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.
Through projects like Feed the Future Rwanda Nguriza Nshore (Nguriza Nshore), the United States Agency for International Development (USAID) is starting to explore the connection between individual and systemic approaches to catalyzing more dynamic entrepreneurial firms, services and networks. More specifically, two important learning questions related to entrepreneurship and entrepreneurial eco-systems have emerged and will be explored through Nguriza Nshore’s learning agenda.
In a series of blog cases, Nguriza Nshore will explore the distinction between these differing types or drivers of entrepreneurship, including the implications for longer-term inclusive growth. In particular, through the blog series, Nguriza Nshore will build on the emerging understanding from systems thinking that not all entrepreneurs are the same, and that systemic biases and resulting conditions/forces have a substantial effect on which type of entrepreneurship is more common. In many developing country contexts, including Rwanda, formal jobs are limited which pushes many people to start businesses in order to generate cash for family needs. These “entrepreneurs by necessity” tend to focus more on capturing and removing cash from their business to cover family requirements. Their aim is not to grow their business, as much as ensure their family has an acceptable cash inflow. In more mature economies where employment is more accessible, entrepreneurs are driven more by the vision/mission of the entrepreneur to develop a product, grow a business, and/or both that deliver value to customers. For such entrepreneurs, capturing a margin and/or personal gain are often sacrificed for growth in the business. Nguriza Nshore has already observed a change in entrepreneurship in Rwanda and through the blogs, they will explore this distinction and implications on the activities systemic change goals.
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.