The Impact of Improving SMMEs' Networking Capacity CROSS-COUNTRY WORKSHOP FOR IMPACT EVALUATIONS IN FINANCE AND PRIVATE SECTOR DEVELOPMENT Dakar, February 1-4, 2010 RSA The Impact of Improving SMMEs' Networking Capacity Lusapho Njenge Small Enterprise Development Agency 1

Background Title Major constraint for SMMEs is the difficulty to expand their customer base Particularly acute in RSA due to the legacy of institutionalized segregation, closed business networks, limited business interactions between groups Andrews (2007): selection of suppliers in RSA is done primarily through internal referrals and CEO's social networks .....despite preferential procurement policies (Black Economic Empowerment) 2

Possible Reasons Title To search for SMMEs and to screen them can be too costly... As a result, large firms end up outsourcing to large firms Better information because of overlapping social networks, easier to signal credibility and quality of service 3

Priorities for Learning: Interventions Title How to link SMMEs to the private sector How to reduce the cost of searching for, and screening SMME suppliers, particularly for groups with lower networking capacity (gender, race, youth) 4

Evaluation Questions Title Does improved information on SMMEs increase their share in the supply chain? Does the impact of information vary by the SMMEs owner's gender, age group or race? Women, young, and black-owned SMMEs tend to have lower networking capacity 5

Evaluation Design Title Intervention Creation of an online (and sms-accessible) MARKETPLACE to link SMMEs to larger firms Intervention 1: Reduction of search costs Searchable Directory of SMMEs (contact info, size, location, sector) Intervention 2: Reduction of search costs + Reduction of screening costs Performance Rating System, mapping of existing business relationships 6

Features of the Marketplace Title DIRECTORY of SMMEs Searchable engine by size, location, type of SMME BUSINESS NETWORKS MAPPING Maps of existing business relationships for each SMME PERFORMANCE RATING SCHEME Client firms rate performance of SMMEs, make referrals, provide feedback 7

Gender, Race and Youth Title RACE and YOUTH Directory of SMMEs is balanced on race and age of owner Generate comparable groups, within each of these categories, in terms of size, sector and length of establishment GENDER Start by NOT providing gender of the SMME owner on the marketplace 6 Months later, phase it in 10 Months later, remove it (broken link) 8

Sampling Title Pilot of the Marketplace KwaZulu Natal province, good distribution of SMMEs across gender and race Sample Size Random assignment 1,500 SMMEs (treatment group) 1,500 SMMEs (comparison group) Client firms log on and get randomly assigned to Intervention 1 or Intervention 2 Block Randomization within race and age group of owner 9

Data Title LISTING of FIRMS Business Registries Business Chambers Seda Database SURVEY of SMMEs and LARGE FIRMS Baseline and Follow up survey 3,000 SMMEs 500 randomly selected large firms Data collected Relationship with suppliers, type of contracts, performance indicators, share of supply chain secured by SMMEs 10

Data Title MARKETPLACE Track all interactions between clients and suppliers -clients have to click through to get the contact info, request a quote, obtain a more detailed description of each SMME Obtain direct feedback from participants via periodic mini- surveys when firms log on 11

Timeline for Impact Evaluation Title TASK DATE Listing of Firms in KZN (Sampling Frame) April 2010 Outsource Marketplace Development July 2010 Baseline Survey Pre-test Marketplace and Promotional Campaign August 2010 Launch Marketplace September 2010 Gender Switch (Remove Disclosure of Gender of SMME Owner) March 2011 Follow up Survey September 2011 12