Can Private Sector Partnerships Create Pro-Poor Market System Change?
Emerging markets constitute a growing portion of the global economy. Over the past decade, they comprised two-thirds of the global gross domestic product. Now, they are about 40 percent of global output.1
While emerging markets offer some of the greatest business growth opportunities, “contextual gaps” (e.g., poor infrastructure, or education) severely restrict business core functions and growth opportunities. In addition to contextual gaps, companies face other obstacles in emerging markets. A recent study of 40 companies found that the key barriers to growth in such markets were:
- Providing products and services that meet customers’ needs at an affordable price (43%)
- Competition from local companies (40%)
- Brand awareness of products (40%)
Because firms cannot wait for governments and/or civil society organizations to fill these “contextual gaps,” many companies have started to address them themselves, considering it to be in their own business interest.
As a result, corporations as well as development organizations (both nonprofits and for-profits) are rethinking their approaches in emerging markets and their related organizational structures and systems. As they do, many are coming to the same conclusion: Cross-sector partnerships—those that include corporate, nonprofit and for-profit development stakeholders—can provide a unique capacity to achieve development objectives and address constraints to business growth.
WHO TO PARTNER WITH?
One useful way to assess a potential partner is to consider their position in the value chain. Value chains include different types of firms with distinct functions, power positions and commercial incentives to catalyze change in their supply chain. With respect to incentives, for example, retailers are customer-facing and thus have a strong incentive to improve quality throughout their supply chains. Traders or exporters, however, are often invisible to consumers so they may need different incentives to change their behaviors.2 It is important for development agencies to understand these dynamics and carefully select partners that are aligned with the overall objectives of the partnership.
HOW TO PARTNER?
There are several key factors that make cross-sector partnerships challenging:
- The lack of a common language/terminology among different stakeholders;
- Ensuring the right selection of partners to achieve objectives;
- Adequate incentives for different stakeholders to benefit from the partnership;
- Trust and understanding of different stakeholders’ motivations; and
- Shared objectives, operational models and impact measures.
It is important for all stakeholders to understand these issues and ensure that they are addressed in the partnership design, negotiation, governance structures and management/communication systems.
The partnership track sessions during the upcoming SEEP conference include five break-out sessions. They will review a variety of cross-sector partnership models aimed to improve efforts at pro-poor market system changes in order to benefit the lives of poor families while fostering sustainable business models. Each of the break-out sessions will discuss how these partnerships were designed and managed to address the barriers that exist for families and for private sector partners in changing market conditions.
Models highlighted will include:
- Creating partnerships with private equity firms to increase jobs, incomes and enhance the investment environment;
- Building partnership models to catalyze smallholder investments, particularly aligning incentives and fostering commercial viability and achieving scale;
- Designing partnership models in “thin markets” with a focus on designing the right “value proposition;”
- Reviewing options for partnering with existing firms vs. starting new ventures to address smallholder issues; and
- Utilizing new technology in a value chain partnership to accelerate market changes.
What do you think are the most important models for partnerships in emerging markets? Let us know in the comments! Continue to check back for more blogs leading up to SEEP’s Annual Conference.
Celebrating 30 years, the SEEP Network’s 2015 Annual Conference (Sept 30-Oct 1) has created a dynamic (Cross-Sector) Partnership Track designed to promote frank discussions on trends, challenges and promising practices or models of partnerships with the private sector to create pro-poor market system changes that improve families’ resiliency to shocks, increase livelihoods and create sustainable business models.
1. Chakrawori.B, Macmillan, Stefeld, T. Growth for Good? How Sustainable and Inclusive Activities are Changing Business and Why Companies Aren’t Changing Enough. Citi Foundation, The Fletcher School, Monitor Institute
2. Public-Private Partnerships in Global Value Chains: Can They Actually Benefit the Poor. LEO Report #8. February 2015. USAID