2.5.4. Promoting Commercially Viable Supporting Markets
Facilitating Demand for Supporting Markets
In addition to looking at the constraints of supporting-market businesses, development practitioners should address the constraints faced by value chain actors when acquiring products or services. Value chain actors who are unaccustomed to purchasing a particular product or service are likely constrained by a lack of:
- awareness of who provides the products or services they need
- appreciation of the benefit such products or services can provide to their operations
- capacity to purchase products or services in suitable quantities or at affordable prices
Project interventions to address these constraints might include the following:
- expose actors to a host of supporting-market businesses providing a desired product or service
- develop value chain actors’ demand for supporting products or services through marketing/ information campaigns, demonstration events, voucher programs, etc.
- assist value chain actors to organize and acquire products or services in bulk
Such activities should be designed and implemented in collaboration with supporting-market businesses, since activities bear directly on their own marketing capacity and responsiveness to these clients. For example, in Bosnia, a project assisted ISO certifiers to provide services to exporters, and also helped to develop the demand for these services. To do this, the project covered the cost of introductory visits to the exporters’ place of business by the ISO certifiers. As a result, exporters could better determine the potential value of and effort required to become ISO certified. Subsequent visits and contracts with ISO certifiers, with which several of the exporters moved forward, were entirely paid for by exporters.[1]
Building Relationships among Businesses
There may be systemic challenges among the businesses within a supporting market itself that constrain provision to value chain actors. These systemic challenges typically include the difficulty of manufacturers, distributors and retailers to jointly respond to new demand, and channel appropriate supporting-market products like equipment and inputs to value chain actors. Similarly, training institutions may be unable to equip students with the expertise sought by particular value chain actors. For instance, many craft export value chains lack access to qualified, local design professionals, in part because local institutions do not have programs to train them.
In such situations, project activities can take one of the following approaches:
- develop the capacity of supporting-market businesses to communicate effectively with and respond to demand from value chain actors. For example, in Bangladesh, many rural farmers lacked access to good-quality, affordable inputs. The KATALYST project addressed this by supporting large agricultural input distributors to expand their retailer networks and train the retailers to advise and demonstrate the use of their products to producers.[2]
- assist supporting-market businesses to identify suppliers and acquire new products. For example, in Azerbaijan, a project facilitated links between veterinary supply companies and international manufacturers of medications. As a result, veterinarians could purchase better quality medicines from their suppliers, which improved their businesses because farmers preferred to consult with veterinarians that sold better quality products. [3]
Achieving Scale and Promoting Competition
In order to achieve scale and healthy competition, it is important to collaborate with as many support-market businesses as possible. In the initial stages of most projects, however, it is often difficult to work with large numbers of supporting-market businesses. In some cases only a handful of businesses are willing to expand or tailor services to actors in value chains targeted by the project. In addition, project resources may be limited and unable to reach large numbers of supporting-market businesses.
It is therefore important to be strategic in the initial selection of businesses. The following criteria can help guide the selection process:
- Are the selected businesses able to invest in expanded or improved products or services to targeted value chain actors?
- Do they have the potential to provide products or services to large numbers of targeted actors?
- Do they have the potential to influence others and do they enjoy a good reputation in the supporting market?
- Do the selected businesses have the potential to provide products or services competitively?
To achieve scale and induce other supporting-market businesses to follow the lead of the early adopters, practitioners may need to implement a variety of project activities. These may include:
- assisting supporting-market businesses to expand and provide their value chain clients with additional or enhanced products and services
- promoting standards for the provision of supporting-market products or services, applicable to the whole supporting market
- fostering and strengthening networks or associations of supporting-market businesses to address common interests such as critical enabling environment or infrastructure constraints
For example, a project in Zambia [4] worked with smallholder farmers that had very limited access to a broad range of good agricultural inputs, equipment and services. Initial project activities assisted a select number of agricultural input distributors to train and deploy rural agents who could operate closer to the farmers. With the success of this approach, the project i) encouraged the participating distributors to expand and improve their services, and ii) induced other distributors to adopt similar competitive practices. Project interventions included the following:
- building the capacity of input distributors to identify new areas for expansion and manage and train more rural-based agents
- assisting input distributors to expand their product mix to rural farmers to include spraying and tilling services
- facilitating development of standards for the safe use of chemicals used by spray service providers by all major agricultural distributors
- extending basic support to additional input distributors