NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

We blog frequently on this site about the importance of large multi-nationals finding ways to tap into BoP markets. This often comes in the form of discussions on reaching the BoP directly as consumers (ie projects like the OLPC or microcredit initiatives).

But what about small and medium enterprises as BoP intermediaries? Those of us who support these enterprises in our work are familiar with the list of benefits often attributed to SMEs – they raise employment, they are correlated with a reduction in income inequality, they reduce the size of the informal economy…. – but what about SMEs as middlemen for engagements between large corporations and the BoP?The WBCSD explores exactly this topic in a recently published informal survey of some of its member companies and SMEs in their supply chains. According to WBCSD, SMEs “usually have extensive local knowledge of resources, supply patterns and purchasing trends.”

Their competitive advantage is an ability to quickly and efficiently innovate new technologies and services that meet the specific needs of BoP markets in different regions. New Ventures enterprise Big Tree Farms is an example of this in reverse, where they are offering Whole Foods value as a partner by supplying exclusive access to authentic Indonesian foods. In other words, SMEs are a perfect channel for MNCs based in Europe and the US to intelligently connect with new markets and producers in emerging economies.

The results of the survey indicate that many companies already understand this – with 44% saying at least half their suppliers worldwide are SMEs. Still, as with any business relationship, particularly across regions and populations with differing resources and business practices, these engagements are never perfect.

The survey gets into some of the challenges in these supply chain partnerships – corporations report having experienced inconsistent quality from SME partners in the past (74%) and inexperience working with large companies (43%). SMEs on the other hand, complain that a “lack of trust” and “too much bureaucracy” can sometimes make these relationships more beneficial for MNCs than their entrepreneurial partners.

The survey and accompanying report offer recommendations for MNCs to improve these relationships – such as facilitating access to finance and working with government and NGO partners to build technical capacity for SMEs. In all, a great preliminary foray into an understudied topic – kudos to the WBCSD for exploring these important MNC-SME relationships!