Alejandro Rausch - International Policy Centre for inclusive Growth

International Policy Centre for Inclusive Growth (IPC-IG)
Brasilia
Alejandro E Rausch
3-5 December 2012
A new perspective on private sector contribution to
development
Development
benefits
Inclusive business
models / inclusive
markets
CSR / Social
investment
Risk
Philanthropy
Business
benefits
Premise: Opportunities exist to build bridges
between business and the poor
The poor harbour a potential for consumption, production, innovation and
entrepreneurial activity that is largely untapped
2.6 billion people live on less than US$ 2 per day; 1 billion lack access to clean water; 2.6 billion lack
adequate sanitation; 1.6 billion lack access to electricity; 5.4 billion have no access to internet
Inclusive business models include the poor on the demand side as clients and
customers, and on the supply side as employees, producers and business owners in the
value chain
Sectors: energy, water & sanitation, agriculture,
health, financial services, ICT, handicraft,
education, housing, tourism
Types of organizations: MNCs, large
companies (public/private), MSMEs,
cooperatives, NGOs, social business
Inclusive business models create a win-win scenario between business and the poor
Benefits for business: generating profits,
creating innovation, developing new markets,
strengthening supply chains
Benefits for the poor: meeting basic needs,
increasing productivity and incomes,
empowering communities
GIM Principles | Products | Objectives


- Conceived in 2006 as platform for collaboration focused on research & advocacy
- Advisory Board gathering over 25 key stakeholders including business associations,
academic institutions and development agencies
Principles
• Core business
emphasis
• Developing world
focus
• Human
development
framework, guided
by the MDGs
• Global thinking
and Local agenda
• Partnership and
multistakeholder
approach
Products
• Reports (global,
regional and
national)
• Case studies (120
published + 1,000
examples)
• Knowledge
network: 45
Southern academic
institutions,
Centers of
Excellence, KM
platform
• Tools: Strategy
Matrix, Heat Maps,
Actor Framework,
Training for
companies and
intermediaries
Objectives
• Deepen the
understanding of
how inclusive
business models
can contribute to
sustainable human
development
• Enable the
creation of more
inclusive business
models by
informing
individual,
collective and
policy action
Strategy Matrix – A Tool to Understand
Constraints and Possible Strategies
Strategies
Adapt
products and
processes
Constraints
Market
information
Regulatory
environmen
t
Physical
infrastructure
Knowledge &
skills
Access to
financial
products and
services
Invest in
removing
constraints
Leverage the
strengths of
the poor
Combine
resources and
capabilities
with others
Engage in
policy
dialogue with
government
Actor Framework – Who Supports
Inclusive Business Models and How?
MNCs
Large domestic
companies
Policymaking
institutions
Research and
advocacy
institutions
Finance
institutions
Institutions with
complementary
capabilities*
Provide
the
incentiv
es and
infrastru
c-ture
that
enable
business
to act
Provide
the
knowhow and
awarene
ss for
business
to act
Provide
the
funds for
innovativ
e projects
that
often
require
time and
resources
Provide
specific
knowhow,
expertis
e,
resource
s and
network
s
SMEs
* These may include NGOs, development organizations, etc.
Inclusion, Competitiveness and
Institutionalisation of
Supplier Development Programmes
Structure of the Presentation:
 SDP and Inclusive Business and Growth
 SDP y Global Value Chains and Innovation Systems
 SDP and their institutionalisation
Supplier Development Programmes
Where, When and Why?
Why?
 Enhances competitiveness and incomes for both suppliers and anchor
firms
 Creates sustainable employment
Where?
 Low Income Countries
 Middle Income Countries
 Developed Countries
When?
 Crisis-Post-Crisis Environments
 Inclusive Growth and Businesses
 SDP (supplier and distributor) for domestic markets
 Direct Foreign Investments (DFI)
 Export / trade Value Chains
Supplier Development Programmes
Focus
Are:
 Demand-driven
 Promote:
 Collaboration
 Associativity
 Improves quality and competitiveness
What is a Supplier Development Programme?
EP
EC
EP
EP
EP
EC
EP
EP
Entrepreneurial system comprised by:
 A firm called anchor or client (EC) that
purchases from its suppliers (EP) (or sells to
its distributors).
 Group of suppliers that provide goods and
services to the anchor firm ( or group of
firms that distribute).
Objetive:
 Improve the competitiveness and levels of
income of Micro SMES through Value Chain
(VC) Mechanisms.
Kind of Intervention

The intervention is done within a productive Value Chain: A client
or anchor firm and a maximum of 10 suppliers which may
represent cooperatives and / or associations, are supported by
one or two consultants during 10-12 months.

The
Supplier
Development
Methodology
is
Established.
Win
+
Win

Subsequently, the client or anchor firm continues replicating the
methodology to the rest of its supply chain.
Adapting SDP to Groups at the Base of
the Pyramid
ETERPRISES´ FORMALISING PROCESS
Productive
Situational
Diagnosis of the
area
1.Enterprise
Diagnóstic for
each productive
group
5.
Relation
with
anchor
firm
3. Associative
Process
2.Formulation of
the intervention
plan
Month 1 and 2
Situation
Diagnostic
4.Structuring
and
consolidation of
Enterprises
6.Supplier
Development
Programme
Month 3 to 6
Month 7 to 8
Month 9 to 18
Phase 1, 2
Phase 3 and 4
Phase SDP
Financing
Supplier Development Programmes
Start Up:
 Donor Funding (multilateral, bilateral, INGO, LNGO)
 Government Funding
Operation:
 Contribution anchor firm up to 30%
 Contribution supplier / distributor not more 15/20%
 Rest is generally subsidy unless developed market sectors
Financial Tools for Working Capital and Investment
 Microcredit and Self-Finance-Groups
 Guarantee Funds and Reciprocal Guarantee Fund / Company
 Supplier / Distributor and Capital Goods Provider Credit
 Commercial Bank credit
Case Study 1
WFP-PURCHASE-FOR-PROGRESS (P4P)
 Suppliers: 10 basic grain producer associations
 Located: Ahuachapán (5); Santa Ana (1); San Vicente (1); Usulután (1);
Morazán (1) and La Unión (1) in El Salvador
 Started: November 2009
 Ended: November 2010
Initial Situation:
 Association of producers of basic grains that weren´t legally registered,
that sold their production to intermediaries at low prices that barely
covered their costs.
 AGRISAL, was formed by the 10 now formalized basic grain producer
associations that formed the SDP where the WFP became the anchor firm.
Case Study 1
WFP-PURCHASE-FOR-PROGRESS (P4P)
Outcomes:
 Quality improvement in processing conditions due to Investment by WFP
through improvement plan in grain storage centres
 Enterprise management: organization, link to market, formalizing business,
legal and task issues.
 Financial aspects: Working capital
 Production Aspects
 The Association / AGRISAL participates in State bidding processes for corn,
maize and beans .
 45% increase in price with respect to informal market
 The intermediaries have been eliminated
 Workers have been registered in the Salvadorean Social Security Institute
(ISSS)
 100% Increase in sales and higher benefits.
Case Study 1
WFP-PURCHASE-FOR-PROGRESS (P4P)
Case Study 2
Food and Nutrition Security for El Salvador
 MDG-F Joint Programme: UNDP-WFP-UNICEF-WHO
 Objectives: Food security; production diversification and increase income
of women HH heads
 Diagnosis of areas / regions
 Goals: 1) 150 families have diversified their agriculture and livestock
production to increase their production and consumption of food with
emphasis in nutrition and income. 2) 35 families increase their incomes
and local employment through creation of sustainable micro enterprises
with women, youth and indigenous population linked to financing,
markets, government and aid agencies. 3) 1,000 families improved food
and nutrition security.
 Beneficiary selection: 1. family should have children of less than 5 years;2.
does not have to be assisted by other projects; has to have disposable
agriculture land or have economic experience in other activities; accept
commitments of programme and participate in activities; and belong to a
Community Based Organisation (CBO) or Local Based Organisation (LBO).
Case Study 2
Food and Nutrition Security for El Salvador
Services to Families
Case Study 2
Food and Nutrition Security for El Salvador
Market goal /
anchor firm
Links through the
SDP (future links)
-Development of
management and
business skills
-Specialized TA
-Microenterprises:
Casas Malla and
small non
agriculture
businesses
Case Study 2
Food and Nutrition
Security for El
Salvador
Case Study 2
Food and Nutrition Security for El Salvador
Sustainability of Actions
Link with Govt.
Programmes (Family
Agriculture Plan PAF- and SMES
Centre – DCMYPE-)
Legalislation for
associative groups
Strengthen
technical,
entrepreneurial,
associative and
value chain
capacities
Absortion of
methodologies and
technical team by
CENTA/PAF
Support with
agricultural and non
agricultural inputs
Investment in
infrastructure and
creation of Revolving
Funds
Case Study 3
INDUPALMA Business-Led Peace Building
A Comprehensive Model that Generates Wealth
 Founded in the 1950s, Indupalma, illustrate a twist of Colombian business
reactions when faced with conflict in a unsafe (FARC/ guerilla) zone.
• Cooperative Companies of Associated Work (Associated Entrepreneurial
Units-AEU-) were created with some of Indupalma’s staff workers, assuring
them that with their work’s contribution they build capital. 1,700 AEUs
created to date owned by individuals 6 has and families 10 has.
• Peasant’s entrepreneurial activity started in December 1.995 offering their
agricultural services to Indupalma. Cooperatives received to handle
agricultural activities that were not the core of Indupalma’s business.
• In it’s second phase (1997), Indupalma helped Cooperatives acquire
productive assets (dumper trucks, tools, cranes, tractors, scythes,
computers).
Case Study 3
INDUPALMA Business-Led Peace Building
• During the third phase (2000), peasants became landowners. A Model of
Economic and Social Development was designed that involved and
motivated peasants and investors to start their own business in their land,
thus becoming collective owners and entrepreneurs.
 Indupalma set goals for the Project’s Expansion with third parties for the
development of 10.000 hectares over a 10-year period. This goal has been
achieved; from IBIO, the firm manages 21.854 hectares of which 11.577 are
owned by third parties. 21.854 hectares are suitable to start designing and
establishing an oleo-chemical cluster in the middle Magdalena region.
 Indupalma’s managed projects are constantly increasing: 70.000 hectares
by 2020, it is necessary to set up an extracting facility for every 10.000
hectares (7 facilities). A policy to incorporate in at least 20% of the
property, projects from small peasants, thus making them entrepreneurs
has been established.
Case Study 3
INDUPALMA Business-Led Peace Building
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Model characteristics
Project is the union of various landowners that are economically active producers.
Proprietors of a Project are landowners (peasants, investors).
Individuality of ownership of the land and sow are maintained (direct relation to
the owner).
Project loans involve land and owners, expressed as partnerships or cooperatives
(legal entity).
Responsibility is collective; each owner is held responsible for other owners’ nonfulfillment within the Project.
Each owner, who generally contributes with their land’s mortgage and/or carry out
the Agricultural Guarantees Fund, offers guarantees for loans.
The loan has a joint guarantee.
Guarantees are protected of responsibility because operations are performed by an
expert (Indupalma) and resources are managed by a trust entity.
Owners, operators, trust companies and Banks meet monthly, to evaluate results
and make economic, technical and operational decisions.
Case Study 3
INDUPALMA Business-Led Peace Building
Coverage of the Model
 The project’s operator is an expert (Indupalma) who guarantees that all
aspects as stated within the operation’s contract are fulfilled.
 The trust company operates as a cash flow unit, through an autonomous
equity that handles all project’s income from loans and sales of production.
 The trust company orders payments through the business operator and
verifies that these are in accordance to contracts.
Results
 Peasants are owners of productive assets and cultivated lands. 1,700 AEUs
 Projects that are part of the model are covered within technical, financial
and commercial aspects.
 Trust has been built in order to Access financial systems.
 Technical and logistics operations are guaranteed by a company with vast
experience like is Indupalma.
 Product commercialization is guaranteed.
 Projects are managed with an autonomous equity, which guarantees
transparency in the use of all resources.
Case Study 3
INDUPALMA Business-Led Peace Building
• Employment, property and constant income have been guaranteed for its
associates. 6 has for individuals and 10 has for families. Income at least 3 MW.
• A new entrepreneurial force has been developed with the objective to achieve
their Independence.
• Contracting schemes changed from workers to entrepreneurial owners.
• A community with an entrepreneurial spirit and safety conditions.
• Decrease in illiteracy rates.
• Outsourcing, through the creation and contracting of Cooperative Companies
of Associated Work. (Capital building through manual labor).
• People from the region became involved in contracting and buying processes.
Contracting out to the workers allowed the company to concentrate on its core
business –exporting palm oil – while shedding its labour burden, solving problems
with the union, generating local good will, and enhancing its production
environment.
Supplier Development Programmes
El Salvador
El Salvador (started 2009)
 15 anchor firms
 139 Supplier firms
 Sectors: Agroindustry, shoes, natural health, medicines, food and
beverages, bakeries, dairies, public transportation, tourist transport
 Sustainable employment: 3,503
 Average employee per firm: 32
 Percentage of VC that have increased employment 50%
 Percentage of increase in employment of enterprise who have
achieved an increase of 19.5%
 New employments created: 500
 Enterprises that have made new investments: 80%
 Amount of Investment: US$ 1,000,000
 Enterprises that have increased their sales: 32%
 Incremental sales: US$ 8 million
 Percentage of formalized firms: 15% worked with 150 firms
Supplier Development Programmes
Bangladesh: Swisscontact /Katalyst; US$ 50 M multi donor project; sectors: fish
maize, vegetables, potatoes, prawns, furniture, tourism, jute;
Business Case: By providing embedded services to farmers (e.g. seeds / fertilisers
plus free advice), retailers could win and retain customers at no extra cost.
Phase I 2002-07 was for focus/experiment & Phase II 2008-13 was to scale up
Thus, 17 Input companies plus 4,000 retailers reached 1 million farmers
Chile: CORFO; SDP for Grape: optimising use of water and labour and Livestock:
introducing traceability and improved sanitary conditions.
Paraguay: Frutika: citrus, maracuyá; Trociuk: citrus, bovine livestock; Shirosawa:
45,000 producers of sesame; Manufacturas Pilar: organic cotton; Hierba Par:
Medicinal Herbs, biofuels; Singer: stevia / natural sugar ; Azucarera Paraguaya:
organic sugar; MEDA: dairy products; CECONPAN: Housing value chain
Dominican Republic: Banana Value Chain: 1,300 smallholders, 15,000 direct
employees, 45,000 indirect employees, US$ 250 million exports
Mexico: Industry auto parts, agroindustry, dairy, metal mechanics
Relevance of Global Value Chains
What are the GVCs?
 Integrating into GVCs
 Capturing Value within GVCs
 Discussion of international policy regarding GVCs (trade
and investment policies, international standards,
exchange rates, etc.)
 Innovation Systems and GVCs
 GVCs and IS: an endogenous relationship
The approach towards VC have evolved with time and are
increasingly complex
Integrating into GVCs
 Attraction
 Free international flows of goods, services, capital,
knowledge, people, and policies related to them
(business environment, framework)
 Protectionism may hurt exports that in turn need crucial
imports)
 Investment barriers and FDI attraction (investment, trade,
competition, tax, human resources, infrastructures,
corporate and public governance)
Integrating into GVCs
Ease GVC Functioning
 Reduction in trade barriers (NTB, standards, processing
zones).
 Logistics and infrastructures (transport, ICT,…), but also
soft infrastructures (facilitating policies and procedures)
 Supply Local Capabilities to Interact with GVCs
 Supply capacity of domestic firms (business linkages, skills
development)
Capturing Value within GVCs
 Rents are generated and not equally distributed along the
VC. For emerging countries challenge is to capture more
value and economic benefits from their activities within
GVCs
 The value captured by home countries reflects their
capacity to attract innovation and development of
intangible assets.
 Policies to attract (Multinational Corporations)MNCs
 Policies to help firms grow to more important positions within
GVCs via innovation and internationalization policies
Capturing Value within GVCs
 “Moving up (and moving down) the value chain” to higher
value activities.
 Risk of lock up in low value manufacturing activities (as
GVC integration may occur without developing
capabilities in design and logistics).
 “Modularity trap”: despite labor productivity increases,
firms operate in low value niches and activities with little
chance of upgrading.
 Upgrading requires better access to international
markets and also better technological capabilities and
intangible assets.
Typology of Objectives for Value Chain
Interventions
(Humphrey, Navas-Aleman, 2010)
Typology of Objectives for Value Chain
Interventions
(Humphrey, Navas-Aleman, 2010)
 Working with lead firms often regarded as most
promising way for firms´ upgrading in developing countries
 Access to strategic knowledge (technology and markets)
 Horizontal linkages
 Alternative links to reduce dependency and raise
bargaining power
Systemic Approaches to Value Chain
Development
(Hartwich and Kormawa, UNIDO 2009)
Innovation Systems and GVCs
 Global Value Chain framework:
• Focus on the role of leading firms and inter-firm networks
in firms upgrading;
• Limitation: little attention to the understanding of the
upgrading itself. How is knowledge accessed? How do firms in
GVC learn and innovate?
 Innovation Systems framework:
• Focus on how interactions among enterprises, institutions,
research bodies and policy making agencies contribute to
learning and innovation within firms;
• Limitation: little attention to external linkages in the
generation and diffusion of knowledge and innovation;
It is necessary to establish a link between GVC, VC and IS.
Es necesario establecer un nexo entre las CVG y CV y los SI
Forms of GVC Governance
Institutionalisation of
MSMES
 MSMES are subject to public policy for reduction of
poverty, inequality and sustainable employment and
SDP and GVC are appropriate tools to achieve those
goals.
Therefore…
 It´s necessary to have institutions and public policy in
accordance with the challenge faced by countries,
regions and localities.
Institutionalisation of
MSMES
However…
The set of policies to support MSMES have considerable
limitations
 Firstly, the scarce coordination between different programs
and instruments
 Secondly, in the case of those programmes and tools that
are efficient and new, there are problems to scale up and
reach a larger quantity of beneficiaries
 Finally, there is lasting lack of systematic and permanent
mechanisms of evaluation of programmes and policies that
may allow feedback, modify and improved the tools used
and strategies adopted
Institutionalisation of
MSMES
 Creation of a new institutional system that will allow a qualitative
change in policies to promote MSMES and SDP
 It is necessary to build institutional and learning capacities through a
process that goes beyond short-term
 It is necessary to design a long-term project that guarantees continuity
of management and technical personnel and starts institutional
learning processes, closely linked with systematic evaluations of the
interventions carried on
 The institutional strengthening has to be followed by a progressive
increase in funding, given the limited resources usually allocated to
promotion policies for MSMES. In this regard, not only do the financial
resources have to be considered, but also the human resources and
capacities needed to implement these promotion policies.
Institutionalisation
SDP
 The institutionalisation of the SDP should involve:
 Policies
 Financing
 Operations
 Institutional development
SDP should be leveraged to consider Inclusive
Businesses (IB) and Markets together with Global
Value Chains (GVC) and their relation with
Innovation Systems (IS)
Supplier Development Programmes
Inclusion- Competitiveness-Institutionalisation
Thank You!
Alejandro E Rausch
alejandro.rausch@undp.org
alejandro.rausch1@gmail.com
Skype alejandrorausch