07 September 2020

Cluster to Succeed

Author/Compiled by
Celia Schmidt

WHAT IF... you raised the added value for all through bundling products and services from different smaller businesses?

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The Cluster to Succeed strategy channels different inputs from smaller businesses to bigger markets and can particularly be found in agriculture. It provides small-scale farmers with networking opportunities through business-to-business relationships, financing models for new technologies as well as increased yields.When applied wisely , it can be a win-win situation for all; smaller businesses can produce higher margins, increase their competitive advantage and reduce risks, while the ‘interface’ business benefits from more revenues coupled with an increased social value.

Turning challenges into opportunities

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Smallholder farmers play a critical role in addressing global challenges like food security, poverty and climate change. However, most of them lack the ability and capacities to scale up and truly benefit from existing solutions or innovations. As small or informal businesses, they often lack resources to produce higher margins (or higher quality produce) and they have no means to finance innovative technologies. This often makes it difficult to enter interesting markets. Even if small (rural) farmers are able to improve yields, production volumes often remain too small and transportation to bigger markets is often not economically feasible. In other cases, the simple lack of transportation makes it impossible to compete with bigger and more established businesses.

If your work is related to micro enterprises and the informal sector or subsistence farmers, your business could turn this challenge into an opportunity by bundling different inputs e.g. from smaller businesses (where applicable, also processing it) and channeling them to bigger markets in reliable quality. This does not only yield mutual benefits and create synergies within the network, it also reduces barriers and risks for those who are often left behind.

Moving towards a strategy

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The Cluster to Succeed strategy aims at supporting smaller businesses (such as small-scale farmers) and promotes an enabling environment with benefits for all. Related services can either be monetised or can help to increase customer loyalty to secure revolving revenues from your other offers.

A typical approach to monetise clustering services is to position your business as interface between producers and markets that yield higher margins. In this case you collect inputs from several smaller partners at a relatively low price and sell them (with or without further processing) to premium markets where quality and quantities need to be consistent.

While your business benefits from additional profits through re-selling, you also support others to improve their income, strengthen their market position and to sustain their business in the long run. This approach has especially proven its worth in agriculture.

If you want to provide services to increase customer loyalty and build stronger relationships with groups of customers, your best bet is to establish mechanisms that help these customers in their daily business.

If your business is linked to agriculture, you could e.g. look for services that allow small-scale farmers to share expertise and knowledge for easier decision-making. For this purpose you can explore different ways of establishing a network that provides its members with regular updates and information and helps them to improve their cultivation or harvesting processes. Depending on the context of your target market this can be realised through online or off-line mechanisms.  

Another area, where clustering is linked to increasing affordability of products. By clustering clients and selling one product to several users, you may be able to extend to new customer segments with limited ability to pay. In such constellations it is very promising to also provide innovative financing models for end users. In the case of more substantial investments clusters of customers can also result in cooperatives. Shared financing and responsibility for relatively high investments in the beginning, group-buying, joint selling and joint negotiations reduces risks for all.

You can complement the core offer of your business model with additional services to increase your customers’ productivity and ability to generate income, ultimately increasing the social value of your business. To achieve this tailored coaching support and capacity building efforts need to be designed. You could e.g. help farmers re-discover local materials and traditional skills to increase the resilience of their production. If cleverly managed, this approach increases the competitive advantage and creates additional income opportunities for them.  

Case Study 1

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Clearwater Farms in Zambia is a good example for the Cluster to Succeed strategy, as it offers modular aquaponic systems to smallholders, fosters decentralised production to jointly enter the market and combines this with investment support and capacity building.  

ClearWater Farms promotes aquaponics for the production of horticulture as well as fish. Aquaponics can help smallholders deliver high-quality crops throughout the whole year and generate better yields than field-based farming. It is also more efficient on water use than drip irrigation and independent on rainfall patterns. This creates new possibilities for small farmers to sell locally and sustainably produced food making it a resilient alternative to traditional farming in arid regions.  

ClearWater Farms complements the aquaponics systems with services to link production with markets. For this purpose, the company buys inputs from smallholders or cooperatives and sells their products to hotels and restaurants in Lusaka. This way, the system helps farmers to generate income.   

If necessary, ClearWater Farms also offers financing options to smallholder farmers to obtain their aquaponic system. To ensure that customers obtain the full added value from their system, Clearwater Farms further provides business development, coaching and capacity building to enable farmers to build their own production facilities.  

 

Ein Bild, das Person, draußen, Essen, Mann enthält.

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Man at horticulture plant. Source: Clearwater Farms

Library References

Communities of enterprise: developing regional SMEs in the knowledge economy.

This paper proposes the concepts of Communities of Enterprise (CoEs) and Virtual Communities of Enterprise (VCoEs) to describe business networking patterns in regional areas where there is no central organisational or industry focus and small and medium enterprises dominate the economy. Design/methodology/approach – Based on analysis of the literature this paper builds on theoretical understandings of knowledge management, clustering and regional development. Findings – The concept of CoEs is most appropriate for regional areas characterised by many small enterprises in diverse industries. CoEs enhance development of regional clusters by contributing to their intellectual capital, innovation culture, value networks and social capital. The incorporation of ICT creates VCoEs which provide added potential by enabling regions to expand their learning potential through innovation. Research limitations/implications – This paper provides a conceptual foundation for empirical research into regional network or cluster development using ICT. Practical implications – Virtual Communities of Enterprise value creation potential is substantial but only when the socioeconomic elements of regional clusters are understood. The VCoE approach addresses the fact that without an industry focus it can be difficult to engage and link SMEs from different industries, although this is where the greatest potential for value creation in regional clusters is to be found. Originality/value – The Virtual Communities of Enterprise (VCoEs) concept specifically addresses the unique requirements of SMEs in regions. It has the potential to provide value for regions in a way few ICT based regional development initiatives have been able to achieve.

MASON, C., CASTLEMAN, T., PARKER, C. (2008): Communities of enterprise: developing regional SMEs in the knowledge economy.. In: Journal of enterprise information management: Volume 21 Issue 6, 571-584. URL [Accessed: 12.08.2020]

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