Inclusive Agribusiness: Fighting poverty, hunger and Malnutrition
PROSPERA develops innovative ways to bring together farmers, logistics providers, retailers, universities & investors to help MSMEs grow and become sustainable sources of employment. By improving materials sourcing, marketing, distribution & incorporating mobile technologies to the day-to-day work of MSMEs, PROSPERA democratizes supply chain mgmt solutions & provides positive and collective action
About You
About You
First Name
Gabriela
Last Name
Enrique
Website
Your Organization
Country
Mexico
About Your Organization
Organization Name
PROSPERA
Organization Website
Organization Phone
+52-33-1368-6777
Organization Address
Rio Sayula 1710
Organization Country
Mexico
Organization Type
Private Institution
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Your solution
Name Your solution
Inclusive Agribusiness: Fighting poverty, hunger and Malnutrition
Describe Your Solution
PROSPERA develops innovative ways to bring together farmers, logistics providers, retailers, universities & investors to help MSMEs grow and become sustainable sources of employment. By improving materials sourcing, marketing, distribution & incorporating mobile technologies to the day-to-day work of MSMEs, PROSPERA democratizes supply chain mgmt solutions & provides positive and collective action
Country your work focuses on
Mexico
If multiple countries, please list them here. If your solution targets an entire region, please select it below
Mexico, Peru, Colombia, Brazil
Region(s) your solution focuses on:
Latin America and the Caribbean.
Range of turnover in your target firms, in USD
Less than $1 Million.
Average turnover in USD of your target firm
700,000 USD
Number of employees in your target firms
5-24.
Average number of employees of your target firm
12
Specify the size, average and range of expected loans or investments in each target firm
50,000 USD
What stage is your solution in?
Operating for 1‐5 years
Innovation
What makes your innovative solution unique?
In general, SMEs in Latin America are underrepresented, were less formal micro and very small enterprises with fewer growth options predominate. However, there are many MSMEs in high growth industries that have the potential to become profitable and grow if they are provided with the right tools and opportunities. PROSPERA works with MSMEs in the food industry given the increasing demand of packaged food products, the need of local solutions to alleviate the food crisis and the presence of a highly fragmented food industry, where MSMEs supply most of the local food markets.
PROSPERA works on the demand side of financial access, offering services to MSMEs to increase their productivity, their access to markets and their capacity to produce accurate financial records to increase their growth potential. First, PROSPERA trains SMEs on how to measure their productivity and determine their costs drivers. Second, PROSPERA helps MSMEs find savings opportunities to increase their productivity and find more profitable sales channels. Third, PROSPERA´s advisors work with MSMEs to develop monthly development plans and follow up with them to evaluate what goals were achieved, where are the challenges and why. Finally, PROSPERA links MSMEs to formal credit opportunities. Through PROSPERA´s intervention, MSMEs have a vehicle to gain access to markets in a growing industry, an opportunity to develop local solutions for the global food crisis while developing while tracking, in a systematic way, accurate financial information of productive SMEs.
PROSPERA is developing an instrument to finance, in partnership with local banks and MFIs, MSMEs to gain access to affordable supplies, machinery and product development activities.
How does your proposed innovation leverage public intervention in catalyzing private SME finance?
Prospera is an end-to-end service provider that 1) reduces the complexity of MSMEs operations, 2) drives lower costs and 3) increases revenues and productivity for MSMEs via aggregation throughout the value chain. Key Executional Pieces: The following are highlights from Prospera’s execution plan. Items that are in-progress or have already been completed are noted in italics, with further detail in the footnotes.
A. Raw materials sourcing:
1. Identify (via interviews conducted by partner universities and local government) the raw materials commonly purchased by MSMEs, including periodic demand. In-progress
2. Find manufacturer with the lowest cost at comparable quality and reasonable minimum order quantities. In-progress
3. Purchase from supplier on net-45 or net-60 day terms and deliver to customers COD.
B. Transportation:
1. Contract with 3rd-party logistics provider to secure warehouse space for raw materials and customer product, and delivery from manufacturers to customers and from customers to retailers. Completed
2. Develop rate card detailing point-to-point and warehousing charges.
C. Merchandising:
1. Hire experienced merchandisers from large retail.
2. Send merchandisers to retailers to sell to buyers.
D. Retail sales: Secure commitment from retail partners to source from Prospera in support of their CSR strategy, and as a way to reduce the number of vendors each buyer has to interface with. (Note: This will accelerate sales but is not a requirement.)
E. Seasonal sales: Position Prospera as a vehicle for local and federal government officials to direct funds into local communities via seasonal/holiday gift baskets for events like Christmas and Mexican Independence Day. Prospera also acts as an agent that aggregates a selection of products into one bundle for the government.
As a result of the 2008 economic downturn, MSMEs are flourishing in Latin America as an increasing number of people are being laid off from large corporations and are setting up small businesses. It is difficult to assess the growth rate of this sector as a whole, given that many MSMEs work in the informal sector. Nevertheless, official statistics reported that by the end of 2008, new businesses' growth rate increased by 12% in Mexico only. By the end of 2008, there were 535,000 new small businesses operating formally in Mexico. The Federal Economic Development Agency expects this number to increase by 18% in 2009. Today, there are 17.3 million people working for MSMEs: 40% of them are in the food industry.
Even though the Mexican manufacturing industry has not been immune from the effects of the economic downturn, certain sectors have been more resilient than others. Food manufacturing grew 12% in 2009 coming off of 15% average growth from 2003 to 2007. Current economic conditions present an opportunity for Mexican manufacturing to leapfrog global competition, and with MSMEs representing 95% of the industry (with $16Bn in revenues), there is a sizeable market for discounted aggregate purchases and basic small-business consulting. With 40% of all manufacturing MSMEs, food is the largest segment.
What barriers does your proposed solution address?
High transaction costs for financial intermediaries to serve SMEs, General barriers to SME development related to investment climate.
If you checked any of these barriers, describe how your solution addresses them
There are approximately 60,000 MSMEs in Jalisco (Mexico) with average annual revenues of $700,000 USD that employ an average of 15 people. These MSMEs struggle to manage suppliers and customers (retailers) because companies are spread out over a large geographical area, and as a result MSMEs pay large premiums to local agents for raw materials and incur high transportation costs to market and delivery of product to retailers.
Prospera reduces the complexity of operations and drives lower costs and higher revenues for these MSMEs by aggregating activities throughout the value chain, primarily in procurement and distribution. With raw materials representing 50% of revenues on average and local agents charging a 60% markup on inputs, the market in Jalisco is worth approximately $360MM in purchase aggregation alone. Our immediate goal is to become the most trusted partner of MSMEs in the Jalisco region, the fastest growing region in terms of MSMEs and entrepreneurship in Mexico.
The incumbents that serve MSMEs offer limited products and services while being geographically constrained by their traditional retailer stores. In addition, most of the service providers in the region focus on one aspect of MSMEs´ needs and disregard the overall variables that have an impact on the overall business productivity and potential to grow. For instance, local incubators focus more on helping MSMEs fulfill government requirements than on providing them with tools to better understand how markets work and what consumers need. Financial service providers are often backed up by the government and tend to assign credits on the basis of positions filled than on the basis of scalability or profitability of the business. Many MSMEs PROSPERA works with, have taken loans to start their businesses and struggle repaying it since the loan was spent in unprofitable activities. Business associations focus on helping their members run traditional sampling promotions of products that, often times are identical or have not been updated for years. Finally, raw material providers will offer MSMEs the supplies they ask for but will not advice them in terms of costs, functionality or appeal to the target customer.
Prospera’s advantages are two-fold:
a Ability to generate qualified leads among MSMEs by 1) reaching them at: trade fairs, retail loading docks, and through institutional partnerships 2) developing a referral program that fundamentally changes MSMEs incentives and encourages them to refer other clients in order to get the discount Prospera offers.
b Streamlining the supply chain and leverage SMS technologies and web-based SCM solutions to run Prospera’s operations in a cost-effective manner.
Impact
Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact
Prospera has been working with MSMEs in Mexico for the last 26 months. During the pilot phase in the state of Zacatecas, Prospera conducted in depth interviews with 180 food manufacturing MSMEs (8% of the market in Zacatecas) to gain a firsthand understanding of the dynamics of MSMEs, their incentives, motivations, best practices and challenges. We focused on the challenges shared by most MSMEs to find a comprehensive and effective solution to increase their productivity, help them develop more effective go to market strategies and foster their growth.
Our customer discovery process also revealed that intermediaries between the manufacturers and MSMEs typically have local monopolies where they charge 60% above wholesale prices because MSMEs either have no relationships with manufacturers or cannot meet minimum order quantities.
During the pilot phase, Prospera worked with food MSMEs and was able to provide packaging inputs that were 40% cheaper simply by sourcing from a lower-cost provider (without a volume discount), inclusive of transportation costs. Further conversations with manufacturers revealed that the minimum order quantities could be met easily by the demand from a handful of MSMEs. The price differential between suppliers is a clear evidence of the asymmetries of information and lack of bargaining power.
Secondarily, Prospera is leveraging its consulting services to engage MSMEs with the company and offer, as a second step, its sourcing services. Most MSMEs are run by individuals with little to no formal business training, but who in interviews have signaled a strong desire to have business students and professionals work with them to examine their businesses, find alternatives to increase their margins and help them develop more attractive products. A number of non-profit organizations provide very specific classes to address some of these knowledge gaps, but their scope is often limited and rarely approach MSMEs as clients but rather as students.
Today, PROSPERA is working with 300 MSMEs in the states of Zacatecas, Jalisco and Colima and is able to create cost efficiencies of 15% on average. Further aggregation will allow us to pass more savings to MSMEs due to economies of scale.
How many firms do you expect to reach?
In the next five years, we expect to be serving 2,000 MSMEs by increasing our headcount and leveraging the use of technology (Internet and SMS) to serve MSMEs in remote areas at affordable prices.
What is the volume of private SME finance you aim to catalyze?
Over the next 5-7 years and in partnership with local financial institutions, PROSPERA will catalyze 15 million USD to 300 MSMEs that have demonstrated commitment with innovation, product development, customer focus, and robust financial record keeping.
What time frame will be required to reach these targets?
5-7 years.
Does your solution seek to have an impact on public policy?
Yes
What would prevent your solution from being a success?
Prospera’s mission is to fundamentally transform the way MSMEs do business in Latin America, starting with Mexico. Through Prospera´s network, entrepreneurs have a platform to engage with other sectors of society and a voice their challenges and needs.
Our long term vision: In 10-years Prospera will be working with MSMEs all around Mexico and will expand its model to Latina America. The region will become a thriving exporter of innovative, low cost food products and people all around the world go to Mexico to learn from MSMEs’ best practices.
For MSMEs to be effectively served, the following assumptions must hold: 1) They must have an incentive to share the discounts Prospera is able to offer. 2) They must be willing to change the way they currently operate. 3) They must be willing to use mobile technologies (SMS) as a way to further interact with Prospera and refer its fellow entrepreneurs. 4) They must be willing to share lessons learned among their peers and their challenges among different stakeholders (e.g. governments, universities, suppliers). 5) They must have the capacity to expand their businesses.
This Entry is about (Issues)
Describe the social impact of your innovation. Please include both numbers and stories as evidence of this impact
Our key social impact indicators are the following:
1. Savings for entrepreneurs at the Bottom of the Pyramid to increase their margins and household incomes.
2. Number of jobs created in low-income zip-codes: Our goal is to rebuild trust among entrepreneurs while supporting them to scale their businesses and create new local jobs. We are assuming that entrepreneurs have the capacity to scale their businesses and hire every year 5 additional employees during the first two years of working with Prospera and 2 additional workers on subsequent years.
Savings in welfare costs: According to national statistics, the Mexican government spends, on average, $3,500 per person on welfare benefits annually. Given the inefficiencies of the Mexican welfare system, approximately 60% of these costs are spent in administration and government overhead costs.
Meet Margarita Rojas [Image can be found in attachments]. She is our target customer. She is 32 years old, a graduate of a technical school in Guadalajara with a degree in Marketing. She started a business with her family selling sauces and salad dressing following the secret recipe of her grandmother. Every two weeks, Margarita visits 14 different local suppliers to purchase all the material she needs to produce her sauces: spices, preservatives, glass jars, lids, containers, cardboard boxes, among others. On a weekly basis, Margarita visits 200 different retail stores to deliver her products and to ensure they are appropriately placed in the shelf space provided. Retailers pay her on net-45 and net-60 basis.
By working with PROSPERA, Margarita is now talking directly to her customers trying to receive their feedback while defining her value proposition to her target audience. Now, she is looking at her competitors to determine the prices of her products and meets every three weeks with her advisor at PROSPERA to go over her cost structure and her growth goals. Margarita has increased her sales by 40% and her unitary costs have decreased by 20%.
Sustainability
List all the funding sources that are required for the sustainability of this solution
1. International financing organizations
2. CSRs of corporate houses
3. Bilateral & Multilateral agencies
4· Individual donors
5· Revenue generated from the savings model itself
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
Prospera puts the trust of our customers above all else. To ensure that we earn and maintains this trust, the company is guided by the principles of customer obsession, frugality, innovation and a high hiring bar. In addition, Prospera´s partnerships with local governments universities and Micro Finance Institutions (MFIs), allows the venture to leverage partners´ reputation and track record working with MSMEs to gain credibility among customers.
Phase 1: Market entry
In interviews with MSMEs’ in Mexico, the challenges stated repeatedly are the high costs of getting in front of retailers (merchandising headcount) and physical distribution. Our solution is to serve as a distributor that employs 1) merchandisers to handle sales for multiple MSMEs and 2) a 3rd party logistics provider that receives product in a central location and delivers to the network of retailers throughout Mexico, where the scale driven by aggregation results in lower unit costs for our clients.
The distributor model reduces the number of vendors retailers’ have to interface with and improves the consistency of supply (Prospera holds buffer inventory and works with retailers to provide demand forecasts to the MSMEs), which are in turn the two obstacles retailers face in bringing on smaller suppliers.
The second most viable opportunity is aggregate sourcing, because 1) the incumbents’ prices are high, 2) the investment and associated risks are low and 3) the operation is relatively simple. For instance, Prospera buys the glass jars that are most commonly used by food producers and passes on a portion of the approximately 60% in savings versus the local reseller’s prices.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
By embedding MSMEs’ needs into our core business, we make sure we are constantly striving to provide real and tangible value to our clients. Prospera aims at unleashing the potential of MSMEs to find high performing MSMEs and encourage innovation among them. Through our partnerships with local non-profits and universities, Prospera builds capacity among MSMEs and its network members on how to incorporate lean processes to their day to day operations in addition to encourage other companies to focus their operations at the bottom of the pyramid.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
With success contingent on overcoming the trust barrier (currently addressed through local partnerships) and signing up a large number of MSMEs, Prospera has identified the following channels to drive adoption:
A. Identifying early adopters and highlighting success stories: Newer MSMEs tend to be less jaded and more willing to try new things; we will need their success stories to convert the larger base of MSMEs into customers and we plan to offer our first set of customers significant incentives to join the platform.
B. Retail loading dock booths: MSMEs sell to retailers primarily by going to loading docks (even though they do not have trucks) to interface with buyers. Prospera will maintain booths at these locations with salespeople to inform MSMEs of the benefits of working with Prospera.
C. Referrals: Prospera will remit a percentage of first-year revenues associated with new customers to the referring party, including local agents , other MSMEs, and ancillary service providers.
D. Institutional partnerships: Prospera will engage the business, microfinance, non-profit and governmental organizations involved in the community to gain exposure to their constituent entrepreneurs.
Are there non-financial issues that could threaten the sustainability of your proposed solution?
Logistics and buying power: logistics and volume discounts are subject to reaching significant volume. To mitigate this risk, Prospera’s partners have agreed to reduced rates with no minimum commitments for 3 years. These services are also subject to swings in oil prices, market demand and supply, and the economic health of the partners.
General economic risks related to Mexico’s economy and of the food sector in particular. In addition, there are risks related to the type of clients of Prospera. Because they are microenterprises, they bear specific and increasedbusiness risks (e.g. poor management, death of the entrepreneur, quality and regulatory compliance)
Financial/inventory risk: Prospera Network has a similar business model than retailers but for sourcing materials. Prospera get orders from microenterprises, sources the product (but pays in 30 or 60 days to producers) and then distributes the products to the microenterprise leader who, upon delivery, will pay the rest of the purchase. Prospera has a negative working capital, like retailers as Prospera still has the credit from producers. Nevertheless, there are risks involved in this model. A potential risk is that, microenterprises may not pick up the orders placed. In that case, Prospera still has at least a month to sell the inventory. To that extend the financial and inventory holding risks are limited.
Working with perishables can only be introduced in the long term because of their short lead time. Microenterprises need to be organized and logistics very well planned. There is no margin for error. To that extend, Prospera will only consider providing perishable raw materials in further development stages.
Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically
Prospera’s field operations are currently based in Guadalajara, Mexico given that its partners are also based in this city and it is precisely here, where we find the largest concentration of food MSMEs in the country. In 2012, Prospera will open a local branch at the Bajio region. By 2013, Prospera will open a local branch in Puebla. The development schedule follows geographical concentrations of MSMEs in the food industry.
Phase 2: Service and geographical expansion
The beginning of Phase 2, in 2012, will be marked by the successful replication of our model outside of Jalisco, namely the Bajio region, and the expansion of Prospera’s suite of services . Opportunities to reduce cost via aggregation exist throughout the microenterprise’s value chain, so with a significant base of MSMEs the next step will be to identify partners that can provide ancillary services such as insurance, accounting, and legal. In exchange for driving business to these partners, Prospera will negotiate a percentage of the first year’s fees.
This phase will also be highlighted by the beginning of Prospera’s continuous improvement program, in which Prospera connects MSMEs with mentors from industry and consultants from universities to find ways to improve. We have already been successful in engaging mentors and universities, but will defer more focused efforts until core business operations are stable.
Phase 3: Community Development
Phases 1 and 2 will drive increased selection, lower prices and more employment, so Prospera’s 3rd phase focuses on helping to improve education levels in local communities by continuing to leverage its partnerships with international, government and business organizations. In the long-run, we expect that the benefits of improving the well-being of a community will be MSMEs that transition into organizations that are competitive on regional and national levels, with Prospera as a partner in their growth.
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 | 89 weeks agoGabriela Enrigue submitted this idea. |
