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Sustainable Business and Value Chains Management in the Developing - - PowerPoint PPT Presentation

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Sustainable Business and Value Chains Management in the Developing World Africa50.dk conference 24 September 2010 1. Introduction 2. Business is Business Fair Qualities 3. Free choice themes 4. Business development models 5. Questions and

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Sustainable Business and Value Chains Management in the Developing World

Søren M. Borch Engineer M.Sc., and Business economist Ph.D. Business innovation consultant Advisor in eco-business, Danida, 2006-2009 www.condiv.dk

  • 1. Introduction
  • 2. Business is Business

Fair Qualities

  • 3. Free choice themes
  • 4. Business development models
  • 5. Questions and comments
  • 6. Final remarks

Africa50.dk conference 24 September 2010

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Example: Sundried fruit

Markets México, USA, Europe Drying with Solar Energy

Alimentos Campestres (“Country side foods”)

Individual farmers’ and groups’ production Preparation Supermarkets Transport Packing and design of display products

Clients Suppliers Producer

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Example: Tourism

Service delivery Natural environment and Social community

Cultural & Natural Circuit

Fundación Solar, Commercial NGO Tour operators nat’l and internat’l Local individual guides Marketing and improvement of community tourism in San Juan la Laguna, Sololá, Atitlán, Guatemala.

Clients Suppliers Producer

International tourists

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Successes of actors related to Premaca

Mora Lenca

  • black berries
  • clean production
  • CSR

Award / Prize in Honduras (FUNDER) Chirrepec

  • Fair Trade tea

Mabeli

  • Spa products

Danida

  • Institutional
  • Export support

Award / Prize in Guatemala (AGEXPORT) Premaca = Regional Environment Programme in Central America, Danida

Premaca-4 = Component 4 on Eco-business, 2006-2012

... and 1000’s of new or improved jobs in sustainable businesses

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Centre Sanghaï in Benin

Source: Arte Reportage "Ferme modèle au Bénin" http://www.arte.tv/fr/Videos-sur-ARTE-TV/2151166,CmC=3252748.html

Director Godfrey Nzamujo, educated as electronic engineer in the USA, since 1980’s back in Benin.

  • 400 workers produce fish food, fish, pigs, methane etc
  • enthusiasm, entrepreneurship, local material, local

market Africa or Central America, eco- business successes look alike.

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Management for sustainability

Management is the work of managers. Good management is the “sine qua non” for sustainability. I shall look at today’s conference theme from the management profession’s point of view.

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>> BUSINESS IS BUSINESS >>

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Porter’s Generic Value Chain (internal)

Firm infrastructure General management, finance, accounting, legal, quality control, government affairs Inbound logistics Receiving, storing, distribution, vehicle scheduling. Operations Machining, assembly, test, packaging, print Outbound logistics Order processing, warehousing, distribution Service Installation, reparation, spare parts Marketing & sales Communicat. advertising, sales force, PR Human Resource Management Recruiting, training, development, compensation Technology development Technology, know-how, machines, procedures, development of products and processes Procurement Buying raw materials, office equipment, machines, buildings Margin Profit Secondary / support activities Primary activities

Basic functions in a company: Independent of country Good functioning is better than bad functioning

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Single business link

Business link Product P = Producer C = Client

P C

A business link implies a commercial relation with transaction of products or services from a seller (producer) to a buyer (client). It is the most simple version of a chain.

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Simple business chain

P = Producer C = Client

C P C

Product

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Detailed productive chain

P = Producer

C = Client

C

Link Product

P P P P P P C C C C C C C C C C C V

V = Supplier

T

T = Transporter

B

B = Bank

N N S S S

N = Norms Certificator S = Business Service Providers

V V

Productive chain

E

E = Packing

T

A productive chain is a business network of links, all with relevant relations, directly or indirectly, to some central activities

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Simple value chain

P = Producer C = Client

C

Link Product

P P P P P P C C C C C C C C C C C V

V = Supplier

T

T = Transporter

B

B = Bank

N N S S S

N = Normalization Standards S = Business Service Providers

V V

Productive chain

E

E = Packing

T

A value chain is a part of a productive chain in which the actors have an alliance and corresponding governance system with the goal

  • f producing and marketing

products or services

  • f added value
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Complex value chain

P = Producer C = Client

C

Link Product

P P P P P P C C C C C C C C C C C V

V = Supplier

T

T = Transporter

B

B = Bank

N N S S S

N = Normalization Standards S = Business Service Providers

V V

Productive chain

E

E = Packing

T

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Marketing mix, 4P-model

Ref: Philip Kotler, ”Marketing management”

Target Market

Product

  • Features
  • Quality
  • Packaging
  • Size
  • etc

Product

  • Features
  • Quality
  • Packaging
  • Size
  • etc

Price

  • List price
  • Discounts
  • Payment
  • Credit
  • etc

Price

  • List price
  • Discounts
  • Payment
  • Credit
  • etc

Promotion

  • Advertising
  • Personal selling
  • Sale promotion
  • PR
  • etc

Promotion

  • Advertising
  • Personal selling
  • Sale promotion
  • PR
  • etc

Place

  • Logistics
  • Channels
  • Locations
  • Inventory
  • etc

Place

  • Logistics
  • Channels
  • Locations
  • Inventory
  • etc

The model is useful in all countries.

  • “Quality” is the right combination seen through the customer’s eyes
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Competitive power

Producer

Buyer Bargaining power B vis-a-vis P Local Buyer National Buyer International Local National International Supplier Bargaining power S vis-a-vis P Supplier Supplier Local National Competitor International Competitor Competitor Power C vis-a-vis P Start with the low hanging fruit Local competitors have the same problems

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Competition from Asia

Same cost:

  • China 4 containers
  • Africa 1 container

Wage and flexibility:

  • Indonesia cheaper

and faster than Central America

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Culture: Denmark vs Guatemala

Source: www.geert-hofstede.com/hofstede_dimensions.php Notes PDI: Power Distance Index IDV: Individualism MAS: Masculinity UAI: Uncertainty Avoidance Index

Gert Hofstede’sTM Cultural Dimensions

Denmark and Guatemala are almost totally the opposite. A big challenge for development aid and B2B. Attitude of managers.

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Cultural groups in Guatemala

… it is not just a clean cut Denmark–Guatemala difference. It is multidimensional:

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The “top manager” in the front

At the opening of the "Forum for alliance between the public and the private sector for development of competitive power". Source: Prensa Libre

President Àlvaro Colom of Guatemala sings the national hymn alone. Nobody else attended the meeting

  • n time at 9:00 AM!!
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The managers are key drivers

  • improve operations
  • honour end user
  • train employees
  • business culture
  • be change agent
  • get beaten, and get on
  • use strategic partners
  • use strategic customers
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>>SUSTAINABILITY QUALITIES >>

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Sustainable business

Distribu- tors Produ- cer

Products Services

€

Market

Payment from the market

  • 1. Economic

Users Suppliers

  • 2. Social

Natural and agricultural area, work space Natural and agricultural area, work space

  • 3. Environmental
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Sustainability, different concepts

Goal oriented (more or less the same, i.e. economy, environment, social):

  • Sustainable = 3 x sustainable (often only “environmental”, when used alone)
  • Eco-business (not “ecological”, but 3 x sustainable)
  • 3B: 3 x bottom line
  • 3xP: People - Planet - Profit

My own rough summary Means oriented (how to get there):

  • CSR, Corporate Social Responsibility, from the big/rich to the small/poor
  • CSI = Corporate Social Innovation (CSR focused on innovation)
  • Inclusive Business, including poor business in value chains or clusters

(as supplier, distributor or customer with big corporations)

  • BOP = Base of the Pyramid, market at the bottom of the global economy
  • BoP, Bottom of the Pyramid, from the small/poor producers and up and out
  • BoP 2.0: Bottom of the Pyramid involving the resource base in developing countries
  • M4P = Making Markets Work for the Poor
  • B2B = Business to Business, Danida
  • Fair trade
  • Solidarity economy
  • 3B-crea: 3 Bottom line including Creativity (out of the box thinking)
  • 3B-innovation: 3 Bottom line including Innovation (Innovation = Creativity + Implementation)
  • People-centred innovation, employee-driven, user-driven
  • Cradle-to-cradle (environmental)
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“Time window” as a quality

We need the Guatemala cabbage in week 24. If not, forget it! In week 25 we get the next load from Honduras. Super market in El Salvador

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Tracking: “Where is it?”

When will my load be here?? I am happy that my value chain includes a reliable transporter It is here, now You will have it tomorrow at 3 PM

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Tracing: “Where does it come from?”

Farmer 132 Farmer 739 Batch 32 Batch 14

I am happy that we have this registration system. But it takes a lot of work!

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FSC certified wood

COATLAHL in Honduras sells FSC* products to COOP in Denmark. COATLAHL is supported by the Danish NGO Nepenthes:

  • sustainable forest production
  • quality carpentry work in their own workshop

FSC*: Forest Stewardship Council, certification of wood.

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Ethical qualities

Fair Trade Organic Child labour Democracy

i.e. consider the interests of other people or living things (apprx :-)

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Global Compact, a UN tool for business

Source: http://www.unglobalcompact.org/aboutthegc/thetenprinciples/index.html

Human Rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses.

Labour

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

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Definition of eco-business

Structure

  • Planes
  • Rules
  • ...

Actors

  • Training
  • Composition
  • …

Technology

  • Process
  • Machinery
  • ....

Mission

  • Product
  • Market segm.
  • ....

Organization

The “eco-quality” can show itself in several areas

Eco-dimensions*

Goal = 3 x sustainable

Environmental Social Economical

Business

Commercial production and sales

  • f a product or service

€

Eco-business

€ +

+ +

*Eco here does not imply “ecological” in a narrow sense like organic. It is rather “eco” in the sense of a balanced system, expected to be sustainable in the future. This is a model for handling the complex discussion

  • f “eco-business”
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More or Less “Eco”

Eco-business

€÷

+

+

Non Little Some Much Very much

Eco-business

€ +

+

+

Eco-business

€ +

+

+

Acceptable Environmental Social Economical Structure Actors Technology Mission

Multi-dimensional ==> No simple or objective way to estimate degree of ”eco”

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Balanced sustainability

Eco-business

€+

+

+

Environmental Social Economical

Each case - and manager - determines the trade offs

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>> FREE CHOICE THEMES >> Choose between .....

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>> DEVELOPMENT MODELS >>

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Development project

“A Business” is not “A Project”

Future situation 2008 2009 2010 2011 Actual situation

The operational business Never call the operational business a “project”! To the business wo/man, it is the essential living organization. Projects are of limited scope (time and activity), and are the “business” of development consultants.

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Deep change, many people ...

Acquaintance

  • repeat
  • thing or routine

Knowledge understand,use intellectual Attitude accept, belief psychological Behaviour do, incorporate culture

Cross organisat.

  • Organ <-> Organ

Organisation

  • Group <-> Group

Gruppe

  • Individ<->Individ

Individual Superficial Deep Few Many

No cell is ”the correct cell”. It depends on +/- in each case

Seminar Seminar Personnel exchange Personnel exchange Learning on the job Learning on the job Course Course Examples of change strategies based on change of personnel competencies Integration in value chain Integration in value chain

Change depth Number of people

Training Training

M

  • r

e c

  • m

p r e h e n s i v e , m e r e c

  • m

p l e x L

  • n

g e r t i m e , m

  • r

e r e s

  • u

r c e s , h i g h e r r i s k B i g g e r p

  • t

e n t i a l e f f e c t ! ! This rule is true in all countries

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Thoughts about change

Nobody likes change, even to the better Søren Kirkegaard (Danish philosopher) We had such a calm and cosy time Rather skilled in a bad system, than beginner in a good system One could fear that .... And me, I had just conquered the real power It is probably just some nonsense, like the last time

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Conflict is necessary

Organizational performance Conflict level Low Low High High Optimal conflict level Try to avoid all conflict, and you get low performance

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Conflict types

Conflict of interest

  • Different wishes and needs
  • Whose demand comes first?
  • Negotiate and compromise

Conflict of understanding

  • Different understanding and perception
  • What is right and ok?
  • Be together and talk about it

Conflict of power

  • Different influence and will
  • Who will decide?
  • Fight or be put in place

Conflict of values and attitudes

  • Different attitudes to quality, work time, honour,..,
  • What should we prioritize?
  • Be together, and agree on rules of game
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Conflicts and managers

Managers must:

  • foresee conflicts
  • plan appropriate level
  • mediate
  • mitigate
  • find solutions
  • .....
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Agro-business model

Strategy :

  • push/integral strategy
  • product and process
  • management and investment

Risk, assumption, complexity:

  • market demand is there
  • bottleneck is volume and quality
  • clear focus, one business

FUNDER (4b)

  • 3-phase model, 4-8 years
  • savings programme
  • directly involved
  • 1. Agro-business

Development Model, Danida in Central America, Premaca-programme

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Business chain model

Strategy:

  • pull/integral strategy
  • specific client demand
  • technical assistance
  • 2. Business chain

Risk, assumption, complexity:

  • bottleneck is market demand
  • credit is available
  • motivation comes from demand

AGEXPORT (4a)

  • 2 year model
  • not start from bottom
  • administer developm.aid

Development Model, Danida in Central America, Premaca-programme

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Business cluster model

Strategy:

  • integral, bottleneck strategy
  • multi-sector synergy
  • private - public

Risk, assumption, complexity:

  • regional closeness motivates
  • complex strategy
  • sub-optimizing is not enough

FIDE (4b)

  • Long time horizon
  • not start from bottom
  • mediate and inspire
  • 3. Business cluster

€ §

Development Model, Danida in Central America, Premaca-programme

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Why value chain?

Some advantages of value chains:

  • Gets change going now
  • Promises a “better life”, “something better”
  • Opens up to the free market
  • Facilitates access to rich markets for poor producers
  • Motivates managers
  • Gives jobs to people
  • Good learning process
  • …..

Some advantages of value chains:

  • Gets change going now
  • Promises a “better life”, “something better”
  • Opens up to the free market
  • Facilitates access to rich markets for poor producers
  • Motivates managers
  • Gives jobs to people
  • Good learning process
  • …..
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Choosing the right chain model

Chain models focus on “commercial relations”, alternatively to “technology”, “credit”, “education”, “environmental conscience” or other elements. The choice of chain model is essential:

  • Defines the methodology of the development program
  • Implies more or less complexity
  • Influences motivation
  • Demands corresponding models for governance, facilitation and criteria
  • Defines need for alliances
  • etc

It is very important to be explicit and professional when choosing model. You focus on the elements you have chosen, and hope for the rest to work out.

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Some other chain models

Integral development:

  • families
  • schools, housing
  • health
  • .......

Strategy :

  • self supply -> market profit
  • differentiation
  • bottom-up innovation

Risk, assumption, complexity:

  • limited risk, expensive
  • tradition is the bottleneck
  • local, small step, family scale

NGO & Government

  • traditional model
  • livelihood
  • Micro-agriculture

Inclusive Business

  • win-win possibility
  • business relation
  • the rich involves the poor
  • in a “good” way

As supplier or customer Lead comp.

Organization development:

  • capacity and conscience training
  • social
  • .....

They can be used:

  • in combination
  • one after the other
  • as sub-models
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Different private sector approaches

Business chain complexity:

  • Value chains
  • Clusters
  • Business to Business B2B (bilateral

partners with Danish lead firm)

  • …..

Commercial politics:

  • Import / export restrictions and quota
  • Standards (food security, environment,

work conditions, ….)

  • Fair trade movement
  • WTO, EU agriculture, …..

Functional areas:

  • Technology transfer
  • Cleaner production
  • Marketing (ex: CBI, Centre for Promotion of

Imports from developing countries, agency)

  • f the Netherland Government.
  • Training

Business environment:

  • Legislation
  • Schools
  • Credit facilities (micro or trad. bank)
  • Public services
  • Leader training
  • Professional consultants

Micro or macro

  • Individual businesses
  • Selected sectors (Agriculture, Tourism)
  • Geographic communities
  • National countries
  • Multinational regions
  • Global context

Supplementary criteria for development aid:

  • Environmental
  • Social
  • Self supply, equality, growth
  • Human rights

Primary focus. You focus here - and hope for the rest to work out

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>> Questions and comments >>

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>> Final remarks >>

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Local business culture

Poor peoples’ situation and background:

  • Lack of education (low human capital). A simple farmer cannot have
  • r easily acquire know-how for new products and processes
  • Difficult access to credit (low financial capital)
  • Simple technology (low physical capital)
  • Lack of trust in others (low social capital, civil war and colonization)
  • Environment full of bureaucracy
  • Environment influenced by criminality
  • Feudal and paternalistic culture

(reinforced by traditional Finca-, State- and Int’l Aid culture)

  • Family size business even though not efficient (high transaction costs)
  • Short sighted and risk averse
  • >>Life is difficult for the small business wo/man

… in Guatemala and Honduras, and Africa?

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Two opposite help style

Paternalist style Peer-to-peer style

TA*: Parent <-> Child TA*: Adult <-> Adult "We like docile partners !" "We like independent partners !" "We know best !" "We all have valuable knowledge !" "Do this !" "Considere this !" "Understand it now !" "Learn by doing !" "Copy my model !" "Take inpiration from these models !" "We love you !" "We respect you !" "We will save you !" "You must save yourself !"

TA*: Transaction Analysis, communication Parent – Child – Adult Both styles have their pro’s and con’s, Peer-to-peer style goes best with independent, entrepreneur type business people

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Guatemalan Mayans at an International food fair

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Clients Supplier Producer

CSR and Inclusive business: Shrimps

Production of shrimp larvae “Driver” from Mayasal Production of shrimp in family based ponds Artisanal cooking Sales from family Sales directly to restaurants Sales via Mayasal’s channels

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Business brands from Guatemala