Mainstream Marketing for Community Based Enterprises Upland Marketing Foundation Inc., in the Philipines

1. CONTENT: (THE STORY) The Upland Marketing Foundation Inc was the spin-off organization of the Upland Marketing Program (UMP) of the Philippine Business for Social Progress (PBSP)and the Upland NGO Assistance Committee (UNAC) in the 1990. The UNAC-PBSP initiative had three major interventions for Indigenous People (IP) and Upland communities in the Philippines – to secure land tenure, increase productivity through agro-forestry and provide marketing assistance to address economic concerns. The idea was to secure land tenure for IPs/upland communities in order for them to make the area productive and address reforestation, counter development aggression such as logging and mining. Once the communities have surplus production, provide marketing assistance to generate income.

As UMP addressed the marketing concerns of IP and upland communities, major learning came about that changed the approach of the program. The strategy of marketing intermediation through provision of skills training, market information and linkaging did not work nor did it translate to any sustained economic activity at the community level. The communities still produced products of the wrong quality and quantity, delivered late and asked for very high prices. The buyers that the program tapped naturally resisted and stopped the transactions. The experience not only made the communities more distrustful of the market-business, but also reinforced their perception of the trade as heartless and inconsiderate. The market-trade bolstered their belief that CBEs are unreasonable and unreliable. The program realized that the two were worlds apart and that directly linking them together was not possible. Something or someone has to be in between to facilitate and temper the pressure and realities of trade, eventually help CBEs get fair-better market prices for their products and ensure the market with quality products.

Responding to the situation, UMP decided to position itself in between the communities and the trade. UMP engaged the communities in actual business and started performing enterprise functions starting with brokering, then trading and finally marketing of CBE products. The shift in strategy also necessitated the need to engage other community based enterprises (CBEs) from lowland and coastal areas as they were very few products from the IPs. In addition similar interventions were also needed by the lowland and coastal areas. The inclusion of lowland and coastal products made it possible to attain the scale needed to cover the cost of performing the business-marketing functions for the CBEs.

Aside from the change of role, the new areas UMP will cover, the marketing program also had to shift from trading of low value unprocessed products to the development and marketing of higher value processed products. The distance of most areas from urban-trade centers made selling low value products unprofitable for the communities. UMP also saw that margins and returns from existing processed products made by some of its partners were bigger and better.

The focus on value-added products particularly food products targeting the consumer market made UMP choose supermarkets as the main channel of distribution. The market data from AC Nielsen at that time showed 49% of the manufactured goods were sold through supermarkets. Studies made by the International Food Policy Research Institute showed a global trend where consumers buying was shifting towards supermarkets. Information on Planet Retail also showed that supermarkets were already increasing their share in the retail trade and the kind of products already includes fresh fruits, vegetables and horticulture, products that were previously sold at the traditional wet markets.

After years of providing marketing services under a development program, a decision was reached to spin-off the program into a separate organization. In November of 2000, the Upland Marketing Foundation Inc., was created and commercially undertook the business functions of UMP. Over a period of 8 years, UMFI was able to sell a total of PhP 137.6 million (US$ 2.75M) worth of products from its partner CBEs. The sales came mainly from organic rice and muscovado sugar. The other CBE products are bottled sardines, jams and jellies, honey, kaong, calamsi concentrate, and organic vinegar.

While UMFI was very effective in selling and distributing the products to mainstream supermarkets, the problems on quality and quantity persisted and, these constrained the capacity of UMFI to fully cover its costs of operations. To address the situation, UMFI increased its services to include chain management activities that included standardizing quality, installing qc systems, developing and selling under a house brand, joint management planning with partner CBEs. To complement this, UMFI also accessed financial resources both for its own operations and those of its partner CBEs. Among the initial sources of funds were local development organizations such as Federation of Peoples Sustainable Development Coopertive (FPSDC). In 2004 UMFI’s sales contracted due to cash-flow problems, CBEs stopped deliveries and sales halted. Oikocredit loaned UMFI additional working capital and this allowed UMFI to grow again its sales volume.

At present, UMFI has recently moved to a bigger warehouse office located at the eastern part of Manila. The foundation is managed by a relatively young set of people – average age of personnel is 33. Most of the people engaged in business-marketing activities came from the private sector-related marketing industries while the people dealing with communities have extensive background with NGO work. The culture of UMFI personnel is reflected and supported by the premium the organization places on innovations be it in developing new products using local raw materials to adapting business functions to fit community realities to exploring new modes of supporting or facilitating financing to CBEs. Complementing this is the belief of the organization to focus and strengthen its core competencies and establishing partnerships with other groups that have the expertise needed to provide the better services.

As a means to keep its bearings, UMFI has often looked at the private sector or industry leaders to gauge its business performance but have always grounded its operations on the principles and values of a Social Enterprise.

2. VALUES INCULCATED BY THE SOCIAL ENTERPRISE - The business of UMFI is very much anchored on the strength of its partnership with various stakeholders from the CBEs to the partner NGOs/development organizations to the private sector. Recognizing this reality, UMFI ensures that communication is constant and working with its partners on efforts to improve the overall business are monitored and maintained.

In partnering with the CBEs, UMFI ensured that this will be marked by transparency and fairness. These are the cornerstone of UMFI’s mode of engagement with communities as UMFI believes that transparency and fairness are not only essential in building trust but also an affirmation and recognition of the CBEs status as an equal partner in the whole business. This can be seen in how UMFI works with the partner CBEs in setting the pricing structure for the products, in making new policies for trade and even regular discussion of the business developments on the market side. For UMFI, the CBEs are not mere suppliers but are essential and integral part of the over-all enterprise of producing quality products for consumers and generating income for local households.

Fairness in the context of UMFI however is not being overly biased for the community to a point of accommodating inefficiency. Fairness must be tempered with competitiveness. UMFI believes that Fairness cannot be established at the expense of competitiveness. Supporting this is the value on innovation or innovativeness. New product ideas, better ways of doing things are recognized, cultivated and are given support to make the idea become into a reality be it at the community or within the work groups in UMFI. Some of the new products being developed by UMFI were a result of group discussions and meetings with the partner CBEs. UMFI believes that long-term competitiveness of the CBEs will come mainly on the innovations at various levels of the business chain.

Finally, as the business of UMFI improves its financial viability, the option of divesting or inviting the partner cbes to become co-owners of the business will be developed. As of the present, the partner CBEs are increasing their role in the direction and planning function of UMFI’s marketing operations.

3. OPERATING SYSTEM OF THE SOCIAL ENTERPRISE- The marketing operations of UMFI starts with a meeting with the partner CBEs at the beginning of the year to assess previous years performance and plan out the targets. In preparation, UMFI personnel have already conducted an internal assessment of the business which will be presented in the partner’s meeting. Once the targets have been set, issues and concerns that will impact operations will be discussed and will be the focus of intervention. For new products the partners meeting will be the venue to lay down the new terms and conditions as well as the quality standards and policies to be followed during the actual trade.

The actual trade is coordinated by UMFI on a day to day basis where deliveries, quality checks, warehousing, redistribution, merchandising, retrieval of bad products, collection of payments and deposit of payments to CBEs accounts are performed daily by UMFI personnel. The new areas for intervention and the new products for launching will be handled by UMFI’s technical officers and research and development personnel. Coordination meetings within UMFI, constant communications and meeting with partners at various levels are conducted to monitor and obtain feedback as means to identify and address problems.

At the end of the year, UMFI will again assess the over-all performance, come up with possible interventions and then present these again to the partners’ meeting the following year.

4. CAPABILITIES DEVELOPED BY THE SOCIAL ENTERPRISE - The main capability building initiative of the foundation is on, technical-operational skills of communities to run their community enterprises – usually engaged in food processing. This was recently complemented on the new efforts of UMFI to improve the management capacity of the CBEs.

The training-on site coaching and guidance on covers the development and installation of quality control systems that would include skills upgrade, proper orientation on quality concepts, and building the systems, procedures and policies that will guide day to day operations. The training-technical support on management upgrade is being undertaken in partnership with the Philippine Social Enterprise Network (PhilSEN).

5. GOVERNANCE - The UMFI’s business operations is regularly subjected to an annual audit. The reports are given to both the government agencies (Bureau of Internal Revenue and the Securities and Exchange Commission) as well as to the partner stakeholders of UMFI – donor agencies, financial intermediaries and the Board of Trustees.

In terms of assessing the business performance of UMFI, the industry benchmark standard were obtained and used as internal measure. This includes the industry standards on the major business function-operations like transport, merchandising, sales incentives, and wastages. The industry standards on food quality is also being followed to monitor the quality of food products being produced, repacked and sold by UMFI. Finally UMFI has undergone two external evaluations that looked into the impact of the business at the level of the communities.

6. FINANCING INTERVENTIONS - For the Financing SE Case Studies, a brief description of the proposed or current financing interventions must be included. The description should have a description of the financial package, obligations, monitoring and supervision, lessons learned if any.

The financing interventions of UMFI are both direct and indirect. The foundation has taken loan amounts from local and foreign financial intermediaries to provide its partner CBEs working capital. UMFI also links and guarantees loans of its partner CBEs directly to financial intermediaries.

7. OUTCOMES - UMFI business services has benefited 2,871 individuals of which an estimate of 560 are women. The services from UMFI come in the form of technical and marketing assistance. For the marketing assistance, a total of PhP 137.6M (US$ 2.75M) worth of products have been sold by UMFI over a period of 8 years. This does not include the sales from the products developed by UMFI with the communities and sold by the CBEs on their own.

Starting July of 2008, UMFI’s marketing operations have finally stabilized and generated for a 6 straight month period a total net income equal to 7% of its total loans and 6% of its total assets. The average monthly net income for the 2nd half of the year was 8.6 of total sales. This performance allowed the enterprise to cover the losses incurred during the first 6 months of operations. The loss was primarily due to the rice crisis during that period. The year end net income was 1% of gross sales. In a consumer research conducted in 2008 on organic products, UMFI’s organic rice sold under the house brand accounted for 24% market share. Combined with the volume traded under other brands and supermarket house-brands, UMFI’s share of the market is increased to 40%. The short-term liability to total asset ratio at the end of 2008 was 1:4.2 or the short term liability is 23% of total assets.

The volume of trade of partner CBEs have also increased substantially with one supplier increasing annual turnover 10 times over a period of 4 years, another CBE increased sales by 25% per year from 2005 to 2008 while another CBE experienced a 33% increase in sales volume after a year of trade with UMFI. The Based on an external evaluation conducted in 2007, farmers income increased by 89% as a direct result of better access to markets.

Complete article in word [here->http://aloe.socioeco.org/IMG/doc/Phils_Guarin_UMFI.doc].

From the Regional Workshop on Social Finance for SMEs with CSR Agenda held in Kuala Lumpur, Malaysia, from 10 to 13 March, 2009.