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Developing Commercial Markets for BUSINESS DEVELOPMENT SERVICES
“Are ‘how-to-do-it’ recipes possible?” Third Annual Seminar, Turin, Italy, 9-13 September 2002
By Alexandra Overy Miehlbradt and Mary McVay
Developing Commercial Markets for Business Development Services – Third Annual Edition
The ILO works in many developing countries to enhance both the quantity and the quality of employment opportunities. Within the ILO, both the InFocus Programme on Boosting Employment through Small Enterprise Development (IFP/SEED) and the International Training Centre in Turin play central roles in this effort. Both work closely with many other agencies and, in this spirit, collaborate to run an annual Seminar on Business Development Services (BDS). This Seminar has become an important event for BDS practitioners throughout the world, attracting participants from a vast range of countries. All are engaged in designing and implementing projects to support small enterprise development, and all share a keen interest in new ideas and approaches that may increase effectiveness. As well as finding the many presentations interesting, participants seem to find particular value in networking during the breaks, and many continue their discussions by e-mail long after the Seminar has come to an end. Another facet of the Seminar, which has achieved a reputation of its own, is this background Reader. It has been acclaimed as one of the best overviews of work by many agencies in the new and changing area of BDS. The ILO has translated it into French and Spanish, and Swisscontact has translated it into Vietnamese; in addition, many people have downloaded it from the Web, and a number of other agencies have used it in their own events for staff and partner organizations. Our thanks therefore go to the authors, Mary McVay and Alexandra Overy Miehlbradt, who have managed to update and refresh the Reader each year. We are fortunate to be able to build on their accumulated knowledge and networks in this way. The instrumental roles of Jim Tanburn and Peter Tomlinson in organizing the Seminar each year are also gratefully acknowledged. We trust that both the Reader and the Seminar will make important contributions to the cause of improving jobs and livelihoods in developing countries in the coming years.
Christine Evans-Klock, Director, InFocus Programme on Boosting Employment through Small Enterprise Development, ILO Geneva, Switzerland.
Frans Lenglet, Director, Training Department, International Training Centre, ILO Turin, Italy.
BDS Turin 2002: Seminar Reader – Miehlbradt & McVay
Developing Commercial Markets for Business Development Services – Third Annual Edition
The authors are grateful to the practitioners, researchers and donors whose hard work, innovative thinking, and often heart-felt efforts we attempt to capture in the Reader. Their willingness to share information on their programs, innovations, challenges and lessons learned is greatly appreciated. The Donor Committee on Small Enterprise Development has exerted particular leadership in bringing these parties together and helping the field break new ground in facing the challenges of increasing impact, reaching scale and promoting sustainability. We are especially grateful to Jim Tanburn of the International Labour Organization, for initiating this reader, and for his professional and personal support during its development and annual revision. His colleagues at the ILO, particularly Gavin Andersen, provided valuable additional assistance. Thanks to Gail Carter who edited this year’s edition. Thanks also to Joel Ostrow who edited the previous two editions. The authors are also grateful to their spouses for their technical and personal support. This year’s edition is dedicated to BDS market facilitators who are working hard to learn how to effectively develop BDS markets in order to positively impact SEs and the poor.
BDS Turin 2002: Seminar Reader – Miehlbradt & McVay
.....4 4...........................service delivery activities........................................................5 WHAT DOES BDS MARKET DEVELOPMENT MEAN? .................. 12 The Market Development Paradigm.................................................................................................................................. 24 Develop a transactional relationship with suppliers........ ........................ 23 Separate the roles of provider and facilitator...................................................................................................... 23 Use subsidies primarily for pre............................................2 3....... 8 How Do Programs Develop High-Impact Strategies? ..........................................................3 4............................ 3 2 HOW DO BDS REDUCE POVERTY..................................... ......5 4..............................................................................................................................................................................5 2...........9 Facilitate market development rather than providing services............................ 16 Why do BDS markets need development?................................................................... 15 How did the Market Development Paradigm evolve?................................................2 1....................................... 10 3 3......... 1 What is BDS?.......................................3 3..............6 4..................................... ... AND CONTRIBUTE TO BROAD DEVELOPMENT GOALS?........................... 18 Where is the BDS field now in market development? ............................. 18 4 WHAT ARE THE IMPORTANT PRINCIPLES OF BDS MARKET DEVELOPMENT?.... 22 Start with market assessment ........................................................................................................................ 24 Tread lightly in markets..............................3 INTRODUCTION .............1 3...............2 4..............3 What types of impact have BDS programs achieved and how? .....Developing Commercial Markets for Business Development Services – Third Annual Edition TABLE OF CONTENTS 1 1............................... 23 Work toward a clear picture of a sustainable market and have an exit strategy........................ 24 Promote competition and efficiency in the market. 6 How Do BDS Programs Contribute to Broad Development Goals? ......................................1 4.......................... 23 Fit the intervention to the market issue..............8 4.......................................1 1. 2 Outline to this BDS Reader.................................................... GENERATE ECONOMIC GROWTH AND EMPLOYMENT.............................1 2..........4 3.........1 Purpose.......... 22 4..........2 2.................. 12 How does BDS Market Development compare with traditional approaches?........................................and post.....................................7 4.................. 25 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay .............................
................................................. 53 7.........................................4 Supplier Interviews ................................................................................. 32 5......1 Market Overview ..............................4.1 5...............2 5......... 51 7..............3..............................4.......................................................................................2 Embedded Services ......................................5 Piggy-Backing on Microfinance ............................... 56 7. ..................................3 What is a High-Impact SE Development Strategy?.. 31 5....................................................................................5 How can a practitioner choose the right combination of tools for market assessment? ............................ 51 7......................4..........................................1....2.................. 46 How can market assessment help programs reach poor entrepreneurs?..................... 44 6................ 48 7 HOW CAN SERVICES BE AFFORDABLE AND SUSTAINABLE? .........1 WHAT STRATEGIES CAN BE USED TO DEVELOP BDS MARKETS?64 Where do interventions focus?...........................1 Who can Provide Sustainable Services? .........2..... 26 What are demand-driven services? ...............5 Forward Looking Tools...............................................4 Third Party Payment .... 39 6............................................................. 25 5 HOW CAN PRACTITIONERS SELECT APPROPRIATE SERVICES TO HELP SEs DEVELOP AND GROW?.......10 4...................3 What Is The Role Of Government In BDS Market Development? ......................2..............................................3..................1 Fee for Services.............................2 What Institutions Are Appropriate Facilitators?................2 Who Pays? Financial sustainability strategies...................4 6..................................................3 Qualitative Consumer Research Tools................4............2 Demand Analysis .......4....................2...3.....3 Test Marketing or Action Research ................................3 What tools can help practitioners assess markets?.....1...... 30 5....................................................................1 Who does? Institutional Sustainability Strategies .......... 54 7.......................... demand-driven services? .............3 Cross-subsidies.............................................. 45 6.................. 64 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay ................................. 37 How can market information be used to design effective BDS programs? ........................ 28 How can program designers select high-impact........5 Participatory Rural Appraisal......................................................................................... 33 5...................Developing Commercial Markets for Business Development Services – Third Annual Edition 4................. 43 6........... 34 6 HOW CAN PRACTITIONERS ASSESS BDS MARKETS AND CHOOSE INTERVENTIONS TO STRENGTHEN THEM?..........................1.................................................................................................................................. 32 5.......................... 50 7............................................ .................................4 What tools can help practitioners choose high-impact and demand-driven services?......................... 61 7.............................................................................3...... 25 Coordinate donor efforts........................ 42 6.. 42 6..........................1 Sub-sector Analysis.............. 26 5.................................. 61 8 8..................... 57 7..............................................................................................................................................1 6...2 Consumer Surveys .................................. ....................................2............2 What information about a market is needed to choose interventions?.......................... 36 6........................................................................................ 44 6............................................................................4 General SE surveys ............................. 29 5..........................11 Make programs flexible and responsive to the market... 58 7..............................3..... 59 7...................................
.... 105 Disseminating Lessons Learned and Best Practices ......... 98 10 WHAT ARE THE CURRENT DEBATES AND CHALLENGES IN THE BDS FIELD?.....................1.......................................... 88 9.........3 Collective Action: Forming Clusters......................................................................................... 84 8................4................................4.....................7 10.................4 10...................................13 Can the poor benefit from commercially delivered BDS? ........... 74 8.....................................3 Developing Secondary BDS Markets or “Commercial Facilitation” .4................................................................................ 100 Service Selection – Whose Role?................................................................................... 88 9...................................................8 10............................................................. 73 8......................... 86 8....................................................................................................... 69 8............................................4.......... 89 9.............. 79 8.................12 10..................... 101 Finance..................................................................................... 101 Clarifying the Role of Subsidies............................................................................................................................. 106 Developing and Documenting Best Practices ..........2 Large...................................... Networks and Business Associations ............................... 106 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay .........................1 Combining Sector Development & BDS Market Development....................5................4 Promoting Business Linkages and Embedded Services.................1 Why measure performance?..................................................................2 10...........................................................4 What interventions develop markets?............................................4.............................................. 104 Performance Assessment: Who measures what? ......Developing Commercial Markets for Business Development Services – Third Annual Edition 8..........2 8....................................... 100 10.................................................................................................6 Product Development & Commercialization....................5 Building the Capacity of Suppliers . Coordinated Designs for Sector & BDS Market Development........................3 How to measure?.....1.....................2 What to measure?............................................... 85 8.............10 10.... Mass Market Services....2 Providing Information to Consumers............ Microfinance & BDS ............................. 104 The Role of Social Enterprise................................ 77 8. 101 Sector Development vs......................................5 What are some new design innovations in developing BDS Markets? . 94 Performance Measurement Challenges and the Research Agenda .4 The Future Vision of Developing Multiple Markets................................................................. Flexible....................................................................3 10... 65 How do programs promote demand?............1 Trends in Performance Measurement ....................................................3 Developing a Common Performance Measurement Framework ......7 Social Enterprise ...11 10........... 94 9........4..... 105 Defining Performance Standards for the Field ........4.................................................9 10.... 88 9......2 9.................1 Voucher Programs ..............1 10................................................... 100 Assessing Markets..............................5 10.............. 75 8...........6 10......................................................................1......5............. 87 9 HOW IS BDS PROGRAM PERFORMANCE BEING MEASURED? .......... 68 8......................................3 How do programs work with suppliers?............ 85 8.......................... 103 Determining the Appropriate Institutions for Facilitators and Providers .................. 102 The Timeframe for Success..................................5.5........................................... 82 8.............. 67 8.........................
.............14 10.................................. 107 ANNEX A: Definitions ANNEX B: Acronyms ANNEX C: List of Example Boxes ANNEX D: List of Tables and Figures ANNEX D: Bibliography ANNEX E: List of Useful Reading..................................Developing Commercial Markets for Business Development Services – Third Annual Edition 10.... 107 The Danger of Radicalism........................................ Websites and Training Opportunities BDS Turin 2002: Seminar Reader – Miehlbradt & McVay ..............15 The Need for Collective Action .....................................................
These factors often prevent businesses from becoming more profitable. lack of information and unreliable infrastructure. the state and donors? How do we know that any of this investment in BDS is making a difference in the lives of poor people? BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 1 . NGOs. however. and medium enterprises (SEs) overcome these barriers to increased profitability. small. increase productivity. The purpose of this Reader is to development practitioners and help donors. microfinance programs and institutions in a widespread and sustainable has demonstrated that services tailored manner. How can we reach large numbers of entrepreneurs? What types of institutions should be delivering BDS and how? How can we promote the delivery of financially viable services? How can we reach typically underserved SEs? What services do entrepreneurs really need? What are they willing and able to pay for? When are subsidies appropriate and for what activities? What are the appropriate roles for private sector suppliers. grow local economies. that small businesses are constrained by non-financial factors such as lack of education.1 Purpose For three decades. governments. despite access to capital. and create jobs. inadequate technical skills. It is equally evident. poor access to markets. Business development services are designed to help micro. and access high value markets so they can realize their potential to help poor people work their way out of poverty.Developing Commercial Markets for Business Development Services – Third Annual Edition 1 Introduction 1. researchers and researchers have recognized the practitioners understand emerging importance of small business lessons in how business development in increasing employment development services can be and income among poor and lowdesigned and delivered to achieve high impact on economic income people. to meet the needs of very small businesses can be financially viable and effective in reducing poverty. The success of development and poverty alleviation.
small.Developing Commercial Markets for Business Development Services – Third Annual Edition After experimenting for decades with small-scale. best practice. 4 Committee of Donor Agencies. McVay. and poverty alleviation.2 What is BDS? From fair trade marketing to rental of cell phones. More recently. As an example. The purpose of this Reader is to help donors. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 2 . 1996. 1997. and facing the challenging questions that have plagued practitioners for years. “Business Development Services” (BDS) refers to the wide range of services used by entrepreneurs to help them efficiently operate and grow their businesses with the broader purpose of contributing to economic growth. 1999. Formerly known as “non-financial services. consolidating decades of learning from small enterprise development experience around the globe. Tanburn. The BDS field thus comprises many sub-fields. Gibson. and practitioners understand emerging lessons in how business development services can be designed and delivered to achieve higher impact on economic development and poverty alleviation in a widespread and sustainable manner. it is challenging to draw conclusions about BDS in general. the operating principles of the entire field have developed so significantly in the last five years that there are new principles applicable to all BDS. 2000a.” the field originally concentrated its efforts on providing training. which address external constraints on firms in these critical areas. the field of Business Development Services (BDS) is now quickly adopting new high-impact strategies that can reach large numbers of businesses in a sustainable manner. Nevertheless. subsidized programs having modest impact. some lessons learned about technology development may be irrelevant to marketing services. The Reader captures the latest thinking on these issues. researchers. and other services that address the internal constraints on enterprises. employment generation. and medium scale enterprises. small enterprise (SE) covers all these categories. such as infrastructure development and policy reform. In this document the term. consulting. Goldmark. 1996. 3 McVay. anywhere in the world . and presents the global experience that has contributed to current. from entrepreneurship training to the publication of trade magazines. 2001. Tanburn 2000. the field has branched out to include marketing services and information resources that help firms gain access to services usually enjoyed only by larger firms. 1. 1998.4 1 2 Miehlbradt. This is the third annual edition of the Reader and includes updates and new experience gained since the second edition of the Reader was published in September 2001. As practitioners focus more on what SEs demand. their lack of education and technical capacity. The provision of some services—communications and advertising are two such—on a fully commercial basis has shown that effective markets for business services offer the opportunity to help many small enterprises develop and compete.1 The BDS field is now focused on adapting lessons learned from the field of microfinance. the range of services that development projects address has expanded. There are a number of other activities also included under the BDS umbrella. 2000. Donor Committee Guiding Principles. 3 Because of this diversity. unless otherwise stated. that is. 2 The BDS field focuses on supplying services to micro. serving any type of enterprise.
infrastructure.org/bdsguide. forthcoming. The first annual edition of the Reader drew mainly on work from a series of conferences on BDS sponsored by the Committee of Donor Agencies for Small Enterprise Development. Examples of services under each category are provided below. practitioners. policy/advocacy and alternative financing mechanisms. TV ? ? internet access ? ? computer services ? ? secretarial services Policy/Advocacy: ? ? training in policy advocacy ? ? analysis and communication of policy constraints and opportunities ? ? direct advocacy on behalf of SEs ? ? sponsorship of conferences ? ? policy studies Small Enterprise Education and Promotion Network. researchers.Developing Commercial Markets for Business Development Services – Third Annual Edition Table 1: Types of Business Development Services The SEEP Guide to Business Development Services identifies seven BDS categories: market access. Through case studies and open dialogue. training and technical assistance. document.html Miehlbradt.ilo. Alexandra. and some representatives of developing country governments. Market Access: ? ? marketing businesses ? ? market linkages ? ? trade fairs and product exhibitions ? ? development of samples for buyers ? ? market information ? ? subcontracting and outsourcing ? ? marketing trips and meetings ? ? market research ? ? market space development ? ? showrooms ? ? packaging ? ? advertising Input Supply: ? ? linking SEs to input suppliers ? ? improving suppliers’ capacity to provide regular supply of quality inputs ? ? facilitating the establishment of bulk buying groups ? ? information on input supply sources Training and Technical Assistance: ? ? mentoring ? ? feasibility studies and business plans ? ? exchange visits and business tours ? ? franchising ? ? management training ? ? technical training ? ? counseling/advisory services ? ? legal services ? ? financial and taxation advice ? ? accountancy and bookkeeping Technology and Product Development: ? ? technology transfer/commercialization ? ? linking SEs and technology suppliers ? ? facilitating technology procurement ? ? quality assurance programs ? ? equipment leasing and rental ? ? design services Alternative Financing Mechanisms: ? ? factoring companies that provide working capital for confirmed orders ? ? equity financing ? ? facilitating supplier credit Infrastructure: ? ? storage and warehousing ? ? transport and delivery ? ? business incubators ? ? telecommunications ? ? courier ? ? money transfer ? ? information through print. “Guide to BDS Market Assessment for Program Design.org/seed 1.” International Labour Organization. and offers examples of BDS programs that have used them. These conferences brought together hundreds of leaders in the BDS field. Website: http://www. technology and product development. input supply. and BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 3 .seepnetwork. radio. including donors. these experts attempted to develop.3 Outline to this BDS Reader This Reader explains the current operating principles and approaches to BDS. “SEEP Guide to Business Development Services and Resources” Website: www.
5 The Reader refers to this group as leaders or experts in the field and the conclusions presented emerge primarily from these conferences. websites and training opportunities. and giving examples of the strategies practitioners can use to develop BDS markets. explaining its emergence.org (BDS materials) BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 4 . Subsequent editions of the Reader draw on work and dialogue conducted after the conferences. the Reader addresses some of the key questions in BDS for both market development and more traditional programs: ?? How do BDS contribute to development? ?? What is the market development approach to BDS? ?? How do practitioners decide what services to promote? ?? How do practitioners learn about existing markets for BDS? ?? How do practitioners choose strategies to develop BDS markets? ?? What strategies can develop sustainable access to BDS? ?? What strategies can develop BDS markets? ?? How can BDS program performance be measured? ?? What lessons has the field learned in developing BDS markets? The Reader concludes by describing some of the current debates and challenges in the BDS field. see website: www. Within the discussions. 5 To see the conference proceedings and papers from Zimbabwe (1998). a list of useful reading material. called the “Market Development Paradigm. emerged. From this global dialogue a new approach to BDS delivery. a bibliography. Brazil (1999) and Hanoi (2000). a list of acronyms. and a list of case examples cited throughout the Reader. Sections have been added and revised to address what the BDS field has learned about market development as it has evolved. presenting its principles.sedonors. The Reader includes sections defining this approach.Developing Commercial Markets for Business Development Services – Third Annual Edition disseminate best practices in BDS. The annexes include definitions of terms.
6 Carpenter et al. ?? Focus services on these benefits. this chapter addresses the questions: ?? What types of impacts have BDS programs achieved and how? ?? How do BDS programs contribute to broad development goals? ?? How do programs design high-impact strategies? The rest of the reader focuses on how new approaches to BDS delivery have significantly enhanced impact by reaching large numbers of SEs sustainably. empowerment and democratization. increased employment for people in the community. 2001. ?? Assess progress in achieving impact. specific strategy that links business services to welldefined outcomes for SEs is an essential ingredient to achieving high-impact. This growth and increased productivity leads to increased income for owners. 2002. economic growth.6 The research terms these strategies “highimpact SE development strategies. livelihood security and stabilization. and contribute to broad development goals? With the increased global dialogue on Business Development Services has come increased scrutiny and discussion of how BDS contributes to poverty alleviation. generate economic growth and employment. increased employment. Findings in recent analyses of high performance BDS programs show that BDS can contribute to the development objectives outlined above. In general. there is an assumption that access to services will enhance business growth and efficiency. In addition. and other development objectives. or reducing costs so that businesses can grow and become more profitable. business development services are aimed at increasing SE sales. Instead. many BDS programs aim to achieve supplemental development impacts such as environmental preservation. BDS programs do not explicitly state their SE development strategies. or improved health and HIV/AIDS mitigation. Dawson et al. and ?? Adjust their programs to maximize impact.Developing Commercial Markets for Business Development Services – Third Annual Edition 2 How do BDS reduce poverty. gender equity. recent research shows that programs that define how services are expected to contribute to development goals can more easily: ?? Identify services that are likely to bring significant benefits to SEs. By describing a range of high-impact SE development strategies. The research found that a clear and specific strategy that links business services to well-defined outcomes for SEs is an essential ingredient to achieving highimpact. Rather. and economic growth for other businesses in the same market. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 5 . Findings in recent analyses of high performance BDS programs show that BDS can contribute to a range of development goals and that a clear.” Often.
1 What types of impact have BDS programs achieved and how? Underlying all BDS programs is a strategy that describes how SEs use services and how this contributes to development goals.500 businesses in ten years. Kenya After the death of her husband. small-scale farmer.Developing Commercial Markets for Business Development Services – Third Annual Edition 2. increase pricing. In total. USAID and others. and economic growth for the poor. which represents a growth of . Strategy: Help farmers increase production. Example 1: High Impact Development Strategy ApproTEC Irrigation Project in Kenya Mrs. "I’m making enough money now to support my family fully without begging from relatives since my husband died!" Mrs. The results are substantial increases in income.5% in Kenya’s Gross Domestic Product. the following strategy of a high-impact BDS program is clear about how irrigation technology can help small-scale farmers improve output. Using affordable small-scale irrigation to increase her vegetable crops production. In contrast. and diversify to high value crops.ApproTEC. with funding from DFID. and grow high-value vegetables. Generic Strategy Impact Goals Increase income and employment SE Development Strategy Increase sales and reduce costs Business Development Services Business Management Training/TA The generic strategy is vague about the links between services and impact. The pumps were designed and disseminated by ApproTEC Kenya.Kenya Goal: Increase income & employment for rural.org ApproTEC Irrigation . small-scale farmers and their communities. Jane Ondiek. Annually. ApproTEC technologies have helped create 20. Ondiek purchased a small-scale irrigation pump from a private sector agriculture inputs supplier. BDS: Affordable irrigation pumps BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 6 . The first diagram shows the general relationship and the second illustrates a typical. get better prices for vegetables. she now makes enough money to send them to college. employment. Jane’s 6 children almost dropped out of school for lack of school fees. these businesses contribute $27 million in profits and wages. www. Figure 1: The relationship between BDS and impact goals How BDS Achieve Impact Typical. generic SE development strategy. Figure 1 illustrates how an SE development strategy explains the connection between business development services and impact.
“Success Stories. Fax.000 for the total 3-year program. Phone. Many programs with documented high impact are sector specific. enhance impact. there may be significant impact associated with these services that should be explored.000) ?? 200 new jobs created Carpenter et al. Increase sales because buyers and sellers have a reliable way to reach each other.Developing Commercial Markets for Business Development Services – Third Annual Edition In the other example depicted here. Website: www. SEPA has helped with banking and shipping issues.000) ?? Exporter sales to importers up 87% (increase of $650. In its first 2 years.seepnetwork. e-mail and courier services. 7 Given their high demand.” Mamadou Traoré received market linkage and product development assistance from SEPA. SEPA has helped increase sales by sourcing and creating new products for my clients. Improve efficiency by reducing communications and transportation time. but cross-sector services show potential for having high-impact as well.” 2002. 2002 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 7 . and have begun selling their products. export agent in Mali. combined with other aspects of good BDS practice. The sales resulted in measurable increases in employment.org/bdsguide. SEPA achieved the following results: ?? Producer sales to exporters up 124% (increase of $400. at a cost of $700. a BDS program operating in a very poor country was able to significantly increase sales of microenterprise craft producers by developing the industry as a whole. These types of high-impact strategies. Product design. 7 Miehlbradt. Help craft producers increase sales to international markets. photocopying. internet access. BDS: Strengthen market linkages from producer to exporters to international markets. if they are focused and tailored to achieve impact. “I have benefited from Program SEPA in a number of ways. and courier services are demonstrating high demand in Asian BDS markets. SEPA has helped facilitate communication with their Website and internet services.html AFE–SEPA in Mali Increased income and employment for microenterprise craft producers. I have been introduced to a number of new producers. Also. a program of AFE Mali funded by USAID. urban microenterprises. Services such as telecommunications. Example 2: High Impact Development Strategy Action for Enterprise Craft Sector Program–Mali Mamadou Traoré. as depicted below: Figure 2: Telecommunications Strategy Increase income in informal sector. Reduce costs through fewer mistaken orders and better pricing information.
the potential for mass-marketed services to reach very large numbers of SEs has encouraged the field to look more closely at these services. 8 For more on this debate. see Chapter 10 Challenges BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 8 . the Grameen Village Phone project in Bangladesh was reaching 60. and environmental protection.000 users in 2000. democratization. For example.Developing Commercial Markets for Business Development Services – Third Annual Edition This cross-sector strategy is potentially high impact because it targets a specific group of SEs with services tailored to help their businesses achieve cost-reduction and sales objectives. It is followed by an example of how SEWA in India helps women organize to access financial and business development services and to advocate for their rights in the private and public sector. health improvement and HIV/AIDS management. There is less experience and considerable debate on high-impact. mass marketed services.8 Nevertheless. Mexico have helped preserve forests while enhancing income for rural farmers. 2. These are examples of how high-impact SE development strategies can incorporate and contribute to broad development goals.2 How Do BDS Programs Contribute to Broad Development Goals? BDS programs have also had significant impact on broad development goals such as agricultural development. It is thought that these cross-sector services may be more accessible and useful for low-income microenterprises concentrated in retail and service businesses. empowerment. Example 3 shows how Conservation International and its partners in Chiapas. gender equity.
they achieved the following results: ?? Starbucks Coffee Company has purchased coffee directly from farmers for three consecutive years to produce the product Shade Grown Mexico™. www. let it dry and burn it and then plant corn.success stories Conservation International & Coffee in Chiapas. there was a great deal of avalanches. ?? 50% more “conservation” coffee is being exported than last year.seepnetwork.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 3: Contributing to Protecting the Environment Conservation International and Coffee in Mexico Victorico Velazquez Morales. ?? In 2001. SE Development Strategy: Help farmers grow environmentally sustainable coffee and access high-value. brand development and market linkages.000. When CI came and explained how we could conserve. processed and marketed in a way that promotes biodiversity conservation while improving the lives of local people. farmers received a 60% price premium over local prices for their coffee. with $400. … We’ve stopped cutting them (trees) down and we noticed during this last season that the areas where there had been lots of forest cutting. there were 700 farmers and 2000 hectares involved in the program.org/bdsguide. ?? In the year 2001. of the cooperative ) because it’s all we do and we export it and we’re getting better prices …” Conservation International works with local partners as well as the private sector to promote the production of Conservation Coffee™ – coffee grown. President Campesinos Ecologicos de la Sierra Madre de Chiapas. environmentally concerned markets Services: Extension services and input supply to introduce new coffee variety. … Organic coffee is important for me and the members (sic. we began to see that this really does have good results.html . Mexico Goals: Increase farmer income and enhance forest preservation. In 5 years. A. We have left the forest – you can see it – for the last 6-7 years … now you can see the forest is big (has returned) and now we just cultivate coffee.C. (CESMACH). taught us how to compost to do the terraces to make organic coffee and not to cut down the forest and then after 23 years. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 9 . Mexico “…what we used to do was cut back the regrowth.
3 How Do Programs Develop High-Impact Strategies? One of the key mistakes of past BDS programs was that they assumed which services SEs wanted. high-impact program combines a broad strategy—an understanding of how services contribute to impact—with a good understanding of SE demand for services and the systems that put financial pressure on providers to respond to those demands. 2002 ApproTEC. they continued with their struggle. followed by demand assessment and service field tests. An effective. security and power.10 9 10 Carpenter et al. contribute to an insurance fund for the women. They met the largest bidi manufacturer in Madhya Pradesh and managed to get orders. SEWA launched a campaign to have the major bidi buyers. Other firms buying cigarettes felt that if Jivraj Bidi Works paid Provident Fund dues.9 These elements often require programs to respond flexibly to markets and to adjust their strategies as they better understand SE demand for services. On behalf of home-based bidi (cigarette) makers. SEWA and the workers re-launched their legal campaign for better benefits. After negotiations.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 4: Contributing to Empowerment and Livelihood Security SEWA and the Bidi Workers in India A Long Struggle : Bidi Workers’ Provident Fund Case Through a combination of legal advocacy. 2. but SEWA and the firms then disagreed about the amount that was owed.sewa. As soon as workers in Ahmedabad started working for the manufacturer in Madhya Pradesh. Some of the workers decided to seek alternative markets. all of them large-scale firms. the recession in the bidi industry magically disappeared! SEWA Annual Report 2000 www. advocacy and market linkages to strengthen their social. SEWA was able to help home-based cigarette workers in Ahmedabad obtain some social benefits along with their wages. and helping women access alternative markets. In response. The Gujarat High Court ordered Jivraj Bidi Works to pay these “Provident Fund” dues to 154 bidi workers after a fourteen-year struggle. When the bidi workers learned the truth. grass roots mobilization. they too would also have to do so and they immediately stopped giving work to the women. who acts as an “employer. they started giving work again but at lower wages. information. The bidi buyers spread the word that there was a recession due to the workers’ pursuing their Provident Fund case. SEWA workers produced a leaflet explaining the actual facts and distributed it among the bidi workers. Just then there was a sudden “recession” in the bidi industry. The Madhya Pradesh manufacturer was prepared to pay them the wages they received in Ahmedabad. 2002.” Services: Organizing. There are several entry points for developing high-impact strategies: ?? Objective assessment and analysis of SE market opportunities and constraints. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 10 . legal and economic position.org SEWA Advocacy for Women Cigarette Workers Goals: Increase women’s income. SE Development Strategy: Help women obtain an insurance fund from their contractor.
ILO FIT Model. Hileman. 11 12 Mercy Corps . 2000. the field of BDS has made significant progress in recent years in expanding impact by achieving wide outreach. followed up by analysis of market reaction to the services (demand assessment) and understanding of how services are helping SEs achieve impact. 2002. commonly referred to as a “market development” approach. The lessons of more successful programs have been synthesized and have contributed significantly to the development of a new approach to business development service delivery. 13 In addition to achieving impact on assisted businesses. This method harnesses the power of the private sector to deliver high-impact services to large numbers of SEs sustainably and efficiently and to significantly enhance impact. and describes challenges and recent innovations.12 By aligning the process of service selection with the development of a high-impact strategy. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 11 . 13 Carpenter. McVay 2001. et al. 11 ?? Field test of services that seem to be in high demand.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? Demand assessment followed by assessment of SE constraints and opportunities associated with the service and field tests. improved cost-effectiveness. and sustainability. and which impacts (through evaluation). presents existing evidence of its success. The rest of this Reader describes this service delivery approach. programs are able to incorporate the strengths of impact-driven programs with those of demand-driven services.
began charging fees for services and a few have become financially sustainable. The goal of market development interventions is to overcome these market failures and take advantage of opportunities to expand the service market for SEs. business-to-business relationships. cost-effectively and sustainably by developing a broad market of BDS suppliers and SEs who access services through mainstream. these programs have tended to remain small.1 The Market Development Paradigm The Market Development Paradigm proposes a new vision for success. The Market Development Paradigm is a new approach to BDS design and delivery that has the potential to reach large numbers. The desired result is that numerous SEs buy the BDS of their choice from a wide selection of products offered (primarily) from unsubsidized. traditional development programs focus on one institution. and the market failures that lead to a gap between supply and demand for services. private sector suppliers in a competitive and evolving market. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 12 . donor supported programs and government. The goal of market development interventions is for a large proportion of SEs to buy the BDS of their choice from a wide selection of products offered (primarily) by unsubsidized.Developing Commercial Markets for Business Development Services – Third Annual Edition 3 What does BDS market development mean? In order to provide SEs with access to BDS. and expensive. Programs start by understanding the existing supply of BDS from the private sector. 1999a. private sector suppliers in a competitive and evolving market. however. Unlike microfinance institutions. learning from the success of microfinance institutions in sustainably reaching large numbers of people. private-sector business services market—numerous.14 Some non-profit BDS providers. 15 This is perhaps because microfinance is a mass-market product whereas the services these organizations offer tend to be tailored to specific “niche” markets. (“Buying” can mean paying fees for services or procuring them though commercial relationships with other businesses. 3. 2001. Goldmark. McVay. providing subsidies that allow SEs to access services free or at very low cost. 1999b. competitive BDS suppliers who sell a wide range of BDS to large numbers and types of SEs. small-scale.) 14 15 Committee of Donor Agencies. one that looks like a healthy. There is now agreement in the field that this approach has had a limited impact because programs were generally short-term.
owned by BRAC. 5) Starting a sustainable feed mill. BRAC identified the poultry sub-sector as an important. Staff studied problems facing the small-scale poultry rearers. and sell them to poultry rearers. Interventions included: 1) Identifying and strengthening private sector hatcheries. 4) Identifying and training skilled poultry farmers to become specialized chick rearers who raise improved varieties of chicks for five weeks. Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance. private sector technology chain.“BRAC Poultry Program in Bangladesh. owned by BRAC.).sedonors. BRAC has supported the development of private sector markets to reach this goal. a Performance Measurement Case Study on BDS for SMEs. low-income people gain access to improved technology in 1999. 2) Identifying entrepreneurs and training them to start mini-hatcheries. particularly women. April 2000. website: www. In addition to establishing this sustainable. and 6) Identifying and training private sector feed sellers in the distribution of improved feeds. BRAC charges fees for its services and earns income from its businesses in the sector. 3) Identifying and training BRAC members to become poultry workers—independent entrepreneurs who provide technical and medical services to poultry rearers. Newnham Jack.” by Jack Newnham. The solution was to assist small-scale poultry rearers to access high yield varieties of chicks and the feed and medical services required to rear these improved varieties. for a reliable source of improved feed. (And establishing several sustainable hatcheries.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 5: Early Market Development Program BRAC: Poultry Development in Bangladesh Poultry rearing is a traditional income generating activity for millions of rural Bangladeshi. growing market in which large numbers of poor people earned income. BRAC developed the capacity of over 60. and identified low quality chicks as a cause of low-prices. BRAC’s cost-recovery in these “facilitation” activities is 50%. and identified interventions that would develop a sustainable technology input chain.000 BDS suppliers and helped almost 2 million rural. that serve remote areas and generate income for the organization.org (BDS materials) BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 13 . BRAC’s poultry program aims to increase the viability of poultry rearing by helping chicken rearers gain access to high yield varieties of chicks and the skills and services necessary to rear them. BRAC then analyzed the technology and poultry input chain. both large and small-scale. With this strategy.
BRAC’s Poultry Development in Bangladesh 1 BRAC Feed Mills BRAC: 3 Mini Hatchery BRAC: 1.730 Market: 22.) Feed Sellers BRAC: 2.800 Large Scale Hatcheries (5 BRAC + private sector + gov’t.225 Market: 1.395 Market:1.000 TA BDS Inputs Chicken Rearers BRAC: 1.243 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 14 .381.000 Poultry Workers BRAC: 42.000 Chick Rearer BRAC:14.Developing Commercial Markets for Business Development Services – Third Annual Edition Figure 3: Early Market Development Program.876.000 Market: 70.563 Market: 3.
3. supplier training. BDS 2000 Training Course.Developing Commercial Markets for Business Development Services – Third Annual Edition The market development perspective recognizes that the provision of operating subsidies to particular suppliers may crowd out other private sector suppliers. Some programs also stimulate demand by providing information about services and marketing.”18 16 17 Springfield Centre. new product development. or by temporarily discounting services. and activities aimed at “facilitating” market improvement by increasing demand and/or improving supply. The main activity of a subsidized BDS program is not direct service provision. objective. 2000a. It is. Experts in the BDS field have judged this change in approach so significant that they are calling it a “paradigm shift. provision of information for consumers. These programs promote the following changes in the market: ?? Number of differentiated suppliers increases. market research. rather. not skewed by donor funding. Presentation to the Donor Committee. who do not receive subsidies. ?? A variety of service products is available in the market. 17 The two approaches differ fundamentally in their vision. they do not depend on subsides.2 How does BDS Market Development compare with traditional approaches? Table 2 summarizes the characteristics of traditional programs compared to market development initiatives. ?? Suppliers’ costs are appropriate for the SE market. 18 Gibson. ?? Service quality and appropriateness improves with increased competition to serve SEs. point of intervention. 1999 and Hileman and Tanburn. monitoring and evaluation. Adapted from Hallberg and Tanburn. and 16 ?? Number of transactions between private suppliers and SEs increases. duration of involvement and approach toward subsidies. ?? Suppliers earn profits from fees to SEs or other commercial sources. 2000. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 15 . Market development programs tend to promote as many suppliers as the market will bear.
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Table 2: Traditional vs. Market Development Interventions
Traditional Interventions Vision A non-profit or government organization provides quality BDS to SEs. Provide quality services that SEs can afford Diagnosis of needs, surveys “First Tier”: direct provision through a single, local institution Permanent: donor-funded programs must continue if services are to be available to SEs Support free or low-cost services to clients. Justified in the longrun: SEs can’t be expected to pay full costs Market Development Interventions A sustainable, primarily private sector market, made up of competing suppliers, sells a wide range of quality services to SEs. Encourage others to provide quality services for which SEs are willing to pay full cost Assessment of the market (demand, supply, potential) “Second Tier”: facilitate, regulate, develop products for and work with more than one supplier. Temporary: withdraw as markets develop Support assistance to suppliers or temporary grants to clients. Justified in the short run if market development impact outweighs market distortion impact.
Starting Point Point of Intervention Duration of Involvement Subsidies
How did the Market Development Paradigm evolve?
The Market Development Paradigm emerged from a convergence of innovative practices, research, and pioneering thinking. Isolated BDS practitioners around the globe, determined to reach large numbers of While most BDS practitioners firms through sustainable delivery of BDS, assume only non-profit experimented with and developed innovative organizations service SEs, it ways of delivering BDS that would overcome is actually unusual for there the challenges of “traditional” programs. The not to be an existing private shift in approaches was fueled by three sector market for BDS. innovations in the BDS field: 1. Practitioners developed “demand-driven” services that meet a specific need for which SEs are willing to pay. By charging a fee for services, BDS providers were able to deliver better services because firms began to expect value for their money. 2. Non-profit institutions attempted to recover costs through these fees, which resulted in some sustainable institutions, but few on a large scale.
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3. To reach scale, a few innovative BDS programs began working with several providers, and they began stimulating demand through the distribution of “vouchers” that discounted services for SEs.
Example 6: The “Hidden” BDS Market in Vietnam and Thailand A study by the International Labour Organization in Thailand and Vietnam found that BDS were delivered to MSEs in four ways: ?? fee for service, ?? commission basis, ?? through business relationships, ?? through the business environment. The study focused on services to micro enterprises and stated that 84% of the sample businesses employed fewer than 7 people. It also found few services provided by service companies on a fee for service basis. Sales services were typically provided on a commission basis and the channel through which the widest variety of services was delivered was business relationships. Services delivered through this channel included training, marketing, product design, and market information. Some types of business information were also offered through the media and customers. The study shows that even the smallest businesses are currently obtaining business services through private sector channels.
Anderson, Gavin “The Hidden MSE Service Sector – Research Into Commercial BDS Provision to Micro and Small Enterprises in Vietnam and Thailand” April, 2000. Website: www.sedonors.org (BDS materials)
These isolated experiences were shared and studied at the Donor Committee conferences, which also commissioned research into what works in the private sector. In well functioning markets, how do SEs access BDS? While most BDS practitioners tend to assume only non-profit organizations serve SEs, it is unusual for there not to be an existing private sector market for BDS. These markets have remained hidden to BDS experts because they offer different products than most BDS organizations, are less formal, and the experts failed to look for them. These findings have led to thinking about how to strengthen, expand, and develop existing BDS markets. There is a growing sense of obligation to understand the market for a BDS before starting any type of BDS project, in order to maximize benefits for SEs and minimize distortions in markets that already provide benefits to some SEs. Finally, a growing awareness of the power of markets as engines of growth and efficient distributors of goods has contributed to innovative thinking about how markets can be channeled to benefit SEs. The Market Development Paradigm reflects the thinking that integrating poor people and SEs into markets links them to growth and that functioning BDS markets of relevant, differentiated services provide the best environment for SE growth. By purchasing BDS, SEs take another step into markets as discerning and valued customers or business associates, rather than as beneficiaries. The practitioner innovation, research into private sector markets, and innovative thinking about markets converged around the Donor Committee conferences to produce the Market Development Paradigm. This is summarized and presented in “Business Development Services for Small Enterprises: Guiding Principles for Donor Intervention,” issued by the Committee of Donor Agencies on Small Enterprise Development in 2001. 19 The approach is still quite new, but a small, fast-growing
Committee of Donor Agencies for Small Enterprise Development, 2001.
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number of new programs have adopted the full approach and some of the older programs that helped formulate the new paradigm use aspects of it. The Reader describes how existing, innovative programs illustrate the principles and strategies that make up the market development paradigm, whether they use the full approach or only aspects of it. Although the paradigm needs to be assessed over time to understand its long-term impact, it shows potential for reaching large numbers of SEs, sustainably and cost-effectively. 3.4 Why do BDS markets need development?
The BDS market development approach is rooted in a fundamental faith in private sector markets as engines of growth and efficient suppliers of goods and services. Despite this belief and evidence of the existence of private sector BDS markets, many SEs, particularly the smallest, poorest, and most remote do not have access to desired services. This is because the BDS markets serving SEs are wrought with market failures, including: ?? Suppliers serving SEs in urban, but not rural areas; ?? Suppliers serving medium sized businesses, but not small or micro enterprises; ?? Suppliers offering inappropriate or undesirable services; ?? Suppliers providing appropriate services, but there are so few suppliers that prices are high and the wait is long; ?? Suppliers unskilled in business management and marketing who offer a limited service range using few, if any, promotion strategies; ?? Suppliers’ lack of market information about the service characteristics that SEs desire; ?? Small numbers of suppliers who create a monopoly or cartel resulting in high prices for services and often, inappropriate service products. In the case of marketing businesses, monopolies may result in exploitative prices for SE products and few alternative market channels; ?? SE lack of information about available services and their benefits; ?? Risk averse SEs, combined with suppliers who are unable to convey the quality of their products, resulting in SE reluctance to try services; and ?? SEs that are simply too poor to pay outright for services, or too limited in their business capacity to take advantage of existing BDS. Continued intervention in BDS markets can contribute to resolving these types of market failures, but the provision of free or highly subsidized services may contribute to market failures and inhibit the availability of services to SEs. While these highly subsidized services may benefit the few who have access to them, in the long run they may hinder economic growth, employment generation, and poverty alleviation. 3.5 Where is the BDS field now in market development?
Since the Guiding Principles first appeared donors, practitioners, and academics in the BDS field have been working to elaborate and test the market development approach. Some are starting new programs that use the approach while others are adapting existing programs to follow some or all of the market development principles.
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mip. (See Chapter 9) 20 See particularly “BDS Market Development: A Guide for Agencies” by A. Inc. Demand-side: Consumers were unaware of the potential benefits of purchasing services. A particular area of focus has been how the market development approach can be effectively applied to reach typically underserved SEs and a lot of critical thinking has gone into fleshing out ways to implement the approach. USAID Microenterprise Best Practices Project managed by Development Alternatives Inc.20 A number of agencies are working on how to effectively monitor and evaluate market development programs and the development of a common performance measurement framework for BDS programs is on-going. usually deciding to generate the service in-house without an evaluation of the relative costs and benefits.ilo. Indonesia and Malaysia Recent research documented a variety of market failures common to BDS markets in Vietnam.sedonors.htm www. Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance . R. the specialized expertise necessary to effectively serve the market. Suppliers were concentrated in urban areas and there were almost no services in rural areas.org BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 19 . 2001. Many suppliers lacked good quality control. Indonesia and Malaysia: Supply-side: The study found that private sector suppliers in all three countries faced competition from government and donor-funded programs. Hitchins and M. Very small firms lacked the human resources to gather and analyze information on alternative sources of business services. Consumers were concerned that purchasing services would compromise their confidential business information. Riddle.org (BDS materials) Donors and practitioners have begun sharing the lessons they are learning from implementing the market development approach and more performance measurement and analysis of existing programs has been conducted to find the lessons learned and see how these programs might mesh with the approach. “What Do We Know About BDS Markets?” Service Growth Consultants. April 2000 website: http://www.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 7: BDS Market Failures in Vietnam. Gibson.org/public/english/employment/ent/sed/bds/donor/hanoi.. and the knowledge or ability to tailor products to consumers’ demands. consulting and market research services. This “crowding out” was most apparent for training. Website: www. Bear. Dorothy.
delivery box quantities. Website: http://www.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 8: Surprising forms the BDS Market Takes Market Access and Packaging services for Bicycle Parts Manufacturing in Vietnam A European bicycle manufacturer imports parts from Vietnamese SEs for assembly in the UK.21 There are many different types of BDS providers. bar code labels and production pipeline information. The resulting cost reductions have been passed on to suppliers in the form of higher prices for their parts. Mary says that the poorest clients are often the most eager to pay because they have been excluded from donor supported training programs. 2001. Transactions embedded in other commercial relationships and BDS paid for by commercial third parties (often interested in advertising to SEs) are more common than expected. The UK buyer established an Internet link to send SE suppliers designs. For the most part. Since then. Many donors and practitioners are not yet sure how to 21 Miehlbradt. Intermediate Technology Publications. The largest Vietnamese supplier collects the parts from the others. One of the key findings has been that BDS markets often do not look the way donors and practitioners expect. Hileman. These market access and packaging services for SE suppliers in Vietnam have reduced the assembly plant’s quality problems. Understanding these existing markets is beginning to inform strategies for BDS market development. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 20 . Mary also provides free follow-up business advice to enhance client satisfaction and build her business network and client base. It is important to recognize how BDS are delivered in private sector markets so that these vital services are not interfered with by well-meaning development programs.uk/idpm Recognizing that the BDS field still knows relatively little about existing BDS markets. research in this area has also been a focus of recent work. March. production disruptions and lead times. 2000.com Despite the progress made. from individuals working part-time in the informal sector to large formal sector companies and institutions. Duncombe. Available from IT Publications and Amazon. As a sideline. Mary says her clients accept her as a trainer because she is a small business person like them. which often require some degree of literacy. Transactions take various forms with fee-for-service transactions a minority of the transactions that take place in SE BDS markets. there are still many questions and debates surrounding the market development approach. Milena and Jim Tanburn. Were market analysts looking for a typical BDS delivered by an NGO or business charging a fee for the services.ac. this vital business service would have been missed. She reports that the FIT courses are well suited to her clients because they do not require literacy. The University of Manchester for DFID.man. In fact. she has also attended two ToT courses sold by FIT Uganda—Rapid Market Appraisal and Grassroots Management Training. she also prints and sells stock cards and cashbooks for SEs. Mary began training when she was accepted into an ILO Training of Trainers (ToT) course to offer Improve Your Business to her fellow SEs. The system also allowed suppliers to attract more foreign customers. greases and pre-assembles them before packing them according to the assembly plant’s requirements using the bar codes provided. Example 9: Private Sector BDS Suppliers A For-profit Trainer in Uganda Mary operates a peanut-butter production enterprise supplying three local supermarkets and runs a training business – her main source of income. The Wheels of Trade: Developing Markets for Business Services. 2001a. Mary charges her clients fees that allow her to make a good profit. Richard and Richard Heeks. “Enterprise Development and Information and Communication Technologies (ICTs) in Developing Countries: ICT-Flyers” Institute for Development Policy and Management.
Developing Commercial Markets for Business Development Services – Third Annual Edition assess existing BDS markets and how to translate that knowledge into effective market development interventions. capacity. They are also struggling to determine the appropriate structures. More experience in implementing market development programs and sharing lessons learned will help the field address these issues. and funding mechanisms to effectively implement market development programs. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 21 .
develop new. low-cost products. In traditional programs." the vertical dashed lines represent the divide between public and private funds. donors and governments try instead to promote transactions between SEs and primarily private sector suppliers. there are ways to carefully and effectively intervene in BDS markets. and SE expand services to underBDS BDS served markets. In the market development approach. donors and governments intervened in the BDS market at the level of transactions. 2000a. In traditional programs. providing services directly to SEs or permanently subsidizing services from non-government providers. 2001. SE Facilitator Provider SE SE SE SE BDS Provider Direct provision of services Facilitation of demand and supply In Figure 4. The complexity and informality of BDS markets creates challenges not faced by these simple arrangements. Rather than offering Figure 4: Facilitating BDS Market Development financial assistance to Commercial Orientation Development Agenda suppliers. New projects are demonstrating that. if donors and practitioners can learn to work more effectively with the private sector and experiment with new mechanisms for assistance. Gibson.Developing Commercial Markets for Business Development Services – Third Annual Edition 4 What are the important principles of BDS market development? Is there a practical way to intervene in BDS markets? The markets are diverse with a variety of types of services and transactions. The following are emerging principles of good practice in BDS market development that have come out of the Donor Committee conferences and related work. The market development paradigm suggests that 22 Committee of Donor Agencies. interventions concentrate more on SE technical assistance and incentives that encourage SE BDS suppliers to enter new Provider SE markets.1 Facilitate market development rather than providing services. Many suppliers and customers operate in the informal sector. “Facilitating BDS Market Development. donors conducted a needs assessment and developed relationships with the few non-governmental organizations providing services to SEs. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 22 . “facilitating” the expansion of markets rather than “providing” services.22 These principles may be modified as the field gains more experience with the market development approach. 4.
limited and focused interventions are more likely to address a market issue with minimal distortions. Because any intervention will change the market. Programs are beginning to use subsidies instead for pre-delivery activities such as the development of service products.”23 4.4 Use subsidies primarily for pre.delivery activities. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 23 . donors and practitioners must first understand it.and post.Developing Commercial Markets for Business Development Services – Third Annual Edition donors and governments move the line as far to the left as possible. Donors and practitioners are increasingly conducting market assessments before designing BDS programs. What BDS are being offered to targeted SEs? Who is supplying them? Are SEs paying for the service? How else is the service procured? What types of services do SEs demand? What prices can they pay? Who is providing those services in the market. see Kristin Hallberg. February 15. usually competing suppliers offer a wide range of products and frequently innovate to meet changing demand Like traditional programs. 4. pp.or post. so that the BDS market becomes more commercially oriented and sustainable. but perhaps not to SEs? What are the market weaknesses and opportunities? In order to minimize the market distortion that any subsidy creates.2 Start with market assessment To effectively intervene in a market. 23 24 Committee of Donor Agencies.5 Work toward a clear picture of a sustainable market and have an exit strategy.service delivery activities Subsidies that directly reduce the cost of services are likely to distort markets more than subsidies for pre. 4. capacity building. For an example of the economic rationale for this principle. it is helpful to understand BDS markets before starting interventions. 2001.25 4. or for post-delivery activities such as gathering consumer feedback. market development programs may continue indefinitely unless program managers have a clear vision for a sustainable BDS market and an exit strategy. 2000. In a sustainable market. subsidies for transactions are avoided or limited to a short duration with specific objectives.3 Fit the intervention to the market issue. 17-18 25 Committee of Donor Agencies. and raising awareness. 2001. market development programs may continue indefinitely unless program managers have a clear vision for a sustainable BDS market and an exit strategy. test marketing. “A Market Oriented Strategy for Small and Medium Scale Enterprises” IFC Discussion Paper. Subsidies are also being used for monitoring and evaluation. 24 Donors and practitioners are beginning to target market problems and opportunities identified during market assessment with interventions aimed at addressing those issues and designed with specific market development objectives. In the market development approach. Like traditional programs.
Experience to date suggests that facilitators should have a transactional relationship with suppliers.Developing Commercial Markets for Business Development Services – Third Annual Edition and capitalize on market opportunities. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 24 . However. The emerging message is. permanent market actor. This does not preclude working with one supplier for some activities at some points in a program. The exception is if a facilitator can finance its activities by selling services to suppliers.8 Develop a transactional relationship with suppliers. Otherwise. which gives that supplier an unfair advantage over others and suppresses competition in the market. There is growing consensus that development agencies are more likely to end programs successfully if there is a specific vision for a sustainable market. the better. 2001. but facilitators should encourage these organizations to act as commercial market players and distort the market as little as possible. weighing costs and benefits. This often presents a conflict of interest for a competitive supplier. thus becoming a sustainable. for example testing a new product or in a new or very weak market. the more a program works with market principles. they are more likely to feel some ownership of the initiatives and use program resources wisely. Some in the BDS field also recommend that donors have transactional relationships with facilitators. Because facilitators usually have a development agenda and suppliers a commercial agenda. 4. usually by working with many of them. Sustainable markets should also be growing in volume and offering increasing access to under-served groups.7 Promote competition and efficiency in the market. In many BDS programs. it does mean that a facilitator must always be careful to promote rather than stifle competition in the market. they should disappear as the market develops and suppliers or other permanent market actors take over their functions. the facilitator is “picking winners” rather than letting the market determine which suppliers are best. but private sector suppliers are usually more efficient and innovative.26 4. 4. mixing the roles often leads to ineffective programs and inefficient use of funds. Programs do not have to exclude organizations with a social mission. If facilitators are publicly funded. All players in the market should have equal opportunity to access facilitation services.6 Separate the roles of provider and facilitator. the same organization performs both the supplier role of offering services directly to SEs and the facilitator role of encouraging other individuals and firms to supply services to SEs. If suppliers choose to work with the program in the same way that they make other investment decisions. Experts now think that facilitators should promote competition among suppliers. Programs working with commercial suppliers have found that it is helpful if suppliers invest their own resources in program promoted initiatives. The challenge is to assess the market objectively to determine when it has reached a sustainable level. 26 Committee of Donor Agencies. Traditional programs often work with only one supplier. Traditional programs often work with not-for-profit or public institutions.
Market development programs to date show that a more flexible. entrepreneurial approach is needed.Developing Commercial Markets for Business Development Services – Third Annual Edition 4. 29 Tomecko. Markets can change rapidly and often react to facilitators’ efforts in unexpected ways. 29 27 28 Tomecko. taking advantage of opportunities and changing strategies as appropriate. This appears to be difficult but it is important in markets with weak demand.11 Coordinate donor efforts. Experience has shown that facilitators must be free to respond to the market. In traditional programs.Committee of Donor Agencies. Free services dampen SE willingness to pay.28 Market development programs to date show that a flexible. a common characteristic of low-income consumers. and maintaining a low profile.9 Tread lightly in markets. 2000.Committee of Donor Agencies. In markets with relatively few suppliers. 4.10 Make programs flexible and responsive to the market. they must not be smothered. follow them. Donors and practitioners should exercise discipline – matching interventions to the level of the market. entrepreneurial approach is needed. Visible donor involvement in SE programs tends to distort markets because SEs and providers come to expect subsidies. If markets are to develop and serve low-income clients with the services they desire. 2000. Tomecko. these suppliers can be overloaded or lose their commercial focus if they receive significant financial resources from several donors. donors face pressure to disburse funds. Particularly where poverty alleviation is the program goal. 2001. Suppliers will almost always choose to work with a donor who will subsidize transactions rather than one who advocates market development. Even what donors consider moderate financial inflows can damage a budding market. 2000. 27 4. Large government and donor programs have often suppressed private BDS markets or crowded out private suppliers. 2001. coordination is important. managers specify the steps leading to the achievement of program outputs at the outset and then. Even if all donors are pursuing a market development approach. for the most part. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 25 . emphasizing technical assistance over financial inflows. It is very difficult and not very effective for one donor to pursue a market development approach if several others continue to subsidize transactions and offer publicly funded services in the same market.
product development. BDS practitioners stated that SEs were not always aware of the benefits of BDS because so few had experienced them.1 What is a High-Impact SE Development Strategy? A high-impact SE development strategy. until such time as entrepreneurs realized the value of the services. Alas.Developing Commercial Markets for Business Development Services – Third Annual Edition 5 How can practitioners select appropriate services to help SEs develop and grow? For years. This strategy often targets the more entrepreneurial and market ready SEs. the link between the services and program impact is explicit and clear. described more fully in Chapter 2. 2) Mass Market Strategies: help diverse enterprises incrementally improve their efficiency and/or sales through “cross-sector” business services—such as. in financial terms. whether or not they find that the services add immediate value to their businesses. In each case. and entrepreneurs are unwilling to pay for them. that time has not come. and basic legal services—or by offering a range of specific services such as technical training. or input supply and are characterized by entrepreneurs making significant changes in their businesses to achieve high growth. BDS needed to be subsidized and promoted. program designers can identify services that help SEs get what they need to improve their businesses and create the impact that the program aims to achieve. better performing programs have devised high-impact SE development strategies that drive service selection and offered “demand-driven” services delivered through commercial channels that allow SEs to express. This strategy targets a wide range of businesses and is often relevant for businesses struggling to participate competitively in local markets. sometimes even required in order to access finance. Despite participatory rural planning methods and expensive surveys assessing needs. too many BDS programs continue to supply services that entrepreneurs do not value. their impact cannot be demonstrated. 5. technology. computer services. In contrast. the argument went. They often involve services such as market links. accounting. Therefore. SE development strategies fall into two broad categories: 1) Sector Strategies: help specific groups of enterprises access particular product markets. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 26 . access to telecommunications. defines what programs are trying to help SEs achieve and answers the question: how do SEs want to improve their businesses? With this strategy in mind. Example 10 and 11 illustrate “sector” and “mass market” strategies.
“An Information Revolution for Small Enterprise in Africa: Experience in Interactive Radio Formats in Africa” ILO. Strategy: For large. The strategy drives MBLP’s focus on the services SEs need to make these market links effective and sustainable. This helps drive service selection. 2002. provide market information and promote interaction among SEs and BDS suppliers. McVay. They reach over 2 million people. FIT initiated commercial SE radio programs in Africa that investigate and facilitate public dialogue between informal sector businesses and key policy makers and administrators. They have been instrumental in eliminating policy bottlenecks and opening markets for milk traders and fishermen. while at the same time increasing SE participation in it.ilo. it is clear who it is trying to help achieve what impact.shorebankadvisory. but they are not sufficient—there is danger in relying too much on the judgment of program BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 27 . The ILO/FIT radio program provides information targeted to informal sector SE listeners in the same geographic area and helps them link to mainstream markets and political processes.com Services: SE Radio shows that: ?? Facilitate policy dialogue ?? Link SEs to product and input markets ?? Strengthen linkages between SEs and business service suppliers. Mary.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 10: Sector Specific Strategy Manicaland Business Linkage Project in Zimbabwe Example 11: Mass Market Strategy ILO FIT SE Radio Programs in Africa Goal: Increased growth and jobs in the timber industry and its community. High-impact program strategies can help identify high-impact services. high-impact services. vertically integrated firms to more effectively compete globally by increasing efficiency. thus preserving valuable jobs in the large firms. Website: www. through subcontracting. Services to SEs: ?? Market linkages to large firms ?? Technical assistance to SEs (provided by large firms) ?? Linkage to finance (Often through large firms. September. and creating new jobs and higher income in the small firms. Website: www. The program has helped the timber industry in Manicaland survive in global markets and in the current economic decline facing Zimbabwe. and reducing electrical and telecommunications costs. Strategy: Help informal sector businesses participate in mainstream economic and business service markets and in political processes. MBLP in Zimbabwe targets a smaller niche group of businesses in a given sector and particular region and helps make the dominant industry more competitive. “Helping Small Businesses Grow and Create Jobs: Good Practices from Global Experiences. increasing safety and sanitation in physical markets. Carpenter. Although a “mass market” strategy.) Manicaland Business Linkage Project (MBLP) helps rural informal sector businesses sell to large-scale businesses that are restructuring in order to compete in global markets.” Forthcoming from Shorebank Advisory Services.000 new jobs. In its first two years it created 1. Goal: Increased employment and income for informal sector businesses. 2002. Janney.org/seed These high-impact strategies drive service selection by honing in on a group of SEs experiencing common constraints and opportunities and assisting them with focused. et al.
This is in contrast to traditional BDS programs. entrepreneurs will pay. or raw materials to their SE suppliers. although not feebased. Gavin “The Hidden MSE Service Sector – Research Into Commercial BDS Provision to Micro and Small Enterprises in Vietnam and Thailand. SEs sometimes receive training and advice from friends. demand-driven services: ?? Respond to SE wants and needs.Developing Commercial Markets for Business Development Services – Third Annual Edition designers. 1996. relatives. Although many entrepreneurs are not able to identify complex constraints facing their businesses. pays for them. And. These BDS. they start to see their value and want to address other problems. and ?? Put financial pressure on the provider to deliver quality services. they expect quality services in return. The best way to prove that services add sufficient value to target businesses is when an entrepreneur.30 Demand-driven services are more likely to have an impact on business performance than services that development experts believe will benefit SEs. The challenge is in knowing which ones will have an impact— despite their best analyses. Website: www. The purpose of offering demand-driven services is to identify and deliver those that impact SE businesses. they won’t. Demand-driven services should meet a clearly identified need and SEs should be willing and able to pay for them. Payment for services is a good indication of desire and value. or peers who work in their line of business. when people pay. are demand-driven in that the sources are commercial or social actors who are accountable to SEs for good services. or large businesses may pay for advertising in newspapers or radio programs that provide useful information to SEs. program designers are often wrong. but they may not have to pay for them directly. 5. market information. Anderson. These services help rural producers stay in touch with the changing urban market trends and the showrooms embed the cost of this service in the commission and mark-up it receives on sales and orders.2 What are demand-driven services? In general. Those who buy SE products often provide product specifications. If it doesn’t. many furniture showrooms in Hanoi sell furniture from rural SE producers.sedonors. These services meet a specific need of SEs. or someone else who finds value in them for SEs.” Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance . 30 Chen. Strong BDS programs also let SEs drive service selection by delivering demand-driven services. evidence suggests that when they gain access to a service that meets an articulated need and are able to solve a business problem. Entrepreneurs are also more likely to give feedback to an organization about their precise wants and needs if they are paying customers and don’t have to worry about offending a patron. one of them prepares design drawings when ordering furniture from rural producers. Example 12: Embedded Services Can Also Be Demand Driven Furniture Manufacturing in Vietnam In Vietnam. If a service adds value to the business and is worth the investment.org (BDS materials) Another type of demand-driven service is acquired through commercial transactions or relationships. ?? Are delivered through business-to-business transactions. April 2000. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 28 . Some of these showrooms provide market information and product designs to their SE suppliers.
Usually a broad set of services is identified after which program designers assess demand for them and prioritize those with both high demand and potential impact. the program focuses on several and explores the constraints and opportunities in those markets.32 2) Demand-led. and the impact they might achieve. 2002. 34 5) Service-led programs: In some situations. Vietnam. 35 31 32 Carpenter et al. These decisions are iterative. The end result can be either cross-sector or sector oriented. Hileman. In this situation. organizations try to identify populations and circumstances in which their services might be in high demand. demand-drive services accompanies the development of a high-impact strategy and the identification of target clients. El Salvador 2002. 33 Swisscontact & GTZ. Based on which services show high demand potential. This can drive a demand assessment of specific services that would contribute to a high impact strategy for that group. sector analysis to identify services that could meet a priority need and be in demand. which drives service selection. They conduct a sub-sector analysis (see below) to understand opportunities available to the SEs and the constraints they face in taking advantage of the (primarily) market opportunities.Developing Commercial Markets for Business Development Services – Third Annual Edition in which non-profit organizations are accountable to donors for services delivered to SEs. 34 GTZ study. 2002. demand-driven services? The selection of high-impact. AFE.33 3) Target Population-Led Programs: In some circumstances. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 29 . This leads to an overall strategy design. for example rural. 2002. organizations focus on a particular target population. which group of SEs needs the services. 35 ApproTEC 2002. or seem to be growing. sometimes. low-income women. 2000. 31 Several models of decision-making processes are emerging in the field: 1) Sub-sector development programs: Designers start with a focus on sub-sectors that show promise of high SE growth or employment generation. 5. 4) Broad economic development programs: In a cross-sector situation. organizations have had success with delivering particular services and they would like to replicate their strategy. a general SE needs analysis can provide insight into the opportunities and constraints of particular segments of the SE market. They use a combination of needs and demand assessments and.3 How can program designers select high-impact. cross-sector programs: Here the demand for services leads the program design and designers often start with a broad assessment of SE demand for a wide range of services that show some potential because they are visible in the market. and are made in different order by different types of organizations.
2001. Others say that they are often not aware of the value of services until they have received some basic business skills training to start and stabilize the enterprise and understand how BDS can be used to grow a business. which they sequence and align for maximum impact. buyers). patterns are beginning to emerge around what services different types of SE typically need and demand. These kinds of analysis and debate help develop guidance around the typical patterns found in different situations that may eventually simplify the selection of high-impact service for particular population groups. “What services do SEs want and need 36 37 UNDP. service providers. A description of each tool follows along with a case example in which the tool was used to identify services. the more programs focus on a limited range of specialized services. 5.37 However. A challenge in these programs is to connect the services directly to a common impact on SE businesses. Carpenter et al. In these programs. To achieve maximum impact the services should be complementary and enhance the impact of each other. Having a high-impact strategy and assessing demand can drive programs to select a narrow range of services. we ask. Some argue that low-income entrepreneurs need immediate value-added services. As increasing numbers of programs are designed with impact and demand in mind. Effective programs identify and focus first on services that meet three criteria. There is also a debate in the field about the services poor people demand. 2002. Miehlbradt. demand-driven services. in most situations there is demand for several services and many demonstrate good impact potential. the facilitator helps providers analyze demand for services and develop services in response to the market.Developing Commercial Markets for Business Development Services – Third Annual Edition 6) Supplier-led programs: Many programs assume that direct service suppliers are in the best position to determine which services SE clients demand. They: ?? Will contribute to the high-impact SE development strategy. and ?? Are the most feasible to deliver.. but they address different questions. the higher the quality of the services and its delivery of them. ?? Are in high-demand. In this manner. as illustrated in Example 13. 36 A key lesson learned in BDS program development is that. Owners who want to expand a business often seek advice on product and market development and information on cost-effective ways to modernize their technologies. 2002. These tools overlap somewhat with the tools for assessing characteristics of specific services markets in Chapter 6. Here. This builds credibility and gives programs the expertise to launch more services.4 What tools can help practitioners choose high-impact and demanddriven services? There are a variety of tools that can help BDS practitioners choose high impact. BDS programs are launched with a service that brings immediate results to an SE’s bottom-line. New entrepreneurs often want information about competition in their sector and links with other enterprises (suppliers.FFH 200. Business people in transition economies often want advice on privatization and its implications for restructuring and market identification training. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 30 .
” The main tool in subsector analysis is a map that describes the links between firms operating in the same industry. chose to focus on the coffee sub-sector in El Salvador. silk cloth. “sub-sectors. Yet another channel might lead from the sawmills to a large company that cures the wood and makes furniture for export. A branch of that marketing chain might lead from the small-scale carpenters to upholsterers. for example the wood furniture. and finally ?? Assisting artisans to access technical training to produce products designed for actual customers. the organization provided access to better technology and helped the coops provide training and technical assistance to their members on environmentally friendly production techniques that also reduce costs. EWW used the analysis to design a program to assist small-scale coffee producers that promoted several BDS to address these issues. et al. These links also improved efficiency by enabling the cooperatives to collaborate on financing. or hair care. To reduce environmental pollution. and finally to rural and urban low-income consumers. sawmills. Website: www. The program helped link cooperatives so that small coops without processing facilities could use those owned by the larger ones. Carpenter. wood wholesalers. economic growth. Janney. “Helping Small Businesses Grow and Create Jobs: Good Practices from Global Experiences. A furniture map might show one set of links from a national forest to wood cutters. “El Salvador Coffee Project” 1998 from the Enterprise Works Worldwide website: www. 2002. and high-income consumers.enterpriseworks.com 5.” Forthcoming from Shorebank Advisory Services.4. This service sequencing and alignment results in immediate high sales and contrasts with crafts development programs that focus primarily on one of the three services and/or help with all services. and jobs?” Example 13: Service Sequencing & Alignment Aid to Artisans. ?? Helping the exporters and associations access product development services to develop products for the specific customers they met at the trade shows. grow. Example 14: Sub-sector Analyses and Program Design Enterprise Works Worldwide (EWW) and the Coffee Sector in El Salvador EWW. and create income. urban shops. but in an uncoordinated way.Developing Commercial Markets for Business Development Services – Third Annual Edition to help their businesses stabilize. September. The services helped the smallscale coffee producers increase their profits. smallscale carpenters. The analysis also determined that key problems in the sub-sector were inefficiency and environmental pollution. primarily by attending trade shows. and the lucrative markets where they might benefit from playing BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 31 . A sub-sector analysis revealed that small scale coffee producers could earn more income if coffee was sold processed.org By examining these different market channels. Global ATA helps artisans reach international markets by: ?? Launching programs that facilitate international market links that help exporters and producer associations gain market knowledge and connections. but in different market channels. EWW also assisted the cooperatives to computerize their production and marketing information.shorebankadvisory. and marketing the coffee. a researcher can identify the role SEs play in the industry. processing. a US-based NGO.1 Sub-sector Analysis Sub-sector analysis combines aspects of national surveys and PRA techniques to identify constraints and opportunities of SEs operating in the same market.
Mercy Corps conducted a sub-sector analyses to identify how they could help cattle and poultry farmers expand their businesses and identify other roadblocks in the market chain.38 Depending on the depth and sophistication of the study. or to identify key opportunities for intervention and key services that help entrepreneurs take advantage of new market opportunities. 38 39 Haggblade and Gamser. ?? Services are modified rapidly and re-tested to fit as closely as possible to demand. Then. interviews with “key informants” including large firms in the sector who know the industry well. ?? Initial service ideas are developed from those discussions. 2002. New programs are beginning to develop systematic ways of testing services. particularly for commercial suppliers and their facilitators.Developing Commercial Markets for Business Development Services – Third Annual Edition a larger role. Instead. 1996. 5. sub-sector analysis can be a simple PRA exercise with key sector players. 40 Hileman and Tanburn. drawing on ideas for services that exist in the private sector. These assessments. For a Mercy Corps program in Azerbaijan. are complemented by sector analysis or needs assessment to help program designers develop a clear understanding of the potential impact of the services on SEs and on program goals. When veterinary services were identified as having a high potential for development. sometimes with partial subsidies in exchange for customer feedback. the more likely it is that the services identified will be in high demand. The information for the maps comes from national survey data. or a sophisticated and professional data collection exercise.2 Demand Analysis Some organizations are beginning to use demand assessment as an initial tool in selecting services. Lusby. but cannot find. the program designer can identify BDS that might help SEs move into more lucrative markets. The more SEs are involved directly in conducting the sub-sector analysis.3 Test Marketing or Action Research Formal tools for choosing services may not be necessary in all cases.4. and PRAstyle discussions with SEs.39 5. 1991.4. Chen. such as a subcontracting service that links SEs to a largescale exporter so they can take advantage of higher international prices. A demand assessment asks SEs about a range of services to understand which they most want. staff members listen closely to entrepreneurs about their constraints and what exact services might address those constraints. suppliers and facilitators can try a service out on a small scale and see if it sells. 2000 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 32 . as follows:40 ?? Starting without a pre-conceived idea of what services might be in demand. Sub-sector analysis can be used to assess and compare the viability of different sectors before selecting one to focus on. described in detail in Chapter 6. program designers conducted a broad consumer research study to identify the high demand services. Mercy Corps. 1999. ?? New services are pilot marketed.
Although not specific enough for the selection and design of particular services. FIT developed and tested a range of tours for MSEs in East and Southern Africa to visit other businesses or commercial events in neighbouring countries and other regions of Africa. Milena and Jim Tanburn. These two products and a further ILO developed training product (Grassroots Management Training) were therefore sold into the private sector and modified and adapted according to the specific demands of the training market. Example 15: Action Research Program Design ILO FIT in Africa The FIT Program has designed and commercialised a range of innovative services using an action research methodology. but has predominantly been undertaken with high subsidies. 2000. developing new markets. and the contribution it makes to the economy. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 33 .ilo.4 General SE surveys Since the “informal sector’ was identified as an important source of employment and income for poor people in developing countries. test marketing individual service products is helping programs determine the potential for commercializing new services for SEs. Subsequently. The FIT program identified a demand from small businesspeople to travel and experimented with national enterprise visits with groups of MSEs travelling to meet their counterparts in other parts of their country. This methodology tested both the products and commercial delivery channels. Intermediate Technology Publications. available from IT or Amazon. numerous studies have documented its existence. Wheels of Trade.com. Hileman. FIT built on the proven willingness of MSEs to pay for a number of these services and began supporting a number of tour agencies to develop and sell these tours on a commercial basis Commercial training and facilitation: The FIT program developed and tested two training methodologies that helped MSEs to undertake practical marketing (Rapid Market Appraisal) and demand based product development (User-Led Innovation). ILO FIT website at www.4. and technology and skill exchange for MSEs. The USAID sponsored GEMINI project conducted some of the first statistically valid national surveys of SE informal sectors in developing countries around the world. the surveys provide useful background data. characteristics.org/seed 5. These products were initially tested through traditional donor-supported training channels but were subsequently sold to commercial training businesses through training of trainer courses in East Africa. Even when formal tools for choosing services have been used. Examples include: Enterprise Visits: Study tours have been a recognised and effective tool for networking.Developing Commercial Markets for Business Development Services – Third Annual Edition This type of test marketing is used frequently in the private sector.
et al.5 Participatory Rural Appraisal In stark contrast to national surveys. PRA can be used to identify services in high demand by a population segment. available resources. understand how SEs operate in a particular economic environment. they can help identify the services that are both in high demand and likely to have a high impact. Further investigation revealed that just at the point when SEs experience significant management burdens brought on by additional employees and production levels. Participatory Rural Appraisal (PRA) techniques can identify very specific constraints. the price customers might be willing to pay. but when coupled with a broad consumer survey. 1997. wants. as illustrated in Example 16. “The Growth Gap: A small enterprise phenomenon” GTZ. and other detailed information about the potential demand for a BDS. July 2002. and/or preferred solutions. opportunities. ?? Seasonal mapping – participants describe seasonal trends that affect their work and lives. 5. ?? Network mapping – participants draw links they have to external individuals and resources. and ?? Ranking exercises – participants rank their status. 41 PRA is the most affordable and simple technique for identifying services SEs demand. cross-sector consulting services would be highly tailored to help a specific population take advantage of growth opportunities and overcome key barriers to growth. PRA offers a set of practical tools to help development agents and program participants identify problems and assess and select relevant solutions. the study recommends a combination of targeted management consulting services and policy reform so that “formalization” and “the transition from micro to small enterprise” do not occur at the same time. Some organizations do carry out statistical and economic studies of SE populations and are able to identify opportunities and needs facing particular groups of firms. Schmitt-Degenhardt. El Salvador. They can also help procure information on the features and benefits a service should have. In this situation. they are faced with a barrage of regulatory and tax issues as they start to become more visible and need to formalize. At this stage. or identify significant constraints. but there is a high death rate when firms begin to become small enterprises.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 16: SE Statistical Survey GTZ in El Salvador A study of SEs in El Salvador revealed a “growth gap” in the SE population—microenterprises grow rapidly. The consulting services focus on the challenges of growth and formalization processes. Some of the techniques include: ?? Resource mapping – participants draw maps of their community with relevant. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 34 . and needs of particular populations of SEs. The underlying principle behind PRA is that local people possess more knowledge about their situation than external experts.4. and the role of the researcher is to bring that knowledge to bear in identifying and solving key problems. 41 Chambers. This information can then be used to develop high impact SE development strategies. Stephan. The studies are expensive and require a high level of technical expertise. the importance of problems.
The immediate need for women dairy workers was access to vaccinations and veterinary services. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 35 . Example 17: PRA Design Techniques SEWA in India. Martha Chen (ed. With these groups. Beyond Credit: A Subsector Approach to Promoting Women’s Enterprises. Women's Subsector Development Program The Self-Employed Women’s Association (SEWA) conducts participatory sub-sector development programs with poor. SEWA conducted a pilot effort to link women in the program to services provided by the Ministry of Agriculture. such as incense making or dairy production. SEWA built on that momentum to successfully advocate for women all over India to have access to government dairy support services. Having demonstrated the viability and importance of supplying women with these inputs. Aga Khan Foundation Canada.Developing Commercial Markets for Business Development Services – Third Annual Edition In reality. most program designers use a combination of these tools as well as consumer surveys to identify services that SEs are most likely to respond to and that are likely to have a high impact on their businesses and lives. SEWA started its work by organizing self-employed women into groups according to the work they were involved in. SEWA used PRA techniques to identify immediately felt needs. This approach led to SEWA’s national dairy cooperative support project. self-employed women. the groups go on to identify and tackle larger issues. 1996. but with the momentum of success. These needs are the first to be addressed.).
2) Conducting a market assessment to understand the existing service market. 2002. and 4) Identifying interventions that address the priority problems / opportunities. where.” A FIT Manual. there are four steps to this process: 43 1) Outlining program design decisions and the market information needed to inform them. For example. The ultimate aim is for more SE manufacturers to use product designs that help them increase their sales. Interventions that target specific problems and opportunities have the most potential for developing a market and minimizing distortion. information from the assessment can inform other program design decisions including the intervention strategies that can effectively generate the desired changes in the market and the institutions the program should work with in order to generate the desired change. and how.ilo. see Miehlbradt. This is when the challenge of developing the market begins. 3) Identifying opportunities in the service market and pinpointing what constrains it from developing. Website: www. A market assessment focuses on gathering the information needed to inform program design decisions. International Labour Organization. The crux of these decisions is which market problems and opportunities to target with program interventions and the market changes that can be expected. 2001. Alexandra. These market changes link back to the goals and SE development strategy discussed in the previous chapter. “Guide to Market Assessment for Program Design. Once managers have defined the changes the program aims to make in the market.Developing Commercial Markets for Business Development Services – Third Annual Edition 6 How can practitioners assess BDS markets and choose interventions to strengthen them? The previous chapter focused on the basics of a BDS program: defining the market to be developed and determining which services should be delivered to whom. and desirable. 42 With this knowledge. Using a market development approach. a program manager can choose strategies aimed at reducing specific constraints to market development or taking advantage of existing opportunities for expanding the SE market. For more information. a program may aim to increase SE manufacturerers’ awareness of product design services and at the same time make those services more appropriate.org/seed (publications) BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 36 . affordable. it is critical to first understand how it is currently operating. Experts agree that to develop a BDS market. 42 43 Committee of Donor Agencies.
1 What information about a market is needed to choose interventions? To understand the market. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Features and Satisfaction Market Size Page 37 Substitutes Suppliers . 44 Figure 5: Information Needed to Assess the Market THE MARKET DEMAND TRANSACTIONS SUPPLY Profile of Users Awareness and Understanding Service Use – Why / How / Price Benefits Wanted INFORMATION NEEDED Demand: ? ? What types of SEs are using which service products? What types are not? ? ? What benefits are SEs looking for from the service? ? ? How aware are SEs about services? Do they understand the benefits of services? Transactions: ? ? How big is the market? What percent of SEs have tried a particular service? ? ? Why do SEs use the service? Why not? ? ? What percent of SEs acquire services through fee-for-service transactions. services embedded in other commercial transactions. there are several issues to grasp. and for free? ? ? How are the services delivered? How do SEs want services to be delivered? ? ? What service features do SEs want? How satisfied are they with the currently available supply? ? ? What prices are SEs paying for services? Supply: ? ? What types of suppliers exist? ? ? What range of products is available? ? ? What are the strengths and weaknesses of current suppliers? ? ? What substitutes for BDS do SEs use? 44 Adapted from Springfield Centre.Developing Commercial Markets for Business Development Services – Third Annual Edition 6. and transactions (the interaction between demand and supply). Within each of these components. one needs to examine three things: demand. module by Bear and Miehlbradt). (BDS 2000 Training Course. services paid for by a commercial third party. supply.
Programs can design appropriate interventions to address these weaknesses and opportunities. and where significant problems lie. some program managers gather information on the links between the use of a particular BDS and benefits SEs may realize in terms of product markets they can access. if so. Figure 6 outlines the process. Bear “BDS Market Development: A Guide for Agencies. 45 45 Adapted from Gibson. An opportunity like international demand for particular SE products could fuel demand for services that help SEs produce to international quality standards. where the opportunities for growth are. Hitchins. what types of BDS? The outcome of analyzing all this information is a picture of a BDS market showing how it works. For example. Another weakness may involve suppliers who offer inappropriate products or services that SEs do not want.Developing Commercial Markets for Business Development Services – Third Annual Edition To help with their strategy design.” 2000. or recent relaxation of the government’s enterprise registration requirements might fuel demand for legal aid services to help SEs register their businesses. can access to courier services enable SEs to reach national instead of only local markets? Some researchers are also investigating the link between SE ability to sell products profitably and the demand for particular types of BDS. A weakness in the market could entail a lack of awareness by SEs of available services or misunderstandings about their benefits. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 38 . Does improving SE access to profitable markets increase their demand for BDS and.
Developing Commercial Markets for Business Development Services – Third Annual Edition Figure 6: Overview of Market Assessment Process Gather Information. Market assessments generally yield a wealth of insights about a particular BDS market.2 How can market information be used to design effective BDS programs? Practitioners are finding that one of the greatest challenges in market assessment is analyzing and using market information for program design. e.g. e.g. e. e.: awareness and usage characteristics of users desired benefits and features suppliers and service products Form a Picture of the Market. poor understanding of services difficulty paying up front lack of knowledge about suppliers Identify Market Opportunities Prioritize Weaknesses and Opportunities Design Interventions to Address Priorities 6.: low awareness of services? low trial? low repeat use? Pinpoint supply side weaknesses.: use of services benefits of services competition among suppliers types of transactions Analyze Market Problems.g. clearly identifying the most pressing problems and promising opportunities is not always BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 39 .g.g. However. not enough supply inappropriate services weak suppliers Pinpoint demand side weaknesses. e.
org/seed (publications) BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Weaknesses Strengths Page 40 . “Guide to Market Assessment for BDS Program Design” A FIT Manual for the ILO. and determination in the program design and implementation process. where an assessment indicates that SEs are not getting the type or quantity of services they want. Miehlbradt.itcilo. 28 for the ILO. Alexandra “Business Development Services in Nepal – Report on BDS Markets Assessment” for the GTZ Private Sector Promotion Project.it/bdsseminar 46 For more information. Similarly. intuition. Website: http://training. Example 18: Analysis of BDS Market Assessment Information GTZ in Nepal GTZ summarized the information from their BDS markets assessment in Nepal using a grid as follows: Demand ? ? Consumers are aware of services ? ? Economic growth is fueling demand ? ? Word of mouth advertising is strong ? ? Consumers have limited understanding of services ? ? Consumers have high expectations ? ? Consumers are risk averse ? ? Free services are decreasing willingness to pay Supply ? ? Suppliers exist ? ? Suppliers have the capacity to help businesses solve their problems ? ? Service products are inappropriate ? ? Marketing is poor ? ? Suppliers lack market information ? ? Supplier behavior is distorted by subsidies This summary helped GTZ choose appropriate interventions. A variety of analytical tools are now available to help draw conclusions from market assessment data. Market assessment does not eliminate the need for creativity.ilo. However. (Example 18) There also are several experimental tools for identifying gaps between demand and supply. see Miehlbradt. Rana. The program assists BDS suppliers to develop and launch new service products and also stimulates demand through events and promotions that increase consumer awareness and understanding of new services. it is challenging to choose appropriate market development strategies to address certain problems or opportunities. 2001. this will no doubt be a key challenge for the foreseeable future.46 One summarizes market information on a grid showing the strengths and weaknesses of market demand and supply. Nepal 2001. The BDS field continues to accumulate experience in this area and Table 3 gives examples of BDS market development interventions matched to specific market problems. “Assessing Markets for Business Development Services: What have we learned so far?” SEED Working Paper No. GTZ decided to focus their program on product development and commercialization. see Miehlbradt. Prashant “Joint Ventures with Commercial Suppliers: The Nepal Experience” Presentation for the 2nd annual BDS Seminar in Turin. Website: www.Developing Commercial Markets for Business Development Services – Third Annual Edition easy. Chapter 3. For examples.
Developing Commercial Markets for Business Development Services – Third Annual Edition Table 3: Matching BDS Market Problems with Interventions 47 Market Problem Demand-Side Problems Consumers lack information about services ? ? ? ? ? ? ? ? Develop a BDS yellow pages Open a BDS consumers’ bureau or information center Help suppliers improve their marketing Assist business associations to disseminate information Possible Interventions Consumers are unable to effectively identify their business problems ? ? Develop an awareness raising campaign about typical business problems and BDS that can help ? ? Assist suppliers to create marketing campaigns that help SEs identify business problems ? ? ? ? ? ? ? ? Assist suppliers in developing payment options Promote embedded services Promote services financed by large firms Help consumers form clusters to purchase services in groups Consumers do not have the capacity to pay for services up front Consumers are risk averse to trying services ? ? Provide suppliers with technical assistance to improve trial inducing strategies ? ? Implement a voucher scheme ? ? Promote business linkages for embedded services ? ? ? ? ? ? ? ? Assist suppliers in improving advertising Assist suppliers in developing customer referral programs Conduct general advertising for the service Help suppliers to test and demonstrate quality of services Consumers do not see the value of services Consumers want services packaged together ? ? Broker agreements among suppliers to develop packages of services ? ? Provide venture capital and technical assistance for suppliers to diversify ? ? Assist suppliers in developing and commercializing new products ? ? Bring in suppliers from other countries to adapt and franchise appropriate products ? ? Provide suppliers with information on the viability of a new consumer segment ? ? Subsidize some of the costs in targeting new consumer segments. such as women. micro enterprises or the service sector Suppliers lack market information Suppliers lack business or technical skills There is insufficient supply in the market Variable quality of services is harming 47 Miehlbradt. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 41 . 2001 with input from Jeanne Downing and SEEP’s Guide to BDS and Resources. such as test marketing ? ? Use market research to identify promising opportunities to serve new consumer segments ? ? Develop or improve marketing research services/suppliers ? ? Provide suppliers with market information ? ? Teach suppliers how to gather market information ? ? Provide training and technical assistance to suppliers ? ? Assist training suppliers in developing and selling appropriate products to other BDS suppliers ? ? Provide venture capital to suppliers to expand ? ? Design a program to assist start-up suppliers ? ? Provide quality assurance services Supply-Side Problems Service products lack the benefits and features that consumers want Suppliers are risk averse to targeting new consumer segments.
2002 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 42 . government agencies. Programs are finding that the greater the detail. more focused analysis of specific service markets.1 Market Overview A market overview aims for a basic understanding of one or several BDS markets in a short time. The most helpful tools in this endeavor are private sector. Discussion of how to choose appropriate combinations of tools follows the descriptions. Most experts and practitioners agree that an essential information source is the consumer (the SE. 48 A selection of market assessment tools currently in use is presented below. and Identify common opportunities or constraints in several service markets.) When practitioners can see the market through SEs’ eyes. SEs. 48 Miehlbradt. It relies on secondary sources of information and interviews with key informants. business associations (of either consumers or suppliers). ?? With this information.3 What tools can help practitioners assess markets? The basis for a sound and useful market assessment is a clear description of program decisions that will be informed by the market assessment and the information needed to make them.Developing Commercial Markets for Business Development Services – Third Annual Edition suppliers’ reputations ? ? Assist suppliers to improve consistency in service provision ? ? Help suppliers form associations with certification processes Market Environment Problems Free services are distorting the BDS market Regulations adversely affect the BDS market ? ? Advocate with government and/or other donors to rationalize BDS subsidies ? ? Advocate for changes in the regulations ? ? Organize SE suppliers to advocate for changes in regulations affecting the BDS market 6. consumer research tools.3. The available sources of information for BDS market assessment are consumers (SEs). key informants. suppliers. and BDS suppliers (individually or in groups). practitioners can make the market work better for SEs. Programs use a market overview to: ?? Select from a wide array of services those that are in high demand and have the best potential to grow. Most organizations use a combination of tools in order to get a good picture of existing BDS markets. the more likely the assessment is to yield information useful to program design. The number of interviews usually ranges between 20 and 60. often with few resources. 6. or they can engage in continued. and secondary sources. programs can begin action research in some markets. The extent to which other sources are used depends on program circumstances and available information.
In an adapted form. quantitative overview of a market and pinpoints specific market constraints and opportunities.3. Consumer surveys are commonly used in the private sector to get accurate and useful information from consumers to increase sales. They used clever students. The researchers conducted approximately 60 interviews with SEs and some commercial service providers. usually inexpensive. Presentation for the 2nd Annual BDS Seminar in Turin. They also indicated several entry points for donor-funded interventions such as “broker” systems and systems for rental of machinery and found that there was a demand for business training. Website: http://training.Developing Commercial Markets for Business Development Services – Third Annual Edition The major strength of this approach is that it is quick. but the key strength of consumer surveys is that they provide a broad and accurate picture of BDS markets. 2001. They used both exploratory interview strategies and friends and acquaintances (the latter for confidential information. The main weaknesses are that it often misses aspects of the market and it is prone to bias because of the small number of interviews. Consumer surveys also tend to be less useful in very weak BDS markets where SEs have no experience with purchased business services and little idea of what business services are or can do for them. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 43 . (UAI) Market Study” is a private sector marketing research tool that generates a broad.) The studies revealed very diverse BDS markets in which almost all SEs used and paid for some services. Weaknesses include the lack of in-depth information that is gathered and the need for expertise in survey design and data analysis to effectively use the tool. Some programs use larger samples to get accurate data on different types of SEs. and how to improve the supply. and they had easier access to SEs. because they found them to be less expensive. BDS experts have adapted commercial marketing research tools to the task of identifying demand-driven BDS and determining how to develop BDS markets. Dakar. rather than consultants. “Commercial Services in Addis Ababa and Dakar – Two small studies” ILO. and easily integrated into a sub-sector analysis because the methodologies and information Example 19: Market Overview ILO Market Assessments in Addis Ababa and Dakar In Addis Ababa and Dakar. Attitude. 6. The “Usage. more open and flexible. how satisfied they are with those currently available. better motivated. Consumer surveys can yield information on what services SEs demand and why. consumer surveys can offer statistically significant—and reasonably accurate—data on the market. Peter.2 Consumer Surveys As the Market Development Paradigm has evolved. By interviewing a random sample of 100-500 SEs.it/bdsseminar sources are similar. but that current supply was inappropriate.itcilo. Image. the ILO conducted Market Overviews of BDS markets for micro and small enterprises to gain a basic understanding of the markets and generate preliminary ideas for projects. Roggekamp. this tool is now commonly used for BDS market assessment.
3.4 Supplier Interviews 50 Supplier interviews enable a practitioner to examine the supply side of the market and get suppliers’ views on the market.org. The assessment was done to understand Vietnam’s SE markets. workshops. The study also showed that both suppliers and SEs lacked information about each other. 50 Miehlbradt. The information is usually easy to apply to program design. In assessing markets. 49 SEEP Practitioner Learning Program. and to gather sufficient information to design effective interventions for developing selected markets.vn 6. 6. An FGD is a targeted discussion with a group of consumers managed by a facilitator. 49 The strengths of qualitative consumer research tools are that they can yield specific ideas for marketing and for improving existing services or developing new services. On the demand side weaknesses included low valuation of services and a business culture that discouraged outsourcing services. developing BDS markets in Vietnam.3 Qualitative Consumer Research Tools Qualitative consumer research tools gather in-depth information directly from SEs or other targeted consumers. Miehlbradt. MEDA and ITDG.vn or GTZ Vietnam (Corinna Kuesel) at kuesel@sme-gtz. The main weakness is that. FGDs are used before consumer surveys to help shape the survey. Key weaknesses on the supply side included frequently low-quality or inappropriate services and regulatory constraints to service supply. World Education (Mali). 2001. Practitioners have found FGDs particularly useful in developing new services for SEs. and the service features they want. Image Market Study” approach and 20 focus group discussions involving approximately 140 SEs in six locations. The assessment included two components: a consumer survey of 1. Focus group discussions (FGDs). Other qualitative consumer research tools programs are experimenting with include in-depth interviews. These interviews are a helpful complement to consumer research because they allow practitioners to fully understand supply problems and identify gaps—areas of disconnection—between supply and demand. and as a stand alone tool for information gathering.211 small and medium enterprises using a “Usage. after a survey to gain insight into BDS markets. “Business Development Services in Viet Nam” for GTZ and Swisscontact. Swisscontact is using the assessment in conjunction with a sub-sector analysis and other studies to design a new BDS market development program.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 20: Consumer Surveys and Focus Group Discussions GTZ and Swisscontact Market Assessment in Vietnam GTZ and Swisscontact teamed up in Vietnam to conduct a broad market assessment that would inform both their programs. 2002. PKPEK.3. For more information. the benefits they expect. proposals and correspondence from Swisscontact. The study found BDS markets on many different levels of development. and opportunities for. GTZ is using it to inform strategy changes and new interventions within an existing BDS program.org. Alexandra with research by InvestConsult Group Vietnam. gauge relative demand for a range of services. Practitioner Learning Program. qualitative consumer research tools do not provide a broad overview of the market and may be biased due to small sample sizes or respondent selection. another private sector tool. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 44 . Attitude. proposals and correspondence from EDA. used alone. FGDs commonly yield information on why SEs do or do not use particular services. contact Swisscontact Vietnam (Paul Weijers) at scvietnam@swisscontact. are the most common qualitative consumer research tool now in use for BDS market assessment. identify the main constraints to. and action learning sessions.
it/bdsseminar Pejerrey. There is a variety of tools currently in use and in development to help assess the market potential of specific services. 2001. Tueros. The study concluded that BDS providers in Lima were both as diverse as and similar to their SE clients. and the supplier’s views on the market. Both tools usually gather information from the different types of suppliers identified during consumer research or a market overview. individual suppliers. new products. It indicated that BDS supply was insufficient to meet growing demand. This tool focuses on gaining a deeper understanding of a supplier’s business based on standard business analysis elements such as product / market mix. The key strengths of supplier interviews are that they help explain why suppliers act as they do and they can open a dialogue with them. this is often tricky in practice because it is difficult to gather sufficient information on the universe of suppliers in markets where informal suppliers and embedded services are common. Product concept and price sensitivity tests are BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 45 . Website: http://training. This tool aims to generate an accurate overview of supply by gathering quantitative information from a representative sample of suppliers. the ILO conducted a study of BDS suppliers with the aim of gaining an understanding of this sector that would inform SE policies and programs by donors and national organizations. Supplier surveys gather basic information from a large number of suppliers using a standard questionnaire.itcilo. Two types of supplier interviews are in use—Supplier diagnostics are in-depth interviews with. Presentation for the 2nd annual BDS Seminar in Turin. In order to improve supply. but it cannot predict future demand. While the study gathered information solely from suppliers. the study recommended targeting both existing and potential suppliers with assistance in new product development including conducting additional market research and supplier training. market expansion strategies and capacity. However. 6.Developing Commercial Markets for Business Development Services – Third Annual Edition Based on this information. are that they yield little information on SE perceptions of the market and it is difficult to identify a representative selection of suppliers. The study relied on a survey of 130 BDS suppliers followed by group interviews to validate the data.3. Their main weaknesses. Example 21: Supplier Surveys ILO Market Assessment in Lima In Lima. Generally. “A Study on Private Providers of Business Development Services for Small and Micro Enterprises in Lima” ILO. and observations of. 2000. or suppliers. Gerado and Mario Tueros. it built on previous studies of various aspects of BDS in Lima including a study by Deside-Swisscontact that relied primarily on consumer research. when used alone. marketing strategies. Experts and practitioners are experimenting with tools that can help fill this gap by engaging SEs and/or BDS suppliers in discussions of market opportunities. exploratory interview techniques are used and the information generated is qualitative. and market development interventions.5 Forward Looking Tools A major limitation of market assessment in general is that it provides pictures of the current and past market and some indications of trends in the market. Mario and Merten Sievers “Private Provision of Business Development Services in Lima” ILO/FIT. a practitioner can determine market opportunities for new products.
They can help programs become flexible and incorporate a market testing and program refinement stage prior to large-scale market development efforts. It also found that MSEs want. many organizations now recognize that product testing for new services and pilot testing of market development strategies is an essential complement to up-front market assessments.Developing Commercial Markets for Business Development Services – Third Annual Edition private sector consumer research tools aimed at gauging demand for. for example.Microenterprise Best Practices website: www.org. SEs. in some cases. The study concluded that public calling offices should not add Internet access services. The study concluded that public calling could profitably add this service. These tools were combined with three consumer surveys of 100 SEs each in different locations.51 Several organizations are experimenting with workshops for BDS suppliers and/or BDS consumers to help predict and stimulate future demand for services. Action for Enterprise and PKPEK.4 How can a practitioner choose the right combination of tools for market assessment? Rarely can just one of these tools capture all the market information needed to design and implement an effective BDS market development program. and demanded by.mip. Focus Group Discussions are also being used to generate ideas for new service products appropriate for. These tools add depth to a practitioner’s understanding of a market that is difficult to get any other way. email services through public calling offices. Finally. USAID conducted product concept and price sensitivity tests on several ICT services for micro and small enterprises in the Philippines. Example 22: Product Concept and Price Sensitivity Tests USAID’s Study of ICT Services for MSEs in the Philippines As part of a larger study. and getting feedback on. 1999. Swisscontact. consumers and. / USAID. They would rather have someone else do the information search and sell them the specific information they want. Inc. What should program designers keep in mind when choosing and designing tools? 51 52 Miehlbradt. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 46 . 1999.” Development Alternatives. and are ready to pay commercial rates for. Alexandra “Technical Note: Applying Marketing Research to BDS Market Development” and “Information and Communications Services for Micro and Small Enterprises in the Philippines. These tools rely on a survey of consumers concerning their potential interest in a service and their willingness to pay certain prices for that service. For example. but that user-friendly information services had market potential. Miehlbradt.52 The workshops engage participants in a discussion of new products or changes in BDS markets that might be profitable for suppliers and beneficial for consumers. other relevant firms or organizations. that SEs do not want Internet access through public calling offices. In addition to their other uses. One of the benefits of these workshops is the information sharing between BDS suppliers. USAID. the ILO FIT program. The most appropriate combination of tools for a donor consortium planning a large market development program for small and medium sized enterprises in urban centers is not the same as that for an NGO planning a smaller program for microenterprises in rural areas. Combining the tools allowed USAID to get a picture of the current market for various ICT services among SEs as well as explore possible new products. What is the best combination of tools? Practitioners are finding that BDS market assessments are most effective when they are tailored to program circumstances. a new service or product. The study found. 6.
However. managers need to significantly adapt private sector tools or develop new ones. 53 One effort to develop innovative market assessment tools appropriate for programs targeting microenterprises and weak BDS markets is the “Practitioner Learning Program in BDS Market Assessment” sponsored by the SEEP Network and funded by USAID. is that of consumer surveys. in very weak markets where less than 5% of the target SEs have used a service in any form (formal or informal). need formal market assessments because they are not in touch with the market and do not get frequent and direct market feedback. This combination appears to generate a relatively comprehensive picture and provide sufficient information for program design. ?? ?? ?? ?? ?? One common combination in use. private sector market research tools are quite relevant with a little adaptation. quantitative tools. Experience of the Researching Organization: An organization planning a program in an area where they have never worked before needs a more extensive market assessment than one that has been working extensively with the target SEs. can offer a very useful overview of the market and highlight critical issues. or otherwise embedded. Similarly. 53 Characteristics of the Researching Organization: As a general rule. firms try to match investment to the size of a particular opportunity.seepnetwork. a consumer survey might show that there is a lack of appropriate service products for SEs. quantitative tools are often less useful. the further away from the market an organization is and the more complex its decision. the investment in a BDS market assessment should match the potential benefit of a program.org BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 47 . Program Complexity: A program that expects to include a variety of different services for different types of SEs needs to plan a more complex market assessment than one focused on one service for one type of SE. can rely more on informal market assessment tools and learning by doing because they receive regular feedback in the form of customer comments and willingness to pay for services. hidden in other business deals. However. such as commercial facilitators and providers. Characteristics of the Market : If a program wants to focus on BDS markets where formal. For example. particularly for larger programs and more formal markets. The website launch will be announced at www. fee-for-service transactions are the norm.making process. a facilitator might choose to provide suppliers with market information on what SEs want or teach suppliers how to conduct basic consumer research.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? Program Size : In the private sector. FGDs might indicate how SEs want services changed. focus group discussions. like donors and large facilitators. This is a current area of innovation in the BDS field. Level of Market Development: In many markets. Small organization that are close to or in the market. Big organizations that are far from the market. and supplier diagnostic data might show that suppliers do not know what service benefits and features SEs want. and supplier diagnostics. the more formal and extensive the market assessment should be. if a program is to focus on BDS markets that are primarily informal. In this case. particularly consumer surveys.
often have different demands for services and service features than other SEs because they face different constraints to business survival and growth. Researchers then chose a subset of services with the highest potential to benefit producers to investigate further.Developing Commercial Markets for Business Development Services – Third Annual Edition An emerging combination of tools. Using qualitative interviews with vegetable producers and BDS suppliers. on behalf of USAID/Kenya. Hitchins. GTZ and Swisscontact have all made this recommendation.org To help choose an appropriate combination of tools. they identified training and extension services in crop husbandry as a priority service. and existing providers of those services (if any). Poor entrepreneurs are often unwilling or unable to pay for services up-front and a market assessment can help identify financially sustainable strategies for 54 55 For example. The study contributed to the development of a large USAID/Kenya program design called the “Kenya Business Development Services Program. conducted a joint sub-sector analysis and BDS market assessment targeted at SEs producing vegetables. this combination is proving to be particularly useful for programs aimed at helping SEs reach new product markets. and building the capacity of agricultural input suppliers to expand training and demos through their distributors. They also stress that flexibility and the ability to change strategies that are not working in the implementation stage is critical to program success.actionforenterprise. By incorporating decisions on which services to promote as well as how to develop the BDS market. leading with an inexpensive tool that can inform choices about other tools that might be useful in the given circumstances. Practitioners implementing market development programs recommend using both up-front market assessment and action research tools 54 and emphasize the importance of supplementing up-front market knowledge with learning by doing. Bear. The study identified the major constraints in the subsector. Beginning with a sub-sector analysis of the Fresh Vegetables for Export sub-sector. Gminder. In response to identified weaknesses in this service market. Market assessment can help identify the service benefits and features that poor or underserved entrepreneurs want. 2001. Website: www. Example 23: Sub-sector Analysis and BDS Market Assessment Action For Enterprise Study of Fresh Vegetable for Export in Kenya AFE. AFE then conducted a workshop with sub-sector participants and BDS suppliers to validate the findings and generate ideas for program interventions. 55 Underserved groups. is Sub-sector Analysis and BDS Market Assessment.” Action for Enterprise "Subsector Analysis/Business Service Assessment for USAID Kenya" December 2001. Gibson. researchers gained a basic understanding of these markets. the business services that could address those constraints. creating an inventory of crop husbandry training sites. practitioners may find it useful to conduct market assessments in an incremental fashion. 6.5 How can market assessment help programs reach poor entrepreneurs? The market development approach to BDS treats underserved groups as market segments with potential rather than beneficiaries in need of charity or subsidies. For example. practitioners in ILO (FIT). 2001. especially with weaker markets and those with a high proportion of embedded services. they recommended interventions such as helping exporters improve training to subcontractors by developing standardized materials. It can also provide evidence to suppliers that these groups are a viable and growing market. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 48 . the study included 19 interviews with firms and key informants and built on a previous DFID study of the green bean subsector. such as women entrepreneurs in many markets.
For example. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 49 . 2001. the business tours developed by ILO/FIT in East Africa were popular with women entrepreneurs because they viewed the security of traveling in groups as an important service feature. When programs and suppliers understand the particular needs of underserved groups.Developing Commercial Markets for Business Development Services – Third Annual Edition delivering services to poor SEs by exploring existing and desired payment options and mechanisms with both consumers and suppliers.56 56 unpublished correspondence with Jim Tanburn. they can develop service products that appeal to them.
57 58 Committee of Donor Agencies on Small Enterprise Development Conferences. An essential element in achieving BDS market sustainability is to develop. resulting in sustainable impact on the businesses and the local economy. In the case of embedded services. but the sustainability and development of increasing numbers of SEs can be enhanced by continued access to commercial services long after a program ends.Developing Commercial Markets for Business Development Services – Third Annual Edition 7 How can services be affordable and sustainable? The concept of sustainability in business development has expanded from a traditional focus on the businesses to now include the service markets for those enterprises. a future vision for a sustainable BDS market. Figure 7 illustrates the vision for sustainability of a market development program:58 Figure 7: BDS Sustainability Money BDS Sales in the Market Market Subsidies Time Over time. PMF 2001. BDS providers. The market development approach defines sustainability as the long-term availability of a category of services in a particular business service market through unsubsidized. commercial channels. one might compare outreach to SEs or the sales level of inputs or SE products in relation to program expenses. and facilitation activities are now all part of this sustainability concept. 1999-2000. more SEs will continue to purchase an increasing number of services. et al. This chapter addresses these key questions. as defined above.59 The framework emphasizes not only who will perform each function. There are two key questions surrounding the achievement of BDS sustainability. at program inception. Bear. Providers may come and go. 2001. Hitchins. McVay. 59 Gibson. over the long run. but also who will pay for it. Who can deliver BDS sustainably and how can the services be paid for—which institutions make highly sustainable providers and how can services be paid for through commercial channels. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 50 . as market facilitation funds and subsidies decline. training courses can also come and go. and still reach the poor? Experts in the BDS field have developed a framework for thinking about BDS market sustainability that focuses on determining who can sustainably perform each of the key functions required for a healthy BDS market (Figure 8).57 The financial viability of specific services. The program can then be structured around achieving that vision.
and business networks. associations. It is thought that markets serving disadvantaged businesses are usually unable to pay all costs for these functions. At the heart of these definitions is an attempt to separate the functions of on-going service delivery—the costs of which should be covered by the markets—from the temporary function of developing markets—which are considered appropriate to subsidize.Developing Commercial Markets for Business Development Services – Third Annual Edition Figure 8: Framework for BDS Market Sustainability 1. ns Delivery of Services Coordination Skills Enhancement Product Development Information Research and Development Regulation Advocacy Facilitating interventions from government or donors 3. Market Functions 2. competitive market for them. training suppliers. Who Does? 4. or they will be commercialized—new product development taken over by private providers and consumer information provided by private providers. Activities such as assessing demand.1 Who can Provide Sustainable Services? The BDS market development approach defines two key roles in delivering services to SEs—facilitator and provider / supplier. developing new services.1. ?? Provider / Supplier: Delivers services directly to SEs. However. the costs of delivering on-going services are borne by the market. Who Pays? State Private sector (for-profit) Not-forprofit sector Business membership organization s Business networks 2. Key Supply-side Players 7.1 Who does? Institutional Sustainability Strategies 7. and measuring program impact are all seen as facilitation activities. ?? Facilitator: Supports service delivery to SEs by developing a vibrant. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 51 . in BDS market development programs. The vision is that functions performed by facilitators will either not be needed in sustainably growing markets.
This expanded the range of potential BDS providers from the typical publicly funded institutions—NGOs. or BDS. In some situations. Table 4: Existing and Potential BDS Providers Traditional Publicly Funded Providers National government programs ?? Local government programs ?? Parastatal business development programs ?? Technical training institutes & universities ?? NGOs (international. Why? BDS experts considered the strengths and weaknesses of existing BDS providers. took lessons from successful programs. ?? Close to SEs in culture. geography. business culture. ?? Organizational independence. a set of criteria has emerged for appropriate BDS providers: ?? Capacity to deliver services. If the target population is isolated. or do not yet exist. for whom SEs make up a substantial part of their market Informal full-time or part-time BDS providers SE service suppliers From this analysis. SEs. and NGOs (international. government. both formal and informal. In the process. on contract from donors. especially from donor funds. then. ?? Commercial focus. parastatals. and high capacity NGOs may have the potential to transform into effective and sustainable providers. and government agencies—to include a whole range of private sector businesses. competitive BDS market of private sector suppliers. Using this set of criteria. ?? Low cost structure. and community-based) ?? Business associations & cooperatives ?? Consulting firms serving SEs. Still. but low enough costs. operating environment. researchers identified many “hidden” service providers existing even in very informal markets. consulting firms.Developing Commercial Markets for Business Development Services – Third Annual Edition The BDS market development approach suggests that private sector businesses are the most appropriate suppliers of sustainable business services to SEs. national and communitybased) ?? Microfinance institutions ?? ?? ?? ?? ?? ?? ?? ?? “Hidden” Private Sector Providers Large firms supplying inputs to SEs Large firms buying SE products SEs supplying inputs or buying SE products Advanced SEs in the same industry as target SEs Large service suppliers. If the target population is highly sophisticated and lucrative exporting firms. national. these suppliers may not be readily apparent. the vision remains to develop a vibrant. Table 4 lists traditional BDS providers and private sector providers that are often “hidden” from BDS program designers. ?? Organizational stability. in many situations. However. to serve the target population. may not be engaged in commercial transactions. and ?? Focus on services. The trick is to identify providers with sufficient expertise. technical schools. new businesses will have to be established to serve SEs. program designers can assess the capacity of both existing suppliers to expand and/or improve service delivery and potential providers to transform into viable private sector providers. and accounting and management systems. and examined functioning BDS markets. such as telecommunications firms. low-income BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 52 .
Developing Commercial Markets for Business Development Services – Third Annual Edition microenterprises. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 53 . data entry and processing services. In some situations. Example 24: SE Service Suppliers Small Enterprises in the Indian Software Industry The Indian software industry—worth approximately US $3. 2002. Website: http://www. Recent research shows. ports. rather than crowding out existing and potential private businesses. Start-up costs for these businesses are relatively low and they can offer significant price-competitiveness and personalized. and software customization services. ?? Donors are generally not direct providers. including salaries. there are significant barriers to serving low-income entrepreneurs sustainably: ? ? Overhead costs. “Enterprise Development and Information and Communications Technologies in Developing Countries: ICT – Flyers” IDPM University of Manchester for DFID. affluent. These “hidden” software companies fall mainly into three categories: internet/email bureaus. Richard and Richard Heeks.ac. ? ? The internal image of many organizations is one in which staff want to help the poor rather than operate a business.2 What Institutions Are Appropriate Facilitators? Of all the types of BDS organizations—private sector providers. governments. are too high to be covered by fees lowincome SEs can afford. which requires more flexibility.60 The market development approach does not require a program to work exclusively with existing private sector businesses. 7. The exception to these guidelines is services that are clearly public goods. local / international NGOs. and funders—which are best placed to facilitate BDS markets? This is an outstanding question. Duncome. especially since the activity itself is still being defined. and 3) Program strategies strengthen existing private suppliers and invite additional such activity. and 60 Unpublished correspondence with Jim Tanburn. which the market development approach regards as appropriate for governments to provide. but it does recommend that: 1) The program identify and assess the potential for existing providers and suppliers to serve SE clients sustainably. ILO. but many see challenges in becoming engaged facilitators.man. 2) Not-for-profit providers transform into businesses if they are to continue providing services over the long run.1. etc. the dearth of suppliers may require facilitators to work with communitybased entrepreneurs and groups to launch new supplier businesses. informal sector business may be more appropriate options. that there is a hidden industry of SEs underlying the sector that provides ICT services to other businesses. and flexible services. however. such as large infrastructure projects (roads. consulting firms.uk/idpm For institutions that have historically been funded by donors.9 million in 1998/99—is increasingly global. Each organizational type has the potential to play a role in BDS market facilitation. market responsiveness. and concentrated in large enterprises.). and ? ? The external image that many organizations have generated emphasizes donor funding which decreases SE willingness to pay for their services.
Example 25: Large Firm BDS Provider and Facilitator MTN and Telecommunications in Uganda MTN. 45% of MTN customers are SE owners or employees and 55% of these are in businesses with fewer than 4 employees.” 2000.it/bdsseminar 7. Website: http://training. 64 Njoroge. they have an explicit marketing strategy of selling cell phone services to help individuals in rural areas establish telecommunications services that they sell to area individuals and businesses. Shorebank Advisory Services confirmed the relevance of the BDS market development approach in the US environment. In a recent study of SE initiatives in developing and more developed economies. 62 However. 2002. 2000. 65 Carpenter et al. In many developed countries. Van Veen. where appropriate. For example. 61 More community-based NGOs.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? ?? ?? proximity to the private sector than most of them possess. and the ability to provide technical assistance are taking on facilitation roles. The role and appropriate institutions to engage in facilitation is in flux. governments provide free or highly subsidized services to SEs. while developing competitive markets for fee-based services such as consulting. sophisticated NGOs with high overheads and levels of expertise in attracting donor funds. a fact that generates controversy when Western donors suggest an opposite approach in developing countries. governments have played a number of different roles in BDS programs—from policy maker to infrastructure developer. Generally. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 54 . Eric. markets cell phone services in urban and rural Uganda. 64 This is part of their profit-seeking business strategy. Instead. a South African telecommunications firm. many are also looking to generate revenue from facilitation activities. or those with lower overheads and an extensive SE client base are transforming into providers. 2002. generic services to SEs. 63 There are even examples of private sector firms facilitating markets.” SEEP Training. 61 62 USAID/Kenya and DFID/Kenya.1. 63 Aid to Artisans. 2002.itcilo. raising significant challenges to the traditional role of the US government in providing free. but it is beginning to take shape. 65 There is an emerging consensus that governments are not appropriate providers of business services.3 What Is The Role Of Government In BDS Market Development? Historically. In addition to selling services to individual firms. For example. facilitator to direct provider. 2001. Experience from facilitating “State of the Art in BDS. Africa On-Line provides internet services to internet cafes and helps them develop and deliver packages for their SE clients.” Presentation at the ILO SEED Seminar “Developing Commercial Markets for BDS. 2002. “MTN Uganda Case Study: Telecommunications for the Small Business Market in Uganda. many business associations are organizing trade fairs and selling market information to members. many donors are contracting this role out to the consulting firms and NGOs that have traditionally been providers.
Several global and local initiatives are under way 66 67 Hitchins. the Ministry of Animal and Mineral Resources issued a ban on the sale of milk except through a small number of large milk processing plants. Significant roadblocks to convincing and supporting them to change their small enterprise policies remain. Example 26: BDS and Advocacy Nekolera Gyange Supported Radio Program in Uganda The following is an example of how ILO/FIT supported commercial radio programs to help SEs advocate for policy change that can immediately affect their bottom line. restaurants. boil it and sell it to shopkeepers. Mary. because in many cases these continue to be major roadblocks that only government can address.67 This analysis suggests that the appropriate role for government in many developing countries is to focus on the enabling environment and infrastructure provision. and a significant loss of income for farmers.66 Experts propose three roles. a scarcity of milk. But Nekolera Gyange producer Ssemakula went to the people affected by the ban.Developing Commercial Markets for Business Development Services – Third Annual Edition Recent research proposes that the appropriate role of government in BDS market development reflects the government’s capacity. The mainstream press covered the issue by interviewing the Minister who issued the ordinance. minimalist role until such time as governments can prioritize intermediary and activist roles on their own.ilo. tracing milk production and distribution from the farmer to the consumer. He followed this piece with a discussion of the issue among concerned traders and members of parliament. ?? Intermediate roles – more sophisticated levels of intervention relating to the regulation and enforcement of standards and competition. however. “Lifting a Ban on small-scale milk trade: On the advice of a technical consultant. Supporting policy change requires identifying the constituencies that benefit from current policies and bringing them on board with the new approach. They are listed in order of priority: ?? Minimalist roles – developing building blocks for economic development and advanced factors of production. 2002 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 55 . in dictatorships and democracies. Milk was sold freely once again in Kampala. He investigated the issue from a business point of view. 2002 Hitchins. Milk is normally distributed through independent traders who purchase from farmers. in both developed and developing countries. and other small business people who use or sell milk.” McVay. traders. none of which include providing services directly to SEs. and interviewed key players on location. and individuals. and ?? Activist roles – interventionist roles such as promoting greater access and equality and improving efficiency. BDS programs form part of an administration’s political tools for generating support from key constituencies. policy change requires mobilization of other constituencies with an interest in developing BDS markets that serve a wide range of poor people. haul the milk to the city. There is a message here for international donors to support developing country governments in this broad. The ban was lifted and the new bill adopted in its place. Website: www. “An Information Revolution for Small Enterprise in Africa: Experience in Interactive Radio Formats in Africa” ILO SEED 2002. The conclusion was that an existing Dairy Bill in Parliament could address health issues in a more inclusive manner. The result of the new ordinance was high prices. Alternatively.org/seed (publications) Recommending appropriate roles for government is a small part of the challenge.
grassrootsfreemarket. entrepreneurs often have to pay up-front for BDS. The Donor Committee Guiding Principles emphasize that continuing provision of services is sustainable only if it is paid for by commercially motivated revenues. whose methodologies at this point are fairly standard around the globe. effective BDS are tailor-made to meet the specific demands of target markets. One effect of long-term subsidies of BDS is that in some markets. Committee of Donor Agencies. but also a challenge in how the poor can be reached with more commercially delivered services. up-front research and development costs are higher than those of microfinance programs. 68 These efforts represent a significant contribution of BDS initiatives to the development of democracy. 69 The discovery of demand-driven services suggests an opportunity for services to become sustainable. Third. In addition. This characteristic points to key program issues. with the financial return realized later. but most BDS programs face this issue. http://www. entrepreneurs are unwilling to pay even for very useful services because they feel they have a right to subsidies.org. 1999a. One effect of long-term subsidies of BDS is that in some markets.2 Who Pays? Financial sustainability strategies.70 As a result.ild. entrepreneurs are unwilling to pay even for very useful services because they feel they have a right to subsidies. First.org/ Committee of Donor Agencies. There are specific challenges to financial viability in BDS that are fundamental to the nature of BDS for SEs. in contrast to a loan paid back with interest. can finance BDS investments. many BDS services have developed in the context of donor-funded institutions. 1998. ?? Payment mechanisms can be designed to fit SE capacities. Services delivered through business transactions are more responsive to SE wants and needs and are likely to have a high impact. 7.pe/. not donor or government subsidies. Second. and ?? To design services with a very clear and fast payoff. This section elaborates on a range of financing strategies that have demonstrated sustainability and discusses ways they have been applied in reaching the poor. 71 Some programs may work their way around this by developing mass services that nevertheless have a significant impact on many SEs.org/bdsguide. the scale of services is usually smaller because the markets for certain services are smaller. both traditional and market development 68 69 70 www. 71 Goldmark. The second component of developing sustainable markets is finding ways to pay for business services. 2001. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 56 . especially low-income SEs.seepnetwork. particularly how: ?? SEs. http://www. Chapter 2 on BDS impact described the importance of demanddriven services that have a fee component and put financial pressure on suppliers to respond to SE wants and needs for services.html.Developing Commercial Markets for Business Development Services – Third Annual Edition to support changes in specific policies and establish sustainable advocacy processes that engage SEs in the process of advocating for appropriate private sector legislation. Despite these challenges.
and have an average annual outreach of regular basis. and small enterprises. Commercial or non-profit suppliers sell services at full-cost or profitable prices. 3) Costs are further reduced by the facilitator playing a liaison role between suppliers and Swisscontact. Each strategy is described and illustrated by an example. employ 70 persons suppliers who supply standard services on a and a pool of 500 consultants. How do suppliers overcome the significant constraints to sustainability listed above? Example 27: Sustainable fee-based BDS Suppliers Swisscontact in Ecuador Swisscontact established and 1) Suppliers offer services that are low-cost and developed 18 Business Development often have a very short-term payback period of Centers (BDCs) in 12 cities in Ecuador. 4) Market research costs may be subsidized by BDS facilitators who help with technical assistance or conduct research relevant to a large number of suppliers. 6) Suppliers are primarily private sector businesses. 5. so that suppliers can be experts at serving SEs while facilitators can specialize in negotiating and managing donor funds and developing supplier capacity. 7. Several strategies are emerging for achieving sustainability in BDS that are presented in more detail in the sections below.2.1 Fee for Services The first strategy is the most direct route to sustainability: delivering financially viable services from the outset. 15 are operational with a a few months or less. 2) Facilitating embedded services. and the presence of donor funding is not publicized. particularly through private sector suppliers. These include: 1) Fee-for Services: Delivering financially viable services from the outset. or across different services. donor funding is not used to subsidize direct transactions. providing market information or helping with other product development costs. 4) Third Party Payment in which large firms pay for services to SEs in exchange for advertising or other value-added services. 5) Piggy-backing on microfinance institutions. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 57 . but do not subsidize the delivery of services. self-financing ratio of more than 2) Costs are reduced by separation of activities 100%.000 enterprises. Donors or facilitators build on existing markets by promoting innovation. 3) Cross-subsidizing from one set of customers to another. These BDCs generate annual between facilitators who perform much of the sales of more than US$1 million from BDS service development and testing. Prospects No 1.Developing Commercial Markets for Business Development Services – Third Annual Edition programs are pushing to develop sustainable services and some are achieving this goal. This strategy is the one most in line with the market development approach. 5) BDS marketing costs may be subsidized by BDS facilitators who spread awareness about and promote services. 2002 donors.
The veterinarians were selected from experienced cattle farmers with some education. tend to have structures and overhead costs that allow them to keep costs low enough to profitably serve SEs. 72 Not all examples of sustainable BDS services follow all of these principles. ?? Collect payments on “commission” – only if the services makes a profit for the business. ?? As self-employed rural people. and information gathering and sharing due to exposure to numerous farmers and other veterinarians.Developing Commercial Markets for Business Development Services – Third Annual Edition so SEs are less expectant of subsidies. they may have improved cashflow to purchase future services. packaging and payment mechanisms to reach low-income markets. They can.seepnetwork. and ?? Non-financial benefits such as influence in the communities. but the principles are increasingly in use with a wide variety of financially viable BDS. they have low overheads and expect a modest return. After a three-year program. ?? Package services in small pieces or “sachets” – instead of a 2 week long workshop. Programs are finding that delivering financially viable services from the outset is easiest when working with suppliers who have never received subsidies for transactions. are reluctant to or cannot pay up-front for valuable services. ?? Offer gradual payment mechanisms – pay by installments. particularly if a buyer 72 73 Hileman and Tanburn. offer several shorter seminars. once SEs benefits from these services. 2002 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 58 . SEEP. They earn profits of 40 . particularly low-income SEs. PMF 2001 Website: www. make their products. CECI/MARD in Nepal CECI/MARD. trains entrepreneurs to supply veterinary services to farmers in remote villages accessible only on foot. 2000. Full prices are charged as soon as the service is fully designed.73 ?? Lower costs by delivering services through other SEs or volunteers. a program funded by CIDA.2.50% despite low fees because of: ?? Low cost of vaccines and medicine. These suppliers. ?? Group purchase – help SE purchase as a group and get a discount.2 Embedded Services Many SEs. Goldmark 1999. payment in kind.org How can fee-based services reach the poor? Many suppliers use the following promotional. particularly if they are SEs themselves. ?? Low cost of transportation – they live in the region. ?? Offer finance to allow the poor to pay for services. McVay et al. ?? Offer introductory services with immediate value-added for free or at a low cost. They sell veterinarian services including advice and hard services such as vaccines and medicine to farmers who pay fees for the service. however. Example 28: Sustainable Veterinary Services. there were 40 village veterinarians. 7.
assisting 2. How can embedded services reach the poor? Embedded services have high potential to reach the poor because they are not fee based. To reach the poor.” SDC. Urs Heierli. cost structures are too high and the service pay-off time too long for full cost-recovery of a particular BDS. There are several types of these sustainability strategies: 1) Supplying BDS to larger businesses that can pay profitable rates and using the profits to supply service to smaller businesses.) The trees offer farmers an affordable long-term investment.000 saplings. 7. She embeds advice about growing and maintaining the trees to her farmer customers so they will be successful tree growers and return to purchase more. some nonprofit BDS providers choose to cross-subsidize them with other revenue generating activities. the services have to be delivered through markets they can access. Services provided by buyers of SE products are more likely to reach the poor. Sales total $5 million per year (NPV $90 million. many large wholesale businesses purchase from SEs and sell to distant urban or export markets. Example 29: Embedded Services through Input Suppliers SDC and Tree Nurseries in Bangladesh SDC in Bangladesh helped farmers access the asset development and income generating opportunity to invest in trees. but not financially viable. but now earns $14. market information.000 farmers. who pay some kind of fee and continue to use it. and 3) Using income from a viable BDS to cover the cost of a non-viable BDS. which are purchased by 650. worked with 114 NGO facilitators. In cases of services that are demand-driven and valuable. Similarly. as are services embedded in essential inputs that the poor already purchase. a tree nursery owner. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 59 . whose costs are paid by the mark-up.” Presentation at the SEED ILO Conference “Building Commercial Markets for BDS.500 nurseries in Bangladesh to produce 100 million saplings per year. product specifications. Amina Begum. 2) Operating a completely unrelated business and using those profits to subsidize BDS activities.3 Cross-subsidies In some cases.” Turin. such as quality control and packaging or promotion. but providers and donors believe the service is valuable for entrepreneurs. Italy. “Activities of SDC in Private Sector Promotion.Developing Commercial Markets for Business Development Services – Third Annual Edition supplies raw material. or other services. These are called “embedded” services. and they are environmentally sound and don’t consume extra resources.2. was once poor.000 on one acre growing 120. SDC assisted owners of tree nurseries to improve their businesses and “make a business out of poverty reduction. In the private sector. a safety net / insurance. 2000. companies that supply inputs or technology to SEs sometimes provide training or advice as part of the sale. Sometimes they supply services.
Alter. often run out of homes or existing businesses. Here’s how: 1) Grameen Bank formed a telecommunications non-profit. where companies continue providing an unprofitable service in order to build or keep a client base for more profitable services. Vietnam. one of the leading microfinance institutions in the world. “Grameen Village Phone: Its Current Status and Future Prospects.sedonors. such as trade shows. GP won a bid to the rights to provide cellular phone services in Bangladesh. but the subsidies may crowd out the private sector. In the first. however.” Prepared for the Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance. in partnership with international private and public investors. by the phone call. Another disadvantage is that market signals may be distorted if SEs pay subsidized fees for services. whether or not particular services are. with the expectation that some clients will grow and take more intensive. Grameen Telecom (GT). The strategy uses income from the provision of telecommunications services to wealthy urban areas to finance the provision of cell phone services to rural. to community members. This gives the provider a reason to offer “free” services. 2002. Grameen Phone (GP). Websit e: www.76 74 75 Bissegger.000 phones in use with some 60. Subsidies can be provided without long-term commitment of governments and donors. 2000. individuals to start village-level telecommunication businesses. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 60 . 2001. 4) Individually owned telecommunications businesses in turn sell telephone services. 74 How can cross-subsidies reach the poor? Cross-subsidies are challenging because organizations tend to focus on their source of finance. 2000. social enterprises can be assisted to effectively manage their double bottom line of financial and social goals. Although this strategy is much discussed among practitioners and experts.000 users. There are at least two strategies in use. Loans carry an interest rate of 22%. Burr. from its pool of interested borrowers.Developing Commercial Markets for Business Development Services – Third Annual Edition This last option has parallels in the private sector. hardware. Example 30: Cross Subsidies Grameen Village Phone: Bangladesh The Grameen Bank. 3) The Village Phone Project selects. GT in turn formed a for-profit company. Chandler. 75 In the second. They receive financing. is also taking a lead in pioneering a key BDS: telecommunications. low-income clients. There are currently around 1. 2) GP provides cell phone services to upper income individuals in urban areas and channels profits to GT and the Village Phone Project. is that other private sector suppliers may enter the market to supply the subsidized BDS. 76 Carpenter et al. organizations can “tier” services by offering low-level services to a large number of poor clients (such as group membership). training. many of whom are self-employed and use the phone for business purposes. It is more common to find non-profit organizations with donor contracts to build the capacity of BDS suppliers subsidizing services to SEs.org (BDS materials) The advantage of this strategy is that an entire BDS institution can be sustainable. and cellular services. April. there are few examples of its success. One disadvantage. Hanoi. fee-based services.
and to have large firms pay the fees. non-required. Website: www.2. Thus. In this manner.” that is. Despite the poor performance of previous integrated service programs and the taboo that has emerged around linking BDS to microfinance. many NGOs continue to deliver BDS through microfinance institutions.4 Third Party Payment A variation on cross-subsidies is to identify and deliver business services that are mutually beneficial to both small and large firms. An estimated 40% of SE owners in the area.ilo. The telecommunications firm markets cell phones to SEs. the happier the sponsors. but offer it as a separate. the service is mutually beneficial.000 business people. the provider and funders are financially motivated to serve the poor. and the bank uses the program as a platform for educating consumers about banking practices and receiving valued customer feedback. Example 31: Third Party Payment Services FIT Supported Nekolera Gyange Radio Program. Usually loan officers and BDS staff are separate as well. and helping them link to modern markets and to Uganda's increasingly democratic political system. The sponsors benefit from marketing to SEs. FIT has also supported business-to-business advertising papers that have some large-scale advertisers. Some of these programs offer financially viable BDS and the activity is sustainable for the institution. McVay. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 61 . 7.org/seed How does third part payment reach the poor? Third party payment can reach poor people who are potential customers of profitable businesses that are trying to sell to the poor. The program is financed by a bank that serves small businesses and a telecommunications firm. listen to the program regularly. Nekolera Gyange is giving small enterprises a public voice for the first time. some 90. 2002. but the large firms pay. The best example of this is FIT-supported small enterprise radio programs in Africa. Although there are few examples of such services.Developing Commercial Markets for Business Development Services – Third Annual Edition 7. which are targeted to SEs. disseminating a BDS through a microfinance institution.5 Piggy-Backing on Microfinance One strategy receiving increasing attention is known as “piggy-backing. Uganda The Nekolera Gyange (I Run My Own Business) radio program has broadcast twice weekly since October 1999 to SEs in and around Kampala. and the SEs benefit from a radio program that provides a voice for their concerns as well as vital business information. One could also imagine how other mutually beneficial services might be financed in this way—sub-contracting services or programs that help craft purchasers like Pier One access products. The radio stations have an incentive to respond to SE demand because the larger the listener base. The program has been profitable for the radio station since the initial broadcast. Corporate sponsors pay for the programs. “An Information Revolution for Small Enterprise in Africa: Experience in Interactive Radio Formats in Africa” ILO SEED. Mary.2. feebased activity. Successful programs use credit meetings to disseminate information about a BDS.
5 billion. ?? The training division serves its village-level banks and is paid for through interest rates on loans. 5) The business services.000 persons. and skills may be diluted if the same staff members are required to be loan officers and trainers. Its loan clientele comprises 43% women and its recovery rate is 96%. if delivered by the financial institution. 4. SEEDS is associated with the Sarvodaya movement in Sri Lanka and aims to develop and empower the poor with funds and technical assistance from DFID and ITDG. 1999b. the Program covered over 2. The SEEDS BDS program has evolved from one of direct. “SEEDS BDS and Microfinance Services. rather than on business development and may not be relevant to entrepreneurs. individual. 2) Clients have access to finance to pay the fee for a BDS. thus compromising institutional profitability. 3) In some cases. They operate three key programs: ?? As of 2002. These changes have resulted in more relevant services that are helping businesses grow. among others. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 62 . in Sri Lanka is an NGO with a dual goal of small enterprise development and financial viability.779 Societies with a largely rural membership of over 495. cross-subsidized by the microfinance program. 2002. and often in groups and in partnership with other providers to reduce costs. There are also potential disadvantages of this approach: 1) Clients may feel compelled to purchase the service. SEEDS donor dependency was reduced from 83% in 1996 to 53% in 2001 and its business plan calls for 25% of funds to be sourced from donors by 2005. free services to a more demand-driven and cost-effective model where services are provided for a fee. training costs for both supplier and entrepreneur can be kept to a minimum because it is delivered during a loan committee meeting or using the MFI facilities during off-hours. 77 Goldmark. are often focused on loan recovery. SEEP Network. 4) There is a danger of cross-subsidizing low-demand services with lucrative microfinance services.77 3) Staff may become distracted with too many activities. thinking loan applications will be considered favorably if they do so. the banking division had mobilised a savings deposit base of Rs. 907 million and initiated loans worth Rs. 4) Overhead is minimized because costs are shared and. 2) There is some evidence that the primary clients for training are not the same as microfinance clients. As of March 2002.Developing Commercial Markets for Business Development Services – Third Annual Edition The advantages of this approach are numerous: 1) Promotion costs are minimal because there is a captive audience in credit meetings who can hear and spread the word about available services. in general. ?? SEEDS Enterprise Development Services (EDS) provide technology access and technical training on a sectoral basis and individual business counselling services. for a fee.” Presentation at State of the Art in BDS. Example 32: BDS & Microfinance SEEDS in Sri Lanka Sarvodaya Economic Enterprise Development Services (Gte) Ltd.
seepnetwork. 78 78 www.html.org/bdsguide. a BDS facilitator could facilitate commercial. mutually beneficial partnerships between BDS suppliers and microfinance institutions.Developing Commercial Markets for Business Development Services – Third Annual Edition There may be significant lessons to be learned from additional research into this practice. Enhancing this concept with the market development perspective. “Finance” BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 63 .
technology. The businesses and organizations that provide the aim of the market development services. Interventions market access. Intervening at the pre. have the capacity to both distort etc. market issue. donors have supported programs that intervened at the delivery stage. and do not damage the relationship between commercial suppliers and SE buyers. than required to address the Services include training & TA. the least distorting interventions maintain or promote competition in the market.Developing Commercial Markets for Business Development Services – Third Annual Edition 8 What strategies can be used to develop BDS markets? The vision of the BDS market development approach is to develop a vibrant. such as when they provide SEs with vouchers to buy services from private sector suppliers. most often by directly supplying services. are limited in time.and post. 79 80 Springfield Center BDS 2000 Training Course Springfield Center. approach is to develop the Interventions are the activities of a development market as much as possible program that strengthen the supply and demand for specific services. BDS 2000 Training Course BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 64 . Markets are less distorted when practitioners support the relationship between suppliers and SE buyers. while keeping distortion to a minimum.and post-delivery stages tends to be less distorting while still offering the potential for developing the market. shows the functions in a BDS market. policy advocacy. They obtain these services through business-to-business relationships with competing. Regardless of the intervention point. Practitioners are finding that there is often more than one way to address a market issue and more experience and experimentation are needed before the field can clearly outline which interventions address which market failures. Nevertheless. private sector suppliers. it is usually less distorting to intervene at the pre. The BDS market development approach as an explicit development strategy is still young and organizations are experimenting with a number of interventions to develop BDS markets.1 Where do interventions focus? Figure 9. There is agreement that the intervention should “fit” the market—that it should be designed to improve a particular market problem or take advantage of a market opportunity. and the SEs that demand them. 8. programs run the least risk of distorting the market. By targeting a specific problem and intervening only to address that problem. Intervening at the delivery stage usually causes considerable distortion 80 and it becomes even greater if donor or government supported services replace the private sector or intervene between private sector suppliers and their SE customers. However. 79 Traditionally. infrastructure. competitive BDS market in which large numbers of SEs use a wide range of business services to improve and grow their businesses. These services exist in a market of and develop the market. because it interferes with demand signals that SEs may send to suppliers. A key principle for choosing The difference between a service and an and designing interventions is intervention that the intervention should A business development service is received by not be any more intensive the SE in order to develop the business.delivery stages. preliminary lessons are emerging.
?? Amounts to be invested and the roles of both parties are clear.2 How do programs work with suppliers? Many interventions involve partnerships between a facilitator or a donor and BDS suppliers. This often means working with many suppliers during the life of a program and opening access to the opportunities donors offer to a range of suppliers. and sanctions are applied for non-performance. The donor / facilitator benefit is greater outreach and the supplier benefit is higher sales. Suppliers are free to terminate relationships with donors if they find the partnership is no longer in their interest. Now leaders in the field agree that interventions are most effective when donors promote competition among suppliers in the market. Roles and sanctions are clearly written in a contract.Developing Commercial Markets for Business Development Services – Third Annual Edition Figure 9: Functions in a BDS Market FEEDBACK & CHANGE Ideas Developing Products Developing People and Organizations Advertising and Product Positioning Information for Consumers Delivery Supply-side Delivery Demand-side Assessment of Markets/ Products Pre-delivery Delivery Post-delivery 8. Table 5 compares the two approaches—working with one supplier vs. however. 81 Unpublished correspondence on the Swisscontact Indonesia Business Centres. Recent thinking also concludes that business-like relationships between facilitators and suppliers are more effective in developing markets than are grantor-grantee relationships. and a larger customer base. new markets. donors have tended to work with a few chosen providers. for example to test a new product. ?? Donors and facilitators terminate relationships with suppliers if the relationship is no longer beneficial for both. For example:81 ?? The relationships between donors or facilitators and suppliers are transactional and based on mutual benefit. Springfield Centre BDS 2000 Training Course BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 65 . It does not. promoting competition among suppliers. exclude working with one supplier at some point. Traditionally.
effectively dictating the supplier’s client focus. behavior and attitudes among both suppliers and facilitators. select partners using transparent. 2000. Suppliers can be added or dropped from the program. which encourages prudent and effective use of the program funds and technical assistance. ?? The approach attaches a value to support. The program succeeds or fails when the supplier succeeds or fails.Developing Commercial Markets for Business Development Services – Third Annual Edition Table 5: Support to One Supplier Vs. Experience shows that this is likely to be more sustainable than initiatives with heavy donor support that tend to be out of proportion with suppliers’ costs and SE capacity to pay. Targets for outreach can be spread over many suppliers. which enables the donor / facilitator to have a more business-like relationship with suppliers. ?? It is possible to link support to suppliers’ achievement of agreed upon objectives. turning the supplier’s attention away from consumers and toward the donor. ?? Business-like relationships foster business-like incentives. Springfield Centre. market-based criteria and develop and monitor relationships with multiple suppliers. BDS 2000 Training Course Tanburn unpublished. this promotes donors maintaining relationships and subsidies even when programs are not effective. The interventions with the supplier tend to be very intense. BDS 2000 Training Course BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 66 . or at least. less distorted. Strategies for Achieving Program Targets Intervention Intensity per Supplier Targets for outreach—total number and percent womenare all placed on one supplier. Promoting Competition Among Suppliers 82 Issue Competition in the Market Administration One Supplier The supplier gets an unfair competitive advantage. Donor Relationship with Suppliers This business-like approach has a number of advantages: 83 ?? Requiring that the majority of an investment for an initiative come from private sector suppliers means that the financial scale of the initiative will generally fit the capacity of the market. allowing each one more leeway in choice of clients. which makes it easier to keep the focus on consumers. Administratively simple Promote Competition Competition in the market is strengthened. distorting the market and suppressing competition. This also allows donors to dictate services and approaches. 82 83 Adapted from Springfield Centre. Administratively complex: a donor / facilitator has to provide equal access to its offer. Suppliers have more leeway to follow customer demand and ignore donor suggestions that are not relevant to the market. Intervention with each supplier is less intense.
Website: www. Gibson. new product ideas. consulting. Colombia. auditing services. Swisscontact is now more closely examining private sector models of business investment such as venture capital companies. such as a retail outlet. In fact. Kristen. is helping to create business centers in several countries including Indonesia. The philosophy of Swisscontact is that the development of commercially sustainable centers takes place only if business practices are used from the beginning. Swisscontact signs a contract with successful bidders that stipulates that financial assistance is dependent on the achievement of agreed financial targets. Prepared for the Donor Committee Conference on Business Development Services: Building a Modern and Effective Business Service Sector for Small Enterprises. 2000. 1999. networking with other business centers. market surveys. private firms. demand promotion is often a key part of private sector marketing strategies as well. Brazil. a Swiss NGO with major funding from SDC. Some traditional BDS programs have provided SEs with services that experts thought they needed. and NGOs and aims to build on existing business support institutions rather than creating new ones.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? Supporting suppliers’ initiatives builds their ownership of the changes in their businesses.” A Market Oriented Strategy for Small and Medium Scale Enterprises. 8. Financial assistance typically includes some start-up costs and covers up to 50% of operating costs in the first six to twelve months. Financial indicators include financial sustainability. The business centers are selected through a bidding process that includes detailed business plans and a financial commitment from bidders. Indeed. if SEs are unaware of the benefits of a service. Others provide a range of services such as training. Market development programs try to address specific demand side problems in such a way that SEs will want to purchase a service. February. Philippines. Swisscontact provides the centers with a package of start-up services including financial and technical assistance. bulk buying of inputs. Technical assistance may include advice. “Swisscontact: Business Centre Approach in Indonesia and the Philippines” Springfield Centre. and gross margins for various services. However. Swisscontact’s experience has shown them the importance of business-like relationships with suppliers. and marketing assistance. Example 33: Building the Capacity of Suppliers Swisscontact and Business Centres Swisscontact. and administrative services to SEs and often larger enterprises as well. regardless of what the SEs thought. However. common service facilities.3 How do programs promote demand? Because of the history of development programs telling SEs what services they need. programs pursuing market development are often finding that demand creation is an important part of market development. mainly to SEs. and training.org (BDS materials) Hallberg. Alan and Robert Hitchins. Rio de Janeiro. Bangladesh. a program may develop an awareness creation strategy aimed at increasing SEs understanding of what the BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 67 . Some of these centers cater to a specific sub-sector and provide services. The bidding is open to any kind of organization. For example. there has been some reluctance to aggressively pursue demand promotion strategies. including business associations.” IFC Discussion Paper. Ecuador and Peru. April. Technical assistance with or without modest financial support enables suppliers to build their own businesses rather than being overwhelmed by external funds and advice.sedonors. there are different strategies for promoting demand. Financial assistance continues (if the center is meeting its targets) on a declining basis for one to five years. cost effectiveness.
The aim is to create or expand BDS embedded within business relationships between SEs and other firms. Each strategy aims to address one or several weaknesses in a BDS market. The aim is to help SEs overcome diseconomies of scale in purchasing BDS by enabling them to purchase services in groups. Social Enterprise addresses a lack of supply in the market. If SEs generally produce a service in-house. this strategy helps SEs make informed choices about purchasing services. Collective Action: Clusters. Some address primarily demand-side weaknesses. but most interventions affect both sides of the market.4 What interventions develop markets? A variety of market development interventions are used in practice. The aim is to expand demand for BDS by making SEs aware of available services and their potential benefits. New product commercialization can also be undertaken by promoting franchising of appropriate service products or service businesses. Information to Consumers addresses SE lack of information about services and suppliers. Technical Assistance to Suppliers addresses suppliers’ lack of technical or managerial skills. 6. 5. 7. 3. 4. SEs can make a better informed decision about whether they want the service or not. The aim is to build the capacity of new or existing BDS suppliers to profitably serve SEs.Developing Commercial Markets for Business Development Services – Third Annual Edition service can offer them. a program may subsidize supplier marketing efforts which show why outsourcing a service can be a cheaper alternative. others the supply-side. Networks and Associations address SE lack of ability to pay for services and supplier inability or unwillingness to sell services in small enough quantities for individual SEs. Product Development and Commercialization addresses a lack of appropriate products for SEs in the market and supplier reluctance to target new consumer segments. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 68 . 1. Business Linkages and Promoting Embedded Services address SE isolation and inability to pay for services up front. 8. The aim is to expand demand for BDS by providing information and encouraging SEs to try services by subsidizing their initial purchase(s). 2. Then. Usually the interventions are combined into an overall strategy. The aim is to commercialize new products through existing suppliers by assisting with product development. market testing and initial marketing of new products. Strategies used most commonly to date are described below. with examples. The aim is to increase the supply of services by assisting suppliers in expanding or helping new suppliers to enter the market. Vouchers Programs address SE lack of information about services and reluctance to try a service. Again. Business linkages also address suppliers lack of knowledge about SEs.
there is little evidence to date that matching grant programs anyw here resulted in the development of competitive BDS markets. on average 19% of grant finds. After four years of operation. if the SE has not selected a consulting supplier to assist with the activity. December 2000.1 Voucher Programs These programs are designed to increase demand for BDS by offering vouchers to qualified SEs who then procure discounted BDS from private sector suppliers.” World Bank. a small number of selected SEs propose projects to an agent. Initially. and administered approvals and disbursement of funds. If the SE has selected a firm to help with its project. In voucher programs. The information is designed to increase SE awareness and understanding of available services. Over the life of the program. the program had supported 266 projects. will refer the client to a list of qualified firms.000 to US$9. facilitated contact between firms and suitable private consultants. Example 34: Matching Grants The World Bank in Mauritius From 1994-1998. “Matching Grant Schemes. Intermediate Technology Publications. who is often a facilitator acting on behalf of a donor or local government agency. David A. The subsidy is meant to encourage SEs to try a service that they might be too risk-averse to try at full price. However. “Implementing The Market Approach To Enterprise Support: A Comparative Evaluation Of Matching Grant Schemes. 2000. the strategy is to provide information and temporary subsidies to firms that do not commonly use BDS. The agent screens the application and. In these programs. The vision is that once both parties experience positive business transactions. the Government of Mauritius implemented a matching grant scheme focused on technology diffusion with funding from the World Bank.800. advised them on maximizing benefits from consulting services. Usually. they will continue to exchange BDS without further subsidy. as the program progressed more small firms participated because of the demonstration effect and the status associated with the program. the SE pays the consultant up-front for the service. However.Developing Commercial Markets for Business Development Services – Third Annual Edition 8. and to link them with BDS suppliers who do not normally serve SEs. Crisafulli. Daniel. average grant size declined from US$15. design. assisted them with planning. regardless of size. these strategies resemble traditional BDS programs because they subsidize the procurement of services. On the surface. The program promoted consulting services to help private firms improve quality. Any firm with majority private sector ownership was eligible to participate.4. All projects were subsidized by 50%. and then the agent reimburses the SE once there is evidence that the project has been BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 69 . technology. Increased demand from SEs is meant to stimulate suppliers to develop and improve service products for the SE market. The ratio of increased sales in assisted firms to the cost of grants was 163:1.org (BDS materials) Phillips.” in Business Development Services: A Review of International Experience edited by Jacob Levitsky. Matching grants are a pre-curser of voucher programs that operate on a much smaller scale and target larger firms. The government contracted a private agent to run the program. primarily in export-development programs serving medium-sized firms. as long as it is legitimate. helped clients to complete grant applications. or productivity. Operating costs were. Available on website: www. but they are different in key ways that support BDS market development.sedonors. The agent promoted the program to potential clients. the agent assesses the firm and registers it as a supplier. mainly larger firms within the SE spectrum were attracted to the program because they had experience with consulting services. They have been in use for over a decade.
Example 35: Voucher Program BONOPYME in Peru The Voucher program in Peru started in the year 2000 and began a second phase in 2002. design and introduction of a new product.86 The agency distributing the vouchers also supplies information to SEs about the available trainers. and the number of SEs that have purchased their courses. ?? 79% of the SEs surveyed said the TA solved more than 60% their productivity problems ?? 90-95% of training students felt the content was relevant. It targets small and microenterprises with 2-20 employees in growth sectors—tourism. ?? The program successfully attracted private sector suppliers into the market. Presentation. Voucher programs were the first attempt to encourage a large number of private sector BDS suppliers to serve microenterprises by strengthening the demand for training services.Developing Commercial Markets for Business Development Services – Third Annual Edition completed as planned. Sample projects include building refrigerated storage for flower export. 1999b. The vouchers are used to help SEs access management and technical training and technical assistance or consulting services from a range of private sector and not-for-profit providers. agro-industries. Experience has shown that suppliers do respond to the increase in demand from SEs. 1999. and industry—and operates in nine cities in Peru. 84 Some experts also question the need for the intervention. They readily modified their training services and created new courses to serve microenterprises as a result of the programs. “Peru Vouchers. modular. Performance statistics include: ?? In two years 27. The government itself promotes and administers the vouchers. The most 84 85 Gibson. State of the Art in BDS. 85% of providers were NGOs or vocational institutions. handicrafts. These vouchers can then be used to access training services from a large number of registered trainers. and were often practical. but by 2002 half the trainers were private sector businesses or associations. These programs tend to show strong cost-benefit results and high levels of growth in SE sales and employment.411 vouchers were used. Schor and Goldmark. 1999 86 Goldmark. ?? SEs paid 27% of the training costs. The discounts range from 35%-80%. They were short. evidence that relationships and BDS exchanges continue after the programs end is not yet available. the courses they offer. which offer first-time users a 20-25% discount on services. Crissafulli. 2000. and considered the trainers to have a strong mastery of their subject. At the beginning of the program. The discount provided by the program is typically between 30% and 60%. because SEs demonstrate their ability to pay for the BDS by paying for the service first and seeking reimbursement afterwards. immediately applicable skills. The new training courses focused on specific. Information on vouchers is primarily from Botelho and Goldmark. or development and implementation of a new marketing plan. ?? 50% of enterprises receiving services through the voucher program improved their business skill competency and 50 % improved sales or productivity or reduced costs. would recommend the training to others. 2000. used it in their business. microenterprises apply for a limited number of coupons or vouchers. which they receive with minimal screening. including brief descriptions of them. However. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 70 . hands-on learning opportunities accessible to illiterate people. 85 In these larger scale initiatives.” SEEP Training. 2002.
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popular trainers were private sector firms, often entrepreneurs who managed a small business and offered training specific to their business. 87 Challenges to the implementation of voucher programs include: ?? appropriate selection of a credible, impartial facilitator and adequate supervision to avoid corruption and politicization of voucher distribution and supplier registration; ?? ensuring strong program management so that vouchers are available when and where they are demanded and suppliers are accredited and paid on time; ?? defining strategies to build capacity of training institutions and to provide financing to trainers to support new services and physical development; ?? designing effective exit strategies (no voucher program has yet finished on schedule, at least partly due to their popularity with governments). Although training voucher programs have helped large numbers of microenterprises link with corresponding numbers of BDS suppliers, there is growing concern about the sustainability of the positive market changes on both the demand and supply side. Recent research in Paraguay found that some market changes were sustained even when vouchers were not available: ?? training services began to have greater geographical reach; ?? voucher users’ satisfaction with training courses was reasonably high and some SEs continued to purchase training even when vouchers were not available; and ?? some training institutes have continuously expanded and diversified their training courses.88
Example 36: Vouchers for BDS BIZPRO in Ukraine The BIZPRO voucher program in Ukraine was designed to be temporary, to "spike demand" over a 6-18 month period, and then withdraw from the market. Vouchers were offered through business centers and associations in 4 “oblasts” (states). As of April 2002, 8,406 vouchers had been used. The BIZPRO program also worked with suppliers to strengthen their offerings. Trainers and clients alike agreed that the most important aspect of the program was the market linking and information service, rather than the voucher. In a post-test survey, voucher users said that they would have paid the full cost of training in computer usage and business accounting if they had known that these services were available. The service providers, meanwhile, valued their new relationship with the business associations that administered the program, because these associations kept them in touch with the requirement of their SE customers. In the Ukraine market, it would seem that the primary demand-side problem was not SE risk aversion to paying full cost for training services but rather lack of information about the availability of services and service provider lack of information about SE demand.
Gibson, Alan, Rob Hitchins and Marshall Bear, “BDS Market Development: A Guide for Agencies,” USAID Microenterprise Best Practices Project managed by Development Alternatives, Inc. Website: www.mip.org; Original study " Business Services Centers in the Ukraine," Yoo Mi Lee, 1999. Mike Field and David Knopp, "Kick-Starting the market for Business Development Services, Presented at State of the Art in Business Development Services, SEEP Network, July 2002. -SEEP Business Development Services Seminar Washington, D.C. April 30, 2001.
Goldmark, 1999b Botelho and Goldmark, 2000.
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However, the research documented a significant drop-off in SE demand for services when vouchers were not available. On the supply side, the research found that different types of suppliers involved in the program varied in their sustained responses to the intervention.89 ?? “Entrepreneurial / Expanding Diversifiers” used the program to expand and diversify their training courses and continued this strategy even when vouchers were not available. ?? “Risk-Averse Diversifiers” also expanded and diversified their courses under the program but curtailed investments during periods of market adversity. ?? “Do-Gooders,” suppliers with a social mission, whose course prices do not cover costs, tended not to respond as much to the program and tended not to enforce the rules of the program related to SEs. ?? “Rogues” maximized voucher income while minimizing investments; when vouchers stopped they turned to other mechanisms for generating revenues. Experts warn that a market assessment should precede any voucher program. On the demand-side, vouchers address SE risk aversion to trying services at full cost. However, if this is not the primary demand-side problem, vouchers may distort a market more than necessary by fostering SEs dependence.
Example 37: "Seven Deadly Sins" of Voucher Programs The following is a list of things NOT to do in voucher programs: 1. "Guestimate" the market: instead, rigorous consumer research is recommended to understand demand and assess whether there is a critical mass of existing suppliers. 2. Assume the program will sell itself: instead, the program must be promoted to suppliers and SE consumers by a trusted, objective facilitator. 3. Let suppliers distribute vouchers: rather, to avoid fraud, vouchers should be distributed by an objective third party whose main role is to distribute information about a wide range of suppliers. 4. Drop the co-pay: SEs should always be required to pay a partial fee in order to keep demand signals flowing and create a culture of payment for services. SEs should know the actual price and realize that the discount is a one-time, trial offer. 5. Internalize the audit function: voucher programs are at risk of fraud if not carefully monitored by an external auditor. 6. Try to control supplier participation: rather, the pool of suppliers should be as large as possible so that consumers may select the suppliers that best meet their needs. The role of the program is to provide as much information, including customer satisfaction data, on the suppliers as possible. 7. Worry later about exit strategy: Most voucher programs have yet to develop exit strategies, but in principle they are designed to be temporary. Some experts recommend phasing vouchers out over time, by gradually reducing their value. Others recomme nd short-term programs of 3-18 months.
From Goldmark, Lara "The Voucher Experience: The Moral of the Story," Presentation at the MBP-IDB-SEEP Business Development Services Seminar Washington, D.C. April 30, 2001.
Experts also caution that voucher programs are not appropriate for all markets. If the supply of training is fairly elastic because there is competition in the market then a voucher scheme will increase the volume of purchases with little impact on the price of services. In this case, most of the benefits of the program will go to the consumers, the SEs. However, if the supply of training is inelastic – perhaps because there are
Botelho and Goldmark, 2000.
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few training suppliers in the market – then the main effect of a voucher scheme alone would be to increase the price of training courses with little impact on the number of courses purchased. In this second case, the voucher program would not achieve its objectives and would mainly benefit suppliers. In the long run, a voucher program might stimulate the supply of training, but its success would depend upon other market factors such as ease of entry and availability of potential trainers. 90 8.4.2 Providing Information to Consumers Many developing country BDS markets suffer from SE lack of information about services and their potential benefits. In some markets, this is the only or key weakness. Facilitators respond to this problem by raising SE awareness of existing BDS suppliers and their products. Examples of such interventions include: ?? starting “business to business” magazines, ?? generating directories such as “Yellow Pages” listing service suppliers, ?? using media such as radio or newspapers to promote services, ?? organizing events to bring SEs and service suppliers together, ?? introducing social marketing campaigns that explain the benefits of services, ?? facilitating information exchange in voucher and matching grant programs, ?? facilitating business links that provide information, ?? producing small enterprise radio programs, ?? helping small enterprise associations circulate newsletters, hold conferences, and host networking events. When valuable, affordable BDS exists in the market, interventions focused on information dissemination tend to be cost-effective. Some programs have commercialized the information dissemination role, which increases the potential for sustainability. However, this strategy alone is not effective if suppliers do not offer appropriate, affordable BDS for SEs.
Example 38: Information Services FIT Zimbabwe, Business Connect magazine The ILO-funded FIT project was able to achieve two aims in one with their Business Connect magazine—commercializing advertising services for SEs, and providing them with information about BDS from existing suppliers. During PRA and discussions with FIT staff, SEs articulated a desire to advertise their products beyond local markets. FIT staff interviewed large firms and BDS suppliers and found that they were interested in advertising directly to SEs. Based on models of successful small business magazines from the UK, the FIT project created Business Connect magazine. The magazine offers SEs an opportunity to advertise their products beyond local markets and large firms and BDS suppliers to advertise their products and services to SEs. The magazine has been successful in linking BDS suppliers, such as a security firm and an insurance broker, to SEs. Circulation is now approximately 10,000 businesses and the number of advertisers is approximately 320, both large and small, with significant repeat customers. Initially printed in early 1999, the magazine has been profitable since its sixth monthly issue and, as of the end of 2000, pays for approximately 75% of FIT Zimbabwe’s total costs.
Hileman. Milena and Jim Tanburn, Wheels of Trade, Intermediate Technology Publications, 2000, available from IT or Amazon.com. Shorebank Advisory Services, “BDS Research in Market Access and Workforce Development Services for Small Businesses – FIT Zimbabwe: Business Connect Magazine.” Draft Case Study, March 2001. ILO FIT website at: www.ilo.org/seed ; and Business Connect at website: www.businessconnect.co.zw
BDS Turin 2002: Seminar Reader – Miehlbradt & McVay
and organizing activities for which it is difficult to charge fees.4. information.000 farmers served. a major activity of NASFAM is to advise associations on contracting processes when hiring private transporters to haul tobacco to market. The associations do not receive subsidies. a facilitator helps SEs form groups—networks or clusters—to jointly purchase or access BDS. and later NASFAM itself. SEs often cannot afford the available services. with a value of $1. 38% women. Rather.400 tons of fertilizer last year. ?? Associations marketed 1. non-profit BDS providers not only organized groups. ?? Transport contracts leading to costs being halved. and marketing agricultural crops. A strategy to address this problem has evolved from the cooperative movement. ?? All 34 associations operating at a profit. In these programs. in turn.seepnetwork.000 Malawian farmers in organizing farmers associations that. the quantity of the BDS that SEs need is too small for suppliers to bother developing products. offers organizational and technical training to farmers associations. For example.000 in 2001 with association commissions at $117. in addition to membership fees. For example. Networks and Business Associations For some services. SE networks can often access services such as consulting.7 million. Traditionally. with sufficient revenue to afford full-time managers and employ a growing cadre of technical field staff. The advantage of this approach is that it helps entrepreneurs overcome a clear market barrier while supporting private sector BDS suppliers. In contrast. Instead.org and www. or training that they could not afford individually. ?? Bulk purchases of over 5. Results: ?? 93. This has become one of NASFAM’s main sources of finance. and NASFAM is using it to serve large numbers of farmers throughout Malawi. Transport contracts exceeded $800.html. McVay.” the tax is generated by the industry being assisted. selling inputs and advice.3 Collective Action: Forming Clusters. transportation. “Microenterprise Marketing: Trends.” SEEP 1999. They are also providing information and extension services to farmers associations to help them diversify production from tobacco. NASFAM collects membership fees for its services to associations. ?? Cost per person served: $118. Example 39: Association Development: NASFAM in Malawi The National Association of Small Scale Farmers of Malawi (NASFAM) emerged from a development project that assisted over 60.251 tons of high value cash crops in 2001. but the fees do not cover the entire cost of operation. technology. In addition to linking groups to fee-for-service suppliers. which includes significant promotional.org/bdsguide. and delivery times shortened by more than 60%. they operate as businesses. there is also the opportunity to expand or intensify services embedded in business relationships. Lessons Learned and Challenges. it is difficult to make products that are affordable for an individual small business or create business links that are appropriate for very small firms. As a result.000. The project. resulting in gross revenues of $83.Developing Commercial Markets for Business Development Services – Third Annual Edition 8. linking farmers to existing private sector sources of BDS. tips and bribes eliminated. NASFAM advocated to receive an allocation of a tobacco levy that is collected on the auction floor. but also provided subsidized BDS to them. the role of a market development facilitator is to help SEs form groups and then assist the groups to access the BDS from the private sector. Often. Mary.seepnetwork. it is more cost effective for a large BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 74 . Website: www. Although the BDS depends on a “tax. marketing intermediation. resulting in lower prices and free delivery for smallholder farmers.700 per association. helped market tobacco and other cash crops.
once provided. Website: www. Promoting linkages among firms is a way to enable more SEs to gain access to BDS as well as the other advantages of more and better business relationships.Developing Commercial Markets for Business Development Services – Third Annual Edition enterprise to procure goods from or supply inputs to a group of SEs rather than to individual SEs. April 2000. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 75 . Examples include: ?? Identifying opportunities for profitable business linkages. Inter-firm links are also often the key source of growth and skills transfer for SEs.93 Example 40: Market-driven Small Industry Clusters in Indonesia In Indonesia. In order to ensure that clusters meet product specifications for export orders. ?? Providing opportunities and events for large firms and SEs to interact. there is at least one example of a for-profit BDS supplier forming SEs into groups and marketing a mix of services to the groups. that offer embedded services.000 producers in selected industry clusters in rural Java. producers also use company designs for sales directly to consumers. van Hulsen. With the company’s blessing. Vietnam.4 Promoting Business Linkages and Embedded Services Embedded services are a major source of BDS for SEs. The company takes responsibility for the design of products and selection of raw materials in accordance with international tastes. the intervention must and should rely on public funds.” Hanoi. Bali.4. usually between large enterprises and SEs but including other relationships that benefit SEs. and Lombok.” Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance. The supplier saw the group organizing as a market building strategy because the groups then marketed services to their members and were able to pay for services. are available to all. but the company has also been instrumental in developing the clusters. Proponents of organizing SEs as a donor intervention argue that promoting cooperation and joint action of SEs is a public good because the benefits are largely indivisible and.sedonors. Sandee. 2000. the private sector can be instrumental in SE cluster formation and development. ?? Promoting sub-contracting from large firms to SEs. Field. Facilitation to foster links focuses on disseminating information about players in the market so that they may develop relationships. Not only have these BDS been useful to cluster members. 2000. 91 92 Clara. a trader has established a registered trading company that deals in “functional art. Where these are absent. public funding will initially need to play a greater role both in forming clusters and linking them with suppliers and other enterprises. Henry and Sandra C. SEs do not perceive “group organizing” as a service and are not willing to pay for it. Hitchins and Bear.” The trading company serves export markets and buys from over 5. The company employs a group of 40 workers who provide on the job training and supervision to the clusters. 93 Sandee and van Hulsen. “BDS for Small and Cottage Industry Clusters in Indonesia: A Review of Case Studies from Central Java. the trading company invites representatives of clusters to visit its showrooms and understand the organization of the export trade. like importers and exporters. Well-organized groups of SEs are often more effective than individual SEs at attracting the types of large suppliers and buyers. Russo and Gulati. Therefore.org (BDS materials) 8.92 These cases and recent research suggests that where innovative service suppliers and/or private enterprises with a stake in SE clusters exist. A major challenge of this approach is how labor-intensive it is to form groups and identify services common to everyone in the group. 91 However. 2000. In general.
tested the capacity of the SEs. has demonstrated success in helping microenterprises reach markets through strengthening business linkages. who are selling their services to large firms. JOBS created business linkages. produced poor quality shoes and were trapped in credit-based production systems that were risky and not very profitable. Meanwhile. JOBS linked small and micro enterprise producers with large-scale shoe exporting factories. July 2002. medium scale exporters faced a huge demand for hand-made shoes but lacked quality suppliers because they have weak backward linkages. particularly those that include SEs and larger businesses. Presentation to State of the Art in BDS. low labor cost. Example 41: Business Linkages: USAID JOBS Project in Bangladesh The USAID Job Opportunities and Business Support (JOBS) program. One key advantage of this approach is that it fosters “win-win” relationships in the private sector. and these organizations are selling their expertise to the large firms. and ?? Building supplier capacity for those enterprises that provide embedded services to many SEs. In their old approach. over a period of three years. The large enterprises meanwhile purchased training services which they provided to SEs a part of their business deals (as an embedded service. The shoe cluster initiative aims to increase sales and employment among microenterprise shoe producers by helping them access international growth markets. Apex.) In their new strategy.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? Supporting small enterprise participation in trade shows and trade associations. and created at least 500 jobs. the JOBS initiative has increased targeted business sales by 20-200%. ?? Developing or expanding large business associations. and identified a small group to work with. Apex then purchased technical training services and provided them to their new sub-contractors over a period of six months. and a trend in global shoe manufacturing moving from North to South. a large firm. The shoe sector is one of the highest potential industries for Bangladesh because there is a natural source of raw material. by gaining lower-cost. JOBS trained the entrepreneurs in costing and accounting and helped them jointly procure inputs to ensure increased profitability of the SEs. providing advanced payment. In embedded services. JOBS is building the capacity of organizations to facilitate business linkages. and provided training to SE. Before the program. making large orders. Then. and paying cash within two days of delivery. using a range of strategies. high value addition. meanwhile. Small and microenterprises. The JOBS program is now experimenting with strategies to develop markets for the key services they provide: business linkages (which they term “clustering”). SE sales more than doubled and 86 jobs were created. or by building a supply network (in the case of companies buying SE products). and is developing innovative plans for developing a sustainable market for business linkage services. JOBS has also trained technical trainers. Through this business linkage. implemented by the IRIS program of the University of Maryland. did not have access to international markets. Asif Ahmed. The larger firms benefit by building a customer base (in the case of suppliers). In Mirpur for example. SEs benefit from relationships with larger firms and/or access to BDS they might not otherwise find. Another benefit is that expanding embedded services avoids a common market limitation in many BDS markets – SE willingness and ability to pay for services up front. they began do to business in earnest. Overall. flexible production (in the case of subcontractors). SEEP Training. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 76 . the costs are either subsumed within other transactions with SEs or are charged to third party commercial players – sometimes both.
Increasing numbers of firms are engaging in outsourcing as the practice becomes common in the region.” forthcoming from Shorebank Advisory Services. it may not be cost-effective for a program to generate the linkages. for example :94 94 Field. Rather.5 Building the Capacity of Suppliers Many of the strategies mentioned above focus on linking SEs to existing BDS supply. “Helping SEs Grow and Create Jobs. others combine the two. and ?? help ensure that small firms benefit from the relationships. despite the severe economic downturn and political crisis in Zimbabwe.shorebankadvisory. The project has created an estimated 1. This strategy overlaps with product development and commercialization (described in the next section). Website: www. etc. whose demand for small firm suppliers drives the program.—that small firms require is supplied by the large firm buyers. Hitchins and Bear.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 42: Business Linkages Manicaland Business Linkage Project The Manicaland Business Linkage Project was established in 1996 to develop the local economy in a rural area of Zimbabwe where the timber industry dominates. What if the supply is insufficient. Janney et al. 2002. and information. advice. Brief Case Studies. Programs also rely on astute facilitators who can find the business opportunities where there is potential for profitable linkages between firms. A challenge for these programs is to develop methods of reducing this risk and promoting balanced relationships. large firms are increasingly taking responsibility for and bearing the cost of facilitating their own business linkages. Technical assistance programs are designed in response to problems found among suppliers. and are only effective with a sufficient supply of services in the market. In the first five years.4. The main role of the project is to: ?? raise awareness about the benefits of outsourcing. ?? help large firms identify and publicize outsourcing opportunities. A potential disadvantage of this strategy is that large enterprises sometimes exploit SEs in their business relationships.000 new jobs and there is no evidence that job quality has been reduced. over time. Carpenter. Programs tend to focus on those large enterprises that have the potential to interact with many SEs. access to technology. The project is managed by a local business association of primarily large firms. Often technical assistance is provided to help suppliers develop new products for the SE market. 2000. 8. the MBLP facilitated 110 business linkages between large and small firms. Technical assistance can take many forms including training. smaller firms and b) by helping small firms access global markets through local corporations. The project's strategy is to help improve sector competitiveness by a) improving the efficiency of large firms through outsourcing work to more efficient. While some programs provide technical assistance without financial support. No fees are charged. raw materials.com A limitation of the approach is that if a supplier enterprise will only provide embedded services to a few SEs. as is common in so many BDS markets? Providing technical assistance to suppliers can address a range of supply-side constraints that limit supplier capacity to expand and profitably serve SEs. Providing technical assistance to help potential entrepreneurs start BDS enterprises is one way of creating new suppliers and increasing supply. Any capacity building—training. All are still intact and none of the small businesses have folded. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 77 .
Gail and June Lavelle. Poland From 1996-2000. the Paraguay voucher scheme is starting to provide training to suppliers in order to help them respond to the increases in SE demand with courses appropriate for SEs. market development may follow if other suppliers copy business strategies developed by those that received assistance. A particular challenge of the approach is making it cost-effective. Programs can take one of two routes: ?? Finding ways to provide technical assistance or training to many suppliers at once. technical assistance not only addresses these problems. but also lessens supplier risk in diversifying into SE markets by absorbing some of the costs of innovation and needed business changes. TA to a few may offer them an unfair advantage. Even where weak demand is the key problem in the market. Capacity building focused on understanding market demand for services. even in this case.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? ?? ?? ?? Lack of the technical skills that suppliers need to provide quality services to SEs. ?? Served more than 30. Because the skills of running a client business are similar to those of running a BSO. Tomecko. Example 43: Building the Capacity of Suppliers: FIRMA 2000. generic service providers to market-responsive. Providing individualized TA to small suppliers that reach only a limited number of SEs is not likely to be cost-effective. proponents of the approach argue that. 95 96 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 78 . For example. ACDI/VOCA provided training & technical assistance services to Polish Business Support Organizations (BSOs). 95 Donors report that the increased technical assistance required under the market development approach is a key change from previous programs. 2000. 223 SEs. Lack of business skills such as marketing. and running a profitable business. developing appropriate services.” ACDI/VOCA 2001. ?? 85% of the BDSs are sustainable and the remaining 15% are covering at least 80% of costs. However. Limited ability or experience in designing services for SEs. 131 consultants. “FIRMA 2000. which concentrated more on financial assistance.96 A key advantage of technical assistance is that it allows facilitators to target specific problems in supply. Limited information about the service benefits and features SEs want. However. In many cases. The program strengthened supply & demand for business management training and consulting services and mobilized international and local volunteers and consultants to mentor the BSOs through a process of transformation from subsidized. and management. Carter. suppliers may need some help to learn how to profitably meet SE demand for services. pricing. it may be difficult for a facilitator to offer equal access to program assistance.000 clients on commercial basis. commercial business service suppliers. In markets where there are many suppliers. 2000. a disadvantage of the approach is its potential to distort markets by working with only a few suppliers. promoting services. Many market development programs have found that technical assistance to suppliers is an important part of almost any market development strategy. The program: ?? Trained 38 BSOs. Botelho and Goldmark. the mentoring built the capacity of organizations to run their own business and to train others do to so. This works if many suppliers in a market have the same problems.
and sell new products to service suppliers. the role of these organizations has evolved from direct technology provision to research and development. develop. advertising. While cost-effective. In the long run. Market research to identify and provide information on market niches and product opportunities to service suppliers. AT organizations play a “facilitation” role. Looking for a way to increase the scale of programs. The appropriate technology (AT) movement helps low-income people in developing countries adopt technology that can improve their lives. suppliers in some markets are not skilled innovators. lacking both the knowledge and experience to develop new and attractive service products. such as the ILO’s Start and Improve Your Business training courses and GTZ’s CEFE training courses.4. or quality control of services. the answer may be to develop the capacity of the private sector itself to provide technical assistance to suppliers. A facilitator trains suppliers to provide these courses. The strategy was first used with appropriate technology and agencies are now experimenting with product development and commercialization in a wide range of services including training. AT organizations began experimenting with distributing technology through the private sector. 97 BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 79 . This strategy responds to a lack of appropriate products for SEs in the market. 8. and financial advisory services. identification and training of manufacturers and distributors. and monitors their courses to ensure quality. publicizing new services. Private firms often do not want these roles because the benefits tend to accrue to many firms rather than just one. and monitoring and evaluation. This strategy has been used with training services and has been successful in reaching suppliers who are often overlooked by traditional BDS programs because they are small or operate in the informal Field. There are now several different types of product development interventions: 97 ?? ?? ?? Transfer of standardized products (franchise-style). information services.6 Product Development & Commercialization A strategy that is gaining popularity is product development and commercialization. In other words. Now. as well as a lack of innovation on the part of suppliers. promotion. This may include general market research. In short. Permanent or long-term market-based facilitators who identify. programs will see BDS suppliers also as consumers of BDS products and develop those markets that can provide BDS suppliers with the services they want. which is then provided to suppliers to promote innovation or market research specific to a new product idea. for private sector technology suppliers. particularly in markets where intellectual property rights are virtually non-existent. In addition. 2000.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? Targeting large suppliers that reach many SEs. accredits them. this strategy discriminates against small BDS suppliers and distorts the market. Hitchins and Bear. Facilitators have copied this approach in markets for other services by performing roles that private sector firms are reluctant or unable to take on—research and development.
DFID. ApproTEC has found that the market develops most effectively.org (BDS materials) McVay. promote. Mary “Feasibility Assessment of ApproTEC “Moneymaker” Irrigation technology in Uganda. Experts are concerned that delivery channels are not dynamic and profitable enough to achieve high market penetration. Both AT organizations manufacture. dealers are willing to sell pumps. David. was approximately 27 to 1. the pump delivery channel in Bangladesh consisted of 65 manufacturers. Kenya. ?? gathering market information (survey.org (BDS materials) ApproTEC Annual Report. Facilitators also help foreign and local suppliers adapt a service to the local context and then test-market it. IDE’s benefit to cost ratio is 33 to 1. Promoting franchising of appropriate products by bringing foreign suppliers into a country and linking them with local suppliers. and distribution activities. By 2001. and 98 ?? conducting marketing trials. ApproTEC’s long-term vision is that. ?? creating awareness and understanding among consumers about a new product. Zimbabwe. but only when they can be assured of a sufficient volume of sales. and Uganda. Experience shows that trainers want training in new courses to offer SEs as well as courses in new skills and training methodologies. Downing.” August.” Donor Committee Conference Hanoi. It has now been disseminated in a variety of countries in Asia and Africa including Bangladesh. ?? building supplier capacity to research and deliver new products. ApproTEC has found that private sector businesses are willing to manufacture and sell pumps. April 2000. Wright. Addressing this issue is a key challenge for these programs. Example 44: Product Development and Commercialization ApproTEC and IDE -Irrigation Technology: The Treadle Pump The treadle pump is a manual water pump designed and adapted to various country contexts by appropriate technology organizations. approximately 6.000 installers.000 pumps had been sold in Kenya. Similarly.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? sector. The pumps are treadle operated. PowerPoint 2000. 1999. 700 dealers.” Donor Committee Conference on Business Development Services: How sustainable cant they really be?" Harare.000 jobs. simple research). price control. Nepal. the pumps are still only reaching a small percentage of potential users.sedonors.org .sedonors. farmers can readily increase their incomes fourfold or more by irrigating farms using the pump. To make the ToT courses appealing to suppliers. March. Website: www. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 80 . quality. Website: www. 98 Tomecko. reaching lower income people with affordable technology. Vietnam. Managers implementing product development strategies have found that facilitator usually play a key role in: ?? defining the product concept.approtec. ApproTEC has been disseminating treadle pumps in Kenya for four years. Eastern India. private business will take over ApproTEC’s activities and affordable technology will become sustainable in the market at a large scale. Tanzania. promotion. Tanzania and Uganda. and generally manufactured in medium-scale workshops. generating an estimated $14 million in income and creating some 8. Despite the impressive numbers. when the market matures. In 2000. Jeanne and Paul Polak. but are less willing to risk investing in marketing and promotion of a new item and often need some credit to get started in pump sales. not including research and development costs. facilitators develop and test them to ensure that they are marketable. “ApproTEC: Developing Technology Based Business Opportunities. ApproTEC’s benefit-cost ratio in a recent pump dissemination project. 1999-2000 www. when it carries out and subsidizes marketing. The Development and Commercialization of the Treadle Pump in Bangladesh: A Case of Product Marketing on a Mass Scale. There are now over one million pump users in Bangladesh. and 5. portable. 1998. IDE developed and is disseminating the pump in Bangladesh. Named the “MoneyMaker” by ApproTEC in East Africa. and distribute the pumps through the private sector.
which the school conducted and then designed a pilot course. lack of appropriate products for SEs. Efforts to promote innovation among suppliers have included: ? ? Conducting a partially subsidized training for suppliers on how to use marketing research tools to identify profitable new markets and develop and test new products.sedonrs. Rana. ? ? basic banking for the garment / carpet industry. Website: www. Tomecko.gtz. The approach promotes flexibility and innovation among suppliers and builds the capacity of the market to respond to SE demand.itcilo.it/bdsseminar Sustainability is also a key challenge for these programs. quality control and remedial service BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 81 . One of GTZ’s first efforts was assisting a technical education facility. To reduce the school’s risks.de/cefe. GTZ is focusing on product development and commercialization in several business service markets. ? ? Providing market information to suppliers from GTZ’s BDS market assessment and other market research that identifies potentially profitable market niches and describes consumers’ desired service benefits and features.” GTZ for the Donor Committee BDS Conference in Hanoi. Example 45: Product Development and Commercialization GTZ in Several BDS Markets Nepal In Nepal. The strategy combines the development of new products. particularly if their current markets are profitable. Determining when and how to turn product development activities over to the private sector is often tricky. Some product development and commercialization programs have found that to succeed. GTZ focuses on many products and many suppliers. Jim . Jim. and ? ? using market research to increase profits and sales. GTZ paid for initial advertising for the course.Developing Commercial Markets for Business Development Services – Third Annual Edition A major advantage of the approach is that it responds to a common BDS market weakness. Website: http://training. Tomecko. supplier technical assistance and demand promotion with the aim of getting as many commercially viable products to the market for the least cost. The school is now on its fifth training course. programs have encountered a number of challenges. 2001. ? ? value added tax services for the construction sector.org (BDS materials) Unpublished correspondence with GTZ Nepal. Instead. The emphasis is on “product viability” rather than supplier sustainability. the program must not only develop products but also provide a range of on-going support services. PowerPoint Presentation on Product Development and Commercialization to GTZ in September. The school approached GTZ for a grant to help them add another year to their long-term auto mechanics course. Recent new products have included: ? ? presentation skills. 2000. ? ? Making a standing offer to suppliers to provide technical assistance in applying marketing research tools and developing new products. Product development costs can be high and suppliers may not initially be interested in targeting new markets. GTZ encouraged them to think about profitable ways to use this core competence. such as advertising and branding. “The Application of Market Led Tools in the Design of BDS Interventions. Prashant “Joint Ventures with Commercial Suppliers: The Nepal Experience” Presentation for the 2nd annual BDS Seminar in Turin. available on website: http://www. The school came back with the idea of selling training in basic auto maintenance to car owners or drivers and GTZ provided a brief orientation to the school’s staff on how to conduct a market survey. Promoting demand is often essential to success and must usually be subsidized both to reduce supplier risk and because the benefits often accrue to more than one supplier. However. ? ? arbitration in the tourism sector. They are profitable and the school is starting to target new business markets. 2000.
and uses the earnings to provide vocational training to people with disabilities and other barriers to employment. 2001. Social enterprises are ventures that have a dual purpose – financial profitability and social service. The clothes that don’t sell in the US are sold internationally and provide low cost clothing and business opportunities around the globe. was the first low-income or isolated SEs marketing company to offer profitable prices to bean access markets. They are farmers.99 Donors are experimenting with ways to help facilitators become private sector actors as well. In addition. many social enterprises are established to cross-subsidize other social activities. the BDS market development approach is encouraging NGOs and other not-for-profit institutions to understand and build on the capacity of the existing private sector market. 8. One strategy that remains persistent in business development is launching social enterprises. The main purpose ASOMEX. but they are more willing to accept a less profitable venture in order to serve disadvantaged populations and regions. rather than launching new businesses. Goodwill Industries International recycles clothes and household items for resale. selling their services to many suppliers. in a new farmers’ cooperative and has sold its shares to the product market. There are two typical social enterprises in the field of business development services: 1) Not-for-profit service providers who aim to deliver demand-driven services on a financially sustainable basis. a bean marketing cooperative in Bolivia owned by a cooperative of bean farmers and of these ventures is to help originally invested in by MEDA. Five years later. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 82 . provide disadvantageous terms of trade to SEs. business centers and traditional NGOs. create a monopoly and Presentation. In many rural. for example. or when farmers.” is a current challenge in the field. A few programs have successfully established commercial facilitators who sell new products and other services to suppliers. low-income communities businesses do not typically purchase services. and they rely on a few limited suppliers or a few limited buyers from outside their region. 2000. For example. How to develop business service markets when “there is no market. They act in similar ways as purely profit seeking business services providers.7 Social Enterprise One challenge faced in particularly remote or low-income markets is an apparent lack of service providers. leaving behind a competitive market for existing private sector traders beans.4. there were often launched when there is several other marketing companies who had no evident private sector followed suit and were competing effectively with ASOMEX. 2) Marketing companies owned Example 46: Social Enterprise by not-for-profit concerns. ASOMEX Bean Marketing in Bolivia cooperatives or community members. however. The market development 99 McKenzie. SEEP Annual General Meeting.Developing Commercial Markets for Business Development Services – Third Annual Edition support and upgrades. In general. These may include business associations. MEDA was a co-investor with the activity.
but see the promise of the BDS market development approach.100 In other situations. BDS suppliers want to increase and/or improve service for SEs but lack financing to invest in service expansion.Developing Commercial Markets for Business Development Services – Third Annual Edition approach casts doubt on the effectiveness of not-for-profit ventures. Thus. taking a return on the investment in order to re-invest in other projects. There is some evidence that social enterprises have the potential to contribute to the development of a competitive. some social enterprises develop BDS markets themselves. service providers opt to provide services on such a mass. for example microfinance services in general or cell phone services sold by the Grameen family of companies.org BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 83 . Now. In some business service markets. The global market for crafts was launched by individuals with the intention of helping communities they had visited or were from. given the lack of alternative models offered by the market development paradigm at the moment. profitable scale that competition seems a minor issue. This was the case with global crafts. there are several emerging models in which social enterprise contributes to the development of vibrant competitive BDS markets. 101 Finally.grameenbank. It grew as not-for-profit organizations with religious affiliations or goals of cultural preservation and fair prices developed “fair trade” markets. While suppliers might be able to access capital from private sources in a well functioning financial market. Organizations that pursue a social enterprise model. A cooperatively-owned marketing company may demonstrate that particular markets are viable and convince private sector firms to enter the market. in many developing countries it is difficult for small suppliers or start-ups 100 101 Littrell and Dickson. But the persistence of social enterprises is indicative of their appropriateness in particularly weak market situations. FIT Zimbabwe facilitates SE and BDS markets through its Business Connect Magazine. ?? Venture Capital: Consider forming a venture capital firm that invests in social ventures and then exits. the fair trade market represents a small percentage of the market for hand-made items. For example. 1999 www. might consider: ?? Future Vision: How can a social enterprise lead to the development of a competitive market in which target SEs can choose service providers and markets? ?? Subsidies: How can subsidies support the social enterprise in a way that provides an incentive for the enterprise to become profitable? ?? Crowding out the private sector : How can the social enterprise program ensure that it has invited possible private sector players to participate and that it really is the best alternative? ?? Joint Ventures: Consider joint ventures with existing business people to harness their expertise. These strategies may help strengthen and develop the private business service sector in very weak markets. because the mainstream global market has seen the demand and value of hand-made items. vibrant BDS market.
5 What are some new design innovations in developing BDS markets? In the last two years. the tourist market is now more diverse and Guatemala’s forest less at risk. 8. significant capital investments. An infusion of capital into the supply of services almost inevitably turns suppliers’ attention away from consumers and toward donors. “Facilitating the Supply of BDS in the tourism sub-sector in Guatemala. it is not meant to subsidize ongoing sale of services to SEs. In these situations. but do not directly subsidize transactions. etc. ?? Offer lending services. the approach also has considerable potential for market distortion. Example 47: Diversifying the Eco-Tourism Market through Social Enterprise Conservation International. start-up costs in new locations. which finance its business activities. tours. In this case. the forest and its endangered species. ECOMAYA now serves 18 communities that generate income through ecotourism activities. micro. competitive market for eco-tourism in Northern Guatemala. These programs differ from those cited above in that they have no track record at all. capital is usually provided to enable suppliers to increase their own capacities or to develop and test new products for SEs. In 1998. ECOMAYA was significantly expanded due to its purchase by Asociación Alianza Verde (AAV). Jennifer. The company will now provide marketing services to approximately 24 small. Sixty-five percent of the Petén’s tourist attractions will be represented by ECOMAYA’s product offer. and Spanish language instruction. a marketing firm that attracts tourists to experiences in their region. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 84 . CI and five communities in the Mayan Biosphere Reserve (MBR) formed ECOMAYA. This is often not only true for partner suppliers but for other suppliers as well. Straghalis. accommodations and homestays. consulting services.” Conservation International. Helping suppliers access capital has the potential to address a clear and specific constraint on the expansion of supply.Developing Commercial Markets for Business Development Services – Third Annual Edition with minimal assets to secure loans or attract investors. a donor or facilitator has several options: ?? Help link suppliers to financial institutions. As a result. 2002. ECOMAYA provides tourists with complete tourism services including air and ground transportation. ECOMAYA and Asociación Alianza Verde (AAV) in Guatemala Conservation International is developing a more vibrant. by helping local communities earn their livelihood by preserving. BDS program designers have begun to design programs explicitly with the BDS market development approach and all its principles in mind. Meanwhile. The tourism industry in Guatemala is increasingly dominated by large firms that attract international tourists to a limited number of sites. However. and communitybased enterprises in the Petén. and ?? Provide targeted matching grants to suppliers that support product development. an association of small scale tourist operators also facilitated by CI. The firm is jointly owned by these community-based enterprises and operates on commission on sales. the small-scale tour operators who offer a variety of experiences cannot compete with the marketing capabilities of large firms. The program aims to protect the second largest tropical rainforest of the Northern Hemisphere. In 2001. ?? Invest in the suppliers as partners. The challenge for programs is to ensure that the market development impact of access to finance outweighs the market distortion impact. rather than destroying.
lack of appropriate service products. Often. GTZ and Swisscontact in Bangladesh BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 85 . For more information. sometimes a group of donors. reluctance of SMEs to spend money on outsourced business services. When selecting interventions. who then pass on the services or information to SEs. Flexible. and gender concerns. Increasingly. environmental. poor service marketing. select services that have high demand and weak supply. 2) The BDS Market: the market for services that will help the SEs take advantage of growth opportunities and overcome constraints to growth in their product markets. 2002. increasing numbers of organizations are combining sub-sector development strategies that strengthen SE product markets and BDS market development approaches. Coordinated Designs for Sector & BDS Market Development In a few countries. training and technical assistance. 8. large programs to develop multiple sectors and BDS markets.1 Combining Sector Development & BDS Market Development As noted earlier.Developing Commercial Markets for Business Development Services – Third Annual Edition However. there are two markets at work: 1) The Sub-sector: the market for SE products and the supply chains that provide SEs with input and help SE sell to final customers. sub-sector development programs are recognizing and developing fee-for-service markets for services to larger players. sometimes a partnership of implementing organizations. Vietnam. the project will flexibly target market opportunities in the plastics sector. and. several large donor agencies and implementing organization have collaborated in the design of flexible. The following is a brief synopsis of trends in new program design. state control. including Kenya and Bangladesh.5.5. Swisscontact. Example 48: BDS and Subsector Development Combined Swisscontact Program Design. and improved input supply. which addressed growth. have 102 DFID and USAID in Kenya. The programs endeavor to “embed” soft services such as product design and market information into the hard market transactions of buying and selling products. it is helpful to gain exposure to how others are interpreting the guidance in real program designs. with several examples of specific program designs.2 Large. Draft Program Design: SME Promotion. Vietnam Swisscontact plans to use a BDS market development approach to develop the plastics sub-sector in Vietnam by helping SEs gain access to markets. Key constraints for growth in BDS markets include the low quality of services. Entrepreneurs have a high awareness of services and reasonable ability to diagnose business problems and choose appropriate services to help solve them. focus on strengthening embedded services. and focus on building the supply of BDS. contact Swisscontact in Vietnam (Paul Weijers) at email: scvietnam@swisscontact. in some BDS markets. but this demand for services in most BDS markets is largely unmet. 102 The program designers.vn 8.org. In these programs. as many organizations around the globe struggle to apply the market development approach in their situations. however. These service markets were selected through a combination of demand analysis (conducted in conjunction with GTZ) and sector analysis. technology and product development. subsector development programs are aimed at strengthening backward and forward market linkages in the SE product market to help SEs access lucrative markets or low-cost inputs.
Developing Commercial Markets for Business Development Services – Third Annual Edition worked together to assess BDS markets and/or sectors that show promise. which implement a voucher training program. programs are following patterns in private sector business service markets. grants and contracts to other facilitators. but for others they mark a break from traditional relationships in which a donor funds an NGO to provide services to SEs. which would be sold to providers. Swisscontact Peru. 104 For example. Coordinated Program Designs USAID and DFID in Kenya USAID and DFID collaborated on the design of two BDS Market Development initiatives in Kenya. in some cases. to identify specific services and BDS market interventions. For some donors and implementing organizations. Their roles will be to continuously assess sector and BDS markets. MTN. is entering the rural cell phone market by selling cell phone services to entrepreneurs who will set up telephone services for rural individuals and businesses. 105 Van Veen. 103 104 McVay. time and. recognizing that BDS providers also need and purchase business services. In developing these secondary markets. 2002. 8. The aim is to create a flexible mechanism through which a program can respond nimbly to market opportunities.5. 105 And. quality control and marketing services to attract large advertisers that currently feel the individual radio program audiences are too small for their interests. The agencies engaged in sector and BDS market analyses as well as examining the overall environment for SEs. The program designs represent a significant investment in terms of complex analysis. They will develop markets through direct interventions. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 86 . in addition to analyzing the broad environment for SE development. the donor generally sits on advisory committees that approve funds disbursement and tracks performance. a private telecommunications firm in Uganda.103 Swisscontact Peru and the Ministry of Labor. 2001. have plans to establish a profitable market assessment and information service. Africa On-line provides Internet services to Internet cafés that. these types of programs and relationships are relatively familiar. in the voucher program to help them better understand the markets for their training services and to better respond to opportunities to sell to SEs. 2000. Requests for Proposals.3 Developing Secondary BDS Markets or “Commercial Facilitation” A few programs. At the same time. for example. The programs that are emerging will be carried out by large contractors. Requests for proposals to develop BDS markets focus on the horticulture and dairy sectors. Example 49: Large. and grants and contracts to BDS suppliers. 2002. competitive bidding processes. often in consortia with several subcontractors. USAID and DFID. ILO/FIT is working with a private sector radio franchise company to develop a network of SE radio programs that would license a brand of SE radio shows. are exploring developing secondary commercial markets for services used by BDS suppliers. The services would be paid for in commissions on advertising revenue. and to facilitate the development of these markets and to monitor performance and impact. The network would provide technical assistance and advice. so there is a measure of both involvement and control in the strategy.
Figure 10: Developing Multiple Markets: Subsectors.4 The Future Vision of Developing Multiple Markets These strategies can be summarized as developing multiple markets: BDS markets.Developing Commercial Markets for Business Development Services – Third Annual Edition among other things. 2000. BDS Market and Secondary BDS Markets SE Product Market . serve as flexible workstations for numerous SEs in urban Africa.5. and acts as a template for diagramming different markets. SE product markets and secondary BDS markets. and minimize distortions at various market levels.Subsector Final Customers Secondary BDS Market BDS Providers: Fee for Service BDS Providers: Fee for Service Buyers of SE products BDS Market Embedded BDS BDS Market Facilitator & Subsector Developer SEs Embedded BDS BDS Providers: Fee for Service SE Input Suppliers BDS Market 106 Njoroge. Figure 10 illustrates how these markets relate to one another.106 8. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 87 . It can help program designers identify each distinct market so that they can pinpoint market constraints and target interventions accordingly.
this leaves most BDS programs focused on how money is spent. 1999. As the BDS market development model has evolved. and the quantity of services delivered.1 Trends in Performance Measurement As donors and organizations grapple with applying the market development approach to BDS. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 88 . programs are increasingly measuring performance mainly in order to improve services and operate efficiently. 107 There are two essential elements typically missing from BDS program performance assessment: 1) Useful information to improve services to SEs.1 Why measure performance? There are several typical reasons BDS programs assess performance: 1) To assess impact of the program. There is also some agreement on what research needs to be done in order to improve performance measurement in the field. 3) To gain information that helps deliver better services to SEs.Developing Commercial Markets for Business Development Services – Third Annual Edition 9 How is BDS program performance being measured? There is still considerable debate about how to measure performance for BDS programs. Typically. different levels of intermediate outcomes are also assessed.1. as well as how to measure performance. Consensus is developing around what should be measured and work on a common performance measurement framework is on-going. has not changed. and how much it costs to achieve specific impacts. such as measuring market development and helping suppliers obtain information that results in improved services and improved sustainability. 107 McVay. development programs measure performance primarily from a donor perspective: the aim is to ensure that programs achieve intended impacts. 2) To identify better performing programs so that best practices can be documented and disseminated. such as an interest in impact on SEs. tending to focus on outreach (number of people served and who) and outputs such as services delivered. But lessons are beginning to emerge about how performance measurement might be different using a market development approach. Because impact data is challenging to gather and generally of doubtable quality. 9. 2) Useful information to improve cost-effectiveness and efficiency of service delivery. in either more traditional programs or market development programs. other aspects have changed. Depending on the program. Carpenter et al. and BDS providers become more focused on selling demand-driven services and becoming sustainable. 2002. While some aspects of performance measurement. 9. and that funds are used according to their intended purpose. Different players in BDS programs may emphasize difference aspects of performance assessment. More attention is also being paid to who should measure what kinds of performance and for what reasons. performance measurement is also changing.
.g.I. This process is likely to result in better cost-effectiveness because providers are more driven to reach more people with less cost. Carpenter et al. September. “Helping Small Businesses Grow and Create Jobs: Good Practices from Global Experiences. presumably the services that SEs value more and are having more impact. ? ? Sustainability of business service delivery and supplier institutions. This process is likely to result in increased relevance and impact of services.” Forthcoming from Shorebank Advisory Services.com 9. service lines and service centers. www.2 What to measure? BDS programs around the globe typically measure performance in the following categories: ? ? Impact on SEs and the wider economic/social environment. and helps motivate staff to deliver profitable services. tracks the performance of each business development officer against these objectives. 108 109 McVay et al. 2002. meaning both the number of SEs reached (scale) and the effort to provide services to people not served by existing markets (access).D.” Carpenter. 2002 I. why measure performance leads directly to the question of “what to measure?” Example 50: Use of Performance Assessment To Improve Sustainability INSOTEC.B.108 2) Improving efficiency: tracking the gross profits of specific services.shorebankadvisory. so that the suppliers can sell more services. This type of information helps suppliers adjust their services to meet specific SE clients’ demand. This type of information helps providers manage the business of delivering services. INSOTEC also establishes performance objectives (e. and customer targets) for each employee. loan. and ? ? Cost-Effectiveness of program activities. Ecuador “INSOTEC utilizes divisional profitability reporting to determine which services and products to provide in which markets. increasing productivity in certain tasks. and how these changes are or are not benefiting the business in specific ways such as reaching new markets. etc. reducing production costs. tracking the productivity of staff and creating performance-based incentives. and pays staff a financial reward for meeting or exceeding objectives.1. and to focus on services that are selling well. ? ? Outreach. Janney et al.109 Thus. and may even lead to more feasible ways of attributing changes in business profits and sales to specific services. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 89 . PMF 2001. the question.Developing Commercial Markets for Business Development Services – Third Annual Edition This performance data is significantly more focused on: 1) Improving services: tracking SE satisfaction with services. how they use services to change their business practices. demonstrating that it can successfully wed its mission to disenfranchised garment workers and business owners to self-sustaining financial performance. sales.
these increases in income and employment lead to economic growth and poverty alleviation in target communities. 110 The model depicts how donor funds are provided to facilitators. SE changes in business practices lead to increased sales and profits.de/dokumente/EvaluationPaper. which in turn increase incomes and employment in targeted SEs. Work on a standard logic model that incorporates BDS market development as a strategy and outcome is in progress. Their paper outlines sets of performance indicators in each of these areas. who change business practices as a result.PDF BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 90 . Then. These organizations then provide services and finance to SEs. activities. outcomes and ultimate impacts. For example.Developing Commercial Markets for Business Development Services – Third Annual Edition Most programs have a logic model that orders these goals and describes the overall SE development strategy .wiram. who in turn provide technical assistance and finance to BDS suppliers and financial intermediaries. 2002 available at website http://www. and suggests a range methods for data collection and reporting. outputs.the causality between program inputs. Figure 11 presents a logic model developed by Oldsman and Hallberg for Small Enterprise Initiatives. 110 Adapted from Oldsman and Hallberg.
The PMF 2001 presents a preliminary logic model that attempts to include BDS market development goals. The overall logic is that strengthening demand for and supply of services leads to a vibrant. the PMF 2001. which in turn contributes to increased employment and income. the development of BDS markets. Three years of research.Developing Commercial Markets for Business Development Services – Third Annual Edition Figure 11: Illustrative Logic Model for Small Enterprise Initiatives Economic Growth & Poverty Reduction in Targeted Regions Target Small Enterprises Increase in Incomes and Employment Growth in sales and profits Changes in Business Practices Services Finance Target Intermediaries BDS Providers Financial Institutions Technical Assistance/Funding Facilitating Organization Donor Support There has also been a collaborative global initiative to develop a common performance assessment framework for BDS programs in the context of BDS market development. and how SEs are using services to change BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 91 . competitive BDS market. These changes in business practices contribute to SE growth and profitability. global dialogue and field testing has resulted in a preliminary framework. that is being adapted and tested around the world. The PMF 2001 focuses on assessing changes in supply and demand for services. BDS market development leads to large numbers of SEs using and applying business services to improve their business practices.
112 Market development programs are also beginning to rely on indicators of change in the market that relate to the specific issues the program is trying to address. For regular monitoring. the field is realizing that this can only be measured regularly on a limited basis. Hitchins. Gibson. 2001. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 92 . Miehlbradt. Understanding the impact of programs on SEs and the wider environment in depth requires expensive and rigorous studies that can only be performed infrequently. 111 112 McVay et al. 2001b. if the market problem is SE lack of awareness of services and suppliers. Often these proxy indicators rely on SEs’ own perceptions of the services they receive as measured by their satisfaction or willingness to purchase services. McVay 2001. For example. 111 There is still a lot of interest in understanding and measuring impact on SEs and the wider economic and social environment. indicators that are easier to measure than final impact but are linked to final impact.Developing Commercial Markets for Business Development Services – Third Annual Edition business practices. Canedo. It is designed to be used in conjunction with occasional impact assessment and more frequent tracking of efficiency indicators by suppliers. Bear. useful indicators might be the change in the number of SEs purchasing services and the change in the proportion of SEs customers that are satisfied with services. 2001. However. PMF 2001.113 If the market problem is a lack of appropriate products for SEs. 2000. 113 Gibson. experts are exploring the use of proxies. a performance indicator would be the change in the proportion of SEs that are aware of the service and suppliers for that service.
Developing Commercial Markets for Business Development Services – Third Annual Edition Figure 12: PMF Causal Model Measurement Strategy MISSION: Increase employment and income Evaluation Measurement Activity GOAL: Small-enterprise growth PMF IMPACT # accessing % using % benefiting SUBGOAL: Help SEs access. reach. increase quality and diversity. competitive BDS markets PMF OUTREACH Increase awareness. and benefit from BDS PMF OUTREACH Expand market. supplier and service sustainability. cost of program compared with sales and number served. apply. and access OBJECTIVE: Strengthen demand PMF SUSTAINABILITY AND COST-EFFECTIVENESS Percentage of supplier revenue from SEs. OBJECTIVE: Strengthen sustainable supply Program and Supplier Management Information System SUBOBJECTIVE: Deliver efficient services BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 93 . increase access STRATEGY: Develop vibrant.
2 Developing a Common Performance Measurement Framework The collaborative effort to develop a common performance measurement framework. Within these three broad categories. outreach with market development.mip. Each of these objectives has been equated with progress at three levels: impact with changes in SEs.1. 114 However. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 94 . Experts are also encouraging practitioners to develop tighter program logic models—the logical series of events by which program strategies produce results—and to develop performance monitoring indicators and systems based on a program’s strategy.3 How to measure? While how to measure performance is not a new issue. ?? Help identify and synthesize best practices. 2001. There is still agreement that a variety of tools are necessary including both quantitative and qualitative approaches. 2001. sustainability and cost-effectiveness with provider development and facilitator performance.org and www.Developing Commercial Markets for Business Development Services – Third Annual Edition 9. Bear. experts and practitioners are revisiting this question as it relates to market development programs. Gibson. 2001.html. Hitchins. ?? Contribute to the development of fair funding allocation decisions and fair performance standards. 117 The PMF 2001 attempts to organize a set of valid. a preliminary framework undergoing further research and field testing. The PMF is structured to reflect the market development paradigm and to measure three common objectives of SE programs. resulted in the PMF 2001. ?? Provide important information to improve services for SEs. the framework proposes objectives that a BDS program might be trying to achieve: 114 115 DFID.org/bdsguide. 116 Gibson. such as consumer marketing research tools for measuring changes in markets and private sector business tools for measuring provider performance. 9.116 There is increasing interest in and use of private sector tools for performance measurement. experts and practitioners are working on more efficient and effective ways of measuring performance. In the long run.115 There is increasing interest in and use of private sector tools for performance measurement. such as consumer marketing research tools for measuring changes in markets and private sector business tools for measuring provider performance. practical and useful indicators to assess the performance of all BDS initiatives. There is also still agreement that it is important to use participatory approaches that take into account the view points of various stakeholders in programs. 117 The PMF 2001 is available at www. respectively. it is hoped that the PMF will: ?? Enable some comparison of program performance. underway since 1998.seepnetwork.
Increase customer application of BDS in the business.Increase business benefits from BDS.Expand the market for BDS. The development of the PMF is expected to be a long-term endeavor.D. . 1999a. ? ? Sustainability and Cost Effectiveness .I.Promote sustainable access to services.B. and the framework should evolve as the field continues to change. . BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 95 . .Increase consumer acquisition of BDS. ? ? Outreach: .Develop a high quality.Increase access to BDS by under-served groups.Maximize program cost effectiveness. specific indicators for assessing the goals. . . I. 118 The PMF 2001 indicators are presented in Table 6. and tools and methodologies for data collection and analysis. The PMF 2001 contains general guidance and rational for these goals. Example 51 shows how Swisscontact Philippines used the PMF 2001 to assess performance.Developing Commercial Markets for Business Development Services – Third Annual Edition ? ? Impact . competitive market. diverse.119 118 119 McVay.
as a result of the service. nonpurchase. exporters. Percentage of customers who experienced business benefits. and choice of supplier (supplemental) Extent of access: percentage of SE customers purchasing a service that represent targeted populations (women. competitive market Increase access of underserved groups to BDS Objective Achieve supplier sustainability Indicators Percentage supplier revenue from SEs Breakdown of sources of supplier revenue (supplemental) BDS supplier financial sustainability (nondonor revenues/total expenses)* (supplemental) BDS contribution margin ((SE revenues from a service – direct expenses for the service) / total expenses) (supplemental) BDS viability (SE revenues from a service / direct expenses for the service)* (supplemental) Ratio of annual program expenses to annual program sales to SEs Annual program expenses per customer served Improve program costeffectiveness BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 96 . SEs Objective Increase customer acquisition of BDS Increase customer application of BDS Increase customer benefits from BDS Indicators Customer satisfaction with a business development service (percentage satisfied) Repeat customers (percentage of customers who buy more than once) Reasons for satisfaction and repeat purchase (supplemental ) Percentage of customers who applied the services as intended by the program and reported by the client. exporters. Goal 2: Increase Outreach (Scale and Access) Assessing BDS Markets Indicators (Reported for the Overall Market and for the BDS Program) Number of SEs acquiring a service through any method and purchasing a service through commercial transactions Amount of sales by BDS suppliers (p rogram only) Market penetration: percentage of potential SE market acquiring a service through any method and purchasing a service A program’s market share of all services acquired through any method and all services purchased (program only ) Awareness: percentage of SEs aware of a service Reach: percentage of those aware who have purchased a service at least once Percentage market share held by the three largest suppliers Number of BDS suppliers (program only)* Number of BDS products (p rogram only) Retention: percentage of multiple purchasers out of all purchasers (not relevant for some programs) Satisfaction with last service purchase (supplemental) Reasons for purchase. microenterprises. diverse. microenterprises. and so on) acquiring a service through any method and purchasing a service Goal 3: Achieve Sustainability and Cost-Effectiveness Assessing BDS Suppliers and Facilitators Objective Expand the market for BDS Develop a high-quality. and so on)* Target market penetration: percentage of potential SE targeted markets (women.Developing Commercial Markets for Business Development Services – Third Annual Edition Table 6: Performance Measurement Framework for Business Development Services PMF 2001 Goal 1: Increase Impact Assessing BDS Customers. as defined by the program and reported by the client.
6 % BDS contribution margin (nondonor BDS revenues – BDS direct expenses)/total expenses 5.269 US$34. This may indicate that some market distortion is taking place.5 % Service 1: entrepreneurship development training BDS viability (nondonor BDS revenues/direct expenses for BDS) 270. and sustainability is declining despite high contribution margins of the services. competitive market Deepening the market: reaching underserved groups Estimated potential market size Number of SEs purchasing Market size.4 % 431. of service products Retention: multiple purchasers Satisfaction with last service purchase* Percentage women owned SEs in market Percentage women purchasers N/A N/A 69 % 20 % 25 % N/A N/A N/A 87 % 2. in US$ Indicator 1999 Ratio of annual program expenses 58 % to annual sales to SEs Annual program expenses per customer/client served $57 Impact: Overall clients are satisfied with services and using the services to improve their businesses.4 % Service 1: entrepreneurship development training Goal 3: Cost-Effectiveness: Oro Service Center.Developing Commercial Markets for Business Development Services – Third Annual Edition Example 51: Summary PMF 2001 Data: Swisscontact Philippines Swisscontact Philippines supported the Oro (business) Service Center in their development and delivery of training and trade fair participation. Outreach/Market Development: Oro center is a big fish in a small pond that is contributing to a diverse product offer. but not providing SEs with a diverse set of providers. diverse.2 % 2000 35 % $33 8% 44 % Percentage of microenterprises in the potential SEs market 49 % Percentage of purchasers that are microenterprises 15 % 43 % Goal 3: Financial Sustainability: Oro Service Center Indicator 1999 Percentage of revenue generated from SEs N/A BDS supplier financial sustainability (nondonor revenue/total program expenses) 90.0 % 21.500 N/A 199 342 US$3.6 (satisfied) Program Annual/ Cumulative Status 2. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 97 . or may indicate that the center has very high overheads that are affecting sustainability and costeffectiveness. annual sales Awareness of service Reach: percentage of those aware who have purchased services at least once Market penetration—acquiring Market share No. Sustainability & Cost-Effectiveness: The center is subsidized. Goal 1: Impact: Oro Service Center Objective Increase customer acquisition of business development services (increase sales) Increase customer application and benefits of business development services Indicator Percentage of customers whose satisfaction exceeded expectations: Repeat customers Percentage of customers who change business practice as program intended: 2001 80 % 45 % 90 % Objective Goal 2: Increase Outreach Enterprise Development Training Indicator Market Expanding the market for BDS Developing a highquality. and increased outreach to women and microenterprises.388 37 % N/A 39 % 16 % 44 % 1 12 75 % 3 (very satisfied) 20 % N/A N/A N/A 18 N/A N/A N/A 45 % N/A N/A 2000 26 % 88. of BDS suppliers No.
There is still a lack of hard data generated through rigorous studies about the impact of BDS at this level. Before the proxies could be widely used. how to collect reliable data from market players who are not affiliated with BDS programs. the BDS field is grappling with particular concerns: ?? How to define BDS markets. ?? How to define a BDS in order to identify and analyze the market. ?? Given the wide range of complex institutional arrangements in BDS programs. Most donors and practitioners pursue BDS programs in order to positively affect poor people. peri-urban. 2001. so that sustainability and costeffectiveness measures are valid. donors and practitioners are looking for proxies that are easier to measure and correlate with impact. how to allocate costs in standard ways. ?? Avoiding bias by the impact assessor or technique used. primarily through poverty alleviation and employment generation. the correlation with impact would need to be tested in a variety of circumstances. Some of the typical challenges include: ?? Collecting impact data from informal sector firms. and “poor” clients). ?? As programs focus more on overall market development. It includes:120 ?? Identifying proxies for performance. Donors and practitioners recognize that the field needs to learn much more about program impact. political and cultural contexts. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 98 . ?? How to collect comparable data across the wide range of services that constitute BDS. ?? Confirming the impact of BDS. In addition. 120 This section draws on the minutes of the Committee of Donor Agencies SE Impact and Performance Working Group Meeting of March. Given the cost and difficulty of measuring impact at either the market or client levels. ?? Developing standard definitions for such things as firm size and location (rural. ?? How to count BDS suppliers when so many are informal and so much BDS is non-transactional.3 Performance Measurement Challenges and the Research Agenda Measuring the performance of BDS programs is plagued by typical performance measurement challenges. ?? Identifying the most cost effective indicators and balancing the cost of data collection against quality of data. and some that are particular to BDS programs. ?? Determining negative impacts. ?? How best to measure the ultimate impact on SE performance. urban. A research agenda to address some of the key issues is emerging. unassisted SE. ?? Even if such data is collected. attributing changes to a specific intervention.Developing Commercial Markets for Business Development Services – Third Annual Edition 9. ?? Appropriately calculating cost-benefit ratios using weak impact data. ?? Interpreting findings across vastly different economic. such as benefits for one SE occurring at the expense of another.
BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 99 . ?? Understanding the Effect of Market Development on SEs: While there is general agreement that better developed BDS markets will benefit SEs. How do BDS and small business promotion contribute to poverty alleviation? For example. this has not been confirmed through rigorous studies. This better understanding would help the field identify appropriate indicators for market development.Developing Commercial Markets for Business Development Services – Third Annual Edition ?? Understanding the impact of BDS and Small Business Promotion. do small businesses generate jobs for the poor and for those with low skills? ?? Understanding BDS Markets. In order to measure progress toward a “developed” BDS market. Understanding if and how better developed BDS markets help SEs is important for donor accountability. organizations need a better understanding of how BDS markets behave and develop.
Additional action research and on-going program monitoring using common performance measures may help increase understanding of how markets do. Proponents of the market development paradigm argues that not integrating marginalized entrepreneurs into markets will further exclude them from the benefits of economic development. ethnic or other social barriers. one key challenge is to synthesize the information and lessons learned from these assessments and make it available to BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 100 . to achieve sustainability and to develop vibrant BDS markets. and do not.Developing Commercial Markets for Business Development Services – Third Annual Edition 10 What are the current debates and challenges in the BDS field? The BDS field has made significant progress over the last five years. 10. serve the poor. 10. and when? What should be the role of the state in facilitating BDS for SEs? The field is still facing significant challenges as it endeavors to serve larger numbers of SEs. They point to progress made in learning how to reach these groups with market development programs and cases in which commercial services have reached the poorest. Is it possible to develop wholly private sector markets for all types of services? Will this new direction positively or negatively affect outreach to the poor? What types of subsidies are appropriate. Practitioners are also focused on finding the most cost-effective ways to conduct market assessments. This section outlines some of these remaining challenges and the debates that surround them.2 Assessing Markets While there is general agreement that it is important to assess a market before starting a BDS market development program.1 Can the poor benefit from commercially delivered BDS? Although there is broad support for the market development approach there is still debate as to whether it is appropriate for the poorest entrepreneurs. and that it is unrealistic to think that markets will work to benefit the poor on a large scale. Proponents of the market development paradigm argue that not integrating marginalized entrepreneurs into markets will further exclude them from the benefits of economic development. there are many unanswered questions. The approach is particularly questioned by those who serve SEs in remote rural areas where markets do not function well or who serve SEs that are excluded from the market due to gender. With a rapidly growing number of market assessments already conducted. Still. Programs are experimenting with the appropriate mix of up front market assessment and on-going action research. some practitioners are experimenting with methods for generating and selling BDS market assessment data to providers and SEs on a commercial basis. to increase access for poor and more remote SEs. Finally. there is considerable debate on the best ways to do it in different circumstances. Conducting useful market assessments in very weak BDS markets is a challenging area where experts and practitioners are currently focusing. These practitioners feel that market players have traditionally excluded or exploited the poor.
10. because the poorest. but do not focus on specific services. for example.approtec. develop services. If the “facilitator” deems to determine service selection on behalf of providers. Instead. One strategy many practitioners continue to explore is linking BDS with microfinance services. 122 These programs help BDS providers assess demand. that would be supply-led. There may be more to learn from additional payment options offered by the private sector. 10.5 Finance.Developing Commercial Markets for Business Development Services – Third Annual Edition the field. they argue. Yet others propose that very poor business people need and demand basic business training to improve their businesses and their understanding of BDS. www.org Swisscontact and ACDI/VOCA’s development of business services centers. provided the services are demand-driven.4 Sector Development vs.3 Service Selection – Whose Role? Many would argue that it is not the role of a “facilitator” to determine what services to offer SE customers. Other critics argue that mass market services – such as communications or courier services – add significant value. 123 Carpenter et al. the general program strategy is simply to help SEs access BDS. for example local chambers of commerce. The SEEP Practitioner Learning Program funded by USAID is sponsoring action research in this area. marginal businesses are not ready to take advantage of new market opportunities. Mass Market Services Proponents of high-impact SE development strategies suggest that sector development strategies have a high impact because they help SEs reach and compete in higher value markets. or helping computer services centers develop and offer services explicitly designed to meet SEs demand for information and communications technology.actionforenterprise.123 Some critics argue that sector development strategies primarily serve entrepreneurial producers. helping. Experience with highimpact BDS programs suggests that a focus on a more narrow set of services by the facilitator can enhance program impact. www. it is the role of the entrepreneurial BDS supplier. sell packages. cover costs and become financially viable. for example. Some BDS providers have a sector focus. In these cases. Only then will they be able to effectively use or purchase other types of BDS. Experience and action research is needed to address this critical debate focusing on what services best help the poor. While several programs have been successful at supporting sustainable providers and helping large numbers of SEs access services.121 10.org BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 101 .seepnetwork. Some solutions were presented in Chapter 7. and they tend to be concentrated in retail or service businesses that do not fit any particular sector. the impact of the services is more diffuse. Microfinance & BDS A common market weakness for low-income consumers is a lack of appropriate financing when consumers cannot pay for services up front. several programs build the capacity and sustainability of BDS providers in general. As described above in the section "piggy121 122 www. develop excellent trade shows and market linkages. 2002.org. others are more general. Rather. Opponents argue that much more impact would be achieved if the programs focused only on a few services.
BDS facilitators are often asked to finance BDS suppliers. rather than distort. 2002. A second market weakness is the lack of finance for BDS suppliers. private sector suppliers. appropriate financing strategies may start to become a normal aspect of business services initiatives. As BDS suppliers are expected to be sustainable and more programs work with private sector suppliers. investment programs may develop sector development strategies in which they invest in firms that act as market intermediaries. In the market development paradigm. for informal. 125 In some cases. 124 125 Bissegger. may they be used to train and build the capacity of private sector suppliers? Although the market development paradigm has challenged practitioners to get more out of each public The challenge is how subsidies should be channeled in order to develop. This is a new challenge for market development programs. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 102 ." there are many reasons for microfinance and BDS to remain quite separate. 2000. BDS suppliers often have difficulty accessing finance for expansion. however. should subsidies be used for start-up capital to new BDS suppliers? Should subsidies be restricted only to product development and supplier identification and monitoring? Or. Such a strategy has potential to increase impact of investment by contributing not only to the development of individual firms. Mikkelsen. BDS suppliers or even BDS market facilitators in key high potential sectors. Promising models suggest that offering venture finance using a high-impact SE development strategy has more potential than the more traditional approach of targeting firms most likely to succeed or to create jobs. grants no longer seem an appropriate financing instrument. but the development of an entire sector and local economy. equity and loan capital from donor or facilitator organizations. Given the capital constraints in most developing countries.124 Other financing mechanisms for new suppliers include loan guarantees. 1999. Where grants are in use. but the potential for offering mutually beneficial services using strategies that employ best practices in both fields is being explored. For example. BDS markets. Finally. subsidies are viewed as temporary. but the potential for offering mutually beneficial services using strategies that employ best practices in both fields is being explored. the trend is to link grants to supplier performance in achieving financial sustainability. 126 Carpenter et al. yet timeframes and funding strategies are not yet clearly understood. Few financing mechanisms have been developed. BDS markets. this equity is used to leverage private sector capital. For example. As BDS markets develop.Developing Commercial Markets for Business Development Services – Third Annual Edition backing. Now. the challenge is how the subsidies should be channeled in order to develop. No longer is it a question of how much subsidy to provide for how long.126 10.6 Clarifying the Role of Subsidies Fundamental to the market development paradigm is a shift in thinking about subsidies. rather than distort. There are many reasons for microfinance and BDS to remain quite separate. some lessons from sector development are being applied in the venture and community finance field.
particularly microenterprises and poorer entrepreneurs? While a lot has been learned. the private sector is more innovative. is the central wholesaler of pumps in Kenya. It takes time to recruit. 2000. turning over the wholesale role to the private sector. but there is much debate over their role in the market. one challenge faced by BDS market developers is how to quickly and effectively build private sector capacity. 2000. However. ApproTEC. and to create sustainable BDS. 128 Thus. ApproTEC helps start over 500 new businesses per month. In theory. Which role and timeframe will best contribute to sustainable. Hileman and Tanburn. In that role they link manufacturers with transporters and retailers. 127 Why? Larger suppliers with good capacity have a strong incentive to serve the already under-served larger businesses.7 The Timeframe for Success What are the best ways to quickly develop private sector capacity to serve SEs. and control licensing and quality of the pumps. With two other technologies. Example 52: Timeframe Debate ApproTEC in Kenya Few doubt the impact of ApproTEC’s irrigation initiative in Kenya. Building and oil press technologies sell around 100 items per year. Second. particularly microenterprises. and the duration of that role. nimble and quick to respond to market opportunities than public institutions and non-profit organizations. However. primarily with water pumps. widespread impact? Private interviews. suppliers have been slow to respond to “opportunities” to serve SEs. 10. informal suppliers are numerous and have less capacity to serve their SE markets. Critics argue that ApproTEC should never have entered the market as a “provider” and should exit immediately. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 103 . 127 128 Write. McKenzie. nimble and quick to respond to market opportunities than public institutions and non-profit organizations. McVay. In theory. the era of subsidies is far from over and the challenge of how to use them most productively has only begun. ApproTEC argues that they cannot attract a large wholesaler until they develop a significant market and demonstrate its profitability. 1998. ApproTEC used a less interventionist approach with significantly less impact. negotiate deals and train these partners. in some programs that have attempted to disseminate BDS through the private sector. 2002. in some programs that have attempted to disseminate BDS through the private sector. which defines itself as a facilitator. the private sector is more innovative. more experimentation is needed. While they may be ready to implement a donor-funded program – because funds are guaranteed and there is essentially only one customer – they are more reluctant to service SEs.Developing Commercial Markets for Business Development Services – Third Annual Edition sector dollar. 1999c. for example providing test marketing and advertising services so that suppliers will be assured of customers. Organizations involved in product development and dissemination comment that they often have to play a role in the market. suppliers have been slow to respond to “opportunities” to serve SEs.
virtureventures. have crowded out the private sector. or have had limited outreach. Some programs have had success with commercial facilitators who operate on a for-profit basis from the start. On the other hand. Most are struggling to determine their role. for example in disaster settings. It appears that if a facilitator acts as a market player.Developing Commercial Markets for Business Development Services – Third Annual Edition 10. Meanwhile. the majority of donor-funded BDS providers face a strategic decision: will they convert to being a sustainable. 2000. cost-effective way of serving them. Alter. not-for-profit businesses have demonstrated the potential for reaching the poor by initiating businesses. BDS providers in publicly funded programs are NGOs.com BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 104 . Being a facilitator means giving up income derived from client fees as the task of direct service delivery is handed over to the private sector. and social enterprise is a sustainable. many also see the importance of harnessing that expertise and capacity in new initiatives. 129 130 Hileman and Tanburn. Many in the field are still not sure what a good facilitator looks like. Currently. So. tremendous resources have been invested in the human and institutional development of individuals and organizations. Traditionally. some donors act as facilitators. Some donor-funded programs envision a very limited role for traditional NGO providers. for example by selling training of trainer or market information to SE trainers. while surviving meanwhile on traditional and declining funding sources. the role of BDS provider is shifting dramatically. that serve the poor in ways the private sector has not. Some envision an NGO or consulting firm contracted by a donor.8 Determining the Appropriate Institutions for Facilitators and Providers The role of a market development facilitator is still quite new in BDS. many such ventures have been poorly run. many facilitators site challenges in transforming not-for-profit organizations to being more demand-driven. such as BDS supply or market intermediary ventures.9 The Role of Social Enterprise Related to the above debate. 10. Proponents of social enterprise130 argue that: a) There will always be markets that the private sector will not serve. Others envision a facilitator much closer to or in the BDS market that the facilitator is developing. Yet. is the role of social enterprise in developing BDS markets. www. donors and practitioners are not yet sure if all roles performed by facilitators can be completely privatized. training institutions or government bureaus that offer services on a highly subsidized basis. it is more likely that the roles of the facilitator can be subsumed into the private sector. 2001. With the emergence of the market development approach. private sector provider or will they focus on market facilitation? Becoming a provider means a shift in focus toward sustainability. Some NGO providers are attempting to transform into facilitators that capture some costs or even become sustainable by developing secondary markets. over the years. On the one hand. Many experts see them as vested interests that will fade away as the market develops. Others see their future role as operating in more marginal contexts where markets are limited and the need for subsidies obvious.129 However.
The debate continues and the PMF Field Research should continue to shed light on this topic. there remain many challenges for performance assessment. Miehlbradt. However. there is increasing debate over who should carry out what types of performance and impact assessment. the PMF Field Research team is discovering that. and who should pay for these activities. The PMF Field Research is identifying practical and valid ways for practitioners at the facilitator and large-scale supplier level to gather and collect basic performance data.Developing Commercial Markets for Business Development Services – Third Annual Edition b) In many situations. Data for different aspects of performance are often gathered in similar surveys. and one aspect of performance shouldn't be interpreted in isolation of other aspects. 131 132 Committee of Donor Agencies. The BDS field is exploring how social enterprises can contribute to. 10. 2001b. Some experts feel that different players have different interests in terms of performance measurement. In addition. and that the players who care most about particular information should pay for that information. basic performance information may be best gathered by one institution. McVay 2001. facilitators and donors are interested in most aspects of performance. 2000. It would be helpful to have some benchmarks by which to judge the performance of different types of programs in different contexts. Also. and wider economic and social goals. Facilitators might be more interested in understanding the expansion of the market for a BDS and. from a practical perspective. and that the players who care most about particular information should pay for that information. in-depth market analysis or impact assessment may still need to be carried out and funded independently. Donors might be most concerned with how funds are used. other private sectors businesses are willing to invest because the costs and risks are substantially reduced. For example. Canedo. ultimate impact of services on SEs. rather than distort. 2001. a common performance measurement framework and the research agenda. private sector markets. once a social enterprise develops the market. sometimes. 131 Some experts feel that different players have different interests in terms of performance measurement. many suppliers. the performance of suppliers with whom they are working. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 105 .11 Defining Performance Standards for the Field Despite the progress in performance measurement. On the other hand. improve their services and increase their profits. 10.132 However. providers would pay for management information that can help them expand their markets. whether some providers have achieved sustainability should not be considered a success unless outreach is also high and the service is demonstrated to have a positive impact. However. For example.10 Performance Assessment: Who measures what? There is agreement that the main reasons for measuring performance are to improve programs and to prove that programs are having the desired impact. a BDS market survey provides information about whether the market in general is expanding and about the market position of particular service providers.
org BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 106 . and in developing tools to identify and select demand-driven services. organizations around the world are testing and implementing the market development approach. The demand for training and information among practitioners is high. the ILO. 10. particularly if accompanied by documentation and dissemination of lessons learned. New Hampshire College.seepnetwork.seepnetwork.org (click on BDS materials) 134 www. and 3) specific service delivery techniques. These institutions include the Springfield Centre. Currently.sedonors. it may become clearer if and how to establish standards that are appropriate for different types of programs in different contexts. 134 In addition.135 Work has also begun on disseminating information through conferences in developing countries that link local practitioners with global trends. Several constraints in developing training include the capacity of trainers. regionallybased training. ICECD.html 135 A diary of training courses can be found on the Intercoop website: www. The field is still grappling with developing a common performance measurement system and confirming the impact of BDS in general. In addition. It is also important that new cases and emerging lessons are integrated into training initiatives. which have documented over 60 cases and studies in the last 3 years and made them available on the web for quick public access. Next steps include developing an ongoing tracking and analyzing function to inform donors and practitioners of experience and lessons learned. Others argue that only through setting standards can the field really move forward. Some experts and practitioners are concerned that the BDS field is so diverse that it will be impossible to establish fair benchmarks. suggesting the need for additional. 133 The Donor Committee website provides access to all the cases: Website: www. 1) affordable. several institutions are offering training in new BDS strategies. There is still unmet demand among practitioners particularly for. it is important to monitor and disseminate emerging practices and lessons.ch/sed/index/htm or at the SEEP website: www. particularly for affordable. regionally-based training. AFE and the SEEP network and its partners around the world. documentation and analysis has become ad hoc. Given the dramatic changes in global BDS program strategy and the nascent nature of the market development approach. and the ILO has initiated on-line training.Developing Commercial Markets for Business Development Services – Third Annual Edition this goal is still quite far in the future. The experiences documented by the Donor Committee conferences are now out of date.12 Disseminating Lessons Learned and Best Practices Major progress in this area has been made through the Donor Committee conferences. however. Information gathering. 2) specific training in particular aspects of the market development approach.org/bdsguide. As more experience is gained.133 The SEEP network has developed an on-line Guide to Business Development Services and Resources that provides an up-to-date review of the field and gateway of information on BDS. more pilot and demonstration programs that test specific hypothesis of the market development approach would be beneficial. 10.intercoop.13 Developing and Documenting Best Practices The BDS field has made significant progress in identifying and categorizing large numbers of BDS. coordinated efforts.
This situation underscores the need for additional pilot testing. However. many organizations remain uninformed or unconvinced of the potential for the market development approach. This can be risky.14 The Need for Collective Action The BDS market development approach is a sea change whose effectiveness depends on the majority of players in the BDS field participating. Yet. and funding for scholarships to reach smaller institutions. The BDS market development approach is a sea change whose effectiveness depends on the majority of players in the BDS field participating. but do not strictly follow the principles.15 The Danger of Radicalism On the other hand. less developed markets where there appear to be few suppliers. a few subsidized players make it more challenging for organizations pursuing a market development approach. documentation of experience and performance. some early adopters. are pursuing a strict interpretation of the market development principles. and simple communication material to help a wide range of players educate their partners. such as the potential for building up existing private sector supply in rural. in their a zeal to take advantage of this new approach and bring other on board. the appropriate question to ask is: how can the market development approach enhance outreach and sustainability. This era in BDS is similar to that in the microfinance field when market interest rates were introduced. develop sustainable markets. such as programs testing the market development approach.Developing Commercial Markets for Business Development Services – Third Annual Edition the availability of replicable training materials. economies and jobs in order to reduce poverty. In some contexts. 10. and invest resources more cost-effectively – but the overarching goal is to grow income. without risking the benefits of poverty reduction and economic growth that are being achieved? The purpose of the BDS market development approach is to increase outreach. particularly with regard to principles that are less proven in practice. BDS Turin 2002: Seminar Reader – Miehlbradt & McVay Page 107 . In these situations. 10. strict interpretation is required in order to advance learning. donors and practitioners should also be cautious in excluding from mainstream resources those programs that have had a demonstrated high impact. In both cases.
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