Embed Size (px)
Citation preview
© Palladium 2016
07 March 2016
Failures in Southeast Asia SME agribusiness systems:
Can we catalyse sustainable change?
© Palladium 2016
Introduction
2
CSIRO
© Palladium 2016
Context
Key findings from research on inclusive agribusiness & impact investing in Southeast Asia
System failures
Opportunities
Our Analysis
Innovation in small and medium (SME) agribusiness in Southeast Asia.
Impact investment and SME agribusiness market systems.
Scoping a possible solution to system failures.
Objectives of Today
Exploring (and hopefully debating) what solutions could look like.
3
CSIRO, 2016
What will we be talking about today
© Palladium 2016
The role of SME agribusinesses in catalysing innovation
4
CSIRO, 2016
© Palladium 2016
“Innovation in the business context refers to the actions and capability to create a new
product, process, or business concept (for example inclusiveness), or combinations and
activate these in the marketplace and produce new profits and growth for the
organisation.”
This may involve the application of technology (old and new) but it is the embedding of
this in a business model that creates value:
This is not a one-off event, but a continuous process of process of upgrading
(sometimes incrementally and sometimes radically).
Continuous innovation allows companies to compete with others in the same market,
to expand market share, and in some cases to create entirely new markets for
products and services.
5
Why business led innovation is important for economic growth
CSIRO, 2016
© Palladium 2016 6
Why SMEs are important for catalysing and sustaining continuous innovation
The small and medium enterprise (SME) sector plays a special role in economies around the world.
SME innovation is a key source of economic growth. Unlike large corporations, SMEs have the
independence and flexibility to explore new opportunities, create novel products and services, and
respond quickly to emerging consumers demands, societal changes and policy shifts.
They create new economic and social welfare opportunities. This is not to say that large companies don’t
innovate, they do obviously, but in different ways - They can also use SME’s as sources of innovation
through partnership and acquisition.
The importance of SMEs is that their innovation can be disruptive of existing markets and can turn into large
companies through innovation.
CSIRO, 2016
© Palladium 2016
40 case studies of agri-companies, examining how and why companies are
shifting towards inclusive business practices.
7 regionally based research teams.
IPSARD, Can Tor Uni, Bogor Uni, Business Innovation Center, PBSP,
ASEI, AIT
A number distinctive pathways to arrive at inclusive business.
Lens to help think about practice, scaling and options for public, private and
donor investment?
7
Research on Inclusive Agribusiness in Southeast Asia
CSIRO, 2016
© Palladium 2016
Piloting inclusive schemes within existing business models.
Adapting existing business models to adopt inclusive elements.
Transforming existing business models.
SMEs pioneering entirely new inclusive businesses and models.
Pioneering new era social enterprises.
Upgrading traditional social enterprises.
Traditional community-embedded SMEs.
8
Models of inclusive SME agribusiness operating in Southeast Asia
CSIRO, 2016
© Palladium 2016
#1. Companies becoming more inclusive
#2. Inclusive Pioneers
Distinct innovation pathways for SMEs to achieve inclusive agribusiness at scale
Players
• Global
• NABC
Players
• Pioneering SMEs
• Social entrepreneurs
• Entrepreneurial
scientists
Pathways
• Piloting
• Adapting
• Transforming
Pathways
• Incubation.
• Pre-competitive development
• Trailblazing SME
• Market disruption
Scaling Possibilities
• Good practice emerging
• Narrow set of approaches /
commodities, wide reach
Scaling possibilities
• Helping the continuous
development of new practice.
• Individually small reach, but
collectively large, diversity of
commodities, products & service.
Public, private and donors priorities
• Pioneer financing
• Innovation support services
• Science and technology
• Alliance with big value chain players
• Innovation systems failures
• Knowledge gaps
• Metrics of scope and potential
Public, Private & Donor priorities
• Alignment of private and policy goals
• Knowledge gaps
• Social and economic effectiveness
CSIRO, 2016
© Palladium 2016
Case studies reveal a range of systems failures with important country-to-country differences:
Under-developed interface between public and private sector and lack of clarity about roles,
responsibilities and priorities and vision;
Weaknesses in provision: infrastructure and transport, research and education; financing; and
the business operating environment;
Lack of policy coherence in ministerial portfolios that relate to agri-business but which extend
beyond agriculture;
The challenge of accommodating the diversity of innovation support needs of a heterogeneous
SME sector.
10
SMEs could be a major source of innovation that could drive the spread of inclusive business practice
CSIRO, 2016
© Palladium 2016
SME agribusiness finance and the impact investment market
11
CSIRO, 2016
© Palladium 2016
Most Southeast Asian SME agribusinesses are
‘early stage’ companies:
Still refining/ testing business models;
Low scalability;
High transaction costs;
Often require additional support to become
investment ready.
Most investors require 12% - 25% IRR, and SME
agribusiness returns are ~3 – 4 %.
Despite agriculture’s importance, very little private investment is occurring in the sector
12
- Investors face a wide array of constraints when attempting to capitalize SME agribusinesses
Stage Definition Investment
Capital
Required
Seed The initial or start stage of a business whereby the
company has yet to test its business model in the
market.
$0 -
$250,000
USD
Early The early stage of a business that includes testing the
company’s business model then growing the
company’s revenues.
$250,000 -
$3m USD
Expansion Later stage of a business that includes expanding a
tested business model and management team into
new markets.
$3m - $100m
USD
Late Mature stage of a business whereby capital from the
capital markets or a range of direct investors is used
to provide the founders with an exit or the capital, to
recapitalise the firm, or grow inorganically through
acquisition, etc.
$100m+
USD
CSIRO, 2016
© Palladium 2016
Limited deal sourcing tactics makes finding investable, or near investable, agribusinesses
difficult.
Most fund managers are located abroad with only 1 local staff dedicated to sourcing deals.
A systemic lack of information increases investment uncertainty and risk:
The investee holds better information about the business’ future performance and risks;
Due to poor audit, legal and governance functions, businesses are frequently able to overstate
performance and understate the risk, which increases the investor costs related to due diligence
and information gathering.
Information asymmetries make it difficult to identify potential investees
13
- This is particularly acute for early-stage investment
CSIRO, 2016
© Palladium 2016
Early stage investment gap for SE Asian SME
agribusinesses: $250,000 - $3 m:
< $250,000 from donor projects;
>$3m from foreign and local private investors.
The consequences of this investment gap:
Prevents businesses from investing in their
capability.
Restricts growth of individual firms and
broader market.
Creates a ‘Catch-22.
These investor constraints create a commercial incentive to focus on larger, safer deals
14
- Creating an ‘investment gap’ for early stage SME agribusinesses
Impact Investor Sweet Spot
Mercy Corps <$250,000
LGTVP $250,000 - $1 million
Accion: Venture Fund <$500,000
Grassroots Business Fund $1 million
Incofin $1-$2 million
Credit Agricole $1-$2 million
ResponsAbility $1-$2 million
Accion: Frontier Fund <$3 million
Unitus $3-4 million
Bridge Capital $1 – $10 million
CSIRO, 2016
© Palladium 2016
What c/should an Innovation Facility look like?
15
CSIRO, 2016
© Palladium 2016
Investment: providing missing pioneer investment in inclusive business.
Analysis: at the business and market systems level to identify opportunities; at the systems level to
identify critical leverage points in markets and wider systems.
Communication and Networks: Strengthening the connectivity of existing networks and platforms
that help build trust and collaboration between business, policy, research and civil society
Learning: Strengthen lesson learning at the interventions level and at the policy level through
analysis, evaluation and reflection.
Brokering: Business deals, new collaborations, accessing wider expertise
Trouble shooting and mentoring: Providing tailor made support to firm level interventions, and
collaborative support platforms and policy process
Support Facility Functions
16
CSIRO, 2016
© Palladium 2016 17
Investments
in individual
businesses
Access to direct
provision of business
support & research
services
Deals brokered
between market &
research actors
Capacity
strengthened
of local service
providers
Networks built
across local
ecosystem
Strengthen and
support existing
platforms &
networks
Policy
learning
FIRM LEVEL SYSTEM LEVEL
Market System
ProgramsChallenge Funds
The Innovation Support
Facility
National and Regional
Platforms
The business community
Policy process
How it could work?
CSIRO, 2016
© Palladium 2016
A Facility would respond to individual market failures in addition to larger system
failure.
Failures should not be addressed independently.
A Facility should be designed as an engine that drives short term and long term
activities.
There should be both a short term and long term strategy to realise this.
18
Conclusion
CSIRO, 2016
© Palladium 2016
Food Systems Innovation (FSI) website
http://foodsystemsinnovation.org.au/type/thought-provokers
http://foodsystemsinnovation.org.au/event/inclusive-asia-south-east-asia-inclusive-agribusiness-roundtable
or
Contact: Andy Hall or Jennifer Kelly at CSIRO
Palladium’s website
http://thepalladiumgroup.com/
Contact: Alwyn Chilver or Virginia Schippers at Palladium
http://thepalladiumgroup.com/ [email protected]
19
More information
CSIRO, 2016
© Palladium 2016 20
CSIRO, 2016
