BDS market development guide.pdf - PACA

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14 Figure 4: Framework for Understanding the Effectiveness of BDS Markets Non-existent market No transactions between consumer and providers No demand Weak demand Effective demand BDS MARKET Level of Market Development BDS TRANSACTION Provider has something to sell AND Consumer is ready to buy Effective market Extensive transactions between consumers and providers Effective supply Weak supply No supply WHY ISN’T THE MARKET WORKING? Figure 5 shows the anatomy of an effective interaction—transaction—between a consumer and a service provider. The consumer (follow the black arrow) recognizes the causes of underperformance, concludes that a solution is required, and is willing to pay for a problemsolving service. The provider (follow the white arrow) has the ability to present an attractive offer that the consumer wants, and has the technical know-how to solve the problem with demonstrated positive impact on business performance. The elements of an effective transaction can also help explain why market mechanisms fail to serve SMEs: consumers may confuse symptoms with causes, they may not know about the existence of solutions or services or seek the wrong solutions; providers may not have presented offers SMEs value or want, or if they do, they may lack the technical know-how to deliver the results promised in their offer. The core rationale for an intervention is to address the demand and/or supply-side constraints that prevent markets from serving the service demands of SMEs. Box 2: Some Rudimentary Economics Economic theory describes a market as a set of arrangements by which buyers and sellers are in contact to exchange goods or services.* The level or volume of exchange or transaction that occurs between the sellers and buyers of a given good or service determines a market’s effectiveness. Theory also tells us that transactions between demand and supply are determined by an equilibrium price—that is, the price at which quantity supplied equals the quantity demanded. In trying to understand BDS market failure, we need to look beyond price (which in effect causes movements along demand and supply curves). We need to look at the other underlying factors, described below, which actually shift demand and supply curves—determining their position or shape—and thus determine the nature of demand for and supply of BDS. *Begg, D., Fischer, S., and Dornbusch, R. Economics (1987). McGraw-Hill Book Company (UK) Ltd. Microenterprise Best Practices Development Alternatives, Inc.
15 The flow diagram of an effective transaction shows that demand and supply for BDS are composed of different elements, each of which in turn can be influenced by a range of internal and external factors (see Box 3). Demand and supply must be considered separately to understand how the two interact for a transaction to take place. Based on this assessment of demand- and supply-side weaknesses (or strengths), it is possible to ascertain the level of market effectiveness and determine which interventions (market-based instruments and incentives) are consistent with the goal of developing more effective BDS markets for SMEs. Figure 5: Anatomy of a BDS Transaction SME UNDER- PERFORMANCE A • low profits • high fixed costs • low value-added • stagnant sales • zero growth • insufficient market • excessive indebtedness • bankruptcy and failure • etc. Impact on SME performance Causes of underperformance are recognized SME CONSTRAINTS & PROBLEMS • skills deficiencies • limited market information • poor financial & inventory control • inadequate processes, systems, equipment • inefficient resource use • etc. B Demand-side flow Supply-side flow Solution is required Technical know-how to solve SME problems SOURCES OF SERVICES D Market mechanisms that can make a 'service' available: • friends & family • informal networks • other businesses • fee-for- service providers • etc. Willingness to purchase a service Ability to present an ‘offer’ that SMEs want SOLUTIONS & REQUIREMENTS C Specific 'services' such as • training • advice • information media • accounting services • after sales product support • product distribution (e.g. courier services) • etc. Chapter Two—Where We Are Now—A Framework for Market Assessment and Intervention Choice
Page 1 and 2: BDS Market Development: A Guide for
Page 3: Alan Gibson is a co-founder of The
Page 6 and 7: ii CHAPTER FOUR HOW DO WE GET THERE
Page 8 and 9: iv Table 1 Implications of Differen
Page 10 and 11: vi How to Use This Guide: A Quick R
Page 12 and 13: 2 • To address poverty, governmen
Page 14 and 15: 4 • Potentially, a range of provi
Page 16 and 17: 6 Figure 2: Flows of Services in th
Page 18 and 19: 8 • Efficiency—The cost bases o
Page 20 and 21: 10 • Advocacy: for the business c
Page 23: 13 CHAPTER TWO WHERE WE ARE NOW—A
Page 27 and 28: 17 KEY CHARACTERISTICS OF EFFECTIVE
Page 29 and 30: 19 Figure 7: Quadrant of Supply-sid
Page 31 and 32: 21 • Consumers—such as female-o
Page 33 and 34: 23 WHERE SHOULD INTERVENTIONS FOCUS
Page 35 and 36: 25 Figure 10: Matching Market Analy
Page 37 and 38: 27 CHAPTER THREE WHERE DO WE WANT T
Page 39 and 40: 29 Markets are institutions. Develo
Page 41 and 42: 31 What Needs to Be Done?—Key Sup
Page 43 and 44: 33 Box 7: Key Considerations in Ass
Page 45 and 46: 35 Figure 12: Functions of the Stat
Page 47 and 48: 37 Table 2: Sustainability Framewor
Page 49 and 50: 39 CHAPTER FOUR HOW DO WE GET THERE
Page 51 and 52: 41 Figure 13: Where to Intervene to
Page 53 and 54: 43 • Consistent Policies and Appr
Page 55 and 56: 45 • Have been developed to be pe
Page 57 and 58: 47 Avoiding overloading may involve
Page 59 and 60: 49 C For new product development, a
Page 61 and 62: 51 • Precisely, what are they goi
Page 63 and 64: 53 Existing MARKET (sub-sector, ent
Page 65 and 66: 55 To Reach Female-Owned Businesses
Page 67 and 68: 57 C Informal, and C Individuals. T
Page 69 and 70: 59 The drawbacks of tender-based se
Page 71 and 72: 61 CHAPTER FIVE HOW DO WE ASSESS OU
Page 73 and 74: 63 • How well?—the quality dime
Page 75 and 76:
65 day income * This highlights key
Page 77 and 78:
67 Beyond SMEs—Unchanged Indicato
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69 Figure 16: Measurement Methods i
Page 81 and 82:
71 • Donors may be interested in
Page 83 and 84:
73 and poverty reduction? Or is the
Page 86 and 87:
A-3 KEY REFERENCES Anderson, Gavin,
Page 88 and 89:
A-5 Hitchins, R and Gibson, A; "The
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