Marjorie Kelly on the Emergent Ownership Revolution

Do you need something more tangible to use when talking about social business?

Is the 'social purpose' argument a bit thin for you?

According to Marjorie Kelly in Towards Mission-Controlled Corporations: Extractive vs Generative Design there are 5 elements of a generative ownership-driven design framework for social businesses:

1. Membership – How can we have the right people forming part of the business? How can they contribute to the running of the business? What roles and authority can they have?
2. Purpose – What purpose can a business have beyond profit-making for shareholders? What problems might it solve? How is 'wealth', and value spread within the local community?
3. Governance – Who is the board? Who does the board answer to? 
4. Finance – Where does the money come from? Where does it go? How does it circulate through the business? How does it generate wealth and value?
5. Networks – How does the business get access to goods, services, information? How might the exchange be carried out? How might it be non-financial? How might it reach beyond typical boundaries e.g. geography?

Will Starbucks food donations encourage local restaurants and shops to do the same?

Interesting question. Possibly. But as said below by a previous poster the value chain and business processes at large food restaurants look different from those at small restaurants and thus the opportunity for surplus (and thus donations) is different.

Let me add one thought that sprung to mind. In my experience, the other factor that affects the flow of surplus food to the people who need it are the intermediaries in between. For example, small restaurants are not normally able to afford to send/deliver/transport food to charities outside of a couple of miles and small charities are not normally able to absorb this cost either. One idea is that services spring up to help this process/fill a gap. Maybe a group of restaurants band together to hire a van or a group of charities do that ... or even a separate intermediary (maybe... a neighbourhood support scheme paid through by the local authority or even people/citizens/charitable folks who live in the area pay for it). Or possible, someone likes Uber or your local taxi cab company offers this service at a discounted fee.

So, we might see that maybe instead of giving money to charity, people give money in other ways to help restaurants get their food to people who need it.

Originally posted on Quora here

Habits of a Systems Thinker

Source: www.watersfoundation.org/systems-thinking/habits-of-a-systems-thinker/

What types of careers are there in international development?

Skills (What you can do!)

• All skills needed!!

Functions (What role you would play!)

You may have 1 or more of these skills!

• Fundraising - storytelling, strategy, communications, budgeting, networking, relationship building, research, project management
• Policy - research, communications, legal, institutional development, relationship building, politics
• Institutional development - research, governance, relationship building, politics
• Economic development - economic modelling, industrial development, market systems strategy, welfare 
• Social welfare - advocacy, social welfare subsidies, charity work, 
• Private sector development - business innovation, enterprise development, enabling environment, entrepreneurship, taxation and legal
• Marketing and retail - commerce, business management, sociology, psychology, policy and/or network development
• Operations - logistics, network management, project management, finance, and/or results measurement 
• HRM - sociology, psychology, training and development, and/or team building
• Finance - finance, strategy, M&E, project management, and/or legal
• Results measurement - finance, strategy, project management, and/or research

New Trends (Where you might position yourself!)

• Market-based development
• Socialist market systems
• Social welfare
• Ethical business
• Fintech
• Behaviourial sciences
• Systems change
• Resilience
• Conflict 
• Livestock
• Healthcare
• Climate and the natural environment
• Informal sector
• NGO organisational development
• Foundation funding

Things to Remember!

• Be different - If you have good ideas that seem too out-of-the-box for traditional work, this could be the right time to build a skills around it and offer that skill to the development space
• Look deeper than large institutions - If you want to learn on the job, develop tangible skills and be part of an impactful project, start at the field and work upwards
• Competences are important - teamwork, patience, time management, critical thinking, adaptability, focus and determination

What does it mean to do ethical business in apparel?

What value do ethical standards bring to the fashion industry?
What does it mean to be ethical in fashion ?
What is the business case for ethical fashion?

• Product development that sources and uses raw materials according to sustainability regulations/norms/codes/standards/values in the industry 
• Product design that reflects stories from different people and different culture (i.e. non-normative, beyond the Western beauty ideal) and in a way that respects ownership and that protects against cultural appropriation for profit
• Innovation based on participative collaboration that understands power structures and control/equality/equity issues 
• Ensuring that wage payments, work health and safety conditions and regulations are observed, external audits and inspections are supported and violence and illegal practices are addressed through a fair justice system (Guardian)
• Working with producers and suppliers in developing countries: meeting regulations and codes and respecting power imbalances in ethical management styles and monitoring systems
• A systemic approach to certification/regulations/norms/codes/standards to bring about sustainability and scale and builds on the successes of supply chain strengthening (multi-stakeholder governance, transparency, independent verification, and third party chain of custody) (Business Fights Poverty)
• Creating a demand for ethical fashion by using multi-channel retail opportunities including pop-ups to showcase the brand the product and the story
• Ensuring that the pricing model allows producers and suppliers to be paid a living/decent wage even when it means charging the retailer or consumer a few pence more. The recent example of dairy farmers in the UK removing milk from supermarket shelves in an attempt to sell it directly to the consumer to get a better price.
• Understanding that in fashion there is economic value to the 'story' in the same way that any brand builds equity - through rational, emotional and behaviourial consumer analysis
• The impact on retail pricing - what is the market willing to pay?
• Businesses that 'work in Africa' do not automatically mean social enterprise or ethical sourcing
• Making your claims of ethical business practices credible and possible to observe and verify. Consumer driven - Mintel found that half of those surveyed said they would only pay more for ethical products if they understood clearly where the extra money went, and 52 per cent said they found information about which foods are ethical confusing (Supplymanagement.com)
• Working on textile waste to minimise, recycle, reuse, upcycle, upgrade, re-configure, re-integrate, and more (The Ethical Fashion Source)

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http://www.theguardian.com/world/2015/aug/10/lithuanian-migrants-chicken-catchers-trafficked-uk-egg-farms-sue-worst-gangmaster-ever
http://source.ethicalfashionforum.com/article/recycling-on-the-high-street-3-different-approaches

A systems perspective to supply chain development

In classic economic theory, making products cheaper by reducing the cost of goods (COGS) can mean removing the intermediaries in the supply chain where margin might be absorbed. This means system actors, such as agents, middlemen/women, traders, small retailers (kiosks) are vulnerable to the disintermediation. However, in low-income countries, this has a system wide effect: this will limit the supply of goods and services to marginalized populations, such as smallholder farmers or the urban poor and this will reduce employment and revenue generation by cutting the poor out of the system. Moreover, in times of desperation, this will naturally create conflict and instability that will have even more far-reaching effects beyond the original supply chain.

Things to remember:

• For real wide-scale change, take a step back and think more systemically and less narrowly and think about the wider impact of any intervention in business operations, pricing and COGS. 
• Rather than a focus on cost, price and money, consider gains that bring about long-term growth, such as quality, value and service-driven loyalty
• Yes, eliminating supply chain actors may reduce the cost of goods along the way, but there is no guarantee that this will be passed on to the customer.  
• Intermediaries are the backbone of a system and agents, traders, kiosks are ever present in a market - work through them rather than against them or by sidelining them
• Look at where the incentives lie. For a supplier, that wants to shed certain costs, who might be willing to take them on? Who might benefit? Who might see the value in managing this transaction directly? This is essentially the origination of outsourcing.
• Consider how the market could function better. As a supplier, you may be incurring a huge cost getting products to the consumer. However, if a retailer can offer a better coordination function, then it would make more sense to switch to wholesale operations. Many retailers in developing countries do this albeit with  need for capacity building around effective management. 

Why might some poverty reduction project incorporate behaviour change theories?

Nudges
(behaviour change tactics)

• Commitment device. A commitment device is a choice that an individual makes in the present which restricts his own set of choices in the future, often as a means of controlling future impulsive behavior and limiting choices to those that reflect long-term goals.
• Temptation bundling 
• Loss aversion. More pain with loss than the pleasure for what we gain. The customers that cancel with you are more worried about what they will lose than what they could gain by switching and going elsewhere

System actors
(for market actors integrating nudges)
Market actors who may be interested in behaviour change nudges are diverse. We see commercial enterprises looking to develop a customer base within a low-income population at the bottom-of-the-pyramid; we see Governments wanting to affect the behaviour of citizens such as through giving up smoking, reducing speeds on the roads and paying taxes on time; and we see opinion leaders/institutions/social networks wanting to influence and change socio-cultural dynamics - think of #blacklivesmatter.

System change
(why?)
We think that some behaviour change nudging is needed when the context is new for people, such as a unprecedented growth in the market economy, or recent modernisation, or evolving non-traditional systems, or new sectors and economic activity that require new practice and behaviours.

Facilitation using behaviour change
(for development practitioners)

• Avoid prescribing behaviour. Instead, help system actors find the behaviour they want to adopt; let it be self-deterministic and self-motivated. This makes it easier to find the right nudge - through the process, system actors will indicate the right nudge for them and what it will take to adhere to the effects of the nudge. 
• Be intuitive and look for deeper narratives. System actors will tell you what they want but this will not be overt, out-loud and obvious. This will be through their attitudes, behaviours, mindset, actions, and perceptions. You will need to read all of these cues to understand the full script of what the actor is (not) saying to you.
• Look into the socio-economic benefits for sharing the costs of desgining and implementing nudges and the socio-economic benefits for the value created. This should be the basis for programming the nudge into the market system
• Celebrate the effort not just the intellect. Telling people that they are smart and intelligent can create situations where the individual relies on their intelligence to get them through complex situations. Often what is needed more is a combination of patience, commitment, sacrifice, and possibly super-normal hard work (= effort)

What does a market system specialist like me do?

Economic Development

• Develop retail networks in developing countries to get products and services in the hands of low-income marginalised consumers
• Help aid programmes do more systemic social welfare through systemic safety net programmes
• Improve the enabling environment for MSMEs and the informal sector  

Social Business and CSR

• Look at supply chain interventions that go beyond the value chain approach and take more of a systemic perspective that actually deliver benefits to poor farmers 
• Identify different areas where CSR can be better programmed by way of a market systems approach
• Integrate the private sector into market systems approaches that have historically focused on socialist mechanisms (large State, community associations, NGOs)
• Work with system actors to identify areas where market systems development will make a difference

Behaviour Change

• Train practitioners on behaviour change and behaviour change methodologies to help projects deliver systemic solutions 
• Design behaviour change tools to improve the adoption and commitment of poor people to long terms savings and investments practices

What is the TTIP and what effect will it have on developing countries?

The TTIP is the Transatlantic Trade and Investment Partnership between the USA and the EU. The gains for the US and EU businesses, particularly large corporations in the USA and emerging SMEs in central Europe are huge.

"Between the two of them, the United States and the EU stand for 40 percent of global economic production; their bilateral economic links are the most expansive in the world. The liberalization of these ties would boost global competitiveness and market confidence in a time of economic crisis, and according to some predictions, could create more than two million new jobs. This naturally lends it significant support from many Central European governments." (Center for European Policy Analysis)

There may even be benefits for the UK as a member of the EU. An open editorial by UK policy advisors for the Guardian makes the following points:

TTIP is about doing away with those barriers on both sides. We believe that the agreement of a transatlantic trade deal would benefit the European economy in the long run by up to £100bn – £10bn a year to the UK alone – an adrenalin boost for jobs and growth in our countries when we need it the most. Crucially, the businesses that have most to gain are not large corporations but small and middle-sized enterprises. They don’t have the big firms’ economies of scale or the in-house lawyers to overcome trade barriers.

The criticisms of the TTIP focus around the fact that firstly, it will exacerbate trade imbalances by putting in preferential trade mechanisms (going over and above simply alleviating trade barriers) between the USA and the EU and secondly, result in huge social cost at local level as well as for the Global South.

The UK Parliament , a briefing paper describes the TTIP as follows:

Average tariffs on trade between the EU and US are relatively low. Much of the negotiation therefore centres around non-tariff barriers to trade, such as harmonising product regulation and standards and on measures to protect the rights of investors. 

and frames the benefits as follows:

The economic benefits of TTIP are contested. A study for the Department of Business, Innovation and Skills estimated that the gains to the UK would be £4 billion to £10 billion annually (0.14% to 0.35% of GDP) by 2027. Critics of TTIP argue that these estimates overstate the gains, and that alignment of regulatory standards in areas such as consumer safety, environmental protection and public health could have social costs

 and frame the most contested issues as follows:

Probably the most controversial element of TTIP is Investor State Dispute Settlement (ISDS). These provisions allow investors to bring proceedings against foreign governments that are party to the treaty. These cases are heard in tribunals outside the domestic legal system. The concern is that the ISDS provisions might affect governments’ ability to determine public policy if they are concerned they might be sued by corporations.

In the UK, the main area of concern has been the NHS – in particular, whether any future measures to reduce the private sector’s involvement might be challenged under these provisions. The UK Government and the European Commission have sought to allay these concerns but critics remain to be convinced. Besides ISDS, there are a number of other areas of concern with TTIP including food standards, public procurement, intellectual property, transport and financial services.

 Here is what the War on Want, a civil rights and advocacy organisation, thinks about the TTIP (War on Want)

"...the main goal of TTIP is to remove regulatory ‘barriers’ which restrict the potential profits to be made by transnational corporations on both sides of the Atlantic

Here is what the head of  UNISON, one of the UK's largest trade unions, thinks about the TTIP (Bond)

"TTIP may be a US – EU trade deal, but its impact will be felt all over the world. Multinational corporations will profit, but millions will lose out. People in Britain are angry about the impact TTIP will have on their lives. Unless we also get them angry about the impact of TTIP on the Global South, we will have missed an opportunity, and millions will be a great deal poorer as a result."

 On the impact of the TTIP on the 'Global South', here is what policy advisors suggest might be the impact (Green European Journal):

"[the Global South] is not a homogeneous bloc, but consists, rather, of a range of extremely diverse states which will certainly be negatively affected by any potential US-EU trade agreement. Such effects will result primarily from the diversion of trade flows, but also from, for example, the bilateral setting of global standards. Countries for whom, say, the US represents a main trading partner will be forced to enter into competition with the EU when the T-TIP comes into force.

and cites the following possible impacts on specific trade zones:

It is Mexico’s economy that will suffer most from the T-TIP, as it maintains very close trade relations with both the EU and the US. (...) With the T-TIP the Mexican garment industry, for example, could face increased competition from Europe. (...) the garment industries of both the EU and Mexico are already in competition for access to the US market and, if T-TIP favours European products by lowering tariffs, this would negatively affect Mexico’s garment industry. Another example is the trade in citrus fruits. In the EU, they are mainly imported from South Africa, Egypt and Morocco. So far, the US’s biggest export markets are Canada, Japan and the Netherlands. A trade deal could see US citrus fruit exports to the EU rise, forcing South Africa, Egypt and Morocco to look for new markets.

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http://www.cepa.org/content/ttip-setting-global-standards
http://www.theguardian.com/commentisfree/2015/feb/16/ttip-transatlantic-trade-deal-businesses
http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06688
http://www.waronwant.org/our-work
http://www.bond.org.uk/blog/119/whos-really-profiting?utm_source=Bond&utm_campaign=995c1d212a-Your_Network_June_2015_W4&utm_medium=email&utm_term=0_9e0673822f-995c1d212a-247690901
http://www.greeneuropeanjournal.eu/the-eu-us-free-trade-agreement-bad-prospects-for-the-global-south/

The many faces of CSR - some concerns

CSR is ...

... a collection of small piecemeal fixes that cost millions whilst companies stand in the way of wider systemic reforms (The Atlantic)

... a response to and/or a driver of ineffective regulation and enforcement mechanisms (aka corruption) (NBER Working Paper)

... the antithesis of sustainable? doing as much (or as little) as the legal compliance frameworks deem necessary, social (green)washing, a disregard for systems change and an appropriation of cheap labour and culture... (Triple Pundit)

... old, redundant and anemic, desperately seeking new energy to bring about real change both within the organisations, which espouse it as well within the markets, economies and systems in which they operate? (New Global Citizen)

... missing an opportunity to respond to new consumer-driven preferences and evolving buying behaviour?

• Tetra Pak research found that 60 per cent of consumers that they surveyed said that they would look for environmental information on products they buy and would be influenced by what they read
• In a survey by Mintel, 60 per cent of respondents said that guaranteeing that ingredients used in its products are responsibly sourced was of major importance (Supplymanagement.com)
• Several brands, such as Fairtrade, pay producers a higher wage than other buyer. They demonstrate the market for niche consumer groups that have a willingness and ability to pay a significant premium for higher quality product 
• Labour Behind the Label also makes the point that paying producers a living wage for basic products, such as t-shirts, may mean increasing the retail price by only 3%, which is something that might be barely noticed by a customer

...
http://www.supplymanagement.com/news/2015/responsible-sourcing-a-key-concern-for-majority-of-uk-consumers

Do market-based approaches hold too many false assumptions?

This blog post from the Institute of Development Studies (IDS) attempts to reflect the main challenges in implementing market-based approaches. It questions the "false assumptions" of market development and systems thinking for poverty reduction.

In fact, what is most evident is that a very damaging assumption held by policy makers and practitioners alike is that market-based approaches simply mean "business" and "market access". In fact these are two outcomes of a functioning market system - among many others - but not the end-goal. In reality, well-designed market-based approaches that adopt systemic principles also deliver the following benefits:

• Production and supply systems that respond to demand and the needs of the market so that relationships are inherently win-win and about capturing the value within the system 
• Inclusivity of poor, marginalised, vulnerable groups as key actors and influencers (including, women, youth, disabled, etc.) 
• Market resilience and the ability of the system to stay strong and react positively to economic, social, political shocks even after any development intervention 
• Innovation is from within the market itself and emergence of new products and services (both for mainstream as well as niche users)
• Better relationships between market actors and market-driven design and testing and learning so that products and services respond to market needs 

When talking about market-based systemic approaches to poverty reduction, the first step is for all parties to get on the same page. For advisors to development projects, these are some things to look out for:

• An inaccurate understanding of systemic thinking and a persistence towards value chain approaches. The former is about the structures, patterns and cycles in systems, and the systemic constraints that affect the functioning of a system (rather than any specific events or element or value chain). Systemic analyses then lead to solutions and leverage points that generate long-term change throughout the wider system (and not for any particular market actor value chain or sector). 
• Visible conflicts between projects and market partners and disagreements around 'ownership' and 'control'. There can often be a tug-of-war between 'who does' and 'who pays'. The project may be doing too much and be paying too much and can be reticent to relinquish control and allow market forces and systemic pressures to take over. 
• A lack of understanding of what a better functioning market system looks like. Poverty is often considered a 'wicked problem'. As a result, without diversity for multiple viewpoints in problem-solving, there can often be difficulty in envisioning a better future. Some projects also perceive that by formalising all things informal and turning informal activities into formal value chains will somehow naturally strengthen systems. 
• A lack of appreciation for (and a fear of) complexity. As a result, there may be a pattern of efforts to simplify, delineate, isolate and control within specific timeframes and outcomes, leading to tick-box approaches to measuring systems change. 
• A heavy emphasis on quantity over quality in project activities. In particular, a tendency to prioritise activities that promise large impacts for lots of beneficiaries as soon as possible ... over and above interventions at leverage points in the system that take time but draw people into the system and bring about sustainability through relationships, value creation, growth, feedback, market response and evolution 
• A tendency to directly intervene in the market instead of employing facilitative approaches and market-based tactics. Examples: 
• running 'project pilots' instead of working through market actors and offering opportunities for 'market exposure and idea testing' 
• dragging actors into the market through 'cost-sharing' instead of supporting existing interest and willingness for 'early-stage market entry' 
• organising and leading 'stakeholder forums' to get buy-in for the project's bright ideas instead of facilitating membership based groupings around common market constraints 
• when buying down the risk in new markets, offering a heavy amount of 'financial subsidy' to businesses instead of non-financial options such as 'networking, capacity building, coaching, information-sharing and relationship-building' 
• a lack of adequate focus on the incentives, relationships and behaviours in markets. This can be evidenced by projects that make broad assumptions about why the private sector does not already work in marginalised markets. e.g. ICT4Development projects often make the mistake that ICT constraints are primarily technical software issues, and do not spend enough time addressing the incentives and facilitating the relationships and interactions between firms and the market (mostly small rural-based enterprises).

Inclusive governance of informal markets: street vendors

Interesting article here from IIED on formalising the informal sector. The key takeaways are to look for mechanisms that incentivise and reward informal traders to participate in formal structures. And in turn, look for mechanisms that help governing bodies better understand the needs of informal traders.

Inclusive governance of informal markets: the street vendors of Surakarta
Ronnie S Natawidjaja, Endang Siti Rahayu, Joko SutrisnoJun 2015 - IIED 

Surakarta’s informal street vendors are well known, acting as a tourism attraction and — as in many cities in developing countries — making an important contribution to the food security and incomes of the urban poor. But it wasn’t always so. Informal street vending is often ignored by policymakers, or regarded as a problem to be eliminated. This was also true in the city of Surakarta, Indonesia until the mayor led a very different dialogue-based approach. By offering street vendors desirable and well-planned physical spaces and formally recognising them as viable and important businesses, the city enabled them to make a meaningful contribution to urban transformation and economic growth. The mayor’s first programme of engagement, designed to genuinely communicate with these marginalised economic actors, saw 17 per cent of street vendors move to mutually-agreed locations 2005. By 2014, more than three quarters of informal street vendors were operating from purpose-built facilities.

Scaling and systemic change in market systems programmes

Many reports on pro-poor business, especially from the grey literature, call for companies to ‘scale
up’ their impacts, with systemic change sometimes seen as a means to scale, as well as impact. Yet
there is an important distinction to be drawn between systemic change and efforts to achieve scale.

Scale is about numbers. It is about increasing the size, amount or extent of a business and development approach, through working with large corporations that have a vast reach, through
partnerships, or through replicating and multiplying results. The WBCSD (2013) describes scale as a
combination of the number of people reached, geographic footprint, and sales or procurement volume. While economies of scale and return on investment are important for business, as they can determine whether ventures are commercially viable, scale implies nothing specific about development impact.

Systemic change is about transformation in the structure, dynamics and relationships of a system.
Where business and development initiatives target systemic change this implies delving behind immediate problems or symptoms and tackling underlying causes to deliver tangible and enduring benefits with significant impacts on the material conditions or behaviours of large numbers of people, going beyond those directly involved in the initiative.

There is also a time element. Scale may be achieved in a (relatively) short period, but changes are not necessarily long-lasting. With systemic change, often the initial activities are niche, involving small and isolated impacts and unstable structures, which take a long time to strengthen and stabilise. However, where these innovations eventually drive systemic change, the result can be dramatic with lasting impacts over long time horizons.

Market systems analysis to evaluate change and transformation of a market system can be carried out by looking at 3 main questions:

1. How was ownership in a pro-poor business initiative structured? Initiatives led by an existing company, initiatives led by a new company that was created in response to a specific development challenge, formal partnerships between two or more entities, and multi-party platforms involving a large number of organisations with broad, shared objectives are different ways in which ownership by the market actors in a system (and not the donor or the market facilitator) will lead to actual systemic change.
2. Were key elements of systemic change part of the design of the initiative? Did it address issues that originate from the system and its elements (institutions, policies, relationships, resources, power structures, values and behavioural norms), rather than challenges specifically relating to the value chain and individual actors. Did the initiative distinguish between incremental initiatives around efficiency, quality and productivity, which rarely drive systemic change, and radical niche innovations that change the underlying constraints in the system?
3. How have changes to behaviours and norms been observed and monitored? How have they demonstrated that change has been sustained and long-term and not short-term, ad-hoc, or with undesirable unexpected consequences?

Adapted from John Humphrey, Professorial Fellow Institute of Development Studies (IDS), 'Market systems approaches: A literature review', December 2014 and available at Beam Exchange and Jodie Thorpe, 'Business and international development: Is systemic change part of a business approach?', Evidence report 42, August 2014 and available at Institute of Development Studies (IDS) 

Article - Apparel sourcing opportunities in Madagascar and Mauritius

An interesting perspective on apparel industries in southern Africa. The video also includes evidence of how intra-Africa trade is supporting the growth of the apparel industry where the exports of fabric from Mauritius go to Madagascar to feed producers and workshops.

Madagascar and Mauritius are not small fish third-tier suppliers. Their factories supply to major global retailers - CMT cited in the Mauritius segment of the video supplies to Puma, Marks and Spencer, Topshop and H&M.

Working with the private sector in market systems projects

What have I learnt working with the private sector in market systems projects?

Identify the systemic constraint and address the change at that leverage point. It is important to identify what is stopping the private sector from already reaching out to these markets. In one project, we found that livestock inputs suppliers were interested in developing distribution networks in very poor marginalised pastoralist communities but what had stopped them in the past was a lack of experience in in these markets. For them, lack of experience made the cost of market entry and market testing too high. The project therefore supported a market entry testing process for the firms. Each one carried out market research, tested their own distribution models and learnt from successes and failures. Over time, specific firms saw market potential and fully immersed themselves in the process, often evolving their strategies to respond to their insights on market dynamics.

From the outset, build in a pathway to market outreach with the private sector. In one project, we solicited proposals from firms to provide business services to agriculture firms working with smallholder farmers. We added a question asking firms to describe a) what they would try and find out about the market through the grant and b) how they would design market outreach and development strategies beyond the grant to continue interactions with market actors. The outcome was that firms better understood the catalyst nature of the grant. This also aligned expectations and incentives and all subsequent discussions between the firms and the project focussed on what was being learnt about the market and how the firm would scale out in the future.

Look at the market actor and seek out evidence of internal leverage points. Many firms will have engaged with hard-to-reach markets in the past. They may have made investments that have not worked out, or at least, invested in some basic research (codified or tacit) to test the water. When talking to firms about partnerships, look for resources that are vestiges of this history (a person, a report, a process, etc.). These can be put into the mix. A project can layer in additional resources, or improve the functioning of the resource, or help scale out out the resource, etc. In one project, we found that a university had set up an internship programme for agribusinesses students. However, this internship was not very successful because the university did not have the networks and knowledge to develop relationships with the private sector in rural areas. The project helped build these relationships. At the same time, the project helped train the interns who then on-trained rural firms> Over time, the university gathered enough knowledge to develop appropriate short courses for these rural firms – incorporating the expertise from the project as well as through the interns.

Article - Are we spoiling the private sector?

This blog was originally published here on the SEEP MaFI website.

Are We Spoiling the Private Sector?
by Md. Rubaiyath Sarwar in 2012

"As market facilitators, we strive to make the market inclusive...facilitate some small changes with the hope that the market system will open up to the poor! And we work with our ever so accommodating partners-more often than not lead firms. In the process, we keep on knocking from door to door, asking the private sector if they are willing to partner with us. And then, we negotiate, select the partners and implement our interventions. The interventions fetch excellent results. So much so that we do the same thing with the same partner in a larger scale. We call it replication. And then we involve more partners to do the same thing. We call it scale up. In some cases we say no to our beloved partner as we believe we have solved the market problem. But to our surpise, few months later, we see our partner doing almost the same thing with another project funded by another donor. Do we see another form of distortion taking place? Aren't we making ourselves too dependent on the lead firms? Why are our interventions often skewed towards the lead firms? What about other market system actors which include- civil society, professional associations, the government, the NGOs, cooperatives...? Do we always need to have commercial incentives to have sustainable impacts on scale?"

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Over the last decade we have observed increasing donor investment on market development projects for ‘large scale,’ ‘systemic ‘ and ‘sustainable change’ in agricultural and industrial sectors in Africa, South Asia and South East Asia. The projects proved that the donors can get better value for their investment if the private sector is attracted to invest on the interventions. More importantly, the partnership between the private sector and the project on cost sharing basis evolved as a principle tool to reposition development projects from being providers of critical services to being facilitators of the services.  I have been a direct participant in this paradigm shift and evolved from being a project manager to becoming a technical advisor and evaluator of market development projects in agricultural, industrial and health sectors in several countries that include Bangladesh and Nigeria, the two hotspots for market development projects in the world. 

As my roles shifted and my exposure expanded across different sectors in different countries and contexts, I observed an alarming trend.  It was becoming increasingly evident that (i) market development and support to lead firms was becoming increasingly synonymous (ii) there were projects inThe question attracted wide range of participants contributing to a technically rich discussion. Contributors included Mary Morgan-Inclusive Market Development Expert, Scott Merrill- Independent Consultant, Marcus Jenal, Specialist on Systemic Approaches for Development and James Blewett, Director of Markets, Enterprise and Trade Division at Landell Mills Ltd. All the contributors shared the feeling that indeed there is a risk that market development projects, if not carefully managed, can lead to a new form of market distortion where the private sector become reliant on donor funds.  However, they also reiterated the importance and significance of the collaboration with the lead firms and suggested several approaches that could mitigate the risk of the private sector becoming reliant on donor funds.

Mary suggested that partnerships work when the disparate goals of the private sector (making profits), vulnerable and poor producers (being able to produce and sell their produce at an acceptable price) and the development projects (increasing income and employment for the poor) converge towards the overall goal of inclusive market development (sustainable and systemic change in the market for employment and income generation of the poor).  While acknowledging the potential pitfall of partnerships, Mary pointed out that the risk might be higher in their absence.  She contributed further to the discussion by raising the point that often the support provided by the projects is much too heavy for the private sector to deliver once project support is withdrawn.  As evidence, she cited a case involving Wal-Mart and Mercy Corps in an intervention on developing an inclusive supply chain for Wal-Mart in Guatemala.

The questions raised by Mary were addressed by Scott who argued that the risk of distortion is high when the projects fail to adopt good practices for partnerships. He proposed that instead of pushing the private sector towards the partnership, the development projects should seek to pull the private sector towards the development goal by soliciting proposals from the lead firms. He suggested that we should be careful with how we use the term ‘partnership’ since it could be interpreted as the lead firms being subcontractors or sub-grantees. Scott emphasized on the need to establish objective selection criteria, conduct due diligence and structure relationships with lead firms to ensure sustainability of the interventions. Scott proposed to support the lead firms to develop a business plan so that the commercial benefit from the intervention could be laid out in details prior to the inception of the intervention. This could ensure that the firm owned the development activities and continued to deliver the service after the project support was withdrawn. 

James Blewett reflected on his experience in managing a challenge fund project in Afghanistan and argued that challenge funds reduce the risk of distortion in private sector engagement since it seeks to proactively engage the prospective grantees (which include lead firms) in design, co-investment and management of the interventions.  He also suggested the use of financial modeling tools used by investment projects to determine ‘tipping points’ so that the project’s financial contribution to the intervention is just enough to incentivize the private sector to address the investment risk associated with the intervention.

A very important contribution to the discussion came from Marcus who suggested that before deciding on the financial arrangements and technical support, the projects should ask why the private sector is not investing on the intervention on its own if it made commercial sense. He advocated for ‘form follows function’ approach and suggested that the projects should partner with lead firms when it is clear that the vulnerable will benefit from the partnership. Marcus argued that the lead firms often do not invest to reach out to the vulnerable not because they haven’t seen the opportunities, but because of a dysfunctional regulatory system, which according to him is the systemic constraint that needs to be tackled.

From the discussion it was evident that while the need for collaboration with the private sector is real, there needs to be further push from the donors, development projects and practitioners to ensure good practices and reduce risk of distortion in the market systems due to over-engagement with the private sector. The discussion also revealed that there are good practices and models that are being followed and discussion around these models could help market development practitioners to be better able to answer to why they have partnered with the lead firm, what support (financial and technical) they should be providing and why, and finally, how the lead firm is expected to sustain the intervention after the project support is withdrawn.  the same region or country competing for partnership with same lead firms (given that there are not too many in the country that qualifies to become a partner) (iii) the proliferation of market development projects in the same sector led to increasing number of lead firms receiving funds from them that ended up subsidizing their R&D, distribution and marketing costs and (iv) it was becoming difficult to evaluate whether the intervention resulted in systemic change since the lead firms continued to replicate the intervention with funds from other projects once the support from the original project was withdrawn. This prompted me to ask the members of the Market Facilitation Initiative (MaFI) whether they shared the feeling that probably it is time for us market development practitioners to be a little cautious when we approach lead firms.