BDS market development guide.pdf - PACA

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Box 3: Influences on Demand and Supply
Demand
Recognition of need for a solution can be affected by a variety of internal and external factors. For
example:
Internal: SMEs’ education, physical location, and exposure to peers and competition may all affect
awareness of business problems and available solutions.
External: In most low-income countries, market information is limited or distorted; subsidies to reduce
service price below market rate can encourage an SME to use a service that may not be appropriate;
difficult economic and political environment may discourage use of a service (such as financial
management in a tax harsh setting) and disguise internal problems within the business; donor
programs to promote other activities (e.g. credit) may distort businesses’ preferences for and
recognition of services.
Willingness to pay can be similarly affected. For example:
Internal: SMEs’ education, physical location, exposure to peers and competition, and their networks
(access to informal sources) may all affect their valuation of services.
External: Subsidies to reduce service price may stimulate consumption of services in the short term,
but, if those services fail to address business requirements or expectations, willingness to pay can be
adversely affected. Equally, willingness to pay for the services of an unsubsidized provider will be
reduced (see below). The prestige of the donor can also affect businesses’ willingness to pay: SMEs
may expect to receive cheap or free services, and they may perceive donor-supported services to be
superior to those offered by local competitors. In fact, continuous donor subsidy may indicate lack of
any real market value for the service.
Supply
Ability to present an attractive offer that consumers want can be affected by a variety of internal and
external factors. For example:
Internal: Service providers’ marketing skills and information are highly influential, but, equally if the
service provider has a high cost base (arising from expensive staff, premises, or equipment), this
feeds through into a high price, undermining the attractiveness of its service offer, no matter how
good it is. An inconvenient location or staff with the wrong culture or background can have the same
effect.
External factors: Donor support for competitors (for example, in the form of subsidized services) can
weaken an unsubsidized provider offer. Equally intensive donor support for capacity building can
develop the kind of inappropriate structures described above, with adverse effects on costs, price,
and the like.
Technical know-how to solve business problems can be similarly affected. For example:
Internal: The technical and experience of key people, the networks, and the ability of service provider
to access new information, technology, and develop products are important.
External: There are wider constraints to information and knowledge, such as inadequate education;
donor support for capacity development that is inappropriate for SMEs; and donor support for
importing generic products from advanced economies (this does not develop service providers’
capacity to develop their own products on an ongoing basis in response to changing and evolving
local requirements.
Microenterprise Best Practices
Development Alternatives, Inc.