ZIWA CREATIONS, Kisumu, Kenya

Marketing  Services for SMEs

 

 

 

 

 

 

 

 

 

 

 

 

A Case study on

Business Development Services for SMEs

1998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                      Ziwa Creations

                                                              P. O. Box 284

                                                      Tel. 254 - 35 - 43762

                                                      Fax 254 - 35 - 43763

                                                      E-mail: kick@net2000ke.com

                                                      Kisumu, Kenya

                    

 

1. INTRODUCTION

The critical importance of the micro and small (MSE) enterprise sector (better known as the Jua Kali sector) to the growth of the Kenya economy was first highlighted by an ILO employment study (1972). This study pointed out that Kenya’s labour force was growing, and would continue to grow, much faster than the rate of employment creation in the agricultural and modern industrial sectors and, at best, only 15% of future entrants to the labour force could expect to find wage employment. As a result over the last 20 years most young people have had little choice but to work in the MSE sector. 

Further, a survey conducted by Lisa Daniels, Donald Mead and Muli Musingi (Employment and Income in Micro and Small Enterprises in Kenya: Gemini 1995) established marketing as the second most serious problem encountered by MSEs after capital. Major marketing constraints have been identified as market saturation, poor quality products, the lack of product diversification and low technical skills to design new products or improve products among others.

For Kisumu, in Western Kenya, the market constraint is aggravated by the size of the Jua Kali sector in relation to other economic opportunities in the area. Compared to Mombasa and Nairobi, Kisumu has a disproportionately large Jua kali sector in relation to other economic activities which determine the size of the immediate market. Kisumu Jua Kali sector therefore has to look for markets beyond the town’s growth and expansion. This has two important implications:

1. Innovative product design and high quality production is necessary to attract buyers from other parts of the country/region and for overseas markets.

 

2. Innovative and well organised marketing strategies are necessary to get the products to potential buyers.

 

Translated from Kiswahili, Ziwa Creations (situated next to Lake Victoria, the largest fresh Water lake in Africa), stands for ‘Creations from the Lake’. Ziwa Creations, was established as a Private Limited Liability company in July 1997, to provide marketing services to Kisumu Jua Kali artisans on a commercial basis.

Ziwa Creations origins stem from the Kisumu Innovation Centre - Kenya (KICK), an NGO launched in May 1994 with assistance from DFID. KICK’s mission was “ to contribute to development of micro and small enterprises in Western Kenya through the provision of Business Support Services on a sustainable basis.

Initially, KICK performed several roles:

·     Market awareness and orientation which included interpreting market changes, generating ideas providing a bridge to the market and financing trips to markets.

 

·     Capacity building which included providing designs to artisans, developing designs and samples, training of appropriate artisans, providing advice on production, business training and counseling, signposting to financiers, provision of office services, quality control through developing standards.

 

·     Marketing, buying and selling. This included purchasing products at relatively high prices and favourable financing terms, promoting the KICK brand and products, finding orders and subcontracting.

 

In performing the above roles, KICK launched the following activities:

PRODUCT DEVELOPMENT which included designing new products, improving existing products and production techniques to achieve higher quality and productivity with the assistance VSO (British Based ‘Voluntary Services Overseas’) volunteers.

TRAINING & CONSULTANCY Services intended to sensitise Jua Kali artisans to the commercial benefit of production for a wider market and to provide artisans wit basic management skills.

OFFICE SUPPORT SERVICES include word processing, logo design, photocopying, telephone and fax services to the Jua Kali community around Kibuye and the public in the Neighbourhood.

MARKETING AND SALES SERVICE was aimed at artisans accessing new markets locally, nationally and internationally.

The decision to launch Ziwa Creations as a separate and for profit organisation was influenced by these considerations:

·     The need to separate commercially oriented activities from its mainstream development work and to create an environment in which commercial activities can be managed efficiently.

 

·     To establish institutional conditions in which KICK will be free to fund developmental and commercial activities on their respective merits.

 

·     The need to enable KICK to focus on the development of its institutional capacity to deliver Business Development Services. Commercially oriented activities have tended to obscure KICK’s basic mission and objectives. Conditions for funding by DFID stated that by the end of the funding period, KICK must obtain 100% cost recovery through its activities.

 

Although Ziwa Creations is just over a year old, this case study divided into sections examines Ziwa Creations operation details, emerging issues and Challenges faced from experience to date. Section 2 discusses the marketing service provided with a look at positive points and challenges in relation to the organisations capacity to provide an effective and efficient service, while sections 3 analyses the Client base. Section 4 examines the financial viability of the service and the organisation. Section 5 looks at learning points and emerging issues.

 

2. THE SERVICE

 

Ziwa Creations is established to provide marketing services to the Jua Kali sector in Western Kenya. Ziwa currently buys from artisans and sells (locally and overseas) value added products developed by KICK in the past. Products are made from both recycled and new sheet metal, wrought iron, and wire.

2.1 Objectives

With the above in mind, Ziwa Creations initially has the following objectives:

·     To increase sales volumes by 220% by the year 2002 by continuing to harness new and existing markets, both locally and internationally.

 

·     To increase annual sales revenues by 30% in year 1, 50% in year 2 , 50% in year 3, 40% in year 4 and 20% in Year 5, by continuing to market and sell high value added products which have potential for future growth.

 

·     To expand the product ranges by 5 with a minimum of 10 saleable products by the year 2000 through continuos product development in response to market information gathered from new and existing markets

 

·     To increase the production capacity of MSEs by working with at least 100 artisans by the year 2000 from the initial reliable 20 artisans in July 1997

 

2.2 Activities

Ziwa provides Business Development in a normal market situation by performing three main separate functions. Supplies is responsible for assigning orders to artisans, quality control, packing and dispatching of products to customers . Marketing and sales is responsible for sales promotion, securing and following up orders, collection of payments and sale service. The accounting function is responsible for invoicing, payments, preparing budgets, maintaining the books of accounts and preparing financial records.

Given that Ziwa’s client base are Jua Kali artisans, development work has to be undertaken by Ziwa in order to meet market demands. These include product design & development, training and counseling both on an individual and group basis, and organising training of new artisans by master crafts men. As there are few players offering these services, Ziwa undertakes these activities despite not  planning for it originally.

2.2 Organisation Capacity

 

Currently, Ziwa Creations operates under the Business Names Act, and is still awaiting KICK’s registration under the Company Limited by Guarantee Act which allows a non profit organisation to engage in ‘for profit’ activities.  Ziwa’s management  thus directly reports to the KICK Board of Directors. It is intended, however, that a Board comprising individual and institutional shareholder which make up the Board of Ziwa Creations. Ziwa Creations staff comprises a Managing Director, Marketing Manager, Accounts Clerk, Supplies/Dispatch co ordinator and a part time Product Development Assistant.

 

2.3 The Market

 

Sales by Ziwa comprises of retail sales from the office showroom, wholesale of products to retailers, export, exhibitions, and specific contracts such as the just concluded KIWI stools. The sales spread in 1996/97 between these segments were:

 

Segment

Kshs.

Percentage

Proposed Profit Margin

Retail

  762,670

33.72%

60%

Wholesale

  551,470

24.38%

40%

Export

    29,052

  1.23%

          30%

Exhibitions

  297,155

13.14%

        100%

Specific Contracts

  640,000

 28.29%

         30%

Total

2,262,347

100.00%

 

Financial Projections

 

 

33%

 

2.3.1 Retail Sales

 

Retail sales are made to people who are residents in Kisumu and its surrounding areas and to travelers in Kisumu who visit the Ziwa outlet to pick light gift items. Most of the Kisumu residents are aware of the original sources and prefer to buy from the source to avoid the Ziwa mark-up. This market which contributed 34% of the turnover in 1996/97 has the highest margins but it is also expensive to manage because of the number of transactions involved. This market also requires stocking crafts in the showroom thus straining the little Ziwa working capital. Some of these stocks are finally written of when they prove to be slow movers. To avoid the current high rate of write-offs Ziwa will be stocking small quantities of the fast moving items.

 

2.3.2 Wholesale Market:

 

Ziwa Creations wholesales to retail outlets where good quality products a mark-up of 100 to 250% is not unusual. The potential to sell higher volumes exist if a wider variety of saleable products are delivered on time and if constant communication is maintained with these outlets. Different lines of products will be developed for different outlets depending on the type of customers visiting the particular  outlet.

 

2.3.3 Exhibitions

 

Ziwa will continue to attend exhibitions both locally and internationally to promote Ziwa’s products and therefore increase future sales. Locally, Ziwa attends most annual craft fairs.  In the past, insufficient working capital has limited the attendance because products have to be paid in advance.  Ziwa will try to increase the working capital in order to take advantage of these fairs.

 

2.3.4 Contract Sales

 

Bulk orders, though unpredictable, have been the most successful, in terms of volume, of the products sold in the past. Customers have been large corporations who mainly need promotional items made to enhance their sales.

 

KIWI Brands have past been involved in promoting their shoe polish in smaller towns by providing shoeshine stools to existing and potential shoe shiners for free, on condition they use only KIWI products. Jua Kali artisans in Kisumu have been commissioned on several occasions to produce these stools through KICK, who in turn ensured quality and standards are met, products are delivered on time, and artisans paid for their services. KICK benefited by adding a mark up on all products delivered to KIWI (see quarters with high sales figures in sales performance in section 4).

 

Ziwa will continue to look for more opportunities where large corporations will co-operate with the Jua Kali artisans for mutual benefits.

 

·       It is hoped that any large entity buying items from small enterprises will see the transaction as not only satisfying their needs, but also contributing to the development of the economy in terms of developing capacities for mass production by small entrepreneurs, creating employment and increasing incomes.

 

·       It is further hoped that since a large percentage of the raw materials used especially in the smaller products are recycled, the large scale producers of such materials may encourage artisans to use them as a way of improving the existing and very quickly degenerating environment.

 

2.3.5 Export Market

 

So far, little progress has been made in exploiting export markets because  many aspects that are necessary to penetrate this lucrative market, such as pricing, quality, and meeting deadlines are yet to be understood by the majority of the micro entrepreneurs.

 

Ziwa plans to aggressively attack this market as little success in this market would have substantial impact on its success as a business entity as well as in the success of the artisans in Kisumu area.

2.4 Competition

 

Despite Ziwa Creations having unique products, competition in the local and overseas market exists in terms of companies producing for the same target market. If a certain product is not on a shop shelf at the time of need, then obviously a consumer buys what is there.

Competition is three fold:

·     Private sector competition.

 

These are mainly individuals located in Nairobi, nearer the target markets than Ziwa is. Their nearness to markets means time taken to deliver products is shorter and cheaper. Most of these have production units meaning they have controls over production and delivery schedules unlike Ziwa who work through artisans. Ziwa is not meant to have a production workshop yet if there was one, there would be easier controls over prices, bulk buying of raw materials and higher quality.

·     Subsidised organisations offering Marketing as a Business Development Services.

 

Competition from organisations such as Soko (funded by Kenya Gatsby Trust) and Jisaidie Cottage Industries (funded by UNDP) source products from all over Kenya and work with different types of products. However, competition may set in if Ziwa decides to work with similar products.

·     International Competition

 

In the export market, very stiff competition is faced from Asian countries where labour rates are relatively low and there are large number of highly skilled artisans. Production systems are suited to meet high demand are in place and have been developed over longer periods. Innovation and  product development is eminent and is supported by development agencies and surprisingly Governments. Labour rates are relatively much higher in Africa, thereby making end prices in international markets uncompetitive. 

2.5 Positive Points:

·     Ziwa Creations now has a clear focus with all staff being very keen on concentrating on providing an effective and efficient marketing service on a commercial basis. Reinventing the organisation, systems, structures Reeducating NGO staff to work in a business manner, change in NGO mindset to a commercial business mindset .The high overheads previously incurred are now minimal.

 

·     Strong personal ownership: As in any small business the psychological ownership of the idea of the business is crucial in determining the performance of the business. The previous KICK management is an important factor in shaping the new business performance. As the management are former KICK employees, past experience is being built  on and developed.

 

·     Continued staff development: The success of the marketing service in KICK was testament to the growing capacity of staff in this area. As in any business the most important learning process is incremental through ‘doing’.  More emphasis has been put on continuous learning by the new company status. The initial business plan is already being developed as the organisation takes advantage of new opportunities and gains more experience in being profitable.

·     A growing knowledge of the Market: Before Ziwa’s initiation, KICK had five main outlets for its products and the knowledge of the market place is undoubtedly improving. Despite a fairly static market, opportunities exist within it. The outlets have now increased to ten.

2.6 Challenges faced:

·     As the target market has been the expatriate community as well as upper class Kenyans, this market is limited. The challenge to produce appropriate products for the majority of Kenyans in the domestic markets remains.

 

·     Competition in the export market in relation to Ziwa’s current products is stiff. Major Asian countries have previously dominated these markets with their low prices due to low labour rates and the incentives offered to exporters by their governments.

 

3. THE CLIENTS

 

Ziwa Creations currently works with 58 artisans to date. This number has increased from 20 reliable artisans in July 1997 when Ziwa was established. With increased volumes of trade this number is expected to increase to 150 by the year 2000.  As Ziwa Creations products are predominantly metal based, artisans have tended to be men. With several women have been trained in weaving skills through KICK, the number of women clients is expected to increase as new metal and wire products are now incorporated with woven papyrus and water hyacinth.

Ziwa’s direct client base or beneficiaries are micro entrepreneurs who have 0 to 5 employees, who work either from their homes or from tiny workshops located within the two main Jua Kali  designated  workshop areas. Indirect beneficiaries  include those who supply artisans with raw materials such as rope suppliers  who in turn have a network of people. Occasional beneficiaries include those who are mobilised in case of occasional large orders from large organisations.

 

Several constraints faced by these micro entrepreneurs are : i)Perceptions - existing (middle class) customer bias against/ignorance of Jua Kali business, ii) Inability to scan their environments, iii) Artisans accustomed to dealing with a particular customer or product grouping, iv) Artisans aware of different markets existence but no real idea of ‘how to’ access what their needs are, v) Inability to turn customer need into changed design, vi) Limited technical design capacity, vii) Inability to produce at the right quality and quantity, vii) Inability to finance development of new product/production, viii) Risks of the new are perceived to be too great; lack of incentive to innovate and grow, ix) Inability to understand who customers are and how to promote the product (packaging, pricing, transportation and on time delivery), amongst others.

3.1 Positive Points:

·     A new name for the marketing service and a change of premises and has helped in bringing the change across to the artisans. It has been possible with assistance from KICK, to mobilise some artisans in a central workshop rented by the artisans, to set up production systems and processes best suited for mass production. It has been possible to induct new artisans through practical training by the master crafts men in order to meet the increasing demand for Ziwa’s products. This expected to continue. 

 

·     Tightening relationships with suppliers: KICK has in the past been overly generous to suppliers.  Prices were calculated on a ‘cost plus’ basis, meaning every part of the process was costed and producers margins were added on at the end, an approach which has resulted in comparatively high prices. Ziwa Creations, wants to use an approach, whereby, market prices are decided, margins are added and artisans are paid after the process.

3.2 Challenges

·     Development versus business: Ziwa Creations is caught up  between making Commercial decisions, where a business would work with businesses who are able to supply high quality products in time and developmental decisions where an organisation will work with the poor to bring them up. Current artisans took two to three years to develop, Ziwa capacity to develop more artisans to supply increased demand is stretched in terms of staff and resources. Return on investment is therefore low if artisans left into open market and delivery schedules disrupted because they can produce for anyone.

 

·     A subsidy from a donor means unfair advantage against competition in the private sector. However, but because of the development work involved in development of micro artisans then Ziwa does deserve a subsidy in providing this support.

 

·     Ziwa Creations, because of the type of client base, has carried forward some NGO practices  which have an effect on the financial management of the organisation. Artisans are given cash on delivery whilst customers are credit to customers (many of who take 30 to sixty days to pay). With a slumped economy and prevailing high interest rates, insisting on cash on delivery from customers means customers do not order. They simply take orders from elsewhere. Reorientation and re-education of artisans to normal business practices (supplying on credit and lower prices) takes time. Ziwa has time restrictions within which to meet targets in order break even before the current subsidy runs out.

 

·     The situation of the stiff competition in international markets with similar products means KICK and Ziwa Creations have to come up with suitable products. The possibility of using abundantly available natural raw materials needs to be looked into. Product development costs which include, technical support costs and material costs are high and requires a large investment. The Product Design and  Development Centre in Kenya may take some time to get a project going as is in its establishment phase.

 

·     Fluctuating market seasons means artisans do not have much to do and production systems set up are disrupted. Others want to set up on their own after having learned how to make new products. Should the markets change adversely, some artisans may never be able to sell.

 

·     Artisans are yet to fully understand the concept of wholesaling. Currently the difficulty of negotiating lower wholesale prices due to economies of scale, for the export market has hindered Ziwa’s penetration into the export market. Artisans still price products per unit and prices due not vary despite larger volumes of orders.  This has further been hampered by the ever increasing prices of raw materials.

 

4. Financial Viability

The proposal to split KICK into two was prededicated on the assumption that a marketing business based on KICK’s current work could be commercially viable. There was sufficient evidence to suggest that the marketing service could be viable. KICK is Ziwa Creations Limited’ main sponsor.  It was envisaged that within it’s first year of operations, investment from KICK and some Donor funding  will increase Ziwa’s performance and achieve  a break-even point by the end of the year 2000.

 

This separation entails injecting new capital, sharing the fixed assets with KICK, transferring some members of staff from KICK to Ziwa, moving to a new office/showroom, getting a separate Board of Directors and developing a new private sector oriented business approach.

 

The new company was launched with an authorised share capital of Ksh. 2.0 million divided into 20,000 shares of Ksh. 100 each.  During the projection period  Ksh. 1.9 million will be paid up by; KICK, Ziwa Members of Staff and Private Investors. KICK will have a paid up share capital of Ksh. 1.0 million in consideration to the value of assets which was transferred to Ziwa at their book value as at 30th June 1997.

 

The salary increase of Ziwa Staff which was approved with effect from October 1997 will be paid by way of shares instead of cash. The staff members will therefore be expected to contribute Ksh 117,900 and Ksh. 471,600 in 1997 and 1998 respectively to the share capital of Ziwa. This will give staff a total share holding of Ksh. 589,500.

 

Private Investors including suppliers will take up share capital of Ksh 310,500 at a later date probably 1999. This will increase the paid up share capital to Ksh. 1.9 million. The respective share holding will be:

 

                                                                  %                               Ksh.

KICK                                                       52.63                      1,000,000

Staff                                                        30.03                          589,500

Private Share Holders                              16.34                          310,500                 

Total                                                      100.00                     1.900,000

 

To reduce share administrative burden the minimum share holding by an individual will be 250 shares of Ksh. 100 each. No single share holder except KICK will be allowed to take up more than 25% of the paid up share capital.

 

As a way of motivating staff, it is proposed that 10% of net profit of Ziwa up to year 2002 will be paid to the employee pro-rata to the salary earned as a performance bonus. In addition, a sales commission of 2.5% of the monthly sales will be paid to the employees.

 

4.2 Assets transfer

 

Existing assets were split between KICK the NGO and Ziwa. In stead of undertaking the expensive approach of valuing the assets by professional valuers, assets were transferred at book value subject to some adjustments to reflect any deterioration  beyond the book value.

 

4.2.1 Fixed assets

 

The fixed assets that have were selected for transfer have been valued at their depreciated book value. The depreciation rate used were the ones in use at KICK. The following are the fixed assets that were transferred

 

 

 

Year

Cost - Kshs.

Dep-Rate

Trans. Value

1

Peugeot 504 Pick-up

Nov-95

1,053,916

25%

670,818

2

APC Back-ups

Nov-95

24,300

30%

14,080

3

6 Wooden desks

May-94

42,500

12.5%

30,279

4

1 Wooden Cabinet

May-94

5,000

12.5%

3,309

5

Training Table

Aug-94

2,000

12.55

1,366

6

4 display Tables

May-94

4000

12.5%

2,647

 

Net Book Value

 

 

 

722,500

 

4.2.2 Current assets

 

In addition to the fixed assets, current assets were transferred to Ziwa as below:

         

Debtors

 

The list of debtors as at June 30th 1997 comprised 40 customers with a sum of Kshs. 253,151. Some of the debtors were incurred as far back as  November 1995. Thirteen debtors owing Kshs. 70,780 were identified as doubtful and a provision for the same amount was made giving a net realisable value of Kshs. 182,371 which will be transferred to Ziwa Creations.

 

Stock

 

The stocks as at 30th June 1997 which had a value of Kshs. 284,358 was revalued Stock with a book value of Kshs. 147,418 was considered to be either too slow moving or simply obsolete. This stock was written off .

 

4.2.3 Current Liabilities

 

Current liabilities were transferred to Ziwa at their book value as at 30th June 1997.

 

4.3 Other Project Costs

 

Apart from the direct transferees Ziwa requires other fixed assets (expected to cost Kshs. 220,000)  including a computer and printer, to sustain its operations at the required level

 

4.4  Financial Projections

 

The financial projections comprises, profit and loss, cash flow, balance sheets projections.

                              

4.4.1 Sales Projections

 

KICK had developed a product range of 305 items most of which are either non starters or very slow moving. The sales for the 12 month ending June 1997 were Kshs. 2.26 million  from 226 different products. This means that about 80 products did not sell even a single item. Out of the 226 items sold only 39 products achieved a sales of Kshs. 10,000 or above.

 

Sales for 1998 to 2003 has been projected conservatively as below

 

 

1998

1999

2000

2001

2002

Sale Kshs. 000

3,657

5,485

8,228

11,518

13,630

Sales Increase %

30

50

50

40

20

 

4.4.2 Profit and Loss Projections

 

The gross profit as a percentage of sales is projected at 33% per year. This is a conservative assumption considering the measures that are proposed to be undertaken under the business plan. Realisation of a better margin will strengthen the profitability and help to achieve break even earlier than projected.  It should be noted that the actual gross profit for the quarter ending September 1997 was 40%.  This however, may be explained by the lack of  contract sales which have low margins.

 

The operating costs are projected to increase at 10% per year.

 

On the bases of projections, losses will be Kshs. 1.3 million in 1998 declining to a loss of Kshs. 800,000 in 1999 and nearly breaking even in 2000 with a small loss of Kshs. 75,000. Because of the accumulated loss no tax will be paid within the projection period.

 

4.4.3 Cash Flow Projections

 

The cash flow projection for the period July 1997 to 2002 shows that the company will require a cash injection of Kshs. 1.1  million in 1998 Kshs. 0.8 million in 1999 and Ksh. 0.3 million in 2000 respectively making a total  of Kshs. 2.2 million by year 2000. The proposal was to raise Kshs. 1.9 million of this amount from DFID as a grant to be disbursed over 3 years and Kshs. 0.3 million from private shareholders in 1999. This is in addition to Kshs. 0.59 million to be raised by staff members as sweat capital between 1997 and 1998. The main non operating expenditure provided for in these projections are; the purchase and replacement of computer equipment and  the normal increase in working capital of nearly Kshs. 1.4 million by the year 2002. From the year 2001 the company will be financially self sustaining.

 

4.4.4 Balance Sheet Projections

 

Starting with the opening balance sheet as at 30th June 1997, the balance sheet projections to the year 2002. The main assumptions in these projections are the following;

 

a)    Fixed assets are depreciated on the declining balance method at the following rates;

     Motor vehicles        25%

     Computer equipment    30%

     Furniture and fittings     12.5%

 

b)    Debtors are projected at one month sales

c)    Stocks are projected at one month  cost of sales

d)    The value of all assets and liabilities as at 30th. June 1997 is carried in the balance sheet as a contribution by KICK to Ziwa.

e)    The amount of grants to be solicited from DFID is based on the projected cash deficit over the three years. The actual share capital to be injected by the new investors  will be determined later when the potential investors are identified. For the purpose of this business plan it is estimated Kshs. 0.3 million will be available in 1999.

 

4.5 Project Cost and Financing Plan

 

On the basis of the above financial plans and projections, the cost of creating a fully pledged marketing company will comprise of the assets to be transferred from KICK, the new assets to be purchased, the increase in working capital, and the initial operating losses. The costs are summarised below in Ksh. 000:

 

 

1997

1998

1999

2000

Transfer of  Assets

1,144

 

 

 

Purchase of New assets

 

200

20

 

Increase In Working Capital

(20)

184

219

329

Operating Cash Losses

233

580

605

(52)

Total Cost

1,357

964

844

277

 

 

It is proposed to finance the above costs as below:

 

 

1997

1998

1999

2000

KICK  Assets Transfer

1,144

 

 

 

KICK Loan

 

1,100

500

300

Opening cash Balance

148

(65)

71

37

Private Investors Share Capital

 

 

310

 

Total Finance

1,292

1,035

882

337

Closing Balance

(65)

71

37

60

 


4.6 Sales Performance

 The sales figures for the marketing services function( Table 1 below show a steady performance since the start funding period 1995. 

Table 1.  KICK Marketing Sales: Quarter 1 1995 to Quarter 4 1996

                                                    Sales Ksh (‘000)             

1995          Q1                                             289.7                                

                Q2                                   2,935.6

                Q3                                      877.6

                Q4                                      598.3

1996          Q1                                   4,973.3

                Q2                                     410.0

                Q3                                     801.8

                Q4                                     755.3

1997          Q1                                     550.0

                Q2                                     694.3

      (Initiation of Ziwa Creations)

                Q3                                     367.2

                Q4                                   1,315.3

1998          Q1                                   1,096.7

                Q2                                      954.0

         

 

5.1 Lessons Learned

 

5.1.1.  Difficulty in combining commercial and development objectives.

 

Ziwa’s establishment is the result of a protracted struggle to combine two objectives; namely commercial and development. Yet the two can determine just how successful the delivery of marketing services become. In the craft marketing business, having the right product, at the right price, in the right place and at the right time is important. Customers expect the same efficiency in the delivery of products that they are paying for. Staff have to be aggressive in seeking and meeting product orders, if the initiate is to succeed.

 

In development work, staff have to be more understanding and sympathetic to the situation and needs of their clients.  Commercial principles, on the other hand, require the application of business principles, if they are to be successful. The pressure to play both roles tends to confuse both staff and client resulting in inconsistent policies. For KICK/Ziwa this resulted in large amounts of product stock, (some of which  dead), delayed orders, fluctuating quality just to name a few. The situation has been different with the transformation of the activity into a business. In short, marketing is being provided more efficiently as a ‘company’ than as an ‘NGO’

This in part echoes the experience of MFI’s that have tried to marry development and commercial objectives.

 

5.1.2.  The advantages of  a business-like approach.

 

Experience gained over the last four years generally supports the merit of a business-like approach.  During the last one year, Ziwa’s sales have averaged Kshs. 933,300.00 per quarter as opposed to Kshs 700,350.00 per quarter in the previous year. There has also been a marked difference in product sourcing, debt collection, stock management and marketing. Yet most of the staff remain the same. The pressure to sink or swim in the company as opposed to the ‘donor will bail us out’ has forced staff to be more productive.

 

5.1.3.  The importance of focus.

 

Some of the gains made by Ziwa over the last year may be attributed to focus. As opposed to the past where marketing was just part of a large portfolio of activities such as training, counseling and technology, it is now the core focus. This seems to have provided it with the opportunity to do what it can do best and learn from is experiences. Organisations may b able to do more if they focus their time and resources on what they can d best rather than diluting their effort by trying to do to many things.

 

5.1.4.  The entry point.

 

The long term sustainability of services or activities meant for MSEs may be influenced by its entry point and the degree to which it can be taken up or operate within the private sector.

 

Development organisations risk distorting the market when they carry out activities that are not well thought through or are based on wrong ideals.  They may distort costs and prices thus creating  mechanisms and structures that  are difficult to maintain without donor funds. For example, KICK/Ziwa offered wages that were twice the market price for the orders it procured during its initial market activities on the basis that the existing ones were too low. This served to increase prices, making the too expensive for the local market and necessitating their marketing in Nairobi and attracting a largely high income and expatriate client base. This decision has continued to haunt Ziwa to this day as it finds its prices rather uncompetitive in the international market. Restoring more realistic market costs will continue to be a challenge for a long time as artisans grudgingly agree to price cuts and new producers are sought.  It is therefore important to appreciate the prevailing market situation and assess the implications of activities that may be carried out to limit these distortions.

 

5.2      The Selection of the Target Group

 

The selection of the target group is important if an organisation is to maximise its impact. Ziwa’s experience shows that it has achieved better results with those who have a desire to grow as opposed to those who do not.

 

Ziwa lost orders worth thousands of shillings in sub sectors such as papyrus weaving, sheet metal and wood because MSEs thought they were doing it a favour by supplying the products. The NGO mentality encouraged patience rather than the search for more committed MSEs. Ironically, when Ziwa began developing new avenues of supply, production from these businesses improved showing the value of competition. The domination of sheet metal products in Ziwa’s product portfolio and their level of contribution to sales , partly reflects the reliability and seriousness of the artisans involved rather than its potential.  Ziwa will therefore work more with artisans who are professional,, committed and willing to capitalise on the orders and growth opportunities that it avails.

 

5.3          Issues

 

5.3.1.  Just how commercial should the company be ?                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

 

The degree to which Ziwa should be commercial is one question that still plagues it.   This challenge is becoming more of an issue given the nature of the target group. It took three years to develop the current group of artisans who form the core of Ziwa’s production capacity. Assistance involved training (business management and technical), counseling, product development and marketing. These activities are largely developmental and ideally should be done by a development organisation or commercial organisations with vested interests and sufficient resources to spare. Ziwa does not have the resources needed for this kind of development. Developing them does not guarantee it preferential treatment over the competition. Furthermore, it may be able to source the same products more cheaply from larger and more formal SMEs that have the required production capacity, resources and professionalism. In doing this however, the company would alleniate its original target group.

 

5.3.2.  The issue of subsidies.

                                                                                                                                                                                                                                                                                                                                                                                

One argument is that NGOs such as KICK should provide the development  assistance to facilitate the development of the target group, hence enable them to access the market. These producers would then be free to work with any interested company.  Wouldn’t this represent an indirect subsidy to Ziwa and others? The subsidy would also hide the real costs of delivering the service and distort the real profitability or losses incurred. If provided, o what basis can these subsidies be justified ? The debate continues.