E‐commerce firms make fewer products available and charge higher delivery prices to customers inside Brazilian favelas than they do to customers immediately outside favelas, despite the absence of infrastructure impediments at the favela borders. This phenomenological study uses mixed methods to investigate firm heterogeneity in these practices. The analysis shows that some firms treat favela consumers more equitably than their competitors. These firms (i) invest in physical stores inside and outside favelas, which are complementary to their online marketplaces, and (ii) engage genuinely with employees and consumers, which reflects their stakeholder orientation. By examining how firms operate in disadvantaged communities, scholars can enrich core theoretical constructs in strategic management, particularly by integrating insights from the fields of critical geography and urban economics. Managerial summary This study investigates whether firms operate differently in disadvantaged communities compared to co‐located nondisadvantaged areas. Findings show that operations in disadvantaged communities, such as favelas (Brazilian urban slums), demand specific investments that support transactions and contribute to realizing the underdeveloped potential of those communities. Firms succeed in commercial endeavors within disadvantaged communities by redeploying their resources and cultivating a stakeholder culture concomitantly. This strategy enables superior performance and the change‐making of structural inequalities to help alleviate poverty and develop urban communities.