That is true. From what i have experienced, I think it is also important that all value chain actors including business support service providers should sit at a table not to discuss what type of business they should engage in but just to share what they go through, the challenges they face, their expectations and frustrations. That way they are able to work around trust issues and everyone has a better understanding and needs of the other. It becomes easier for the small scale enterprises to know exactly what they need.
One of the difficulties faced by the 'old style' Business Development Services was how to sustain quality services and who pays for them?
In agricultural sectors we have seen more success because large companies have been able to 'bundle' advisory services with products smallscale farmers need like vet drugs or seeds.
In more generic SME support this has been difficult and making quality advice available has not been something governments have been able to do effectively, but in some sectors it is harder for companies to see the incentives
Zunaed, you make a very good point. Building trust along the supply chain takes time and can be all too easily lost. Transparency around contract terms and working with farmer business groups so that they can negotiate terms and realise the benefits of longer term business relationships is key. What strategies have you used to build trust?
Lessons: a) the good: 1)governments have reacted well in ensuring relevant policies and strategies are designed;
2) small scale enterprises appex organisations have been restructured to bring about needed changes like the establishment of SMEDI in Malawi;
3) skilled personnel has been placed in strategic institutions for the promotion and development of the sector. However the flip side defeat s the good work already done.
B) the bad: 1) inappropriate prioritisation of interventions;
2) lack of concerted efforts in the sector resulting in duplication of initiatives;
3) daunting work little resources in terms of finances, machinery, information communication technology, standards of products and services, passionate and creative human resources and buildings
Again, turning to the research we did with JCTR and others, one of the biggest lessons we learnt is that small businesses needs are often different to those of bigger businesses. We need to understand the local constraints that they face within their business environment. Any pro-poor framework wihtin private sector development therefore needs to be locally appropriate and be based on the needs (real, not perceived) that small businesses are facing. If we want to great jobs and pro-poor growth, this is key
Elle you are right. The IMF have just released a study that is arguing that reducing inequality has a stimulative effect on economic growth( http://www.theguardian.com/business/2014/feb/26/imf-inequality-economic-growth). We need to be more inclusive in our development approach and ultimately we will achieve a health economic growth that is inclusive. A lot of people in developing countries have the entrepreneur mind now and all they need is support to put on a growth trajectory out of povertry
The point you make about inappropriate prioritisation of interventions is interesting Alexander. Could you give an example from what you've seen in Malawi?
One that recognises the SMEs as partners in the value chain. Where large businesses are actively encouraged and incentivised to partner and work with SMEs and local businesses (inspite of SME capacity gaps). A deliberate attempt to create a critical mass of large businesses that can adopt and mentor SMEs to become supply chain partners. This can be in terms of challenge funds or well designed tax breaks etc.
1. A well defined MSME development agenda/ policy that is informed by the needs of MSMEs is the starting point
2. Increased funding for implementation of the polciy to ensure that needs of MSMEs are met such as skills and infrastructure development
3. Linkages of small busniesses to markets
4. Cheap anf accessible financial services including credit.
The list can go on and on but the beginning point is to understand the local context as MSMEs may have different priorities.
Could Adrian comment on whether he sees small and micro enterprises being at the heart of DFID's economic development strategy? Is this strategy seeking to help poor people access local markets or is it more about helping medium and large businessess scale up their export operations?
Hello everybody, how about looking at the CSR angle? Seeing small local enterprises as beneficiaries / partners of larger CSR programs carried out by bigger corporates? In this scenario LOCAL ENTERPRISE may not be seen as value chain partner of the larger corporate, but as a beneficiary. We have few experiences in Sri Lanka, between Etisalat (larger corporate), and Sarvodaya-Fusion (www.fusion.lk) a social enterprise. As this model expands, we are seeing more potentials and oppotunities to scale up the model to include more budding social entrepreneurs. Your inputs are mostly welcome to improve our learning curve.
Hi Collins, I agree, large businesses should be acticaly encouraged to partner with small biz's. If we consider Foreigin Direct Investment for example... FDI can have far greater development impacts if national FDI startegies are partnered with small Biz strategies. Benefits from FDI are not automatic. Foreign firms establishing a presence in a developing country are more rooted and provide more widespread benefits through spillover and linkages effects if they have a network of local suppliers and clients. Technology and learning is more likely to be disseminated if local small firms are not too far behind their foreign counterparts.
Thank you to our panel and to everyone who joined us for this great discussion. We'll leave the discussion open, so please do continue to post your comments.
If you would like to read more about the topics covered today, take a look at this Series of blogs that we have been running this week:
- Small Business Fights Poverty?
- The Importance of Small and Medium Enterprises in Malawi
- Small Businesses and DFID’s Focus on Economic Development
- How Do We Achieve Pro-Poor Economic Development?
Also be sure to visit our Enterprise Zone! http://enterprise.businessfightspoverty.org/
Collins I agree that this is attractive (see my comment posted a few mins ago about old style BDS) but apart from in agriculture have you seen successful models?
You get to the nub of it. What is a good use of donor money? (which let's face it is eclisped by private money flows!). Challenge Funds can ensure that companies are really serious about the investment they also have to make. But what else is needed? We had a 'failure' project a few years back on Network Brokers. Trying to address the problmes of small scattered disorganised enterprises in several urban sectors in Kenya. It didn't adequately understand the wider market context or the incentives and behaviours of the players.
It helped us pursue a more systemic approach that focuses more on processes and leveraging change than having a predetermined path
Thanks Alison, yes it is a complex issues, there are multiple direct and systemic issues around the trust questions. If we have a strong check and balance like explicit contract agreement that might minimise the risks at both level, after having all those mechanisms in place still there are issues of site selling, inferior quality and so on and again from the bigger private sector side there are critical issues like timely payment, transparent way of value sharing. Most critical issue here is, if the private sectors not see the profitable chain they can withdrew their investments any time, that will make local SMEs no where and will be a huge lose for them at the end ------
Collins, I agree. We need one approach for survivalist enterprise - which may help poor farmers in semi arid areas with little realistic prospect of more commercialised agriculture to "hang in". We need another for those enterprises that do have growth potential and can be the source of more productive, better paying jobs. And Governments need to be thinking about the growth path that they need to take to reach Middle Income status - and the industries that will drive that growth.
Pro-poor framework: more of social entrepreneurship whose primary goal is to serve the public with goods and services that offer solutions to community needs. The initiative can then go into profit making after winning the people’s confidence for either the people would be determined to pay for the products or services after seeing the benefits from it or governments would pay for the public to partake of the good products or services. Thus social entrepreneurship is way to go for it is sustainable.
First and foremost, it is crucial that donores/EU put their house in order and put the fight against poverty and inequality at the centre of its strategy on working with the private sector in development. What is clearly missing in current approaches is a focus on internal reforms and defining the private sector’s added value in development cooperation. The EU should ask what it can do itself to support the development of a productive and sustainable private sector that works for the poor, such as:
• incorporate development oriented considerations in procurement regulations to unlock the potential of the local private sector, in particular small and medium-sized companies (SMEs)
• adopt regulation to curb financial opacity, tax avoidance and evasion to ensure EU companies pay their taxes in partner countries. It should do this to increase domestic resources substantially and facilitate a level playing field for SMEs and firms based there.
• focus on how public finance can support the private sector to invest in essential services, such as health, education and social infrastructure. Those are the first conditions of any private sector development strategy working for the poor.
I agree with you SMEs need in first place to pass through a kind of incubation whereby they assisted to define well their business ideas, understand their businesses and environment surrounding them and acquire more managerial skills for their businesses through mentor-ship and coaching programmes, and have access to financial information, technical support and a close monitoring on their progress then after preset indicators one can graduate to a high level whereby they can now mobilise much investmemtn for their business.
The incubation person may not fit well more or less in adult people (or it can too) however I think it can work much for young people for better results.
Esperance
The tying of aid to donors is very common in most developing countries. There is need to have deliberate policies espeecially in the procurement processes that are inclusinve of local businesses. We have seen roads that have been constructed for example with all the materials coming form the donor country. Other than the final product and a few casual jobs provided in the process, there is very little to point at as benefit from development aid.