⑧jongh_20130228 business cases from latin america

7/29/2019 Jongh_20130228 Business Cases from Latin America

1/12

R e d M a n t r a

Red Mant ra

The Red Mantra Group, 2013.

Inclusive Business in Latin

AmericaA Brief Summary of Cases

Tokyo, Japan

February 28, 2013

Workshop on Investing in Inclusive Business in Developing Asia and Latin America:New Opportunities for Japanese Companies


2/12

R e d M a n t r a

Cases from Latin America

Brazil

Colombia

Ecuador

Mexico

Peru

2From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets

GuyanaSuriname

French Guiana

Brazil

Argentina

Peru

Bolivia

Colombia

Venezuela

Chile

Paraguay

Ecuador

Uruguay

Mexico

Nicaragua

Honduras

Guatemala

PanamaCosta Rica

Belize

El Salvador


3/12

R e d M a n t r a

Market Overview: Brazil


BRAZIL VITAL STATISTICS

GDP per capita

(PPP)

GDP composition

Labor

Composition

USD 11,800 (2011

est.)

Agriculture - 5.5%Industry - 27.5%Services 67%

Agriculture - 20%Industry - 14%Services - 66%

Source: CIA World Fact Book.

BoPOverview

InclusiveBusiness

Profile

ImportantMacroeconomic

Trends

Challenges

Most of the people living in poverty in Brazil (78.2%) are based in cities

10% do not have access to clean drinking water; 25% lack sanitaryfacilities; 57% do not have access to financial services

High sensitivity to socialwelfare and negociosinclusivos strengthenedby Lula and Dilma public policy incentives (i.e. Fome Zero)

High unemployment rate (ca 10%) Fast changing business conditions Considerable bureaucratic interference and regulation including

high taxes Underinvestment in infrastructure

GDP Growth

Rate

2.7% (2011 est.)

% of population with an

income < $3,000 in PPP70.7% (2005)

Average Y-o-Y Growth

since 20003.9%

Population 197 million


4/12

R e d M a n t r a

US$10 millionloan from OMJ

to fund creditprogram

Micro-entrepreneurs

represent >50%of Tendasrevenues

20,000micro-entrepreneurs

financed +7,000 trained

Tenda Atacado, Ltda is a Brazilian wholesale retailer of foodstuffs and other goods. The OMJ

loan has as an objective to increase access to finance for low-income microentrepreneurs in

the food services sector, accompanied by a grant to design a financial literacy and business

skills training program.

Win-Win Relationship:

as micro-entrepreneurs

increase their income,Tenda increases its

revenue base

From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets 4

BRAZIL: Tenda Atacado

Source: IDB OMJ.


5/12

R e d M a n t r a

Market Overview: Mexico


BoPOverview

InclusiveBusinessProfile

ImportantMacroeconomic

Trends

Challenges

Mexico has one of the fastest growing middle classes in the

world, but living side by side with widespread poverty Despite strong development indicators as an OECD country,three out of 4 people live on less than $3,000 per year

Great needs in housing, financial services, healthcare,nutrition, and education

Dependence on US markets can pose a risk during economicdownturns;

Insecurity in certain parts of Mexico and negative media(generally exaggerated) can at times affect investorconfidence

Due to NAFTA and related trade agreement, no othersignificant risks other than those linked to the business modelitself

MEXICO VITAL STATISTICS

GDP per capita

(PPP)

GDP composition

Labor

Composition

USD 14,700 (2011

est.)

Agriculture 3.8 %Industry 34.5 %Services 61.7 %



GDP Growth

Rate

3.9 % (2011 est.)

% of population with an

income < $3,000 in PPP69.6% (2005)

Average Y-o-Y Growth

since 2000%0.5 (due to -6.0%GDP in 2009)

Population 115 million


6/12

R e d M a n t r a

MEXICO: Cemex

CEMEX identified the need to offer integral and progressive housing solutions tailor-made to

the realities of the low-income segment

New Market Entry

The inclusive business provided:

Affordable low-cost housing options for low-income families in urban andperi-urban areas with collateral free f inancing drawing on social capitalcreated in groups with incremental payment plan

Technical assistance and masonry training program and free storage ofmaterials; and negotiations by CEMEX on quality with distributors

Local job creation; Creation of long term patrimonio for family in design

Inclusive Business Results

Objective: Develop a new affordable housing product targeting urban and peri-urbanlow income households as part of new core business offering

Results:

Participants are able to build their homes or additions 3x faster and at 1/3 ofthe average cost to build a home in Mexico.

Participants gain access to the credit markets. Since inception, PH hasadvanced more than USD135 million in microcredit, otherwise inaccessible toclients

The market value of homes built through Patrimonio Hoy is approximately 20percent higher as a result of the higher quality and functionality of thestructures.

The program creates jobs mainly among local masons and those trained aspromoters; 95 percent of promoters are women, of which half had no previousworking experience.

At least $25 million in new revenue for the company; annual revenues of US$ 500-

600 million forecast (40% of Mexicos cement market); .6% default rate

Overview and Context

Mexico has a housing shortage of over 9million units most of which affect the low-income segment and have been exacerbatedby the recent economic crisis (a shortage of20% housing stock)

Historically, the lack of assets in the country,especially among the poor, created a viciouscycle of poverty, worsened by the inability toaccess credit and capitalize the nextgeneration

Majority of low-income families build theirhomes incrementally based on their incomestreams and what they can afford; thisrepresents 40% of CEMEX Mexicos sales)

Limited employment and incomeopportunities for low-income women in poorurban and rural settings

Target population are the 2 million families(10 million people) who account for 17.5-25% of Mexicos urban population who earn$320/week lack of credit history and highinterest rates keep them out of the market

From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets

Source: IDB


7/12

R e d M a n t r a

MEXICO: Farmacias Similares

Farmacias Similares capitalized on the significant costs to the BoP (due to inefficiency and

lost time) of the public health care systemNew Market Entry


Focus: 75% of the population (BoP)

Low cost provider of medicine: Prices at least 30% lower; some up to 75%cheaper and introduction of generics

Clinics next door to pharmacies: Doctor visits at $2 visit, waiting times 15minutes or less


Objective: Develop a model for the delivery of pharmaceutical products andmedicine to the BoP in Mexico

Overview: FS developed a integrated model built on addressing the how to lowerthe transaction costs of the current public health care models generatingsignificant savings for the BoP consumer and providing improved access to healthcare services and generic drugs

Results:

Up to 75% cheaper than competing providers

Every month. 12 million Mexicans buy their medicines at Farmacias Similares

Estimated savings of 35%; saving of population of $450 million

3.5 million Mexicans see a doctor at the clinics next door; at an averageopportunity cost/hr of US$ 450 million

Retail outlets in 2008 grew to 3,916; annual revenue US$800m; now more thanUS$ 1 billion


Mexico: Access to healthcare andmedicines is a constitutional right

Reality for the poor:Access to doctor through publichealthcare system takes 6-8hours, multiple tripsFree medicines: publicpharmacies out o stock 82% ofthe timePublic Sector response: SeguroPopular, launched by the Ministryof Health

Low income families spend a lot oftime (and money) attempting to getsatisfactory health care but theopportunity costs are great


Source: Ignia Fund


8/12

R e d M a n t r a

Win-Win

businessmodel: OMJUS$5 millionPartial CreditGuarantee

Financial Institution:increases its loanorigination while

reducing risk

BOP farmers: accessto financing to expand

production ofsunflower crops inMexico + technical

assistance

Pepsico: access to astable supply of

healthy oils for itssnack products

Pepsico Mexico:reduce dependence

on expensive,unhealthy imported

palm oil

From CSR to Inclusive Business? Exploring Japans New Promise to Emerging Markets 8

MEXICO: Pepsico

Source: IDB OMJ.


9/12

R e d M a n t r a

Market Overview: Colombia


COLOMBIA VITAL STATISTICS

GDP per capita

(PPP)GDP composition

Labor

Composition

USD 10,200 (2011

est.)Agriculture 7.0 %Industry 37.5 %Services 55.5 %

Agriculture - 18%Industry - 13%Services - 68%


GDP Growth

Rate

5.9% (2011 est.)

ECUADOR VITAL STATISTICS

GDP per capita


Labor

Composition

USD 8,500 (2011 est.)




GDP Growth

Rate

7.8 % (2011 est.)

PERU VITAL STATISTICS

GDP per capita


Labor

Composition

USD 10,100 (2011

est.)Agriculture 7.8 %Industry 33.7 %Services 58.4 %



GDP Growth

Rate

6.9 % (2011 est.)

Population 47 million Population 14.7 million Population 29.4 million


10/12

R e d M a n t r a

PERU: Nestl

Nestl was facing slowing growth in a rapidly growing emerging market (Peru) inclusive

business was seen as an opportunity for Nestle to expand growth and value -- inclusively

New Market Entry


Access to a new market for Nestle products

Improved distribution mechanisms tailor-made for the low income segmentand supply chain efficiencies and lower costs

Technical assistance and vocational training for low-income women anddevelopment of innovative micro-credit schemes

Access to nutritional products for a previously excluded market segment


Objective: Develop a new marketing and distribution strategy to deliver nutritionalproducts to Perus malnourished low-income segment based on new consumerneeds while empowering local women to increase nutritional awareness andincrease their incomes

Overview: Nestle developed an innovative distribution model, developed focusgroups to better understand low-income consumer needs, and reinvented its valuechain to enter this marketplace

Results:

Increased low-income womens income by $1,300/year

10,000 Low-Income women to be engaged in 1st phase

1.3 million low-income families targeted in 4 years

Low-Income segment now 1/3 of Nestles business in Peru


Nestle is one of the worlds leading nutritionand consumer products companies and aleading multi-national in Peru (industryleader)

Despite Peru

s record growth rates, Nestle inPeru was facing slowing growth andsaturation in its traditional market segments

Peru has a significant nutritional deficiencyamong low-income women and childrencurbing maternal health and stunting growthand development of children

Low-income women in urban areas have verylimited employment and income generation

opportunities in Peru

Nestles products and services were notdesigned, marketed, priced, nor packagedfor the low-income segment


Source: SNV


11/12

R e d M a n t r a

ECUADOR: Pronaca

Pronaca had twin challenges: increased import duties on commodities and maximization of

their local supply chain from traditional suppliers

supply chain diversification through IBmodel Supply Chain Localization

The deal provided:

Increased economic opportunity for Pronacas more than 60 independentsuppliers

Improved wastewater management practices and an environmentaldemonstration effect for others in the industry

Technical assistance and long-term financing that is not readily available

for a local company


Objective: Diversify and stabilize Pronacas supply chain by substituting openmarket purchases with supply from small rural farmers

Overview: Pronaca, along with SNV and local partners, is providing small ruralproducers with credit, technical assistance and forward contracts to support the

development of their capabilities Results:

Increased productivity by 100% in 3 production cycles

Increased income 350% from $0.80 to %3.71/day

75,000 low-income people to be impacted in first phase by 2010

Access to credit for small-holders and development of asset base

Sharp reduction in open-market purchases for Pronaca

Increased margins and profitability by Pronaca


Pronaca is a fully integrated poultry, porkand fish processor with operations acrossEcuador ($500m turn-over & industry leader)

Pronaca was founded over 45 years ago andis one of Ecuadors largest employers (morethan 6,500 employees)

Corn is a substantial input to the companysproduction processes. Of the nearly 450,000metric tons of corn Pronaca uses each year,approximately 50% is imported, 30% is fromintegrated suppliers and 20% is purchasedon the open market.

In 2007, Pronaca accepted a $20 million loanfrom the IFC and engaged in an important

Inclusive Business pilot with SNV-LA

50% of corn production in Ecuador is in thehands of small-scale producers of less than20 ha

The cost of importing corn at market ratesand rising transportation costs are reducingmargins and decreasing competitiveness

Source: SNV, IFC


12/12

R e d M a n t r a

Result

87% of customer base belongs to low-income segment

90% of customers connected for the 1sttime, high set-up fee

Because the cost of a new home

connection can be as much as threetimes monthly income for low-incomefamilies, at approximately $500/home,Promigas offers financing in order toaccelerate market penetration...spreadcosts over 72 month period;

After 30 years of financing new homeconnections, Promigas realized it haddeveloped a hidden asset: knowledge ofthe payment habits of two million clients,70% of whom had no other access to the

finance system (and did not have credithistories with anyone else)

Promigas already has $10-15 share ofwallet

Saturated revenue stream

The Red Mantra Group, 2012. Page 12

COLOMBIA: Promigas

New Market Entry

The inclusive business provided: Marketing survey to establish consumer demand Value companys hidden assets Develop new business line providing credit schemes to low-income households Use payment history of existing client base to manage risk Use gas billing to lower transaction costs


Objective: Develop a new product (financial instrument) leveraging the companyshidden asset (in this case client credit history) in order to provide access to financeat lower risk premiums to Colombias rural and urban poor

Overview: Promigas developed an innovative product, leveraging existing marketknowledge and sales channels, required regulatory compliance in order to offerfinancial services as a gas company

Results: 500K borrowers benefited, 93% BoP, 31% home improvement $140m in loans outstanding, 1% more than 60 days past due Net revenues of $30m in 2010, net profits $7.8m, 1,000 new jobs Gas business serves 12 million people, 25% of pop, 87% BoP


Source: SNV, IFC

Promigas identified and leveraged a hidden asset to create a new, profitable and impactful

product offering for the BoP

⑧jongh_20130228 business cases from latin america

Documents