In the following post, Kristin Beyard raises the importance of the role of MNCs and the increasingly aligned interests between MNCs and international development objectives. As she points out, MNCs, for a range of reasons, are realizing that their longer-term ability to compete and grow is dependent on more and more countries moving toward middle-income status. As a result, MNCs are, for their own interests, engaging in efforts to catalyze change that aligns with international development, and it presents an important opportunity for development practitioners to leverage the interests and capacity of various MNCs. One key for effectively leveraging the interest and capacity of MNCs is to remain focused on the systemic change objectives and not just the outcomes from where the MNC is heading.
Market systems shape and dictate how we produce, distribute, and consume goods and services. These systems are also key to development impact: To create meaningful economic opportunity in emerging markets, end global poverty, and grow sustainable, productive value chains, we need to transform market systems.
Today, multinational corporations (MNCs) are more motivated than ever to engage in market systems development (MSD)—that is, addressing market failures in a way that creates transformational and lasting benefits for the poor. In fact, many leading companies are already doing this work; they just call it by a different name. For MNCs, market systems development is about advancing their supply chain and corporate sustainability goals around the world.
Leading MNCs are acting to make progress on many of the same market systems challenges as the global development community, including stimulating and promoting better functioning local ecosystems of enterprises; identifying new ways to diversify and increase income for smallholder farmers; improving on-farm productivity and resilience; and opening up new markets to expand affordable goods and services for underserved populations.
In their efforts to transform markets, traditionally, the global development community has sought out ways to engage with and bring in the private sector. But we can also meet companies where they are, complementing and adding to their existing market systems development efforts.
To do this, it’s helpful to understand what motivates leading MNCs and the actions they are taking to drive market transformation.
Why and How Multinational Corporations are Engaging in Market Systems Development
We suggest three key ways that companies are advancing market systems development:
Companies exert influence within their supply chains and on local business partners.
MNCs are increasingly realizing that global risks—from climate change to COVID-19 to poor infrastructure in emerging markets—affect their ability to operate and thrive. Simultaneously, workforce and consumer demands are pressuring these companies to not just talk about what they will do, but take real, targeted action toward transforming their supply chains for greater sustainability.
As a result, a shift has emerged in how leading MNCs are approaching sustainability and social impact issues. Whereas before it was about developing a Corporate Social Responsibility (CSR) mission, today it is about integrating sustainability goals into core business strategy. For many MNCs, leading in sustainability and social impact is a means of seizing market opportunity and getting ahead of multiple supply chain and systemic risks.
To achieve this, MNCs are increasingly putting their energy, effort, and focus on their supply chains, to exert influence toward making the first mile more sustainable. These initiatives on the part of MNCs have reverberations up and down supply chains, and across industries: By pushing their suppliers and local businesses to adopt new and better practices, MNCs are shifting the system and creating changes that will also be seen across other overlapping corporate supply chains.
For instance, PepsiCo’s recent Global Development Alliance (GDA) with USAID seeks ways to integrate more women into the company’s agricultural supply chains and the businesses they work with. PepsiCo hopes to demonstrate the business case for these investments among peer companies, local partners, and other PepsiCo offices around the world. The partners hope to prove that leading in women's empowerment is also good business, by realizing previously untapped market potential.
MNCs look for ways to incentivize and engage a growing range of ecosystem actors.
Beyond focusing on their existing supply chains, MNCs are increasingly looking to form partnerships with other ecosystem actors who can help them solve some of the more complex social and market challenges they face. MNCs often have a comparative advantage in areas such as buying and production, but on stickier issues such as land rights and human rights, they need other actors to help them find and implement solutions.
As a result, we see MNCs innovating on the best ways to “crowd in” new ecosystem actors that are not part of their current supply chain yet can help fill critical knowledge, networking, or resource gaps.
An example: Through its acquisition of Pioneer Foods in South Africa, PepsiCo has set up an innovative development fund that has invited local NGOs and other market actors to approach the company with specific market challenges, proposed solutions, and lists of critical partners. Proposed challenges range from education to incubation/acceleration services for start-ups to helping transform farmers from subsistence to commercial farming. From there, Pioneer Foods is setting up consortiums of local actors who will implement new activities collectively.
This approach allows local actors to come up with the ideas—rather than the other way around—with the aim of building a stronger long-term market for PepsiCo to do business in and for the entire system to thrive.
MNCs invest in market systems analyses and stakeholder mapping in new markets to identify the right entry points and key partners.
More and more, we see that before an MNC will commit to entering a new market or investing in a new sustainability initiative, they want to know what the ecosystem looks like, who the current players are, the business motivations that will affect behavior and systems change, which sustainability challenges are ripe for tackling, and how specific projects and investments will further their goals. While the upfront investment in mapping and analyzing market systems may be greater, it helps companies identify and recruit the right partners to work on the right initiative, which leads to greater progress and more substantive market transformation.
Microsoft, under their Airband initiative, is bringing high-speed internet and connectivity to the most rural areas of the world. To achieve this ambitious goal, they are trying to build demand for services by partnering with and building up local internet service providers, energy access providers, telecom equipment makers, and other entrepreneurs in targeted countries to ready local systems, build more demand for their work, and design contextually relevant, cost-effective apps and services. Resonance has supported Microsoft in the mapping and analysis of new markets, helping to identify strategic entry points that would strengthen a country’s ICT enterprise ecosystem.
Driving Greater Impact on Market Systems Development
The global development community has an opportunity to work with the private sector to advance market systems development. By considering why and how the private sector is currently engaging in this work, we are better positioned to approach and partner with companies strategically and effectively.
We’d argue that the global development community can engage the private sector in market systems development in three primary ways:
For market systems development, the impact we can unlock by strategically engaging with the private sector is unlimited. By forging new partnerships and combining knowledge and resources with companies, the global development community can drive greater innovation and make more progress toward market transformation and sustainable, inclusive development.
In this post, Lizan Kuster (from Habitat for Humanity’s Terwilliger Center for Innovation in Shelter) provides important insights into the role and importance of accelerators. Maybe more significantly, though, is the influence well-run accelerators have on relational networks and the competitive landscape. While the author starts with the more immediate effects of a business rolling out innovative products, systems thinkers are starting to realize that the more important disruption is likely to come from the building of more trusted and robust social networks around entrepreneurship and innovation. In particular, the efforts the author discusses related to mentorship and peer-to-peer networks, when they take hold, provide the foundation on which many market systems start to shift toward being more value-based. More specifically, the discussion around improving markets would benefit from an understanding of competitive landscapes and how entrepreneurial networks can shape the way society favors or not certain market behaviors. In this context, while critically important for entrepreneurs to deliver value to owners, staff, suppliers and most importantly customers, they also, along with other market actors, have to intentionally push changes in the market system to push/force other firms to compete on valued delivered. For on going benefits to accrue to low income communities over time, there will need to many cycles of entrepreneurs harnessing new technologies to deliver real value.
How accelerators’ growing focus on mentorship can benefit the whole housing sector
Many entrepreneurs get their jumpstart through an accelerator program, compressing strategic business lessons into a few months. Accelerators have become an essential avenue for startups to connect with investors and funds that allow them to scale their businesses.
For impact-focused accelerators like Habitat for Humanity’s ShelterTech, building a supportive entrepreneurial ecosystem is particularly critical to the program’s goal of fostering successful, disruptive housing innovations. In designing the ShelterTech program, the Terwilliger Center knew it was critical not only to connect startups with peers and funders, but also with experts and mentors from a wide range of sectors and business expertise. The benefits of mentorship for start-ups are well established – one survey found that 70 percent of small businesses that receive mentorship survive more than five years, double the survival rate of those who do not.
But bringing mentorship into social-impact accelerator programs does not just benefit the startups. Corporations, foundations, and other ecosystem partners have much to gain, both directly and from the stronger and innovative markets that these partnerships help create.
Gaining energy from an entrepreneurial approach to problem-solving
Mentorship enables companies to have personal and unique insights into new markets, as well as access to emerging disruptive technologies that can lead to new businesses or open new avenues for innovation. The Hilti Foundation and Dow are two of the partners helping mentor the current ShelterTech accelerator cohorts in Southeast Asia and the Andean region of South America. As Johann Baar, member of the executive board at The Hilti Foundation, explained, mentors from the Hilti Group are “excited to learn from the startups because the way they drive innovation is probably a little bit different of how an established enterprise, like Hilti, drives its operations and its business.” He also added that this is a learning journey for the mentors, giving them new opportunities to apply business solutions from their daily work.
This new energy and learning opportunities are also what motivated Nataly Acosta, a Marketing Manager at Dow based in Brazil, to volunteer as a mentor for ShelterTech’s Andean Region. Acosta is mentoring Terroformaciones, an Ecuadorian startup founded in 2020 that produces eco-friendly bricks made of stabilized soil and cement, which are more cost-effective and earthquake resilient than traditional ceramic bricks. Being a ShelterTech mentor gives Acosta a different lens through which to observe how the market is changing, and Terroformaciones’ experience shows both the challenges and opportunities of a different market segment. As she explains, “it is valuable to understand what startups’ offer the market because it might also influence our business. I also look at how they are building networks and addressing new challenges for the sector.”
Peer-to-peer learning with other firms in the ecosystem
Just like the startups, ShelterTech mentors also benefit from peer learning and discussions as members of the accelerator’s entrepreneurial ecosystem through community events, resource sharing and networking. Furthermore, startups are paired with multiple mentors, which enables more robust conversation and insights for everyone involved. Acosta, for example, is one of three mentors supporting Terroformaciones, with other mentors representing different industries and areas of expertise. "The benefits are mutual. It has been valuable to connect with other professionals in the group,” Acosta says. “It is nice to learn what other people within the value chain think.”
With COVID-19 normalizing digital community and work-from-anywhere tools, the potential for connection and peer-to-peer leaning is endless. Mentors for the current ShelterTech cohort span four continents, bringing global insights to the startups and each other. Peer-to-peer learning can extend beyond a time-bound mentorship program, to productive business relationships. A strong entrepreneurial network and digital community engagement spaces can help ensure continued meaningful connection.
Building better functioning markets
Each of the ShelterTech startups focuses different aspects of housing innovation, all in service of a lofty but critical goal: creating better housing opportunities for the 1.6 billion people globally who live in inadequate shelter. These families spend more than US$700 billion per year on housing yet are severely underserved by global housing markets.
By supporting social-impact accelerators, corporations and foundations can help expand and strengthen the markets providing critical products and services to these communities. According to Baar, for the mentors, “it’s not just about business, it’s about the social impact that they want to create through supporting these startups.” One of the most exciting aspects of supporting the ShelterTech accelerators is the opportunity to “think about how, besides setting up a proper business, can I make sure it also creates the best impact.”
The sentiment is shared by Acosta: “by supporting the startups you are not just supporting a business, but a venture that is solving a global problem. So, you are having more impact that way.” Over 100 startups have already joined the ShelterTech accelerator program, going on to find international acclaim and pilot trailblazing technologies in their local markets. Through its current cohorts, ShelterTech has engaged almost 50 mentors to support 20 startups across ten countries and has already secured around 800 hours of mentorship, providing the jumpstart that these ventures need to answer today’s most pressing shelter challenges. Through engagements like these, organizations at all stages can contribute to fostering more inclusive housing markets that better meet the needs of low-income households.
In 2002, Timor-Leste became one of the world’s youngest countries. With independence came significant new challenges: How to build prosperity, basic infrastructure, and agricultural systems that can feed and support a growing population?
Over the past two decades, Timor-Leste has embarked on the monumental task of building a sustainable and productive agricultural system—complete with new infrastructure, diverse value chains, and market connections—essentially from the ground up.
To help invest in agricultural development in Timor-Leste, Resonance partnered with Cardno on USAID’s Avansa Agrikultura Project. From this work, we offer three lessons on how to tap partnerships as powerful tool to advance sustainable agriculture in emerging markets.
3 Tips for Building Better Partnerships for Sustainable Agriculture
Cross-sector and value-chain partnerships are critical tools to advance strong market systems and sustainable agriculture. From our experience in Timor-Leste, we’ve distilled three key lessons on how to forge and deploy partnerships that strengthen sustainable agricultural systems in emerging markets.
1. Map and Forge Partnerships Across the Market System
In very thin markets, it’s critical to create a robust local ecosystem as soon as possible. On the Avansa project, within the first six months, we rapidly appraised and mapped the existing and potential partner landscape. We conducted in-depth interviews and analysis with dozens of diverse stakeholders, including farmers, buyers, collectors, traders, technology providers, input providers, and financial institutions.
With each stakeholder, we looked at their business needs, their pain points and challenges, their motivations and goals, and how potential agricultural development initiatives could leverage their expertise and knowledge. This early mapping helped us forge important partnerships across the market system and identify market linkages that we otherwise might not have explored.
For example, given limited market opportunities and scant export markets in Timor Leste, we knew we’d have to forge new market avenues and partnerships to help farmers sell their products. Three opportunities came up in our partnership assessment: supermarkets, the hospitality sector, and food processors.
We facilitated connections between farmer groups and twelve supermarkets, two hotels in the hospitality sector, and 18 food processors. The resulting partnerships opened new markets for farmers to sell their products and incentivized them to continue growing high-value horticulture crops. Not only did these partnerships help farmers expand their market opportunities, but they also opened channels for local customers to access fresh, local produce (which had previously been imported or simply unavailable) and helped the hospitality sector market to foreign tourists.
Mapping and forging relationships are key steps in building a robust market ecosystem. Through market and agribusiness linkages and improved production practices, Avansa-supported farming households significantly increased annual earnings. These linkages have also created greater resiliency to market disruptions for all stakeholders.
We are now applying this model of early partnership mapping to a new USAID/Timor-Leste-funded project, the NGO Advocacy for Good Governance activity, led by Counterpart International.
2. Connect Financial Institutions, Companies, and Farmers for Smarter Finance Solutions
Access to appropriate finance is critical—and success is not just about designing the right financing products. It often comes down to securing the right partnerships.
Across the globe, farmers consistently struggle to access the financing and capital they need to invest in more sustainable or productive practices, equipment, and inputs. Most financial institutions see small farmers as risky investments and are either unwilling to lend to them, or set unaffordable high interest rates and unrealistic collateral requirements. Private investors also often see agricultural markets as too risky.
In Timor-Leste, all of this was true, and farmers faced a unique challenge: due to the underdeveloped private sector, formal financing infrastructure was nonexistent for the smallholder sector, and most farmers didn’t have a bank account. In the initial stages of the Avansa project, major input suppliers provided their own financing (in the form of input credit) to farmers. Yet, suppliers were unable to assess farmers’ risk profiles, lacked the field staff and reach to recover payments, and struggled to keep track of outstanding loans. Further, for lenders, there was little to no legal recourse or enforcement in remote rural areas if farmers defaulted on loans.
Banks and lending institutions needed to be involved. To set things in motion, we secured a strategic partnership with a Timor-Leste financial institution (FI), Kaebauk Investimentu no Finansas. Listening to their needs and concerns, we worked with them to build a pilot lending program that would benefit farmers, the FI, and the private sector. As our partner, the FI co-led financial literacy training for farmers—which built trust between farmers and the FI—and developed and offered a new input credit product for smallholders in partnership with two leading input providers (Vind Patel and Kmanek). It took a few years to get going, but eventually farmers were able to access capital so they could buy higher-quality inputs, acquire more land, and scale their farms more sustainably. These partnerships are successful and evolving—continuing past the Avansa project.
As we consider how to get critical financing and capital to farmers in other markets, we’ve seen that a combination of strategic partnerships between financial institutions, input suppliers, and farmers; tailored training for both farmers and FIs; and innovative and appropriate financing mechanisms can help unlock sustainability and growth.
3. Tap Trusted Partnerships To Mitigate Market Shocks
When COVID-19 hit, many feared that farmers in Timor-Leste would see their incomes and revenues slashed. In a report we recently conducted, Analysis of Market Demand and Supply for Agricultural Inputs and Provision of Agribusiness Services to Farmers in Timor-Leste, we found that while there were initial shocks to Timorese inputs and services, the market quickly normalized.
Why? Our answer: Trusted partnerships and access to technology.
In interviews, we discovered that because of the strong partnerships formed between farmers, collectors, traders, input providers, and buyers during the Avansa project, the market ecosystem was able to quickly pivot to e-commerce-based transactions.
Digital technology combined with trusted relationships allowed Timorese buyers and farmers to continue to buy and sell during the pandemic, evolving commerce to new platforms. Collectors also used SMS and WhatsApp for socially distant coordination of purchases and delivery during lockdowns. In our interviews, we found that market actors were eager to continue using digital platforms and tools because it made information sharing and trading much easier.
As we look ahead, companies and the global development community can continue to accelerate the transition to the digital economy by building and testing new market platforms and apps—such as Connected Farmer and DeHaat—that allow farmers, traders, collectors, and input providers to buy and sell with greater transparency and efficiency. More investment is needed, as well, to bridge the global digital divide, ensuring farmers have access to mobile phones and reliable internet.
Ye, we’d also argue that this shift toward the digital marketplace is most likely to be successful in the context of a strong and resilient market ecosystem, made up of diverse actors engaged in trusted partnerships.
The Future of Strategic Partnerships for Sustainable Agriculture in Emerging Markets
The Avansa project in Timor-Leste was unique. Building a strong, reliable, and sustainable agriculture system, especially from the ground up, takes time. In Timor-Leste, much work still needs to be done—but the foundation is being laid.
Even more encouraging: The lessons we’ve learned about harnessing strategic partnerships and building market ecosystems can be applied with impact to other emerging markets around the world.
In the following blog the authors highlight the importance of relationships as central to inclusive and resilient market systems. For farmers, traders, buyer, processes, supermarkets, etc. to move past transactional thinking (i.e., often with an intent to capture as much margin as possible) they have to engage each other and evolve a level of mutual understanding that their joints interest are worthwhile pursuing. This is often a tricky and difficult process, and particularly difficult when there is a history of winners, losers, and perceptions of unfairness. In the case of East Timor where interactions have not yet engrained mistrust, pushing interventions that focus on relationship building from the start has been critically important. A thread that will run through all the sessions at the Market System Symposium is that without such relational foundations, market systems struggle to adapt effectively whether from demand signals from poor consumers or in the face of shocks/stresses.
The authors raise a critically important point about the need to integrate resilience lenses into market systems approaches. Increasingly, a healthy market system has to include resilience as a central element or capacity. At the same time, resilience is not a single, easily definable capacity. For example, as a society develops, the way it manages risks will change over time, including how they share/define responsibilities related to responding to shocks and stresses. For development practitioners, how to balance immediate support to ensure people/market actors can make it through a shock with building the capacity of the system to better share/manage risks related to shocks over the longer term can be a tricky. As the blog suggests, and will be a key thread through the Market Systems Symposium, understanding resilience in a systemic context is an iterative learning journey that is about ongoing change, as opposed to a definable solution.
The supply of goods and services can often be disrupted not only in normal times, but in times of crisis when they are needed most. This happens when socioeconomic systems are not performing well, or not at all. Many of you may have experienced this firsthand at some time in your life. Shocks and stresses impact on socioeconomic systems, and reverse hard-earned development gains disproportionately affecting the poorest and most vulnerable.
At GOAL, we believe that the ability of vulnerable populations to be resilient to shocks and stresses is associated with how productive, inclusive and resilient critical socioeconomic systems are to ensure they are functional not only in normal times, but also during and after times of crisis.
The COVID-19 pandemic has shown us how interconnected and vulnerable our societies and systems are. Now more than ever we need to work towards more inclusive and resilient societies. We need to go beyond addressing short-term needs to provide longer-term solutions for the wellbeing of people and making sure that no one is left behind.
“At GOAL, we believe that the ability of vulnerable populations to be resilient to shocks and stresses is associated with how well critical socioeconomic systems are functioning in normal times, as well as during and after times of crisis”.
GOAL’s approach to Resilience Building
GOAL has developed the Resilience for Social Systems Approach, or R4S, to inform a resilience approach for humanitarian and development interventions by improving the understanding of socioeconomic systems and how they react to shocks and stresses. The R4S is a step-by-step guide, structured into five key components, to identify, map, and synthesize socioeconomic systems against risk scenarios. One of the central innovations in R4S is its system mapping tool which aims to improve understanding of complex socioeconomic systems and how they would react to different shocks and stresses. R4S also provides new guidance on analysing determinant factors of systemic resilience.
The R4S approach has been applied by GOAL across a range of socioeconomic systems in different contexts and programmes in Latin America and Africa. Some countries where the R4S has been applied are Honduras, Guatemala, El Salvador, Colombia and Sierra Leone.
How does the R4S Approach work?
The R4S comprises 5 key components.
Practical examples of R4S approach
The R4S has been implemented in “Barrio Resiliente”, an urban resilience programme funded by USAID and implemented by GOAL in Tegucigalpa, Honduras, and most recently, in Colombia. The R4S has facilitated GOAL’s systems approach to build the resilience of informal urban settlements by identifying, understanding, and implementing interventions in critical socioeconomic areas (e.g., social housing, drainage, etc.) which are relevant to build resilience.
Another example in an urban programme is the Fecal Sludge Management System (FSM) in Freetown, Sierra Leone. GOAL worked to identify and prioritise risk scenarios which could potentially affect the FSM, in addition to a vulnerability and resilience assessment carried out through a participative process with system actors. As a result, recommendations on how to strengthen the system’s resilience were built to influence future interventions on FSM by GOAL or other key systems stakeholders.
Other examples of the R4S approach are its application in the artisanal fishery system in northern Honduras, which has guided the design and implementation process of the “Resilience of the Blue Economy Programme” since 2016. This programme targets marginalised indigenous and afro-descendant populations and seeks to improve the competitiveness of artisanal fishing companies, organizations and fishermen and women to ensure an economic integration to the market while still preserving the mangrove ecosystem and increasing their resilience to climate change. During the nationwide lockdown in Honduras in 2020 due to COVID-19, the GOAL team and partners working on the Resilience of the Blue Economy programme assessed the vulnerability of the artisanal fishery system by using the R4S. This analysis helped to understand the reaction and the impact of the COVID-19 pandemic on this system. It was discovered that 83% of system functions and operability were interrupted totally or partially. Furthermore, it informed the programme team and systems actors to quickly adapt and advocate for the system’s response and recovery support among different stakeholders and government actors.
Finally, GOAL is rolling out the R4S Approach as part of a diagnostic market research that is being led by the The Young Africa Works in Uganda: Markets for Youth programme in Uganda. The Markets for Youth programme, funded by the Mastercard Foundation, is being implemented by GOAL, private sector partners and three Ugandan Civil Society Organizations. This is an agricultural market systems development intervention designed to enable 300,000 rural young women and men, refugees and people living with disabilities to access dignified and fulfilling work over a five-year period. The R4S Approach will help develop recommendations on key interventions to build the different systems resilience to main risk scenarios triggered by drought, climate change, and other factors.
Humanitarian and development programmes that do not account for the resilience of vulnerable groups, or the socioeconomic systems they depend on, are much more likely to experience unintended negative consequences in the short and/or long-term. Therefore, we need to strengthen our understanding of systems’ dynamics between its different components (stakeholders - including the Target Group - resources, regulations) and assess the potential impacts from actual and future risk scenarios. This will ultimately improve the well-being of the most vulnerable populations, despite shocks and stresses.
For more information about the R4S, please visit: https://resiliencenexus.org/r4s/
For more information about GOAL programmes, please visit: https://www.goalglobal.org/
If interested on a Massive Online Open Course (MOOC) about the R4S, please complete this form to receive an invite and course details once its launched.
Latin America Regional Director and Deputy Director Programme Innovation, GOAL
A Chartered engineer with a Master’s Degree in Engineering Science, Bernard has over 24 years' experience in private sector consulting and international humanitarian and development programming. Bernard is the inspiration behind GOAL’s Resilience Innovation and Learning Hub and led the development of the Resilience for Social Systems (R4S) Approach and the Analysis of the Resilience of Communities to Disasters (ARC-D) Toolkit. Bernard has also guided the development of GOAL’s programmes in the LAC region, targeting resilience of informal urban settlements (Barrio Resiliente) and Resilience of the Blue Economy.
Gabriela Cáceres Resilience Innovation and Learning Hub Coordinator, GOAL
A Chartered Environmental Engineer with a Master’s Degree in Demography and Development, Gabriela has ten years’ experience in monitoring, evaluation, learning and accountability of development programmes. She has vast knowledge and experience in resilience in informal urban settlements, local planning for development, training and providing technical advice on resilience at community and system’s level. Gabriela collaborated in the development for GOAL of the of the Resilience for Social Systems (R4S) Approach and the Analysis of the Resilience of Communities to Disasters (ARC-D) Toolkit. Write something about yourself. No need to be fancy, just an overview.
In the following post, Katie Niemeyer of Land O' Lakes Venture37 discusses an interesting case of conservation agriculture. For years, conservation agriculture has been pushed by donors for its clear benefits in terms of soil fertility, increased productivity, crop diversity, etc. As the post describes, conservation farming practices can also have a positive effect on resilience at the household level, as improved soil is central to increasing the ability to produce crops even when faced with pest and/or weather shocks/stresses. At the same time, there has been little uptake in many countries. The post highlights the importance of taking a more holistic or systemic perspective, that can leverage market forces and factors to increase the attractiveness to farmers of taking on these new practices. One challenge to this case, and all of development writ large, is that helping smallholders increase maize production, often for consumption, is only a starting point-- not an end point. Increasingly, it is important to think about how such initial and beneficial changes can catalyze the next change and the change after that, leading to an increasingly faster pace of the journey to self reliance. Register for & join the Market Systems Symposium for more on this topic.
Climate Adaptation and Conservation in Market Systems as a key theme at this year’s Market Systems Symposium presents a unique opportunity for us as market systems development practitioners to think more dynamically about the concept of resilience. At Land O’Lakes Venture37, we are exploring how market-driven climate smart agriculture can strengthen farm-household systems, and how that relates to market systems resilience.
A farm system is the way in which farm resources are used and tailored to the physical, biological, and socioeconomic realities of local agro-ecological contexts. A farm-household system also incorporates individual household needs and desires that drive decision making. Climate smart and conservation agriculture provide an opportunity to strengthen the resilience of the whole farm-household system. However, to achieve this at scale market systems resilience must also be strengthened to enable systemic change in the way farmers produce.
Connecting the dots: market, farm, and household resilience through climate adaptation
Now, some ground setting on climate smart and conservation agriculture. Climate smart agriculture (CSA) is an integrated approach to farming that aims to increase productivity and incomes in a way that enables adaptation and builds resilience to climate change while reducing emissions. Conservation agriculture is a subset of CSA. It incorporates the tenets of minimum tillage, soil cover, and greater plant diversity through crop rotation or intercropping. Taking a farm-household system view, Land O’Lakes Venture37 works with the private sector and other local partners that have the ability to enable resilient agriculture – they use CSA (including conservation) technologies that drive farm, household and market system resilience.
Now that I’ve satiated all of the aggies out there, let’s turn to the development theorists.
A quick refresh on USAID’s Resilience Frameworks
USAID defines resilience as the ability of people, households, communities, countries, and systems to mitigate, adapt to, and recover from shocks and stresses in a manner that reduces chronic vulnerability and facilitates inclusive growth.
This definition of resilience is demonstrated through a set of absorptive, adaptive, and transformative capacities that enable continued progress toward improved outcomes despite shocks and stresses.
USAID’s Market Systems Resilience framework views these capacities through the lens of proactive versus reactive market systems orientations. While a market system with a proactive orientation has the ability to absorb, adapt, and transform in response to shocks or stresses, reactive orientations leave the market system unable to transform due to limited diversity and unbalanced power, which contributes to system stagnancy or fragile functional states.
We can use this resilience framework to think about a resilient farm-household system. In conventional land-based agriculture, the soil is a good place to start. Evidence shows that resilient (conservation) agriculture practices build healthier soils that strengthen farm-household system absorptive capacity by helping crops withstand severe weather events. Accumulation of soil organic matter improves soil structure and aggregate stability, while also actively sequestering carbon and mitigating the effects of climate change. Resilient agriculture also enables the adaptive capacity of the farm-household system by maintaining or improving soil fertility, bulk density, water holding capacity and infiltration so that the soil can support different types of crops without the need to incorporate expensive inputs into the cropping schedule.
Resilient agriculture also contributes to resilience of the “household” in the farm-household system by diversifying production and strengthening absorptive and adaptive capacities. For example, if a farm-household system incorporates cover and/or intercropping of legumes, the resilience outcome is four-fold:
But how can we scale adoption of resilient agriculture?
This brings us to the critical role that market systems resilience plays in enabling the transformative capacity of the farm-household system. Agricultural support networks must be able to provide the tailored innovations, technologies and advisory services that are needed to support resilient agriculture. But this should be viewed as an opportunity to catalyze investment that facilitates greater market system diversity and connectivity and foster a more proactive market system orientation. And as more farm households adopt resilient agriculture and are able to withstand and thrive through climate shocks and stresses, other market actors ranging from input supply companies, agrodealers, service providers, and offtakers benefit from the mutually-reinforcing effects of more consistent supply and demand.
You might be thinking – that’s great in theory, but given that resilient and conservation agriculture often promote low-input systems and require time before productivity benefits can be realized – where are the market incentives for adoption, replication, and scale?
Let’s look at a case study from Mozambique demonstrating market incentives for resilient agriculture
Mozambique is highly vulnerable to climate change. While Cyclones Idai, Kenneth, and Eloise caught international headlines, increasingly erratic rainfall, reduced growing seasons (by up to two days/year), and soil degradation continue to intensify as the primary drivers of vulnerability. Climate-adapted hybrid seed varieties alone cannot be a panacea for the Mozambique agriculture sector because degraded soils limit the ability of farm-household systems to achieve the full production potential of hybrid seeds in order to receive a return on investment. And, despite millions of dollars of donor funding, the formal seed market remains relatively small. A recent seed system survey conducted by Venture37 on the Feed the Future Resilient Agricultural Markets Activity – Beria Corridor (RAMA-BC) suggests that only 6% of seed is sourced from agrodealers, compared to 78% of community sourced seed.
Some input supply market actors are realizing that to capture the smallholder farmer markets in Mozambique, they need different solutions and are starting to respond to the market incentives of resilient agriculture.
RAMA-BC partners with input supply networks (seed companies and agrodealers) throughout northern Mozambique to pilot and scale input product innovations and embedded services that support resilient agriculture, particularly in climate smart maize production systems. One of those partnerships is with Phoenix Seeds, an independent first-mover seed company in the space of cover crop and intercropping input products that, even before the RAMA-BC partnership, had started introducing lablab and sunhemp legumes into the local market. Phoenix Seeds and Venture37 have partnered to successfully test the use of jackbean as a cover crop (which Phoenix has independently scaled to commercial seed production), pilot promotional seed kits that bundle drought-tolerant maize seed with complementary legume cover crop seeds, test the efficacy of using legume intercrops to control fall armyworm through integrated pest management (IPM), and demonstrate resilient agriculture practices and the resultant productivity gains through demonstration plots in partnership with local agrodealers and commercially-oriented lead farmers.
What was the Impact on Resilience?
As we enter the exciting time of sharing, learning, and creating together at this year’s Symposium, I challenge us all to step out of our “resilience silos” and draw connections between private sector-led approaches that achieve market system, farm system, and farm-household system resilience outcomes.
Maybe the most important lesson to emerge from the application of systems lenses on complex market system challenges is the importance of social norms on decision making. This blog explores one team’s experience with their own learning journey around social norms. Of particular importance is how the team leaned into the complexity of social norms to gain critical insights into how housing investment decisions are being influenced. From those insights they were able to develop an innovative pilot that leverages social norms to catalyze changes that are expected to result in improved housing outcomes. Join the Market System Symposium to hear more about the learnings from this exciting case.
In Peru – like much of the world – housing is a process, not a purchase. For low-income families, the process of building or upgrading a home can often take decades. With this protracted timeline, families’ decisions – about the design, who to hire, where to cut costs, etc. – have a significant impact on the quality and resilience of the home. Social norms, and the social networks through which information and influence flows, are often major determinants of these decisions.
Habitat for Humanity’s Terwilliger Center for Innovation in Shelter applies market systems development approaches to the challenge of ensuring affordable and quality housing for the base of the pyramid, working with the private sector to pilot new products and solutions. But we also recognize that understanding and documenting the social norms around owner-driven construction is key to designing more effective interventions. As the Terwilliger Center developed our housing market systems program in Peru, we intuited as hunches or assumptions a variety of social norms, but also understood that formally documenting these and understanding their strength and prevalence would allow us to design a more effective market systems development program.
Analyzing social norms and social networks appears a daunting task at first, but one that the Terwilliger Center’s team in Peru was eager to take on to better understand their local market. They worked with MarketShare Associates, using two of their tried-and-true tools to simplify this analysis and provide actionable findings: a value network analysis and a social network analysis and mapping process.
The value network analysis (see Figure 1) functions as a lite-version of a much heavier (and more expensive) social network analysis. It was ideal for a program team looking to map the connections between various social actors and households as they try to access information about construction materials, services, and practices.
The social norms mapping process identified social norms (see Figure 2) – the informal rules governing “normal” behavior – and mapped them according to three criteria: 1) prevalence, 2) strength, and 3) relevance. Prevalence refers to the extent to which a norm is present and common across a given group, while strength is the extent to which a social norm influences behavior and sanctions against breaking a given norm. Relevance, the third criteria, was how much the norm hinders specific programming or behavioral change objectives that the Peru team pre-identified.
Our social network analysis of the housing construction sector showed that households had a limited number of influencers. Outside of family and friends, the study found that masons had the strongest influence on household construction decisions. These results pointed to an opportunity to influence household decision making and promote improved construction practices by influencing masons.
How then to influence masons and promote better construction practices? Governments and nonprofits often seek to improve access to formal training to promote professional behaviors with a social good – in this case improved construction practices and material choices amongst masons. But, as figure two shows, the norms analysis found that social recognition is more important to both households and masons than formal training and credentials. Moreover, this norm had both the highest strength and highest prevenance, indicating that access to formal training was unlikely to result in any behavior change.
As one mason made clear: “Training only helps you when you are employed in big companies and not for family housing.”
These norms developed, and persist, in part because households use word-of-mouth referral systems to find a socially recognized mason to build their home. But the system does not guarantee a mason who will build to the highest standards of durability and quality. In other words, social recognition is divorced from the actual quality of the mason.
But what if we could somehow tie social recognition to quality?
From this hypothetical, Guardian Constructor (“Trusted Builder” in English) was born. The Terwilliger Center and our partners in Peru vet mason’s and recognize them as a Guardian Constructor for their work. With this branded designation, developers and financial institutions providing housing credits can confer social recognition on highly skilled masons.
At the same time, it prototypes a new way of building capacity, as developers hire architects and engineers to provide additional support to the masons – specialized on the job training that aligns with existing norms. A Guardian Constructor, in tandem with these technical partners, provide design, titling, and other critical – yet often missing – services to low-income households, while offering reassurances to financial partners about the quality of their investment.
Currently the team is in the prototype and field-testing stage of this intervention, working with an urban developer, two construction technical service providers, and six financial intermediaries. Longer term, the team also hopes to incorporate Guardian Constructor into the Peruvian government’s housing subsidy program.
The Terwilliger Center recognizes that in many countries, including Peru, solving the affordable housing crisis is as much about addressing the “soft challenges” of existing norms as it is the “hard challenges” of technology and construction. And while most norms present as immoveable challenges, finding ways to work around or with them – like amplifying social recognition for masons who apply sound construction practices – is a way to use them as leverage for larger-scale systems change
The following blog post discusses the challenges that often accompany many market systems in developing economies where the incentives and market forces/factors are misaligned in ways that disadvantage lower incomes communities. While these misalignments have serious consequences in many market systems, when the market system is also intertwined in an increasingly vulnerable ecosystem, like a coastal waterway, such misalignments can substantially speed up environment degradation and increase vulnerability. As the post suggests, and a key theme that will be explored at the Market System Symposium, figuring out and catalyzing a change in market system forces and factors such that they combine to favor conservation practices and reward labor fairly is central to any journey to self reliance.
COVID-19 forced companies and governments to reconsider the sustainability and resiliency of global seafood supply chains.
Around the world, the seafood industry plays a critical role in feeding billions of people. It’s also a major economic driver: According to the United Nations, fishing and aquaculture provide livelihoods to around 820 million people worldwide.
In many countries like the Philippines, Vietnam, Ecuador, and Ghana, it is small-scale fisherfolk and aquaculture farmers who dominate the seafood industry. But artisanal fishing communities and small operations are especially vulnerable to disruptions like what we’ve witnessed in the time of COVID-19. Often, it is the small operators who do not have access to insurance, retirement plans, alternative livelihoods, or health care—and if they do, it is unaffordable. There is very little, if any, clear price signaling from the markets they sell to, and many fisherfolk and aquaculture farmers do not have much flexibility in how or to whom they sell their products.
Transitioning to more sustainable fishing practices is also often difficult for these small-scale fisherfolk and aquaculture farmers. Many do not see direct financial benefit, nor do they have the capital needed—or access to affordable loans—to make the financial investments necessary to transform their operations.
The seafood industry also struggles with other serious issues like human rights violations, the use of unethical and illegal work practices, gender inequality, illegal and unreported and unregulated (IUU) fishing, and collapses in marine ecosystems caused by overfishing.
As we enter 2021, we see five major trends emerging from the global development community, government, and the private sector to help small-scale fisherfolk and aquaculture farmers enhance seafood sustainability and resilience. Many of these trends have evolved or arisen in response to COVID-19, but they stand to be ongoing opportunities for progress in the seafood industry.
KEY TRENDS FOR SUSTAINABLE SEAFOOD SUPPLY CHAINS IN 2021 (AND BEYOND)
1. Greater Domestic Import/Export Market Diversity.
COVID-19 highlighted the serious disruptions that result from overreliance on one import/export market. Fisherfolk and aquaculture farmers who relied on selling fresh or frozen seafood products to one primary market experienced major disruptions because of lockdowns and restaurant and hotel closures in the United States, Europe, and China.
To remain in business, small-scale fisheries and aquaculture operations had to quickly pivot to weather the disruption. For example, in the Philippines, blue swimming crab from the Visayan Sea fishery is usually destined for canning and export. It is not widely available in Manila or other local markets. But as the pandemic shut down the export market, we saw a number of entrepreneurs adapt to market pre-cooked, whole crab on social media to local Filipino consumers.
We also saw governments and companies collaborate to safeguard food security and prevent economic fallout for local fisheries and aquaculture providers. In the Philippines, the Department of Agriculture and the private sector launched “eKadiwa,” an online marketing platform to help producers and agri-preneurs sell fresh and affordable farm and seafood products to local consumers.
While COVID-19 accelerated this expansion of import/export markets, we expect this trend to continue in the seafood industry. Diversifying these markets will give small-scale fisherfolk and aquaculture providers more control over pricing and resiliency—in the event of another market shock.
And we will likely see more cross-sector partnerships to develop regional and domestic markets too. This will improve local food security while protecting the livelihoods of fishing communities.
2. Acceleration of Digital Technology for Seafood Sustainability and Market Development.
When COVID-19 upended the import/export market, it was digital technology that opened new markets for many fisherfolk and aquaculture providers. Those who were nimble enough to move their products to a digital marketplace could connect directly to consumers for purchase and delivery.
In May 2020, USAID Fish Right's Fish Tiangge initiative in the Philippines developed an online platform using Facebook to link fishers with local consumers. This one initiative connected 6,000 fisherfolk with more than 300,000 households—enhancing local food security and preserving incomes for thousands of fisherfolk.
Digital technology is also helping to modernize fishing and aquaculture operations, increase profits, and expand awareness of best practices for sustainable seafood. For example, we are collaborating with AquaConnect in India to provide digital solutions that help shrimp farmers identify quality products and farm-input purchases. Farmers also get notices and materials on growth and disease advisories, advice and information on affordable financing, and resources to connect to different markets in India.
Digital technology will continue to be a major player in 2021 and beyond.
3. Private Sector Engagement to Unlock New Solutions for Sustainable Seafood.
To create reliable and sustainable seafood supply chains, we need private sector engagement. Of course, the public sector can and should play a role. But government and the global development community can only do so much to address logistics, aggregate supply, ensure quality, and verify sustainable practices for small-scale fisheries and aquaculture providers.
A truly sustainable seafood industry demands creative, market-driven solutions that fit the local context. We’ve been inspired by local private sector innovators like eFishery: eFishery provides technology solutions, financing options, and input sourcing for small-scale aquaculture farmers in Indonesia, helping them build sustainable and profitable businesses. It also provides an online platform connecting farmers to buyers, to close supply chain gaps and strengthen domestic seafood supply chains. We are seeing more local, regional, and international private sector-led solutions—like Verifik8 and Abalobi and Aruna—for small-scale fisheries and aquaculture worldwide; we expect this field to continue to evolve in 2021 and beyond.
4. Innovative Financing to Spur Change in the Seafood Industry.
New, innovative financing approaches can rapidly scale sustainability solutions in the seafood industry. Historically, small-scale fisheries and aquaculture providers have struggled to access capital to improve their practices and operations or to protect against market disruptions, shocks, and income loss. This is a critical gap.
At Resonance, we are designing and piloting blended finance mechanisms that increase farmer and fisher profitability while also improving sustainable fisheries management. These finance mechanisms all build on partnerships on the ground with suppliers, aggregators, local financiers, and buyers—leveraging local connections and social capital. We are exploring a range of finance solutions for fisheries, including:
For example, Resonance is currently exploring a partnership with Minh Phu, Vietnam’s largest shrimp company; Seafood Watch, a global leader in sustainable seafood; and local banks, to provide blended financing to shrimp farmers to improve their shrimp yields while also protecting and restoring mangrove forests in their properties.
5. New Models to Verify and Reward Sustainable and Fair Labor Practices in the Seafood Industry.
Over the last few years, we have worked with several partners, from private sector buyers to NGOs to governments, to analyze the return on investment (ROI) for seafood sustainability certifications and improvement programs. Each project analysis overlapped in one key area: the traditional certification and auditing of individual small-scale fisherfolk and aquaculture providers is not working, despite significant investments.
There is growing support, from all stakeholders, to develop alternative models to verify and reward sustainable seafood production practices. We’re currently collaborating with Seafood Watch, Thai Union, and others to create the Partnership Assurance Model (PAM), an innovative approach to verifying sustainable aquaculture production at a regional level rather than certifying individual farms and operations. We are starting by working with Seafood Watch, buyers, suppliers and government to use PAM to help improve the quality and sustainability of shrimp produced in Andhra Pradesh, India, and Ca Mau, Vietnam.
Further, PAM and other models like it can help verify sustainable and fair labor practices—an area that the seafood industry has struggled with.
New assurance and improvement models such as PAM will gain greater traction as NGOs, governments, and the private sector seek more effective and cost-efficient ways to accelerate and verify sustainability progress.
SUSTAINABLE SEAFOOD IN 2021 AND BEYOND
While COVID-19 challenged many small-scale fisherfolk and aquaculture providers, it also showed us areas of opportunity where the seafood industry can build more resilient and sustainable supply chains. We expect the trends that we have outlined will play critical roles in helping governments, the global development community, and the private sector make progress toward a more stable, more sustainable seafood sector.
This post discusses the central themes that will be explored at the Market Systems Symposium 2021.
An enduring question in development is why societies seem to get stuck in patterns of behavior that can be hard to understand. Whether conflict, stubborn levels of poverty, elite capture, inability to address climate change, increasing equality, etc., development practitioners continue to wrestle with how best to help catalyze positive change. Applying systems thinking, including embracing complexity, has been an important advancement in helping development practitioners understand difficult questions that are grounded in understanding local contexts. At the same time, complexity and systems lenses suggest that if there is a given pattern, like strong gender norms to limit women from participating in and benefiting from economic activity, such patterns are grounded in something that made that pattern attractive. Through the lens of a western moral framework, this can be hard to align or even disconnect from stated development goals.
These difficult and sticky challenges are central to the Market Systems Symposium 2021. Climate change and related conservation challenges, a new theme at this year’s Symposium, are integral to the longer-term journey to self-reliance of many countries. At the same time, there remain patterns in many of these contexts that are likely to make the journey longer and more difficult in terms of health, economic, etc., outcomes. Similarly, how communities and societies manage shocks and stresses is also critical to a country’s journey to middle income status, a thread that will be explored under the Market Systems Resilience theme. While it seems clear that communities often rely heavily on informal communal social safety net mechanisms to help them weather shocks and stresses, many of these mechanisms can result in patterns that do not align with economic growth requirements. Urban populations and related non-agricultural market systems, while less of a focus for much of the development industry, are likely to be the economic engine that drives a society to middle income status; this will be discussed under a theme exploring systems such as housing, water, nutrition, and more. In all these themes, how private sector actors compete, cooperate, invest, innovate, etc. is elemental to whether a society can grow in ways that are more inclusive and durable. In many developing countries, there are patterns related to firms using their political/market power to create unfair competitive landscapes that limit who can participate and benefit. Questions and debates related to challenging private sector patterns will be covered in the Symposium’s Private Sector Engagement theme.
Whether the patterns relate to conservation challenges, inability to overcome known and knowable stresses/shocks, elite capture in markets, the critical role urban poor play in the journey to self-reliance, etc. learning how best to apply various lenses to local contexts to understand the current attractiveness of problematic patterns will play a foundational role in the Market Systems Symposium’s conversations. Practitioners will also debate, discuss and share learning in how to catalyze changes in market systems that are attractive enough to signal to others in the market system it is time to adopt, adapt, and/or otherwise change behavior.
Additionally, the Symposium will interweave key cross-cutting themes related to how initial changes in market systems can influence change in deeper-seated norms/mental models like the role of youth, gender norms and/or other limiting norms related to vulnerable groups. How entrepreneurship could/should emerge and catalyze increasing innovation over time will also be a cross-cutting theme, including how effective entrepreneurship requires increasing inclusiveness, better internal market systems signaling/feedback and mechanisms that allow for increasing churn/trial and error. The other cross-cutting themes will cover operational issues that include measurement, donor strategies, and adaptive management.
We are excited for this year’s Market System Symposium, especially in light of increasing confidence that life is getting back to some sense of normalcy. Pushing new learning, better practice, and a shared commitment to applying systems thinking to complex development challenges seems more important than ever.
LEARNING STORY SPOTLIGHT: Chillington Rwanda, Pathways for Adaptation and Growth, Responding to Societies’ and Customers’ Needs
Entrepreneurship is an evolving area of inquiry as it has become increasingly clear that growth and especially inclusive growth is highly dependent on a country having a robust entrepreneurial eco-system. While more traditional efforts have focused on individual entrepreneurs and their defined issues like access to finance and basic business skills, market systems projects have focused more on systemic biases and constraints that guide the evolution of an entrepreneurial eco-system.
Incorporated in 1982 in Rwanda, Chillington Rwanda Ltd is a leading local manufacturer of agricultural cast iron tools (such as shovels, pick axes, and wheelbarrows), which was a solid business before COVID-19. The company had already demonstrated its ability to respond to local demand signals, innovate, and provide product lines that would improve life for Rwandans. Chillington Rwanda had diversified its cast iron product line to produce manhole covers as manholes are often left uncovered on construction sites and in public spaces where manhole covers are hard to come by or standard sizes do not fit, and result in severe safety issues in Rwanda. Chillington Rwanda produces manhole covers at regular and customizable sizes and within a year manhole covers have become 50% of their business). Chillington Rwanda started manufacturing wheelbarrows in 2011 locally at almost double the price of imported wheelbarrows but has still been able to capture around 80% of the market share to date. Their product is recognized for much better quality and therefore durability, with the ability to customize wheels and handles. Chillington Rwanda conducts regular surveys with its customers and distributors, including sending their team to rural villages to do so. Based on customer feedback in late 2018, Chillington Rwanda quickly innovated and sourced an adapted wheel design which is more appropriate for many of the Rwandan conditions so that they now offer a line of wheelbarrows that function much better in the more muddy conditions while others operate better on asphalt.
The emergence of the COVID-19 pandemic started to put a strain on Chillington Rwanda’s business lines as overall economic activity slowed. For Chillington Rwanda, waiting out the shock was not an option. They needed to adapt, but how best to adapt in such a dynamic environment was a central question. Chillington Rwanda resorted to first principles of a value- based business that pointed Chillington Rwanda to look at where they could deliver value. In surveying the dynamic landscape, they saw that Rwandans were struggling to adhere to basic public health protocols. As they investigated further, they identified an opportunity defined by the value they could deliver for their community/society. The opportunity was related to the gap in the use of surgical face masks as Personal Protective Equipment (PPE) that seemed to stem from the relatively high costs of masks in Rwanda. Additionally, Chillington Rwanda identified the opportunity as potentially regional in nature.
Chillington Rwanda began to go to work. They assessed the opportunity, including near, medium and longer term contexts of shifting and expanding their production capacity. Would the cost of shifting be more than off-set by increases in sales and firm value given the timeline for wearing surgical face masks for COVID-19 protection? If not, could the new production line adapt easily to produce products that have a clear ongoing and potentially increasing demand? Chillington Rwanda drew on their existing expertise in manufacturing and existing relationships with production equipment suppliers in China to diversify from producing agricultural tools and equipment (such as wheelbarrows and spades) to producing surgical face masks as PPE.
Chillington Rwanda recognized that the pre-COVID-19 demand over the previous six months for imported PPE surgical face masks in Rwanda averaged 1.5 million masks per month from ongoing mask requirements at hospitals, pharmacies, etc. This ensured a potential ongoing demand which substantiated diversifying into this area even if demand were to drop post COVID-19. Chillington Rwanda’s market analysis seemed to indicate that there was real value not only from a narrow business perspective, but maybe more importantly, from a community/societal value perspective.
In addition to the clear demand signals around masks, Chillington Rwanda also recognized the signaling in demand for feminine hygiene products (sanitary pads) which can be produced using the same manufacturing capabilities as surgical face masks. This provided a further opportunity for diversifying in the future using the same manufacturing capacity being invested in for the surgical masks.
Chillington Rwanda recognized that investment into producing PPE masks made further business sense as this business strategy falls within the Government of Rwanda’s priority to support an environment that enables medical equipment manufacture in Rwanda for local use and export to other parts of Africa and the world. Specifically, as a result of COVID-19, the government is incentivizing the production of PPE face masks by local producers in a bid to facilitate mass production as well as affordability. In April 2020, Chillington Rwanda was included in the Rwanda Food Drug Authority (FDA) official list of companies allowed to manufacture barrier and medical masks in Rwanda, with Chillington Rwanda being one of only three companies approved to manufacture higher quality surgical masks.
The combined demand from consumer feminine hygiene products and healthcare worker masks, and the informal Government approval, provided Chillington Rwanda with the longer-term commercial rationale to make the final decision. Consequently, Chillington Rwanda began adapting to initially focus on producing quality assured affordable masks for Rwandans, with the idea that a regional market for quality assured masks would also emerge as neighboring countries were also experiencing similar challenges in accessing masks.
With a loan from a commercial bank and support from the German development agency, GIZ, who were eager to support local mask production to decrease costs of masks in Rwanda to make them more easily accessible, Chillington Rwanda had the finance to fund initial production and laboratory testing. This laboratory testing phase was very important in developing standards for quality control and assurance for higher quality surgical masks in Rwanda. The Rwanda Standards Board helped local manufacturers such as Chillington Rwanda to understand how to conform to quality standards in mask production. Chillington Rwanda provided samples of its masks to the Quality Control Division of the Rwanda FDA for approval.
Chillington Rwanda invested in a machine from China that has the capacity to produce 4 million masks and started production, distributing the masks through pharmacies throughout Rwanda. Sales have grown quickly. In keeping with its vision to make masks for affordable and accessible in Rwanda, Chillington Rwanda is currently producing masks at 300 RWF with a goal to further decrease costs to 180 RWF.
Chillington was eager to learn from its initial endeavors. Consumers appeared to appreciate the quality of the masks. In quick response to customer and distributor feedback, the company however recognized that consumers and retailers prefer masks to be packaged in smaller packs (of 5 to 10 masks rather than 50) so that when customers take a mask from the box in the retail store there is less chance of contamination with too many other masks at the same time. The company is therefore adapting its packaging to support improved health and sanitary at the retailers sales points by investing in a packaging machine that is able to package in smaller units.
Chillington Rwanda does not only think about its product lines and customers, but also about its staff and workers. Growth-orientated firms are able to understand the importance of investing in performance management systems as a continued way to improve staff capacity and performance. Chillington Rwanda worked with a consulting firm on how to invest in performance management systems which incentivize a motivated, productive and loyal team. Productivity has been linked to payments, so Chillington Rwanda pays workers more if they are able to reach production targets.
Chillington Rwanda recognizes the importance of treating workers well and ensuring good health and hygiene procedures. In 2019, for example, there was 0% staff turnover. The company provides drinking water stations throughout its plant and milk for workers. A sense of pride and team spirit is reinforced through aesthetically pleasing uniforms. The factory and offices are being renovated and upgraded with new coats of paint and more natural light. As a result of COVID-19, Chillington Rwanda implements good manufacturing practices with workers washing hands before work and keeping distance from other workers. Their team has been split into two groups, with a night shift added to distance workers even more.
By focusing on signals from Rwandans that indicate what is of value to them, Chillington Rwanda was able to more clearly see how they could adapt in a way that added value. Often businesses focus on the supply or production of products they perceive as having value with little awareness of or a clear understanding of the end customers’ needs, wants, contexts. Even worse, in many cases, the firms focus on how they can produce a product that delivers less value, but can be perceived as providing a higher value. Whether by adulterating, faking, or not investing in quality assurance, they calculate that by operating in a unclear/confusing environment for consumers they can capture extra, unfair margins from their customers.
Chillington Rwanda’s commitment to customer value and its responsiveness to consumer signals provides an excellent example of how markets can work well when market actors compete on delivering customer value. As firms and entrepreneurs increasingly focus on competing on the value they deliver to customers, staff and suppliers, the more likely other firms in addition to Chillington Rwanda will adapt and innovate in response to end-consumer signals about what is important to them. Markets that evolve such competitive landscapes not only generate more inclusive wealth, they also increase a society’s resilience by taking on and neutralizing or mitigating risks from stresses and shocks. Chillington Rwanda is helping Rwanda to mitigate the shock of COVID-19 by producing cost effective masks locally that allow Rwandans to better protect themselves from COVID-19. Chillington Rwanda saw an opportunity and innovated/adapted to meet an emerging consumer demand, helping their business and the wider society be more resilient.
This post was authored by the Nguriza Nshore team.
Entrepreneurship is an evolving area of inquiry as it has become increasingly clear that growth and especially inclusive growth is highly dependent on a country having a robust entrepreneurial eco-system. While more traditional efforts have focused on individual entrepreneurs and their defined issues like access to finance and basic business skills, market systems projects have focused more on systemic biases and constraints that guide the evolution of an entrepreneurial eco-system.
Kigali-based Masaka Creamery was established in 2015 as a vehicle for launching a high-quality dairy creamery in Rwanda. The company produces yogurt, fermented milk (buttermilk), cream, cheese and butter for the domestic market. The female-run Masaka Creamery is an interesting case in that its initial value proposition was not one hundred percent defined by growth or commercial goals. It also had a goal of providing meaningful employment for deaf individuals as well as youth. Unlike other cases in the series, Masaka Creamery’s starting point integrated a clearer vision of the value it could provide as a business that went beyond its customers to include its staff and suppliers. As Nguriza Nshore is learning, even businesses that start with a relatively narrow commercial goal, such as generating a positive gross margin, will only grow over time if they take into consideration the value they deliver not only to customers, but also staff and suppliers. Businesses that act in extractive ways toward their staff and/or suppliers are unlikely to get good performance, but as the Masaka Creamery example shows, are also unlikely to weather stresses and shocks well.
Masaka Creamery established its brand as a reliable and quality assured supplier of various dairy products to other businesses such as restaurants and hotels. By targeting restaurants and hotels that catered to high-end consumers, Masaka Creamery could generate a healthy margin ensuring they could treat staff and suppliers in ways that demonstrated shared value, while also investing in the important and necessary quality assurance practice demanded by such a clientele. Interestingly, by focusing more on a business to business model, as opposed to a business to customer model, Masaka Creamery probably eased their start-up process as they had fewer and larger clients on which they could focus their customer service.
Masaka Creamery was growing nicely and attracting investment as it continued to strengthen its brand as a reliable and quality assured supplier of dairy products to its business customers. It is here where the story gets interesting. COVID-19 emerged quickly and had an outsized effect on the exact businesses that Masaka Creamery has targeted, especially restaurants and hotels, which emerged as their largest customer segment. Masaka Creamery could have hunkered down and tried to weather the shock, but they realized doing so would have serious repercussions on their staff and suppliers, so they adapted. Unlike other entrepreneurs who focused heavily on capturing and extracting margins from their business, Masaka Creamery invested in ensuring quality and performance as required by their business customers. This customer orientation that included investing in staff and suppliers, gave them a clear competitive advantage when forced to adapt as they had both an emerging brand based on customer value, an operating culture that was based on shared value (i.e., which also translates into shared risk), and a vision for the company that was defined by more than what they produced.
Masaka Creamery quickly realized that most of their business clients would have trouble maintaining their purchases requiring the firm to look for other channels. Interestingly, Masaka Creamery took the bold step of testing a direct to customer channel. Such a shift from a commercial channel with fewer and larger clients to an end-consumer channel with many more smaller clients can be very difficult for a business. Managing a large and growing customer base requires a fundamental shift in business operations, especially marketing and customer service. Masaka Creamery’s key advantage though seemed to be its customer orientation or its interest in delivering value to its customers.
Masaka Creamery went to work learning how to leverage social media, how to segment the market in ways that eased their transition to a direct to end-consumer channel. They brought on board marketing and branding skills that are essential for a direct to consumer channel, and they raised their game in terms of customer service. For example, they actively engage their customers, leaving thank you notes for customers and promoting their values as central to their business. The transition was not easy as they also had to develop capacity in managing multi-stop delivery routes, a substantial increase in the number of transactions, a large and growing customer base, and brand integrity (i.e., emergent customer complaints, operational hiccups that could affect customer value, unexpected company/product memes, etc..).
Masaka Creamery has emerged out of the transition in a way that has them on a stronger growth trajectory. They have a growing base of repeat customers, their revenue is even higher than before COVID-19, their brand value is increasing, and they are investing in ways that will increase their capacity to deliver value to their staff, suppliers and customers. The Masaka Creamery story is particularly important in demonstrating the value of entrepreneurs when they are motivated by the value they can create, as opposed to the margin they can capture. It is through Masaka Creamery’s commitment to value that they were able to adapt in ways that led to increased growth and increased employment.
This post was authored by the Nguriza Nshore team.
The MSDHub Blog Series is authored by respected implementers and donors of market systems projects globally.