Promoting entrepreneurship in the developing world

General Mills employs around 1,300 food scientists, nutritionists and other technical specialists in the US. In the developing world, such expertise is in short supply. In an attempt to bridge this knowledge gap, the US food giant is connecting its in-house specialists with small food processing firms in West Africa.

Instead of flying its staff out on a Peace Corps-style expedition, its volunteers hook up with local entrepreneurs via Skype, phone and email for an hour or so per week. The model ensures a longer-term engagement and fuller support services, from quality enhancement to marketing.

"We now live in a world where a PhD nutritionist sitting in Minneapolis can share that knowledge in almost in real time with a company at the end of the road somewhere in Zambia or Kenya", said Jeff Dykstra, executive director at Partners in Food Solutions, a business-backed non-profit that was set up to expand General Mills' programme.

The social benefits of promoting entrepreneurship in developing markets are indisputable. Partners in Food Solutions has so far supported 50 local food processors in five African countries. The success of these businesses has given rise to a secure market for around 100,000 small producers. Couple that with the increased food security that comes from getting higher quality products onto local shop shelves, and it looks like good news.

The business benefits for the project's corporate sponsors (which now include commodity trader Cargill, among others) are less obvious. None of the corporate participants operate directly in the markets concerned. Nor do any currently have equity stakes or supply relationships with the enterprises that they are assisting.

According to Dykstra, the initiative was always designed as a "tweak" on traditional corporate philanthropy. The business outputs that have emerged, which include reputational enhancement and improved employee retention, are incidental "bi-products", he said.

Supporting start-ups: aid or trade?

Management theorists increasingly argue that corporate sustainability programmes need to have a business rationale for the sponsor if they are to become, well, sustainable. So can supporting entrepreneurs in the developing world generate mutual benefits?

Chris Brett, head of corporate responsibility and sustainability at agricultural and food commodity firm Olam, says yes. It all comes down to supply chain resilience. Olam has around 3.5 million smallholder farmers in its supply chain, he noted: "Enabling farmers to move out of subsistence farming to becoming serious commercial partners is fundamental to our business model."

He cites Olam's work with rice farmers in Nigeria. The Singapore-listed commodity trader is providing "entrepreneurial smallholder rice farmers" with training, credit and technical inputs to increase their yields and grow operations. The farmers (who commit to selling to Olam) gain from have a stable buyer at a reasonable price, while Nigeria can gradually reduce expensive rice imports (which currently stand at around 1.5m metric tonnes per year). For Olam's part, it lands itself a long-term supply of good quality crops.

The model carries with it two question marks. Firstly, if the entrepreneur is bound entirely within the corporate sponsor's value chain, the danger of a local monopoly arises. "This structure provides Olam with a great deal of control over prices of inputs, outputs, and, ultimately, over farmers' profits", a recent report by the Rockefeller Foundation concludes.

Secondly and more seriously, it's debatable whether helping subsistence farmers become better at what they already do strictly counts as promoting entrepreneurialism. Who exactly qualifies as an entrepreneur is highly contested. At its most basic, the term supposes an individual who exploits a new market opportunity to create social or economic value. The emphasis is on the word new. A rice grower is still growing rice, albeit more efficiently.

A clearer example perhaps is that of Iri-iani, a co-operative of fairtrade tea producers in Kenya. With funding from UK retailer M&S and several donor agencies, Iri-iani has established its own processing and packaging facilities, enabling it sell branded products rather than raw tea leafs that command a far lower price.

M&S still sources Iri-iani's Pure Origin Mount Kenya Teabags, benefitting from having a higher quality producer in its supply chain, but the cooperative is generating revenues through sales in its domestic market too. "We wanted to help our Kenyan tea farmers understand how to add value to the tea they were growing… and grow their business beyond just supplying to us", explained Louise Nicholls, head of responsible sourcing at M&S.

Market making

Aside from supply security, market creation can represent another powerful motivator for investing in entrepreneurs. Gib Bulloch, executive director at Accenture Development Partnerships said, think of a telecoms company like Vodafone in Africa. Five years ago, its business model was focused almost exclusively on selling airtime and internet bandwidth. Now, it's moving into mobile-enabled services in sectors such as health, agriculture and banking. Supporting entrepreneurs in these new value chains therefore makes sense for telecom firms, argued Bulloch.

The same could feasibly happen in Africa's agriculture sector, said Simon Winter, senior vice president for TechnoServe, a non-profit working in collaboration with Partners for Food Solutions. He points to Cargill by way of example. The US commodity giant's primary business model revolves around the production and primary processing of agricultural crops. "They are going to want to make sure there are viable local and regional processors that are then creating demand for those products", he explained.

For large corporations, the logical next step from market creation is market entry. The best small companies eventually become big companies. If and when that happens, who better to step in and acquire these upcoming entrepreneurial firms than the corporations that helped them grow in the first place?

Of course, they may prefer to go it alone. The prospect of today's developing world entrepreneurs becoming tomorrow's competitors lies a long way off, but it's not inconceivable, Dykstra admits. "Just like General Mills doesn't help Iowa companies, at some point this won't make sense in Africa either", he added.

This article was corrected on 27 August 2013 to reflect that Olam is a Singapore listed company and not a US company.

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