Spotlight

What
Can We Do To Help Industries Scale?
What Can We Do To Help Industries Scale?

What Can We Do To Help Industries Scale?

April 19, 2014

By Paula Goldman, Senior Director and Matt Bannick, Managing Partner, Omidyar Network

At Omidyar Network, we are deeply inspired by entrepreneurs innovating to better serve disadvantaged populations in emerging markets. From solar lighting to mobile money to affordable high-quality education, the size of these markets - and therefore the opportunity for positive impact - is enormous. As investors, however, we have become acutely aware of the barriers facing entrepreneurs in such difficult environments, including weak distribution channels, regulatory challenges, and difficulties in finding skilled talent.  Oftentimes, these obstacles are too onerous for any individual firm to solve on its own, suggesting the need for independent efforts that can benefit all firms in a given sector.

In Priming the Pump, we laid out both the case for taking a sector-based approach, and the lessons from nearly a decade of experience at Omidyar Network of pursuing such an approach. But a number of unresolved questions remained, in particular around different ways in which sector-based approaches can be executed, and we have been eager to learn more systematically from peers engaged in similar efforts. So when the Monitor Inclusive Markets team approached us to propose a comprehensive look at the topic, we were delighted to come on board as the lead supporter. 

The result, Beyond the Pioneer, has lived up to our expectations. It was no small task to look across continents, sectors, and decades of history to isolate relevant lessons for those wishing to accelerate market development to serve lower income segments. The report’s rich case studies detail lesser-known chapters of development history, from the spread of mobile money in Tanzania after initially slow market development, to the successful development of the smallholder tea sector in Kenya, to the rise of low-income housing and housing finance in India. These and many other examples confirm that it is not only possible to accelerate market development that benefits lower income segments, but that it has been accomplished in diverse circumstances, and with varying degrees of speed and success. Like its precursor, From Blueprint to Scale: The Case for Philanthropy in Impact Investing, Beyond the Pioneer significantly advances our thinking on what works - and what does not – particularly when applying a sector-based approach to building markets. 

In particular, this report digs in and tries to isolate those variables that facilitate - or hinder – scale.  When it comes to market-based solutions, scale is the object of the game; yet it remains elusive.  The same team of authors laid this out starkly in Promise and Progress: Market Based Solutions to Poverty in Africa when it quantified that - of the 400 firms in Africa in 2011 that were identified to be delivering critical goods and services to the base of the pyramid - only 13 percent of them had reached any significant level of scale.[1]

Beyond the Pioneer enumerates the barriers to scale that hinder, not just the firm, but the entire ecosystem, including the value chain, public goods and the regulatory and policy environment. 

Beyond the Pioneer Blog Graphic

Photo caption: To systematically tackle these barriers, this report examines and lays out the case for one of the most commonly used approaches, that of the industry facilitator

These industry facilitators act to resolve scaling barriers at the levels of both the enterprise and its wider business ecosystem to the benefit of many firms, not just one. For instance, they may provide financial resources, build capacity, seed new entities, generate knowledge, train producers, educate consumers, broker partnerships, advocate with public policymakers, or even create organizations or institutions that support market development. Importantly, they can also address key obstacles that individual firms cannot, or will not, take on individually due to competitive or other factors.

So, who - or what - should assume the responsibility of an industry facilitator? Given this diversity of activity, it is easier to think of industry facilitation as a role rather than as a particular type of actor. In fact, a variety of organizations can step in – and out of – this role, depending on the time and place, including foundations, donor agencies, development banks, investors, industry associations and even consultancies.

Industry facilitators must look at the entire sector, not just a single firm, because it is the sector as a whole that can ultimately yield the most socially beneficial goods and services to consumers at the scale that is needed. It is the difference, say, between a couple hundred thousand solar lanterns vs. hundred of millions of solar lanterns. In a similar vein, last year, CGAP produced a cogent analysis of exactly how industry facilitators can engage on the market that is providing financial services to the poor. In its Focus Note Facilitating Market Development to Advance Financial Inclusion (Oct-2013), the authors identified:

For facilitation to be effective, it requires independent facilitator(s) that can use light-touch interventions (e.g., research) to catalyze market action. Market development occurs through a variety of inter-related ways: by encouraging change in behavior through capacity building; by helping market actors to take more informed decisions through access to better and timely information; and by incentivizing innovation through better-informed risk assessment and creation of a favorable enabling environment.

For our own part, we plan to enter our second decade as an organization evaluating exactly how we can become more effective at sector-building and industry facilitation, and how we might support those who act as industry facilitators.  As with all seminal reports like this one, Beyond the Pioneer adds important insights from past examples, but equally points towards at least two important future questions for further exploration:

1) It suggests a future agenda to determine for which kinds of sectors such facilitation is best, and, conversely, where it may be less applicable; and,

2) It invites an examination of other ways -- besides facilitation -- to accelerate market development.  For instance, we will be keen to see future research that explores demand-side levers of market development, like vouchers or advance market commitments. 

But in all cases, irrespective of the approach taken, time is short, resources are finite, and we have a lot of work to do.  We have to speed up the scaling process somehow because market-based solutions – when they work - represent the most effective, sustainable and consumer-responsive way to fill the need for critical goods and services that low-income consumers use everyday: like appropriate financial services, affordable housing, and quality education. 

Beyond the Pioneer is an important new analysis in the service of our quest to reach social impact at scale.  Appropriately, it does not offer silver bullets or easy answers. It does, however, offer insightful ways to examine the successes and failures of those who have pioneered this approach to market-led development so that we can all refine our approach and enhance our effectiveness.  We look forward to further dialogue – and, more importantly, action – in partnership with our network and peers on how collectively we can appropriately and effectively apply this critical facilitation approach in the service of providing opportunity for all.

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