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BDS Market Development

BDS Market Development A Workshop Presented by the SEEP Network and the International Labour Organization’s SEED Program BDS Market Development WORKSHOP GOAL To help enterprise development specialists understand commercially oriented business development services (BDS) initiatives.

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BDS Market Development

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  1. BDS Market Development A Workshop Presented by the SEEP Network and the International Labour Organization’s SEED Program

  2. BDS Market Development WORKSHOP GOAL To help enterprise development specialists understand commercially oriented business development services (BDS) initiatives.

  3. BDS Market Development Introduction 5 Guiding Principles Discussion: Risks & Rewards

  4. Success Story Microenterprise: Mrs. Jane Ondiek, small-scale farmer Country: Kenya Organization:ApproTEC BDS: Access to technology

  5. Success Story Mrs. Jane Ondiek, Small-scale farmer, Kenya • Widow since 1997 • Earned Kshs 7,000 ($93) per season • In 1999, bought an ApproTEC irrigation pump • Started growing high-value crops • Earned Ksh. 240,000 ($3200) in 1999

  6. Success Story Mrs. Jane Ondiek, small-scale farmer, Kenya After the death of her husband, Jane’s 6 children almost dropped out of school due to lack of school fees, but with irrigation she now makes enough money to send them to college. "I’m making enough money now to support my family fully without begging from relatives since my husband died!"

  7. BDS Market Development • Subsidized BDS Program Approach • An NGO receiving donor fundsgave equipment to a women’s group. • Only women in the group had access to the technology. • If it didn’t work, the women did not complain because, after all, it was a gift. • If they wanted it repaired or wanted additional machines, they needed more help from the NGO. • Therefore, a limited number of people benefited and only for a short while.

  8. BDS Market Development • Market Development Approach • A donor-funded NGO designs a machine and trains private manufacturers and distributors to make and sell it. • Customers able to afford a machine, buy it. • If they are not satisfied, they return it for a full refund. Repair services are also available. • The technology is sold by profitable businesses that have an incentive to reach as many people as possible, for as long as possible.

  9. BDS Market Development • Specific Outcomes of ApproTEC Kenya Project(1996-1999) • 4,050 pumps purchased by farmers. • Each pump generated an average net annual profit of 69,000 Ksh ($940). • Each pump created 1.6 new jobs (for a total of 6,561.) • $3.8 million being pumped into the economy every year (in Kenya, this is enough money to keep 13,000 students in secondary school.)

  10. BDS Market Development Market Development Approach Basic Principles: • Impact-centered programs; • Specific, focused, tailored services; • Demand-driven services; • Sustainable service delivery; and • Development of competitive, vibrant BDS markets.

  11. BDS Market Development Principle 1: Impact-Centered Programs The focus of BDS programming is to create a POSITIVE IMPACT. The delivery of business services and the development of service markets are means toward that goal.

  12. Impact-Centered Programs What kind of impact does your program seek to achieve?

  13. Impact-Centered Programs Outreach IMPACT Sustainability Cost-Effectiveness

  14. Impact-Centered Programs Who does your program serve?

  15. Impact-Centered Programs SEs... Micro, Small, and Medium- Sized Firms and Small-Scale Farmers

  16. BDS Market Development Principle 2: Specific, Focused, Tailored Services Business Development Services must: • Address specific SE needs and wants; • Focus on high-priority issues; and • Be tailored to add high value to SE businesses.

  17. Specific, Focused, Tailored Services What are Business Development Services?

  18. Business Development Services Are More than... Finance Training Technical Assistance

  19. SE White Paper: Proposals to Improve SE Policy in South Africa Business Development Services They Are Also... Market Access Inputs & Infrastructure Advocacy Technology Product Development

  20. Specific, Tailored, Focused Services INSOTEC: Ecuador Sector: Jeans manufacturing Strategy: Help MEs improve quality Services: Buttonholing, embroidery, input and equipment supply. Outreach: 4,450 in the year 2000 Sustainability: Break-even in 2000

  21. BDS Market Development Principle 3: Demand-Driven Services • Respond to SE wants and needs; • Are paid for by SE, or commercial actors with vested interest; • Put immediate financial pressure on the supplier to provide relevant services.

  22. Demand-Driven Services SEs pay fees for the services or Acquire services such as advice from buyers or suppliers as part of a business deal.

  23. Charging Fees Veterinary Services in Nepal • CECI/MARD trains entrepreneurs to supply veterinary services to farmers; • Veterinarians sell services to farmers; • 40 village veterinarians selling; • Vets earn profits of 40 - 50%.

  24. Services Through Business Deals PROARTE, a Nicaraguan handicraft company initiated by MEDA • Markets traditional handicrafts; • Buys from about 100 rural artisans; • Supplies inputs, product designs, training; • Earns 15% profits in 1997.

  25. Other Financing Strategies Mutually Beneficial Services… FIT Business Connect Magazine • Publishes free business-to-business magazine – circulation 10,000 – in Zimbabwe; • Financed by advertising revenue from small and large firms with... • Large firms buying big ads, paying more; • Small firms buying small ads, paying less; and • Micro firms benefiting for free.

  26. BDS Market Development Principle 4: Sustainable Services BDS should be made available to SEs over the long run through financially sustainable delivery mechanisms, institutions, and markets – In sum, through the PRIVATE SECTOR.

  27. Sustainable Services Sustainability Depends On… • Private Sector financing (demand-driven services); • Cost-structure in-line with SE and market ability to pay; and • Independent, financially viable institutions and delivery mechanisms.

  28. Criteria for Viable BDS Suppliers • Good capacity to deliver the service; • Close to SEs in culture, operating environment, and geography; • Low cost structures; • Commercial focus and business culture; • Commercial accounting and management systems; • Organizational independence, especially from donor funds; • Organizational stability; and • Sufficient focus on services, SEs, or BDS.

  29. Sustainable Services Institutional Sustainability More Likely When Subsidized and Commercial Activities Are Separated • Supplier or provider delivers (commercial) services directly to SEs; or • Facilitator supports the (commercial) supply of BDS by other (sustainable) institutions.

  30. BDS Market Development Principle 5: Develop Vibrant, Competitive, BDS Markets Success is... • A vibrant, competitive BDS market with... • A range of SEs accessing... • A wide selection of BDS supplied by... • Numerous, commercial suppliers… ...SEs choose to patronize.

  31. MSME Donor Service Provider BDS Market Development Subsidized Program Model

  32. BDS Market Development Subsidized Program Model • Donors support 1 or few providers; • NGOs provide free or highly subsidized services; • Small number of SEs gain access to services designed by Donor/NGO; • Program lasts as long as funding is available.

  33. BDS Market Development Model Donor

  34. BDS Market Development • Donor or facilitator supports numerous suppliers with TA rather than grants; • Suppliers are commercially oriented and competing to serve SEs; • Suppliers provide services SEs want; • Suppliers service numerous SEs; • Suppliers earn profits and provide services over the long term.

  35. BDS Market Development BDS Market Development is new and many questions remain…

  36. 1. Market functions Research and development …Product development … Delivery of services …Information Co-ordination … Skills enhancement … Regulation… Advocacy 3. Who does? 4. Who pays? Private sector (for-profit) Business membership organisations Business networks State Not-for-profit sector 2. Key supply-side players

  37. BDS Market Development Start with understanding the existing PRIVATE SECTOR market for services.

  38. BDS Market Development BDS Market Consists of… Supply Transactions Demand

  39. BDS Markets are Bounded by … Target SEs Geography BDS Market BDS Type

  40. BDS Market Development BDS MARKET ASSESMENT Why assess markets? What do we do with this information? • Understand current supply and demand; • Pinpoint specific constraints / opportunities SEs face in accessing desired services; and • Investigate sustainable service delivery strategies.

  41. Select Appropriate Interventions MATCH... Constraints To Interventions Weak Supply Product development & capacity building Weak Demand Promotions, financing, discounts Few Transactions Linkages & information services

  42. BDS Market Development • Small-Scale Water Pump Market in Kenya ApproTEC introduced appropriate technology • Supply dominated by expensive & complex mechanized pumps; • Most farmers use bucket irrigation – limited area and season; • Big demand for irrigation during dry seasons when prices are high; • Farmers typically buy inputs from rural hardware and agro-chemical suppliers.

  43. Vouchers Networks Biz. Seven BDS Market Development Strategies Links Product Dev. Training TA Information Venture Cap.

  44. BDS Market Development • Voucher Programs • Training Services in Paraguay • Between 1995 and 1999: • 30,000 vouchers provided to… • 13,700 microenterpreneurs... • Who purchased training from... • Over 40 private sector suppliers. 50% off!

  45. BDS Market Development Information Services FIT Uganda SE Radio Program Since 1999: • CBS broadcasts bi-weekly... • To 90,000 listeners; • Reaping profits with sponsorship from 2 firms; and • Replicating program in rural Uganda and Ghana.

  46. BDS Market Development SE Cluster and Network DevelopmentUNIDO • Helps groups of firms access services in Honduras, Nicaragua, Mexico, Jamaica, and India. • Knitwear producers in India approached ITC training to adapt course to their needs – 500 firms reached. • Membership fees sustain the groups.

  47. BDS Market Development Business Linkages Manicaland Business Linkage Project • Facilitates sub-contracting from large to small firms; • 1996-2000: 110 linkages, 1,000 jobs; • Large firms mentor small firms.

  48. BDS Market Development Technical Assistance to Suppliers ACDI/VOCA Training and Technical Assistance to Polish Business Support Organizations (BSOs) • Project strengthened supply and demand for Business management training and consulting services; • Project trained 38 BSOs, 131 consultants, 223 SEs in • Trainers and consultants served more than 30,000 clients on a commercial basis.

  49. BDS Market Development Product Development and Commercialization IDE Irrigation Technology: Treadle Pumps • IDE designs pumps, trains manufacturers and distributors; • Bangladesh in 2000: 65 manufacturers, 700 dealers and 5,000 installers sold over 1 million pumps.

  50. BDS Market Development Social Venture Capital MEDA & PROARTE in Nicaragua • MEDA & individuals invested venture capital in PROARTE; • PROARTE marketed traditional Nicaraguan crafts for 100 producers in 1997; • MEDA plans to dis-invest over time.

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