background reader, business development services · background reader, business development...

Background Reader,Business Development Services

Developing commercial markets for BDS:can this give the scale and impact we need?

Second Annual Seminar, Turin, Italy, 10 -14 September, 2001

Mary McVayand

Alexandra Overy Miehlbradt

International Labour OfficeSmall Enterprise Development

Copyright © International Labour Organization 2001

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ISBN 92-2-112614-5

First published 2001

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BACKGROUND READER, BUSINESS DEVELOPMENT SERVICES

iii

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. TheDonor Committee on Small Enterprise Development has exerted particular leadership inbringing these parties together and helping the field break new ground in facing the chal-lenge of reaching scale and sustainability. We are especially grateful to Jim Tanburn of theInternational Labour Organisation, for initiating this reader, and for his professional andpersonal support during its development. His colleagues at the ILO, Gavin Andersen andMargot Lobbezoo provided valuable additional assistance. Thanks to Joel Ostrow whoedited the document. The authors are also grateful to their spouses for their technical andpersonal support. The Reader is dedicated to private sector BDS suppliers in hopes thatthe policy changes suggested here will help them serve SEs better.

Acknowledgements

v

CONTENTS

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1What is BDS?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Outline to this BDS Reader. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. What does BDS market development mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4The Market Development Paradigm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4How does BDS market development compare with traditional approaches?. . . . . . . . . . . . 6How did the market development paradigm evolve? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Why do BDS markets need development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Where is the BDS field now in market development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3. What are the important principles of BDS market development? . . . . . . . . . . . 10Facilitate market development rather than providing services . . . . . . . . . . . . . . . . . . . . . . . 10Start with market assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Fit the intervention to the market issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Use subsidies primarily for pre- and post- service delivery activities . . . . . . . . . . . . . . . . . . . 10Work toward a clear picture of a sustainable market and have an exit strategy . . . . . . . . . . 11Separate the roles of provider and facilitator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Promote competition and efficiency in the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Develop a transactional relationship with suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Tread lightly in markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Make programs flexible and responsive to the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Coordinate donor efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

4. How can practitioners select appropriate services? . . . . . . . . . . . . . . . . . . . . . . . . 13What are demand-driven services? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

How are demand-driven services being chosen? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

What tools can help practitioners choose demand-driven services? . . . . . . . . . . . . . . . . . . . . . . . . . . 14

General SE surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Participatory rural appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Subsector analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Test marketing or action research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5. How can practitioners choose strategies to develop BDS markets?. . . . . . . . . . 19What information about a market do you need to choose interventions? . . . . . . . . . . . . . . . . . . . . . . . 19

How can practitioners gather this information? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

How extensive does information gathering need to be before a program gets started? . . . . . . . . . . . . . . 20

Consumer marketing research tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Supplier diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

6. What strategies develop sustainable access to BDS? . . . . . . . . . . . . . . . . . . . . . . . 25Financially viable services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Embedded services and marketing companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Cross-subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Mutually beneficial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Sustainable, relationship-based BDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Piggy-backing on microfinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Can public sector financing of BDS be sustainable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Contents

vi

CONTENTS

7. What strategies can be used to develop BDS markets? . . . . . . . . . . . . . . . . . . . . . 33Where should interventions focus? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

How do programs work with suppliers?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

How do programs promote demand? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

What interventions develop markets? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Vouchers and matching grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Providing information to consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Forming clusters or networks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Promoting business linkages and embedded services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Technical assistance to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Product development and commercialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Social venture capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

8. How is BDS program performance being measured? . . . . . . . . . . . . . . . . . . . . . . 49Trends in performance measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

What to measure? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Who should measure what and why? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

How to measure? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Developing a common performance measurement framework . . . . . . . . . . . . . . . . . . . . . . 50Performance measurement challenges and the research agenda . . . . . . . . . . . . . . . . . . . . . 51

9. What are emerging lessons in BDS market development? . . . . . . . . . . . . . . . . . . 54Reaching underserved groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Looking at services through consumers’ eyes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Combining subsector and market development approaches. . . . . . . . . . . . . . . . . . . . . . . . . 56Using both market assessment and action research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Planning for a new type of sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Promoting SEs as service suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

10. What are the current debates and challenges in the BDS field? . . . . . . . . . . . . . 59The starting point and scope for BDS programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Assessing markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Ensuring that low-income, remote and other under-served SEs benefit

from commercial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Financing BDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Clarifying the role of subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Demand vs. supply side approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60The timeframe for success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Determining the best structure for a facilitator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Changing donor operating practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Defining performance standards for the field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Disseminating lessons learned and best practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Developing and documenting best practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Annex A. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Annex B. Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Annex C. List of example boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Annex D. List of tables and diagrams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Annex E. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Annex F. List of useful reading and websites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

1

INTRODUCTIONPurposeFor three decades, governments, develop-

ment practitioners and researchers have recog-nized the importance ofsmall business developmentin increasing employmentand income among poor andlow-income people. The suc-cess of microfinance pro-grams and institutions hasdemonstrated that servicestailored to meet the needs ofvery small businesses can befinancially viable and effec-

tive in reducing poverty. It is equally evident,however, that small businesses are constrainedby non-financial factors such as lack of educa-tion, inadequate technical skills, poor access tomarkets, lack of information and unreliableinfrastructure. The wide array of services

designed to address these issues is termed“Businesses Development Services.”

After experimenting for decades withsmall-scale, subsidized programs, the field ofBusiness Development Services (BDS) is nowquickly moving to a new strategy of reachinglarge numbers of businesses in a sustainablemanner. The provision of some services, suchas communications and advertising, on a fullycommercial basis has shown that effective mar-kets for business services offer the opportunityto help many small enterprises develop andcompete.1 The BDS field is now focused onadapting lessons learned from the field ofmicrofinance, consolidating decades of learn-ing from small enterprise development experi-ence around the globe, and facing thechallenging questions that have plagued practi-tioners for years.

1 Miehlbradt, 1999.

The purpose of this Reader is to help donors, researchers and practitioners understand the latest thinking on Business Development Services for Small and Medium Enterprises, and become familiar with the global experience that has contributed to current, best practice.

1. Introduction

How do we knowthat any of this investment

in BDS is makinga difference in the lives

of poor people?

What arethe appropriate roles

of private sector suppliers,NGOs, the state

and donors?

For what activities?When are subsidies

appropriate?What types of institutions

should be deliveringBDS and how?

How can we reachtypically underserved SEs?

How can we reachlarge numbers

of entrepreneurs?

How can we promotethe delivery of financially

viable services?

What are they willingand able to pay for?

What services doentrepreneurs really need?

2

INTRODUCTION

The purpose of this Reader is to helpdonors, researchers and practitioners under-stand the latest thinking on these issues, andbecome familiar with the global experiencethat has contributed to current, best practice.This is the second annual edition of the Readerand includes updates and new experiencegained since the first edition of the Reader waspublished in September, 2000.

What is BDS?From fair trade marketing to rental of cell

phones, from entrepreneurship training to the

publication of trade magazines, “BusinessDevelopment Services” (BDS) refers to a widerange of services used by entrepreneurs to helpthem operate and grow their businesses.2 TheBDS field focuses on supplying services tomicro, small and medium scale enterprises. Inthis document the term, small enterprise (SE)covers all these categories, unless otherwisestated.

2 Donor Committee Guiding Principles, 2001; Goldmark,1997; Tanburn, 2000, McVay, 1996.

Table 1. Types of business development services

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

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

Small Enterprise Education and Promotion Network, “SEEP Guide to Business Development Services and Resources” Website: www.seepnetwork.org/bdsguide.htmlMiehlbradt, Alexandra, “Guide to BDS Market Assessment for Program Design.” International Labour Organization, forthcoming. Website: http://www.ilo.org/seed

Alternative financing mechanisms:� factoring companies that provide working

capital for confirmed orders� equity financing� facilitating supplier credit

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

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

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


3

Formerly known as “non-financial serv-ices,” the field originally concentrated its effortson provision of training, consulting and otherservices that address the internal constraints onenterprises, that is, their lack of education andtechnical capacity. More recently, the field hasbranched out to include marketing services andinformation resources that help firms gainaccess to services usually enjoyed by largerfirms. There are a number of other activitiesalso included under the BDS umbrella, such asinfrastructure development and policy reform,which address external constraints on firms inthese critical areas. As practitioners focus moreon what SEs demand, the range of services thatdevelopment projects address has expanded.The BDS field thus consists of many sub-fields.3 Because of this diversity, it is challengingto draw conclusions about BDS in general. Forexample, some lessons learned about technol-ogy development may be irrelevant to market-ing services. Nevertheless, the operatingprinciples of the entire field have developed sosignificantly in the last five years that there arenew principles applicable to all BDS, servingany type of enterprise, anywhere in the world.4

Outline to this BDS ReaderThis Reader explains the current operating

principles and approaches to BDS, and offersexamples of BDS programs that have usedthem. The first annual edition of the Readerdrew mainly on work from a series of confer-ences on BDS sponsored by the Committee ofDonor Agencies for Small Enterprise Develop-ment. These conferences brought togetherhundreds of leaders in the BDS field, includingdonors, researchers, practitioners and somerepresentatives of governments of developingcountries. Through preparation of case studiesand open dialogue, these experts attempted todevelop, document and disseminate best prac-tices in BDS. 5 The Reader refers to this groupas leaders or experts in the field, and the con-clusions presented emerge primarily from theseconferences. The conferences were:� Harare, Zimbabwe, September,

1998: Business Development Services:How Sustainable Can They Really Be?

� Rio de Janeiro, Brazil, March 1999:Building a Modern and Effective BusinessDevelopment Service Industry for SmallEnterprises

� Rio de Janeiro, Brazil, March 1999:Building a Modern and Effective BusinessDevelopment Services Industry in LatinAmerica and the Caribbean

� May-June, 1999: Virtual Conference onPerformance Measurement Framework forBDS

� Hanoi, Vietnam, April 2000: BusinessServices for Small Enterprises in Asia:Developing Markets and Measuring Per-formance.

From this global dialogue a new approachto BDS delivery, called the “Market Develop-ment Paradigm.” emerged. The Readerincludes sections defining this approach,explaining its emergence, presenting its princi-ples and giving examples of the strategies prac-titioners can use to develop BDS markets. Thissecond edition of the Reader draws on work andpapers completed after the conferences. Sec-tions have been added to address what the BDSfield has learned about market developmentsince the last Donor Committee conference.

Within the discussions, the Readeraddresses some of the key questions in BDS forboth market development and more traditionalprograms:� How do practitioners decide what services

to promote?� How do practitioners learn about existing

markets for BDS?� How do practitioners go about choosing

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 devel-

oping BDS markets?

The Reader concludes by describing someof the current debates and challenges in theBDS field. The annexes include definitions ofterms, a bibliography and list of useful readingmaterial and websites, a list of acronyms, and alist of case examples cited throughout theReader.

3 McVay, 1996.4 Committee of Donor Agencies, 1998; Gibson, 2000a;

Tanburn 2000.5 To see the conference proceedings and papers from Zim-

babwe (1998), Brazil (1999) and Hanoi (2000), see website:www.ilo.org/employment/sedonors

4

WHAT DOES BDS MARKET DEVELOPMENT MEAN?

In order to provide SEs with access to BDS,traditional development programs focus on one

institution, providing subsi-dies that allow SEs to accessservices free or at very lowcost. There is now agreementin the field that this approachhas had a limited impactbecause programs were gen-erally short-term, small-scaleand expensive.6 Some non-profit BDS providers, learn-ing from the success of micro-

finance institutions in sustainably reachinglarge numbers of people, began charging feesfor services. A few have become financially sus-tainable. Unlike microfinance institutions, how-

ever, these programs have tended to remainsmall.7 This is perhaps because microfinance isa mass-market product. In contrast, BDS serv-ices tend to be tailored to specific “niche” mar-kets. The Market Development Paradigm is anew approach to BDS design and delivery thathas the potential to reach large numbers, cost-effectively and sustainably.

The Market Development ParadigmThe Market Development Paradigm pro-

poses a new vision for success, one that lookslike a healthy, private-sector, business servicesmarket: numerous, competitive BDS supplierswho sell a wide range of BDS commercially, tolarge numbers and types of SEs. Programs startby understanding the existing supply of BDS

6 Committee of Donor Agencies, 2000. 7 Goldmark, 1999a; McVay, 1999b.

2. What does BDS market development mean?

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, private sector suppliers in a competitive and evolving market.

Example 1. Early market development programBRAC: Poultry development in Bangladesh

Poultry rearing is a traditional income generat-ing activity for millions of rural Bangladeshi, par-ticularly women. BRAC’s poultry program aims atincreasing the viability of poultry rearing by help-ing chicken rearers gain access to high yield vari-eties of chicks, and the skills and servicesnecessary to rear them. BRAC has supported thedevelopment of private sector markets to reachthis goal. With this strategy, BRAC has developedthe capacity of over 60,000 BDS suppliers, andhelped almost 2 million rural, low-income peoplegain access to improved technology in 1999.

BRAC identified the poultry subsector as animportant, growing market in which large num-bers of poor people earned income. Staff studiedproblems facing the small-scale poultry rearers,and identified low quality chickens as a cause oflow-prices. The corresponding solution was toassist small-scale poultry rearers with access tohigh yield varieties of chicks, and the feed andmedical services required to rear improved varie-ties. BRAC then analyzed the technology andpoultry input chain, and identified interventionsthat would develop a sustainable technologyinput chain. These interventions included:

1. Identifying and strengthening private sectorhatcheries, both large and small-scale. Identi-fying entrepreneurs and training them to startmini-hatcheries. (And, starting several sustain-able hatcheries, owned by BRAC, that serveremote areas and generate income for BRAC.)

2. Identifying and training BRAC members tobecome poultry workers, independent entre-preneurs who provide technical and medicalservices to poultry rearers.

3. Identifying and training skilled poultry farmersto become specialized chick rearers, who raiseimproved varieties of chicks for five weeks,and sell them to poultry rearers.

4. Starting a sustainable feed mill, owned byBRAC, for a reliable source of improved feed.

5. Identifying and training private sector feedsellers in the distribution of improved feeds.

The above suppliers together serve the small-scale farmers who raise and sell chickens.

In addition to establishing this sustainable, pri-vate sector technology chain, BRAC charges feesfor its services and earns income from its busi-nesses in the sector. BRAC’s cost-recovery inthese “facilitation” activities is 50%.

Newnham Jack,“BRAC Poultry Program in Bangladesh,” by Jack Newnham, a Performance Measurement Case Study on BDS for SMEs.Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance . April2000 website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor/


5

from the private sector, donor supported pro-grams and government, and the market failuresthat lead to a gap between supply and SEdemand for services. The goal of market devel-opment interventions, then, is to overcomethese market failures and take advantage ofopportunities to expand the service market forSEs. The desired result is that numerous SEsbuy the BDS of their choice from a wide selec-tion of products offered (primarily) from unsub-sidized, private sector suppliers in acompetitive and evolving market. (“Buying”may mean paying fees for services or procuringthem though commercial relationships withother businesses.)

The market development perspective rec-ognizes that the provision of operating subsi-dies to particular suppliers may crowd outother, private sector suppliers who do notreceive subsidies. Thus, market developmentprograms tend to promote as many suppliers as

the market will bear. Some programs also stim-ulate demand by providing information aboutservices, marketing services, or temporarily dis-counting services. The main activity of a subsi-dized BDS program is not direct serviceprovision. Rather, it is market research, provi-sion of information to consumers, new productdevelopment, supplier training, monitoringand evaluation, activities aimed at “facilitat-ing” market improvement by increasingdemand and/or improving supply.

These programs promote the followingchanges in the market:

� the number of differentiated suppliersincreases;

� suppliers earn profits from fees to SEs orother commercial sources; they do notdepend on subsides;

� suppliers’ costs are appropriate for the SEmarket, not skewed by donor funding;

Mini HatcheryBRAC: 1,395Market:1,800

Large Scale Hatcheries(5 BRAC + private sector + gov’t.)

Chick RearerBRAC:14,730Market: 22,000

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

BRAC

Poultry WorkersBRAC: 42,000Market: 70,000

Feed SellersBRAC: 2,563Market: 3,000

Feed MillsBRAC: 3

TA

BDS

Inputs

Diagram 1. Early Market Development Program, BRAC's Poultry Development in Bangladesh

6


� a range of service products are available inthe market;

� service quality and appropriatenessimproves with increased competition toserve SEs; and

� the number of transactions between pri-vate suppliers and SEs increases.8

How does BDS market development compare with traditional approaches?

The table 2 summarizes the characteristicsof traditional programs compared to marketdevelopment initiatives9.

The two approaches differ fundamentallyin their vision, objective, point of intervention,duration of involvement and approach towardsubsidies. Experts in the BDS field have judgedthis change in approach so significant that theyare calling it a “paradigm shift.”10

How did the market development paradigm evolve?

The Market Development Paradigmemerged from a convergence of innovativepractices, research and pioneering thinking.Isolated BDS practitioners around the globe,determined to reach large numbers of firms

through sustainable deliveryof BDS, experimented withand developed innovativeways of delivering BDS thatwould overcome the chal-lenges of “traditional” pro-grams. The shift inapproaches was fueled bythree innovations in the BDSfield:

1. Practitioners developed “demand-driven”services. These are services that meet a spe-cific need of SEs for which SEs are willingto pay. By charging a fee for services, BDSproviders were able to deliver better serv-ices because firms began to expect valuefor their money.

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

3. To reach scale, a few innovative BDS pro-grams began working with several provid-ers, and began stimulating demandthrough the distribution of “vouchers” thatdiscounted services for SEs.

These isolated experiences were sharedand studied at the Donor Committee confer-ences around the world. The conferences alsocommissioned research into what works in theprivate sector. In well functioning markets, howdo SEs gain access to BDS? While most BDSpractitioners tend to assume only non-profit

8 Springield Centre, BDS 2000 Training Course.

9 Adapted from Hallberg and Tanburn, Presentation to theDonor Committee, 1999 and Hileman and Tanburn, 2000.

10 Gibson, 2000a.

Table 2. Traditional vs. market development interventions

Traditional interventions Market development interventions

Vision A non-profit or government organization provides quality BDS to SEs.

A sustainable, primarily private sector market, made up of competing suppliers, sells a wide range of quality services to SEs.

Objective Provide quality services that SEs can afford

Encourage others to provide quality services for which SEs are willing to pay full cost

Starting point Diagnosis of needs, surveys Assessment of the market (demand, supply, potential)

Point of intervention “First Tier”: direct provision through a single, local institution

“Second Tier”: facilitate, regulate, develop products for and work with more than one supplier

Duration of involvement

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

Temporary: withdraw as markets develop

Subsidies Support free or low-cost services to clients. Justified in the long-run: SEs can’t be expected to pay full costs

Support assistance to suppliers or temporary grants to clients. Justified in the short run if market development impact outweighs market distortion impact.

While most BDS practitioners assume only non-profit organizations service SEs, it is actually unusual for there not to be an existing private sector market for BDS.


7

organizations serve SEs, it is unusual for therenot to be an existing private sector market forBDS. These markets have remained hidden toBDS experts because they offer different prod-ucts than most BDS organizations, becausethey are less formal, and because the expertsfailed to look for them. These findings have ledto thinking about how to strengthen, expandand develop existing BDS markets. There is agrowing sense of obligation to understand themarket for a BDS before starting any type ofBDS project, in order to maximize additionalbenefits for SEs and minimize distortions inmarkets that are already providing benefits tosome SEs.

Finally, a growing awareness of the powerof markets as engines of growth and efficientdistributors of goods has contributed to innova-tive thinking about how markets can be chan-neled to benefit SEs. The Market DevelopmentParadigm reflects the thinking that integratingpoor people and SEs into markets links them togrowth, and, that functioning BDS markets ofrelevant, differentiated services provide the bestenvironment for SE growth. By purchasingBDS, SEs take another step into markets as dis-cerning and valued customers or business asso-ciates, rather than as beneficiaries.

The practitioner innovation, research intoprivate sector markets, and innovative thinkingabout markets converged around the DonorCommittee conferences to produce the MarketDevelopment Paradigm. The approach is stillquite new. A small but fast-growing number ofprograms have adopted the full approach.Some older programs that helped lead to thenew paradigm use aspects of the approach.

The Reader describes how existing innovativeprograms illustrate the principles and strategiesthat make up the market development para-digm whether they use the full approach oronly aspects of it. Although the paradigm needsto be assessed over time to understand its long-term impact, it shows potential for reachinglarge numbers of SEs, sustainably and cost-effectively.

Why do BDS markets need development?

The BDS market development approach isrooted in a fundamental faith in private sectormarkets as engines of growth and efficient sup-pliers of goods and services. Despite this belief,and evidence of the existence of private sectorBDS markets, many SEs, particularly thesmallest, poorest and most remote, do not haveaccess to desired services. This is because theBDS markets serving SEs are wrought withmarket failures, including:� Suppliers serving SEs in urban areas, but

not rural areas;� Suppliers serving medium sized businesses,

but not small or micro enterprises;� Suppliers offering inappropriate or unde-

sirable services;� Suppliers providing appropriate services,

but there are so few suppliers that pricesare high and the wait is long;

� Suppliers who are not skilled in businessmanagement and marketing themselvesoffering a limited service range using lim-ited promotion strategies;

Example 2. The “hidden” BDS market in Vietnam and Thailand

A study by the International Labour Organisa-tion in Thailand and Vietnam found that BDSwere 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 enter-prises; 84% of the sample businesses employedless than 7 people. The study found few serviceswere provided by service companies on a fee for

service basis. Sales services were typically pro-vided on a commission basis. The channelthrough which the widest variety of services weredelivered was through business relationships.Services delivered through this channel includedtraining, marketing, product design and marketinformation. Some types of business informationwere also offered through the media and custom-ers. The study shows that even the smallest busi-nesses are currently obtaining business servicesthrough private sector channels.

Anderson, Gavin “The Hidden MSE Service Sector – Research Into Commercial BDS Provision to Micro and Small Enterprises in Vietnamand Thailand” April, 2000. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor/

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� Suppliers’ lack of market informationabout the service characteristics that SEsdesire;

� Small numbers of suppliers, who create amonopoly or cartel, resulting in high pricesfor services and, often, inappropriate serv-ice products. In the case of marketing busi-nesses, monopolies may result inexploitative prices for SE products and fewalternative market channels;

� SE lack of information about availableservices and their benefits;

� Risk averse SEs, combined with supplierswho are unable to convey the quality oftheir products, resulting in SE reluctanceto try services.

Continued intervention in BDS markets isrequired to resolve these types of market fail-ures. In other areas of the economy, the role ofdonors and governments is to establish the con-ditions for market growth, addressing problemsin the market and promoting equity. Donorssee that this may be the best job they can do inBDS as well.

Where is the BDS field now in market development?

Since the Donor Committee conference inHanoi, donors, practitioners and academics inthe BDS field have been working to elaborateand begin testing the market developmentapproach. Some donors and practitioners havestarted new programs using the market devel-

opment approach. Others are adapting exist-ing programs to follow some or all of themarket development principles.

Donors and practitioners have begun toshare the lessons they are learning from imple-menting the market development approach.(See Chapter IX) More performance measure-ment and analysis of existing programs hasbeen conducted to find the lessons learned andsee how these programs might mesh with themarket development approach. A particulararea of focus has been how the market develop-ment approach can be effectively applied toreach typically underserved SEs. (See ChapterIX). A lot of critical thinking has been done toflesh out how to implement the market devel-opment approach.11 A number of agencies areworking on how to effectively monitor andevaluate market development programs anddevelopment of a common performance meas-urement framework for BDS programs is on-going. (See Chapter VIII)

Recognizing that the BDS field still knowsrelatively little about existing BDS markets,research in this area has also been a focus ofrecent work. One of the key findings has beenthat BDS markets often do not look the waydonors and practitioners expect.12 There are a

11 See particularly “BDS Market Development: A Guidefor Agencies” by A. Gibson, R. Hitchins and M. Bear. Forthcom-ing from the USAID Microenterprise Best Practices Projectmanaged by Development Alternatives Inc. website:www.mip.org

12 Miehlbradt, 2001a.

Example 3. BDS market failures in Vietnam, Indonesia and Malaysia

Recent research documented a variety of mar-ket failures common to BDS markets in Vietnam,Indonesia and Malaysia. A sample of the prob-lems are described below:

Supply-side: The study found that private sec-tor suppliers in all three countries faced competi-tion from government and donor fundedprograms. The “crowding out” was most appar-ent for training, consulting and market researchservices. Many suppliers lacked good qualitycontrol, the specialized expertise necessary toeffectively serve the market and the knowledge orability to tailor products to consumers’ demands.

Suppliers were concentrated in urban areas,leaving a lack of services in rural areas.

Demand-side: Consumers were unaware ofthe potential benefits of purchasing services, usu-ally deciding to generate the service in-housewithout an evaluation of the relative costs andbenefits. Consumers were concerned that pur-chasing services would compromise their confi-dential business information. Very small firmslacked the human resources to gather and ana-lyze information on alternative sources of busi-ness services.

Riddle, Dorothy, “What Do We Know About BDS Markets?” Service Growth Consultants, Inc., Donor Committee Conference on BusinessServices for Small Enterprises in Asia: Developing Markets and Measuring Performance . April 2000 website: http://www.ilo.org/pub-lic/english/employment/ent/sed/bds/donor/


9

wide variety of types of BDS providers rangingfrom individuals working part-time in the infor-mal sector to large formal sector companiesand institutions. Transactions take on variousforms. Fee for service transactions may be aminority of the transactions that take place inBDS markets for SEs. Transactions embeddedin other commercial relationships and BDSpaid for by commercial third parties (ofteninterested in advertising to SEs) are more com-mon than expected. Understanding of theseexisting markets is beginning to inform strate-gies for BDS market development.

Despite the progress made, there are stillmany questions and debates surrounding themarket development approach. Many donorsand practitioners are not yet sure how to assessexisting BDS markets and how to translate thatknowledge into effective market developmentinterventions. They are also struggling to deter-mine the appropriate structures, capacity andfunding mechanisms to effectively implementmarket development programs. (See ChapterX). More experience in implementing marketdevelopment programs and sharing lessonslearned will help the field address these issues.

Example 4. Surprising forms the BDS market takesMarket access and packaging services for bicycle parts

manufacturing in Vietnam

A European bicycle manufacturer importsparts from Vietnamese SEs, for assembly in theUK. The UK buyer established an Internet link tosend SE suppliers designs, delivery box quantities,bar code labels and production pipeline informa-tion. The largest Vietnamese supplier collects theparts from the others, greases and pre-assemblesthem before packing them according to theassembly plant’s requirements using the barcodes provided. These market access and pack-aging services for SE suppliers in Vietnam havereduced the assembly plant’s quality problems,

production disruptions and lead times. The result-ing cost reductions have been passed on to sup-pliers in the form of higher prices for their parts.The system also allowed the suppliers to attractmore foreign customers. Were market analystslooking for a typical BDS delivered by an NGOor business charging a fee for the services, thisvital business service would have been missed. Itis important to recognize how BDS are deliveredin private sector markets so that these vital serv-ices are not interfered with by well-meaningdevelopment programs.

Duncombe, Richard and Richard Heeks, “Enterprise Development and Information and Communication Technologies (ICTs) in DevelopingCountries: ICT-Flyers” Institute for Development Policy and Management, The University of Manchester for DFID, March, 2001. Website:http://www.man.ac.uk/idpm

Example 5. Private sector BDS suppliersA for-profit trainer in Uganda

Mary operates a peanut-butter productionenterprise supplying three local supermarketsand runs a training business – her main source ofincome. Mary began training when she wasaccepted into an ILO Training of Trainers (ToT)course to offer Improve Your Business to her fel-low SEs. Since then, she also attended two ToTcourses sold by FIT Uganda: Rapid MarketAppraisal and Grassroots Management Training.For the most part, Mary charges her clients feesthat allow her to make a good profit. She reportsthat the FIT courses are well suited to her clients

because they do not require literacy. In fact, Marysays that the poorest clients are often the mosteager to pay because they have been excludedfrom donor supported training programs whichoften require some degree of literacy. Mary saysher clients accept her as a trainer because she isa small business person like them. Mary also pro-vides free follow-up business advice to enhanceclient satisfaction and build her business networkand client base. As a sideline, she also prints andsells stock cards and cash books for SEs.

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

10

WHAT ARE THE IMPORTANT PRINCIPLES OF BDS MARKET DEVELOPMENT?

Is there a practical way to intervene in BDSmarkets? The markets are diverse, with a vari-ety of types of services and transactions. Manysuppliers and customers operate in the infor-mal sector. In old-style program, donors wouldconduct a needs assessment and develop rela-tionships with a few non-governmental organi-zations which would provide services to SEs.The complexity and informality of BDS mar-kets create challenges not faced by these simplearrangements. New-style projects are showingthat if donors and practitioners learn to workmore effectively with the private sector andexperiment with new mechanisms for assist-ance, there are ways to carefully and effectivelyintervene in BDS markets. The following areemerging principles of good practice in BDSmarket development that have come out of theDonor Committee conferences and relatedwork.13 These principles may be modified asthe field gains more experience with the marketdevelopment approach.

Facilitate market development rather than providing services

In traditional programs, donors and gov-ernments have intervened in the BDS marketat the level of transactions. They have directlyprovided services to SEs or permanently subsi-dized services by non-government providers. Inthe market development approach, donors andgovernments instead try to promote transac-tions between SEs and primarily private sectorsuppliers, “facilitating” the expansion of mar-kets rather than “providing” services. Ratherthan offering financial assistance to suppliers,interventions concentrate more on technicalassistance and incentives to encourage suppli-ers to enter new markets, to develop new, low-cost products, and to expand services to under-served markets.

In the diagram 2 “Facilitating BDS MarketDevelopment," the vertical dashed lines repre-sent the divide between public and privatefunds. The market development paradigm sug-gests that donors and governments move theline as far to the left as possible, so that the BDSmarket becomes more commercially orientedand sustainable.”14

Start with market assessmentTo effectively intervene in a market, donors

and practitioners must understand it first.What BDS are being offered to targeted SEs?Who is supplying them? Are SEs paying for theservice? How else is the service procured?What types of services are in demand by SEs?What prices can they pay? Who is providingthose services in the market but perhaps not toSEs? What are the weaknesses and opportuni-ties in the market? In order to minimize themarket distortion that any subsidy creates in amarket, it is helpful to have a good understand-ing of BDS markets before starting interven-tions. Donors, in particular, are increasinglyconducting market assessment before design-ing BDS programs.

Fit the intervention to the market issue

Because any intervention will change themarket, limited and focused interventions aremore likely to address a market issue with min-imal distortions.15 Donors and practitioners arebeginning to target market problems andopportunities identified during market assess-ment with interventions aimed specifically ataddressing those issues. Interventions aredesigned with specific market developmentobjectives.

Use subsidies primarily for pre- and post- service delivery activities

Subsidies which directly reduce the cost orprice of services are likely to distort marketsmore than subsidies for pre- or post- deliveryactivities. In the market developmentapproach, subsidies for transactions areavoided or limited to a short duration withspecific objectives. Donors are beginning touse subsidies instead for pre-delivery activitiessuch as the development of service products,test marketing, capacity building and aware-ness raising, or for post-delivery activities such

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

14 Committee of Donor Agencies, 2001.

15 For an example of the economic rationale for this princi-ple, see Kristin Hallberg, “A Market Oriented Strategy for Smalland Medium Scale Enterprises” IFC Discussion Paper, Feburary15, 2000. pp. 17-18

3. What are the important principles 3. of BDS market development?


11

as gathering consumer feedback. Subsidies arealso being used for monitoring and eval-uation.16

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

Like traditional programs, market develop-ment programs may continue indefinitelyunless program managers have a clear visionfor a sustainable BDS market and an exit strat-egy. In a sustainable market, usually competingsuppliers offer a wide range of products andfrequently innovate to meet changing demandand capitalize on market opportunities. Sus-tainable markets should also be growing in vol-ume and offering increasing access to under-served groups. There is growing consensus thatdevelopment agencies are more likely to endprograms successfully if there is a specific visionfor a sustainable market. The challenge is to

assess the market objectively to determinewhen it has reached a sustainable level.

Separate the roles of provider and facilitator

In many BDS programs, the same organi-zation performs both the supplier role, offeringservices directly to SEs, and the facilitator role,encouraging other individuals and firms to sup-ply services to SEs. This often presents a con-flict of interest for a competitive supplier.Because facilitators usually have a developmentagenda and suppliers have a commercialagenda, mixing the roles often leads to ineffec-tive programs and inefficient use of funds. Iffacilitators are publicly funded, they should dis-appear as the market develops and suppliers orother permanent market actors take over theirfunctions. The exception is if a facilitator canfinance its activities by selling services to suppli-ers, thus becoming a sustainable, permanentmarket actor.17

16 Committee of Donor Agencies, 2001. 17 Committee of Donor Agencies, 2001.

BDSFacilitator

BDSProvider

Commercial OrientationDevelopment Agenda

BDSProvider

BDSProvider

SE

SE

SE

SE

SE

SE

SE

SE

SE

Diagram 2. Facilitating BDS market development

Direct provision of servicesFacilitation of demand and supply

12

WHAT ARE THE IMPORTANT PRINCIPLES OF BDS MARKET DEVELOPMENT?

Promote competition and efficiency in the market

Traditional programs often work only withone supplier. This practice tends to give onesupplier an unfair advantage over others andsuppress competition in the market. Instead,experts now think that facilitators should pro-mote competition among suppliers, usually byworking with multiple suppliers. This does notpreclude working with one supplier for someactivities at some points in a program, forexample testing a new product or in a new orvery weak market. However, it means that afacilitator must always be careful to promoterather than stifle competition in the market.Traditional programs often work with not-for-profit or public institutions. Private sector sup-pliers are usually more efficient and more inno-vative. Programs do not have to excludeorganizations with a social mission, howeverfacilitators should encourage these organiza-tions to act as commercial market players anddistort the market as little as possible. All play-ers in the market should have equal opportu-nity to access facilitation services. Otherwise,the facilitator is “picking winners” rather thanletting the market determine which suppliersare best.

Develop a transactional relationship with suppliers

Experience to date suggests that facilitatorsshould have a transactional relationship withsuppliers. Those programs working with com-mercial suppliers have found that it is helpful ifsuppliers invest their own resources in programpromoted initiatives. If suppliers choose towork with the program in the same way thatthey make other investment decisions, weigh-ing costs and benefits, they are more likely tofeel some ownership of the initiatives and to useprogram resources wisely. Some in the BDSfield also recommend that donors have transac-tional relationships with facilitators. Theemerging message is, the more the programworks with market principles, the better.

Tread lightly in markets.Large government and donor programs

have often suppressed private BDS markets orcrowded out private suppliers. Even whatdonors consider moderate financial inflows candamage a budding market. Particularly wherepoverty alleviation is the program goal, donorsface pressure to disburse funds. Visible donorinvolvement in SE programs tends to distort

markets because SEs and providers come toexpect subsidies. If markets are to develop andserve low-income clients with the services theydesire, they must not be smothered. Donorsand practitioners should exercise discipline,matching interventions to the level of the mar-ket, emphasizing technical assistance overfinancial inflows and maintaining a low profile.This appears to be difficult but important inmarkets with weak demand, a common charac-teristic of low-income consumers.18

Make programs flexible and responsive to the market

In traditional programs, managers specifythe steps leading to the achievement of pro-gram outputs at the outset and then, for themost part, follow them. Market developmentprograms to date show that a more flexible,entrepreneurial approach is needed. Marketscan change rapidly and often react to facilita-tors’ efforts in unexpected ways. Experiencehas shown that facilitators must be free torespond to the market, taking advantage ofopportunities and changing strategies as appro-priate.19

Coordinate donor effortsIt is very difficult and not very effective for

one donor to pursue a market developmentapproach if several others con-tinue to subsidize transactionsand offer publicly funded serv-ices in the same market. Suppli-ers will almost always choose towork with a donor who will sub-sidize transactions rather thanone who advocates marketdevelopment. Free servicesdampen SE willingness to pay. Even if alldonors are pursuing a market developmentapproach, coordination is important. In mar-kets with relatively few suppliers, these suppli-ers can be overloaded or lose their commercialfocus if they receive significant financialresources from several donors.20

18 Tomecko, 2000.

19 Tomecko, 2000;Committee of Donor Agencies, 2001.

20 Tomecko, 2000;Committee of Donor Agencies, 2001.

Even if all donors are pursuing a market development approach, coordination is important.

13

HOW CAN PRACTITIONERS SELECT APPROPRIATE SERVICES?

For years, BDS practitioners stated thatSEs are not always aware of the benefits of BDSbecause so few have experienced them. There-fore, the argument went, BDS need to be sub-sidized and promoted, sometimes evenrequired in order to access finance, until suchtime as the entrepreneurs in a community real-ize the value of the BDS. All too often, however,that time has not come. Despite participatoryrural planning methods and expensive surveysassessing needs, too many BDS programs con-tinue to supply services that are not valued byentrepreneurs. The impact of the service can-not be demonstrated and entrepreneurs are notwilling to pay for the service. What is the solu-tion to this dilemma? “Demand-driven” serv-ices.

What are demand-driven services?In general, demand-driven services are

those that meet a clearly identified need and forwhich SEs are willing and able to pay. Payingfees for services is one clear way entrepreneurscan express their desire and felt value for a serv-ice. If the service is adding value to their busi-ness and is worth the investment, they will pay.If not, they won’t. In addition, when people payfor something, they expect quality service inreturn. Entrepreneurs are more likely to give

feedback to an organization about their precisewants and needs if they are paying customers,who don’t need to worry about offending apatron. Although many entrepreneurs are notable to identify complex constraints facing theirbusinesses, evidence suggests that when SEsgain access to a service that meets an articu-lated need, and thus are able to solve a businessproblem, they start to see and want to addressother business problems as well.21 Demand-driven services are thus more likely to have animpact on business performance than servicesthat development experts believe will benefitSEs, even though SEs themselves don’t see thebenefits.

A second type of demand-driven service isone acquired through commercial transactionsor relationships, that meets a specific, articu-lated need of SEs, but for which SEs may nothave to pay up-front. For example, buyers of SEproducts often provide product specifications,market information or raw materials to theirSE suppliers. Or, large businesses may pay foradvertising in newspapers or radio programsthat provide useful information to SEs. Often,

21 Chen, 1996.

4. How can practitioners select appropriate services?

Example 6.The importance of charging a feeBusinessNOW training in Atlanta,

Georgia (USA)

A business development program in Atlanta,Georgia (USA) developed a business manage-ment workbook for low-income African Ameri-can women, for use in their training course. Atfirst, the workbook was free while trainersasked participants for comments. These werefew and far between. Once the workbook wasfinalized and had gone to print, the programbegan charging a minor fee for the book. Thecomments flooded in, typos were identified,racial stereotypes were eliminated, and figureswere made consistent throughout the book.Lesson learned: charge a fee even during thepilot phase to get real feedback from a realmarket test.

Personal experience of the author, Mary McVay

Example 7.Embedded services can also be

demand-drivenFurniture manufacturing in Vietnam

In Vietnam, many furniture showrooms existin Hanoi that sell furniture from rural SE pro-ducers. Some of these showrooms providemarket information and product designs totheir SE suppliers. For example, one showroomprepares design drawings when ordering furni-ture from rural producers. These services helprural producers stay in touch with the changingurban market trends. The showrooms embedthe costs for this service in the commissions andmark-ups on their sales and orders.

Anderson, Gavin “The Hidden MSE Service Sector – ResearchInto Commercial BDS Provision to Micro and Small Enterprisesin Vietnam and Thailand,” Donor Committee Conference onBusiness Services for Small Enterprises in Asia: Developing Mar-kets and Measuring Performance. April 2000. http://www.ilo.org/public/english/employment/ent/sed/bds/donor/

14


SEs receive training and advice from peers,friends and relatives in their line of business.These BDS, although not fee-based, aredemand-driven in that the sources are com-mercial or social actors who are accountable toSEs for good services. This is in contrast to tra-ditional BDS programs, in which non-profitorganizations are accountable to donors forservices delivered to SEs.

How are demand-driven services being chosen?

Traditionally, non-profit BDS providersidentify services that SEs need. One major shiftin approach with the market development par-adigm is that private sector suppliers shouldselect services based on what they feel they cansell in the market. Often, however, these suppli-ers need technical assistance in identifying serv-ices that are in high demand, and inunderstanding the features and benefits of serv-ices that SEs desire. Thus, a BDS facilitator isoften in the position to work with suppliers toidentify and select services to deliver, and theircharacteristics. The identification of what serv-ices to market, to whom and where, is essen-tially defining the BDS market that is to bedeveloped.

Programs are using different starting pointsto choose services depending on their objec-tives. Those that focus on a particular group ofSEs start by looking at demand from those SEs.Other programs identify subsectors in which

SEs operate that have poten-tial for growth and selectservices that will help boththe subsector in general andSEs within it expand. Pro-grams focused on SEs in gen-eral start by looking at abroad range of services withthe aim of identifying thosethat the highest number ofSEs want. Programs with

specific economic objectives, such as increasingexports, look for services that will help SEs con-tribute to that objective.

As programs begin to consider what serv-ices SEs will buy, the type of services that pro-gram managers are choosing is starting tochange. Many programs are realizing that SEscan not and will not pay for sophisticated serv-ices that have been subsidized with donor fund-ing. Emerging experience suggests thatbusinesses want and will pay for less sophisti-cated but relevant services.22 For example,

some programs are now looking into promot-ing “low-end” services, such as courier, moneytransfer, advertising, basic accounting andbookkeeping, rather than or in addition to serv-ices more traditionally promoted by develop-ment programs.

Some agencies are analyzing the types ofservices that different kinds of SEs typicallywant with the aim of beginning to generalizewhat types of services may be in demand in dif-ferent circumstances. For example, new entre-preneurs often want information aboutcompetition in their sector and links with otherenterprises (suppliers, service providers andbuyers). Expanding entrepreneurs often wantadvice on product and market developmentand information on cost-effective means tomodernize technologies. Entrepreneurs intransition economies often want advice on pri-vatization and its implications for restructuringand training in market identification. Whilethese generalizations do not always hold true,these types of analysis provide a starting pointfor choosing appropriate services for differentSE segments.23

What tools can help practitioners choose demand-driven services?

There are a variety of tools that can helpBDS practitioners choose demand-driven serv-ices. General SE surveys, participatory ruralappraisal, subsector analysis and test marketingare four tools currently in use that can be veryhelpful in identifying appropriate services thatSEs demand. These tools are covered in thischapter. Consumer marketing research canalso be also helpful for identifying services thatSEs demand. Consumer marketing researchtools are also used for choosing market devel-opment interventions, and they are discussed inthe next chapter.

Because it can be expensive to do severalmarket studies, some organizations are com-bining studies to choose services with studies tochoose market development interventions. Inthis case, surveyors need to balance programdesign objectives in developing a market assess-ment plan. Studying many services will providebetter information for choosing services tofacilitate. More depth of information on a sin-gle service will provide better information fordesigning interventions. One practical way to

22 Hitchins, 2000.

23 UNDP, 2001.

Many programs are realizing that SEs can not and will not pay for sophisticated services that have been subsidized with donor funding. Emerging experience suggests that businesses want and will pay for less sophisticated but relevant services.


15

balance the objectives is to conduct a broadassessment of the markets for many BDS andthen conduct some supplementary research onthe one or several that the program will pro-mote.

The rest of this section presents four toolscurrently in use to help donors and practition-ers select services. The description of each toolis followed by a case example in which the toolwas used to identify services.

General SE surveys Since the “informal sector’ was identified

as an important source of employment andincome for poor people in developing coun-tries, studies have abounded to document itsexistence, characteristics and the contributionit makes to the economy. The USAID spon-sored project GEMINI conducted some of thefirst statistically valid national surveys of the SEsectors in developing countries around theworld. Although not specific enough for theselection and design of particular services, thesurveys provide useful background data onsuch areas as:� The number of SEs in a country and the

number of people employed.� The geographic, sector, size and gender

distribution of firms.� Growth trends in the sector, and in differ-

ent groups within the sector.� Indications of major constraints affecting

the growth of the firms.

As useful as this data is, the potential for itsbeing available and current is not very high

now that the GEMINI project is over. Althoughefforts were made to build local capacity tocarry out the surveys, few local government orother agencies have funded repeat surveys.Still, almost every country has some generaldata available on the SE sector that will provideuseful background information for programdesign. If up-to-date information is not availa-ble, it can be expensive ($200,000-300,000) toconduct a survey, and difficult to find the nec-essary expertise.

Participatory rural appraisalIn stark contrast to national surveys, Partic-

ipatory Rural Appraisal (PRA) techniquesidentify very specific constraints and opportu-nities, wants and needs, of particular popula-tions of SEs once an organization has identifieda group of consumers. PRA offers a set of prac-tical tools to help development agents and pro-gram participants identify problems and assessand select relevant solutions. Some of the tech-niques include:� Resource mapping, in which participants

draw maps of their community with rele-vant resources available.

� Seasonal mapping, in which participantsdescribe seasonal trends that affect theirwork and lives.

� Network mapping in which participantsdraw linkages they have to external indi-viduals and resources.

� Ranking exercises, in which participantsrank their status, the importance of prob-lems or the preferred solutions.

Example 8. Program design using national surveysJamaica MicroNET Business Service Centers

Jamaica MicroNET was designed usingnational data to determine the size, firm type andlocation of its target market, and to identify serv-ices that would be in demand by large numbersof microenterprises. The national surveys indi-cated that:� Micro enterprises were the largest segment of

the SE market.� The majority of SEs without services were

located outside the major capital, where thegrowing consumer markets are.

� The majority identified marketing as a keyconstraint.

Program designers concluded that interven-tions that assist microenterprises to access urbanmarkets would be most in demand. They selectedservices that were in use in other countries: abusiness service center that supplies telecommu-nications, post office, photocopying, desktoppublishing and marketing advice.

Hanna, James and Ton de Wilde, “Jamaica MicroNET,” Donor Committee Conference on Building a Modern and Effective Business Devel-opment Services Industry for Small Enterprises, Brazil, April 1999. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor

16


PRA can be useful in: identifying servicesthat are in high demand by a particular popu-lation; understanding how SEs operate in par-ticular economic environments; identifyingwhat constraints are most significant for them;and getting information about the features andbenefits a particular service should have, theprice customers might be willing to pay, andother detailed information about the potentialdemand for a BDS. The underlying principlebehind PRA is that local people possess moreknowledge about their situation than externalexperts, and that the role of the researcher is tobring that knowledge to bear in identifying andsolving key problems.24 PRA is the most afford-able and simple technique for identifying serv-ices SEs demand.

Subsector analysisSubsector analysis combines aspects of

national surveys and PRA techniques to iden-tify constraints and opportunities of SEs oper-ating in the same market, for example the woodfurniture, silk cloth, or hair care “subsectors.”The main tool in subsector analysis is a mapthat describes the linkages of firms operating inthe same industry, in different market channels.For example, a furniture map might show oneset of linkages from a national forest to woodcutters, to sawmills, to wood wholesalers, tosmall-scale carpenters and finally to rural andurban low-income consumers. A branch of thatmarketing chain might lead from the small-

scale carpenters to upholsterers to urban shopsto high-income consumers. Yet another chan-nel might lead from the sawmills to a largecompany that cures the wood and makes furni-ture for export. By examining these differentmarket channels, a researcher can identify therole SEs play in the industry, and the lucrativemarkets where they might benefit from playinga larger role. Then, the program designer canidentify BDS that might help SEs move intomore lucrative markets. For example, a subcon-tracting service might link SEs to the large-scale exporter so that SEs may take advantageof higher international prices.

The information for the maps comes fromnational survey data, from interviews with “keyinformants” including large firms in the sectorwho know the industry well, and from PRA-style discussions with SEs. Subsector analysiscan be used to assess and compare the viabilityof different sectors before selecting one to focuson, or to identify key opportunities for inter-vention and key services that will help entrepre-neurs take advantage of new marketopportunities. The more SEs are involveddirectly in conducting the subsector analysis,the more likely it is that the services identifiedwill be in high demand.25 Depending on thedepth and sophistication of the study, subsectoranalysis can be a quite simple PRA exercisewith key sector players, or a more sophisticated,professional data collection exercise.

24 Chambers, 1997.

25 Haggblade and Gamser, 1991; Lusby, 1999. Chen,1996.

Example 9. PRA design techniquesSEWA in India, Women's Subsector Development Program

Self-Employed Women’s Association (SEWA)in India conducts participatory subsector devel-opment programs with poor, self-employedwomen. SEWA started its work by organizing self-employed women into groups according to thework they are involved in, for example incensemaking or dairy production. With these groups,SEWA used PRA techniques to identify immedi-ately felt needs. These needs are addressed ini-tially, and with the momentum of simple success,the groups go on to identify and tackle largerstructural issues. This approach led to SEWA’s

national dairy cooperative support project. Theimmediate need for women dairy workers was foraccess to vaccinations and veterinary services.SEWA conducted a pilot program to link womenin the program to services provided by the Minis-try of Agriculture. Having demonstrated the via-bility and importance of supplying women withthese inputs, SEWA built on that momentum tosuccessfully advocate for women all over India tohave access to government dairy support serv-ices.

Martha Chen (ed.), Beyond Credit: A Subsector Approach to Promoting Women’s Enterprises, Aga Khan Foundation Canada, 1996.


17

Test marketing or action research

Formal tools for choosing services may notbe necessary in all cases, particularly for com-mercial suppliers and their facilitators. Instead,suppliers and facilitators can try a service outon a small scale and see if it sells.

New programs are beginning to developsystematic ways of testing services, as follows:26

� Starting without a pre-conceived idea ofwhat services might be in demand, staffmembers listen closely to entrepreneursabout their constraints and what exactservices might address those constraints.

� Initial service ideas are developed fromthose discussions, drawing on ideas forservices that exist in the private sector.

� New services are pilot marketed, some-times with partial subsidies in exchange forcustomer feedback.

� Services are modified rapidly and re-testedto fit as closely as possible to demand.

This type of test marketing is used fre-quently in the private sector. Even when formaltools for choosing services have been used, testmarketing individual service products is help-ing programs determine the potential for com-mercializing new services for SEs.

26 Hileman and Tanburn, 2000

Example 10. Subsector analyses and program designEnterprise Works Worldwide and the coffee sector in El Salvador

In El Salvador, Enterprise Works Worldwide, aUS based NGO, chose to focus on the coffeesubsector. A subsector analysis revealed thatsmall scale coffee producers could earn moreincome if coffee was sold processed. The analysisalso determined that key problems in the subsec-tor were inefficiency and environmental pollution.Enterprise Works Worldwide used this analysis todesign a program to assist small scale coffee pro-ducers. The program promoted several BDSwhich helped address these issues. The programhelped link cooperatives so that small coopera-tives without processing facilities could use theprocessing facilities of larger cooperatives. Links

among cooperatives also improved efficiency byenabling cooperatives to cooperate on financing,processing and marketing of coffee. EnterpriseWorks Worldwide also assisted the cooperativesto computerize their production and marketinginformation. In order to reduce environmentalpollution, Enterprise Works Worldwide providedaccess to better technology and helped coopera-tives to provide training and technical assistanceto their members on environmentally friendly pro-duction techniques that also reduce costs. Theseservices have assisted small scale coffee produc-ers to increase their profits.

“El Salvador Coffee Project” 1998 from the Enterprise Works Worldwide website: www.enterpriseworks.org

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Example 11. Action research program designILO FIT in Africa

The FIT Program has designed and commer-cialised a range of innovative services using anaction research methodology. This methodologytested both the products and commercial deliverychannels. Examples Include:

Enterprise visits: Study tours have been arecognised and effective tool for networking,developing new markets, and technology andskill exchange for MSEs, but has predominantlybeen undertaken with high subsidies. The FITprogram identified a demand from small busi-nesspeople to travel and experimented withnational enterprise visits with groups of MSEstravelling to meet their counterparts in other partsof their country. Subsequently, FIT developed andtested a range of tours for MSEs in East andSouthern Africa to visit other businesses or com-mercial events in neighbouring countries andother regions of Africa. FIT built on the proven

willingness of MSEs to pay for a number of theseservices and began supporting a number of touragencies to develop and sell these tours on acommercial basis

Commercial training and facilitation: TheFIT program developed and tested two trainingmethodologies that helped MSEs to undertakepractical marketing (Rapid Market Appraisal) anddemand based product development (User-LedInnovation). These products were initially testedthrough traditional donor-supported trainingchannels but were subsequently sold to commer-cial training businesses through training of trainercourses in East Africa. These two products and afurther ILO developed training product (Grass-roots Management Training) were therefore soldinto the private sector and modified and adaptedaccording to the specific demands of the trainingmarket.

Hileman. Milena and Jim Tanburn, Wheels of Trade, Intermediate Technology Publications, 2000, available from IT orAmazon.com; ILO FIT website at www.ilo.org/seed

19

HOW CAN PRACTITIONERS CHOOSE STRATEGIES TO DEVELOP BDS MARKET?

The above analyses are largely focused onthe basics of a BDS program: defining the BDSmarket to be developed. This process mainlyentails selecting what service to deliver towhom and where. Then begins the challenge ofdeveloping the market. Experts agree that inorder to develop a market, it is critical to firstunderstand how the market is currently operat-ing.27 Based on this understanding, a programmanager can choose market developmentstrategies aimed at reducing specific constraintsto market development or taking advantage ofexisting market opportunities for expandingthe SE market. Interventions that target spe-cific market problems and opportunities havethe most potential for developing a marketwhile minimizing market distortion.

Using a market-development approach,there are three steps to this process: 28

1. Conducting a market assessment to under-stand the existing service market;

2. Identifying market problems or opportuni-ties;

3. Identifying intervention strategies thataddress the priority market problems and/or opportunities.

What information about a market do you need to choose interventions?

Essentially, an understanding of the markethas three components: demand, supply andtransactions (the interaction between demand


28 For more information, see Miehlbradt, Alexandra,“Guide to Market Assessment for Program Design,” forthcomingfrom the International Labour Organization. Website:www.ilo.org/seed

5. How can practitioners choose strategies 5. to develop BDS markets?

DEMAND SUPPLYTRANSACTIONS

THE MARKET

Prof

ile o

f use

rs

Bene

fits

wan

ted

Aw

aren

ess

and

unde

rsta

ndin

g

Mar

ket s

ize

Supp

liers

Subs

titut

es

Serv

ice

use

– W

hy/ H

ow/ P

rice

Feat

ures

and

sat

isfa

ctio

n

INFORMATION NEEDED

Diagram 3. Information needed to assess the market

20


and supply). Within each of these components,there are several issues to grasp.29

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, serv-ices embedded in other commercial trans-actions, services paid for by a commercialthird party and free services?

� How are the services delivered? How doSEs want services to be delivered?

� What are the service features that SEswant? How satisfied are SEs with the cur-rently 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?

The outcome of analyzing this informationis a picture of a BDS market showing how themarket works and where there are significantproblems. For example, a weakness in the mar-ket may be that SEs are unaware of availableservices or unclear about their benefits.Another market weakness might be that suppli-ers are offering inappropriate products or serv-ices that do not have the features that SEs want.(See Diagram 4., on next page).30

How can practitioners gather this information?

There are a variety of sources for this infor-mation and tools to get it. Information cancome from consumers (SEs), suppliers, business

associations (of either consumers or suppliers),government agencies or key informants. Themost important source is consumers – the SEs.By seeing the market through their eyes, prac-titioners make the market work better for them.The field is realizing that traditional needsassessment techniques do not get useful marketdemand information from consumers. Rather,they focus primarily on information that helpsdefine development goals: the characteristics ofSEs, their contribution to employment genera-tion or growth, and their general constraints.These assessments do not capture SE desire forservices, the features and benefits a serviceshould have, and SE willingness or ability topay for these services. Now the field is adaptingprivate sector marketing research tools, whichare proving useful in gathering market demandinformation from SEs. They are proving anexcellent compliment to traditional programdesign tools.

How extensive does information gathering need to be before a program gets started?

As a general rule, the further away fromthe market an organization is and the bigger itis, the more formal and extensive should be themarket assessment. Big organizations that arefar from the market, like donors, need formalmarket assessments because they do not get fre-quent market feedback. Donors and otherlarge organizations should conduct consumersurveys and supplementary market researchbefore starting a program. Large facilitators orsuppliers may need a formal market assessmenteven if they are in the market, because theirample resources and the many layers betweenconsumers and decision makers can isolatestrategic decision makers from market signals.Large private sector companies rely more onformal market research not only because theyhave more resources than small companies butalso because they need it more to stay in touchwith the market.

The closer to the market(or in the market) and thesmaller the organization orfirm, the more it is possible torely on learning by doing andother informal tools for mar-ket assessment. Small provid-ers and small commercialfacilitators can rely more oncustomer feedback and testmarketing rather than for-

29 Adapted from Springfield Centre, (BDS 2000 TrainingCourse, module by Bear and Miehlbradt).

30 Adapted from Gibson, Hitchins, Bear “BDS MarketDevelopment: A Guide for Agencies,” 2000.

Small providers and small commercial facilitators can rely more on customer feedback and test marketing rather than formal, up front market assessment, because they are in frequent contact with customers.


21

Gather Information, e.g.:awareness and usage characteristics of users

desired benefits and featuressuppliers and service products

Diagram 4. Overview of market assessment process

Form a Picture of the Market, e.g.:market segments

overall consumptionmarket penetration

competition among suppliers

Analyze Market Problems, e.g.:low awareness?

low trial?low repeat use?

Pinpoint supply side weaknesses,e.g. not enough supply

inappropriate servicesweak suppliers

Design intervention(s) to address priorities

Pinpoint demand side weaknesses,e.g.poor understanding of services

difficulty paying up frontlack of knowledge about suppliers

Identify market opportunities

Prioritize weaknesses and opportunities

22


mal, up front market assessment, because theyare in frequent contact with customers. Theycan receive regular feedback in the form of cus-tomer comments and customer willingness topay for services. Also, the investment is smaller,so the stakes are lower.

New BDS market development programsare experimenting with market assessmenttools. Two such tools, consumer marketingresearch and supplier diagnostics, aredescribed below. These tools are probably mosteffective when used in combination with oneanother, but organizations will also select fromthem depending on their resources and role inthe market.

Consumer marketing research toolsAs the Market Development Paradigm has

evolved, BDS experts have started to adaptcommercial marketing research tools to thetask of identifying demand-driven BDS anddetermining how to develop BDS markets.These tools are designed to get accurate anduseful information from consumers in order toexpand the sales of suppliers. They yield spe-cific information on what SEs demand, howsatisfied they are with currently availableservices and how to improve the supply ofservices.

Consumer research uses a variety of tech-niques to get information directly from con-sumers. Both quantitative tools and qualitativetools are available. Quantitative tools offer sta-tistically significant – and therefore reasonablyaccurate – data on the market. Qualitativetools offer more in-depth information, which isoften easier to interpret and apply to marketdevelopment. However, qualitative informa-tion is not statistically significant and thereforemight not yield an accurate picture of thewhole market.

The following two tools have been used tohelp choose BDS services and design marketdevelopment interventions. � Usage, Attitude, Image Market

Study. A UAI is a consumer research toolthat generates a broad, quantitative over-view of a market and can pinpoint specificmarket constraints and opportunities. Itwas designed to look at the market for asingle service but has been adapted also tofunction as a tool to compare a variety ofservices and understand BDS markets ingeneral. The UAI gathers informationthrough a survey of consumers – either SEs

in general or a specific consumer segmentor group. By using random sampling, theUAI generates a statistically significant pic-ture of the market.31 UAI surveys requireskills in marketing research and statisticalanalysis but a reasonably small sample of100-500 can yield accurate data on anentire market.

� Focus Group Discussion. An FGD is atargeted discussion with a group of con-sumers managed by a facilitator. Discus-sions with service users focus on consumerexperiences with the services, their reasonsfor using them, their satisfaction withthem, and what they would want changed.Discussions with non-users focus on howthey get the benefits of the service else-where, why they don’t use the service, whatwould make them buy the service and whatservice features they would want. FGDs area qualitative tool that yields specific ideasfor marketing and improving services.FGDs require specific skills in order to

31 For more information on this method see, Miehlbradt,Alexandra “Guide to Market Assessment for BDS ProgramDesign” forthcoming from the International Labour Organiza-tion. Website: www.ilo.org/seed

Example 12. Usage, Attitude, Image Study

USAID’s study of telecommunications in the Philippines

USAID used a UAI to understand the marketfor information and communications servicesin the Philippines. Three surveys of 100 SEseach were conducted on different consumergroups. The data showed that the market forbasic telecommunications services was func-tioning quite effectively. However, the data sug-gested ways in which suppliers could improveservice features and also pointed to severalweak market segments, particularly micromanufacturers. Also, the market for newer ICTservices such as email and Internet was almostnon-existent but there was potential for thesetypes of services if they had the features SEswant.

Miehlbradt, Alexandra “Information and Communications Ser-vices for Micro and Small Enterprises in the Philippines,”Devel-opment Alternatives, Inc. / USAID, 1999. For more information,see the USAID- Microenterprise Best Practices website,www.mip.org.


23

obtain objective information, but are quiteeasy and affordable to conduct.

Practitioners can use consumer researchdata to design market development interven-tions. For example, consumer research datamight show that SEs are reluctant to try a serv-ice for the first time. In this case, a pratitionermight choose to train suppliers in trial inducingstrategies such as free trial services or referralprograms. If consumer research shows that SEsare unaware of service suppliers, a practitionermight choose to develop a service supplierdirectory, train suppliers in marketing strategiesor develop a BDS consumers bureau.

Supplier diagnostics32

Supplier diagnostics enable a practitionerto examine the supply side of the market andget suppliers’ views on the market. Supplierdiagnostics are a helpful complement to con-sumer research because they allow a practi-tioner to add depth to his or her understandingof supply problems and to identify “gaps” orareas of disconnection between supply anddemand. Based on this information, a practi-tioner can determine the opportunities in themarket for new products, marketing strategiesor suppliers.

A practitioner conductssupplier diagnostics by inter-viewing and observing arange of suppliers offering aparticular service. Ideally, apractitioner would be able tointerview a statistically signif-icant sample of suppliers. Inpractice, this is rarely possi-

ble because of the difficulty in developing a listof suppliers that includes the many informalsuppliers or embedded service suppliers thatoften characterize BDS markets. However, thepractitioner aims to gather information from arange of different types of suppliers: large for-mal companies, small firms, informal supplierssuch as individuals who supply services part-time, embedded service suppliers, donor-sup-ported organizations and government agencies.Consumer research or key informant interviewscan provide information about the types of sup-pliers operating in a particular BDS market.

Interviews may be formally structured ormore exploratory in nature. They aim to give apractitioner a good picture of each supplier: itsproduct and market mix, ownership structure,business strategy, capacity and views of themarket. Combining this information with anunderstanding of demand will help a practi-tioner identify where there is potential to inter-vene in order to strengthen a market. Forexample, consumer research might show thatthere is a lack of appropriate service productsfor SEs in the market and supplier diagnosticdata might show that suppliers do not knowwhat service benefits and features SEs want. Inthis case, a practitioner might choose to pro-vide suppliers with market information onwhat SEs want or teach suppliers how to con-duct basic consumer research on SE consum-ers. Alternatively, consumer research mightshow that consumers do not understand whatservices can offer them and supplier diagnosticsmight show that suppliers do not have thecapacity to market their products effectively. Inthis case, a practitioner might choose to pro-vide suppliers with training and technicalassistance in marketing or to develop a generalawareness raising campaign among SEs aboutthe service. 32 Miehlbradt, 2001.

Example 13. Focus Group DiscussionsGTZ's study of trade fairs and other services in Nepal

GTZ conducted FGDs in Nepal on severalservices to supplement a UAI study on 13 differ-ent BDS. The information from the FGDs is nowbeing used to help suppliers improve their serv-ices and marketing to SEs. For example, theFGDs on trade fairs found that SEs were not par-ticipating because the available trade fairs are

inappropriate for their size enterprises and theproducts they produce. During the FGDs, con-sumers described many features they wanted in atrade fair, such as a focus on Nepali productsand an intimate atmosphere that promotes per-sonal contacts.

Tomecko, Jim "The application of Market Led Tools in the Design of BDS Interventions,” Donor Committee Conference on Business Servicesfor Small Enterprises in Asia: Developing Markets and Measuring Performance . April 2000. Website: www.ilo.org/employment/sedo-nors; or contact Prashant Rana of GTZ Nepal at [email protected].

In conducting supplier diagnostics, the practitioner aims to gather information from a range of different types of suppliers: large formal companies, small firms, informal suppliers such as individuals who supply services part-time, embedded service suppliers, donor-supported organizations and government agencies.

24


Example 14. Supplier diagnosticsGTZ's study of management training and other services in Nepal

GTZ conducted supplier diagnostics with arange of BDS suppliers in Nepal to complementconsumer research. The supplier diagnosticshelped GTZ identify demand-supply “gaps.” Forexample, in the market for management training,focus group discussions with non-users showedthat consumers wanted new products thataddress specific business problems. Interviewswith management training suppliers showed thatwhile suppliers were somewhat aware of thisdemand, most training courses they offered were

generic, “off-the-shelf” management trainingcourses. The suppliers were selling these genericcourses mainly to donors and found this marketstable and profitable. In this environment, suppli-ers were risk averse to creating new products andtrying to sell them directly to enterprises. In addi-tion, suppliers were not sure exactly what prod-ucts and product features were in demand. Thisresearch showed GTZ that there was a need forintervention in product development.

Bear, Marshall A. “PSP’s Offer to BDS Suppliers: Consultant Report for GTZ/Private Sector Promotion Project.” unpublished, January,2000. For more information, contact Prashant Rana at GTZ Nepal, email: [email protected]

25

WHAT STRATEGIES DEVELOP SUSTAINABLE ACCESS TO BDS?

The market development approachattempts to help SEs gain sustainable access toservices through private sector suppliers whowill seek out profitability as a primary goal.One challenge of the model is to see how wellpurely private sector suppliers can provide low-income and under-served SEs with effectiveservices. In order to do so, they may need assist-ance in developing sustainability strategies thatwork, particularly with low-income or other-wise under-served clients. In addition to thischallenge, the Donor Committee guiding prin-ciples recommend that, in order for market dis-tortions to end, traditional programs becomemore business-like:

“…there are often many not-for-profit BDSproviders already in the marketplace, andduring the transition to a commercially-ori-ented model there is much work to be doneto assist NGOs and other not-for-profit pro-viders to become more sustainable and busi-ness-like.”33

The transition from subsidized to sustaina-ble programs may be difficult for non-profitorganizations that are not used to the realitiesof the private sector market. In fact, there issome evidence that a common sustainabilitystrategy is to target higher income clients, leav-ing a typical market gap in serving the poor.34

Thus, there remain several key challenges tofacilitating long-term availability of services forSEs.

1. Financial viability (or cost-recovery orprofitability) of BDS service delivery. Do thefees charged to SEs cover the daily costs of pro-viding the service? Can a supplier earn a profitfrom SEs with the service?

2. Sustainability (cost-recovery or profita-bility) of BDS provider institutions. Is the sup-plier covering its operating costs and making aprofit? Moving up a level, is the institution ableto re-invest any profits in the development ofnew services? Moving up another level, is theinstitution able to recover or repay the up-frontsubsidies received when the program started(whether in cash or in-kind)? This is primarily achallenge faced by traditional programs wish-ing to make the transition to a market develop-

ment approach. It is also the case, however, thatmany private sector BDS suppliers are operat-ing on the brink of viability and may needassistance with financial planning for theircompany.

3. Cost-recovery of the facilitation servicesprovided to develop the BDS sector as a whole.If BDS suppliers are private sector businessesor are financially sustainable, can facilitatorscharge them for development services andrecover costs? How? In situations where BDSfacilitators supply ongoing services (spreadingawareness about a particular technology, forexample, or facilitating business linkages), exit-ing the market would hamper its development.In these cases, how can the services becomesustainable?

These challenges to reaching sustainabilityare significant and are fundamental to thenature of BDS for SEs. First, in contrast to aloan paid back with interest, entrepreneursoften have to pay up-front for BDS, with thefinancial return realized later. This characteris-tic of BDS points to key program issues: � how SEs, especially low-income SEs, can

finance BDS investments, � how payment mechanisms can be designed

to fit SE capacities and� how to design services that have a very

clear and fast payoff.

Second, effective BDS are tailor-made tomeet specific demand of specific target mar-kets. 35 As a result, up-frontresearch and development costsare fundamentally higher thanthose of microfinance pro-grams, whose methodologies atthis point are fairly standardaround the globe. In addition,the scale of services will usuallybe smaller because the marketsfor specific services aresmaller.36 Third, many BDSservices have developed in thecontext of donor-funded institutions. In orderto attract donor funding, the education level ofstaff and financial tracking systems need to beat a sufficiently high level, a situation which


34 Lee and Bear, 1999.


36 Goldmark, 1999a.

6. What strategies develop sustainable access to BDS?

One effect of long-term subsidies of BDS is that in some markets, entrepreneurs are unwilling to pay even for very useful services because they feel they have a right to subsidies.

26


often leads to cost structures that are prohibi-tive for cost-recovery from fees paid by SEs.Finally, one effect of long-term subsidies ofBDS is that in some markets, entrepreneurs areunwilling to pay even for very useful servicesbecause they feel they have a right to subsidies.Despite these challenges, both traditional andmarket development programs are pushing todevelop sustainable services and some pro-grams are achieving this goal.

Several strategies are emerging for achiev-ing sustainability in BDS that are presented inmore detail in the section below. These include:

1. Delivering financially viable services fromthe outset, particularly through private sec-tor suppliers;

2. Facilitating embedded services or usingprofits from a marketing business tofinance product development, training andother services;

3. Cross-subsidizing from one set of custom-ers to another, or across different services;

4. Supplying mutually beneficial services tosmall and large firms, and having largefirms pay the fees.

5. Facilitating business relationships andmentoring that do not require financialoutlays;

6. “Piggy-backing” on microfinance institu-tions;

7. Offering sustainable public sector financ-ing.

Each strategy is described and illustratedby an example.

Financially viable servicesThe first strategy is the most direct route to

sustainability: delivering financially viable serv-ices from the outset. This strategy is the onemost in line with the market developmentapproach. Commercial or non-profit supplierssell services at full-cost or profitable prices.Donors or facilitators build on existing marketsby promoting innovation, providing market

Example 15. Supporting financially viable servicesMekong Project Development Facility in Vietnam: Management Training Services

In 1997, Mekong Project Development Facility(MPDF) started a program to develop the man-agement training market in Vietnam. MPDFchose to focus on this market because bothdemand and supply were growing but there weresignificant constraints to expanding the market.An explosion of private sector firms in Vietnamhad created many new companies whose man-agers needed additional skills. Demand wasenhanced by the great value placed on learningin Vietnam. On the supply-side, a number of uni-versities and business support organizations hadbegun offering management training. However,the courses were not appropriate for SEs andconsumers complained about the quality of sup-ply. Rather than initiating a new organization tooffer subsidized training, MPDF elected tostrengthen private sector and non-profit traininginstitutions in offering commercially viablecourses.

The program proceeded as follows:1. MPDF undertook market assessments to

understand the existing market and determinehow best to meet demand for managementtraining.

2. MPDF sponsored a pilot test of a 36 hourmanagement training course through a localuniversity.

3. MPDF developed new training course contentin cooperation with three local universities.

4. The three local universities tested the courseswith an MPDF subsidy for promotion only; thegroup then revised course content and deter-mined how to market the courses.

5. MPDF sponsored one university to train 40trainers from various organizations in how todeliver the new course content.

6. The three universities began offering thecourses on a commercial basis.

Results in the first six months were encourag-ing: 20 courses were delivered to 574 partici-pants.

McKenzie, John, “Creating a Market in Management Training for Vietnam’s Private Firms: MPDF’s Experience,” MPDF (IFC), 2000; GeoffStevens and Mark Nielsen, “Commercialized Training Product Development: Lessons from the Trenches,” Prepared for the Donor Commit-tee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance; Hanoi, Vietnam,April, 2000. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor


27

information or helping with other productdevelopment costs, but do not subsidize thedelivery of services.

How do suppliers overcome the significantconstraints to sustainability listed above?1. Suppliers offer services that are low-cost

and often have a very short-term paybackperiod of a few months or less.

2. Costs are reduced by separation of activi-ties between “facilitators,” who performmuch of the BDS service development andtesting, and “suppliers” who supply stand-ard services on a regular basis.

3. Costs are further reduced by the “facilita-tor” playing a liaison role between suppli-ers and donors, so that suppliers can beexperts at serving SEs while facilitators canbe experts at negotiating and managingdonor funds, and developing suppliercapacity.

4. Market research costs may be subsidizedby BDS facilitators who help with technicalassistance or conduct research relevant to alarge number of suppliers.

5. BDS marketing costs may be subsidized byBDS facilitators who spread awarenessabout and promote services.

6. Suppliers are primarily private sector busi-nesses, donor funding is not used to subsi-dize direct transactions, and the presenceof donor funding is not publicized, so thatSEs are less expectant of subsidies. Fullprices are charged as soon as the service isfully designed.37

Not all examples of sustainable BDS serv-ices follow all of these principles, but these prin-ciples are increasingly in use with a widevariety of financially viable BDS. Programs arefinding that delivering financially viable serv-ices from the outset is easiest when workingwith suppliers who have never received subsi-dies for transactions. These suppliers, particu-larly if they are SEs themselves, tend to havestructures and overhead costs that allow themto keep costs low enough to profitably serveSEs.

Embedded services and marketing companies

Many SEs, particularly low-income SEs,are reluctant to or cannot pay up-front for val-

uable services. They can, however, make theirproducts, particularly if a buyer supplies rawmaterial, market information, product specifi-cations or other services. In the private sector,many large wholesale businesses purchase fromSEs and sell to distant urban or export markets.Sometimes they supply services, such as qualitycontrol, packaging or promotion, whose costsare paid by the mark-up on the SE products.Similarly, companies that supply inputs or tech-nology to SEs sometimes provide training oradvice as part of the sale. These are called“embedded” services.

Programs are promoting embedded serv-ices in two ways. Some programs facilitate busi-ness links between SEs and other companiesthat offer embedded services. Other programsactually establish marketing businesses thatoffer embedded services, particularly whenthere is a monopoly buyer offering exploitativeprices to SEs. The strategy is most commonlyused in the agri-business and crafts sectors. Themain reason the strategy works is that SEs donot have to pay up-front for the services.Instead, the transaction is part of their regularbusiness operations.

There are a few problems with providingsubsidies to marketing businesses, however.Supplying services as part of a transactionremoves the demand signal of SEs payingdirectly for a service. In the case of private sec-

37 Hileman and Tanburn, 2000; Goldmark 1999.

Example 16. Embedded services and marketing companies

PROARTE Craft Marketingin Nicaragua

PROARTE, a Nicaraguan handicraft com-pany initiated by MEDA, a Northern basedNGO, markets traditional handicrafts foraround 100 rural artisans. Founded in 1996 asa quasi-private sector firm with venture capitalfrom MEDA, and other public and privateinvestors, PROARTE operated at approximately15% profitability in 1997, receiving no operat-ing subsidies. PROARTE offers minimal trainingservices to its suppliers, relying heavily on othernon-profit groups to provide these services. Thecosts of services it supplies are embedded inproduct mark-up costs.

Mikkelsen, Lene, “Good Practice in Microenterprise Marketing:Cases from Latin America,” Donor Committee Conference onBuilding a Modern and Effective Business Development ServicesIndustry for Small Enterprises, Brazil, March, 1999. Website:http://www.ilo.org/public/english/employment/ent/sed/bds/donor/index.htm

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tor marketing companies, if the company pro-vides ineffective services, such as a productdesign that doesn’t sell, the company’s bottomline will be affected and the company willadjust. However, if a non-profit marketing com-pany is subsidized, then there are opportunitiesfor the company to provide services, such asgeneral skill training, that may not be demand-driven. Thus, it is important for non-profit mar-keting companies to be held accountable to thesame market pressures as for-profit compa-nies.38

There is another cautionary note in thisstrategy. In many cases the start-up of non-profit marketing companies is subsidized inmarkets where there is a lack of private sectortrade channels, or there are monopoly tradersin the private sector. The companies aredesigned to create competition where there isnone. However, if the non-profit companycrowds out the private sector firm, it thenbecomes another monopoly, which opens upopportunities for individuals to exploit the SEsthat the company was designed to serve.Instead, a market development approach tothis strategy would be to try to reform the pri-vate sector traders, or to support the develop-

ment of several marketing companies so thatthere is competition.

Cross-subsidiesIn some cases, cost structures are too high

and service pay-off time too long for full cost-recovery of a particular BDS, but BDS provid-ers or donors believe the service offered is valu-able to entrepreneurs, who pay some kind offee and continue to use the service. In suchcases, when a service is demand-driven and val-uable, but not financially viable, some non-profit BDS providers choose to cross-subsidizenon-profitable services with other revenue gen-erating activities. There are several types ofthese sustainability strategies:1. Supplying BDS to larger businesses that

can pay profitable rates, and using the prof-its to supply the service to smaller busi-nesses.

2. Operating a completely unrelated businessand using those profits to subsidize BDSactivities.

3. Using income from a viable BDS to coverthe costs of a non-viable BDS.This last option has parallels in the private

sector, where companies continue providing anunprofitable service in order to build or keep aclient base for more profitable services.38 Mikkelsen, 1999. Litrell, 1999.

Example 17. Cross subsidiesGrameen Village Phone: Bangladesh

The Grameen Bank, one of the leading micro-finance institutions in the world, is also taking alead in pioneering a key BDS: telecommunica-tions. Their strategy uses income from the provi-sion of telecommunications services to wealthier,urban areas, to finance the provision of cellphone services to rural, low-income clients.Here’s how:1. Grameen Bank formed a telecommunications

non-profit, Grameen Telecom (GT). GT in turnformed a for-profit company, Grameen Phone(GP), in partnership with international privateand public investors. GP won a bid to therights to provide cellular phone services inBangladesh.

2. GP provides cell phone services to upperincome individuals in urban areas. Profits are

channeled into GT to the Village PhoneProject.

3. The Village Phone Project selects, from its poolof interested borrowers, individuals to start vil-lage-level telecommunication businesses,often run out of homes or existing businesses.The individuals receive financing, training,hardware and cell phone services. Loans carryan interest rate of 22%.

4. Individually owned telecommunications busi-nesses in turn sell telephone services, by thephone call, to community members, many ofwhom are self-employed and use the phonefor business purposes.

There are currently around 1,000 phones inuse with some 60,000 users.

Burr, Chandler. “Grameen Village Phone: Its Current Status and Future Prospects,” Prepared for the Donor CommitteeConference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Performance; Hanoi,Vietnam, April, 2000. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor


29

The advantage of this strategy is that anentire BDS institution can be sustainable,whether or not particular services are. Subsi-dies can be provided without long-term com-mitment of governments and donors. Onedisadvantage, however, is that there may beother private sector suppliers that would enterthe market to supply the subsidized BDS, butthe subsidies may crowd out the private sector.Another disadvantage is that market signalsmay be distorted if SEs pay subsidized fees forservices. Although this strategy is much dis-cussed among practitioners and experts, thereare few examples of its success. It is more com-mon to find non-profit organizations that sub-sidize services to SE with contracts fromdonors to build the capacity of other BDS sup-pliers.39

Mutually beneficial servicesA variation on cross-subsidies, but a much

more viable strategy, is to identify and deliverbusiness services that are mutually beneficial toboth small and large firms, and to have largefirms pay the fees. The best example of this isFIT supported small enterprise radio programsin Africa. Corporate sponsors pay for the pro-grams, which are targeted to SEs. The sponsorsbenefit from marketing to SEs, and the SEs ben-efit from a radio program that provides a voicefor their concerns and vital business informa-tion. The radio stations have an incentive torespond to SE demand because the larger thelistener base, the happier the sponsors. Thus,the service is mutually beneficial, but the largefirms pay. Although there are few examples ofsuch services, FIT has also supported business-to-business advertising papers that have somelarge-scale advertisers. One could also imaginehow other mutually beneficial services, such assub-contracting services or programs that helpcraft purchasers, like Pier One, to access prod-ucts, might be financed in this way.

Sustainable, relationship-based BDS

Sometimes, firms in the private sectorreceive free BDS through their own businessnetworks. Business people develop mutualassistance or mentoring relationships that donot cost either entrepreneur anything except

the transportation and communications coststo develop and maintain the relationship. Forexample, complementary businesses may referclients to each other or large enterprises mayprovide market information to complementarysmall enterprises as part of their involvement ina business association.

Some BDS programs are designed to takeadvantage of these informal BDS by helping tofacilitate relationships that are then a sustaina-ble source of BDS for SEs. The advantage ofthis approach is minimal costs and high qualityinformation exchange, because private sectorplayers usually are best positioned to providetraining and information to other entrepre-neurs. The challenge is to identify ways to sus-tain the linkage service itself, which can be seeneither as a facilitation activity, and thereforeworthy of subsidy, or as a BDS that should alsobe demand-driven.

Piggy-Backing on MicrofinanceOne strategy receiving increasing attention

is known as “piggy-backing,” that is, dissemi-nating a BDS through a micro-finance institu-tion. Despite the poor performance of past39 Bissegger, 2000.

Example 18.Mutually beneficial services

FIT supported Nekolera Gyange radio program, Uganda

The Nekolera Gyange (I Run My Own Busi-ness) radio program has broadcast twiceweekly since October, 1999 to SEs in andaround Kampala. An estimated 40% of SEowners in the area, some 90,000 businesspeople, listen to the program regularly. Nekol-era Gyange is giving small enterprises a publicvoice for the first time, and helping them link tomodern markets and to Uganda's increasinglydemocratic political system. The program ispaid for by a telecommunications firm and abank that serves small businesses. The tele-communications firm markets cell phones toSEs, and the bank uses the program as a plat-form for educating consumers about bankingpractices and receiving valued customer feed-back. The program has been profitable for theradio station since the initial broadcast.

McVay, Mary, forthcoming ILO Working Paper, June, 2001.

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integrated service programs, and the taboo thathas emerged around linking BDS to microfi-nance, many NGOs continue to deliver BDSthrough microfinance institutions. Some ofthese programs offer financially viable BDSand the activity is sustainable for the institu-tion. The more successful programs use creditmeetings to disseminate information about aBDS, but offer the BDS as a separate, non-required, fee-based activity. Usually loan offic-ers and BDS staff are separate as well.

The advantages of this approach arenumerous:1. Promotion costs are minimal because there

is a captive audience in credit meetingswho can hear and spread the word aboutavailable services.

2. Clients have access to finance to pay thefees for a BDS.

3. For training services in some cases, costs forboth supplier and entrepreneur can bekept to a minimum because the training isdelivered during a loan committee meetingor using microfinance facilities during off-hours.

4. Overhead is minimized because costs areshared and, in general, cross-subsidized bythe micro-finance program.There are also potential disadvantages of

this approach:1. Clients may feel compelled to purchase the

service, thinking their loans will be consid-ered favorably if they do so.

2. There is some evidence that the primaryclients for training are not the same asmicro-finance clients.40

3. Staff may become distracted with toomany activities, and skills may be diluted ifthe same staff members are required to beloan officers and trainers, for example.

4. There is a danger of cross-subsidizing low-demand services with lucrative microfi-nance services, thus compromising institu-tional profitability.

5. The business services, if delivered by thefinancial institution, are often focused onloan recovery, rather than on businessdevelopment, and may not be relevant toentrepreneurs for that reason.

There may be significant lessons to belearned from additional research into this prac-tice. Currently, there are few cases that docu-ment experience with the practice of “piggy-backing.” One, Swisscontact in Tanzania,involves a non-governmental organizationdeveloping and franchising new services.Another strategy, attempted by PRIDE Africa,was for the microfinance institution to providea directory and referral service to area BDSsuppliers. Yet another developed a marketinformation service that is sold and deliveredseparately to microfinance clients in Bosnia.Enhancing this concept with the market devel-

40 Goldmark, 1999b.

Example 19. Sustainable, relationship-based servicesCARE Egypt and Information Services of the AgReform Project

For decades, Egyptian farmers received infor-mation about what to produce, how much andwhen from the Ministry of Agriculture, which inturn purchased their crops and marketed them inurban areas. When this system became finan-cially untenable, and when policies to encouragethe development of private sector markets wereimplemented, isolated Egyptian farmers were leftwithout much market and production informa-tion. CARE Egypt found that significant, relevantinformation was stored in the vast resources ofuniversities, associations and government Minis-tries in Cairo. Rather than build up a staff of agri-cultural extension officers, CARE started the

AgReform project to help farmers build relation-ships with information sources, and access infor-mation on their own. CARE facilitated theformation of groups, and trained leaders to con-duct PRA to identify information gaps. CAREhelped groups to identify and physically visitinformation sources, such as universities, seedsuppliers and buyers. The farmers built relation-ships with these information sources, and skills torepeat the process. CARE published a directory ofinformation sources, and then continued to facil-itate new groups. Older farmers groups accessinformation sustainably for only the cost of a tripto the city.

McVay, Mary, “Micorenterprise Marketing: Trends, Lessons Learned and Challenges,” SEEP 1999. Website: www.seepnetwork.org


31

opment perspective, a BDS facilitator couldfacilitate commercial, mutually beneficial part-nerships between BDS suppliers and microfi-nance institutions.

Can public sector financing of BDS be sustainable?

Public sector financing may not be consid-ered “sustainable” by some analysts, but is con-sidered here because there are programs thathave used this strategy, endured for long peri-ods of time and reached large numbers of cli-ents. Given the history of governments inproviding subsidized, politicized services, itmust be approached with caution. Neverthe-less, some are public goods, for which is it diffi-cult to capture costs from individual SEs, thatmay be appropriately funded through particu-lar types of government levies. The key to thesuccess of such a strategy is to identify long-term sources of finance related to the SE sector,which can self-finance services for SEs. Forexample, fees for municipal markets are used todevelop and service market space for informalsector businesses. There are several require-ments for achieving success in these endeavors:

1. A local government must be legitimate andaccountable to its constituency;

2. Local government must have the capacityto manage public funds and the capacity toadminister simple transfers.

3. The local government or, in the case of ademocracy, the local population must con-sider the service to be a public good, some-thing that benefits society but for which is itdifficult to recover costs.

4. Often, interested constituencies must advo-cate to gain general acceptance of the serv-ices as a public good.

The advantage of permanent publicfinancing of the supply of BDS is that govern-ments are in a position to have a widespreadimpact throughout the country. The risks aremany and well-known: fund allocation maybecome politicized or corrupt, limited fundsmay be allocated so that limited numbers ofSEs benefit, and subsidies may compete withthe private sector. Yet, depending on the finan-cial and political climate, there are cases inwhich large numbers of poor people may ben-efit significantly over long periods of time fromsuch public sector subsidies.

Example 20. Piggy-backing on microfinance servicesCARE-Bosnia's Market linkage Services

CARE Bosnia supported the development of anon-governmental microfinance organization inwar-torn Bosnia. A few years after its inception,CARE attempted to initiate some market-linkageservices through the microfinance institution. Themicrofinance institution was not interested andfelt that the service would adversely affect itsfinancial viability. So, CARE Bosnia initiated theservice itself. It is an information-based marketlinkage service in which a business officer helpsfirms identify businesses to buy from and sell to.The service was particularly relevant as many

business relationships were severed during thewar. The business officer visits a business, and,using a palm pilot, enters into a database theitems that the client buys and sells. The businessofficer then pulls from the data base businessesthat buy what the client sells and sells what the cli-ent buys. For every contact that the client takesfrom the business officer, the client pays a fee.Once the service was up and running, it becamefinancially sustainable and the microfinance insti-tution allowed CARE to market the services to itsclients, which dramatically improved outreach.

Mary Morgan, Presentation to the SEEP Network, October, 2000.

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Example 21. Public sector fundingNASFAM Agricultural Associations in Malawi

The National Association of Smallscale Farm-ers of Malawi (NASFAM) emerged from a devel-opment project that assisted over 60,000Malawian farmers in organizing farmers associa-tions that, in turn, helped market tobacco andother cash crops. The project, and later NASFAMitself, offers organizational and technical trainingto farmers associations. The associations them-selves do not receive subsidies. Rather they oper-ate as businesses, primarily linking farmers toexisting private sector sources of BDS. For exam-ple, a major activity of NASFAM is to advise asso-ciations on contracting processes when hiringprivate transporters to haul tobacco to market.

NASFAM collects membership fees for its servicesto associations, but the fees do not cover theentire cost of operation, which includes signifi-cant promotional, information and organizingactivities for which it is difficult to charge fees.Instead, NASFAM advocated to receive an allo-cation of a tobacco levy that is collected on theauction floor. This has become NASFAM’s mainsource of finance, in addition to membershipfees. Although the BDS is dependant on a “tax,”the tax is generated by the industry beingassisted, and NASFAM is using it to serve largenumbers of farmers throughout Malawi.

McVay, Mary, “Micorenterprise Marketing: Trends, Lessons Learned and Challenges,” SEEP 1999. Website: www.seepnetwork.org

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WHAT STRATEGIES CAN BE USED TO DEVELOP BDS MARKETS?

The BDS market development approachas an explicit development strategy is stillyoung. Organizations are experimenting with anumber of interventions to develop BDS mar-kets. There is agreement that the interventionshould “fit” the market – that it should bedesigned to improve a specific market problemor take advantage of a specific market opportu-nity. However, practitioners are finding thatthere is often more than one way to address aspecific market issue. More experience andexperimentation are needed before the fieldcan clearly outline which specific interventionsaddress which market failures. Nevertheless,preliminary lessons are emerging.

A key principle for choosing and designinginterventions is that the interventionshould not be any more intensive thanrequired to address the market issue.Interventions have the capacity to both distortand develop the market. The aim of the marketdevelopment approach is to develop the marketas much as possible while distorting it as little aspossible. By targeting a specific problem andintervening only enough to address the prob-lem, programs run the least risk of distortingthe market.

Where should interventions focus?The Diagram 5,41 shows the functions in a

BDS market. Traditionally, donors have sup-ported programs that intervened at the delivery

stage, most often by directly supplying services.However, it is usually less distorting to inter-vene at the pre-delivery and post deliverystages. Intervening at the delivery stage usuallycauses considerable distortion.42 The distortionis greater if donor or government supportedservices replace the private sector or intervenebetween private sector suppliers and their SEcustomers, because it interferes with demandsignals that SEs may be sending to suppliers.Market distortion is less when practitionerssupport the relationship between suppliers andSE buyers, for example by providing SEs withvouchers to buy services from private sectorsuppliers. Intervening at the pre- and post-delivery stages tends to be less distorting whilestill offering the potential for developing themarket. Regardless of the intervention point,the least distorting interventions maintain orpromote competition in the market, are limitedin time and do not damage the relationshipbetween commercial suppliers and SE buyers.

How do programs work with suppliers?Many interventions involve partnerships

between a facilitator or a donor and BDS sup-pliers. Traditionally, donors have tended towork with a few chosen providers. Now leadersin the field agree that interventions are mosteffective when donors promote competitionamong suppliers in the market. This oftenmeans working with many suppliers during the

41 Springfield Center BDS 2000 Training Course 42 Springfield Center, BDS 2000 Training Course

7. What strategies can be used to develop BDS markets?

Ideas Developingpeople and

organizations

Advertisingand productpositioning

Informationfor

consumers

Deliverysupply-side

Assessmentof markets/products

Deliverydemand-side

FEEDBACK & CHANGE

Pre-delivery Delivery Post-delivery

Developingproducts

Diagram 5. Functions in a BDS market

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life of a program and opening access to theopportunities donors offer to a range of suppli-ers. It does not exclude working with one sup-plier at some points in a program, for exampleto test a new service product. Table 3 comparesthe two approaches: working with one suppliervs. promoting competition among suppliers.

Recent thinking also concludes that busi-ness-like relationships between facilitators andsuppliers are more effective in developing mar-kets than are grantor-grantee relationships. Forexample:43

� The relationships between donors or facil-itators and suppliers are transactional andbased on mutual benefit. The donor orfacilitator benefit is greater outreach. Thesupplier benefit is generally higher sales,penetrating new markets and building alarger customer base.

� Amounts to be invested and the roles ofboth parties are clear, and sanctions areapplied for non-performance. The roles

and sanctions are clearly written in a con-tract.

� Donors and facilitators terminate relation-ships with suppliers if the relationship is nolonger beneficial for both. Suppliers arefree to terminate relationships with donorsif they find the partnership is no longer intheir interests.

This business-like approach has a numberof advantages: 44

� Requiring that the majority of an invest-ment for an initiative comes from privatesector suppliers means that the financialscale of the initiative will generally fit thecapacity of the market. Experience showsthat this is likely to be more sustainablethan initiatives with heavy donor support,that tend to be out of proportion with sup-pliers’ costs and SE capacity to pay.

� Business-like relationships foster business-like incentives, behavior and attitudesamong both suppliers and facilitators.

43 Unpublished correspondence on the Swisscontact Indo-nesia Business Centres, Springfield Centre BDS 2000 TrainingCourse

44 Tanburn unpublished, 2000; Springfield Centre, BDS2000 Training Course

Table 3: Support to One Supplier Vs. Promoting Competition Among Suppliers1

Issue One supplier Promote competition

Competition in the market

The supplier gets an unfair competitive advantage, distorting the market and suppressing competition.

Competition in the market is strengthened, or at least, less distorted.

Administration Administratively simple Administratively complex: a donor/facilitator has to provide equal access to its offer, select partners using transparent, market-based criteria, and usually develop and monitor relationships with multiple suppliers.

Strategies for achieving program targets

Targets for outreach – such as total number and percent women- are all placed on one supplier, effectively dictating the supplier’s client focus.

Targets for outreach can be spread over many suppliers, allowing each supplier more leeway in choice of clients.

Intervention intensity per supplier

The interventions with the supplier tend to be very intense, turning the supplier’s attention away from consumers and toward the donor. This also allows donors to dictate services and approaches.

Intervention with each supplier is less intense, which makes it easier to keep the focus on consumers. Suppliers are more at liberty to follow customer demand and ignore donor suggestions that are not relevant to the market.

Donor relationship with suppliers

The program succeeds or fails when the supplier succeeds or fails; this promotes donors maintaining relationships and subsidies even when programs are not effective.

Suppliers can be added or dropped from the program; which enables the donor/facilitator to have a more business-like relationship with suppliers.

1 Adapted from Springfield Centre, BDS 2000 Training Course


35

� It is possible to link support to suppliers’achievement of agreed upon objectives.

� The approach attaches a value to support,which encourages prudent and effectiveuse of the program funds and technicalassistance.

� Supporting suppliers’ initiatives buildstheir ownership of the changes in theirbusinesses. Technical assistance with orwithout modest financial support enablessuppliers to build their own businessesrather than being overwhelmed by exter-nal funds and advice.

How do programs promote demand?Because of the history of development pro-

grams telling SEs what services they need,there has been some reluctance to aggressivelypursue demand promotion strategies. How-ever, programs pursuing market developmentare often finding that demand creation is animportant part of market development. In fact,demand promotion is often a key part of pri-vate sector marketing strategies as well.

However, there are different strategies forpromoting demand. Some traditional BDSprograms have provided SEs with services thatexperts thought they needed, regardless ofwhat the SEs thought. Market developmentprograms try to address specific demand sideproblems in such a way that SEs will want topurchase a service. For example, if SEs are una-ware of the benefits of a service, a program maydevelop an awareness creation strategy aimedat increasing SEs understanding of what theservice can offer. Then, SEs can make a betterinformed decision about whether they want theservice or not. If SEs generally produce a serv-ice in-house, a program may subsidize suppliermarketing efforts which show why outsourcinga service can be a cheaper alternative. Again,this strategy helps SEs make informed choicesabout purchasing services.

What interventions develop markets?A variety of market development interven-

tions are used in practice. Each strategy aims toaddress one or several weaknesses in a BDSmarket. Some address primarily demand-sideweaknesses in BDS markets; some address pri-marily supply-side weaknesses, but most inter-ventions affect both sides of the market. Someprograms are finding it necessary to combineseveral market development strategies, particu-larly if there are several interrelated problems

in a market. There is often more than one wayto address a particular market issue.

Table 4 shows some market constraints andstrategies to address them.

The strategies used most commonly to dateare described below.

1. Vouchers and Matching Grantsaddress SE lack of information about serv-ices and reluctance to try a service. Theaim is to expand demand for BDS by pro-viding information and encouraging SEs totry services by subsidizing their initial pur-chase(s).

2. Information to Consumers addressesSE lack of information about services andsuppliers. The aim is to expand demandfor BDS by making SEs aware of availableservices and their potential benefits.

3. Clusters or Networks address SE lackof ability to pay for services and supplierinability or unwillingness to sell services insmall enough quantities for individual SEs.The aim is to help SEs overcome disecono-mies of scale in purchasing BDS by ena-bling them to purchase services in groups.

4. Business Linkages address SE isolationand inability to pay for services up front.Business linkages also address supplierslack of knowledge about SEs. The aim is tocreate or expand BDS embedded withinbusiness relationships between SEs andother firms.

5. Technical Assistance addresses suppli-ers’ lack of technical or managerial skills.The aim is to build the capacity of new orexisting BDS suppliers to profitably serveSEs.

6. Product Development and Commer-cialization addresses a lack of appropri-ate products for SEs in the market andsupplier reluctance to target new consumersegments. The aim is to commercializenew products through existing suppliers byassisting with product development, mar-ket testing and initial marketing of newproducts. New product commercializationcan also be undertaken by promoting fran-chising of appropriate service products orservice businesses.

7. Social Venture Capital addresses a lackof supply in the market. The aim is toincrease the supply of services by assistingsuppliers in expanding or helping new sup-pliers to enter the market.

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Table 4. Matching BDS market problems with interventions1

Market problem Possible interventions

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� Implement a voucher scheme

Consumers are unable to effectively identify their business problems

� Develop an awareness raising campaign about typical business problems and BDS that can help

� Help suppliers create marketing campaigns that help SEs identify business problems

Consumers do not have the capacity to pay for services up front

� 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 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

Consumers do not see the value of 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 want services packaged together

� Broker agreements among suppliers to develop packages of services

� Provide venture capital and technical assistance for suppliers to diversify

Supply-Side Problems

Service products lack the benefits and features that consumers want

� Assist suppliers in developing and commercializing new products

� Bring in suppliers from other countries to adapt and franchise appropriate products

Suppliers are risk averse to targeting new consumer segments, such as women, micro enterprises or the service sector

� Provide suppliers with information on the viability of a new consumer segment

� Subsidize some of the costs in targeting new consumer segments, such as test marketing

� Use market research to identify promising opportunities to serve new consumer segments

Suppliers lack market information � Develop or improve marketing research services/suppliers� Provide suppliers with market information� Teach suppliers how to gather market information

Suppliers lack business or technical skills

� Provide training and technical assistance to suppliers� Assist training suppliers in developing and selling appropriate

products to other BDS suppliers

There is insufficient supply in the market

� Provide venture capital to suppliers to expand� Design a program to assist start-up suppliers

Variable quality of services is harming suppliers’ reputations

� Provide quality assurance services� Assist supplier to improve consistency in service provision� Help suppliers form associations with certification processes

Market environment problems

Free services are distorting the BDS market

� Advocate with government and/or other donors to rationalize BDS subsidies

Regulations adversely affect the BDS market.

� Advocate for changes in the regulations� Organize SE suppliers to advocate for changes in regulations

affecting the BDS market1 Miehlbradt, 2001 with input from Jeanne Downing and SEEP’s Guide to BDS and Resources.


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Vouchers and matching grantsTwo market development strategies are

designed to increase demand for BDS by offer-ing vouchers or matching grants to qualifiedSEs who then procure discounted BDS fromprivate sector BDS suppliers. On the surface,these strategies resemble traditional BDS pro-grams because they subsidize the procurementof services, but they are different in key waysthat support BDS market development. In bothvoucher programs and matching grant pro-grams, the strategy is to provide informationand temporary subsidies to firms who do notcommonly use BDS, and to link these firmswith BDS suppliers in the market who do notcommonly serve SEs. The information isdesigned to increase SE awareness and under-standing of available services. The subsidy ismeant to encourage SEs to try a service thatthey might be too risk-averse to try at full price.Increased demand from SEs is meant to stimu-late suppliers to develop and improve serviceproducts for the SE market. The vision is thatonce both parties experience positive businesstransactions, they will continue to exchangeBDS without further subsidy.

Matching grants have been in use forover a decade, primarily in export-develop-ment programs serving medium-sized firms. Inthese programs, selected, small numbers of SEspropose projects to an agent, who is often afacilitator acting on behalf of a donor or local

government agency. The agent screens theapplication and, if the SE has not selected aconsulting supplier to assist with the activity,will refer the client to a list of qualified firms. Ifthe SE has selected a firm to assist it with itsproject, the agent assesses the firm and registersit as a supplier, as long as the firm is legitimate.Usually, the SE pays the consultant up-front forthe service, and then the agent reimburses theSE once there is evidence that the project hasbeen completed as planned. Example projectsinclude building refrigerated storage for flowerexport, design and introduction of a new prod-uct or development and implementation of anew marketing plan. The discount provided bythe program is typically between 30% and60%.

These programs tend to show strong cost-benefit results and high levels of growth in SEsales and employment. However, evidence thatrelationships and BDS exchanges continueafter the programs end is not yet available.45

Some experts also question the need for theintervention, because the SEs demonstratetheir ability to pay for the BDS by paying forthe service first and seeking reimbursementafterwards.

Voucher programs were the firstattempt to encourage a large number of private

45 Gibson, 1999; Crissafulli, 2000.

Example 22. Matching Grants The World Bank in Mauritius

From 1994-1998, the Government of Mauri-tius implemented a matching grant schemefocused on technology diffusion with fundingfrom the World Bank. The program promotedconsulting services to help private firms improvetheir quality, design, technology or productivity.Any firm with majority private sector ownershipwas eligible to participate, regardless of size. Thegovernment contracted a private agent to run theprogram. The agent promoted the program topotential clients, assisted clients with planning;facilitated contact between firms and suitable pri-vate consultants, helped clients to complete grantapplications, advised clients on how to maximizebenefits from consulting services and adminis-

tered approvals and disbursement of funds. Allprojects were subsidized by 50%.

After four years of operation, the program hadsupported 225 projects in 153 firms. Includingfirm contributions, the cost of services providedreached US$5.1 million. Initially, mainly largerfirms within the SE spectrum were attracted to theprogram because they had experience with con-sulting services. However, as the program pro-gressed more small firms participated because ofthe demonstration effect and the status associ-ated with the program. Over the life of the pro-gram, average grant size declined fromUS$15,000 to US$9,800.

Crisafulli, Daniel. “Matching Grant Schemes,” in Business Development Services: A Review of International Experience edited by JacobLevitsky, Intermediate Technology Publications, 2000. Available on website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor/index.htm

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sector BDS suppliers to serve microenterprisesby strengthening the demand for training serv-ices.46 In these larger scale initiatives, microen-terprises apply for a limited number of couponsor vouchers, which they receive with minimalscreening. These vouchers can then be used toaccess training services from a large number ofregistered trainers. The discounts range from35%-80%.47 The agency distributing thevouchers also supplies information to SEs aboutthe available trainers, including brief descrip-tions of trainers and courses and the number ofSEs that have purchased their courses.

Experience has shown that suppliers dorespond to the increase in demand from SEs.They readily modified their training servicesand created new courses to serve microenter-prises as a result of the programs. The newtraining courses focused on specific, immedi-ately applicable skills. They were short, modu-lar, and were often practical, hands-on learningopportunities accessible to illiterate people.The most popular trainers were private sectorfirms, often entrepreneurs who manage a smallbusiness and offered training specific to theirbusiness.48

Challenges to the implementation ofvoucher programs have included: � appropriate selection of a credible, impar-

tial facilitator and adequate supervision toavoid corruption and politicization ofvoucher distribution and supplier registra-tion;

� ensuring strong program management sothat vouchers are available when andwhere they are demanded and suppliersare accredited and paid on time;

� defining strategies to build capacity oftraining institutions and to provide financ-ing to trainers to support new services andphysical development;

� designing effective exit strategies (novoucher program has yet finished onschedule, at least partly due to their popu-larity with governments).

Although training voucher programs havehelped large numbers of microenterprises linkwith large numbers of BDS suppliers, there isgrowing concern about the sustainability of thepositive market changes on both the demandand supply side.

46 Information on vouchers is primarily from Botelho andGoldmark, 2000; Schor and Goldmark, 1999

47 Goldmark, 1999b. 48 Goldmark, 1999b

Example 23. Voucher Training Program in Paraguay

Operating intermittently from 1995 through1999, the Paraguay voucher program has pro-vided over 30,000 vouchers to approximately13,700 microenterprises that purchased trainingfrom over 40 primarily private sector suppliers.The program was designed by a consulting firm,Grupo de Asesoría Multidisciplinaria (GAMA)and implemented by the Ministry of Justice andLabor of Paraguay, with funding from the IDB.

Under the IDB sponsored program, qualifiedtraining institutions could join the program at anytime provided they agreed to basic rules. Theyhad to offer courses of at least 15 hours, keepclass size below 25 students, submit the resumesof trainers 15 days prior to class start, charge afee above the amount of the voucher, and submitto spontaneous, on-site monitoring visits. Toobtain a voucher, microentrepreneurs went to

several centers located around the country,offered proof of business ownership and submit-ted to a brief verification screening. Each firm wasallowed 6 vouchers valued at $20 each. At thecenters, information on the trainers available inthe area was publicized, along with the attend-ance rates of different suppliers. Most voucherusers were from the smallest microenterpriseswith five or fewer workers. Approximately 72% ofusers were women. Around 52% percent of busi-nesses in the program used more than onevoucher, indicating satisfaction with the first train-ing course they purchased.

Late in 1999, the Paraguayan governmentstarted a voucher scheme independently. Theprogram currently runs on IDB financing; thegovernment plans to continue the program withtax revenues.

Schor and Goldmark, 1999, Botelho and Goldmark, “Paraguay Vouchers Revisited: Strategies for the Development of Training Markets”Development Alternatives, Inc./USAID Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Mar-kets and Measuring Performance .” April 2000. Website: www.ilo.org/employment/sedonors.


39

Recent research in Paraguay found thatsome market changes were sustained evenwhen vouchers were not available:� training services began to have greater

geographical reach; � voucher users’ satisfaction with training

courses was reasonably high and some SEscontinued to purchase training even whenvouchers were not available; and

� some training institutes have continuouslyexpanded and diversified their trainingcourses.49

However, the research documented a sig-nificant drop-off in SE demand for serviceswhen vouchers were not available. On the sup-ply side, the research found that different typesof suppliers involved in the program varied intheir sustained responses to the intervention.50

� “Entrepreneurial/Expanding Diversifiers”used the program to expand and diversifytheir training courses and continued thisstrategy even when vouchers were notavailable.

� “Risk-Averse Diversifiers” also expandedand diversified their courses under the pro-gram but curtailed investments duringperiods of market adversity.

� “Do-Gooders,” suppliers with a social mis-sion, whose course prices do not covercosts, tended not to respond as much to theprogram and tended not to enforce therules of the program related to SEs.

� “Rogues” maximized voucher incomewhile minimizing investments; whenvouchers stopped they turned to othermechanisms for generating revenues.

Experts warn that a market assessmentshould precede any voucher program. On thedemand-side, vouchers address SE risk aversionto trying services at full cost. However, if this isnot the primary demand side problem, vouch-ers may distort a market more than necessaryby fostering SEs dependence on vouchers.

Experts also caution that voucher pro-grams are not appropriate for all markets. If thesupply of training is fairly elastic – becausethere is competition in the market – then avoucher scheme will increase the volume ofpurchases with little impact on the price ofservices. In this case, most of the benefits of the

program will go to consumers, the SEs. How-ever, if the supply of training is inelastic –because there are few training suppliers in themarket, for example – then the main effect of avoucher scheme alone would be to increase theprice of training courses with little impact onthe number of courses purchased. In this sec-ond case, the voucher program would notachieve its objectives and would mainly benefitsuppliers. In the long run, a voucher programmight stimulate the supply of training, but itssuccess would depend upon other market fac-tors such as ease of entry and availability ofpotential trainers.51

49 Botelho and Goldmark, 2000.

50 Botelho and Goldmark, 2000. 51 Hallberg, 2000.

Example 24. Vouchers for BDSNEWBIZNET and BIZPRO

in the Ukraine

Two voucher programs in Ukraine weredesigned to be temporary, to "spike demand"over a 6-18 month period, and then withdrawfrom the market. The BIZPRO program alsoworked with suppliers to strengthen their offer-ings. Trainers and clients alike agreed that themost important aspect of the program was themarket linkage and information service, ratherthan the voucher. In a post-test survey, voucherusers said that they would have paid the fullcost of training in computer usage and busi-ness accounting if they had known that theseservices were available. The services providers,meanwhile, valued their new relationship withthe business associations that administered theprogram, because these associations keptthem in touch with the requirement of their SEcustomers. In the Ukraine market, it wouldseem that the primary demand-side problemwas not SE risk aversion to paying full cost fortraining services but rather lack of informationabout the availability of services, and serviceprovider lack of information about SE demand.

Gibson, Alan, Rob Hitchins and Marshall Bear, “BDS MarketDevelopment: A Guide for Agencies,” forthcoming from theUSAID Microenterprise Best Practices Project managed byDevelopment Alternatives, Inc. Website: www.mip.org; Originalstudy " Business Services Centers in the Ukraine," Yo Mi Lee,1999.

Mike Field and David Knopp, "Seeding the Demand for Train-ing," Presentation at the MBP-IDB-SEEP Business DevelopmentServices Seminar Washington, D.C. April 30, 2001.

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Providing information to consumers

Many developing country markets for BDSsuffer from SE lack of information about serv-ices and their potential benefits. In some mar-kets, this is the only or key weakness.Facilitators respond to this problem by raisingSE awareness of existing BDS suppliers and

their products. Examples of such interventionsinclude:� starting “business to business” magazines,� generating directories – “Yellow Pages”

listing service suppliers,� using media such as radio or newspapers to

promote services,

Example 25. "Seven Deadly Sins" of voucher programs

The following is a list of things NOT to do invoucher programs:1. "Guestimate" the market: instead, rigorous

consumer research is recommended to under-stand demand, and assess whether there is acritical mass of existing suppliers.

2. Assume the program will sell itself: instead, theprogram must be promoted to suppliers andSE consumers by a trusted, objective facilita-tor.

3. Let suppliers distribute vouchers: rather, toavoid fraud, vouchers should be distributed byan objective third party whose main role is todistribute information about a wide range ofsuppliers.

4. Drop the co-pay: SEs should always berequired to pay a partial fee in order to keepdemand signals flowing and create a cultureof payment for services. SEs should know the

actual price, and that that discount is a one-time, trial offer.

5. Internalize the audit function: voucher pro-grams are at risk of fraud if not carefully mon-itored by an external auditor.

6. Try to control supplier participation: rather, thepool of suppliers should be as large as possi-ble so that consumers may select the suppliersthat most meet their needs. The role of theprogram is to supply as much information -including customer satisfaction data, on thesuppliers as possible.

7. Worry later about exit strategy: Most voucherprograms have yet to develop exit strategies,but in principle are designed to be temporary.Some experts recommend phasing vouchersout over time, by reducing the value of vouch-ers gradually. Others recommend short-termprograms of 3-18 months.

From Goldmark, Lara "The Voucher Experience: The Moral of the Story," Presentation at the MBP-IDB-SEEP Business DevelopmentServices Seminar Washington, D.C. April 30, 2001.

Example 26. Information servicesFIT Zimbabwe, Business Connect magazine

The ILO funded FIT project was able toachieve two aims in one with their Business Con-nect magazine: commercializing advertising serv-ices for SEs, and providing SEs with informationabout BDS from existing suppliers. During PRAand discussions with FIT staff, SEs articulated adesire to advertise their products beyond localmarkets. FIT staff interviewed large firms and BDSsuppliers and found that they were interested inadvertising directly to SEs. Based on models ofsuccessful small business magazines from theUK, the FIT project created Business Connectmagazine. This magazine offers the chance forSEs to advertise their products beyond local mar-

kets and for large firms and BDS suppliers toadvertise their products and services to SEs. Themagazine has been successful in linking BDSsuppliers, such as a security firm and an insur-ance broker, to SEs. Circulation of the magazineis now approximately 10,000 businesses. Thenumber of advertisers is approximately 320enterprises, both large and small, with significantrepeat customers. Initially printed in early 1999,the magazine has been profitable since its sixthmonthly issue and, as of the end of 2000, paysfor approximately 75% of FIT Zimbabwe’s totalcosts.

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 Zimba-bwe: Business Connect Magazine.” Draft Case Study, March 2001. ILO FIT website at: www.ilo.org/seed; and Business Connect at web-site: www.businessconnect.co.zw


41

� organizing events to bring together SEsand service suppliers,

� introducing social marketing campaignsthat explain the benefits of services,

� facilitating information exchange invoucher and matching grant programs,

� facilitating business linkages that provideinformation,

� producing small enterprise radio pro-grams,

� helping small enterprise associations to cir-culate newsletters, hold conferences, andhost networking events.When valuable, affordable BDS exists in

the market, interventions focused on informa-tion dissemination tend to be cost-effective.Some programs have commercialized theinformation dissemination role, which

increases the potential for sustainability. Thisstrategy alone is not effective, however, if sup-pliers do not offer appropriate, affordable BDSfor SEs.

Forming clusters or networksFor some services, it is difficult to make

products that are affordable for an individualsmall business. Often, the quantity of the BDSthat SEs need is too small for suppliers tobother developing products. As a result, SEscannot afford the available services. A strategyto address this problem borrows from the coop-erative movement. In these programs, a facili-tator helps SEs to form groups, called networksor clusters, that jointly purchase BDS. Net-works of SEs can often access services such asconsulting, technology, transportation, market-ing intermediation or training that they could

Example 27. UNIDO SE cluster and network development

UNIDO is attempting to replicate the successof industry clusters from some Western countrieswith SEs in developing countries. UNIDO isimplementing this strategy in Honduras, Nicara-gua, Mexico, Jamaica and India. Common ele-ments among the programs are: � Identifying the collective competitive advan-

tage of each SE industry cluster and an over-arching plan to build local capacity to realizethis advantage.

� Hiring consultants, at cost to the project, tohelp SEs form groups. The groups are trainedand exposed to best practice in industry clus-ters. Clients pay a fee to join the groups, andthat fee contributes to the facilitator costs.

� Identifying activities that will directly add valueto businesses in the group and that the enter-prises could not achieve independently.

� Linking groups to sources of BDS, rather thanthe program providing BDS.

� In some cases, initially helping suppliersrespond to SE demand by tailoring BDS prod-ucts to the SE groups.

� Monitoring progress in terms of group activityas well as business growth.

UNIDO has found that it is important to alloweach group to follow its own path. UNIDOresponds to group requests, rather than directingthe groups. UNIDO also found that supplierswere, in some cases, initially reluctant to or inca-pable of providing tailored BDS to the groups, soreducing their risks by assisting with productdevelopment was important.

A UNIDO assisted, local business associationin India – “the Knitwear Development Group”wanted to use ICT equipment to enhance theircommunication and networking capacity. Thegroup approached local providers and was ableto negotiate a contract to adapt an ICT trainingcourse to its needs. They were also able to obtainfavorable terms from a national IT supplier for thedelivery of hardware and tailored software pack-ages to individual businesses. It emerged thatover 500 hosiery businesses in the region were ina position to integrate ICTs into their businesses.

Ceglie, Giovanna and Marco Dini, “Clusters and Network Development in Developing Countries,” Prepared for the Donor CommitteeConference on Business Development Services: Building a Modern and Effective Business Service Sector for Small Enterprises. Rio de Jan-eiro, Brazil, April, 1999. http://www.ilo.org/public/english/employment/ent/sed/bds/donor

Michele Clara, Fabio Russo and Mukesh Gulati, “Cluster Development and BDS Promotion: UNIDO’s Experience in India” “Clusters andNetwork Development in Developing Countries,” Prepared for the Donor Committee Conference on Business Services for Small Enterprisesin Asia: Developing Markets and Measuring Performance; Hanoi, Vietnam, April 2000. http://www.ilo.org/public/english/employ-ment/ent/sed/bds/donor

Richard Duncombe and Richard Heeks, “ Enterprise Development and Information and Communication Technologies in Developing Coun-tries: ICT-Flyers,” University of Manchester for DFID, 2001.

For more information, see the UNIDO website: http://www.unido.org/doc/331112.htmls

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not afford individually. Traditionally, non-profit BDS providers not only organizedgroups, but also provided subsidized BDS tothem. In contrast, the role of a market develop-ment facilitator is to help SEs form groups andthen assist the groups to access the BDS fromthe private sector.

The advantage of this approach is that ithelps entrepreneurs overcome a clear marketbarrier while supporting private sector BDSsuppliers. In addition to linking groups to fee-for-service suppliers, there is also the opportu-nity to expand or intensify services embeddedin business relationships. For example, it ismore cost effective for a large enterprise to pro-cure goods from or supply inputs to a group ofSEs rather than to individual SEs. Well-organ-ized groups of SEs are often more effective thanindividual SEs at attracting the types of largesuppliers and buyers, like importers andexporters, that offer embedded services.

A major challenge of this approach is howlabor-intensive it is to form groups and identifyservices common to the entrepreneurs in thegroups. In general, SEs do not perceive “grouporganizing” as a service and are not willing topay for it. Proponents of organizing SEs as adonor intervention argue that promoting coop-eration and joint action among SEs is a publicgood because the benefits are largely indivisibleand, once provided, are available to all. There-fore, the intervention must and should rely onpublic funds.52 However, there is at least oneexample of a for-profit BDS supplier formingSEs into groups and marketing a mix of services

to the groups. The supplier saw the grouporganizing as a market building strategybecause the groups then marketed services totheir members and were able to pay for serv-ices.53 In other cases, for-profit enterprises haveprovided some organizing services to clusterswith which they have business relationships.Recent research suggests that where innovativeservice suppliers and/or private enterprisesthat have a stake in SE clusters exist, the privatesector can be instrumental in SE cluster forma-tion and development. Where these are absent,public funding will initially need to play agreater role both in forming clusters and linkingthem with suppliers and other enterprises.54

Promoting business linkages and embedded services

Embedded services are a major source ofBDS for SEs. Inter-firm linkages are also oftenthe key source of growth and skills transfer forSEs. Promoting linkages among firms is a wayto enable more SEs to gain access to BDS aswell as the other advantages of more and betterbusiness relationships. Facilitation to fosterlinkages focuses on disseminating informationabout players in the market so that they maydevelop relationships. Examples of such inter-ventions include:� Identifying opportunities for profitable

business linkages, usually between largeenterprises and SEs but including otherrelationships that will benefit SEs;

52 Clara, Russo and Gulati, 2000.

53 Field, Hitchins and Bear, 2000.

54 Sandee and van Hulsen, 2000.

Example 28. Market-driven Small Industry Clusters in Indonesia

In Indonesia, a trader has established a regis-tered trading company that deals in “functionalart.” The trading company serves export marketsand buys from over 5,000 producers in selectedindustry clusters in rural Java, Bali and Lombok.The company takes responsibility for the designof products and selection of raw materials inaccordance with international tastes. In order toensure that clusters meet product specificationsfor export orders, the trading company invites

representatives of clusters to visit its showroomsand understand the organization of the exporttrade. The company employs a group of 40workers who provide on the job training andsupervision to the clusters. With the company’sblessing, producers also use company designs forsales directly to consumers. Not only have theseBDS been useful to cluster members but the com-pany has also been instrumental in the develop-ment of the clusters themselves.

Sandee, Henry and Sandra C. van Hulsen, “BDS for Small and Cottage Industry Clusters in Indonesia: A Review of Case Studies fromCentral Java,” Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Per-formance.” Hanoi, Vietnam, April 2000. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor/index.htm


43

� Promoting sub-contracting from largefirms to SEs;

� Providing opportunities and events forlarge firms and SEs to interact;

� Supporting small enterprise participationin trade shows and trade associations;

� Developing or expanding large businessassociations, particularly those that includeSEs and larger businesses; and

� Building supplier capacity for those enter-prises that provide embedded services tomany SEs.One key advantage of this approach is that

it fosters “win-win” relationships in the privatesector. SEs benefit from relationships withlarger firms and/or access to BDS they mightnot otherwise find. The larger firms benefit bybuilding a customer base (in the case of suppli-ers), by gaining lower-cost, flexible production(in the case of subcontractors), or by building asupply network (in the case of companies buy-ing SE products). Another benefit is thatexpanding embedded services avoids a com-mon market limitation in many BDS markets –SE willingness and ability to pay for services upfront. In embedded services, the costs are eithersubsumed within other transactions with SEsor are charged to third party commercial play-ers – sometimes both.

A limitation of the approach is that if a sup-plier enterprise will only provide embeddedservices to a few SEs, it may not be cost-effec-tive for a program to generate the linkages.Programs tend to focus on those large enter-prises that have the potential to interact withmany SEs. Programs also rely on astute facilita-tors who can find the business opportunitieswhere there is potential for profitable linkagesbetween firms. A potential disadvantage of thisstrategy is that large enterprises sometimesexploit SEs within their business relationships.A challenge for these programs is to developmethods of reducing this risk and promotingbalanced relationships.

Technical assistance to suppliersMany of the strategies mentioned above

focus on linking SEs to existing BDS supply,and are only effective with a sufficient supply ofservices in the market. What if the supply isinsufficient, as is common in so many BDSmarkets? Providing technical assistance to sup-pliers can address a range of supply-side con-straints that are limiting supplier capacity toexpand and profitably serve SEs. Technicalassistance can take many forms including train-ing, advice and information. Often technicalassistance is provided to help suppliers developnew products for the SE market. As such, this

Example 29. Business linkagesManicaland Business Linkage Project

The Manicaland Business Linkage Project wasestablished in 1996 to develop the local econ-omy in a rural area of Zimbabwe where the tim-ber industry dominates. The project's strategy is tohelp improve sector competitiveness by a)improving the efficiency of large firms throughoutsourcing work to more efficient, smaller firms,and b) by helping small firms access global mar-kets through local corporations. The project ismanaged by a local business association of pri-marily large firms, whose demand for small firmsuppliers drives the program. The main role ofthe project is to:� raise awareness about the benefits of out-

sourcing, � help large firms identify and publicize out-

sourcing opportunities, and

� help ensure that small firms benefit from therelationships.Any capacity building - training, raw materials,

access to technology, etc. - that small firmsrequire is supplied by the large firm buyers. In itsinitial five years, the MBLP has facilitated 110business linkages between large and small firms.All are still intact and none of the small busi-nesses have folded, despite a severe economicdownturn and political crisis in Zimbabwe. Theproject has created an estimated 1,000 new jobsand there is no evidence that job quality has beenreduced. No fees are charged. Rather, over time,large firms are increasingly taking responsibilityfor and bearing the cost of facilitating their ownbusiness linkages. Increasing numbers of firmsare engaging in outsourcing as the practicebecomes common in the region.

McVay, Mary, "Manicaland Business Linkage Project, Shorebank Advisory Services, DRAFT, 2001.

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strategy overlaps with product developmentand commercialization, the strategy describedin the next section. Providing technical assist-ance to help potential entrepreneurs start BDSenterprises is one way of creating new suppliersand thus increasing supply. While some pro-grams provide technical assistance withoutfinancial support, others combine the two.

Technical assistance programs aredesigned in response to specific problems foundamong suppliers, for example:55

� a lack of the technical skills that suppliersneed to provide quality services to SEs,

� a lack of business skills such as marketing,pricing and management,

� limited information about SE consumers’desired service benefits and features,

� limited ability or experience in designingservices for SEs.

In many cases, technical assistance notonly addresses these problems but also lessenssupplier risk in diversifying into SE markets by

absorbing some of the costs of innovation andneeded business changes.

Many market development programs havefound that technical assistance to suppliers is animportant part of almost any market develop-ment strategy. Even where weak demand is thekey problem in the market, suppliers may needsome help to learn how to profitably meet SEdemand for services. For example, the Para-guay voucher scheme is starting to providetraining to suppliers in order to help themrespond to the increases in SE demand withcourses appropriate for SEs.56 Donors reportthat the increased technical assistance requiredunder the market development approach is akey change from previous programs, whichconcentrated more on financial assistance.57

A key advantage of technical assistance isthat it allows facilitators to target specific prob-lems in supply. However, a disadvantage of theapproach is its potential to distort markets byworking with only a few suppliers. In markets


56 Botelho and Goldmark, 2000.

57 Tomecko, 2000.

Example 30: Technical assistance to suppliersGTZ and Information Services in Sri Lanka

In Sri Lanka, GTZ is helping selected businesssupport organizations develop and sell new orimproved business information services based onmodern information technology. The programhas two main components:1. Upgrading the information technology and

technical skills that provide the basis for mar-ketable service products.

2. Developing and supporting commercializationof business information services for SEs, largeenterprises and other organizations.The information services that the business sup-

port organizations sold prior to the program wereeither raw data at nominal rates or sophisticated,high priced consultancies. Market research con-ducted by GTZ showed that there was unmetdemand for other information services and thatthe quality of existing products was not alwayssatisfactory to consumers.

GTZ also found that suppliers did not haveadequate hardware, technical skills or informa-tion links to deliver better information services.

To date, GTZ has supported the developmentor improvement of a range of business informa-tion services, including: � Provision of available information over the

counter on request� Information searches to address customers’

requests� Brokering business links through information

provision� Subscriptions for regular information updates

at fixed rates� Information based consultancy

GTZ’s technical assistance package to suppli-ers addresses both internal capacity such as tech-nical and data management skills as well asproduct development issues such as market infor-mation, product design, marketing, costing andpricing.

Gaertner, Udo and Roshanjith Siriniwasa, “Commercial ICT-based Business Information Services for MSME Develop-ment,” GTZ. Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets andMeasuring Performance.” Hanoi, Vietnam, April 2000. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor/index.htm


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where there are many suppliers, it may be diffi-cult for a facilitator to offer equal access to tech-nical assistance. Technical assistance to a fewmay offer them an unfair advantage. However,proponents of the approach argue that even inthis case, market development may follow ifother suppliers then copy business strategiesdeveloped by those that received assistance.

A particular challenge of the approach ismaking it cost-effective. Providing individual-ized technical assistance to small suppliers thatreach only a limited number of SEs is not likelyto be cost-effective. Programs can instead takeone of two routes:� Finding ways to provide technical assist-

ance or training to many suppliers at once.This will work if many suppliers in a mar-ket have the same problems.

� Targeting large suppliers that reach manySEs. While cost-effective, this strategy dis-criminates against small BDS suppliers andthus distorts the market. In the long run, the answer may be to

develop the capacity of the private sector itselfto provide technical assistance to suppliers. Inother words, programs will see BDS suppliersalso as consumers of BDS products anddevelop those markets that can provide BDSsuppliers with the services they want to growand develop.

Product development and commercialization

A strategy that is gaining popularity isproduct development and commercialization.This strategy responds to a lack of appropriateproducts for SEs in the market, as well as a lackof innovation on the part of suppliers. Thestrategy was first used with appropriate tech-nology. Now agencies are experimenting withproduct development and commercializationin a wide range of services including training,information services, advertising and financialadvisory services.

The appropriate technology (AT) move-ment attempts to assist low-income people indeveloping countries in adopting technologythat would improve their lives. Looking for away to increase the scale of programs, appro-priate technology organizations began experi-menting with distributing technology throughthe private sector. Now, the role of appropriatetechnology organizations has evolved fromdirect technology provision to research anddevelopment, identification and training ofmanufacturers and distributors, promotion,

and monitoring and evaluation. In short, ATorganizations play a “facilitation” role, for pri-vate sector technology suppliers.

Facilitators have copied this approach inmarkets for other services. These facilitatorsperform roles that private sector firms arereluctant or unable to take on, for exampleresearch and development, publicizing newservices, or quality control of services. Privatefirms often do not want these roles because thebenefits tend to accrue to many firms ratherthan just one – particularly in markets whereintellectual property rights are virtually non-existent. In addition, suppliers in some marketsare not skilled innovators. They lack both theknowledge and the experience to develop newand attractive service products.

There are now several different types ofproduct development interventions:58

� Transfer of standardized products (fran-chise-style), such as the ILO’s Start andImprove Your Business training coursesand GTZ’s CEFE training courses. A facil-itator trains suppliers in the provision ofthese courses, accredits suppliers and mon-itors provision of courses to ensure quality.

� Market research to identify and provideinformation on market niches and productopportunities to service suppliers. Thismay include general market research,which is then provided to suppliers to pro-mote innovation or market research spe-cific to a new product idea.

� Permanent or long-term market-basedfacilitators who identify, develop and sellnew products to service suppliers. Thisstrategy has been used with training serv-ices, and has been successful in reachingsuppliers that are often overlooked by tradi-tional BDS programs because the suppliersare small and/or operate in the informalsector. Experience has shown that trainerswant training in new courses to offer SEs aswell as courses in new skills and trainingmethodologies. In order to make the train-ing of trainers courses appealing to suppli-ers, facilitators develop and test the coursesto ensure that they are marketable.

� Promoting franchising of appropriateproducts by bringing foreign suppliers intoa country and linking them with local sup-pliers. The facilitator also helps the foreign


46


and local suppliers to adapt a service to thelocal conditions and test-market it.

Managers implementing product develop-ment strategies have found that the facilitatormust usually play a key role in:

� defining the product concept, � gathering market information (survey, sim-

ple research),� building supplier capacity to research and

deliver new products,� creating awareness and understanding

among consumers about a new product,and

� conducting marketing trials.59

A key advantage of the approach is that itresponds to a common BDS market weakness,lack of appropriate products for SEs. Theapproach promotes flexibility and innovationamong suppliers and builds the capacity of themarket to respond to SE demand. However,programs have encountered a number of chal-lenges. Costs in product development can behigh. Suppliers may not initially be interestedin targeting new markets, particularly if theircurrent markets are profitable. Promotingdemand is often essential to success and mustusually be subsidized both to reduce supplier

59 Tomecko, PowerPoint 2000.

Example 31. Product development and commercializationApprotech and IDE-Irrigation Technology: The treadle pump

The treadle pump is a manual water pumpdesigned and adapted to various country con-texts by appropriate technology organizations. Ithas now been disseminated in a variety of coun-tries in Asia and Africa including Bangladesh,Eastern India, Nepal, Kenya, Tanzania andUganda. The pumps are treadle operated, port-able, and generally manufactured in mediumscale workshops. Named the “MoneyMaker” byApproTEC in East Africa, farmers can readilyincrease their incomes by fourfold or more by irri-gating farms using the pump.

IDE developed and is disseminating the pumpin Bangladesh. There are now over one milliontreadle pump users in Bangladesh. IDE’s benefitto cost ratio is 33 to 1. ApproTEC has been dis-seminating treadle pumps in Kenya for four years.Approximately 6,000 pumps have been sold inKenya, Tanzania and Uganda, generating anestimated $14 million in income and creatingsome 8,000 jobs. ApproTEC’s benefit-cost ratioin a recent pump dissemination project, notincluding research and development costs, wasapproximately 27 to 1. Both AT organizationsmanufacture, promote and distribute the pumpsthrough the private sector. For example, in 2000,

the pump delivery channel in Bangladesh con-sisted of 65 manufacturers, 700 dealers and5,000 installers.

ApproTEC has found that private sector busi-nesses are willing to manufacture and sellpumps, but only when they can be assured of asufficient volume of sales. Similarly, dealers arewilling to sell pumps, but are less willing to riskinvesting in marketing and promotion of a newitem, and often need access to some credit to getstarted in pump sales. ApproTEC has found thatthe market develops most effectively, reachinglower income people with affordable technology,when ApproTEC carries out and subsidizes mar-keting, promotion, quality and price control anddistribution activities. ApproTEC’s long-termvision is that, when the market matures, privatebusiness will take over ApproTEC’s activities andaffordable technology will become sustainable inthe market at a large scale.

Despite the impressive numbers, the pumps arestill only reaching a small percentage of potentialusers. Experts are concerned that delivery chan-nels are not dynamic and profitable enough toachieve high market penetration. Addressing thisissue is a key challenge for these programs.

Write, David, “ApproTEC: Developing Technology Based Business Opportunities,” Donor Committee Conference on Business Develop-ment Services: How sustainable cant they really be?" Harare, Zimbabwe, March, 1998. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor

McVay, Mary “Feasibility Assessment of ApproTEC “Moneymaker” Irrigation technology in Uganda.” August, 1999, DFID. Downing,Jeanne and Paul Polak, The Development and Commercialization of the Treadle Pump in Bangladesh: A Case of Product Marketing on aMass Scale, Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Measuring Perfor-mance. Hanoi, Vietnam, April 2000. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor

ApproTEC Annual Report, 1999-2000 www.approtec.org .


47

risk and because the benefits often accrue tomore than one supplier.

Sustainability is also a key challenge forthese programs. Determining when and how toturn product development activities over to theprivate sector is often tricky. Some productdevelopment and commercialization programshave found that to succeed, the program mustnot only develop products but also provide arange of on-going support services, for exam-ple, advertising and branding, quality controland remedial service support and upgrades.60

Donors are experimenting with ways to help

facilitators become private sector actors as well,selling their services to many suppliers. A fewprograms have successfully established com-mercial facilitators who sell new products andother services to suppliers.

Social venture capitalIn some markets, BDS suppliers want to

increase and/or improve services for SEs butlack financing to invest in service expansion. Inthis case, a donor or a facilitator can provideventure capital to new or existing suppliers.This capital is often coupled with technicalassistance to improve the capacity of the suppli-ers. Sometimes, the donor or facilitator takes atemporary ownership stake in the suppliers in60 McKenzie, 2000.

Example 32. Product development and commercializationGTZ in several BDS markets, Nepal

In Nepal, GTZ is focusing on product develop-ment and commercialization in several businessservice markets. The strategy combines the devel-opment of new products, supplier technicalassistance and demand promotion with the aimof getting as many commercially viable productsto the market for the least cost. GTZ focuses onmany products and many suppliers. The empha-sis is on “product viability” rather than suppliersustainability.

One of GTZ’s first efforts was assisting a tech-nical education facility. The school approachedGTZ for a grant to help them add another year totheir long-term auto mechanics course. Instead,GTZ encouraged them to think about profitableways to use this core competence. The schoolcame back with the idea of selling training inbasic auto maintenance to car owners or drivers.GTZ provided a brief orientation to the school’sstaff on how to conduct a market survey. Theschool then conducted the survey and designed apilot course. To reduce the school’s risks, GTZpaid for initial advertising for the course. Theschool is now on its fifth training course. The

courses are profitable and the school is startingto target new business markets.

Recent new products have included: � presentation skills,� Value Added Tax services for the construction

sector,� basic banking for the garment/carpet industry,� arbitration in the tourism sector, and� using market research to increase profits and

sales.

Efforts to promote innovation among suppliershave included:� Conducting a partially subsidized training for

suppliers on how to use marketing researchtools to identify profitable new markets anddevelop and test new products.

� Making a standing offer to suppliers to providetechnical assistance in applying marketingresearch tools and developing new products.

� Providing market information to suppliers,from GTZ’s BDS market assessment and othermarket research, that identify potentially prof-itable market niches and describe consumers’desired service benefits and features.

Tomecko, Jim. “The Application of Market Led Tools in the Design of BDS Interventions,” GTZ for the Donor Committee BDS Conference inHanoi, 2000. Website: Donor Committee Conference on Business Services for Small Enterprises in Asia: Developing Markets and Mea-suring Performance.” Hanoi, Vietnam, April 2000. Website: http://www.ilo.org/public/english/employment/ent/sed/bds/donor/index.htm;

Unpublished correspondence with GTZ Nepal; Tomecko, Jim , PowerPoint Presentation on Product Development and Commercialization toGTZ in September, 2000, available on website: http://www.gtz.de/cefe. Or contact Prashant Rana of GTZ Nepal at [email protected]

For information on marketing research tools to support product innovation, see Miehlbradt, Alexandra. “Technical Note on Applying Mar-keting Research to BDS Market Development,” Development Alternatives, Inc under the USAID Microenterprise Best Practices program.Website: www.mip.org.

48


order to maintain some control over their busi-ness strategies and the services they developand offer to SEs. This strategy has been usednot only with BDS suppliers in order toincrease the quantity of supply but also withBDS facilitators in order to commercialize newproducts for SEs.

Social venture capital is appropriate inmarkets where there is a quantitative lack ofsupply. Suppliers may be offering appropriateproducts but consumers can not get as much asthey want when they want it. While suppliersmight be able to access capital from privatesources in a well functioning financial market,in many developing countries it is difficult forsmall suppliers or start-ups with minimal assetsto secure loans or attract investors.

The key difference between social venturecapital and previous types of financial assist-ance to suppliers is the transactional nature ofassistance. Rather than grants, donors or facil-itators either invest in suppliers or make finan-

cial support dependent on the achievement ofagreed-upon activities and objectives. Gener-ally, programs offering venture capital provideonly part of the needed investments, while sup-pliers contribute the other part. Capital is usu-ally provided to enable suppliers to increasetheir own capacities or to develop and test newproducts for SEs; it is not meant to subsidizeon-going sale of services to SEs.

Social venture capital has the potential toaddress a clear and specific constraint on theexpansion of supply. However, the approachalso has considerable potential for market dis-tortion. An infusion of capital into the supply ofservices almost inevitably turns suppliers’attention away from consumers and towarddonors. This is often not only true for partnersuppliers but for other suppliers as well. Thechallenge for programs is to ensure that themarket development impact of social venturecapital outweighs the market distortion impact.

Example 33. Social venture capital:Swisscontact and Business Centres

Swisscontact, a Swiss NGO with major fund-ing from SDC, is helping to create business cen-tres in a variety of countries including Indonesia,Philippines, Bangladesh, Colombia, Ecuadorand Peru. Some of the business centres cater to aspecific subsector providing services such as aretail outlet, bulk buying of inputs, common serv-ice facilities and marketing assistance mainly toSEs. Others serve a variety of enterprises, provid-ing a range of services such as training, consult-ing and administrative services to SEs and oftenlarger enterprises as well.

Swisscontact provides the centres with a pack-age of start-up services including both financialand technical assistance. The philosophy ofSwisscontact is that the development of commer-cially sustainable centres takes place only if busi-ness practices are used from the beginning. Thebusiness centres are selected through a biddingprocess that includes detailed business plans anda financial commitment from the bidders. Thebidding is open to any kind of organization,including business associations, private firms andNGOs and aims to build on existing business

support institutions rather than creating newones.

Swisscontact signs a contract with successfulbidders. The contract stipulates that financialassistance is dependent on the achievement ofagreed financial targets. Financial assistance typ-ically includes some start-up costs and covers upto 50% of operating costs in the first six to twelvemonths. Financial assistance continues (if thecentre is meeting its targets) on a declining basisfor one to five years. Financial indicators for thecentres include financial sustianability, cost effec-tiveness and gross margins for various services.Technical assistance provided may includeadvice, market surveys, new product ideas, net-working with other business centres, auditingservices and training.

Swisscontact’s experience has shown them theimportance of business-like relationships withsuppliers. Indeed, Swisscontact is now moreclosely examining private sector models of busi-ness investment such as venture capital compa-nies.

Gibson, Alan and Robert Hitchins, “Swisscontact: Business Centre Approach in Indonesia and the Philippines” Spring-field Centre. Prepared for the Donor Committee Conference on Business Development Services: Building a Modern andEffective Business Service Sector for Small Enterprises. Rio de Janeiro, Brazil, April, 1999. http://www.ilo.org/public/english/employment/ent/sed/bds/donor

Hallberg, Kristen,“A Market Oriented Strategy for Small and Medium Scale Enterprises,” IFC Discussion Paper, February, 2000.

49

HOW IS BDS PROGRAM PERFORMANCE BEING MEASURED?

There is still considerable debate abouthow to measure performance for BDS pro-grams, in either more traditional programs ormarket development programs. But lessons arebeginning to emerge about how performancemeasurement might be different using a marketdevelopment approach. Consensus is develop-ing around what should be measured and workon a common performance measurementframework is on-going. There is also someagreement on what research needs to be donein order to improve performance measurementin the field.

Trends in performance measurement

As donors and organizations grapple withapplying the market development approach toBDS, performance measurement is also chang-ing. While some aspects of performance meas-urement, such as an interest in impact on SEs,has not changed, other aspects have changed,such as measuring market development. Moreattention is also being paid to who shouldmeasure what kinds of performance and forwhat reasons, as well as how to measure per-formance.

What to measure?The key elements of performance in SE

programs have not changed:� Outreach, meaning both the number of

SEs reached (scale) and the effort to pro-vide services to people not served by exist-ing markets (access);

� Cost-Effectiveness of program activi-ties;

� Impact on SEs and the wider economic/social environment; and

� Sustainability of business service deliv-ery and supplier institutions.

There is still a lot of interest in understand-ing and measuring impact on SEs and the widereconomic and social environment. However, thefield is realizing that this can only be measuredregularly on a limited basis. Understanding theimpact of programs on SEs and the wider envi-ronment in depth requires quite expensive andrigorous studies that can only be performedinfrequently. For regular monitoring, experts areexploring the use of proxies, indicators that areeasier to measure than final impact but are

linked to final impact. Often these proxy indica-tors rely on SEs own perceptions of the servicesthey receive as measured by their satisfaction orwillingness to purchase services.61

Market development programs are alsobeginning to rely on indicators of change in themarket that relate to the specific issues the pro-gram is trying to address. For example, if themarket problem is SE lack of awareness of serv-ices and suppliers, a performance indicatorwould be the change in the proportion of SEsthat are aware of the service and suppliers forthat service.62 If the market problem is a lack ofappropriate products for SEs, useful indicatorsmight be the change in the number of SEs pur-chasing services and the change in the propor-tion of SEs customers that are satisfied withservices.

Who should measure what and why?There is agreement that the main reasons

for measuring performance are to improve pro-grams and to prove that programs are havingthe desired impact. How-ever, there is increasingdebate over who shouldcarry out what types of per-formance and impactassessment, and whoshould pay for these activi-ties. Some experts feel thatdifferent players have dif-ferent interests in terms ofperformance measure-ment, and that the players who care most aboutparticular information should pay for thatinformation. For example, providers would payfor management information that can helpthem expand their markets, improve their serv-ices and increase their profits. Facilitatorsmight be more interested in understanding theexpansion of the market for a BDS and, some-times, the performance of suppliers with whomthey are working. Donors might be most con-cerned with how funds are used, ultimateimpact of services on SEs, and wider economicand social goals.63

61 Gibson, 2001; Canedo, 2000; Miehlbradt, 2001b;McVay 2001.

62 Gibson, Hitchins, Bear, 2001.63 Committee of Donor Agencies, 2001

8. How is BDS program performance being measured?

Some experts feel that different players have different interests in terms of performance measurement, and that the players who care most about particular information should pay for that information.

50


On the other hand, many suppliers, facili-tators and donors are interested in most aspectsof performance. And, the PMF Field Researchteam is discovering that from a practical per-spective, basic performance information maybe best gathered by one institution, becausedata for different aspects of performance areoften gathered in similar surveys, and becauseone aspect of performance shouldn't be inter-preted in isolation of other aspects. For exam-ple, a BDS market survey provides informationabout whether the market in general is expand-ing and about the market position of particularservice providers. Also, whether some providershave achieved sustainability should not be con-sidered a success unless outreach is also highand the service is demonstrated to have a posi-tive impact. The PMF Field Research is identi-fying practical and valid ways for practitionersat the facilitator and large-scale supplier level togather and collect basic performance data.64

Of course, any in-depth market analysis orimpact assessment may indeed still need to becarried out and funded independently. Thedebate continues and the PMF Field Researchshould continue to shed light on this topic.

How to measure?While how to measure performance is not

a new issue, experts and practitioners are revis-iting this question as it relates to market devel-

opment programs. There isstill agreement that a varietyof tools are necessary includ-ing both quantitative andqualitative approaches. Thereis also still agreement that it isimportant to use participatoryapproaches that take intoaccount the view points of var-ious stakeholders in pro-

grams.65 However, experts and practitionersare working on more efficient and effectiveways of measuring performance. 66 There isincreasing interest in and use of private sectortools for performance measurement, such asconsumer marketing research tools for measur-ing changes in markets and private sector busi-ness tools for measuring provider performance.Experts are also encouraging practitioners todevelop tighter program logframes – the logical

series of events by which program strategiesproduce results – and to develop performancemonitoring indicators and systems based on aprogram’s logframe.67

Developing a common performance measurement framework

There is considerable support in the BDSfield for a common performance measurementsystem that would begin to allow some compar-ison among different BDS projects and help thefield extract lessons learned from a range ofprograms. In 1998, USAID’s MicroenterpriseBest Practices (MBP) project and the SEEPNetwork68 initiated an effort to develop a com-mon performance measurement system, calledthe Performance Measurement Framework(PMF). The PMF started as a collection of bestpractice performance indicators in-use by BDSpractitioners. The Donor Committee on SmallEnterprise Development, with leadership fromthe ILO and USAID, supported further devel-opment of the framework through a virtualconference of over 100 BDS practitioners,researchers and donors in 1999. Several pro-grams developed case studies using the result-ing framework and presented their findings atthe Donor Conference in Hanoi in April, 2000.Now, the framework is being further developedvia the PMF Field Research69 initiative, whichis comprised of practitioners and technicalexperts applying the framework around theworld, and is advised by the Donor Committee.

The PMF attempts to organize a set ofvalid, practical and useful indicators to assessthe performance of all BDS initiatives. In thelong run, it is hoped that the PMF will: � Enable some comparison of program per-

formance;� Help identify and synthesize best practices;� Provide important information to improve

services for SEs;� Contribute to the development of fair

funding allocation decisions and fair per-formance standards.The PMF is changing as the BDS field

changes. Changes are expected before the

64 Canedo, 2000; Miehlbradt, 2001b; McVay 2001.65 DFID, 2001.66 Gibson, Hitchins, Bear, 2001.

67 Gibson, 2001.68 Small Enterprise Education and Promotion Network, an

association of US and Canada-base NGOs that develop smallenterprises in developing and transitional economies. www.seepnetwork.org

69 www.mip.org/pubs/MBP/BDSFramework.htm

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.


51

PMF can begin to achieve these objectives.However, donors and practitioners recognizethe importance of this initiative to help movethe field forward.

The PMF is structured to reflect the mar-ket development paradigm and to measurethree common objectives of SE programs: 1. outreach (both scale and access), 2. cost-effectiveness of program activities and

sustainability of services and providers, and 3. impact on SE clients.

Each of these objectives has been equatedwith progress at three levels: outreach with mar-ket development, sustainability and cost-effective-ness with provider development, and impact withchanges in SEs. Within these three broad cate-gories, the framework proposes objectives thata BDS program might be trying to achieve:

� Outreach:– Expand the market for BDS.– Develop a high quality, diverse, compet-

itive market.– Increase access to BDS by under-served

groups.

� Sustainability and Cost Effectiveness– Promote sustainable access to services.– Maximize program cost effectiveness.

� Impact– Increase consumer acquisition of BDS.– Increase customer use of BDS.– Increase customer benefits from BDS.

The PMF contains general guidance andrational for these goals, specific indicators forassessing the goals, and tools and methodolo-gies for data collection and analysis. The devel-opment of the PMF is expected to be a long-term endeavor, and the framework shouldevolve as the field continues to change.70 Areport of the PMF Field Research findings willbe available in September, 2001.

Performance measurement challenges and the research agenda

Measuring the performance of BDS pro-grams is plagued by typical performance meas-urement challenges, and some that areparticular to BDS programs. Some of the typi-cal challenges that the monitoring and evalua-tion field is grappling with include:� Collecting impact data from informal sec-

tor firms.� Even if such data is collected, attributing

changes to a specific intervention.� Determining negative impacts, such as

benefits for one SE occurring at theexpense of another, unassisted SE.

� Developing standard definitions for suchthings as firm size and location (rural,urban, peri-urban, and “poor” clients).

70 McVay, 1999a.

Table 5. PMF Field Research Participating Programs1

Program Location Services Type of BDS organization

SEEDS RuralSri Lanka

Technical training; Business Management Training

Direct, NGO service provider. Community development organization with separate microfinance and BDS units.

Swisscontact Philippines

Urban Philippines Business Services Centers – training, trade shows

International NGO facilitator, supporting business centers that are part of business associations, NGOs and private sector firms.

SwisscontactPeru

UrbanPeru

Management training, Consulting services

International NGO facilitator supporting NGOs and private sector BDS suppliers.

CECI/MARD Rural Nepal Agricultural training and marketing, veterinary services

International NGO facilitator supporting ngo, cooperative and private entrepreneurial service providers.

IEDI Urban Nepal Management training

Direct NGO service provider

FAIDA RuralTanzania

Management Training

Tanzanian facilitator supporting private sector suppliers.

1 Collaborating organizations include Action for Enterprise Mali, ILO FIT and voucher programs supported by USAID.

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Table 6. BDS performance measurement framework

Goal 1. Increase Outreach (scale and access)

BDS market development indicators

Objective Indicators(Report for the overall market and for the BDS program’s contribution to the market)

Expand the market for business development services

� Number of SEs acquiring a service through any method and purchasing aservice through commercial transactions.*

� Amount of sales by BDS suppliers.*� Market penetration: % 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.� Awareness: % of SEs aware of a service.� Reach: % of those aware who have purchased a service at least once.

Develop a high-quality, diverse, competitive market

� Number of BDS suppliers*� Number of BDS products � Retention: % of multiple-purchasers out of all purchasers.� Satisfaction with last service purchase.� Reasons for purchase, non-purchase and choice of supplier

Increase access of under-served groups to business development services

� Extent of access: % of SE customers purchasing a service that represent targetedpopulations (women, microenterprises, exporters, etc.)*

� Target market penetration: % of potential SE targeted markets (women,microenterprises, exporters, etc.) acquiring a service through any method andpurchasing a service.

Goal 2. Sustainability and cost-effectiveness

Assessing BDS suppliers

Objective Indicators

Achieve supplier sustainability

� BDS supplier financial sustainability (non-donor revenues/total expenses)*� BDS contribution margin ((SE revenues from a service - direct expenses for the

service) / total expenses)� BDS viability (revenues from a service / direct expenses for the service)

Improve program cost-effectiveness

� Simplified cost-benefit assessment comparing annual program costs toaggregate annual program benefits for entrepreneurs*

� Annual program expenses per customer served*� Annual program expenses per supplier assisted*� Annual program expenses per firm that “used” a service.� Annual program expenses per firm that reported “benefiting from” a service.

Goal 3. Impact

Assessing BDS customers, SEs

Objective Indicators

Increase customer acquisition of business development services

� Customer satisfaction with a business development service*� Repeat customers (percent of customers who buy more than once)*

Increase customer use of business development services

� Percent of customers who improve business practices, as defined by thesupplier*

Increase customer benefits from business development services

� Change in gross profit.*

* These indicators are in use in a fair number of BDS programs. Note that the indicators under “market development” with an asterisk aremainly used to assess the outreach of particular programs but are not widely used to assess the BDS market in general.


53

� Avoiding bias by the impact assessor ortechnique used.

� Appropriately calculating cost-benefitratios using weak impact data.

� Identifying the most cost effective indica-tors and balancing the cost of data collec-tion against quality of data.

� Interpreting findings across vastly differenteconomic, political and cultural contexts.

In addition, the BDS field is grappling withparticular concerns:� How to define BDS markets.� How to count BDS suppliers when so

many are informal and so much BDS isnon-transactional.

� How to define a BDS in order to identifyand analyze the market.

� How to collect comparable data across thewide range of services that constitute BDS.

� As programs focus more on overall marketdevelopment, how to collect reliable datafrom market players who are not affiliatedwith BDS programs.

� Given the wide range of complex institu-tional arrangements in BDS programs,how to allocate costs in standard ways, sothat sustainability and cost-effectivenessmeasures are valid.

� How best to measure the ultimate impacton SE performance.

Donors and practitioners recognize thatthe field needs to learn much more about pro-gram impact. A research agenda to addresssome of the key issues is emerging. It includes:71

� Identifying proxies for perform-ance. Given the cost and difficulty ofmeasuring impact at either the market orclient levels, donors and practitioners arelooking for proxies that are easier to meas-ure and correlate with impact. Before theproxies could be widely used, the correla-tion with impact would need to be tested ina variety of circumstances.

� Confirming the impact of BDS. Mostdonors and practitioners pursue BDS pro-grams in order to positively affect poorpeople, primarily through poverty allevia-tion and employment generation. There isstill a lack of hard data generated throughrigorous studies about the impact of BDSat this level.

� Understanding the impact of BDSand Small Business Promotion. Howdo BDS and small business promotion con-tribute to poverty alleviation? For example,do small businesses generate jobs for thepoor and for those with low skills?

� Understanding BDS Markets. Inorder to measure progress toward a “devel-oped” BDS market, organizations need abetter understanding of how BDS marketsbehave and develop. This better under-standing would help the field identifyappropriate indicators for market develop-ment.

� Understanding the Effect of MarketDevelopment on SEs: While there isgeneral agreement that better developedBDS markets will benefit SEs, this has notbeen confirmed through rigorous studies.Understanding if and how better devel-oped BDS markets help SEs is importantfor donor accountability.

71 This section draws on the minutes of the Committee ofDonor Agencies SE Impact and Performance Working GroupMeeting of March, 2001.

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WHAT ARE EMERGING LESSONS IN BDS MARKET DEVELOPMENT?

The market development approach as anexplicit development strategy is still new, andonly a little evidence about what works andwhat doesn’t is currently available. Neverthe-less, analysis of programs that pioneeredaspects of the market development approachand emerging lessons from those programsintentionally applying a market developmentapproach provide some lessons in how to pur-sue BDS market development. This sectionhighlights those emerging lessons.

Reaching underserved groupsBecause it is a priority for many SE pro-

grams, considerable work is being done todetermine how a market development

approach can adequatelyreach those SEs that are typ-ically underserved, such asmicro enterprises, women-owned enterprises and low-income enterprises. Emerg-ing evidence is positive –there is considerable supportfor the idea that the marketdevelopment approach can

reach typically underserved SEs.72 While it istrue that several BDS programs, most notablyBusiness Service Centers offering training andconsulting services, have moved up-market asthey attempt to become sustainable73, newresearch shows that some BDS suppliers canreach this segment sustainably. Some are sup-pliers that are informal and small-scale them-selves.74 Others are more formal programs. Forexample, a study of microenterprise marketingprograms analyzed several marketing busi-nesses that serve the poor and concluded thatthere was no correlation between sustainabilityand outreach to larger firms. 75 One strategy inuse is to continue to identify and develop serv-ices and delivery mechanisms that reach down-market.76 Another strategy is to group the poorinto clusters or networks that create economiesof scale and reduce costs.77

Work on this issue is producing a numberof emerging lessons about how to reach bothlow-income SEs and those SEs that are under-served due to gender, ethnic or other social bar-riers:

Treat specific underserved groupsas market niches. Emerging evidence andanalysis indicates that it is best to treat specificunderserved groups as market segments withpotential rather than asgroups in need of char-ity or subsidies.78

Underserved groups,such as women entre-preneurs, often have dif-ferent demand forservices and service fea-tures than other SEsbecause they face somedifferent constraints to managing enterprises.In some cases, typically underserved groupshave not had access to services because suppli-ers have not viewed these groups as viable mar-ket niches. Convincing suppliers that thesegroups are a viable and growing market may bean important part of a market developmentprogram. When programs and suppliersunderstand these demands, they can developservice products which will appeal specificallyto those SEs that are typically underserved.Offering appropriate products will help to stim-ulate demand from underserved groups of SEs.For example, the FIT developed business toursin East Africa were popular with women entre-preneurs because they viewed the security oftravelling in groups as an important service fea-ture.79

Promote services appropriate forthe economic sectors in which unders-erved SEs operate. One way to targetunderserved SEs is to focus on services whichappeal to entrepreneurs in the markets inwhich many underserved SEs operate. Forexample, a program aiming to reach womenentrepreneurs can focus on services in whichmany women owned entrepreneurs operate,such as trade, restaurants, textiles or foodprocessing.80

72 Gminder, 2001; Horizonte, 2000; McVay 1999a.73 Lee and Bear, 1999.74 Hileman and Tanburn, 2000.75 McVay, 1999a.76 Hileman and Tanburn, 2000.77 Ceglie and Dini, 1999; McVay 1999a;

78 Gminder, 2001; Gibson, Hitchins, Bear, 2001.79 Unpublished correspondence with Jim Tanburn, 2001.80 Gminder, 2001.

9. What are emerging lessons in BDS market development?

One study of microenterprise marketing programs analyzed several marketing businesses that serve the poor and concluded that there was no correlation between sustainability and outreach to larger firms.

Underserved groups, such as women entrepreneurs, often have different demand for services and service features than other SEs because they face some different constraints to managing enterprises.


55

Pay particular attention to paymentmechanisms. Underserved groups are oftendisadvantaged economically and, therefore,unwilling or unable to pay for services up front.For these groups it is particularly important topromote services which provide appropriatepayment options. Embedded or third-partypaid for services are particularly accessible tothe poorest SEs because there is no financialoutlay for the entrepreneur. Other paymentoptions such as paying in installments, financ-ing and risk sharing may also help to increasedemand from underserved SEs.

Work with low-cost suppliers.81 It isunlikely that underserved SEs that are poor willever be able to pay the full cost of services pro-vided by formal organizations with large over-heads and sophisticated operations. There isalso often a cultural gap between low-incomeSEs and these institutions. Small-scale suppli-ers with low overheads and simple operations –often those in the informal sector – are morelikely to be able to serve low-income SEs prof-itably. Low-income SEs are more likely to feel

comfortable accessing services from these typesof suppliers.

Looking at services through consumers’ eyes

As program managers begin to apply theprinciples of the market developmentapproach, they are finding how important it isto see services through consumers eyes ratherthan donor or program definitions. This view-point starts with the definition of a specific busi-ness service using the benefit that consumersget from it rather than what a program is pro-moting. Managers are finding that only bedefining services by consumer benefits can pro-grams promote the services consumers want.Seeing services through consumers’ eyes is oneof the most important aspects of emphasizingdemand in program design and implementa-tion.

81 Gibson, Hitchins, Bear, 2001.

Example 34.Work with low-cost suppliersWomen Venture in the U.S.A.

Women Venture is a service provider in St.Paul, Minnesota offering training, technicalassistance and credit primarily to low-incomeand minority women. In order to increase itsoutreach, WV implemented a strategy of pro-viding two “tracks” of services. One is intensivesupport; the other is minimalist services includ-ing short courses in specific subject areas. Thisstrategy allows WV to focus on two differentsegments of women entrepreneurs – higherincome and lower income - by providing theservice features that each segment demands.While the program is not financially self-suffi-cient, this strategy enabled WV to decrease itscosts significantly while increasing outreach tothose women entrepreneurs often not access-ing business development services.

Kantor, Paula, “Promoting Women’s Entrepreneurship Develop-ment based on Good Practice Programs: Some Experiencesfrom the North to the South.” Series on Women’s Entrepreneur-ship Development and Gender in Enterprises – WEDGE Work-ing Paper No. 9, International Labour Organization. Website:www.ilo.org/seed

Example 35. The SE perspectiveICTs in Botswana

A recent study of the potential for informa-tion and communications technology servicesfor small enterprises in Botswana found thatcomputer-based information and communica-tion technologies (ICTs) must be seen as onlyone means to serve enterprise demand forinformation. Other information-handling tech-nologies, such as radio, TV, telephone, news-papers, books and people are equallyimportant. The findings of the study show thatICTs are unlikely to be useful for some smallenterprises who have no experience with ICTs.The priority for meeting this segment’s demandfor information is to build informal informationnetworks, develop community telecommunica-tions and develop radio, TV and newspaperchannels for information. The study also rec-ommends that greater emphasis be placed onthe “pull” factors that make enterprises want touse ICT based information services rather thanthe “push” factors that allow enterprises to usethese services. The study underlines the impor-tance of defining a service by what consumersget, “information,” than by what donors orgovernments might want to promote, ICTs.

Duncombe, Richard and Richard Heeks, “Information and Com-munication Technologies and Small Enterprise in Africa, Lessonsfrom Botswana.” IDPM, University of Manchester for DFID.Website: http://www.man.ac.uk/idpm/ictsmeaf.htm

56


Combining subsector and market development approaches

Many SE programs focus on assisting SEswithin a particular subsector such as textiles orfood processing. This approach has been par-ticularly popular since subsector analysis wasintroduced to the SE field in the early 1990s.Now, many program managers are wonderingif and how subsector based approaches to SEdevelopment are compatible with the marketdevelopment approach to BDS. Analysis ofpast subsector based programs is finding thatsome of these programs are already using someof the principles of market development. Theo-retical thinking is beginning to show how thesetwo approaches can be used in tandem.

Subsector analysis shows a program man-ager how SEs might be able to move into amore profitable market channel. Often thisanalysis points to services that SEs might needto move into this channel. For example, if SEswant to change from rural markets to urbanmarkets, quality control and product design aretwo services that they might need. In some tra-ditional subsector programs, NGOs offer thesetypes of services free or with subsidies to SEs.Using a market development approach, theprogram manager would instead assess the

market for the particular services identified inthe subsector analysis and design a programthrough which those services can be supplied toSEs through commercial channels. Using thisthinking, subsector analysis is one helpful toolfor choosing services to promote. Using themarket development approach, these servicesare then promoted by strengthening the com-mercial service market.

Analysis of past subsector programs isshowing that subsector analysis can be particu-larly useful in identifying the potential for pro-moting embedded services for SEs. One studyfound that using subsector analysis as a startingpoint may be a way to help ensure that SEsbenefit from services because attention is paidto the market for SE products as well as SEdemand for services.82 Proponents of subsectorbased programs argue that using subsectoranalysis as a starting point may be a way to pro-mote a greater depth of impact on SEs thanpurely responding to SEs demand for services.Others argue that SEs know best what services

82 Unpublished memo on the Shorebank Advisory Serv-ices “BDS Research in Market Access and Workforce Develop-ment Services for Small Business,” 2001.

Example 36. Combining subsector and market developmentAction for enterprise and the handicraft subsector in Mali

Action for Enterprise, a US based NGO, isimplementing a subsector based, BDS market-development program in Mali focused on thehandicraft subsector. AFE's participatory subsec-tor analysis revealed high demand for Malianproducts, but barriers in product developmentand sourcing, and regular product quality andsupply. The focus of the program is to assistsmall-scale handicraft producers to access exportmarkets. Rather than working directly with pro-ducers, however, AFE elected to strengthen exist-ing export agents in their role as marketintermediaries. AFE found that a number of serv-ices were needed by various types of firms in thehandicraft sector in order to increase exports.These services include product design, qualityassurance, technical support, training and busi-ness linkages. The program provides these serv-ices free to international handicraft buyers,Malian exporters and “master artisans” in the

handicraft sector, while building the capacity offirms in the market chain to provide services toeach other. For example, the program builds thecapacity of exporters to provide technical train-ing, quality and production control, productionfinancing and supply of raw materials to SE pro-ducers. The program trains master craftsmen toprovide product development advice to export-ers. Because providing these services to SEs isbeneficial for exporters, they are ready to embedthese services in their regular transactions withtheir SE suppliers. In its initial six months, the pro-gram worked with six exporters who had pre-pro-gram annual sales of around US$40,000 each,and reached 215 artisans who had an average offive employees. Within the six months, the export-ers had increased their sales by 87% and produc-ers had increased sales through export channelsby 124%.

McVay, Mary, “Shorebank Advisory Services: BDS Research in Market Access and Workforce Development Services for Small Businesses– Action for Enterprise: SEPA Program in Mali,” draft, December, 2000; unpublished memo by Gavin Anderson, International LabourOrganization, on an observation mission, March 2001. See the AFE website: http://www.actionforenterprise.org/mali.htm


57

are useful to them, so responding to theirdemand for services is sufficient insurance thatservices are beneficial to them.

Using both market assessment and action research

Program managers are finding that whilemarket assessment is very helpful for programdesign, it is not an infallible recipe that, whenfollowed, provides all the information neededto develop a BDS market. First, in the informa-tion analysis and program design process, thereis still considerable need for creativity, intuitionand determination to succeed. Second, there isstill a need for action research and the flexibil-ity to change strategies that are not working inthe implementation stage. Those programmangers implementing market developmentprograms recommend using both marketassessment and action research.

One key limitation of market assessment isthat it provides a picture of the current and pastmarket, some indications of trends in the mar-ket and information about consumer demandfor services. It does not show what will happenin the future. Therefore, the information froma market assessment must be combined with anentrepreneur’s eye to the future to determinethe best ways to expand and develop a market.As in the private sector, test marketing and trial

and error are still needed in program designand implementation.83

Planning for a new type of sustainability

Until recently, most program managersconsidered sustainability at the level of SEs andat the level of service providers. However, themarket development approach demands thatprogram mangers consider another level of sus-tainability - that of BDS markets. Key sustaina-bility questions now being asked are, “Can themarket sustain the changes promoted during amarket development program?” and “Can themarket continue growing and developing with-out intervention after a program ends?”

Experts in the BDS field have developed aframework for thinking about BDS market sus-tainability. The framework focuses on deter-mining who can sustainably perform each ofthe key functions required in a healthy BDSmarket. (See Diagram 6).84 The frameworkemphasizes not only who will perform eachfunction but also who will pay for it to be per-formed. Experts now encourage program man-agers to use this type of framework in planningfor the sustainability of market developmentprograms.

83 Miehlbradt, 2001.

84 Gibson, Hitchins, Bear, 2001.

Example 37. Using action research and market development

GTZ’s evolving market development strategies

GTZ’s market assessment showed that therewas a lack of appropriate service products fromboth donor supported and completely privatesector suppliers in several BDS markets. One ofGTZ’s initial strategies was to help donor sup-ported suppliers learn more about enterprises’demand for services and to adapt service prod-ucts to meet that demand. GTZ encouragedthese providers to sell services directly to enter-prises at profitable prices. However, GTZ foundthat private sector suppliers were more recep-tive to these efforts. Therefore, GTZ is nowplacing more program emphasis on workingwith private sector suppliers and less with donorsupported suppliers.

Unpublished correspondence with GTZ Nepal staff. For informa-tion, contact Prashant Rana at [email protected]

Example 38.Commercializing facilitator functions

The ILO FIT Program in Africa

The FIT program in Africa has establishedcommercial facilitators rather than workingthrough non-profit organizations. These facili-tators are service suppliers for the service sup-pliers. The primary roles they perform aregathering market information, identifyingopportunities and markets for BDS suppliersand product development and testing. Whilethe facilitators currently get payments from bothfrom donors and service suppliers, the pro-gram’s sustainability vision is that the facilita-tors will ultimately rely wholly on payments fromsuppliers and investors for their revenues.

Hileman, Milena and Jim Tanburn, The Wheels of Trade –Developing Markets for Business Services, Intermediate Technol-ogy Publications, 2000. Available from IT Publications or Ama-zon.com

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Promoting SEs as service suppliersMost programs concentrate on SEs as con-

sumers of BDS. However, new studies and pro-

grams are showing that SEs are also BDSsuppliers. Promoting this role can help these SEsuppliers as well as open opportunities for low-income people to become BDS suppliers. Onestrategy gaining popularity is franchising, inwhich a large BDS supplier sells franchises toSEs which then sell business services. Thisstrategy is particularly common in telecommu-nications. For example, one program in Africais working with a large mobile telecommunica-tions company that is launching a “villagephone” package. The telecom company pro-vides training and support to rural entrepre-neurs who use a mobile phone to start a publiccall business. This company has recognized theneed to specifically target women for the start-up package because women-operated busi-nesses are more likely to attract both male andfemale clientele. The telecom company sees thestrategy as a way to expand their sales – whilerural entrepreneurs have the opportunity tostart a business with the backing of a large com-pany.85

85 Unpublished correspondence with Jim Tanburn, 2001.

Private sector(for profit)

Not forprofit sector

Businessmembershiporganization

Businessnetworks

4. Who Pays?

Facilitatinginterventions from government or donors

2. Key supply-side players

1. Market functions

Diagram 6. Framework for BDS market sustainability

Delivery of services

InformationCoordinationResearch and developmentSkills enhancement

Regulation Advocacy

Product development

State

3. Who Does?

Example 39. SE service suppliersSmall enterprises in the India

software industry

The Indian software industry – worth approx-imately US $3.9 million in 1998/99 – isincreasingly global, affluent and concentratedin large enterprises. However, recent researchshows that there is a hidden industry of SEsunderlying the sector. These SEs provide ICTservices to other businesses. They fall mainlyinto three categories: internet/email bureaus,data entry and processing services, and soft-ware customization services. Start-up costs forthese businesses are relatively low. They areable to offer significant price-competitiveness,personalized and flexible services.

Duncome, Richard and Richard Heeks, “Enterprise Developmentand Information and Communications Technologies in Develop-ing Countries: ICT – Flyers” IDPM University of Manchester forDFID. Website: http://www.man.ac.uk/idpm

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WHAT ARE THE CURRENT DEBATES AND CHALLENGES IN THE BDS FIELD?

The BDS field has made significantprogress over the last five years. Still, there aremany unanswered question. Is it possible todevelop wholly private sector markets for alltypes of services? Will this new direction posi-tively or negatively affect outreach to the poor?What types of subsidies are appropriate, andwhen? What should be the role of the state infacilitating BDS for SEs? The field is still facingsignificant challenges as it endeavors to servelarger numbers of SEs, to increase access forpoor and more remote SEs, to achieve sustain-ability and to develop vibrant BDS markets.This section outlines some of these remainingchallenges and the debates that surround them.

The starting point and scope for BDS programs

While there is agreement that servicesshould be demand-driven, there is considerabledebate about the starting point for choosingservices. Some practitioners argue that thoseservices in most demand by a broad range ofSEs should be chosen. Others argue that pro-grams should start with a particular targetgroup – often an under-served one – andchoose the services they demand. Still otherssay programs should start by looking at a spe-cific subsector and choosing the services SEs inthat subsector demand. It is likely that all theseroutes are reasonable alternatives and thechoice should depend on a program’s objec-tives and institutional perspective.

Similarly, there is debate about the appro-priate scope of BDS programs. Some practi-

tioners argue that programsshould focus on a single busi-ness service market in orderto stay focused and becomeexperts in that market. Oth-ers say that a program can bedesigned around a particular

market problem facing different BDS services.For example, voucher programs could beextended to cover other types of BDS in addi-tion to training services. Still others say the onlyway to really have an impact on SEs is to pro-mote a range of business services at the sametime so that SEs have the breadth of supportservices they need to grow and develop. Manysubsector development programs, for example,

promote several services that help SEs gainaccess to better markets. More experience isneeded with the different options before thefield can shed light on the issues and trade-offsinherent in these choices.

Assessing marketsWhile there is general agreement that it is

important to assess a market before starting aBDS market development program, there isconsiderable debate about how extensive anassessment is needed and the best mix of toolsfor conducting assessments in different circum-stances. A number of donors are now conduct-ing market assessments using both quantitativeand qualitative tools. Preliminary lessons fromthese assessments indicate that quantitativemarket assessment tools are very useful in manyBDS markets but may not be useful in veryweak BDS markets. Qualitative tools may bemore appropriate for these circumstances. Pro-grams are also experimenting with the appro-priate mix of up front market assessment andon-going action research. Experts are gather-ing lessons learned in order to determine whattypes of tools are most appropriate in differentmarket circumstances and how to maximizethe cost-efficiency of market assessments.

Ensuring that low-income, remote and other under-served SEs benefit from commercial services

Although there is broad support for themarket development approach there is stilldebate as to whether it is appropriate for thepoorest entrepreneurs. Theapproach is particularly ques-tioned by those who serve SEsin remote rural areas wheremarkets do not function well orwho serve SEs that areexcluded from the market dueto gender, ethnic or othersocial barriers. These practi-tioners feel that market playershave traditionally excluded orexploited the poor, and that itis unrealistic to think that mar-kets will work to benefit the poor on a largescale. Proponents of the market developmentparadigm argue that not integrating marginal-

10. What are the current debates and challenges in the BDS field?

Some practitioners argue that programs should focus on a single business service market in order to stay focused and become experts in that market.

Proponents of the market development paradigm arguethat not integrating marginalized entrepreneurs into markets will further exclude them from the benefits of economic development.

60


ized entrepreneurs into markets will furtherexclude them from the benefits of economicdevelopment. They point to progress made inlearning how to reach these groups with marketdevelopment programs. Proponents of themarket development approach point to cases inwhich commercial services have reached thepoorest. Additional action research and on-going program monitoring using common per-formance measures may help increase under-standing of how markets do, and do not, servethe poor.

Financing BDSA common market weakness for low-

income consumers is a lack of appropriatefinancing when consumers cannot pay for serv-ices up front. Some solutions were presented in

Chapter VI. There maybe more to learn fromadditional paymentoptions offered by the pri-vate sector. One strategymany practitioners con-tinue to explore is linkingBDS with microfinanceservices. As describedabove in the section

"piggy-backing," there are many reasons formicrofinance and BDS to remain quite sepa-rate, but the potential for offering mutuallybeneficial services using strategies that employbest practices in both fields is being explored.As BDS markets develop, appropriate financ-ing strategies may start to become a normalaspect of business services initiatives.

A second market weakness is the lack offinance for BDS suppliers. As BDS suppliersare expected to be sustainable and more pro-grams work with private sector suppliers,grants no longer seem an appropriate financinginstrument. Given the capital constraints inmost developing countries, BDS suppliers havetrouble accessing finance for expansion. BDSfacilitators are often asked to finance BDS sup-pliers. Where grants are in use, the trend is tolink grants to supplier performance in achiev-ing financial sustainability.86 Other financingmechanisms for new suppliers include equityand loan capital from donor or facilitatororganizations.87 In some cases, this equity isused to leverage private sector capital. Few

financing mechanisms have been developed,however, for informal, private sector suppliers.This will become a new challenge area for themarket development paradigm.

Clarifying the role of subsidiesFundamental to the market development

paradigm is a shift in thinking about subsidies.No longer is it a question ofhow much of a subsidy to pro-vide for how long. Now, thechallenge is how the subsidiesshould be channeled in orderto develop, rather than dis-tort, BDS markets. In themarket development para-digm, subsidies are viewed as temporary, yettimeframes and funding strategies are not yetclearly understood. For example, should subsi-dies be used for start-up capital to new BDSsuppliers? Should subsidies be restricted only toproduct development and suppliers identifica-tion and monitoring? Or, may they be used totrain and build the capacity of private sectorsuppliers? Although the market developmentparadigm has challenged practitioners to getmore out of each public sector dollar, and tocreate sustainable BDS, the era of subsidies isfar from over and the challenge of how to usethem most productively has only begun.

Demand vs. supply side approaches

There are clearly two sides to a market –demand and supply. Therefore, there arepotentially two sides in which to intervene anddevelop the market. But which is best? Voucherschemes, which address the demand side, areone of the first successful market developmentapproaches. Those in favor of demand sideinterventions say that increasing demand is anessential part of building a market. However,some argue that every demand side problem isactually a weakness in supply. SE lack of infor-mation about services points to supplier inabil-ity to market their products. SE inability to payfor services points to supplier lack of appropri-ate financing options for their products. Onlyby developing supplier capacities to solvedemand problems will BDS markets becomesustainable and grow on their own. Experiencein both approaches will contribute to thisdebate.

86 Bissegger, 2000.

87 Mikkelsen, 1999.

There are many reasons for microfinance and BDS to remain quite separate, but the potential for offering mutually beneficial services using strategies that employ best practices in both fields is being explored.

The challenge is how the subsidies should be channeled in order to develop, rather than distort, BDS markets.


61

The timeframe for successWhat are the best ways to quickly develop

private sector capacity to serve SEs, particu-larly microenterprises andpoorer entrepreneurs? Whilea lot has been learned, moreexperimentation is needed.In theory, the private sector ismore innovative, nimble andquick to respond to marketopportunities than publicinstitutions and non-profitorganizations. However, insome programs that haveattempted to disseminateBDS through the private sec-tor, suppliers have been slow

to respond to “opportunities” to serve SEs.88

Why? Larger suppliers with strong capacityhave a high incentive to serve the alreadyunder-served larger businesses. While they maybe ready to implement a donor-funded pro-gram – because funds are guaranteed and thereis essentially only one customer – they are morereluctant to service SEs, particularly microen-terprises. Second, informal suppliers arenumerous and have less capacity to serve theirSE markets. It takes time to recruit, negotiatedeals and train these partners. Organizationsinvolved in product development and dissemi-nation comment that in order to support theefforts of private sector suppliers to reach alarge scale, they often have to play a role in themarket, for example providing test marketingand advertising services so that suppliers will beassured of customers.89 Thus, one challengefaced by BDS market developers is how toquickly and effectively build private sectorcapacity.

Determining the best structure for a facilitator

The role of a market development facilita-tor is still quite new in BDS. Many in the fieldare still not sure what a good facilitator lookslike. Some envision an NGO or consulting firmcontracted by a donor. Others envision a facili-tator much closer to or in the BDS market thatthe facilitator is developing. Currently, somedonors act as facilitators. It appears that if afacilitator acts as a market player, it is more

likely that the roles of the facilitator can be sub-sumed into the private sector. Some programshave had success with commercial facilitatorswho operate on a for-profit basis from thestart.90 However, donors and practitioners arenot yet sure if all roles performed by facilitatorscan be completely privatized.

Changing donor operating practices

Traditionally, donors have designed andmanaged large programs with significant finan-cial outflows. Much of thefocus has been on achiev-ing fixed outputs with spe-cific inputs. However,donors implementing mar-ket development programshave found that it is impor-tant to be able to makesmall disbursements offunds and to respondquickly to changes in the market. They havefound that while goals can be fixed, strategiesand tactics must change in order to maximizeopportunities for higher impact. 91 The chal-lenge for donors is to change the way they oper-ate in order to be able to effectively managemarket development programs. Workingthrough more nimble facilitator organizations,primarily NGOs, is currently a popularapproach, but other are being explored.

Defining performance standards for the field

Despite the progress in performance meas-urement, a common performance measure-ment framework and the research agenda,there remain many challenges for performanceassessment. It would be helpful to have somebenchmarks by which to judge the perform-ance of different types of programs in differentcontexts. However, this goal is still quite far inthe future. The field is still grappling withdeveloping a common performance measure-ment system and confirming the impact ofBDS in general. Some experts and practition-ers are concerned that the BDS field is sodiverse that it will be impossible to establish fairbenchmarks. Others argue that only throughsetting standards can the field really move for-ward. As more experience is gained, it may

88 Write, 1998; McVay, 1999c; Hileman and Tanburn,2000.

89 McKenzie, 2000.

90 Hileman and Tanburn, 2000.

91 Tomecko, 2000; Hileman and Tanburn, 2000.

In theory, the private sector is more innovative, nimble and quick to respond to market opportunities than public institutions and non-profit organizations. However, in some programs that have attempted to disseminate BDS through the private sector, suppliers have been slow to respond to “opportunities” to serve SEs

Donors have found that while goals can be fixed, strategies and tactics must change in order to maximize opportunities for higher impact.

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become more clear if and how to establishstandards that are appropriate for differenttypes of programs in different contexts.

Disseminating lessons learned and best practices

Major progress in this area has been madethrough the Donor Committee conferences,

which have documented over60 cases and studies in thelast 3 years and made themavailable through the ILOwebsite for quick publicaccess.92 The SEEP network

has developing an on-line Guide to BusinessDevelopment Services and Resources that pro-vides an up-to-date review of the field and gate-way of information on BDS.93 In addition,several institutions are offering training in newBDS strategies. These institutions include theSpringfield Centre, New Hampshire College,the ILO, ICECD and the SEEP network.94

Work has also begun on disseminating infor-mation through conferences in developing

countries that link local practitioners with glo-bal trends. There is still unmet demand partic-ularly, 1) affordable, regionally-based training,2) specific training in particular aspects of themarket development approach, and 3) specificservice delivery techniques.

Developing and documenting best practices

The BDS field has made significantprogress in identifying and categorizing largenumbers of BDS, and in developing tools toidentify and select demand-driven services.Again, the volume of case studies and analyti-cal papers made available by the Donor Com-mittee has consolidated information aboutcurrent practice, and brought unparalleledopportunity for Best Practice analysis. Nextsteps include funding more pilot and demon-stration programs using the market develop-ment approach, on-going documentation anddissemination of the lessons learned from theseinitiatives, and continued integration of theselessons into training initiatives.

92 The Donor Committee website provides access to all thecases: Website: www.ilo.org/employment/sedonors

93 www.seepnetwork.org/bdsguide.html

94 A diary of training courses can be found on the Inter-coop website: www.intercoop.ch/sed/index/htm

The demand for training and information is high, however, particularly for affordable, regionally-based training.

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ANNEXESAnnex A. Definitions

Business Development Services (BDS):Any non-financial service provided to businesses oneither a formal or informal basis.

Demand: the quantity and type of goods orservices that buyers wish to purchase at any conceiv-able price. (Describes the behavior of consumers)

Consumer: User or buyer of “offers” pre-sented by business service providers.

Cost effectiveness: The impact of a pro-gram intervention, compared to its cost. A programis cost-effective if the ratio of benefits to costs is high.

Donor: the funding agency that pays for devel-opment activities

Facilitator: international or local institutions,usually funded by governments or donors, that aimto expand and improve a BDS market, by increasingdemand or supporting BDS providers in developingnew service products, promoting good practice, andmonitoring and evaluating performance.

Impact: (sometimes called "effectiveness"):the effect of the service on the performance of SEclients (i.e., that which can be attributed to the serv-ice itself, not to outside factors), or the broader eco-nomic and/or social effect of the intervention.

Intervention: the temporary, facilitativemechanism by which donors and facilitators try toaffect change (typically a project or program).

A market: a set of arrangements by whichbuyers and sellers are in contact to exchange goodsor services - the interaction of demand and supply.

Market development-based or ori-ented: activities that try to make the interactionbetween demand and supply more effective.

A market transaction: the exchangebetween demand and supply is at full market price(The price at which suppliers are prepared to selland consumers are prepared to buy, in an unsubsi-dized situation).

Outreach: (sometimes called "coverage" or"scale"): the number of the target population that

uses the service. Note that in the PMF "outreach" isunderstood to include an indication of the coverageof underprivileged groups such as the poor orwomen.

Practitioner: a non-profit organization orgovernment institution that provides BDS to SEs orfacilitates BDS provision. Distinguished fromdonors who fund these activities.

Provider: a firm or institution that providesBDS directly to SEs. They may be private for-profitfirms, private not-for-profit firms, NGOs, par-astatals, national or sub-national government agen-cies, industry associations, etc. Used more often inthis text to refer to non-profit organizations.

Public goods: a good (or service) is said to bepublic if the amount consumed by one individual orfirm does not reduce the amount available for con-sumption by others

Service: the product consumed by SEs (e.g. afax service, technical training, consulting informa-tion).

Supply: the quantity and type of goods orservices that sellers wish to sell at any conceivableprice. (Describes the behavior of suppliers)

Supplier: a private sector or for-profit individ-ual, organization or mechanism that supplies BDSdirectly to SEs. (Contrasts with Provider)

Small Enterprises (SEs) includes microen-terprises as well as small- and medium-scale enter-prises. These size categories are usually defined bythe number of employees or by assets, but these def-initions vary by country and/or institution. No pre-cise definition is adopted here.

Sustainability(financial sustainability)a BDSinstitution is sustainable if commercially-motivatedrevenues are at least as great as the full costs of serv-ice provision (direct and indirect costs, fixed andvariable costs). Revenues received from the publicsector (donors or governments) are not included.Similarly, revenues received as a result of philan-thropic or political motivations are not included.

Annexes

64

ANNEXES

Annex B. Acronyms

AFE Action for EnterpriseAT Appropriate TechnologyApproTEC Appropriate Technology for Enterprise CreationBDS Business Development ServicesBRAC Bangladeshi Rural Advancement CommitteeBusinessNOW Business Neighborhood Organization for WomenCARE Cooperative Assistance and Relief EverywhereCEFE Competency-based Economies Formation of EnterpriseDFID United Kingdom Department for International DevelopmentFIT a small enterprise development program of the International Labour OrganizationFGD Focus Group DiscussionsGAMA Grupo de Asesoría Multidisciplinaria GEMINI a USAID research project preceding the Microenterprise Best Practices projectGTZ German Agency for Technical CooperationICT Information and Communication TechnologyIDB Inter-American Development bankIDE International Development EnterpriseIFC International Finance CommitteeILO International Labour OrganisationMBP Microenterprise Best Practices projectMFI Microfinance InstitutionMicroPED Microenterprise Private Enterprise Development projectMPDF Mekong Project Development FacilityNASFAM National Association of Smallscale Farmers of MalawiNGO non-governmental organizationPMF Performance Measurement FrameworkPRA participatory rural appraisalPRIDE Program for Rural Initiative, Development and EntrepreneurshipPROARTE A private, for-profit marketing and craft exporting company in Nicaragua initiated with

support from MEDA and profiled by the IDB and Donors CommitteeSDC Swiss Development CorporationSE Small Enterprise (refers to a micro, small or medium sized firm)SEEP Small Enterprise Education and Promotions networkSEWA Self-employed Women’s AssociationToT Training of TrainersUAI usage, attitude, image market study UNDP United Nations Development ProgrammeUNIDO United Nations Industrial Development OrganizationUSAID United States Agency for International DevelopmentWV Women Venture


65

Annex C. List of Case Examples

Example 1: Early Market Development ProgramBRAC: Poultry Development in Bangladesh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 4

Example 2: The “Hidden” BDS Market in Vietnam and Thailand . . . . . . . . . . . . . . . . . . . . . . p. 7

Example 3: BDS Market Failures in Vietnam, Indonesia and Malaysia . . . . . . . . . . . . . . . . . . . p. 8

Example 4: Surprising forms the BDS Market TakesMarket Access and Packaging services for Bicycle Parts Manufacturing in Vietnam . . . . . . p. 9

Example 5: Private Sector BDS SuppliersA For-profit Trainer in Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 9

Example 6: The Importance of Charging a FeeBusinessNOW training in Atlanta, Georgia (USA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 13

Example 7: Embedded Services can also be Demand DrivenFurniture Manufacturing in Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 13

Example 8: Program Design Using National SurveysJamaica MicroNET Business Service Centers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 15

Example 9: PRA Design TechniquesSEWA in India, Women's Subsector Development Program . . . . . . . . . . . . . . . . . . . . . . . . p. 16

Example 10: Subsector Analyses and Program DesignEnterprise Works Worldwide and the Coffee Sector in El Salvador . . . . . . . . . . . . . . . . . . . p. 17

Example 11: Action Research Program DesignILO FIT in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 17

Example 12: Usage, Attitude, Image StudyUSAID’s Study of Telecommunications in the Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . p. 22

Example 13: Focus Group DiscussionsGTZ's Study of Trade Fairs and Other Services in Nepal . . . . . . . . . . . . . . . . . . . . . . . . . . p. 23

Example 14: Supplier DiagnosticsGTZ's Study of Management Training and Other Services in Nepal . . . . . . . . . . . . . . . . . p. 24

Example 15: Supporting Financially Viable ServicesMekong Project Development Facility in Vietnam: Management Training Services . . . . . . p. 26

Example 16: Embedded Services and Marketing CompaniesPROARTE Craft Marketing in Nicaragua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 27

Example 17: Cross SubsidiesGrameen Village Phone: Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 28

Example 18: Mutually Beneficial ServicesFIT Supported Nekolera Gyange Radio Program, Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 29

Example 19: Sustainable, Relationship-Based ServicesCARE Egypt and Information Services of the AgReform Project . . . . . . . . . . . . . . . . . . . . p. 30

Example 20: Piggy-Backing on Microfinance servicesCARE-Bosnia's Market linkage Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 31

Example 21: Public Sector FundingNASFAM Agricultural Associations in Malawi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 32

Example 22: Matching GrantsThe World Bank in Mauritius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 37

Example 23: Voucher Training Program in Paraguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 38

Example 24: Vouchers for BDSNEWBIZNET and BIZPRO in the Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 39

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Example 25: "Seven Deadly Sins" of Voucher Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 40

Example 26: Information ServicesFIT Zimbabwe, Business Connect magazine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 41

Example 27: UNIDO SE Cluster and Network development . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 42

Example 28: Market-driven Small Industry Clusters in Indonesia . . . . . . . . . . . . . . . . . . . . . . . p. 43

Example 29: Business LinkagesManicaland Business Linkage Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 43

Example 30: Technical Assistance to SuppliersGTZ and Information Services in Sri Lanka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 44

Example 31: Product Development and CommercializationApproTEC and IDE: Irrigation Technology: The Treadle Pump . . . . . . . . . . . . . . . . . . . . p. 46

Example 32: Product Development and CommercializationGTZ in Several BDS Markets Nepal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 47

Example 33: Social Venture CapitalSwisscontact and Business Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 48

Example 34: Work with Low-cost SuppliersWomen Venture in the U.S.A.: training and technical assistance . . . . . . . . . . . . . . . . . . . . . p. 55

Example 35: the SE PerspectiveICTs in Botswana: information services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 55

Example 36: Combining Subsector and Market DevelopmentAction for Enterprise – The Handicraft Subsector in Mali:technical training, quality and production control, business linkages, product design services p. 56

Example 37: Using Action Research and Market DevelopmentGTZ’s Evolving Market Development Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 57

Example 38: Commercializing Facilitator FunctionsThe ILO FIT Program in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 57

Example 39: SE Service SuppliersSmall Enterprises in the India Software Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 58


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Annex D. List of tables and diagrams

Tables

Table 1: Types of Business Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 2

Table 2: Traditional vs. Market Development Interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 6

Table 3: Support to One Supplier Vs. Promoting Competition Among Suppliers . . . . . . . . . . . p. 34

Table 4: Matching BDS Market Problems with Interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 36

Table 5: PMF Field Research Participating Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 51

Table 6: BDS Performance Measurement Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 52

Diagrams

Diagram 1: Sustainable Services: BRAC’s Poultry Development in Bangladesh . . . . . . . . . . . . . p. 5

Diagram 2: Facilitating BDS Market Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 11

Diagram 3: Information Needed To Assess The Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 19

Diagram 4: Overview of Market Assessment Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 21

Diagram 5: Functions in a BDS Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 33

Diagram 6: Framework for BDS Market Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 58

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Annex E. Bibliography

Anderson, Gavin, “Action for Enterprise, SEPAProgramme, Mali – Observations based on ashort mission to Mali,” unpublished, for theInternational Labour Organization, March,2001.

Anderson, Gavin, “The Hidden MSE Service Sec-tor – Research Into Commercial BDS Provi-sion to Micro and Small Enterprises inVietnam and Thailand”, International LabourOrganisation. Prepared for the Donors Com-mittee Conference on Business Services forSmall Enterprises in Asia: Developing Marketsand Measuring Performance; Hanoi, Vietnam,April, 2000.

Anderson, Gavin, unpublished correspondence onthe FIT Uganda project, July, 2000-April,2001.

“BDS Market Development: A Guide for Agen-cies.” Forthcoming from United States Agencyfor International Development Microenter-prise Best Practices managed by DevelopmentAlternatives, Inc. – in cooperation with theSpringfield Centre BDS 2000 Training Course,draft, May 2000.

Botelho, Caren Addis and Lara Goldmark, “Para-guay Vouchers Revisited: Strategies for theDevelopment of Training Markets”, UnitedStates Agency for International DevelopmentMicroenterprise Best Practices managed byDevelopment Alternatives, Inc. Prepared forthe Donors Committee Conference on Busi-ness Services for Small Enterprises in Asia:Developing Markets and Measuring Perform-ance; Hanoi, Vietnam, April, 2000.

Bissegger, Peter, “BDS Market in East Java, Indone-sia (Market Assessment and Application of thePMF” Swisscontact, Prepared for the DonorsCommittee Conference on Business Servicesfor Small Enterprises in Asia: Developing Mar-kets and Measuring Performance, Hanoi, April2000.

Burr, Chandler. “Grameen Village Phone: Its Cur-rent Status and Future Prospects,” DonorsCommittee Conference on Business Servicesfor Small Enterprises in Asia: Developing Mar-kets and Measuring Performance .” April 2000.

Canedo, Tim, “Performance Measurement Frame-work for Business Development Services,Impact Survey Guide,” under the USAIDMicroenterprise Best Practices Project man-aged by Development Alternatives, Inc., Febru-ary, 2000.

Ceglie, Giovanna and Marco Dini, “Clusters andNetwork Development in Developing Coun-tries” in Levitsky, Jacob (ed.), Business Develop-ment Services: A Review of International Experience.IT Publications, London, 2000.

Canedo, Tim " PMF Field Research Report 1Impact Tools Development and Baseline Sur-vey Phase," PMF Field Research Report,November 2000. www.mip.org/pubs/MBP/BDSFramework.htm

Chambers, Robert, Whose reality counts: Putting the lastfirst; Intermediate Technology Publications,London 1997.

Chen, Martha (ed.), Beyond Credit: A SubsectorApproach to Promoting Women’s Enterprises. AgaKhan Foundation Canada, Ottowa, 1996.

Clara, Michele, Fabio Russo and Mukesh Gulati,“Cluster Development and BDS Promotion:UNIDO’s Experience in India”, UNIDO. Pre-pared for the Donors Committee Conferenceon Business Services for Small Enterprises inAsia: Developing Markets and Measuring Per-formance. Hanoi, Vietnam, April, 2000.

Committee of Donor Agencies for Small EnterpriseDevelopment (Jim Tanburn – ILO, GabrieleTrah – GTZ and Kris Hallberg – Word Bank),“Business Development Services for SmallEnterprises: Guiding Principles for DonorIntervention." 2001 Edition.

Committee of Donor Agencies for Small EnterpriseDevelopment, MSME Impact and Perform-ance Working Group, “Notes from Meeting,March 27-28, 2001,” unpublished, March,2001.

Crisafulli, Daniel, “Matching Grant Schemes” inLevitsky, Jacob (ed.), Business Development Services:A Review of International Experience. IT Publica-tions, London, 2000.

Dawson, Jonathan, Eric Hyman, Sunita Kapila andDonald Mead, “Methodologies for the Designand Delivery of High Impact Business Devel-opment Services (BDS) for Small Producers,”for the International Development ResearchCentre, January, 2001.

Downing, Jeanne, unpublished correspondence oncategories of BDS market development inter-ventions, 2001.

Duncombe, Richard and Richard Heeks, “Enter-prise Development and Information and Com-munication Technologies (ICTs) in DevelopingCountries: ICT-Flyers,” Institute for Develop-ment Policy and Management, University ofManchester for the United Kingdom Depart-ment for International Development, March,2001.

Duncombe, Richard and Richard Heeks, “Infor-mation and Communication Technologies andSmall Enterprises in Africa – Lessons from Bot-swana” Institute for Development Policy andManagement, University of Manchester for theUnited Kingdom Department for Interna-tional Development, 2001.

Enterprise Works Worldwide, “El Salvador CoffeeProject,” from the EWW website.

Field, Michael, Rob Hitchins and Marshall Bear,“Designing BDS Interventions as if MarketsMatter.” United States Agency for Interna-tional Development Microenterprise BestPractices managed by Development Alterna-tives, Inc., July 2000.

Gaertner, Udo and Roshanjith Siriniwasa, “Com-mercial ICT- based Business Information Serv-


69

ices for MSME Development”, Sri Lankan-German Enterprise Information Project (EIP),Sri Lanka, sponsored by the German Agencyfor Technical Cooperation. Prepared for theDonors Committee Conference on BusinessServices for Small Enterprises in Asia: Devel-oping Markets and Measuring Performance.Hanoi, Vietnam, April, 2000.

Gibson, Alan, “The Development of Markets forBusiness Development Services: Where We AreNow and How to Go Further”, SpringfieldCentre for Business in Development, for theInternational Labour Organisation. Preparedfor the Donors Committee Conference onBusiness Services for Small Enterprises in Asia:Developing Markets and Measuring Perform-ance. Hanoi, Vietnam, April, 2000.

Gibson, Alan, “Developing Indicators in SmallEnterprise Development Projects – A tool forpeople involved in designing, implementingand evaluating SED projects,” SDC-SEDWorking Paper No. 1, Swiss Agency for Devel-opment and Cooperation, May, 2001.

Gibson, Alan and Robert Hitchins, “Swisscontact:Business Centre Approach in Indonesia andthe Philippines” in Levitsky, Jacob (ed.), BusinessDevelopment Services: A Review of International Expe-rience. IT Publications, London, 2000.

Gibson, Alan, Robert Hitchins and Marshall Bear,“BDS Market Development: A Guide forAgencies,” Draft, December, 2000, forthcom-ing from the USAID Microenterprise BestPractices Project managed by DevelopmentAlternatives, Inc.

Gminder, Claudia Ulrike, “Analysis of Swisscon-tact’s Experience in the Promotion of WomenEntrepreneurs in Micro-, Small- and Mediumsized Enterprises,” SED Issue Paper no 6, SwissAgency for Development and Cooperation,March, 2001.

Goldmark, Lara, “Business Development Services:a Framework for Analysis,” IDB. Washington,DC, 1996.

Goldmark, Lara, Sira Berte, Sergio Campos, “Pre-liminary Survey Results and Case Studies onBusiness Development Services for Microen-terprise.” Inter-American Development Bank.January, 1997.

Goldmark, Lara, “Sorting Out the Truth: FinancialViability of BDS,” IDB. Prepared for theDonors Committee Conference on BusinessDevelopment Services: Building a Modern andEffective Business Service Sector for SmallEnterprises. Rio de Janeiro, Brazil, March,1999.

Goldmark, Lara, “Voucher Programs: What NextAfter Paraguay,” IDB. Prepared for the DonorsCommittee Conference on Business Develop-ment Services: Building a Modern and Effec-tive Business Service Sector for SmallEnterprises. Rio de Janeiro, Brazil, March,1999.

Hagblade, Steve and Matt Gamser, “A Field Man-ual for Subsector Practitioners,” a USAIDGEMINI publication, Pact Publications, 1991.

Hallberg, Kristin, “A Market-Oriented Strategy forSmall and Medium Scale Enterprises”. IFCDiscussion Paper, February 2000.

Hanna, James and Ton de Wilde, “Jamaica Micro-NET,” World Bank. Prepared for the DonorsCommittee Conference on Building a Modernand Effective Business Development ServicesIndustry for Small Enterprises. Rio de Janeiro,Brazil, March, 1999.

Havers, Mark, “ApproTEC: Developing Technol-ogy Based Business Opportunities,” DFID,Prepared for the Donors Committee Confer-ence on Business Development Services: Howsustainable can they really be?” Harare, Zim-babwe, September, 1998.

Heierli, Urs, “Marketing and Development: AnEffective Strategy for Poverty Alleviation withand through the Private Sector – Draft of aStudy of 5 SDC Projects in Asia and LatinAmerica”, Swiss Agency for Development andCooperation. Prepared for the Donors Com-mittee Conference on Business Services forSmall Enterprises in Asia: Developing Marketsand Measuring Performance; Hanoi, Vietnam,April, 2000.

Hileman, Milena and Jim Tanburn, The Wheels ofTrade – Developing Markets for Business Services. ITPublications, London, 2000.

Hitchins, Robert, “Business Development ServicesI’ve seen the future… and it’s different,” inSED Newsletter No. 10, Intercooperation,December, 2000.

Hitchins, Robert, “Developing Markets for BusinessDevelopment Services: Designing and Imple-menting More Effective Interventions,” SEDIssue Paper no 5, Swiss Agency for Develop-ment and Cooperation, June, 2000.

Horizonte, Belo, “Is there a market for BusinessDevelopment Services?” Presentation byCEFE International, September, 2000.

Hyman, Eric L., Peter Maina and Sunita Kapila,“Moving Business Development Services forSmall- and Micro-Enterprises to the Market:Assumptions and Implications,” Report on aWorkshop for African NGOs and GovernmentAgencies sponsored by the International Devel-opment Research Centre, 5-8 December, 2000,Draft, March, 2001.

International Labour Organization, “InstitutionalSummaries and Models for Providing BusinessDevelopment Services: A comparative reviewof selected case studies presented at the Rio andHanoi BDS Conferences,” Draft, 2000.

Kantor, Paula, “Promoting Women’s Entrepreneur-ship Development based on Good PracticeProgrammes: Some Experiences from theNorth to the South,” Series on Women’s Entre-preneurship Development and Gender inEnterprises – WEDGE Working Paper No. 9,International Labour Organization.

Lee, Yoo-Mi, and Marshall Bear, “Business ServiceCenters in Ukraine: A Study of the Agency forthe Development of Enterprise, the L'viv New-BizNet Business Service Center, and the Vin-

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nytsia Consulting Center,” DevelopmentAlternatives, Inc. August 1999.

Litrell, Mary Ann and Marsha Ann Dickson. SocialResponsibility in the Global Market: Fair Trade of Cul-tural Products, SAGE Publications,ThousandOaks, California. www.sagepub.com, 1999.

Lusby, Frank, “Sector Approach to EnterpriseDevelopment, Action for Enterprise, August,1999.

McKee, Katherine, “Recent Experience of the USAgency for International Development in Pro-moting Business Development Services forMicroenterprises,” Presentation at the ILOFirst Annual Seminar on “Emerging GoodPractices in Business Development Services”Turin, USAID, September, 2000.

McKenzie, John, “Creating a Market in Manage-ment Training for Vietnamese’s Private Firms:MPDF’s Experience”, Mekong Project Devel-opment Facility (IFC). Prepared for the DonorsCommittee Conference on Business Servicesfor Small Enterprises in Asia: Developing Mar-kets and Measuring Performance; Hanoi, Viet-nam, April, 2000.

McVay, Mary, “Action for Enterprise: SEPA Pro-gram in Mali” for the Shorebank AdvisoryServices: BDS Research in Market Access andWorkforce Development Services for SmallBusinesses, Draft, December, 2000.

McVay Mary, "Manicaland Business LinkageProject in Zimbabwe for the Shorebank Advi-sory Services: BDS Research in Market Accessand Workforce Development Services for SmallBusinesses, Draft, December, 2000.

McVay, Mary, “Business Development Services forMicroenterprises: A Situation Assessment,”CARE, 1996.

McVay, Mary, “Feasibility Assessment of Appro-TEC “Moneymaker” Irrigation technology inUganda.” August, 1999, DFID.

McVay, Mary, “FIT Zimbabwe: Business ConnectMagazine,” for the Shorebank Advisory Serv-ices: BDS Research in Market Access andWorkforce Development Services for SmallBusinesses, Draft, December, 2000.

McVay, Mary, “Measuring the Performance of Busi-ness Development Services for Small Enter-prises: Guide to the Preparation of CaseStudies for the BDS Conference in Hanoi,Vietnam 2000. USAID Microenterprise BestPractices Project and ILO’s ISEP programme.September, 1999.

McVay, Mary, “Microenterprise Marketing:Trends, Lessons Learned and Challenges,”SEEP 1999.

McVay, Mary, “Performance Measurement Frame-work for Business Development Services, Sus-tainability and Cost-Effectiveness AssessmentGuide,” under the USAID MicroenterpriseBest Practices Project managed by Develop-ment Alternatives Inc., and the SEEP Network,April, 2001.

Meyer-Stamer, Jörg et al., “Report of the ProjectProgress Review of the Enterprise InformationProject,” unpublished for GTZ, January, 2001.

Miehlbradt, Alexandra, “Guide to Market Assess-ment for BDS Program Design,” Draft, April,2001, forthcoming from the InternationalLabour Organization.

Miehlbradt, Alexandra, “Performance Measure-ment Framework for Business DevelopmentServices, Report on the Outreach and MarketDevelopment Indicators Survey,” under theUSAID Microenterprise Best Practices Projectmanaged by Development Alternatives Inc.,and the SEEP Network, March, 2001.

Miehlbradt, Alexandra Overy and Ronald T. Chua,“Information and Communications Servicesfor Micro and Small Enterprises in the Philip-pines”. United States Agency for InternationalDevelopment Microenterprise Best Practicesmanaged by Development Alternatives, Inc.,June 1999.

Miehlbradt, Alexandra Overy with contributionsfrom Ronald T. Chua, “Technical Note: Apply-ing Marketing Research Tools to the Designand Improvement of Business DevelopmentServices”. United States Agency for Interna-tional Development Microenterprise BestPractices managed by Development Alterna-tives, Inc., June 1999.

Miehlbradt, Alexandra Overy with contributionsfrom Ronald T. Chua, “Technical Note: Apply-ing Marketing Research to BDS Market Devel-opment”, United States Agency forInternational Development MicroenterpriseBest Practices managed by Development Alter-natives, Inc. Prepared for the Donors Commit-tee Conference on Business Services for SmallEnterprises in Asia: Developing Markets andMeasuring Performance; Hanoi, Vietnam,April, 2000.

Mikkelsen, Lene, “Good Practice in Microenter-prise Marketing: Cases from Latin America,”IDB, Prepared for the Donors CommitteeConference on Business Development Services:Building a Modern and Effective BusinessService Sector for Small Enterprises. Rio deJaneiro, Brazil, March, 1999.

Newnham Jack, “BRAC Poultry Programme inBangladesh,” DFID, Prepared for the DonorsCommittee Conference on Business Servicesfor Small Enterprises in Asia: Developing Mar-kets and Measuring Performance; Hanoi, Viet-nam, April, 2000.

Pikholz, Lynn, Janney Carpenter, Mary McVay andJulie Gerschick, “Memorandum on Prelimi-nary Findings, Lessons and Case-Based Evi-dence,” for the Shorebank Advisory Services:BDS Research in Market Access and Work-force Development Services for Small Busi-nesses, unpublished, January, 2001.

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Riddle, Dorothy, “What Do We Know About BDSMarkets?” Service-Growth Consultants Inc.,sponsored by the Mekong Project Develop-ment Facility (IFC). Prepared for the DonorsCommittee Conference on Business Servicesfor Small Enterprises in Asia: Developing Mar-kets and Measuring Performance; Hanoi, Viet-nam, April, 2000.

Sandee, Henry and Sandra C. van Hulsen, “Busi-ness Development Services for Small and Cot-tage Industry Clusters in Indonesia: A Reviewof Case Studies from Central Java”, Vrije Uni-versiteit Amsterdam, sponsored by the Ministryof Foreign Affairs of The Netherlands. Pre-pared for the Donors Committee Conferenceon Business Services for Small Enterprises inAsia: Developing Markets and Measuring Per-formance; Hanoi, Vietnam, April, 2000.

Schor, Gabriel and Lara Goldmark, “Voucher Pro-grams: Potential, Problems and Prospects”.Prepared for the Donors Committee Confer-ence on Building a Modern and Effective Busi-ness Development Services Industry in LatinAmerica and the Caribbean. Rio de Janeiro,Brazil, March 1999.

Small Enterprise Education and Promotion Net-work, “SEEP Guide to Business DevelopmentServices and Resources,” SEEP website.

Springfield Centre for Business in Development,BDS 2000 Training Programme materials.Glasgow, July 2000.

Stevens, Geoff and Mark Nielsen, “CommercializedTraining Product Development: Lessons from

the Trenches”, Workplace Training Systems,Open Learning Agency, sponsored by theCanadian International Development Agency.Prepared for the Donors Committee Confer-ence on Business Services for Small Enterprisesin Asia: Developing Markets and MeasuringPerformance; Hanoi, Vietnam, April, 2000.

Swisscontact, Tanzania: Third Quarterly Reportfor Microenterprise Best Practices (MBP-USA)July, 1999.

Tanburn, Jim, unpublished correspondence on theFIT program, May, 2000-May 2001.

Tomecko, Jim, “The Application of Market LedTools in the Design of BDS Interventions Or(Influencing the Price of Soup in Nepal)”,GTZ/IEDI Nepal. Prepared for the DonorsCommittee Conference on Business Servicesfor Small Enterprises in Asia: Developing Mar-kets and Measuring Performance; Hanoi, Viet-nam, April, 2000..

Tomecko, Jim, “Promoting the Private Sector (FromEntrepreneurship to Product Development,”Presentation by GTZ, September, 2000.

United Kingdom Department for InternationalDevelopment, “Enterprise DevelopmentImpact Assessment Information Service (EDI-AIS) – Project overview document, draft, Janu-ary, 2001.

United Nations Development Programme in coop-eration with other UN Agencies, “UN Inter-Agency Resource Guide for Small EnterpriseDevelopment,” UNDP Enterprise Develop-ment Unit.

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Annex F. List of useful reading and websites

The following is a list of useful BDS read-ing materials and websites. The papers andsites were chosen with the aim of focusing onsummaries of the BDS field, providing the mostrecent information on BDS in general anddirecting readers to resources for additionalinformation. Papers on individual services,strategies, countries or programs are listed inthe bibliography and can be found at many ofthe websites listed below. Many organizationssited in the study also have their own websites,which can be found using any search engine.

I. Books and papers“BDS Market Development: A Guide for

Agencies.” by A. Gibson, R. Hitchins and M.Bear. Forthcoming from United States Agency forInternational Development Microenterprise BestPractices Project managed by Development Alter-natives, Inc. Website: www.mip.orgThis paper is a summary of how to pursue the mar-ket development approach to BDS. It includes therationale for BDS in general and for the marketdevelopment approach in particular, as well as keydesign principles that underpin the approach. Itincludes sections on how to choose interventions,developing a picture of sustainability, core imple-mentation challenges and monitoring and evaluat-ing BDS interventions.

Business Development Services – AReview of International Experience edited byJacob Levitsky. Intermediate Technology Publica-tions 2000. Available from Intermediate Technol-ogy Publications.This book includes 23 of the 32 papers presented atthe Donors Committee Conference on Building aModern and Effective Business Development Serv-ices Industry in Brazil, 1999. The introductorypiece includes summaries of the findings of all 32papers.

“Business Development Services forSmall Enterprises: Guiding Principles forDonor Intervention 2001 Edition (The BlueBook)” by the Committee of Donor Agencies forSmall Enterprise Development, February, 2001.Website: www.ilo.org/employment.sedonorsThis document includes the recommendations ofthe Donor Committee to its members and otherdonors on how to pursue BDS programs for SEs.The document provides a concise description of themarket development approach and the principlesthat the Donor Committee recommends donors fol-low in BDS programs.

“Designing BDS Interventions as ifMarkets Matter.” by Michael Field, Rob Hitch-ins and Marshall Bear. United States Agency forInternational Development Microenterprise BestPractices Project managed by Development Alter-natives, Inc., July 2000. Website: www.mip.org

This paper is a discussion piece on the core conceptsof the market development approach and the basicsof how to design a BDS market development pro-gram. The paper describes how a market works andshows the link between the functioning of a marketand a BDS market development program.

“Developing Markets for BusinessDevelopment Services: Designing andImplementing More Effective Interven-tions” by Rob Hitchins. Swiss Agency for Develop-ment Cooperation, SED Issue Paper 5, June 2000.Website: http://www.intercooperation.ch/sedThis paper summarizes the market developmentapproach to BDS including the reasons for theapproach, intervention rationale and design, sus-tainability issues and how to intervene. It includessummaries of various types of market developmentinterventions.

“The Development of Markets for Busi-ness Development Services: Where We AreNow and How to Go Further – A Summaryof Issues Emerging from the Real and Vir-tual Conferences on BDS for Small Enter-prises” by Alan Gibson, Springfield Centre forBusiness in Development, for the InternationalLabour Organisation. March 2000. Website:www.ilo.org/employment.sedonors under theHanoi conference.This paper was presented at the beginning of theDonors Committee Conference on Business Serv-ices for Small Enterprises in Asia: Developing Mar-kets and Measuring Performance in Hanoi. Itsummarizes the market development approach:what it means, its rationale, how to undertake mar-ket development and how to measure performance.It also includes a list of key challenges for the BDSfield.

“SEEP Guide to Business DevelopmentServices and Resources” by the Small Enter-prise Education and Promotion Network. Website:www.seepnetwork.org/bdsguide.htmlThis guide summarizes the latest strategies in BDS,including best practices and debates. It addressestypes of BDS, selecting services, delivery channelsand performance measurement. It also includesinformation on funders, BDS resources and theDonor Committee guiding principles. The guidealso includes extensive information on a variety ofdifferent BDS types with program examples andreferences to further resources.

Small Business Services in AsianCountires – Market Development and Per-formance Measurement, edited by Jacob Lev-itsky. Intermediate Technology Publications,forthcoming. Available from Intermediate Technol-ogy Publications.This book will include some of the papers presentedat the Donors Committee Conference on MarketDevelopment and Performance Measurement inHanoi, 2000.

“The UN Inter-Agency Resource Guidefor Small Enterprise Development” by the


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United Nations Development Programme collabo-rating with other UN agencies. Website: http://www.undp.org/edu/guide/frames1introduction.htmlThis guide summarizes best practice in SE develop-ment, addressing the enabling environment, busi-ness development services, challenges facing smallenterprises, and designing a small enterprise pro-gramme. The guide has many examples of UNagency programmes demonstrating ways to pro-mote different types of BDS. The examples includea contact person for more information.

The Wheels of Trade – Developing Mar-kets for Business Services by Milena Hilemanand Jim Tanburn. Intermediate Technology Publi-cations 2000. Available from IT Publications andAmazon.com.This book explores the practical realities of imple-menting donor funded programs to develop BDSmarkets. While it focuses on the experience of theInternational Labour Organisation’s FIT project inAfrica, it includes examples from around the world.Topics addressed include the structure and activitiesof facilitators, product development and commer-cialization, improving existing services and measur-ing impact.

II. Websites95

Committee of Donor Agencies for SmallEnterprise Development http://www.ilo.org/public/english/employment/ent/sed/bds/donorThis site provides information on the Donor Com-mittee including its purpose and activities. It alsohouses the proceedings and papers from the DonorCommittee conferences on business developmentservices. Directory of Development Organizations www.devdir.org“The Directory is a compilation of contact data ofthe main sources of assistance available for privatesector development and poverty alleviation in devel-oping countries, with particular attention to thedevelopment of (non-)financial markets for microand small enterprises. The Directory lists over18,500 individual contacts of organizations andincludes: microfinance institutions, small enterprisedevelopment organizations, NGOs/PDOs, devel-opment agencies, international organizations, pri-vate sector institutions, trade promotionorganizations, banks, government ministries, devel-opment consulting firms and research and traininginstitutions.”96 The directory is organized by region,country and type of organization.

EnterWeb: The Enterprise Development Website www.enterweb.orgAn excellent gateway by Jean-Claude Lorin wherewebsites on small business, finance, internationaltrade, entrepreneurship, enterprise developmentand the economy are listed thematically and geo-graphically. Each site is rated by EnterWeb. Inter-American Development Bank (IDB)Sustainable Development Departmentwww.iadb.org/sds/document.cfm/0/ENGLISHThis site’s pages are available both in English andSpanish. Select the chapter 'SME' [http://www.iadb.org/sds/document.cfm/52/ENG-LISH] or 'Microenterprise' [http://www.iadb.org/sds/document.cfm/51/ENGLISH] to find infor-mation on IDB’s strategies, best practices, news andpublications.Intermediate Technology Publicationswww.oneworld.org/itdg/publications.htmlIT publishes many books and papers on develop-ment, particularly small enterprise development.The site includes a bookshop with shopping cartpossibility. Look for the category “Business-Enter-prise Development.”

International Labour Organization: SEED Programme www.ilo.org/seedThis is the website of the ILO’s SEED Programme:Boosting employment through small enterprisedevelopment. The site offers information on the fol-lowing themes: policy environment, market oppor-tunities, business development, association building,informal sector, best practices, job quality and gen-der equality.

Microenterprise Innovation Project: Microenterprise Best Practices Projectwww.mip.org [click “Best Practices, then, Publica-tions, then BDS]MIP is an USAID project that conducts researchand produces publications on microenterprisedevelopment, finance, policy, and impact. Onecomponent of MIP is the Microenterprise BestPractices Project, which aims to document and dis-seminate information about best practices in micro-enterprise development. The site includes papersproduced under the project (in pdf format) on avariety of topics in both BDS and microfinance anda newsletter.

Pact Publications www.pactpub.comPact publishes many development related papersand books. This site includes a catalog of Pact Pub-lications. Do a search of the category 'microenter-prise' to see a list of books on the topic. The USAIDsponsored GEMINI surveys are available throughPACT.

SDC Small Enterprise Development Web-site www.intercoop.ch/sed/index.htmThis easy to use site, managed by Intercooperation,includes news, documents and links on small enter-prise development. The news includes upcomingconferences and new publications. There is also a

95 Many of the website descriptions are from the SDCSmall Enterprise Development website.

96 From the Directory of Development Organizationswebsite.

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ANNEXES

diary of SED training courses. A list of 400 docu-ments and 17 newsletters available from SDC isprovided. The “Links” page provides descriptions ofand links to 25 other websites on small enterprisedevelopment.

SEEP Guide to Business Development Services and Resources www.seepnetwork.org/bdsguide.html

This guide summarizes the latest strategies in BDS,including best practices and debates. It addressestypes of BDS, selecting services, delivery channelsand performance measurement. It also includesinformation on funders, BDS resources and theDonor Committee guiding principles. The guidealso includes extensive information on a variety ofdifferent BDS types with program examples andreferences to further resources.

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