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Developing Commercial Markets for Business Development Services Third Annual Edition

BDS Turin 2002: Seminar Reader Miehlbradt & McVay

FOREWORD

The ILO works in many developing countries to enhance both the quantity and thequality of employment opportunities. Within the ILO, both the InFocus Programmeon Boosting Employment through Small Enterprise Development (IFP/SEED) and theInternational 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 annualSeminar on Business Development Services (BDS).

This Seminar has become an important event for BDS practitioners throughout theworld, attracting participants from a vast range of countries. All are engaged indesigning and implementing projects to support small enterprise development, and allshare 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-maillong 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 bymany agencies in the new and changing area of BDS. The ILO has translated it intoFrench 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 haveused it in their own events for staff and partner organizations.

Our thanks therefore go to the authors, Mary McVay and Alexandra OveryMiehlbradt, who have managed to update and refresh the Reader each year. We arefortunate to be able to build on their accumulated knowledge and networks in thisway. The instrumental roles of Jim Tanburn and Peter Tomlinson in organizing theSeminar each year are also gratefully acknowledged.

We trust that both the Reader and the Seminar will make important contributions tothe cause of improving jobs and livelihoods in developing countries in the comingyears.

Christine Evans-Klock,Director,InFocus Programme on Boosting Employment throughSmall Enterprise Development,ILO Geneva, Switzerland.

Frans Lenglet,Director,

Training Department,International Training Centre,

ILO Turin, Italy.

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ACKNOWLEDGEMENTS

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 andlessons learned is greatly appreciated. The Donor Committee on Small EnterpriseDevelopment has exerted particular leadership in bringing these parties together andhelping the field break new ground in facing the challenges of increasing impact,reaching scale and promoting sustainability. We are especially grateful to JimTanburn of the International Labour Organization, for initiating this reader, and for his professional and personal support during its development and annual revision. Hiscolleagues at the ILO, particularly Gavin Andersen, provided valuable additionalassistance. Thanks to Gail Carter who edited this years edition. Thanks also to JoelOstrow who edited the previous two editions. The authors are also grateful to their

spouses for their technical and personal support. This years edition is dedicated toBDS market facilitators who are working hard to learn how to effectively developBDS markets in order to positively impact SEs and the poor.

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TABLE OF CONTENTS

1 INTRODUCTION....................................................................................1

1.1 Purpose ......................................................................................................................................... 1

1.2 What is BDS?............................................................................................................................... 2

1.3 Outline to this BDS Reader........................................................................................................ 3

2 HOW DO BDS REDUCE POVERTY, GENERATE ECONOMIC GROWTHAND EMPLOYMENT, AND CONTRIBUTE TO BROAD DEVELOPMENTGOALS?......................................................................................................5

2.1 What types of impact have BDS programs achieved and how? ............................................. 6 2.2 How Do BDS Programs Contribute to Broad Development Goals? ...................................... 8

2.3 How Do Programs Develop High-Impact Strategies? ........................................................... 10

3 WHAT DOES BDS MARKET DEVELOPMENT MEAN? .......... ............ . 12

3.1 The Market Development Paradigm....................................................................................... 12

3.2 How does BDS Market Development compare with traditional approaches?.................... 15

3.3 How did the Market Development Paradigm evolve?........................................................... 16 3.4 Why do BDS markets need development? .............................................................................. 18

3.5 Where is the BDS field now in market development? ........................................................... 18

4 WHAT ARE THE IMPORTANT PRINCIPLES OF BDS MARKETDEVELOPMENT?......................................................................................22

4.1 Facilitate market development rather than providing services............................................ 22

4.2 Start with market assessment .................................................................................................. 23

4.3 Fit the intervention to the market issue.................................................................................. 23

4.4 Use subsidies primarily for pre- and post- service delivery activities.................................. 23

4.5 Work toward a clear picture of a sustainable market and have an exit strategy. .............. 23

4.6 Separate the roles of provider and facilitator......................................................................... 24

4.7 Promote competition and efficiency in the market................................................................ 24

4.8 Develop a transactional relationship with suppliers. ............................................................. 24

4.9 Tread lightly in markets........................................................................................................... 25

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4.10 Make programs flexible and responsive to the market. ........................................................ 25

4.11 Coordinate donor efforts. ......................................................................................................... 25

5 HOW CAN PRACTITIONERS SELECT APPROPRIATE SERVICES TO

HELP SEs DEVELOP AND GROW?........ ........... ........... ............ ........... ..... 26 5.1 What is a High-Impact SE Development Strategy?............................................................... 26

5.2 What are demand-driven services? ......................................................................................... 28

5.3 How can program designers select high-impact, demand-driven services? ........................ 29

5.4 What tools can help practitioners choose high-impact and demand-driven services? ....... 30 5.4.1 Sub-sector Analysis............................................................................................................. 31 5.4.2 Demand Analysis ................................................................................................................ 32 5.4.3 Test Marketing or Action Research .................................................................................... 32 5.4.4 General SE surveys ............................................................................................................. 33 5.4.5 Participatory Rural Appraisal.............................................................................................. 34

6 HOW CAN PRACTITIONERS ASSESS BDS MARKETS AND CHOOSEINTERVENTIONS TO STRENGTHEN THEM?............ ........... ........... ......... 36

6.1 What information about a market is needed to choose interventions?................................ 37

6.2 How can market information be used to design effective BDS programs? ......................... 39

6.3 What tools can help practitioners assess markets?................................................................ 42 6.3.1 Market Overview ................................................................................................................ 42 6.3.2 Consumer Surveys .............................................................................................................. 43 6.3.3 Qualitative Consumer Research Tools................................................................................ 44 6.3.4 Supplier Interviews ............................................................................................................. 44 6.3.5 Forward Looking Tools....................................................................................................... 45

6.4 How can a practitioner choose the right combination of tools for market assessment? .... 46

6.5 How can market assessment help programs reach poor entrepreneurs?............................ 48

7 HOW CAN SERVICES BE AFFORDABLE AND SUSTAINABLE? ....... 50

7.1 Who does? Institutional Sustainability Strategies................................................................. 51 7.1.1 Who can Provide Sustainable Services? ............................................................................. 51 7.1.2 What Institutions Are Appropriate Facilitators?................................................................. 53 7.1.3 What Is The Role Of Government In BDS Market Development? .................................... 54

7.2 Who Pays? Financial sustainability strategies. ...................................................................... 56 7.2.1 Fee for Services................................................................................................................... 57 7.2.2 Embedded Services ............................................................................................................. 58 7.2.3 Cross-subsidies.................................................................................................................... 59 7.2.4 Third Party Payment ........................................................................................................... 61 7.2.5 Piggy-Backing on Microfinance ......................................................................................... 61

8 WHAT STRATEGIES CAN BE USED TO DEVELOP BDS MARKETS?64

8.1 Where do interventions focus?................................................................................................. 64

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8.2 How do programs work with suppliers?................................................................................. 65

8.3 How do programs promote demand?...................................................................................... 67

8.4 What interventions develop markets?..................................................................................... 68 8.4.1 Voucher Programs............................................................................................................... 69 8.4.2 Providing Information to Consumers.................................................................................. 73 8.4.3 Collective Action: Forming Clusters, Networks and Business Associations ..................... 74 8.4.4 Promoting Business Linkages and Embedded Services...................................................... 75 8.4.5 Building the Capacity of Suppliers ..................................................................................... 77 8.4.6 Product Development & Commercialization...................................................................... 79 8.4.7 Social Enterprise ................................................................................................................. 82

8.5 What are some new design innovations in developing BDS Markets? ................................ 84 8.5.1 Combining Sector Development & BDS Market Development ......................................... 85 8.5.2 Large, Flexible, Coordinated Designs for Sector & BDS Market Development................ 85 8.5.3 Developing Secondary BDS Markets or Commercial Facilitation ................................. 86 8.5.4 The Future Vision of Developing Multiple Markets........................................................... 87

9 HOW IS BDS PROGRAM PERFORMANCE BEING MEASURED? ...... 88

9.1 Trends in Performance Measurement .................................................................................... 88 9.1.1 Why measure performance?................................................................................................ 88 9.1.2 What to measure?................................................................................................................ 89 9.1.3 How to measure?................................................................................................................. 94

9.2 Developing a Common Performance Measurement Framework ......................................... 94

9.3 Performance Measurement Challenges and the Research Agenda ...................................... 98

10 WHAT ARE THE CURRENT DEBATES AND CHALLENGES IN THEBDS FIELD?............................................................................................ 100

10.1 Can the poor benefit from commercially delivered BDS? .................................................. 100

10.2 Assessing Markets................................................................................................................... 100

10.3 Service Selection Whose Role?............................................................................................ 101

10.4 Sector Development vs. Mass Market Services.................................................................... 101

10.5 Finance, Microfinance & BDS ............................................................................................... 101

10.6 Clarifying the Role of Subsidies............................................................................................. 102

10.7 The Timeframe for Success.................................................................................................... 103

10.8 Determining the Appropriate Institutions for Facilitators and Providers ........................ 104

10.9 The Role of Social Enterprise................................................................................................. 104

10.10 Performance Assessment: Who measures what? ............................................................. 105

10.11 Defining Performance Standards for the Field ................................................................ 105

10.12 Disseminating Lessons Learned and Best Practices........................................................ 106 10.13 Developing and Documenting Best Practices................................................................... 106

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10.14 The Need for Collective Action .......................................................................................... 107

10.15 The Danger of Radicalism.................................................................................................. 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, Websites and Training Opportunities

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BDS Turin 2002: Seminar Reader Miehlbradt & McVay Page 1

1 Introduction

1.1 Purpose

For three decades, governments,development practitioners andresearchers have recognized theimportance of small businessdevelopment in increasing employmentand income among poor and low-income people. The success of microfinance programs and institutionshas demonstrated that services tailoredto meet the needs of very small

businesses can be financially viable and

effective in reducing poverty. It is equally evident, however, that small businesses areconstrained by non-financial factors such as lack of education, inadequate technicalskills, poor access to markets, lack of information and unreliable infrastructure.These factors often prevent businesses from becoming more profitable, despite accessto capital.

Business development services are designed to help micro, small, and mediumenterprises (SEs) overcome these barriers to increased profitability; increase

productivity; and access high value markets so they can realize their potential to help poor people work their way out of poverty, grow local economies, and create jobs.

The purpose of this Reader is tohelp donors, researchers andpractitioners understand emerginglessons in how businessdevelopment services can bedesigned and delivered to achievehigh impact on economicdevelopment and poverty alleviation,in a widespread and sustainablemanner.

What services do entrepreneurs really need?

What are they willingand able to pay for?

How can we reach typicallyunderserved SEs?

How can we promote thedelivery of financially

viable services?

How can we reachlarge numbers of entrepreneurs?

What types of institutions should bedelivering BDS and how?

When are subsidiesappropriate and for

what activities? How do we know that any of thisinvestment in BDS is making adifference in the lives of poor

people?

What are theappropriate roles for

private sector suppliers, NGOs, the

state and donors?

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1.3 Outline to this BDS Reader

This Reader explains the current operating principles and approaches to BDS, andoffers examples of BDS programs that have used them. The first annual edition of theReader drew mainly on work from a series of conferences on BDS sponsored by theCommittee of Donor Agencies for Small Enterprise Development. These conferences

brought together hundreds of leaders in the BDS field, including donors, researchers,

practitioners, and some representatives of developing country governments. Throughcase studies and open dialogue, these experts attempted to develop, document, and

Table 1: Types of Business Development Services

The SEEP Guide to Business Development Services identifies seven BDS categories: marketaccess, input supply, technology and product development, training and technical assistance,infrastructure, policy/advocacy and alternative financing mechanisms. Examples of services under each category are provided below.

Small Enterprise Education and Promotion Network, SEEP Guide to Business Development Services and Resources

Website: www.seepnetwork.org/bdsguide.html Miehlbradt, Alexandra, Guide to BDS Market Assessment for Program Design. International Labour Organization,forthcoming. Website: http://www.ilo.org/seed

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

Technology and Product Development:?? technology transfer/commercialization?? linking SEs and technology suppliers?? facilitating technology procurement?? quality assurance programs?? equipment leasing and rental?? design services

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

Infrastructure:?? storage and warehousing?? transport and delivery?? business incubators?? telecommunications?? courier ?? money transfer ?? information through print, radio, 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

Alternative Financing Mechanisms:?? factoring companies that provide working

capital for confirmed orders?? equity financing?? facilitating supplier credit

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disseminate best practices in BDS. 5 The Reader refers to this group as leaders or experts in the field and the conclusions presented emerge primarily from theseconferences.

From this global dialogue a new approach to BDS delivery, called the Market

Development Paradigm, emerged. The Reader includes sections defining thisapproach, explaining its emergence, presenting its principles, and giving examples of the strategies practitioners can use to develop BDS markets. Subsequent editions of the Reader draw on work and dialogue conducted after the conferences. Sections have

been added and revised to address what the BDS field has learned about marketdevelopment as it has evolved.

Within the discussions, 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 theBDS field. The annexes include definitions of terms, a bibliography, a list of useful

reading material, websites and training opportunities, a list of acronyms, and a list of case examples cited throughout the Reader.

5 To see the conference proceedings and papers from Zimbabwe (1998), Brazil (1999) and Hanoi(2000), see website: www.sedonors.org (BDS materials)

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2 How do BDS reduce poverty, generate economic growthand employment, and contribute to broad developmentgoals?

With the increased global dialogue on Business Development Services has comeincreased scrutiny and discussion of how BDS contributes to poverty alleviation,economic growth, increased employment, and other development objectives. Ingeneral, business development services are aimed at increasing SE sales, or reducingcosts so that businesses can grow and become more profitable. This growth andincreased productivity leads to increased income for owners, increased employmentfor people in the community, and economic growth for other businesses in the samemarket. In addition, many BDS programs aim to achieve supplemental developmentimpacts such as environmental preservation, gender equity, empowerment anddemocratization, livelihood security and stabilization, or improved health andHIV/AIDS mitigation.

Findings in recent analyses of high performanceBDS programs show that BDS can contribute to thedevelopment objectives outlined above. Theresearch found that a clear and specific strategy thatlinks business services to well-defined outcomes for SEs is an essential ingredient to achieving high-impact. 6 The research terms these strategies high-impact SE development strategies. Often, BDS

programs do not explicitly state their SEdevelopment strategies. Rather, there is an

assumption that access to services will enhance business growth and efficiency. Instead, recent

research shows that programs that define how services are expected to contribute todevelopment goals can more easily:

?? Identify services that are likely to bring significant benefits to SEs;?? Focus services on these benefits;?? Assess progress in achieving impact; and?? Adjust their programs to maximize impact.

By describing a range of high-impact SE development strategies, 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 havesignificantly enhanced impact by reaching large numbers of SEs sustainably.

6 Carpenter et al, 2002; Dawson et al, 2001.

Findings in recentanalyses of highperformance BDSprograms show that BDScan contribute to a rangeof development goals andthat a clear, specificstrategy that linksbusiness services to well-defined outcomes for SEsis an essential ingredientto achieving high-impact.

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2.1 What types of impact have BDS programs achieved and how?

Underlying all BDS programs is a strategy that describes how SEs use services andhow this contributes to development goals. Figure 1 illustrates how an SEdevelopment strategy explains the connection between business development services

and impact. The first diagram shows the general relationship and the second illustratesa typical, generic SE development strategy.

Figure 1: The relationship between BDS and impact goals

The generic strategy is vague about the links between services and impact. In contrast,the following strategy of a high-impact BDS program is clear about how irrigationtechnology can help small-scale farmers improve output, get better prices for vegetables, and grow high-value vegetables. The results are substantial increases in

income, employment, and economic growth for the poor.

Impact Goals

SE Development Strategy

Business Development Services

H ow BDS Achi eve I mpact

Increase income and employment

Increase sales and reduce costs

Business Management Training/TA

Typical, Generi c Strategy

Example 1: High Impact Development StrategyApproTEC Irrigation Project in Kenya

M rs. Jane Ondiek, small- scale farmer, K enya After the death of her husband, Janes 6 childrenalmost dropped out of school for lack of schoolfees. Using affordable small-scale irrigation toincrease her vegetable crops production, she nowmakes enough money to send them to college. "Immaking enough money now to support my familyfully without begging from relatives since my husband died!"Mrs. Ondiek purchased a small-scale irrigation

pump from a private sector agriculture inputssupplier. The pumps were designed anddisseminated by ApproTEC Kenya, with fundingfrom DFID, USAID and others.

In total, ApproTEC technologies have helped create20,500 businesses in ten years. Annually, these

businesses contribute $27 million in profits andwages, which represents a growth of .5% inKenyas Gross Domestic Product.www.ApproTEC.org

Goal: Increase income & employment for rural, small-scale farmers and their

communities.

Strategy: Help farmers increase production, increase pricing, and

diversify to high value crops.

ApproTEC Irrigation - Kenya

BDS: Affordable irrigation pumps

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In the other example depicted here, a BDS program operating in a very poor countrywas able to significantly increase sales of microenterprise craft producers bydeveloping the industry as a whole. The sales resulted in measurable increases inemployment.

These types of high-impact strategies, combined with other aspects of good BDS practice, enhance impact. Many programs with documented high impact are sector specific, but cross-sector services show potential for having high-impact as well, if they are focused and tailored to achieve impact. Services such as telecommunications,internet access, photocopying, and courier services are demonstrating high demand inAsian BDS markets. 7 Given their high demand, there may be significant impactassociated with these services that should be explored, as depicted below:

7 Miehlbradt, 2002

Example 2: High Impact Development StrategyAction for Enterprise Craft Sector ProgramMali

M amadou Traor , export agent in M ali .I have benefited from Program SEPA in a number of ways. I have been introduced to a number of new

producers, and have begun selling their products.SEPA has helped with banking and shipping issues.SEPA has helped increase sales by sourcing andcreating new products for my clients. Also, SEPA hashelped facilitate communication with their Websiteand internet services.

Mamadou Traor received market linkage and product

development assistance from SEPA, a program of AFE Mali funded by USAID. In its first 2 years, at acost of $700,000 for the total 3-year program, SEPAachieved the following results:?? Producer sales to exporters up 124% (increase of

$400,000)?? Exporter sales to importers up 87% (increase of

$650,000)?? 200 new jobs created

Carpenter et al, Success Stories, 2002. Website:www.seepnetwork.org/bdsguide.html

Increased income and employmentfor microenter rise craft roducers.

Help craft producers increase salesto international markets.

BDS: Strengthen marketlinkages from producer toexporters to internationalmarkets. Product design.

AFESEPA in Mali

Increase income in informal sector, urban microenterprises.

Improve efficiency by reducing communications and transportation time;Reduce costs through fewer mistaken orders and better pricing information;

Increase sales because buyers and sellers have a reliable way to reach each other.

Phone, Fax, e-mail and courier services.

Figure 2: Telecommunications Strategy

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This cross-sector strategy is potentially high impact because it targets a specific groupof SEs with services tailored to help their businesses achieve cost-reduction and salesobjectives. It is thought that these cross-sector services may be more accessible anduseful for low-income microenterprises concentrated in retail and service businesses.There is less experience and considerable debate on high-impact, mass marketed

services.8

Nevertheless, the potential for mass-marketed services to reach very largenumbers of SEs has encouraged the field to look more closely at these services. For example, the Grameen Village Phone project in Bangladesh was reaching 60,000users in 2000.

2.2 How Do BDS Programs Contribute to Broad Development Goals?

BDS programs have also had significant impact on broad development goals such asagricultural development, health improvement and HIV/AIDS management, gender equity, democratization, empowerment, and environmental protection. Example 3

shows how Conservation International and its partners in Chiapas, Mexico havehelped preserve forests while enhancing income for rural farmers. It is followed byan 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. These are examples of how high-impact SE development strategies canincorporate and contribute to broad development goals.

8 For more on this debate, see Chapter 10 Challenges

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Example 3: Contributing to Protecting the EnvironmentConservation International and Coffee in Mexico

Victorico Velazquez Morales, PresidentCampesinos Ecologicos de la Sierra Madre de Chiapas, A.C.(CESMACH), Mexico

what we used to do was cut back the regrowth, let it dry and burn it and then plant corn. When CI came and explained how wecould conserve, taught us how to compost to do the terraces tomake organic coffee and not to cut down the forest and then after 2-3 years, we began to see that this really does have good results. Weve stopped cutting them (trees) down and we noticed duringthis last season that the areas where there had been lots of forestcutting, there was a great deal of avalanches. We have left the forest

you can see it for the last 6-7 years now you can see theforest is big (has returned) and now we just cultivate coffee. Organic coffee is important for me and the members (sic. of thecooperative ) because its all we do and we export it and were

getting better prices Conservation International works with local partners as well as the

private sector to promote the production of Conservation Coffee coffee grown, processed and marketed in a way that promotes biodiversity conservation while improving the lives of local people.In 5 years, with $400,000, they achieved the following results:?? Starbucks Coffee Company has purchased coffee directly from

farmers for three consecutive years to produce the productShade Grown Mexico.

?? In the year 2001, farmers received a 60% price premium over local prices for their coffee.

?? 50% more conservation coffee is being exported than lastyear.

?? In 2001, there were 700 farmers and 2000 hectares involved inthe program.

www.seepnetwork.org/bdsguide.html - success stories

Goals: Increase farmer income andenhance forest preservation.

SE Development Strategy: Help farmersgrow environmentally sustainable coffeeand access high-value, environmentally

concerned markets

Services: Extension services and inputsupply to introduce new coffee variety; brand

development and market linkages.

Conservation International & Coffee inChiapas, Mexico

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2.3 How Do Programs Develop High-Impact Strategies?

One of the key mistakes of past BDS programs was that they assumed which servicesSEs wanted. An effective, high-impact program combines a broad strategyanunderstanding of how services contribute to impactwith a good understanding of SE demand for services and the systems that put financial pressure on providers torespond to those demands. 9 These elements often require programs to respond flexiblyto markets and to adjust their strategies as they better understand SE demand for services. There are several entry points for developing high-impact strategies:

?? Objective assessment and analysis of SE market opportunities and constraints,followed by demand assessment and service field tests. 10

9 Carpenter et al, 200210 ApproTEC, 2002.

Example 4: Contributing to Empowerment andLivelihood Security

SEWA and the Bidi Workers in India

A Long Struggle : Bidi Workers Provident Fund CaseThrough a combination of legal advocacy, grass rootsmobilization, and helping women access alternative markets,SEWA was able to help home-based cigarette workers inAhmedabad obtain some social benefits along with their wages. On behalf of home-based bidi (cigarette) makers,SEWA launched a campaign to have the major bidi buyers,all of them large-scale firms, contribute to an insurance fundfor the women.

The Gujarat High Court ordered Jivraj Bidi Works to paythese Provident Fund dues to 154 bidi workers after afourteen-year struggle, but SEWA and the firms thendisagreed about the amount that was owed. Other firms

buying cigarettes felt that if Jivraj Bidi Works paid ProvidentFund dues, they too would also have to do so and theyimmediately stopped giving work to the women. After negotiations, they started giving work again but at lower wages.

In response, SEWA and the workers re-launched their legalcampaign for better benefits. Just then there was a suddenrecession in the bidi industry. The bidi buyers spread theword that there was a recession due to the workers pursuingtheir Provident Fund case. SEWA workers produced a leafletexplaining the actual facts and distributed it among the bidiworkers. When the bidi workers learned the truth, theycontinued with their struggle. Some of the workers decidedto seek alternative markets. They met the largest bidimanufacturer in Madhya Pradesh and managed to get orders.The Madhya Pradesh manufacturer was prepared to paythem the wages they received in Ahmedabad. As soon asworkers in Ahmedabad started working for the manufacturer in Madhya Pradesh, the recession in the bidi industrymagically disappeared!

SEWA Annual Report 2000 www.sewa.org

Goals: Increase womens income,security and power.

SE Development Strategy: Help women obtainan insurance fund from their contractor, who

acts as an employer.

Services: Organizing, information, advocacy andmarket linkages to strengthen their social, legal

and economic position.

SEWA Advocacy for WomenCigarette Workers

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?? Demand assessment followed by assessment of SE constraints andopportunities associated with the service and field tests. 11

?? Field test of services that seem to be in high demand, followed up by analysisof market reaction to the services (demand assessment) and understanding of how services are helping SEs achieve impact, and which impacts (throughevaluation). 12

By aligning the process of service selection with the development of a high-impactstrategy, programs are able to incorporate the strengths of impact-driven programswith those of demand-driven services. 13

In addition to achieving impact on assisted businesses, the field of BDS has madesignificant progress in recent years in expanding impact by achieving wide outreach,improved cost-effectiveness, and sustainability. The lessons of more successful

programs have been synthesized and have contributed significantly to thedevelopment of a new approach to business development service delivery, commonlyreferred to as a market development approach. This method harnesses the power of the private sector to deliver high-impact services to large numbers of SEs sustainablyand efficiently and to significantly enhance impact. The rest of this Reader describesthis service delivery approach, presents existing evidence of its success, and describeschallenges and recent innovations.

11

Mercy Corps , 2002.12 ILO FIT Model, Hileman, 2000; McVay 2001.13 Carpenter, et al.

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3 What does BDS market development mean?

In order to provide SEs with access to BDS,traditional development programs focus on oneinstitution, providing subsidies that allow SEs toaccess services free or at very low cost. There isnow agreement in the field that this approach hashad a limited impact because programs weregenerally short-term, small-scale, andexpensive. 14 Some non-profit BDS providers,learning from the success of microfinanceinstitutions in sustainably reaching large

numbers of people, began charging fees for services and a few have becomefinancially sustainable. Unlike microfinance institutions, however, these programshave tended to remain small. 15 This is perhaps because microfinance is a mass-market

product whereas the services these organizations offer tend to be tailored to specificniche markets. The Market Development Paradigm is a new approach to BDSdesign and delivery that has the potential to reach large numbers, cost-effectively andsustainably by developing a broad market of BDS suppliers and SEs who accessservices through mainstream, business-to-business relationships.

3.1 The Market Development Paradigm

The Market Development Paradigm proposes a new vision for success, one that lookslike a healthy, private-sector business services marketnumerous, competitive BDSsuppliers who sell a wide range of BDS to large numbers and types of SEs. Programsstart by understanding the existing supply of BDS from the private sector, donor supported programs and government, and the market failures that lead to a gap

between supply and demand for services. The goal of market developmentinterventions is to overcome these market failures and take advantage of opportunitiesto expand the service market for SEs. The desired result is that numerous SEs buy theBDS of their choice from a wide selection of products offered (primarily) fromunsubsidized, private sector suppliers in a competitive and evolving market.(Buying can mean paying fees for services or procuring them though commercialrelationships with other businesses.)

14 Committee of Donor Agencies, 2001.15 Goldmark, 1999a; McVay, 1999b.

The goal of marketdevelopment interventions isfor a large proportion of SEsto buy the BDS of their choice from a wide selectionof products offered(primarily) by unsubsidized,private sector suppliers in acompetitive and evolvingmarket.

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Example 5: Early Market Development ProgramBRAC: Poultry Development in Bangladesh

Poultry rearing is a traditional income generating activity for millions of rural Bangladeshi, particularly women. BRACs poultry program aims to increase the viability of poultry rearing byhelping chicken rearers gain access to high yield varieties of chicks and the skills and services

necessary to rear them. BRAC has supported the development of private sector markets to reachthis goal. With this strategy, BRAC developed the capacity of over 60,000 BDS suppliers andhelped almost 2 million rural, low-income people gain access to improved technology in 1999.

BRAC identified the poultry sub-sector as an important, growing market in which large numbersof poor people earned income. Staff studied problems facing the small-scale poultry rearers, andidentified low quality chicks as a cause of low-prices. The solution was to assist small-scale

poultry rearers to access high yield varieties of chicks and the feed and medical services requiredto rear these improved varieties. BRAC then analyzed the technology and poultry input chain, andidentified interventions that would develop a sustainable technology input chain. Interventionsincluded:1) Identifying and strengthening private sector hatcheries, both large and small-scale;2) Identifying entrepreneurs and training them to start mini-hatcheries. (And establishing several

sustainable hatcheries, owned by BRAC, that serve remote areas and generate income for theorganization.);

3) Identifying and training BRAC members to become poultry workersindependententrepreneurs who provide technical and medical services to poultry rearers;

4) Identifying and training skilled poultry farmers to become specialized chick rearers who raiseimproved varieties of chicks for five weeks, and sell them to poultry rearers;

5) Starting a sustainable feed mill, owned by BRAC, for a reliable source of improved feed; and6) Identifying and training private sector feed sellers in the distribution of improved feeds.

In addition to establishing this sustainable, private sector technology chain, BRAC charges feesfor its services and earns income from its businesses in the sector. BRACs cost-recovery in thesefacilitation activities is 50%.

Newnham Jack,BRAC Poultry Program in Bangladesh, by Jack Newnham, a Performance Measurement Case Study onBDS for SMEs. Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Marketsand Measuring Performance. April 2000, website: www.sedonors.org (BDS materials)

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Figure 3: Early Market Development Program, BRACs Poultry Development in Bangladesh

TABDSInputs

Mini Hatchery

BRAC: 1,395Market:1,800

Large Scale Hatcheries(5 BRAC + private

sector + govt.)

Chick Rearer BRAC:14,730

Market: 22,000

Chicken RearersBRAC: 1,381,225Market: 1,876,243

1 BRAC

Poultry WorkersBRAC: 42,000Market: 70,000

Feed SellersBRAC: 2,563Market: 3,000

Feed Mills

BRAC: 3

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The market development perspective recognizes that the provision of operatingsubsidies to particular suppliers may crowd out other private sector suppliers, who donot receive subsidies. Market development programs tend to promote as manysuppliers as the market will bear. Some programs also stimulate demand by providinginformation about services and marketing, or by temporarily discounting services. The

main activity of a subsidized BDS program is not direct service provision. It is, rather,market research, provision of information for consumers, new product development,supplier training, monitoring and evaluation, and activities aimed at facilitatingmarket improvement by increasing demand and/or improving supply.

These programs promote the following changes in the market:?? Number of differentiated suppliers increases;?? Suppliers earn profits from fees to SEs or other commercial sources; they do

not depend on subsides;?? Suppliers costs are appropriate for the SE market, not skewed by donor

funding;?? A variety of service products is available in the market;?? Service quality and appropriateness improves with increased competition to

serve SEs; and?? Number of transactions between private suppliers and SEs increases .16

3.2 How does BDS Market Development compare with traditionalapproaches?

Table 2 summarizes the characteristics of traditional programs compared to marketdevelopment initiatives. 17 The two approaches differ fundamentally in their vision,objective, point of intervention, duration of involvement and approach towardsubsidies. Experts in the BDS field have judged this change in approach sosignificant that they are calling it a paradigm shift. 18

16 Springfield Centre, BDS 2000 Training Course.17

Adapted from Hallberg and Tanburn, Presentation to the Donor Committee, 1999 and Hileman andTanburn, 2000.18 Gibson, 2000a.

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Table 2: Traditional vs. Market Development Interventions

Traditional Interventions Market Development Interventions

VisionA non-profit or governmentorganization provides quality

BDS to SEs.

A sustainable, primarily private sector market, made up of competingsuppliers, sells a wide range of qualityservices to SEs.

ObjectiveProvide quality services that SEscan afford

Encourage others to provide qualityservices for which SEs are willing to

pay full cost

Starting PointDiagnosis of needs, surveys Assessment of the market (demand,

supply, potential)

Point of Intervention

First Tier: direct provisionthrough a single, local institution

Second Tier: facilitate, regulate,develop products for and work withmore than one supplier.

Duration of Involvement

Permanent: donor-funded programs must continue if services are to be available to SEs

Temporary: withdraw as marketsdevelop

SubsidiesSupport free or low-cost servicesto clients. Justified in the long-run: SEs cant be expected to payfull costs

Support assistance to suppliers or temporary grants to clients. Justified inthe short run if market developmentimpact outweighs market distortionimpact.

3.3 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 firms through sustainable delivery of BDS,experimented with and developed innovativeways of delivering BDS that would overcomethe challenges of traditional programs. Theshift in approaches was fueled by three

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 wereable to deliver better services because firms began to expect value for their money.

2. Non-profit institutions attempted to recover costs through these fees, whichresulted in some sustainable institutions, but few on a large scale.

While most BDS practitionersassume only non-profitorganizations service SEs, itis actually unusual for therenot to be an existing privatesector market for BDS.

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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.

These isolated experiences were shared and studied at the Donor Committeeconferences, which also commissioned research into what works in the private sector.In well functioning markets, how do SEs access BDS? While most BDS practitionerstend 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, areless formal, and the experts failed to look for them. These findings have led tothinking about how to strengthen, expand, and develop existing BDS markets. Thereis a growing sense of obligation to understand the market for a BDS before startingany type of BDS project, in order to maximize benefits for SEs and minimizedistortions in markets that already provide benefits to some SEs.

Finally, a growing awareness of the power of markets as engines of growth andefficient distributors of goods has contributed to innovative thinking about howmarkets can be channeled to benefit SEs. The Market Development Paradigm reflectsthe thinking that integrating poor people and SEs into markets links them to growthand that functioning BDS markets of relevant, differentiated services provide the bestenvironment for SE growth. By purchasing BDS, SEs take another step into marketsas discerning and valued customers or business associates, rather than as

beneficiaries.

The practitioner innovation, research into private sector markets, and innovativethinking about markets converged around the Donor Committee conferences to

produce the Market Development Paradigm. This is summarized and presented inBusiness Development Services for Small Enterprises: Guiding Principles for Donor Intervention, issued by the Committee of Donor Agencies on Small EnterpriseDevelopment in 2001. 19 The approach is still quite new, but a small, fast-growing

19 Committee of Donor Agencies for Small Enterprise Development, 2001.

Example 6: The Hidden BDS Market in Vietnam and Thailand

A study by the International Labour Organization in Thailand and Vietnam found that BDS weredelivered 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 businessesemployed fewer than 7 people. It also found few services provided by service companies on a feefor service basis. Sales services were typically provided on a commission basis and the channelthrough which the widest variety of services was delivered was business relationships. Servicesdelivered through this channel included training, marketing, product design, and marketinformation. Some types of business information were also offered through the media andcustomers. The study shows that even the smallest businesses are currently obtaining businessservices through private sector channels.

Anderson, Gavin The Hidden MSE Service Sector Research Into Commercial BDS Provision to Micro and SmallEnterprises in Vietnam and Thailand April, 2000. Website: www.sedonors.org (BDS materials)

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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 strategiesthat 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 privatesector 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, manySEs, particularly the smallest, poorest, and most remote do not have access to desiredservices. 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 contributeto market failures and inhibit the availability of services to SEs. While these highlysubsidized services may benefit the few who have access to them, in the long run theymay 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 theBDS field have been working to elaborate and test the market development approach.Some are starting new programs that use the approach while others are adaptingexisting programs to follow some or all of the market development principles.

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Donors and practitioners have begun sharing the lessons they are learning fromimplementing the market development approach and more performance measurementand analysis of existing programs has been conducted to find the lessons learned andsee how these programs might mesh with the approach. A particular area of focus has

been how the market development approach can be effectively applied to reachtypically underserved SEs and a lot of critical thinking has gone into fleshing outways to implement the approach. 20 A number of agencies are working on how toeffectively monitor and evaluate market development programs and the developmentof a common performance measurement framework for BDS programs is on-going.(See Chapter 9)

20

See particularly BDS Market Development: A Guide for Agencies by A. Gibson, R. Hitchins andM. Bear. USAID Microenterprise Best Practices Project managed by Development Alternatives Inc.2001. Website: www.mip.org

Example 7: BDS Market Failures in Vietnam, Indonesia and Malaysia

Recent research documented a variety of market failures common to BDS markets inVietnam, Indonesia and Malaysia:

Supply-side: The study found that private sector suppliers in all three countries facedcompetition from government and donor-funded programs. This crowding out was mostapparent for training, consulting and market research services. Many suppliers lacked goodquality control; the specialized expertise necessary to effectively serve the market; and theknowledge or ability to tailor products to consumers demands. Suppliers were concentratedin urban areas and there were almost no services in rural areas.

Demand-side: Consumers were unaware of the potential benefits of purchasing services,usually deciding to generate the service in-house without an evaluation of the relative costsand benefits. Consumers were concerned that purchasing services would compromise their confidential business information. Very small firms lacked the human resources to gather and analyze information on alternative sources of business services.

Riddle, Dorothy, What Do We Know About BDS Markets? Service Growth Consultants, Inc., Donor CommitteeConference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance .April 2000 website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor/hanoi.htm

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Recognizing that the BDS field still knows relatively little about existing BDSmarkets, research in this area has also been a focus of recent work. One of the keyfindings has been that BDS markets often do not look the way donors and

practitioners expect. 21 There are many different types of BDS providers, fromindividuals working part-time in the informal sector to large formal sector companiesand institutions. Transactions take various forms with fee-for-service transactions aminority of the transactions that take place in SE BDS markets. Transactionsembedded in other commercial relationships and BDS paid for by commercial third

parties (often interested in advertising to SEs) are more common than expected.Understanding these existing markets is beginning to inform strategies for BDSmarket development.

Despite the progress made, there are still many questions and debates surrounding themarket development approach. Many donors and practitioners are not yet sure how to

21 Miehlbradt, 2001a.

Example 8: Surprising forms the BDS Market TakesMarket Access and Packaging services for Bicycle Parts Manufacturing in Vietnam

A European bicycle manufacturer imports parts from Vietnamese SEs for assembly in the UK. TheUK buyer established an Internet link to send SE suppliers designs, delivery box quantities, bar code labels and production pipeline information. The largest Vietnamese supplier collects the parts

from the others, greases and pre-assembles them before packing them according to the assembly plants requirements using the bar codes provided. These market access and packaging services for SE suppliers in Vietnam have reduced the assembly plants quality problems, productiondisruptions and lead times. The resulting cost reductions have been passed on to suppliers in theform of higher prices for their parts. The system also allowed suppliers to attract more foreigncustomers.

Were market analysts looking for a typical BDS delivered by an NGO or business charging a fee for the services, this vital business service would have been missed. It is important to recognize howBDS are delivered in private sector markets so that these vital services are not interfered with bywell-meaning development programs.

Duncombe, Richard and Richard Heeks, Enterprise Development and Information and Communication Technologies(ICTs) in Developing Countries: ICT-Flyers Institute for Development Policy and Management, The University of

Manchester for DFID, March, 2001. Website: http://www.man.ac.uk/idpm

Example 9: Private Sector BDS SuppliersA For-profit Trainer in Uganda

Mary operates a peanut-butter production enterprise supplying three local supermarkets and runs atraining business her main source of income. Mary began training when she was accepted into anILO Training of Trainers (ToT) course to offer Improve Your Business to her fellow SEs. Sincethen, she has also attended two ToT courses sold by FIT UgandaRapid Market Appraisal andGrassroots Management Training. For the most part, Mary charges her clients fees that allow her tomake a good profit. She reports that the FIT courses are well suited to her clients because they do

not require literacy. In fact, Mary says that the poorest clients are often the most eager to pay because they have been excluded from donor supported training programs, which often requiresome degree of literacy. Mary says her clients accept her as a trainer because she is a small business

person like them. Mary also provides free follow-up business advice to enhance client satisfactionand build her business network and client base. As a sideline, she also prints and sells stock cardsand cashbooks for SEs.

Hileman, Milena and Jim Tanburn, The Wheels of Trade: Developing Markets for Business Services. IntermediateTechnology Publications, 2000. Available from IT Publications and Amazon.com

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assess existing BDS markets and how to translate that knowledge into effectivemarket development interventions. They are also struggling to determine theappropriate structures, capacity, and funding mechanisms to effectively implementmarket development programs. More experience in implementing marketdevelopment programs and sharing lessons learned will help the field address these

issues.

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4 What are the important principles of BDS marketdevelopment?

Is there a practical way to intervene in BDS markets? The markets are diverse with avariety of types of services and transactions. Many suppliers and customers operate inthe informal sector. In traditional programs, donors conducted a needs assessment anddeveloped relationships with the few non-governmental organizations providingservices to SEs. The complexity and informality of BDS markets creates challengesnot faced by these simple arrangements. New projects are demonstrating that, if donors and practitioners can learn to work more effectively with the private sector andexperiment with new mechanisms for assistance, there are ways to carefully andeffectively intervene in BDS markets. The following are emerging principles of good

practice in BDS market development that have come out of the Donor Committeeconferences and related work. 22 These principles may be modified as the field gainsmore experience with the market development approach.

4.1 Facilitate market development rather than providing services.

In traditional programs, donors and governments intervened in the BDS market at thelevel of transactions, providing services directly to SEs or permanently subsidizingservices from non-government providers. In the market development approach,donors and governments try instead to promote transactions between SEs and

primarily private sector suppliers, facilitating the expansion of markets rather thanproviding services.Rather than offering

financial assistance tosuppliers, interventionsconcentrate more ontechnical assistance andincentives that encouragesuppliers to enter newmarkets; develop new,low-cost products; andexpand services to under-served markets.

In Figure 4, FacilitatingBDS MarketDevelopment," thevertical dashed linesrepresent the divide

between public and private funds. Themarket development

paradigm suggests that

22 Committee of Donor Agencies, 2001; Gibson, 2000a.

BDS

Facilitator

BDSProvider

BDSProvider

BDSProvider

SE

SE

SE

SE

SE

SE

SE

SE

SE

Commercial OrientationDevelopment Agenda

Figure 4: Facilitating BDS Market Development

Direct provision of services

Facilitation of demand and supply

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and capitalize on market opportunities. Sustainable markets should also be growing involume and offering increasing access to under-served groups. There is growingconsensus that development agencies are more likely to end programs successfully if there is a specific vision for a sustainable market. The challenge is to assess themarket objectively to determine when it has reached a sustainable level.

4.6 Separate the roles of provider and facilitator.

In many BDS programs, 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. This often presents a conflict of interest for a competitive supplier. Because facilitators usually have a developmentagenda and suppliers a commercial agenda, mixing the roles often leads to ineffective

programs and inefficient use of funds. If facilitators are publicly funded, they shoulddisappear as the market develops and suppliers or other permanent market actors take

over their functions. The exception is if a facilitator can finance its activities byselling services to suppliers, thus becoming a sustainable, permanent market actor. 26

4.7 Promote competition and efficiency in the market.

Traditional programs often work with only one supplier, which gives that supplier anunfair advantage over others and suppresses competition in the market. Experts nowthink that facilitators should promote competition among suppliers, usually byworking with many of them. This does not preclude working with one supplier for some activities at some points in a program, for example testing a new product or in a

new or very weak market. However, it does mean that a facilitator must always becareful to promote rather than stifle competition in the market. Traditional programsoften work with not-for-profit or public institutions, but private sector suppliers areusually more efficient and innovative. Programs do not have to exclude organizationswith a social mission, but facilitators should encourage these organizations to act ascommercial market players and distort the market as little as possible. All players inthe market should have equal opportunity to access facilitation services. Otherwise,the facilitator is picking winners rather than letting the market determine whichsuppliers are best.

4.8 Develop a transactional relationship with suppliers.

Experience to date suggests that facilitators should have a transactional relationshipwith suppliers. Programs working with commercial suppliers have found that it ishelpful if suppliers invest their own resources in program promoted initiatives. If suppliers choose to work with the program in the same way that they make other investment decisions, weighing costs and benefits, they are more likely to feel someownership of the initiatives and use program resources wisely. Some in the BDS fieldalso recommend that donors have transactional relationships with facilitators. Theemerging message is, the more a program works with market principles, the better.

26Committee of Donor Agencies, 2001.

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4.9 Tread lightly in markets.

Large government and donor programs have often suppressed private BDS markets or crowded out private suppliers. Even what donors consider moderate financial inflowscan damage a budding market. Particularly where poverty alleviation is the programgoal, donors face pressure to disburse funds. Visible donor involvement in SE

programs tends to distort markets because SEs and providers come to expectsubsidies. If markets are to develop and serve low-income clients with the servicesthey desire, they must not be smothered. Donors and practitioners should exercisediscipline matching interventions to the level of the market, emphasizing technicalassistance over financial inflows, and maintaining a low profile. This appears to bedifficult but it is important in markets with weak demand, a common characteristic of low-income consumers. 27

4.10 Make programs flexible and responsive to the market.

In traditional programs, managers specify the stepsleading to the achievement of program outputs at theoutset and then, for the most part, follow them. Marketdevelopment programs to date show that a moreflexible, entrepreneurial approach is needed. Marketscan change rapidly and often react to facilitators

efforts in unexpected ways. Experience has shown that facilitators must be free torespond to the market, taking advantage of opportunities and changing strategies asappropriate. 28

4.11 Coordinate donor efforts.

It is very difficult and not very effective for one donor to pursue a marketdevelopment approach if several others continue to subsidize transactions and offer

publicly funded services in the same market. Suppliers will almost always choose towork with a donor who will subsidize transactions rather than one who advocatesmarket development. Free services dampen SE willingness to pay. Even if all donorsare pursuing a market development approach, coordination is important. In marketswith relatively few suppliers, these suppliers can be overloaded or lose their commercial focus if they receive significant financial resources from several donors. 29

27

Tomecko, 2000.28 Tomecko, 2000;Committee of Donor Agencies, 2001.29 Tomecko, 2000;Committee of Donor Agencies, 2001.

Market developmentprograms to dateshow that a flexible,entrepreneurialapproach is needed.

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5 How can practitioners select appropriate services to helpSEs develop and grow?

For years, BDS practitioners stated that SEs were not always aware of the benefits of BDS because so few had experienced them. Therefore, the argument went, BDSneeded to be subsidized and promoted, sometimes even required in order to accessfinance, until such time as entrepreneurs realized the value of the services. Alas, thattime has not come. Despite participatory rural planning methods and expensivesurveys assessing needs, too many BDS programs continue to supply services thatentrepreneurs do not value, their impact cannot be demonstrated, and entrepreneursare unwilling to pay for them. In contrast, better performing programs have devisedhigh-impact SE development strategies that drive service selection and offereddemand-driven services delivered through commercial channels that allow SEs toexpress, in financial terms, whether or not they find that the services add immediate

value to their businesses.

5.1 What is a High-Impact SE Development Strategy?

A high-impact SE development strategy, described more fully in Chapter 2, defineswhat programs are trying to help SEs achieve and answers the question: how do SEswant to improve their businesses? With this strategy in mind, program designers canidentify services that help SEs get what they need to improve their businesses andcreate the impact that the program aims to achieve. SE development strategies fallinto two broad categories:

1) Sector Strategies: help specific groups of enterprises access particular productmarkets. They often involve services such as market links, productdevelopment, technology, or input supply and are characterized byentrepreneurs making significant changes in their businesses to achieve highgrowth. This strategy often targets the more entrepreneurial and market readySEs.

2) Mass Market Strategies: help diverse enterprises incrementally improve their efficiency and/or sales through cross-sector business servicessuch as,access to telecommunications, computer services, accounting, and basic legalservicesor by offering a range of specific services such as technical training.This strategy targets a wide range of businesses and is often relevant for

businesses struggling to participate competitively in local markets.

Example 10 and 11 illustrate sector and mass market strategies. In each case, thelink between the services and program impact is explicit and clear.

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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,high-impact services. The ILO/FIT radio program provides information targeted toinformal sector SE listeners in the same geographic area and helps them link tomainstream markets and political processes. Although a mass market strategy, it isclear who it is trying to help achieve what impact. This helps drive service selection.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, while at thesame time increasing SE participation in it. The strategy drives MBLPs focus on theservices SEs need to make these market links effective and sustainable.

High-impact program strategies can help identify high-impact services, but they are

not sufficientthere is danger in relying too much on the judgment of program

Example 11: Mass Market StrategyILO FIT SE Radio Programs in Africa

FIT initiated commercial SE radio programs inAfrica that investigate and facilitate publicdialogue between informal sector businessesand key policy makers and administrators,

provide market information and promoteinteraction among SEs and BDS suppliers.They have been instrumental in eliminating

policy bottlenecks and opening markets for milk traders and fishermen, increasing safetyand sanitation in physical markets, andreducing electrical and telecommunicationscosts. They reach over 2 million people.

McVay, Mary, An Information Revolution for SmallEnterprise in Africa: Experience in Interactive RadioFormats in Africa ILO, 2002. Website: www.ilo.org/seed

Goal : Increased employment and

income for informal sector businesses.

Strategy : Help informal sector businesses participate in mainstreameconomic and business servicemarkets and in political processes.

Services: SE Radio shows that:?? Facilitate policy dialogue?? Link SEs to product and input

markets?? Strengthen linkages between SEs

and business service suppliers.

Example 10: Sector Specific StrategyManicaland Business Linkage Project in

Zimbabwe

Manicaland Business Linkage Project (MBLP)helps rural informal sector businesses sell tolarge-scale businesses that are restructuring inorder to compete in global markets. In its firsttwo years it created 1,000 new jobs. The

program has helped the timber industry inManicaland survive in global markets and inthe current economic decline facing Zimbabwe,thus preserving valuable jobs in the large firms,and creating new jobs and higher income in thesmall firms.

Carpenter, Janney, et al. Helping Small Businesses Growand Create Jobs: Good Practices from Global Experiences.Forthcoming from Shorebank Advisory Services,September, 2002. Website: www.shorebankadvisory.com

Goal : Increased growth and jobs inthe timber industry and its community.

Strategy : For large, verticallyintegrated firms to more effectivelycompete globally by increasingefficiency, through subcontracting.

Services to SEs:

?? Market linkages to large firms?? Technical assistance to SEs(provided by large firms)

?? Linkage to finance (Often throughlarge firms.)

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designers. Strong BDS programs also let SEs drive service selection by deliveringdemand-driven services.

5.2 What are demand-driven services?

In general, demand-driven services:?? Respond to SE wants and needs,?? Are delivered through business-to-business transactions, and?? Put financial pressure on the provider to deliver quality services.

The purpose of offering demand-driven services is to identify and deliver those thatimpact SE businesses. The challenge is in knowing which ones will have an impact despite their best analyses, program designers are often wrong. The best way to provethat services add sufficient value to target businesses is when an entrepreneur, or someone else who finds value in them for SEs, pays for them.

Demand-driven services should meet a clearly identified need and SEs should bewilling and able to pay for them. Payment for services is a good indication of desireand value. If a service adds value to the business and is worth the investment,entrepreneurs will pay. If it doesnt, they wont. And, when people pay, they expectquality services in return. Entrepreneurs are also more likely to give feedback to anorganization about their precise wants and needs if they are paying customers anddont have to worry about offending a patron. Although many entrepreneurs are notable to identify complex constraints facing their businesses, evidence suggests thatwhen they gain access to a service that meets an articulated need and are able to solvea business problem, they start to see their value and want to address other problems. 30 Demand-driven services are more likely to have an impact on business performancethan services that development experts believe will benefit SEs.

Another type of demand-driven service is acquired through commercial transactionsor relationships. These services meet a specific need of SEs, but they may not have to

pay for them directly. Those who buy SE products often provide productspecifications, market information, or raw materials to their SE suppliers, or large

businesses may pay for advertising in newspapers or radio programs that provideuseful information to SEs. SEs sometimes receive training and advice from friends,relatives, or peers who work in their line of business. These BDS, although not fee-

based, are demand-driven in that the sources are commercial or social actors who are

accountable to SEs for good services. This is in contrast to traditional BDS programs,30 Chen, 1996.

Example 12: Embedded Services Can Also Be Demand DrivenFurniture Manufacturing in Vietnam

In Vietnam, many furniture showrooms in Hanoi sell furniture from rural SE producers. Some of theseshowrooms provide market information and product designs to their SE suppliers; one of them

prepares design drawings when ordering furniture from rural producers. 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.

Anderson, Gavin The Hidden MSE Service Sector Research Into Commercial BDS Provision to Micro and Small Enterprisesin Vietnam and Thailand, Donor Committee Conference on Business Services for Small Enterprises in Asia: DevelopingMarkets and Measuring Performance . April 2000. Website: www.sedonors.org (BDS materials)

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in which non-profit organizations are accountable to donors for services delivered toSEs.

5.3 How can program designers select high-impact, demand-drivenservices?

The selection of high-impact, demand-drive services accompanies the development of a high-impact strategy and the identification of target clients. These decisions areiterative, and are made in different order by different types of organizations. 31 Severalmodels of decision-making processes are emerging in the field:

1) Sub-sector development programs : Designers start with a focus on sub-sectorsthat show promise of high SE growth or employment generation. Theyconduct a sub-sector analysis (see below) to understand opportunitiesavailable to the SEs and the constraints they face in taking advantage of the

(primarily) market opportunities. This leads to an overall strategy design,which drives service selection. Usually a broad set of services is identifiedafter which program designers assess demand for them and prioritize thosewith both high demand and potential impact. 32

2) Demand-led, cross-sector programs : Here the demand for services leads the program design and designers often start with a broad assessment of SEdemand for a wide range of services that show some potential because they arevisible in the market, or seem to be growing. Based on which services showhigh demand potential, the program focuses on several and explores theconstraints and opportunities in those markets; which group of SEs needs theservices; and the impact they might achieve. 33

3) Target Population-Led Programs : In some circumstances, organizations focuson a particular target population, for example rural, low-income women. Theyuse a combination of needs and demand assessments and, sometimes, sector analysis to identify services that could meet a priority need and be in demand.The end result can be either cross-sector or sector oriented.

4) Broad economic development programs : In a cross-sector situation, a generalSE needs analysis can provide insight into the opportunities and constraints of

particular segments of the SE market. This can drive a demand assessment of specific services that would contribute to a high impact strategy for thatgroup. 34

5) Service-led programs : In some situations, organizations have had success withdelivering particular services and they would like to replicate their strategy. Inthis situation, organizations try to identify populations and circumstances inwhich their services might be in high demand. 35

31 Carpenter et al, 2002.32 AFE, 2002;33

Swisscontact & GTZ, Vietnam, 2002;34 GTZ study, El Salvador 2002.35 ApproTEC 2002; Hileman, 2000.

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