2.8.4. Factors that Condition MSE Upgrading

When MSE owners decide how to respond to upgrading opportunities, they may consider several relevant criteria. The decision criteria can include:

Profits: Also known as net returns, these are the payments made to the firm for its products and/or services (revenues) minus the firm’s cash and in-kind expenses (costs). MSEs often operate with relatively short profit horizons.

Risks: Risks include chances of incurring losses in terms of dollars, but also in terms of assets, household consumption flows, and business relationships. One way to mitigate risk is to sell in more than one channel to exploit the advantages and minimize the risks inherent in each, such as Guatemala’s handicrafts producers.

Time: When benefits will not become apparent for a year or two, MSEs may not be able to invest in upgrading.

Sustainability: This includes the implications for future income flows, continued market access, long-run opportunities, long-term relationships, and future economic security.

Firm economic conditions: This includes the current state of a firm’s production, consumption and investment activities and the firm’s economic goals and motives.

Access to resources: The extent of information, technical assistance and market inducements lead firms, supporting markets, or the business enabling environment are willing to provide influence and can stimulate MSE upgrading decisions.

Social considerations: Social and cultural contexts all play into MSE decisions regarding upgrading. There may be interdependence in resource allocation decisions made by members of the same household or the community / culture might influence upgrading behavior in terms of providing risk-sharing mechanisms, discouraging commercial interactions between different social or ethnic groups, or exerting pressure for conformity.^[1]Gender also influences behaviors related to upgrading, such as money management, business practices and value chain relationships.^[2]

Cultural perceptions of a product might also influence willingness to upgrade. For example, World Vision Australia found farmers reluctant to use a particular variety of pest-resistant sorghum because the porridge it produced was darker and therefore carried a negative stigma. Darker porridge was known as "poor people's food" to be served only after dark when visitors would not notice the difference. This perception was reflected in the local name for this porridge: roughly translated as "after dark."

Footnotes