Managing for Growth and Inclusion: Four Levels of Capabilities and a 12 Steps Program

Managing for Growth

Public Disclosure Authorized and Inclusion

Four Levels of Capabilities and a 12 Steps Program

Johanna Michaela Weber Public Disclosure Authorized 7 Public Disclosure Authorized 4 2

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Cover and Design: Francis Gagnon, Voilà Information Design. Managing for Growth and Inclusion Four Levels of Capabilities and a 12 Steps Program

Johanna Michaela Weber

CONTENTS

Dedication and Acknowledgments vii

Abbreviations ix

Executive Summary xi

Study Objective, Methodology, and Analytical Tools 1 Introduction 1 Objective of the Report 2 Methodology and Approach 2 Creation of Value in Global Value Chains in the Fashion and Home Accessories Industries 3 Trends in the Fashion and Home Accessories Industry 5 The Participatory Strategic Management Process 7

Key Features and Drivers of Firms’ Growth 13 Clear Vision Translated into Strategic Planning 13 Operations 15 Leadership and Organization 18 Financing 19 Participation of Artisans, Human Resources, and Community Development 20 Inclusion and Empowerment 22 Marketing and Output Logistics 22 Government or Donor Interventions 23 Business and Digital Environment and Innovation Ecosystem 23 Growth of Firms 24 Four Levels of Capabilities and 12 Steps Program 25 Recommendations 30 Further Research on Inclusive Firms and Their Value Chains, Management, and Poverty Effects 30

Case Studies 33 Soko 34 Artisans d’Angkor 38 Emilime 42 Selyn 46 Anou 50

Annex 1 55

References 57 iv

List of figures Figure 1.1: Value Chain Functions and Network of Value Chains 3 Figure 1.2: Distribution of Value Added in Standard Value Chains 5 Figure 1.3: Firms’ Participatory Strategic Management Process 8 Figure 2.1: Mobile Cell Phone Subscription Growth between 1989 and 2015 24 Figure 2.2.: Capabilities at Four Levels: Firm, Business and Digital Environment, GVC, and Financial Solutions 26 Figure 3.1: Soko’s Trajectory 34 Figure 3.2: Soko’s Affiliate Artisans and Employees by Department 37 Figure 3.3: Artisans d’Angkor’s Trajectory 39 Figure 3.4: Distribution of Artistans d’Angkor’s employees 41 Figure 3.5: Emilime’s Trajectory 44 Figure 3.6: Distribution across Emilime’s Types of Staff 46 Figure 3.7: Selyn’s Trajectory 48 Figure 3.8: Distribution of Selyn’s Full-Time Employees 50 Figure 3.9: Anou’s Trajectory 54

List of tables

Table 1.1: Value Chain Functions for Fashion and Home Accessories Goods 4 Table 1.2: Elements of the PSMP and Sample Questions 9 Table 2.1: Overview of the Five Selected Companies 14 Table 2.2: Market-Oriented Design, Input, Production, and Quality Control Functions 16 Table 2.3: Companies’ Governance and Leadership Structure 18 Table 2.4: Company Financing and Artisans Financing 19 Table 2.5: Degrees of Artisans’ Participation in Different Companies 20 Table 2.6: Human Capital Development: Skills Development and Community Engagement 21 Table 2.7: Main Markets, Marketing Channels, and Sales Channels 23 Table 2.8: Sales Growth and Growth of Artisans and Employees over the Firm’s Life Span (%) 25 Table 2.9: 12 Key Capabilities at Four Levels: Firm, Value Chain, Financial Solutions, Business and Digital Environment 28 Table: 2.10. 12 Step Business and Digital Environment and Innovation Ecosystem Policy Measures for Aggregator and Micro Firms 30 Table A.1: Firm Ranking of Policies and Ecosystems Affecting Firm Growth 59

MANAGING FOR GROWTH v

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM

DEDICATION AND ACKNOWLEDGMENTS

This report is dedicated to Jan Walliser, late (FCI, World Bank) was responsible for the orig- Vice President for Equitable Growth, Finance, inal design of all tables. The report was peer and Institutions [EFI] who cared deeply about reviewed by World Bank Group staff Vincent the World Bank solving poverty and about the Palmade (Lead Economist, IFC, Country poor. Economics and Engagement, Economics and Private Sector Vice Presidency); Toshiya The author of the report is Johanna Michaela Masuoka (Senior Advisor, IFC, Inclusive Weber (Private Sector Development Specialist Business, Economics and Private Sector Vice in the Finance, Competitiveness, and Presidency); and Vinayak Narayan Ghatate Innovation [FCI] Global Practice within EFI) (Senior Rural Development Specialist, Global with general support of José Ernesto López Practice Agriculture and Rural Development, Córdova (Practice Manager, FCI). South Asia). Reviewers of an earlier version The report was inspired by the artisan entre- of the paper are Damien Shiels, Ifeyinwa preneurs in the developing countries and by Uchenna Onugha, and Emiliano Duch Navarro the aggregator entrepreneurs who partner with (all FCI). Monika Steinberger, Director at Aid them. The report was made possible through to Artisans, served as an external reviewer. generous contributions of time for the surveys The General Services Department of the World and during interviews with representatives of Bank designed the graphs in chapter 1. Overall five fashion and home accessories companies: design of the report was the responsibility of Francis Gagnon from Voila Information • Emily Green, Founder of Emilime, United Design. The report was edited by Publications States; Adrianne Chaillé, former Marketing Professionals LLC. and Community Development Director, Emilime, Peru. The design and execution of the surveys and • Vidano Kernem, Secretary General, Artisans the report was financed by the FIAS program d’Angkor, Cambodia. and development partners. The FIAS FY17–21 strategy supports programs and diagnostics • Gwendolyn Floyd, Co-Founder, and that improve the business environment, expand Catherine Mahugu, Co-Founder, Soko, market opportunities, and strengthen firm-level Kenya. competitiveness with the cross-cutting themes • Sergey Gagloev, Consultant and Sandra of gender and inclusion; transparency, political Wanduragala, Founder and CEO, Selyn, Sri economy, and sustainability of reforms; green Lanka. competitiveness; and targeting of high-growth • Dan Driscoll, Founder and CEO, Anou, businesses. Morocco. Lia Mamniashvili (FCI, World Bank) assisted in developing the firm surveys and conducted five out of six interviews. Imtiaz Ahmad Sheikh

ABBREVIATIONS

AFD Agence Française de Développement (French Agency for International Development) CEO chief executive officer EU European Union GVC global value chain HR human resources ICT information and communication technology IT Information Technology PSMP participatory strategic management process LTD limited company OECD Organisation for Economic Co-operation and Development QC quality control R&D research and development TA technical assistance TED Technology, Education, Design TIPS Technology Initiative for the Private Sector WBG World Bank Group WTFO World Fair Trade Organization USAID United States Agency for International Development VC value chain x 4 7 32 601 5MANAGING8 FOR9 GROWTH xi

EXECUTIVE SUMMARY

Objective developing countries and (b) were trading This report’s objective is to analyze the internationally. In the second stage, the team execution of value chain functions and stra- administered a survey to the selected compa- tegic management process functions (busi- nies in 2016 and analyzed the results. Sales ness models) of five artisan-based fashion growth figures were collected in 2018. and home accessories companies in five continents and—through this analysis—to Report Structure examine patterns for inclusive firm growth. Chapter 1 introduces (a) the value chain The research hypothesis is that the firms are functions in the fashion and home accessories highly likely to sustain growth if the firms industry, (b) the trends affecting the fashion (a) fulfill high margins capturing value chain and home accessories industry, and (c) the (VC) functions; (b) apply strategic manage- model of the participatory strategic management functions in a participatory, inclusive ment process (PSMP). Chapter 2 summa- way; (c) do so while responding to important rizes the different elements of the five firms’ industry trends and d) operate in a mini- business models that have led to rapid or to mally acceptable business and digital envi- sustained growth in sales and jobs creation. ronment. The selected artisan-based fashion It also looks at the business environment and home accessories companies are Soko in issues necessary for firm growth. In chapter 0 Kenya and the United States, Artisans d’An- 3, the report analyzes in detail how each gkor in Cambodia, Emilime in Peru and the firm executes the value chain and strategic United States, Selyn in Sri Lanka, and Anou management functions such as input, design, in Morocco. For this report’s data collection, a logistics, production, finance, marketing, lead- two-stage process was used. In the first stage, ership, and human resources—all in a partici- 1 artisan aggregator companies were selected patory, inclusive way. on two criteria: the companies (a) had in their associated supplier network at least 150 The Industry Has a Huge Potential for artisans or microentrepreneurs producing in Growth and for Job Generation for Female Producers and Female Entrepreneurs 1 Aggregator firms are firms that aggregate many smaller The analysis shows that the aggregator firms firms, associations, and individual artisans for produc- have achieved growth by (a) blending tradition. 8 FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM xii tional skills with modern, market-oriented control, and payments of artisanal production design, (b) fulfilling management functions quickly and decidedly. in a participatory way, and (c) using socially and environmentally sustainable production Artisans’ Participation in Management processes and input. It is notable that three of and Value Chain Functions, also the five firms were founded by females or are through ICT, Affects Firm Growth owned by females, and female participation Soko, Emilime, and Anou are frontier firms in among the artisans working in or with the 2 upskilling artisans, teaching artisan leaders selected firms is 80 percent. The firms’ arti- design thinking and quality control skills, and sans include women with low formal educa- having the artisan leaders participate in other tion and women from marginalized communi- 3 management functions, such as organization, ties. The firms’ network size ranges from 150 training and leadership. Soko and Anou are to 2,500 artisans, and female participation providing basic ICT skills to their artisans among artisans ranges from 60 to 97 percent to effectively use their proprietary company (see table 2.6, later in this report). With high apps. The ICT skills and the use of the apps growth for the aggregator and the micro enable artisans to continuously participate enterprises (see table 2.8.) the artisan-based in value chains and become growth entre- fashion and home accessories market has the preneurs. With the continuously acquired potential to be a large job-generating industry. skills, many of the producers are developing Global trends also move towards purchasing into growth micro and small entrepreneurs that is linked to social and environmental or active members of their cooperative or impact of production. Communication with production group. Anou, among the case study customers about the economic effects of the firms, is the most participatory firm in that micro enterprises’ integration into global value the artisans own the cooperative. That is, the chains is therefore a competitive asset for the artisans occupy all seven seats on the board, aggregator firms and an impetus for the micro which is complemented by the executive direc- enterprise to innovate and grow itself. tor and founder of Anou. Anou is also among the fastest-growing firms. Artisans d’Angkor Firm-Level Digital Solutions Are Disrupting is providing continuous technical training to the Industry and Bring Microentrepreneurs its employees and all firms deliver additional into the Global Value Chain services to the artisans, including life skills. Two of the five examined, Soko and Anou, firms use proprietary apps that are disrupting Sources of Finance for Aggregator Firms the industry by organizing production and Has Been Varied, and Aggregators Are quality control of a production network of Filling the Producers’ Finance Gaps up to 2,500 decentralized artisans, thereby The analysis showed that the financing func- increasing productivity. Proprietary software tion is crucial for the growth of the aggregator in each of the two firms is facilitating the orga- firms and for the respective artisan micro- nization, operational planning, operational enterprises. Artisans d’Angkor financed its growth through a government-backed loan at start-up; Emilime, Selyn, and Anou used 2. Weighted by the selected companies’ size of artisan retained earnings to finance their growth at networks. company start-up. Selyn is financing its oper- 3. The share of 80 percent female participation with low ations now by bank loans. Soko used some formal education and from marginalized communities grant funds at start-up and beginning with its has been confirmed in a subsequent World Bank Group survey of 40 artisan aggregator firms using the VC and second year of operation has been financed by PSMP frameworks. The 40 artisan aggregator firms that equity capital. Preparing products for inter- were surveyed represent 25,000 artisans in 35 emerging national customers requires operating capital, countries. The latter survey was based on the current which most artisans do not have. The analysis study and its methodology, and survey results will be published in a forthcoming World Bank Group report. shows that aggregator firms are filling this gap

MANAGING FOR GROWTH xiii by providing finance to their artisan producers (High)-Growth Firms Create Jobs for through prefinancing input materials or prefi- Marginalized Microentrepreneurs, Build Firm- nancing investments. Level Human Capital, and Are Disruptors Two firms show high growth with 83 and Favorable Business and Digital Environment 93 percent of average sales growth for the Issues Cluster around ICT access, Affordable last three years and annualized artisan and Mobile Phone Rates, and Women’s Right to employees’ growth since inception of 17 Work Outside the Home, as Well as Other to 152 percent. The case study firms have Regulations or Customs Affecting Women adopted many if not all of fast-fashion firms’ Companies emphasize as critical business attributes: (a) selling their own brand prod- environment issues the following: cell phone ucts, (b) having continuous variation in affordability and internet connectivity (see product designs based on consumer trends, chapter 3). Women’s right to work outside the (c) encouraging producers’ participation in the home and other regulations or customs that design process, (d) having a central quality affect women and minorities abilities to work control function, and (e) using ICT and data or be an entrepreneur were rated as other that contribute to smart production and effi- very positive drivers for firm growth. Business cient logistics. A differentiating element of the competitions, publicizing prices, and awards— case study firms compared to the fast fashion as well as social media attention—were also firms is the ethical value (socially and environ- rated as very important. mentally sustainable value), a value created beyond the economic value. Also mentioned as positively affecting firm growth were (a) government or donor assis- The two more mature firms amongst the case tance to provide technical skills at the start of study firms have experienced slowing or nega- the company, (b) programs—even small—for tive growth over the past years. These firms the firm’s exposure to external markets, and could experiment with some of the design, (c) certification (fair-trade and others). Other human resources, operational, and informa- important business environment areas were tion and communication technology (ICT) the foreign currency earning regime and the tools the way Soko, Anou, and Emilime have import and export regulations. used their human capital growth tools in a disrupting way with their respective business Unfavorable Business Environment models. Issues Vary: Lack of Access to Finance for Artisans, Customs Procedures, Satisfactory Ratings in Four Levels of Accrediting Firms’ Artisan Training, Capabilities Can Produce (High)-Growth Firms and Prior and Current Conflicts The present research shows that complemen- Issues negatively affecting business growth tary capabilities at four levels—firm, business were (a) lack of access to credit for artisans, and digital environment and the innovatoin (b) lack of accreditation for the skills training ecosystem, global value chain (GVC), and provided by the aggregator firms, (c) customs financial solutions—can “produce” inclusive processing, (d) lack of governments’ assistance (high)-growth firms. Retailers, governments, for product certification, and (e) current and donors, financial solutions providers, or other prior political conflicts in the respective coun- industry ecosystem participants may use this tries. Several firms raised the issue of lack of framework to analyze and to develop the access to electricity, and one company raised aggregator firms, which may be at different high electricity prices as a constraint to firm stages of development. Whether the objective growth. is to increase firm performance, to aggregate small and micro firms into a larger firm, or to develop suppliers for larger firms in an inclu-

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM xiv

sive manner, the underlying analytical tools Further Research on Poverty Impact can be useful. The 12 key capabilities at the and Explore the Weights of the firm level, GVC level, and financial solutions Four Levels of Capabilities level have been distilled from the selected case The report suggests further research and study firms. On the business environment and research partnerships into more in-depth innovation ecosystem level, the 12 steps policy aspects of the value chain, firm management, measures could be implemented. its poverty effects, and the interaction of the model and innovation. Those research areas Tools Can Aid Diagnostic and are (a) the impact of the integration into GVC Firm Development on the artisan microentrepreneur’s income and The survey and its analysis in terms of level of investments and on the respective communi- fulfillment of participatory strategic manage- ties; (b) different models to include blockchain ment process and value chain functions, as technology for trade financing or aggregators, well as the trend analysis for the specific given that data-driven and distributed produc- industry in competitive markets can be used tion as well as traceability and sustainability as diagnostic tools for inclusive businesses. for retailers are trends to stay and to expand; The ensuing firm analysis and the current case (c) measurements of the firms’ management, study results can then also be used to develop GVC, and financial solutions’ capabilities, any prospective aggregator firms when gaps in including the capability to use data and ICT certain value chain or management functions and to upskill microenterprises in different have been identified. The tools have already cultural contexts and with majority women been used in the subsequent World Bank as producers and entrepreneurs; (d) minimal Group’s quantitative industry research for threshold of the business and digital environ- an International Finance Corporation–World ment and of the innovation ecosystem for the Bank supplier development project and a emergence of aggregator export firms and of forthcoming publication. distributed manufacturing; and lastly (e) the relative importance of the four capabilities for firm productivity, firm growth, human capital development, and the innovation transfers in the industry and to other industries within the country and globally.

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chapter

1MANAGING FOR GROWTH 1

STUDY OBJECTIVE, METHODOLOGY, AND ANALYTICAL TOOLS

Introduction Artisans’ skills and economic potential in Fashion and home accessories items produced emerging economies countries can be lifted by artisans in 2011 were estimated at a global out of informal, low-innovation capacity and export value of more than US$36 billion of dependency on intermediaries. In developed which US$10.7 billion was from developing economies, artisans or craftswomen and countries, US$23.4 billion from transition craftsmen add value to high fashion and home countries, and US$0.2 billion from developed décor with the label “handmade” often being countries (UNCTAD 2016).4 In the developing a key element of high fashion and luxury world, artisan activities are estimated to be (Rabkin 2017). Yet the image, quality, and one of the biggest employers after agriculture market access of most artisan enterprises in and are generating additional or sole income the developing countries are still not on par for rural populations, especially for women. with those of craftspeople in Europe. Artisans An example, the 2011 Indian census counts in developing countries, often uneducated 7 million artisans, of which 57 percent are females, work in remote locations and in female; unofficial estimates are 200 million disenfranchised communities with few busi- artisans in India. In 2011, Indian artisans ness skills, little to no market and services’ generated US$4.5 billion of exports.5 In the access, and no financial means necessary past, many donor projects have not focused on to create new product designs and to boost developing value chain integration and have productivity.6 Sales, innovation in manage- therefore not been effective. Consequently, ment and production systems, and skills devel- artisans have remained for the large part in opment are at a low level. the informal sector. Over the past years, consumers and global retailers have increasingly been interested in buying and sourcing apparel and fashion and 4. The share of creative services such as interior design services from the developing economies is still minimal. Almost all services exported are generated by developed 6. India’s handloom industry is estimated at 4 economies (UNCTAD 2016). million artisans of which 78 percent are women and 5. See the website of the Development Commissioner 28.2 percent are from marginalized groups. India’s (Handicrafts), Ministry of Textiles, Government handicraft industry is estimated at 7 million artisans, of India, http://handicrafts.nic.in/Page. with 47 percent being women and 28.3 percent from aspx?MID=BOII5FUynjpl5RZJJ8nW1g==. marginalized groups. 1 FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 2 home accessories from sustainable sources, pave the way to formal entrepreneurship or including artisans (IKEA 2016a). More and formal employment.7 The knowledge gener- more private sector firms are concerned with ated here can further enhance programs of and committed to trading in sustainable other development partners, investors and value chains. IKEA, for example, is commit- governments in client countries. An indirect ted to doubling its sourcing from India from effect is to reverse the image of artisan firms €300 million to €600 million in four years as small-scale, informal firms that are unable (2016–2020); part of that is sourced from arti- to respond to market forces and trends. sans group such as Rangsutra and Industree (IKEA 2016b). At the same time, the company Methodology and Approach is sourcing all its globally sold fabrics from The analytical frameworks used are global sustainable sourced cotton (The Hindu 2016; value chains and participatory strategic IKEA 2017). Many other companies such as management process functions in a dynamic Nordstrom and Muji and smaller retail brands industry environment. This current study are increasing sourcing from artisans and from examines how the firms execute the functions other sustainable sources. derived from those analytical frameworks. Value chain functions, the network of value Objective of the Report chains (global value chains), and the partici- The objective of this report is to analyze how patory strategic management process are busi- five growth companies of artisan-based fashion ness administration sciences concepts used in and home accessories located in five continents the business practice of firms. The influence of measure up to an analytical framework—that the business and digital environment as well is, the execution of value chain functions and as aspects of the innovation ecosystem on firm participatory strategic management process growth was a secondary analysis and solely functions (business models) in a dynamic based on the firms’ perceptions. industry environment. This analysis may reveal patterns within these frameworks associated Chapter 1 introduces the value chain func- with growth of inclusive firms. The research tions and network of value chains. The report hypothesis is that the firms are highly likely will analyze which value chain functions to sustain growth if the firms (a) fulfill high the selected firms are fulfilling and to what margins capturing value chain (VC) functions; degree the examined firms are internaliz- (b) apply strategic management functions in ing and adapting to industry trends. The a participatory, inclusive way; (c) do so while dynamic industry environment can be partly responding to industry trends and d) take analyzed by benchmarking characteristics of advantage of aspects of the business and digital the researched firms to characteristics of firms environment. in growth industry segments in the same or similar industry. Chapter 1 then introduces The selected artisan-based, inclusive fashion industry trends for the fashion and home and home accessories companies, also called accessories industry. Finally, chapter 1 intro- aggregators, are Soko in Kenya and the duces the participatory strategic management United States, Artisans d’Angkor in Cambodia, process. Chapter 2 examines which value-add- Emilime in Peru and the United States, Selyn ing activities the selected companies perform in Sri Lanka, and Anou in Morocco. Those and how they have been able to capture firms aggregate marginalized, often remote margins while responding to industry trends artisans who have very low education and in competitive markets and the business envi- who have no access to other employment. ronment conditions. Chapter 3 describes in With this analysis and the analytical frame- detail the different case studies. works that are used here, the report intends to provide tools for enterprise development programs and financing instruments in the 7. Transitional jobs are jobs that are nonfarm jobs for World Bank Group, focusing on jobs that may people with little formal education.

MANAGING FOR GROWTH 3

Figure 1.1: Value Chain Functions and Network of Value Chains Suppliers Producers Value chain Network of value chains Retailers Business infrastructure Human resources Secondary Technological development suppliers’ business’ distributors’ retailers’ clients’ Profit Input value chain value chain value chain value chain value chain Design Operations Marketing Output Client Primary and input and logistics service logistics distribution

Source: Porter 1980; Author’s adjustments for network of value chains, in Weber 2002.

The firm selection and data collection used a countries. Examples of large retailers in the two-stage process. In the first stage, artisans’ home accessories industry are companies such cooperatives and enterprises around the world as IKEA, Crate and Barrel, Muji, and West Elm.9 were screened, and the author made a nonrep- Large retailers in the fashion accessories indus- resentative selection of five companies in five try are Anthropologie, Nordstrom, and others. World Bank Group regions to be included in the study. The selection criteria were that the This study will analyze which value chain firms (a) had in their supplier network at least functions the case study firms are executing 150 artisans or microentrepreneurs producing with the leading questions being (a) where are in developing countries and (b) were trading the firms creating value (World Bank Group internationally.8 In the second stage, a survey 2015a), (b) are the firms responding well to the industry trends and do they have capabili- was developed and administered to the five 10 founders or companies’ management teams ties to respond to competitive industry forces, using closed and open-ended questions. The and (c) are the firms able to grow? Primary survey was conducted using phone interviews. value chain functions include design and input Growth data and business and digital environ- logistics, operations, marketing and distribu- ment data was collected in April 2018. tion, output logistics, and client services (see figure 1.1). Secondary or supporting value Creation of Value in Global Value Chains in chain functions such as business infrastructure, the Fashion and Home Accessories Industries human resources, technological development, and input (see figure 1.1) overlap in part with The global value chain (GVC) actors in the the PSMP functions in the PSMP framework fashion and home accessories industries are (see also figure 1.3 later). varied and include companies from large The GVC functions in the fashion and home suppliers, producers, and retailers to small accessories are fulfilled by different actors. The producers (small factories, workshops, and arti- main GVC functions and actors in the fashion sans) and retailers in developed and developing

8. Recent World Bank Group research summarizes 9. IKEA—headquartered in the United States—has several studies and concludes that “Relative to their 14,000 employees, revenues of US$37.3 billion (2017), local counterparts, firms with international exposure and 370 stores in 47 countries, of which 70 percent (measured through exports or foreign ownership) are in Europe. See Forbes, “The World’s Most Valuable tend to be larger, more productive, better managed, Brands,” https://www.forbes.com/powerful-brands/ pay higher wages, and have higher rates of technology list/#tab:rank; Muji is a Japanese lifestyle retailer adoption. This occurs through various channels: firms owned by Ryohin Keikaku Co. with 403 international (50 that participate in global value chains benefit directly percent of which are in China) and 400 Japanese stores, via the transfer of technological, managerial and foreign with fiscal year 2017 revenues of US$3 billion (Marlow, market related knowledge through capital investment as 2017). well as hiring of foreign managers.” In: Grover Goswami 10. Porter’s five forces summarize the main competitive et al (2018), p. 92 forces in an industry (Porter 1985).

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 4

Table 1.1: Value Chain Functions for Fashion and Home Accessories Goods Value chain functions Actors Activities

Market Research Market trends analysts Identify trends in shapes, color, material, and consumer trends in target markets, as well as costumers’ data analysis (feedback, patterns, etc.).

Design and research and Designers Design and develop concept, products and development (R&D) services.

Input logistics Suppliers Contract with local and international raw or inter- mediary products and services suppliers

Production Workers or producers Produce materials in factories and workshops or with independent artisans (groups).

Quality control, finishing, Supervisory or quality control Check for consistency and subsequent rejection or pricing, labeling, and packaging employees of producers and acceptance; activity is often merged with informa- buyers tion technology.

Logistics logistics intermediaries Handle, transport, and store merchandise.

Buying and merchandising Merchandisers Buy for retail stores or for sales through e-commerce stores.

Retailing, including e-commerce Retailers Provide brick and mortar stores and online retail* in local and international markets.

Client services Client service representatives Handle returns, care instructions, customs production, etc.

Source: Author. * Online retailers are also called e-retailers—producers or intermediaries with the capacity to curate, to take payments, to store, and to distribute products. and home accessories value chain are listed in lished “fast fashion” as a growth segment in the table 1.1. apparel industry.11 The report found that the production function had low returns, resulting The network of value chains functions equals in low-paying factory jobs (see figure 1.2). The the GVC or a “super-network” (Pfeiffer 1994), analysis in chapter 2 of this report will examine and firms are staking out their place in the GVC which value-adding activities the selected to compete in a dynamic industry. A World companies perform and how they have been Bank Group apparel GVC analysis, which is able to capture margins while responding to also relevant to the fashion and home accesso- industry trends. ries industry, found that the apparel industry has been a buyer-driven industry in which “profits come from combinations of high-value research, design, sales, branding, marketing, 11. The fast-fashion industry segment is characterized and financial services that allow retailers, by smaller orders, shorter lead times, and sophisticated designers, and marketers to act as strategic data management in the supply chain. Fast-fashion firms brokers in linking overseas factories and traders have systems in place to expedite production processes to get new trends to the market quickly and cheaply. with product niches in their main consumer Fast-fashion retailers introduce new products multiple markets” (World Bank 2015). times in a single week and have innovated in supply chain management among fashion retailers working Furthermore, the study found that distribution intensively with data collected through retail outlets and retail were high-value functions and estab- (World Bank 2015).

MANAGING FOR GROWTH 5

Figure 1.2: Distribution of Value Added across the Value Chain Functions

Value added

High

Marketing Research and Design and and brand Sales and development development Manufacturing management service Low Upstream Value chain functions Downstream

Source: Adjusted from World Bank 2015

Trends in the Fashion and Home from an estimated $2 billion in 2018, as Accessories Industry retailers target new avenues to increase personalization of the customer experi- Trends on the demand and supply side in the 13 fashion and home accessories industry and ence. Another tool retailers use to keep brands connected to the different markets is adaptations of firms to those trends determine collaborative design (that is, a collaboration the characteristics of those firms’ value chains between the retailer and designers from and management processes. The trends deter- target markets). An example is the collabo- mine possible future consumer profiles and ration between African furniture and home technological capabilities, which artisan-based accessories’ designers and IKEA Sweden firms can leverage to compete locally or glob- for IKEA’s first-ever exclusive, all-African ally. Many of the trends for the fashion and collection that will launch in 2019 (De Klee home accessories industry are similar to the 2017). apparel industry. They can be categorized as • Other examples are when designers work direct, indirect, or mega trends. with craftsmen and craftswomen to integrate traditional skills, functionality, Direct Industry Trends customers’ taste, and modern and tradi- • Design, customer experience, and collab- tional materials (see case studies in chapter orative design. Such factors are more and 3.). Wabani is a concrete example where more driving consumer and brand loyalty. artisans from rural Guyana create what IKEA customers desire for their custom Product design and customer experiences 14 are the reason customers repeatedly buy or kitchen furniture. The most advanced use certain brands, retailers, and products.12 collaborative design is customer co-creation Customer experience includes the emotional or open innovation, an Industry 4.0 lever to increase the time-to-market value (Löffler state of customers at and after the decision 15 to purchase and the customer’s alignment and Tschiesner 2013). with a brand in general. A 2018 study from Juniper Research has found that global 13. Retailer spending in 2022 will be shared as follows: retailer spending on artificial intelligence (a) Customer Service and Sentiment Analytics—54 will reach $7.3 billion a year by 2022, up percent, (b) AI-based Automated Marketing—30 percent, and (c) Demand Forecasting—16 percent (Business Wire 2018). 12. Steve Jobs, Apple’s co-founder, once said, “Design is 14. See Wabbani’s website at http://wabbani.com/. a funny word. Some people think that design means how 15. Industry 4.0 is manufacturing using digital it looks. But of course, if you dig deeper, it’s really how it technology, automation, and big data analysis to improve works” (Stephens 2017). manufacturing processes. The term was coined in

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 6

• Rise of certification, traceability, and home accessories products as customers sustainable GVCs. Consumers and final have experienced a higher exposure to goods producers around the world increas- different cultures and styles. Although the ingly demand products and services that market for purely indigenous designs is are simultaneously functional and good limited, many buyers seek unique functional quality, good for the environment, and good or decorative products that combine ethnic for people and the society in the producing elements with contemporary designs. At the country—“the triple bottom line of sustain- same time, emerging countries such as India able growth” (World Bank Group, OECD, are also a market for ethnic fashion and and ITC 2016). Governments, international home accessories. The Indian firm Fabindia bodies like the Organisation for Economic shows that artisan-based firms can fill this Co-operation and Development, Group demand. 17 of 20, International Labour Organization, World Bank Group, and private sector are • E-commerce growth complementing developing their respective policy initia- brick-and-mortar retail. E-commerce tives, such as “Better works,” the “Better accounts for a large part of the sales growth Cotton program,” or certifications like the for many retailers today. For a number “Goodweave label” thereby certifying that of companies, online sales are helping to rugs are produced without child labor or offset declining sales in the physical store the fair-trade label. Retailers such as West (Deloitte 2016). In China, fashion online Elm, Nordstrom, IKEA, Costco, or Japanese retailers such as Alibaba’s women fashion global lifestyle retailer Muji are buying brand Inman is expanding into brick-and- goods from artisan producers in the fashion mortar stores (Yuan 2018). The global and home accessories industry while e-commerce market is expected to grow at a looking for ways to adhere to environmen- compound annual rate of 17 percent—from tal, labor, and quality standards, as well as $1.3 trillion in 2014 to $2.5 trillion by the ways to use recycled materials.16 Blockchain end of 2018 (Rogers 2015). Approximately technology is helping elevate the traceabil- 12 percent of the global goods trade is ity of goods and services (Bessonov 2017; conducted via international e-commerce, Thomas 2018). with much of it driven by platforms such as Alibaba, Amazon, eBay, Flipkart, and • Growth market for fashion and home Rakuten (McKinsey Global Institute 2016). décor goods. Urbanization and the rise of “A competitive advantage that companies the middle class and, hence, the real estate gain in navigating both online and offline sector and the home décor and accessories retail is the access to more consumers and industry in many developing and emerging better data about them” (Yuan 2018). countries are pushing up the demand for • Yet also fashion bloggers are taking a home products. Middle-class populations 18 and gross domestic product growth expand share of the market. Empirical evidence rapidly, particularly in China, India, and suggests that companies who use the web Africa (PwC 2016). The Brookings Institute extensively for customer engagement grow estimates 65% of the global population will faster. Micro, small, and medium enterprises be middle class by 2030 (PWC 2018). in developing countries have also started using the internet to connect to consum- • Exposure to different cultures through ers. E-commerce in developing countries is tourism growth and growing markets in increasing and is expected to further boost emerging countries. Growth in international and domestic tourism also boosted the global growth of authentic fashion and 17. Founded in 1960 by John Brissell, Fabindia now owns 272 retail stores in India and 12 stores abroad Germany’s 2006 industrial policy with the vision of an and works with 40,000 artisans in India. Its yearly integrated industry by leveraging Internet technologies, turnover is US$154 million, and it is South Asia’s largest also known as the 4th Industrial Revolution (Lydon apparel and home décor retailer. (See Fabindia’s website, 2014). https://www.fabindia.com/pages/store-locator/pgid- 16. For more on the Nordstrom Cares program, see 1124272.aspx; Malviya 2016). nordstromcares.com. See also (Quito 2016). Walmart 18. Fashion bloggers either offer links straight from their and other retailers have similar programs. The trend is websites to retailers or identify local retailers who offer known as “cradle-to-grave.” See Fibre2Fashion (2017). the brand products near the global readers.

MANAGING FOR GROWTH 7

exports of small and medium enterprises such trends into their vision and operations in (Suneja 2017). a competitive industry environment, the next section briefly describes the PSMP used in Mega Trends analyzing and developing firm capabilities. • Data analytics, applications, and digiti- zation. New technologies are permeating The Participatory Strategic people’s personal and professional lives Management Process through distributive manufacturing, traffic optimization systems, digital music, film Strategic management is a process, which, streaming, social media, smart home goods, if applied, helps firms achieve efficiency and smart apparel. Hence the ability to and effectiveness in translating their vision collect, to analyze, and to distribute data by continuously improving their manage- as well as to build applications is a crucial ment functions in a dynamic environment. element for the success of growth compa- Applying all strategic management functions nies (van den Driest, Sthanunanthan, or processes to a sufficient degree ensures and Weed 2016; Oracle 2017). Internet that the firm is using resources efficiently and connectivity is also spreading in develop- effectively, and it elevates capabilities in a ing countries at exponential rates (internet use in Africa grew 9,000 percent between competitive industry when those functions are 2000 and 2018, and in Asia it grew 1,643 fulfilled to a higher degree (Steinmann and percent).19 By blending new data sources Schreyögg 2000). The PSMP also shows a path with real-time analytics and behavioral on how to manage processes and interactions inputs, companies are developing new ways with employees, producers, and clients. of organizing their value chains and of offering innovative services and products Empirical economists have recently started to (Céspedes 2018). confirm this connection between management capabilities and innovation and subsequent • Development of green funds and sustain- productivity by providing comparative quanti- ability in investing. Financial institutions are responding to pressure and to tative analysis of management practices across demand—of millennials and others—to countries (Bloom and Van Reenen 2007; invest sustainably. According to Morgan Cirera and Maloney 2017). They also found Stanley’s research, 86 percent of millenni- that data confirm firms’ “openness to trade als—broadly defined as those born between provides incentives to upgrade and presents the early 1980s and 2000—say they are exposure to new ideas” (Cirera and Maloney interested in socially responsible investing 2017, xxii). (Morgan Stanley 2017; Morgan Stanley Institute on Sustainable Development Steinmann and Löehr (1992) introduced the 2015). concept of business ethics into the model of strategic management to broaden the compa- Those trends point to the emergence of a ny’s objective beyond profit making and to segment in the home and fashion accesso- contribute to the public interest (see also ries industry that could be described as the Steinmann and Scherer 2008). Their defini- “ethical fashion” segment. Because this study tion of business or corporate ethics is dialogue does not perform an industry segmentation between the firm and concerned parties, such exercise, the emergence of a new segment as the dialogue between management and of ethical fashion may be confirmed through workers through workers’ representation in further research (see “Conclusions” in chapter the company’s management or the dialogue 2).20 Before moving to the analysis of chapter with parties concerned about the firm’s social 2 on how the case study firms are integrating and environmental effects. The PSMP expands 19. Internet World Stats, https://www. this participation to other value chain actors, internetworldstats.com/stats.htm. such as government and customers (Weber 20. For the industry segmentation methodology, see 2002). World Bank 2015.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 8

The strategic management process consists of and control (see figure 1.3). In this process, the three functions: strategic planning, strate- Steinmann and Schreyögg (2000) distinguish gic control, and strategic implementation. It two levels—the strategic and the operational also includes the five traditional operational level. Table 1.2 shows important sample ques- management functions: planning, manage- tions for each of the PSMP functions. ment, personnel management, organization,

Figure 1.3: Firms’ Participatory Strategic Management Process

Vision

Organizational Culture Communication

Organization External Internal HR Management Leadership

Tension between Dialog Political, Strategic Strategic Selection Compensation (Business cultural, Innovation Planning Controlling Effectivity ethics) = management Participation

Tension between Tension between Routine reflection and Strategic abstraction and Efficiency implementation Implementation concretion

Leadership Organizational Culture Planning Controlling Communication External Internal HR Management Organization

Values

Source: Weber 2002, adapted from Steinmann and Schreiyögg 2000.

MANAGING FOR GROWTH 9

Table 1.2: Elements of the PSMP and Sample Questions Participatory Strategic Application to Fashion Accessories and Management Process Home Décor Manufacturers (sample questions)

Strategic Planning and Vision What is the vision of the company? What are its goals? Does the company create a brand, or does it produce generic products for a larger retailer? How do the microenterprises affect the environment, and what is the social impact?

Competitiveness Analysis How does the company distinguish itself from other producers in the industry? How does it address rivalry with similar firms, and what is the firm’s bargaining power relative to suppliers and buyers?

Strategic Control Is the firm continuously analyzing emerging product, process, data and network technology trends and competitive forces?

Strategic Implementation Are process and product technology integrated? Are operative functions fulfilling the strategic goals? What technology does the aggregator firm use (for products, processes, financing, data generation) ?

Operative Planning Which resources does the firm need to fulfill its strategic and operative goals?

Research and development Who is fulfilling the R&D function?

Organization and Organization How are production and management organized? Is the company using and inte- culture grating IT in management and value creating functions? What is the organization’s culture?

Financial planning and Financial How are the operations and the company financed? Management

Human Resources How does the company recruit and retain workers and suppliers? How does the company integrate the suppliers or network of producers into value chain functions?

Operative Control How are the operative goals monitored?

Particpation, Dialogue What is the dialogue with workers, with the network of suppliers, with buyers, with customers and their respective communities: How is the principle “change of perspective from tangible assets to human assets” applied to the company? How is the network of producers engaged with the company? How are the customers engaged?

Source: Author’s adaptation of Weber 2002.

Lean management principles are also part of tration on core activities, and (f) customer the PSMP (Pfeiffer 1994). The process princi- orientation. The substantive principles are as ples of lean management are methodological follows: principles: holistic, systematic, integrated, • Change of perspective from tangible assets and interdisciplinary. Also included are the to human assets; principles of attitudes: (a) permanence and consistency, (b) perfection in small things, (c) • Design of the entire value chain as an inte- avoidance of waste, (d) distinction between grated super network; activities with value growth and activities • Integrated consideration of process and without value growth (value-adding activity product technology. versus nonvalue-creating activity), (e) concen-

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 10

Those principles are also important when ipation); and marketing and output logistics. looking at the sustainability goals of industrial The different tables in chapter 2 will show the production. common threads across the GVC and PSMP functions between the case study firms (that The following chapters will examine how the is, the minimum management and value-add- five selected artisan-based fashion and home ing processes in place). In some places, the accessories companies execute PMSP and GVC tables will show the differences where firms functions and how that activity contributes may upgrade participatory management to their growth. Those functions are strategic functions or GVC functions or may use disrup- planning; operations (product design, input tive technology to catch up with the growth logistics, and production); leadership, organi- companies in the industry (see chapter 2.). zation, and strategic control; finance; human resources and community engagement (partic-

MANAGING FOR GROWTH

chap ter

2MANAGING FOR GROWTH 13

KEY FEATURES AND DRIVERS OF FIRMS’ GROWTH

Clear Vision Translated into Strategic Planning all firms’ brands are the product stories—that All five companies have been established and is, information available to the customer on are led by entrepreneurs with the vision to what are the materials used, what is the prov- translate traditional artisan techniques and enance of the materials, who is producing the design into market-ready sustainable products product, what is the environment the artisans and, at the same time, to build sustainable are in, and what is the impact on the producer and dynamic artisans communities (see table and his or her community of being part of the 2.1). All surveyed companies offer their inter- network or GVC. Table 2.1 gives an overview national customers good quality, hand-made, and main characteristics of the case studies and well-designed branded products in a mid- companies. to high-end price range. An important part of

2 FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 14

Table 2.1: Overview of the Five Selected Companies

Founded 2012 2003 2009 1991 2012

Headquarters Nairobi, San Francisco Siem Reap Lima, Austin Kurunegala Rabat

Country Kenya, USA Cambodia Peru, USA Sri Lanka Morocco

Revenues (US$) not available > 5 million (2017) 0.4 – 0.5 million > 1 million (2017) 0.25 – 0.5 million (2015) (2015)

Number of 2500 736 150 739 500 artisans

Nbr of other 70 360 5 75 7 employees

Stores none 6 none 5 0

CEO or Founders Joanne Calabrese, Pierre André Emily Green, Sandra Wanduragala, Dan Driscoll CEO (not pictured) Romano, CEO Founder and CEO Founder and CEO Founder and Chair- man of the Board

Business model Network Artisans are Network Network Artisans’ with artisans (nonexclusive employees (exclusive supplier (exclusive supplier cooperative supplier relationship) relationship) relationship)

Signature Jewelry from brass, Silk textiles, Knitted accessories Home decor items, rugs, home decor products horn, etc. woodwork and apparel toys, apparel products, jewelry

Innovations Artisan app, smart Skills system, new Smart logistics Fair trade toys Visual only app logistics services system

Financing of Upfront partial Employees’ wages Yarn supply credit Upfront partial Self-fi nanced from artisans payment upon payment profi ts order

Source: WBG team’s fi rm surveys and company websites. Photo credits: Soko, Artisan d’Angkor, Emilime, Selyn, Anou MANAGING FOR GROWTH 15

Engagement with customers and participa- given the increasing urbanization in Cambodia tion of artisans in the different functions are and the rest of Asia. key parts of the respective strategy. The artisans are linked to the product story through Over the past 10 years, despite Cambodia’s which the customer participates and experi- tourist receipts tripling from 2006 to 2016 ences the company more actively than simply (World Bank Data 2018), Artisans d’Angkor by consuming a product. The product story noticed that the tourists’ countries of origin features the artisans and the sustainable mate- had become more diverse with a higher rials and processes used; therefore, the story proportion of Asian tourists who have a lower underlines inclusiveness and transparency propensity than their European counterparts used in the manufacturing process. The aggre- to buy high-priced items. Partly in response gator firms (that is, the main or brand firms) to this development, Artisans ’Angkor is now select artisans as producers and then train offering smaller products. Artisans d’Angkor those artisans in quality production for inter- has also developed in-depth, hands-on artisan national retail markets. Over time, the arti- experiences by giving tourists the opportunity to see and actively participate in production sans are also trained to design and co-design 21 products. Each company trades internationally workshops. and uses different sales channels, including As part of Emilime’s expansion strategy, in its own stores, online retailing, and wholesale August 2016 the firm decided to expand its to larger retailers (see the subsequent section product line into sweater production, in addi- about marketing and output logistics). tion to its traditional fashion accessories prod- Among the case study firms, the younger firms ucts. at start-up have focused on a few product All firms experienced growth in their early lines mostly in one product category. Soko years, yet growth in recent years has varied. produces fashion-forward jewelry for the U.S., Over the past three years, Soko has had European, and Asian markets (wholesale and growth rates of more than 100 percent per online retail), and Emilime produces knitted year. Anou’s growth was 200 percent between fashion and fashion accessories for the U.S. 2014 and 2015 and 50 percent between market (wholesale). Anou is producing mostly 2015 and 2016. Emilime turned profitable in handmade rugs and, to a smaller degree, 2015, has been growing, and has experienced home décor products for the U.S. market. The a down-turn period in 2016-17. The more more mature firms sell a variety of products: mature firms experienced slower or negative Artisans d’Angkor produces silk fashion and growth over the past years. home accessories for the tourist market, and Selyn produces handloom fabric, toys, and Operations apparel made from the handloom fabric for The design function in the value chain, one of wholesale export and local retail (see also the most value-adding activities, is performed table 2.1). in each company in-house with input from As part of the firms’ strategic control func- the artisans to keep the nexus between function, some firms have diversified their product tion, form, and material. Product designs range and expanded into services. Soko and are innovated in a constant exchange with Artisans d’Angkor have added services: Soko customers’ and buyers’ feedback and market offers sourcing, private-label services for brand trends. In Soko and Emilime, the co-founders companies, such as brands including Target and founders act also as creative directors and and QVC using innovative manufacturing screen fashion trends. For their respective new models. Artisans d’Angkor has expanded into collections, each season the firms develop new interior design services that represent about prototypes for artisans to test produce. The 10 percent of revenues so far, yet could grow 21. See Artisans d’Angkor’s website, http://www. artisansdangkor.com/, accessed in January 2018..

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 16 results and lessons of the prototype produc- time international designer translates industry tion are fed into the design process. Selyn trends into the artisans’ design processes in often works with an outside designer for its artisan workshops. Artisan leaders follow up toys collection. In the case of Artisans d’Ang- on the design and production process. Table kor, the research and development department 2.2 summarizes the design, input, and quality oversees product design with input from the control function. production and marketing departments and from senior management. For Anou, a part-

Table 2.2: Market-Oriented Design, Input, Production, and Quality Control Functions Artisans Soko d’Angkor Emilime Selyn Anou

Primary Fashion forward Silk fashion acces- Hand-knitted Handloom fabric, Rugs, home décor products jewelry sories and home fashion accesso- apparel made products, jewelry décor products ries and apparel from handloom fabric

Secondary Interior design Hand-knitted Toys made from products and decoration sweaters handloom fabric

Markets USA, online Local tourist USA, online European, USA, online markets, local Japanese hotels markets, Australia, local tourist markets

New products/ Public space Sourcing services services sculptures for other buyers

Design function Creative Director In-house Creative Director In-house Artisans with Emilime artisans leaders and designer as mentor

Input and source Local brass, horn, Local wood and Local alpaca, Yarn from Local wool of inputs beads, recycled stone, silk thread Andean sheep India, dyes and material from China; dyes wool, and small chemicals from from Germany quantities of Germany and and France acrylic Switzerland

Quality control Mobile app Intensive Core function for In-line inspec- Centralized (QC) function in-house Quality inputs and before tion during and quality control by Control shipping after production artisan trainers process. Quality audit

Production Individual arti- 48 company Workshops and Company facilities Artisans homes, location sans workshops owned work- home based work and outsourced not clustered in Kibera slum of shops in rural in Lima, Junin, artisan work- Nairobi areas and Puno shops

Source: WBG team’s firm survey.

MANAGING FOR GROWTH 17

Emilime and Soko also hold workshops with anal production. It is using high-technology their artisans to instill creative thinking production methods for yarn dying and for and innovation with the objective to render its toy production, as it follows regulations over time the artisans into co-designers for on flammability, toxicity, and safety. Its the company’s standard products. In 2015, fabric is handwoven by outsourced artisan Emilime launched a yearly design competition workshops. Selyn also has the International for its artisans. The firms’ continuous variation Fairtrade Certification Mark and is the only Sri in product designs has the benefit of protect- Lankan company to have the World Fair Trade ing them from copycat mass-manufacturers. Organization (WTFO) Guarantee System, which is opening new networks and buyers Input materials are sourced mostly locally and, in Europe. The company recently introduced in the case of Soko, include recycled material. recycling technologies to reduce waste to All firms are producing their products in a minimum amounts. transparent and environmentally sustainable manner. Emilime is using local alpaca and Soko’s and Anou’s mobile artisan apps orga- Andean sheep wool along with some acrylic nize their respective supply chains for decen- from local producers. Emilime negotiates tralized production. The apps are disrupting prices with the supplier, buys the wool, and standard aggregator business models. Both distributes it to the master artisans. Soko’s firms use apps for interactions to and from artisans are independently buying inputs, such artisans, which in the case of Anou overcomes as horn, brass, recycled material, and beads. geographical distance, as well as low liter- Yet Soko is partly financing the artisans’ input acy. The apps are optimizing product order purchases through preorder payments. Soko management, production, quality control, buys mechanical production machines from and logistics. Soko’s app serves the function global equipment suppliers and leases them of operational control and thus enhances to the artisans. Only Selyn buys inputs from productivity. Among all the examined firms, global suppliers, such as yarn from India and Soko is the only firm that uses its app to make dyes from Germany and Switzerland. Anou’s operational production and quality control supplies are local wool, grass for baskets, data available to artisans. The app also bench- wood for home goods, and environmentally marks artisans through ranking sales volumes, friendly dyes (natural and synthetic). rejection rates, and total orders. As such, the data perform operational control function. The As for the operational control function, all artisans can respond to bid orders via the app. firms have extensive central in-house quality Soko’s community outreach staff members control as well as show the capability of help recruit new artisans and serve as liaisons continuously upgrading product designs in case of problems. and organizing production lines quickly according to customer feedback and trends. Anou uses two apps, one for production and Emilime and Soko receive customer feedback order and one for quality control. Both facil- at trade shows and by scanning the market itate communication and production with its and trends, while Artisans d’Angkor, Selyn, registered 500 artisans in a wide geographic and Anou build on feedback from store and circle. Its production app assists in the step- online customers, as well as from their data by-step approval of product uploads to the analysis. All firms subsequently adjust product website, order processing, and payments. In designs to trends, customers’ feedback, and addition to the app, Anou maintains a tele- sales analytics. All case study companies are phone hotline for artisans’ questions about steadily increasing artisans’ skills and business production, design, and order fulfillment acumen to improve quality. for its artisans. In its quality control app, artisan leaders in headquarters and artisans Environmental practices are built into the communicate about quality issues before ship- production processes and value creation. ping. The customer is looped in through the Selyn combines manufacturing with artis-

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 18

Table 2.3: Companies’ Governance and Leadership Structure

Soko Artisans d’Angkor Emilime Selyn Anou

Business Network (nonex- Artisans are Network (exclu- Network (exclu- Artisans’ coopera- model with clusive supplier employees, own sive supplier rela- sive supplier relative; artisans own artisans relationship) shares tionship) tionship) shares

Role of Financial Director, Shareholders CEO Managing Executive Director Founder Creative Director select CEO Director

Board Board Board Not applicable Advisory Council Board with 7 “Think tank” with members 7 members

Artisan No Supervisors in Yes No Yes Leaders workshops

Source: WBG team’s firm survey

app, informed about the quality issue, and as supervisors, design instructors, and facil- decides to accept or reject the product despite itators between the aggregator firm and the the quality issue raised (color deviation, or artisans. Leadership is also expressed through similar). Anou does not use data for bench- the artisans’ independence in three of the five marking artisans. Artisans d’Angkor, Emilime, companies.22 At the same time, the aggrega- and Selyn use basic ICT and data processing. tor companies’ integrated system of learning, Leadership, Strategic Control and customer feedback, continuous new product Organization designs, and repeat orders are keeping artisans loyal to the brand firm and engaged in its All companies have well-trained founders and growth. Table 2.3 portrays the specifics about executives who continue to set strategic direc- the governance and leadership structure for tions and manage day-to-day operations (see each surveyed company. table 2.3). Three of five firms are founded by Many of the companies went through a women, and Selyn and Emilime are still led by period of learning either of management and the women founders. As an additional gover- leadership skills or of business models. For nance structure, Artisans d’Angkor, Soko, and example, Soko first ventured into functioning Anou have formal boards of directors who give as an electronic trading platform for artisan and monitor strategic directions. Selyn has goods produced in Africa. After one year, the an advisory and governing body that includes company saw the opportunity to manufac- Selyn’s top management and other key manag- ture its own artisanal goods; it pursued and ers called “Think Tank.” In all companies, data has continued its growth in manufacturing analytics at different degrees of sophistication such goods. Emilime Green, the founder of are feeding into the firm’s strategic control Emilime, says that she did not have all skills function. In the case of Soko and Anou, lead- to manage a business when she opened her ership teams view production data just in time company in 2009. But she went on to learn and can redirect functions quickly.

Artisans actively participate in the leadership 22. Soko, Anou, and Emilime work with independent ar- and in the organization of their respective tisans who also produce for other buyers. Selyn’s artisans aggregator companies. Artisan leaders act produce exclusively for Selyn, and Artisans d’Angkor’s artisans are full-time employees paid a monthly salary.

MANAGING FOR GROWTH 19

Table 2.4: Company Financing and Artisans Financing

Soko Artisans d’Angkor Emilime Selyn Anou

Source of Business plan AFD grant to Founder’s own Founders’ own Founder’s own company competitions, Government funds funds funds financing at start-up compe- served as conces- start-up titions, equity sional loan to financing, buyers’ Artisans d’Angkor credit

Financing of Venture capital Loan and retained Buyers’ credit Loans starting Grants growth firm, impact inves- earnings in third year, tors retained earnings

Production Advance payment Artisans are Artisan leaders Artisans are paid none Financing to artisans of up employees and receive yarn up- cash for 50% to 30% at time are paid monthly front to be paid advance payment of orders. Asset off with revenue. upon order; are financing to some given 60 days artisans. interest-free loans on yarn

Source: WBG team’s firm survey

it. Green says, “I taught myself everything million, a second round of US$0.7 million, and and learned a lot of hard lessons. Through the last round in December 2016 of US$1.24 these experiences, I have become really confi- million (Crunchbase 2017; see also chapter dent in my abilities, and I also know where 3, Case Studies). Emilime, Selyn, and Anou I am lacking. Knowing yourself this well were financed each by their founders’ own allows you to make smart decisions on how funds. Selyn—later in its existence—started you spend your time and how you choose to receiving bank loans. Artisans d’Angkor was grow the business” (Emilime Blog 2018). The the only company that has been supported most recent management literature confirms by its government with a concessional loan Green’s assertion of the connection between from the Cambodian Ministry of Finance in knowing oneself and growing a business. 2003 and backed by an Agence Française de Managing one’s self, managing a network, Développement (AFD) grant. It later received and managing a team are key to successfully a commercial bank loan for the land acqui- “being the boss” (Hill and Lineback 2011). sition to build its offices. At the time of the interview, Anou was keen on maintaining full Financing control of the cooperative and therefore was Sources of financing for the aggregator firms not interested in outside investors. and the artisan microenterprises vary. Table Three of the five firms provide access to 2.4 shows the different types of financing short-term finance to artisans, which are an for the company start-up phase and the incentive for artisans to join the respective firms’ growth phases, as well as the types of aggregator firm. Soko, Selyn, and Emilime are financing for the artisan microenterprises. prepaying for production input material or Companies use varied sources of financing. provide advance payment to artisans in their Soko has been financed by three rounds of network at the time of orders. In addition to venture capital financing (including impact prefinancing input materials, Selyn provides investors) starting in 2013 with US$0.7 other benefits such as child care centers and

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 20 health and entrepreneurial workshops that Participation is especially strong through the contribute to a high retention rate of artisans use of apps of Soko and Anou. For operative and likely to productivity. planning, Soko for instance allows artisans to opt in for each purchase order, thus enabling Participation of Artisans, Human Resources, them to determine the terms of the trade. The and Community Development operative control is enhanced by the app and Research shows that a high level of participa- its benchmarking (ranking by rejection rates) tion of workers and employees and various and data tools (total number of orders and incentives help maintain high-quality stan- total revenues for each artisan), all of which dards, innovation, and the firm’s agility in an facilitate the artisan’s planning. ever faster evolving world (Rigby, Sutherland, The participation contribute to better product and Takeuchi 2016). The aggregator firms design processes, better quality, higher produc- established various degrees of participation in tivity, and customer satisfaction, because functions such as strategic planning, design, production impasses are quickly resolved. operative planning, and operative control through artisan benchmarking (see table 2.5). All five businesses work with a large pool of In the cases of Anou and Artisans d’Angkor, artisans in decentralized workshops and build artisans hold ownership shares: 100 percent of up artisans’ technical and business skills and shares for Anou’s artisans and 20 percent for hence grow their human capital. This learn- Artisans d’Angkor through the Association of ing guarantees and contributes to the growth Khmer Arts and Crafts, which represents 600 of the respective aggregator companies, the of the 1,100 employees. In all firms, producers artisan microenterprises, as well as to the participate in sharing the benefits; for Anou’s individuals and their respective communi- artisans this accounts for 80 percent of the ties. Artisans in Selyn, Soko, Emilime, and revenues. Sharing benefits and having a say Artisans d’Angkor on average have some or in decision making is the characteristic of a completed secondary education. Table 2.6 “good job,” a concept many global firms are provides an overview for each firm on several increasingly subscribing to (Zeynep 2014). human resources metrics, such as number of

Table 2.5: Degrees of Artisans’ Participation in Different Companies

Artisans Soko d’Angkor Emilime Selyn Anou

Artisans’ formal No 20 percent of No No 100 percent shareholding total shares (cooperative)

Artisans’ No Representation No No Yes participation in highest decision making (Board)

Margin (%) to 25 – 35 percent Salary + bonuses Paid per piece Salary and paid 80 percent artisans per piece (independent artisans)

Participation in Yes Yes Yes No Yes design

Source: WBG team’s firm survey.

MANAGING FOR GROWTH 21 artisans affiliated with the aggregators, years technical apprentice training of six months of average formal education of artisans, loca- for new employees (artisans). Soko, Emilime, tion of workshops, ratio of female artisans in and Anou provide design thinking training for the workforce, and training and community artisan leaders who then teach these skills to services. Management of the human resources, their artisan groups. Selyn and Emilime are the artisans, is established in various ways. providing technical skills training, as well as Soko and Anou set up IT platforms to manage leadership and entrepreneurial development. their human capital. The others use the Selyn is also teaching fair-trade awareness. artisan supervisors. In terms of human capital development, Artisans d’Angkor provides a

Table 2.6: Human Capital Development: Skills Development and Community Engagement Artisans Soko d’Angkor Emilime Selyn Anou

Number of 2500 736 150 739 500 Artisans

Other employees 70 360 5 75 7

Average level Secondary Secondary Secondary Secondary Primary of education of artisans

Distribution 84/16 60/40 60/40 97/3 70/30 female/male artisans* Technical Technical train- Technical training Technical train- Technical train- Technical train- training/Business ing/no business (6 months)/no ing/business ing/business ing/business training offered training offered business training training, plus training offered training offered; design, creativity plus design work- workshops shops

Mentorship Through commu- Through work- Through artisan Through work- Through artisans offered nity leaders shop leaders leaders shop leaders leaders and part- time designer

Majority of Urban Rural Urban Rural Rural artisans rural/ urban

Community No Medical services, Through 10% of Child care centers No programs child care centers Emilime’s profit at select artisan (health, (training, health) workshops. education)

Youth 37% 10% Employment- artisans (18–30)

Source: WBG team’s firm survey. * weighted by the firms’ sizes of network.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 22

Anou is empowering artisan leaders who work ations of marginalization such as the slums in part-time in its headquarters to learn new Kenya or rural areas of Morocco help prevent skills. For instance, one of Anou’s employed tensions and exclusion and provide stability. artisan trainers, a metalsmith, who has nine The participating women are increasingly years of schooling in 2017 took on a task that confident in being entrepreneurs or techni- usually would be performed by college-edu- cal professionals, in solving family conflicts, cated employees. The artisan trainer negoti- and even in raising concerns with local and ated with lawyers over a full year to resolve 37 national policy makers (see the section on court cases that had erupted between a town’s government assistance and business environ- mayor and the female president of one of ment and chapter 3). In Artisans d’Angkor, Anou’s affiliated cooperatives in the town. The youth are the core of the workforce, thus consequence was that the artisan trainer “(the preventing the typical path of youth migration metalsmith) has largely become an expert in from villages to the larger cities. Moroccan cooperative law.” (Anou Blog 2017). Marketing and Output Logistics Inclusion and Empowerment All firms have spent a lot of effort develop- The share of women artisans is 80 percent ing their brands in their respective markets. across the five firms (see also table 2.6.) Emilime’s and Soko’s branded products have Selyn’s share of women artisans is almost 100 captured large U.S. retailers in just a few percent. Soko has the second highest share, years. Artisans d’Angkor thrives on sales in followed by Anou. Artisans d’Angkor and its own five retail stores in Cambodia that Emilime each have 60 percent. The home- are visited by international tourists. Soko and based work in the cases of Soko, Emilime, Emilime also sell online. Half of Selyn’s reve- and Anou and the rural workshop structures nues are from its six stores in Sri Lanka, and of Selyn and Artisans d’Angkor fit women the other half comes from exports to Asia and who are interested in combining the artisan Europe. Anou sells wholly through e-com- production with activities such as child or merce, mostly to individual U.S. clients. The elderly care duties, as well as with agri- strength of the brands vary with Soko taking a cultural production or small shop-keeping. lead. A large part of Soko’s brand building has Selyn and Artisans d’Angkor also operate been the “ethical fashion” aspect—products child care centers at select rural workshops. produced by artisans in developing countries An IFC report shows that child care boosts in a transparent and environmentally friendly recruitment, productivity, and diversity of the manner. Soko created the term ethical fast workforce in the formal sector (IFC 2017). fashion and has emphasized its IT-enabled The same benefits of secured child care can virtual factory to compete with low-cost, therefore be expected in entrepreneurial or fast-fashion brands.23 Branding also includes informal business settings. the artisan participation in many or some parts of the decision making. Beyond technical training, four of the five companies are providing entrepreneurship For entering new markets, Soko and Emilime skills to the artisans. Selyn, Artisans d’Angkor, are best practice examples on how to access and Emilime also provide life skills training, new markets and, in particular, how to capture including wellness training and female health. large U.S. retail chains. Since their first years Selyn provides services about how to cope of operation, Emilime and Soko have attended with alcoholism and domestic abuse. accessories and home décor trade shows such as NY Now in New York and have swiftly and The specific trainings, the group cohesion, and creatively responded to changing customer the related empowerment of individuals and of communities contribute to value the arti- 23. Soko’s co-founder Gwendolyn Floyd says, “Our goal sans’ cultural heritage and identity, which in has been to be on a timeline to compete with trend conflict situations such as Sri Lanka or in situ- brands like Zara, but to create really ethical products.” See Burritt (2017).

MANAGING FOR GROWTH 23

Table 2.7: Main Markets, Marketing Channels, and Sales Channels

Soko Artisans d’Angkor Emilime Selyn Anou

Main markets U.S. retailers, Cambodia’s inter- U.S. retailers Sri Lankan tourists U.S. individual other countries national tourists, (60%), European clients and luxury hotels and Asian retailers

Own Stores 1 fl agship store in 6 (Siem Reap, 6 (Colombo, online only San Francisco Phnom Peng) Kandy, Negombo, Kurunegala, Dambulla, and Badagamuwa)

Trade show U.S. NOW, NY Asian trade shows U.S. NOW, NY Ambiente, None participation Frankfurt, International Toy fairs

Sample Fossil, Anthropology, clients Anthropology, Urban Outfi tters, Nordstrom, Neiman Marcus Stichfi x

Brand

Online as % 60% in Q4, 40% 2% 5% n.a. 98% of total sales in Q1

Source: WBG team’s fi rm survey.

preferences. Table 2.7 summarizes the brand (USAID) to participate in two toy trade fairs companies’ main markets and main marketing in the United States to gain exposure to U.S. channels. markets. This grant was facilitated through the Sri Lanka Export Development Board (Nathan Government or Donor Interventions Associates, J.E. Austin Association 2006). Four out of fi ve fi rms were set up through Business and Digital Environment entrepreneurs with strategic yet limited and Innovation Ecosystem government or donor support. Artisans d’An- gkor had been set up in 1992 by a donor Business and digital environment and inno- project. From 1998 to 2001, it was funded by vation ecosystem issues perceived by fi rm a European Union (EU) project before it was owners as benefi ting fi rm growth are clustered transformed into a private–public company around (a) the availability of affordable ICT with the government owning 30 percent of services such as cell phone calls and mobile shares. Soko benefi ted from a small grant won money; (b) business competitions, prizes, or under a business plan competition in 2012, its awards and their social media outreach; and fi rst year of business. Selyn in 1995 and 1996 (c) women’s right to work outside the home received a limited, yet effective, grant from and other laws and customs affecting women U.S. Assistance for International Development or minorities to work or to be an entrepre-

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 24 neur” (see Annex 1. table A.1). The affordabil- Business environment issues perceived as ity of cell phones and their use for artisans, negatively affecting firm growth were the lack IT infrastructure and internet availability, and of accreditation for the skills training provided availability of mobile money were ranked as by the firms. Customs processing, lack of the most important to firms’ growth. Having government help for product certification, and business competitions, publicizing prices, and current conflicts in the country were thought giving awards—as well as social media atten- of hindering firm growth. Several firms said tion—were rated equally important. The firms lack of access to electricity was an issue, and also responded that basic technical artisan and one company listed high electricity prices as a workers’ skills were important. Artisans’ and constraint. workers’ education are to some firms facilitating, to some firms constrainig factors to firm Growth of Firms growth. Other business environment aspects To determine firm growth, the analysis used positively affecting firm growth are access to various data points in the absence of year- land, the foreign-currency earning regime, by-year sales or employee data for all firms. e-commerce regulation, import and export Available data are summarized in table 2.8. regulations, and government’s help for expo- Soko and Anou experienced an average sales sure to foreign markets and for providing tech- growth over a three-year period of 83 and 93 nical skills at the start of the company.

Table 2.8: Sales Growth and Growth of Artisans and Employees over the Firm’s Life Span (%) Artisans Soko d’Angkor Emilime Selyn Anou Total

Years in business 6 15 11 27 7

Number of artisans (employed and affiliated) 2 500 736 150 739 500 4 625

Number of (other) employees 70 360 5 75 7 515

Total number of artisans & employees 2 570 1 096 155 812 507 5 140

Annualized growth of number of artisans 152 17 32 18 75 and employees (%)* (since firm inception)

Annualized growth of number of higher 69 27 16 17 20 level jobs (since firm inception) (%)*

2014 – 2015 sales growth (%) 100 41 - 3 200

2015 – 2016 sales growth (%) 50 3 50

2016 – 2017 sales growth (%) 100 -53 30

Average sales growth over three years (%) 83 -3 93

* Calculated with 10 artisans (proxy for employees) at inception if unknown (per OECD definition).

Source: WBG team firm survey and follow-up interviews.

MANAGING FOR GROWTH 25 percent, respectively (see table 2.8.) indicating tion more necessary. The learning-by-doing that they are high-growth fi rms, except that approach to empower relatively low-educated Anou does not have ten employees.24 In 2018, microentrepreneurs to learn new skills on-the- Anou also hired an operations and a design job, as exemplifi ed in Anou’s and Emilime’s mentor, and Soko hired additional executives approach, could be captured in a new “fi rm- after a new equity investment in late 2016. level human capital growth” indicator to Calculating Emilime’s annualized artisan and complement the current turnover and jobs employee growth rates makes Emilime seem to growth indicators of OECD’s defi nition of high be a growth fi rm, yet multi-year sales growth growth fi rms. rates over the past three years were negative. This episode occurred after strong growth Four Levels of Capabilities in previous years. For Artisans d’Angkor and and a 12 Steps Program Selyn, only 2016 sales data are available. The analysis shows that the fi rms measure up Artisans d’Angkor’s and Selyn’s annualized to capturing high-margin value chain func- artisan and employee growth rates are below tions, fulfi ll PSMP functions, take advantage of 20 percent, but it is likely those rates were important aspects of the business and digital higher in the inception years and have fl attened environment and of innovation ecosystems, in recent years. and of fi nancial solutions for fi rm growth (see In terms of quality of jobs, Selyn has the fi gure 2.1.). These complementary capabilities largest number of higher-level jobs with 75. Of at four levels—fi rm, business and digital envi- the fi rms analyzed, Selyn has made the largest ronment and the ecosystem, value chains, and investments in manufacturing and dyeing fi nancial solutions—can “produce” inclusive equipment, in fi rm organization, as well as (high)-growth fi rms. in the expansion of its workshops, with Selyn owning the land of its rural workshops and Figure 2.1.: Capabilities at Four Levels: leasing the workshop to workshop leaders. Firm, Business and Digital Environment, Soko stands out with an annualized growth GVC, and Financial Solutions rate for high-level jobs of 69 percent; most of its 70 employees have a bachelor’s or master’s degree. Anou and Emilime have each only Firm-level strategic three to four high-level jobs, yet both fi rms management follow a model of empowerment for all their respective artisans and artisan trainers. The model of the aggregator fi rm, with its affi liated network of microenterprises, also Global Financial value chain calls for a new defi nition of growth fi rms solutions because the aggregator model does not fi t the management full-time employee status of the Organisation for Economic Co-operation and Development’s defi nition of high-growth fi rms. The global development toward distributed manufactur- Business and digital ing makes redefi ning the high-growth defi ni- environment and innovation ecosystem 24 The Organization of Economic Co-operation and Development’s (OECD) defi nition of high-growth fi rms is “All enterprises with average annualized growth rates greater than twenty percent per annum, over a three- year period, and with ten or more employees at the beginning of the observation period. Growth is thus measured by the number of employees and by turnover.” (Danish Business Authority, OECD, and LEED 2012).

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 26

PSMP, Financial Solutions and Global Value Chains or mechanical tools. Soko also uses recycled Companies have developed firm capabilities in material. And the firms are using only few all PSMP functions, which drive firms’ compet- globally sourced inputs, for example, equip- itiveness (see also Cirera and Malony 2017, ment and materials such as fabric and dyes. chapter 4). All firms are capturing high-mar- This type of environmentally and socially gin value chain functions in the fashion and sustainable value creation is called the triple home accessories industry—such as design bottom line or inclusive production. and, in four of five firms, retail functions. The Financial solutions in four of the five case firms vary slightly in most attributes. And study firms are built in through the firms’ Soko and Anou, the two firms using disruptive financing of the microenterprises. Most ICT to improve microenterprises’ and aggre- aggregators provide affiliated microenter- gator firms’ performance (including reducing prises financing for inputs. Soko, at times, is transaction costs) and to grow the microen- financing microenterprises’ small equipment. terprises’ human capital, are transforming the In a second growth phase, Soko affiliated artisan-based home and fashion accessories microenterprises are financing subsequent industry with their respective business models. expansion themselves, i.e. investing in equip- All firms have adopted many of the attributes ment or retrofitting workshops, through local of fast-fashion apparel firms which were iden- micro-loan platforms or other financial solu- tified as a growth segment (World Bank 2015) tions (see Chapter 3). Selyn is financing the while at the same time differentiating their decentralized workshop buildings and equip- value chains functions in critical aspects. The ment. In Anou’s case, it transfers 80 percent of fast-fashion attributes that the case study firms sales revenues to the mciroenterprises or the have adapted are (a) selling brand products, artisan cooperatives impacting positively their (b) having continuous variation in product savings, investments and cash flow from which designs based on consumer trends, (c) encour- they are financing input and equipment. aging producers’ participation in the design process, (d) a central quality control function, The firms’ PSMP, value-adding GVC, and finan- and e) using ICT and data that contributes to cial solutions’ capabilities are listed in table smart production and efficient logistics. 2.9. A differentiating element of the case study The selected firms could still improve on firms is the ethical value (socially and environ- certain management and value chain functions mentally sustainable value), a value created to secure their continuous firm growth and beyond the economic value. The social value competitiveness. The following are some firm derives from the fact that the aggregator level recommendations. Artisans d’Angkor and firms are producing in a participatory way Selyn could expand supplying to additional with microentrepreneurs and artisans—many foreign markets, such as the U.S. market or female artisans, most of whom are from poor other Asian markets. and rural or marginalized communities—and are sharing profits with the artisans. This Soko, Emilime, and Anou could expand the ethical value is communicated to the custom- number of retail or online stores in different ers in form of a product story. countries. Artisans d’Angkor, Emilime, and Selyn could enhance their ICT functions to The environmental value is that (a) firms generate and distribute data to microentrepre- themselves or through their artisan producers neurs for R&D, design, and distributed produc- are sourcing local, mostly natural materials tion. Customer interactions and feedback in that are available in local markets, and (b) retail or in online stores, for instance, generate firms are applying traditional production valuable data for marketing, engagement, technologies assisted with some electrical

MANAGING FOR GROWTH 27

Table 2.9.: 12 Key Capabilities at Three Levels: Firm, Value Chain, Financial Solutions Case study firms applying key Function capabilities Activities Level

Vision, strategic planning, and All Planning and implementing the Firm-level participation of producers and vision of ethical brands with informal customers or micro-producers (artisans) and sharing the producers’ story with customers.

Leadership All Competent founders who stayed on Firm-level as firm executives.

Strategic control, R&D, design All Continually providing new, Firm-level, value chain function, marketing, and diver- high-quality product and services sification design by transforming industry demand and supply trends.

Operational control, human All Focusing on high-quality standards Firm-level resources, and community and incentives for artisans. engagement

Organization, operational All (digital: Anou, Implementing (digital) production Firm-level planning, operational control, Soko) planning, control, and distribution. and participation

Participation All Empowering microenterprises or Firm-level artisans in all strategic management functions.

Working capital financing for Emilime, Soko, Selyn Providing microenterprises working Financial Solutions microenterprises capital through input prefinancing or providing input material.

Investment capital finance for Selyn, Soko Leasing production facilities (Selyn) Financial Solutions artisans and prefinancing machines (Soko).

Buyers’ credit for aggregator Anou, Emilime, Soko, Making prepayments at the time of Financial Solutions firms Selyn the orders.

Equity financing Artisans d’Angkor, Produce data on microentrepreneurs Financial Solutions/ Soko and on impact for investors Business Environment

Design, strategic implementa- Artisans d’Angkor, Using standardized product design. Value Chain tion, and production Emilime, Soko, Selyn

Retail Anou, Artisans Maintaining and expanding owner- Value Chain d’Angkor, Selyn, ship of retail stores or online retail Soko platforms.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 28 and R&D, such as feedback on product design Cirera and Maloney argue that innovation and customer preferences. With this data policies that spur productivity and competi- the firms could inform design and integrate tiveness need to be coordinated with policies their decentralized artisan groups into design governing education, competition, macroeco- and development processes more efficiently nomic stability, and labor market institutions and effectively. Anou could test supplying (Aghion, David, and Foray’s 2009 study, as to retail stores, a move that would require cited in Cirera and Maloney 2017). Results in more product standardization. Anou could the current study show that additionally ICT also consider financial instruments for its firm access policies, firm policies in the buyers’ growth to spur expansion and branding. countries, such as purchase order financing or equity financing, and policies to assist private Business and digital environment and the ecosystem firms in building human capital in microenter- Business and digital environment capabilities prises are important. in the countries of production allow for the aggregator companies to export despite differ- Based on the positive and constraining factors ences in related Doing Business rankings, for affecting firm growth identified by the case example differences in the trade facilitation study firms, policy instruments for the busi- Doing Business indicator for Morocco and for ness and digital environment and for the inno- Kenya.25 Yet, both countries are home to the vation ecosystem for aggregator and micro- two high-growth exporting firm, Anou and firms are suggested in table 2.10. Soko. Some selected policy areas are reported Because the determinants are not quantified, to being favorable for firm growth, such as and the sample is very small, it is not possi- women economic rights, ICT infrastructure ble to predict to which extent a low rating in and affordable telecom and data services, and one, two, or more value chain or management public recognition for the achievements of PSMP functions, financial solutions or busi- the firm. Some business environment areas ness and digitral environment and innovation are reported hindering firm growth, such ecosystem capabilities will relate to high, slow as customs processing and current political or no firm growth.26 conflict. Recommendations Because of the strong export levels of all firms, the business environment in the countries to Microenterprises, governments, donors, finan- which the firms are exporting is also import- cial solutions providers or other innovation ant. Two of the companies are headquartered ecosystem participants may use this four levels in the United States (Soko and Emilime are of capabilities framework to analyze and to registered there). One firm, the Anou coop- develop the aggregator firm or the microenter- erative, also has a U.S. founder, and its main prises who may be at different stages of devel- market are the United States. The business opment. Whether the objective is to increase environment aspect in the countries of the firm performance, to aggregate microenter- main markets could be especially important prises into a firm, or to develop suppliers for for financial solutions, i.e. in terms of buyers’ larger retailers in an inclusive manner, the prepayments of orders and conditions for underlying analytical and developmental tools equity financing (Soko). See Annex 1 table can be useful (see tables 2.1 to 2.10). 1 for all the case study firms’ rankings of selected policies and aspects of the innovation ecosystems affecting their respective firm growth.

26. The case studies in chapter 3 will not describe the 25. The World Bank Group’s Doing Business “Trading individual business and digital environment rankings across Borders” indicator ranks Morocco 65 and Kenya due to data confidentiality. ranks 106. World Bank (2018).

MANAGING FOR GROWTH 29

Table: 2.10. 12 Steps Business and Digital Environment and Innovation Ecosystem Policy Measures for Aggregator and Microenterprises

Policy Field Actions

Business and digital environment*

ICT Subsidizing internet connectivity or affordable phone data coverage in rural or areas where artisans or similar micro-entrepreneurs live.

Innovation and Design Financing or subsidizing early-stage product development and product design and skills training.

Export and Finance Offering instruments that assist in commercialization (government or others).

Gender Implementing policies and regulations that enable women to work outside the home, and other laws and customs (such as travel, management of assets, or cooperatives) affecting women and minorities.

Skills and Education Certifying the skills training which firms provide, be it technical, business and management, or technology skills, especially for women, or to reimburse the firms for such training in form of vouchers or tax credits.

Certification Providing government assistance to firms for product certification such as the fair- trade or other certificates.

Finance Facilitating financial instruments for aggregator firms and for microenterprise for working capital credit as well as for investment financing.

Innovation Ecosystem**

Communication and Innovation Publicizing entrepreneurship, export, or certification prizes and awards.

Innovation Inducing collaboration between industry and academia or between small firms and larger firms through demand-side measures such as vouchers.

Data Collaborative Data collaborations (a) amongst microenterprises, (b) microenterprises and aggregator firms, (c) microenterprises and individual clients, or (d) microenterprises and financial services platforms. Data also helps to document the aggregators’ impact, to communicate to customers and to attract and retain (impact) investors.

Skill and Innovation Matching of business interns, mentors, or coaches with the microenterprises and the aggregator firms.

Finance and Innovation Creating a financial business environment for impact, venture and other investors to enter as well as a regulutary environment for financial solution innovations..

* Indicated by short WBG team Firm Business and Digital Environment and Innovation Ecosystem survey. ** mostly measures drawn from the firms’ trajectories.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 30

The framework could also be used for Further Research on Inclusive developing a training and coaching Firms and Their Value Chains, curriculum. The case study firms can Management, and Poverty Effects provide benchmarks for other firms in This small sample of competitive ethical firms this industry to evaluate and to adapt in the fashion and home accessories industry their current value chains and their shows firm growth by fulfilling value chain, management functions, to find pathways PSMP and financial solutions functions, and to capture more value, and to grow in the taking advantage of aspects of the business industry’s competitive environment. and digital environment as well as of aspects The practical application of the framework of the innovation ecosystems. Further inves- of GVC and the PSMP for firm level support tigation into different aspects of the value for inclusive businesses (aggregators and can chain, management functions, and aggregate include programs with the following steps: poverty impact could include the following: • Identify industry trends, strategic industry • Examine the impact of value chain integra- segments, and their respective GVCs.27 tion on artisan microentrepreneurs’ income and investments and on the respective • Diagnose how microproducers and aggrega- communities in a sex-disaggregated way. tors execute the different GVC and management functions, and determine if they are • Examine the effectiveness of different close to the level of execution of (high-) models to include blockchain technology for growth firms. human capital building, trade financing, or supplier development, especially in different • Analyze and organize artisan producers and cultural contexts and with majority women their products and services. as producers and entrepreneurs. • Facilitate matching between microenter- • Research and give measures to minimal prises and aggregator firms. threshold of the business and digital environment and of the innovation ecosystem • Train and coach aggregators on how to for the emergence of aggregator export effectively and efficiently execute the GVC firms and of distributed manufacturing; and and management functions in coopera- lastly tion with individual microenterprises or producer groups. • Examine how to collaborate between data experts and the aggregators and micro- • Facilitate matching of venture capitalists or enterprises to promote decentralized or other financial instruments’ providers and distributed manufacturing. aggregator firms. Once more data on similar aggregators is On the business and digital environment and generated, other research could measure and innovation ecosystem level, the Government model the relative importance of fulfilling could implement the 12 steps policy measures different value chain and management func- (see table 2.10). The four levels of capabilities tions at various levels, providing financial framework could also be used as a framework solutions, and taking advantage of specific for analyzing and organizing other industries, aspects of the business and digital environ- especially industries who work with decentral- ments, and the innovation ecosystem. The ized production or services. latter would need to be combined with the minimal threshold of Government capabilities to implement policies, regulations as well as to regulate societal norms. 27. For this study the author did not perform an industry segmentation due to budget and time constraints, yet the trends in the industry were analyzed. The section below speaks to further possible research, including an industry segmentation. For the industry segmentation methodology, see World Bank Group (2015a).

MANAGING FOR GROWTH

chapter

3MANAGING FOR GROWTH 33

CASE STUDIES

The in-depth case studies show how each case business and digital environment and the study firm is fulfilling the different manage- innovation ecosystem. All companies practice ment and value chain functions introduced human capital development of artisans with in the first chapter of the report, and how the low formal education, so that these producers firm has taken advantage of the respective stay abreast with the growth of consumers and of the aggregator firm.

3 FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 34

Figure 3.1: Soko’s Trajectory

Soko was founded in 2012 in San Francisco In 2014, Soko established its In 2016, Soko scaled to new and Nairobi. It has registered businesses brand: a jewelry collection. markets: Europe and Asia. in Delaware, U.S., and in Nairobi, Kenya.

2012 2014 2016

From 2012 to 2014, Soko tried different approaches, Between 2014 and 2016, Soko raised experimenting with a business model like “Etsy for Africa”. US$2.6 million in venture capital funding.31

Through attending international Soko developed a virtual Average annual sales growth trade shows, Soko established factory model coordinating over the past 3 years has buying relationships with its 2,500 artisans via a mobile been 83 percent, making retailers such as Nordstrom, technology into a distributed Soko a high-growth firm. Fossil, Anthropologie and a brand production model. partnership with UN Women.

Source: WBG team’s firm surveys and Crunchbase.com.

Soko artisans upgrade their businesses in product Vision and overview design, quality, production capacity, and entrepreneurial prospects. On average, within a few Soko’s mission is to be a “pioneering Ethical months of joining Soko, artisans quadruple Fast Fashion company, aligning handmade their income.30 talent from emerging markets with the international fashion consumer.”28 Soko works Operations “with artisans every day to build their busi- Soko’s designs and products are mostly hand- nesses, improve production capacity, and made fashion-forward jewelry, in particular, sustainably increase income”.29 Soko uses nonprecious stones and material (recycled digital technology to organize the value chain brass and bone) for the U.S., European, and and to connect marginalized artisans to inter- Asian markets. Soko’s chief creative officer, national markets. With Soko’s mobile IT tools,

28. See Soko website, https://shopsoko.com/pages/ 30. Soko website, https://shopsoko.com/pages/impact, about, accessed on February, 15 2018. accessed on February 15, 2018. 29. See Soko website, https://shopsoko.com/pages/ 31. See https://www.crunchbase.com/organization/ about, accessed on February 15, 2018. soko#section-overview, accessed November, 2017.

MANAGING FOR GROWTH 35 one of Soko’s founders located in the United Soko developed an efficient operational States, is responsible for product and collec- system using its proprietary app and provid- tion design. In the design process, she scans ing additional support to artisans to grow. and determines seasonal trends.32 She melds In Kenya, Soko pays its artisans are through the two worlds, the trends, and the artisan M-Pesa and other mobile money platforms. community with its “beautiful tribal designs With Soko’s own app, artisans are in constant and heritage of the artisans . . .” and “the communication with Soko and know imme- manufacturing techniques of the heritage, like diately the total number of orders, total sand-casting . . .” (Burritt 2017). Trade shows payments per year, and their ranking in and related orders also serve as barometer of product quality (that is, rejection rates). fashion styles. Through the app Soko allows artisans to opt in for purchase orders, thus enabling them The second step in the creative process is to determine the terms of their trade. Soko the production of a prototype that is being also provides technical assistance to artisans measured against its feasibility for existing through grants it receives to support building techniques, material, and costs. Prototype artisans’ capacity and training by increasing production is being discussed between the their workshop management capacity. At the chief creative officer, selected artisans, and same time, Soko enables the artisans to move Soko’s management team, often over Skype from entry level to higher levels of production conferences. On exceptional occasions, Soko capacity. A team of field officers also serves works on collections with outside designers. as quality control giving immediate feedback, After a design is approved, Soko uses the training, and support. mobile app it developed to distribute the production function to local (Nairobi) expe- Once products are delivered to Soko’s Nairobi rienced artisan entrepreneurs and artisans headquarters, an internal quality control through open orders. On the app, the arti- department conducts quality control on all sans can accept the bid or opt out of orders. delivered products. Soko’s in-house quality Once artisans are approved for the order, control feeds its results into the mobile artisan Soko seamlessly transfers design information app in which artisans are ranked according to and tracks orders for just-in-time production. their product rejection rate. If the strict quality Most artisans have years of experience with standards (that is, precise measurement) are specialized techniques for making products not met, the products are returned to the arti- in the local market: brass casting, bone and sans. Rejection rates of even 100 percent are horn carving, shaping wire into handmade not a reason for Soko to disqualify the artisan. chain, and brass sheet cutting. The handmade With the virtual production app and in-house products are refined with simple and basic quality control, Soko is able to cut out ineffi- machines and even traditional heritage tech- ciencies, reduce waste, and inventory costs, niques (instruments to carve, sand-casting while staying on top of trends. furnace). The main input materials used are Leadership and management cow bone and horn, brass, and wood that artisans supply on their own with advance Soko has three founders, two of which are payments by Soko at time of order confirma- still in the company. The management team tion. Artisans also use recycled brass material is distributed between the United States and from construction and building materials. Nairobi, and management meets over Skype Some finishing and labeling are done in-house and in person. A board oversees Soko’s strate- in Soko. gic directions. • Ella Peinovich, Soko’s CEO until 2017, is a graduate of MIT and has worked in social 32. Gwendolyn Floyd, Soko’s co-founder and creative enterprises in and around the slums of director, says, “I stay abreast of the global trends for Nairobi for the past four years. With expe- inspiration, via art, architecture, or fashion” (Burritt 2017). rience in systems design and a desire to

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 36

improve women’s autonomy in a sustain- affiliated artisans also retain between 25 and able manner, Peinovich is one of the chief 35 percent of product revenue, which is five visionaries and designers of Soko. times higher than typical margins (Burritt • Gwendolyn Floyd is Soko’s creative direc- 2017). In some instances, Soko has provided tor and is an internationally recognized asset financing for small production machin- expert in mobile technology for devel- ery through its partners, which the artisans opment. Floyd is a venture-backed serial repay through reductions in their payments on social entrepreneur and designer. She is a future orders. Soko has been seeking external founder of four companies and has 15 years’ partners to expand those loans to artisans. All experience leading teams and projects at Soko’s artisans receive a free android applica- the intersection of design, technology, and tion to track orders and payments, as well as international development. quality benchmarking data. Using the applica- • Catherine Mahugu is one of Soko’s founders tion increases Soko’s and its artisans’ efficiency and has set up Soko’s scalable and appropri- and certainty about income and accountability. ate ICT solutions for entrepreneurs. She left Soko’s day-to-day management in the first To serve its ethical and impact financing half of 2017. shareholders, Soko electronically tracks the amount of revenue and production volume • In 2017, several new managers were that it contributes to the artisan community appointed after an equity fund injected in Kenya, as well as the number of men and another US$1.3 million into the company. women artisans it works with. This informa- Company and artisan financing tion is captured in Soko’s impact dashboard and is accessible to all employees, artisans, Soko used different private, mostly equity and investors. Soko’s data platform tracks 33 funding, sources along its growth path. the number and amount of every payment it In 2012, Soko participated in business plan makes to artisans. Each quarter Soko produces competitions and won an impact grant a report on its progress against its social 34 from Microsoft. It also participated in the targets and growth in impact by quarter and start-up launchpad DEMO Africa. In May by year. Soko presents those results internally, 2013, Soko received US$700,000 as its first as well as to its external shareholders. The equity investment from the Rio Venture Fund reports show examples of how with increased based in Dubai and from other angel investors revenue and access to loans, Soko’s artisans (Heilbron 2013). At that time, Soko was an can enlarge their workshops, take on new e-commerce marketplace that enabled Africa’s customers, and build sustainable businesses. talented artisans to post and to sell their products online. Soko then revised its business Participation of artisans, human resources, and model and focused on selling jewelry from community engagement Kenya but designed by Soko. In April 2015 Soko has 70 highly educated direct employees and October 2016, Soko had two more rounds and works with more than 2,500 artisans in of venture investments, US$700,000 and Nairobi’s slums. Staff includes management US$1.24 million, respectively.35 and supervisors; IT engineers; personnel in For production of high-volume export orders, quality control, product finishing, labeling, Soko provides an upfront payment to artisans packaging, designers, marketing, and admin- that enables the artisans to buy inputs. Soko- istration; and other staff members (see figure 3.2). The education level of Soko’s staff ranges 33. See Crunchbase, https://www.crunchbase.com/ from university degrees to diplomas. organization/soko#/entity, accessed November 2017. 34. Soko won the impact grant through a business plan competition of the University of Washington’s Foster School of Business Global Social Entrepreneurship Competition. (Burritt 2017). 35. See Crunchbase, https://www.crunchbase.com/ organization/soko#/entity, accessed November 2017.

MANAGING FOR GROWTH 37

Figure 3.2: Soko’s Affiliate Artisans and Employees by Department

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Administration

Supervision and management Quality control Marketing and sal es Information technology Other staff

Design

Product finishing, labeling, packaging

Source: WBG team’s firm surveys.

Most artisans stay with Soko in its nonexclu- Kiva Zip loan in 2013 to buy a smart phone sive network as they continuously learn new that enabled her to take product photos and to product design, keep their skills updated, and download the Soko app. Her second loan, in receive operating capital financing. Soko says 2014, enabled her to buy a third machine that its artisans retain 25 percent to 35 percent of processes bones for her necklace production. revenues compared to an industry standard of In the next years, Veronica plans to enlarge 2 percent to 3 percent. The cumulative income her workshop as well as her showroom.37 to artisans has so far been more than US$1 million with more than 250,000 products Marketing and Output Logistics 36 sold. Soko’s marketing activities consist of a continuously updated website, an active Instagram Inclusion and Empowerment presence, participation in U.S., European, Of Soko’s artisans, 84 percent are women from and Asian fashion and home accessories trade poor backgrounds, mostly from the biggest shows, and branding through women fashion slum in Nairobi, Kibera. Soko’s community magazines and a small flagship store in San outreach staff gives its independent entrepre- Francisco. Soko’s retail clients are Nordstrom, neurs specific quality control training, and Anthropologie, Fossil, Michael Stars, Zady, Soko’s app allows artisans to instantly view Reformation, and Stitch Fix. Soko sells retail their individual rankings for sales volumes, as online mostly before the Christmas season, well as rejection rates benchmarked to their while the remainder of the year it sells to peers. whole sellers based on orders, representing about 60 percent of total sales. Style maga- Soko links its artisans to lending platforms zines such as Vogue, Glamour, and Marie Claire such as Kiva Zip. For example, Veronica and the digital company Refinery 29 featured Rachiedo is a Soko necklace artisan entre- Soko’s jewelry. preneur from the Nairobi slum of Kibera. Veronica’s specialties are necklaces of camel and cow bones. Veronica took out her first

36. See also Soko’s website, https://shopsoko.com/ 37. See artisan Veronica Rachiedo discuss her work, pages/impact, accesssed on February 15, 2018. https://www.youtube.com/watch?v=11-xvWVlFF4.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 38

Figure 3.3: Artisans d’Angkor’s Trajectory

Artisans d’Angkor started in 1992 with a French As of June 2016, the company donor–sponsored vocational training project employs 1,096 people of called “Les Chantiers-Ecoles de Formation whom 736 are craftsmen Professionnelle” (CEFP) that provided In 2003, with support of AFD, Artisans and craftswomen working professional skills to rural communities d’Angkor became an autonomous and in 48 different workshops with limited educational opportunities.39 semipublic Cambodian company. in the Siem Reap province.

1992 1998 01 2003 2016

Between 1998 and 2001, a European Union program, REPLIC, provided financial support to create a project called Artisans d’Angkor to be a workplace for the young Cambodians trained by CEFP in the handicraft sector.

In its hub and spokes model, Its products are sold to tourists Annual sales are more Artisans d’Angkor is training in Cambodia, mostly through than US$5 million. and employing rural population retail stores. Artisans d’Angkor to produce traditional-modern also provides interior design products and services for services for commercial, the tourism market. residential, and public spaces.

Source: WBG team’s firm surveys.

Artisans d’Angkor Artisans d’Angkor’s vision statement is “Caring Vision and overview for the past, crafting for the future”; its mission statement is “Proud of our Angkorian Artisans d’Angkor is a Cambodian fashion and heritage, we believe that transmitting tradi- home accessories company producing and tions to our people and developing their talent exporting handmade silk scarfs and stone- will empower them to create opportunities carved, wood-carved, lacquered, and painted for a better life.”38 Figure 3.3. depicts Artisans decorative items. Artisans d’Angkor targets d’Angkor’s company milestones. the tourist market, which drove Artisans d’An- gkor’s high-growth trajectory. A small part of revenues is generated by decorating hotel 38. See Artisans d’Angkor website, http://www. artisansdangkor.com/beliefs-vision.php, accessed in and public spaces in Siem Reap and in Phnom January 2018. Penh. An example is a traditional stone foun- 39. The project was implemented by the Cambodian tain for the Phnom Penh International Airport. Ministry of Education. The project trained young people in the building sector to work in masonry, plumbing, tiling, painting, and so forth with the training extended

MANAGING FOR GROWTH 39

Operations employees receives the procured material. Artisans d’Angkor designs its high-quality, Most workshops are in rural areas within a handmade products for the international radius of 15 to 20 kilometers of the company’s tourist market in its design and R&D depart- head office in the city of Siem Reap. Apart ment with 34 staff members under the from the 736 artisans directly employed by leadership of the artistic director. With feed- the company, Artisans d’Angkor subcontracts back from the sales and marketing depart- with independent artisans through interme- ment, R&D creates product prototypes to be diaries; those independent artisans produce approved by a product committee consisting small souvenirs in a lower price range. They of the artistic director, the sales and market- are contracted per order and paid per piece. ing director, the production director, the Artisans d’Angkor’s artisans use very little general secretary, and the CEO. Artisans d’An- technology in production. Artisans d’Angkor gkor’s products are silk scarfs, ceramics, and imports silk thread from China and weaves its carved statues from lacquered wood or stone own silk fabric. The company purchases stone representing well-known characters of the and wood from small local individual suppliers Buddhism or Hinduism mythologies, mostly and uses sandstone—soft and easy to curve— for the tourist market.40 Lacquerware and for stone carving. To comply with health and polychrome products are often gilded with environmental regulations and to protect their copper or golden leaves. Production of silk workers from harmful effects, the company products makes up half of the company’s busi- purchases dye products from Western Europe ness. The other half comprises silver plating, (mostly France and Germany). wood carving, and stone carving. The company has a quality control department Artisans d’Angkor also provides interior design that conducts regular quality control during services mostly for large spaces such as hotels the production and at final product inspection. and large residential buildings in fast-grow- The quality control staff consists of 61 people ing urban areas in Siem Reap and Phnom representing 6 percent of the workforce; Penh, Cambodia’s capital.41 Those services another 46 staff members (4 percent) are in still represent less than 10 percent of Artisans supervision and management. d’Angkor’s revenues. In 2016, Artisans d’Ang- Leadership and management kor introduced in-depth artisan cultural experience packages where tourists can visit the • Artisans d’Angkor is a well-managed, medi- workshops. um-size company with a mix of public and private—including employee—ownership. All of Artisans d’Angkor’s products are Currently, 50 percent of the company’s produced in the 48 company workshops in equity is privately owned by a Cambodian Siem Reap province that perform all produc- individual and Cambodia Airport, a private tion functions using inputs and materials company registered in Cambodia with purchased centrally by the company. Each French and Malaysian shareholders. The Cambodian government owns 30 percent, workshop has its own team of about 20 and employee artisans (600 of the 1,100 employees) own 20 percent through the to traditional Khmer craftsmanship. Such craftsmanship workers’ association. using stone carving, wood carving, lacquering, and silver plating—the essential part of the Khmer cultural heritage—had almost disappeared. 40. Models for the carved products are the carvings in the temples in the region of Angkor that were built in the 11th and 12th centuries. 41. As part of its interior design and crafts services, Artisans d’Angkor’s crafts workers decorated the Belmond La Résidence d’Angkor, a Khmer-style hotel in wood; the Victoria Angkor Resort and Spa; and the Amansara resort—all in Siem Reap.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 40

Figure 3.4: Distribution of Artistans d’Angkor’s employees By department By age

0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% Artisans >50 Marketing and sales 41 – 50 Quality control Info technology, human resources, others 31 – 40 Production supervision and management 21 – 30 Design Logistics 18 – 20

By gender

male ; 40% female; 60%

Source: WBG team’s firm surveys.

• The company is governed by the share- d’Angkor’s main company site. The compa- holder meeting and a board of nine direc- ny’s later investments have been financed by tors. A shareholders meeting is convened retained earnings. Currently, 50 percent of yearly to decide on strategic issues in the company’s equity is owned privately by a finance, marketing, human resources, and Cambodian individual and a private company, management. The shareholders elect nine board members. The board of directors Cambodia Airports, registered in Cambodia, oversees the implementation of strategic with French and Malaysian shareholders; 30 decisions in the day-to-day business. The percent is owned by the government; and 20 shareholders select the CEO, who is assisted percent is owned by the company’s employee by a secretary general who oversees the and artisans through the workers’ association. supply chain management and finance functions. Participation of Artisans, Human Resources, and Community Engagement Company and artisans financing Most of Artisans d’Angkor’s 1,096 employ- In 2015, Artisans d’Angkor had revenues ees—67 percent—are artisans (see figure 3.4). above US$5 million. This growth was financed The workforce is young with 84 percent of all by different instruments. The EU REPLIC workers between ages 20 and 40. The market- program established “Artisans d’Angkor” as ing and sales department employs 12 percent a project and provided technical assistance of the staff, six percent work in quality control, between 1998 and 2001. In 2003, Artisans four percent in supervision, and manage- d’Angkor incorporated as an autonomous ment, and three percent of employees work in and semipublic Cambodian company and design. The remaining seven percent work in in the same year it received a loan from the administrative and other positions such as IT, Cambodian Ministry of Finance, which had logistics, and human resources. converted a grant from the AFD into the loan. Artisans d’Angkor further took on a bank loan From inception, the artisans have been paid to finance the purchase the land of Artisans according to their monthly production, yet since July 2017 Artisans d’Angkor’s 736 arti-

MANAGING FOR GROWTH 41 sans are paid a fixed salary. The company vation, dexterity, but also geographical prox- provides a higher salary than the average imity with the workshops. Living five minutes wages in the sector and provides its employees away from my workplace allows me to spend access to company-owned clinics and to medi- more time with my 5-month-old son. It also cation for common diseases. Case by case, allows our family to make significant savings, Artisans d’Angkor helps its artisans if serious given the limited transportation.”42 medical treatment is needed and with recon- struction of houses damaged by flooding or To mitigate the negative impacts of repetitive storms. movements in weaving, in 2018, Artisans d’Angkor hired a physiotherapist to provide Artisans d’Angkor has a program for talent well-being training for all its 211 female silk acquisition and is running extensive, contin- weavers. To reinforce the positive results of uous training programs for its artisans in the the trainings, Artisans d’Angkor is testing a decentralized workshops. Those programs prototype of a newly designed ergonomic guarantee Artisans d’Angkor’s continuous chair for its weavers, replacing the existing supply of high-quality product and service and benches that weavers sit on at the looms.43 a high worker retention rate. At the start of an artisan’s career, Artisans d’Angkor offers a Marketing and output logistics free six to nine-month apprentice program to Artisans d’Angkor has a big marketing and area people ages 18 to 25, in keeping with the sales team with 129 employees. The company company’s tradition of professional training sells its products almost exclusively to tourists schools for the local population. During the in Cambodia through its six retail stores in the training period, artisans receive compensation. tourist areas in Siem Reap, in one boutique, The trainees learn skills and techniques in silk and in a concept store in the luxury hotel weaving, wood and stone carving, making Sofitel Phnom Penh Phokeethra, as well as ceramics and jewelry, silk painting, gilding, through distributors’ stores. About five percent and lacquer or silver plating. Although the of its products are sold online. number of workshops increases costs of logistics and supervision, Artisans d’Angkor main- The company also has demonstration work- tains its presence in rural areas so that their shops located in two of Artisans d’Angkor employees can live in their usual environment. retail stores where tourists can experience and follow the production process. Product design Inclusion and empowerment has been aimed at this market with products Sixty percent of Artisans d’Angkor employees like scarfs and replicas of the country’s temple are women. Most live in rural settings where monuments in sizes easy to transport. the Artisans d’Angkor workshops have ongo- In addition to gaining more domestic markets, ingly developed young women and men into the company aims to gain access to the U.S. technical professionals. Thus, investments in and European fashion and home accessories the rural workshops prevents further migra- markets. tion of young women and men to the cities and contributes to the development of the 42. See Artisans d’Angkor, http://www.artisansdangkor. respective communities. Besides the free tech- com/people-18-100-words-from-our-artisans-and-their- nical training for the rural youth, the work- relatives.php, accessed in January 2018. shops are accompanied by health and child 43. See Artisans d’Angkor, http://www.artisansdangkor. com/people-social-development.php, accessed in care centers, with Artisans d’Angkor subsi- January 2018. dizing the child care personnel. An example of the effect of the services is expressed by Sanam Kong, a lacquer artisan: “I was hired by Artisans d’Angkor on three key criteria: moti-

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 42

Figure 3.5: Emilime’s Trajectory

In August 2014, Emilime received In 2016, the Emilime was incorporated in Austin, its fi rst line of credit and its fi rst company began Texas, in the United States in 2009. order from Urban Outfi tters. producing sweaters.

2009 2010 2014 2015 2016

In January 2010, Emilime participated The company started to be profi table the fi rst time in a large U.S. trade show. in 2015, supplying Urban Outfi tters and other U.S. retailers such as Anthropologie.

Emilime products are made by independent artisan groups in Peru; the company distributes input to artisans groups for production and handles quality control and shipping from Peru.

Source: WBG team’s fi rm surveys.

Emilime Operations

Vision and overview Emily Green, the founder and owner of Emilime, is also Emilime’s creative director Emilime distributes and produces seasonal and leads the design team in which artisans knitwear fashion and fashion accessories by its play an active part. Emilime’s designs are network of Peruvian artisan groups. Emilime’s inspired by industry trends, as well as by the mission is to “empower a network of artisan natural materials used in the production. It partners both as creative contributors and as uses the alpaca fi ber, which is known as “the business leaders.”44 Emilime’s products are fi ber of the Gods,” because it was used to woolen mittens, scarfs, hats, and so forth make clothing for local royalty. The alpaca made from alpaca fi ber, Andean sheep wool, fi ber is “soft, harbors amazing insulating qual- and some acrylic fi ber. Emilime is working ities, allows for breathability, and is known with up to 150 artisan knitters in Peru versed worldwide for its strength, durability, and in the various techniques. The products are hypoallergenic qualities. From the small farms knitted as well as produced by manual knit- throughout the Peruvian highlands where ting machines and by loom weaving and the fl eece is shorn, the fi ber goes to Arequipa embroidery. where it is sorted, cleaned, and spun into

44. See Emilime’s website, http://shopemilime.com/our- network/, accessed on February 12, 2018.

MANAGING FOR GROWTH 43 yarn.”45 Emilime also uses sheep wool, which Artisan leaders, formally registered businesses, has a similar production cycle to alpaca fiber. manage a group of 1 to 13 artisans of which It often mixes alpaca fiber and sheep wool 90 percent are women with different groups to create innovative patterns and varying mastering different knitting techniques. Using textures. Emilime works with two alpaca yarn the product specification information, the providers, Inca Tops and Michell Group, both leaders train their respective groups of knit- of which have operations in Arequipa. ters and prepare for large quantity production of each style. Buyers can access the status In 2015, Emilime introduced the knitters’ of their order via an order tracking system. design competition for which artisans compete Output quality control is then again performed by producing innovative swatches after attend- by Emilime’s quality control staff members ing a presentation on the season’s fashion and external auditors. To perform input trends by the design team. Once the winning quality control and quality control of outputs swatches are selected, prototype production and packaging, Emilime hires additional begins with the design team working with the seasonal contractors at production start in artisan leaders on product design and mate- March and at the shipping phase in September rial. Selected prototypes then form a collection and October. that is presented at the January trade show in New York. After orders arrive, the product Leadership and management goes into production. In addition to finding unique designs, the design competitions create Emily Green is the founder and creative direc- a space for knitters to explore their creativity tor of Emilime. Green brings with her nine by offering them exposure to global trends years of experience living and working in Peru. and to support the artisan leaders in organiz- Green has an MBA and is passionate about ing their groups of knitters, while discovering the renewable materials, the anthropology of new talents and building community. design, and the product development inspired by traditional techniques. Her leadership and Emilime Peru handles input logistics for raw relationships within the textile community are material, distribution of input material for the heart of the company’s team. production among its 150 artisans, quality control, and output logistics. Once the retail- Green’s own empowerment and leadership lies ers place their orders, Emilime buys yarn to a large part in knowing herself. She shares in bulk from Peruvian yarn manufacturers. in a recent blog article, “I took a really big risk Emilime staff members inspect the yarn for moving to a foreign country where I didn’t quality and then calculate and distribute the know anyone and investing all my savings into yarn to the network of artisans. The yarn a business I knew little about. I didn’t have costs are prefinanced and subtracted from the skills needed to be able to run the business the artisan leaders’ income for final products. when I started, but I taught myself everything Emilime’s team creates the products’ techni- and learned a lot of hard lessons. Through cal specifications and assigns specific styles these experiences, I have become really confi- depending on the artisan leader’s capacity and dent in my abilities and I also know where I specialty. am lacking. Knowing yourself this well allows you to make smart decisions on how you spend your time and how you choose to grow the business” (Emilime Blog 2018).

45. See About Us. Materials. Emilime’s website, http:// shopemilime.com/materials/, accessed on November 12, 2018.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 44

Figure 3.6: Distribution across Emilime’s Types of Staff

0% 10% 20% 30% 40%

Quality control, product finishing, labeling and packaging

Design

Supervision and management

Administrative

Source: WBG team’s firm surveys.

with a multitude of knitters who are located Green transfers those lessons into the mentor- in Lima, Puno, and Junin. The artisan leaders ing and training she provides to staff members ensure adherence to deadlines, collection of and artisans leaders. Sulla, head of quality products, quality, and payment. Emilime’s five control at Emilime, says: “We offer our leaders employees cover the functions of marketing training in order to become better at managing and sales, quality control, managment, design, their teams, and our Community Development and administrative functions (see figure 3.6). Project is set up to bring in experts in areas Furthermore, the company hires consultants such as leadership and psychology to speak regularly for ongoing needs, such as IT and with all the artisans (...) this type of support is digital media functions. Accounting is also what makes Emilime unique” (Emilime Blog handled by an external professional. 2017). Artisans and company finance Deeply committed to collaboration in Emilime’s design process, the company works side by Emilime became profitable in 2015 with side with the artisans by developing swatches, Emilime’s annual revenues between making samples, and producing the final US$400,000 and US$500,000. The start-up product. The process begins with a meeting phase was financed by the founder’s own with each of the artisan leaders in Emilime’s funds. Emilime finances the artisans’ input network to learn what materials and tech- materials equating it to a buyer’s credit. niques could be applied to a specific design Emilime itself receives buyer’s credit of 30 to for the upcoming season. The designs then are 45 percent upon order placement and order adapted based on the creative and technical confirmation. Emilime pays artisans as soon input of the artisans. as the products are delivered. Orders fulfilled Emilime offers formal training and mentoring by Emilime are fully paid by the buyers upon in collaborative design, market research and receiving the shipment. trends, creativity, leadership, communication, Participation of artisans, human resources, and human resources, and finance, especially for community engagement artisan leaders.46 During production, Emilime works with up to Emilime’s Community Partnership Program, 150 artisans across Peru, of which 60 percent which is funded by 10 percent of Emilime’s are women. Emilime’s production involves working with artisans leaders who have regis- 46. See Emilime. https://shopemilime.com/pages/ tered businesses. These leaders in turn work about-us accessed on November 12, 2018.

MANAGING FOR GROWTH 45 proceeds, offers also trainings to artisans in Many artisans Emilime works with use knit- themes related to health. ting as a supplementary income. The flexible working hours of the knitters enhances their Through the company’s supply chain, Emilime other activities: providing child care, running also helps communities that produce alpaca small shopts, and so forth. The artisans can and sheep wool in the Peruvian highlands. choose when and where they knit and how many pieces they want to take on. Inclusion and empowerment Marketing and output logistics Emilime’s values are investing in long-term relationships, innovation, and education. Emilime’s key customers are large retail- Realizing these values, Emilime is mento- ers throughout the United States such ring its “partners throughout the entire as Anthropology, Nordstrom, and Urban process, from design to product development Outfitters. Emilime also sells online, to many to production and finally quality control, independent stores, and through a network supporting them in the successful manage- of sales representatives in the United States. ment of their team.”47 Many artisan leaders Emilime markets products through interna- have formalized their businesses, collaborated tional trade shows and online sales. with peers, and developed lasting relationships through this process.48 For Emilime Green and her management team, every interaction with artisans and suppliers is a way to transmit skills, standards, and motivation. “You have to know how to communicate with your team, no matter who they are. It’s important to have been trained on how to treat and speak with people so that you can work together effectively,” says Claudio Sulla, Emilime’s head of quality control (Emilime Blog 2017)

47 see Emilime. https://shopemilime.com/pages/about- us accessed on November 12, 2018. 48 ee Emilime. https://shopemilime.com/pages/about- us accessed on November 12, 2018.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 46

Figure 3.7: Selyn’s Trajectory

Selyn, incorporated in 1991, started to In 2002, Selyn received the Fairtrade Certification Mark and is the work with 15 women in the village of only Sri Lankan company that has completed the WTFO Guarantee Wanduragala in Kurunegala, Sri Lanka. System, which opened new networks and buyers in Europe.

1991 1995 2002 2007

In 1995, USAID through the Technology Initiative In 2007, Selyn opened the for the Private Sector (TIPS) project helped Colombo and Negombo Selyn participate in the New York Trade Fair. Selyn-branded stores.

Selyn grew steadily to a medium- Selyn employs 273 people Selyn’s annual revenues are size company with early orders in its factories and has 541 around US$1 million; for from a Japanese buyer—despite artisans in its network. 2014-2015 Selyn experienced Selyn’s capacity constraints. a decrease in revenues.

Source: WBG creative team’s firm surveys.

Selyn employee satisfaction and retain market lead- 49 Vision and overview ership.” Figure 3.7. shows Selyn’s milestones. Selyn is both a manufacturing company and Operations wholesale company for artisan products (toys, Selyn’s product designs change regularly jewelry, fashion accessories, fabric) in Sri according to customer feedback and the intro- Lanka, and it is Sri Lanka’s only handloom duction of advanced production technologies. fabric exporter that has completed the WTFO Two in-house designers develop new products Guarantee System. Selyn’s mission is “to be a and structure them around different collec- law abiding company based on Fairtrade prin- tions, ranging from five to six collections per ciples, with an aim to enhance customer and

49. See Selyn’s website, https://www.selyn.lk/about-us, accessed on February 12, 2018.

MANAGING FOR GROWTH 47 year. The artisans are not involved in design Lanka’s northwest, in the Northeast, and the and, at times, are reluctant to change product Northern regions. Workshops in Kurunegala designs. are incorporated into the company’s quality control system of the main plants. Selyn For the toys collection, Selyn collaborates with provides the workshop leaders with infor- a well-known designer among fair traders mation, technical specifications, and regula- and manufacturers. Selyn produces mainly tions needed to maintain high-quality stan- handloom fabric and apparel items made from dards. Organized artisans’ groups outside of handloom fabric. Selyn’s four product lines are Kurunegala receive the specifications and all (a) traditional handloom fabric; (b) apparel necessary production information and are and fashion accessories such as traditional provided with skills development trainings to saris, blouses, kurtas, sarongs, and shirts for maintain the company’s standards (see also women, men, and children; (c) a home décor the next section). collection ranging from cushion covers to table and bed linen; and (d) a toy collection. Those Leadership and management four product lines are sold mainly for wholesale export and for local retail. Selyn Exporters Ltd is a private limited company with a strong social business orien- Selyn’s products are made mostly of cotton 50 tation founded by Sandra Wanduragala, who with imported yarn from India. Selyn’s dyes is also the chairperson of the company. Its and chemicals come from German and 51 core values are based in the social enterprise Swiss suppliers, and other raw materials model and in the fair-trade systems embed- come from various suppliers in the local ded in Selyn’s procedures and processes. market. In its production process, Selyn uses Wanduragala and Selyn have received numer- processes such as machine dyeing, machine ous awards over the years. yarn processing, hand and machine weaving, cutting, filling, stitching, and embroidery Wanduragala studied civil law and worked stitching, as well as manual and laser cutting. as an attorney. She also has experience as a co-founder and managing director at the Royal Inspecting final products and packing the International School in Kurunegala.52 In 1998, products are done manually by the quality she gave up her job as attorney and engaged control staff representing three percent of herself fully into the business. Wanduragala’s total staff. Selyn works with 198 artisans in younger brother joined Selyn as managing a central workshop and with a network of director in 1993. 541 artisans organized in 16 company-owned workshops, home working units, and neigh- Selyn’s governing body—Think Tank—makes borhood groups. The workshop owners strategic decisions and includes seven perma- produce exclusively for Selyn. The relation- nent members from Selyn’s management ship with non employed artisans is based on team: the chair, managing director, business orders, with fixed deadlines and 50 percent development director, head of administration advance payments. When working with the and maintenance, head of production oper- workshops and the home-based artisans, Selyn ation, accountant manager, and the human distributes the yarn to the artisans and gives resources and administration manager. the artisans a 60-day credit or advance. Wanduragala’s daughter, Selyna, entered the The artisan workshops and numerous home business in 2011 as business development workshops are located in Kurunegala in Sri director and introduced organization and systems, including policies and procedures, such as organizing departments, feedback 50. Sri Kannapiran Mills Limited in Coimbatore, India. systems, and marketing instruments that 51. A. Baur and Co. (PVT) LTD in Sri Lanka represents world leading manufacturers of industrial raw materials. http://www.baurs.com/IndustrialRawMaterial/index. 52. http://royalint.lk/index.php php.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 48

Figure 3.8: Distribution of Selyn’s Full-Time Employees

0% 10% 20% 30% 40% 50% 60% 70% 80%

A rti sans

Marketing and sal es

Operations

Supervision and management

Information technology

Quality control

Design

Source: WBG creative team’s firm surveys.

communicated Selyn’s story on websites, Selyn’s sales were hit beginning with the Technology, education, design (TED) talks, 2008 global financial crisis, and despite the and labels. end of the ethnic civil war in Sri Lanka and the opening of the tourism market in 2009, Financing of company and financing of artisans growth rates have been negative for 2014 and Originally financed with the founder’s own 2015 (–3 percent). funds in 1991, Selyn has used bank loans to Selyn finances production in the compa- finance investments since year three of oper- ny-owned workshops and for home-based ations. In the meantime, Selyn developed its workers through various ways. Selyn provides know-how about international markets with yarn to the workshop managers and indepen- the help of USAID. Continuous upgrades to dent artisans with a 60-day interest-free loan. technology were introduced and financed by Selyn also pays 50 percent advance payments bank loans. Another milestone targeted was on orders. In addition, it makes available 1 small donor grants: the founder’s two trips percent interest rate loans to artisans who in 1995 and 1996 to the U.S. toy fair were want to expand their activities. financed by the USAID TIPS program and thus helped open U.S. and French buyer orders Participation of Artisans, Human Resources, and for soft toys. “After the international trips, Community Engagement the business began to grow. The original 5 Selyn has 273 full-time salaried employees workers became 50” (Nathan Associates, J.E. and an outsourced network of 541 artisans. Austin Association 2006). Artisans represent 73 percent of all employ- With an annual turnover ranging between ees. The employees are distributed in arti- US$1million and US$1.5million, Selyn’s sans, management and supervision, sales profitability has been decreasing since 2008. and marketing, operations, human resources, Selyn’s growth path was steady beginning in quality control, and IT (see figure 3.8). Selyn’s 1991, and all earnings were reinvested into employees and artisans mostly have a second- the business. Revenue margins range from ary education. US$250,000 and US$500,000 per year. Yet,

MANAGING FOR GROWTH 49

Selyn has established more than 20 workshops Another artisan is Chandra Kumari. She in handloom villages in the rural outskirts began her handloom career at the govern- of the northwestern, eastern, and southern ment-managed Salusala factory in Niyangoda, provinces of Sri Lanka and, in 2004, started Galagedara, in Kandy District. After the factory its hand-weaving apprenticeship program for closed, she joined Selyn at Wanduragala, young women. The apprenticeship for about Kurunegala. After three years with Selyn, in 15 to 20 young women lasts six months. This November 2005, she proposed to run a hand- model is artisan focused rather than headquar- loom workshop at her home. Selyn agreed to ters based and derives from the philosophy build Kumari a mini workshop on her land, that artisans can reach the workshops within close to her home, and she provided 15 hand- a short distance, thereby allowing them to loom machines. “She is happy with this new balance work with family and community. arrangement and expects to expand the work- Selyn provides artisans with technical skills shop and employ more unemployed youth in trainings, fair-trade awareness and leadership the village”. (Nathan Associates, J.E. Austin training, and entrepreneurial development for Association 2006). Kumari is paid through a artisans. At times, it provides special technical commission from the workshop’s output, and or methodological support according to the she pays rent to Selyn for using the workshop. needs and requirements of the artisans. Marketing and output logistics Inclusion and empowerment Selyn sells 60 percent of its products in the Selyn’s outsourced artisans, 97 percent of local market and 40 percent in international whom are women, are key to its production markets through international trade fairs. network. To create incentives for the artisans, Selyn also sells to distributors and other retail- Selyn provides training and social services ers. In the local market, Selyn markets its such as child day care centers at some of product through the five stores it owns around the workshops. Selyn also provides training the country. The main customers of the stores on health and female health care, domestic are married females from ages 25 to 55 and violence, and alcoholism. Importantly, the tourists. company collects and keeps track of information about artisans’ skills and demographic In international markets, Selyn acquires its data including family data. clients by participating in international trade fairs. Selyn’s international sales focus on One of Selyn’s artisans is Priyanka Kumnari. the European market—especially in France, She grew up in rural Sri Lanka to parents Germany, Sweden, and the United Kingdom— working in agriculture. Her brother and sister and on the Asian market—especially in Japan left the village to find other sources of income, and the Republic of Korea. The peak sales and both joined the military. Kumnari could seasons are around December, in April and pursue studying; yet because of unsatisfactory May, and in August. grades, she did not continue advanced studies in arts and, instead, became a mill operator in In Selyn, the marketing effort represents only Asian Cotton Mills in the capital Colombo. Yet a small proportion—around 10 percent—of all her money was spent on necessities. After the total production cost, and 27 employ- the factory closed, she returned to the village. ees are working in the marketing and sales There she entered Selyn’s apprenticeship, department. Selyn markets its products mostly engaged in on-the-job training, and has now offline through showrooms, craft fairs, cata- become a competent hand weaver (Nathan logues, and advertising campaigns in local Associates, J.E. Austin Association 2006). magazines, but it also sells online stores.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 50

Figure 3.9: Anou’s Trajectory Anou was founded in 2012 and Average sales growth rates between Artisans have always has been operating since 2013. 2014 and 2017 were 93 percent. received 80 percent of revenues.

2012 2014 2015 2016

The 2015 revenues were US$250,000 to US$500,000.

Anou is the fi rst national The business model is online sales With the 20 percent service fee, service cooperative, a nonprofi t for which each artisan is provided Anou pays for the headquarters’ organization with 500 active an app (only images) with which offi ce, its staff , training programs, participating artisans of which the artisans can receive orders, mentors, R&D, staff travel Source:90 percent WBG areteam’s organized fi rm surveys. in make shipments, and receive expenses, and quality control. cooperatives and associations. quality feedback from Anou.

Anou capture the largest share of the value chain. Vision and overview “Anou is a community of artisans working together to establish equal access to the free The Anou cooperative is an online market- market.”54 Anou has recently partnered with place for handmade home and fashion Moroccan rug company Stitch on R&D for new 53 accessories goods from rural Morocco. The natural materials and natural dye methods to cooperative is owned by the artisan members produce trendy Sabra pillows. R&D is fi nanced living and working in rural areas of Morocco. by a small portion of the sales proceed (Anou Products are mainly wool rugs produced by Blog 2018). handlooms and, to a smaller degree, fashion and home accessories. Anou’s mission is to Operations empower rural Moroccan artisans to lead Anou mentors its 500 active artisans toward their own product design and development to more contemporary designs and design thinking, as well as through IT tools. At its head- 53. Anou means a well of water in Tashelheet, the language spoken in the Ait Bouguemez valley of Morocco. Anou’s website: https://www.theanou.com/ 54. See Anou’s website, https://www.theanou.com/ about, accessed May 2018. about, accessed in May 2018.

MANAGING FOR GROWTH 51 quarters in Rabat, Morocco, Anou has a design product as is or can reject and receive a studio to which it invites artisans to sketch refund. In case of rejection, the product is and to develop new ideas. Artisan leaders and returned to the artisan. With this process, a part-time London-based designer also offer Anou is committed to provide on-the-job creativity workshops with artisans on rota- learning about quality to its artisans. tions in which they guide the artisans through product and design development. To provide Leadership and management customers market-focused designs, Anou has Dan Driscoll is the founder and executive worked with five designers so far. Once the director of Anou, a cooperative run by a artisans are ready to post a product on Anou’s seven-member board. He worked as a Peace online site, artisan leaders at headquarters Corps volunteer in Morocco and has consulted review the description and photos, posted on with USAID. Anou’s board is presided over Anou’s proprietary app. The artisan leaders by the cooperative’s president. Decisions are provide visual feedback on price, photography, made by the board and the executive director. and desirability about each artisan product. In The board’s membership is 50 percent female. 2016, Anou piloted a design partnership with The average education level of the Anou’s a U.K. retailer to increase order sizes. At times, board is seventh grade. artisans produce custom-designed rugs and interact with clients directly through sketches The artisan director, the operations director, and visual feedback from the clients. and the executive director, as well as artisan leaders, run Anou’s head office. Artisan Anou produces mainly Moroccan designed and leaders work in two- to four-week shifts at handmade rugs and other fashion and home headquarters with two artisan leaders working accessories products inspired by Moroccan at a time. Artisan leaders also act as artisan design, and it exports the products through trainers. They are selected on their good track online sales. Anou’s 500 artisans are orga- record of product delivery and learning. The nized in 70 cooperatives and associations or artisan leaders are paid the equivalent of a are individual artisans. The artisans receive local government employee. about 80 percent of sales revenues with 20 percent withheld by Anou’s head office to Financing of company and financing of artisans cover its costs. Of Anou members’ production, Self-financed Anou cooperative’s growth 98 percent is sold internationally, mostly to started in 2013 and progressed exponen- the United States. Anou’s sales are one-unit tially. For Anou’s start-up capital, the founder sales, and about 13 percent of all orders are spent his own resources. Anou is reluctant to repeat orders. Anou keeps updated sales data take on private capital so that it can main- for groups and individuals within groups (both tain full control of the Anou artisan platform. online sales and offline sales) and data on Anou started to be profitable in 2014; in the number of active members. Input materi- 2015, annual turnover was US$250,000 to als are wool, wood, sabra, and metal (brass, US$500,000. Sales growth rates were 200 copper) that artisans procure themselves. percent between 2014 and 2015 and 50 Quality control of Anou’s products in 2017 percent for 2015 and 2016. has shifted from the artisans to the head office Anou does not provide financing to artisans. where artisan leaders are inspecting each At the time of order, customers pay Anou order. Through the app, the head office team through services such as Stripe, PayPal, and completes a simple form about the product. TransferWise. Once the product is received The form lists the type of error that occurred, by the customer, Anou transfers money from such as measurement errors, color discrepan- Anou’s bank account to the artisan’s individual cies, or others. This form and product photos bank account. Bank accounts are easy to set are sent through the app to the affected up in Morocco. Artisan businesses in Morocco customer, and the customer can accept the are required to maintain a bank account. Anou

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 52 helps artisans set up bank accounts for those tor. Four Anou trainers work on the team part who do not have accounts. Advance payment time. The average education level of the local for customs orders helps to provide a buffer team leaders is also seventh grade, and only for periods of negative cash flow. one has graduated from high school (Anou Blog 2017). Artisan trainers provide design Participation of artisans, human resources, and mentoring, quality control, and general opera- community engagement tions assistance. The executive director works Artisans’ earnings are about 80 percent of mostly on IT solutions. The technical director the sales revenues. This percentage is a high manages the artisan trainers’ team. figure, considering artisans from emerging Inclusion and empowerment economies can earn as little as 4 percent of a product’s retail price. Further, artisans gain Anou’s premise is to empower artisans and meaningful employment through working in their resilient growth as entrepreneurs with Anou’s offices and activities. free access to markets. Women make up 70 percent of Anou’s artisans. Dan Driscoll Anou works with 500 active artisans and 900 summarizes Anou’s vision: “Anou represents active members from 70 cooperatives, asso- a fundamental shift in the fair-trade industry. ciations, and individuals. To join the Anou Instead of asking how organizations can help, community, an artisan trainer visits the artisan we ask how we can build a resilient commu- or the cooperative in his or her workshop nity of artisans where outside help and fair- and reviews the products in person for basic trade organizations are no longer needed.”55 quality requirements. To be considered for Anou wants to help its artisans who used to training, artisans must (a) be the one who sell their crafts through intermediaries from makes the products that he or she sells or be their home for much lower prices. an official member of an artisan association or cooperative and (b) demonstrate a high level For example, artisan Halima Aissaoui is from of motivation. The average level of educa- Moulide. Born in 1976, she later relocated to tion of all of Anou artisans is around seventh Khenifra. A widow and mother of three chil- grade; many artisans have not completed dren, Aissaoui completed third grade before elementary school. Inactive members are arti- learning the art of weaving from her mother sans who belong to a cooperative or associa- and through vocational training. She joined tion but are not working as artisans because the Tiglmamin cooperative to earn a living to of a lack of sales. Anou provides training to maintain her home and to raise her children. the member artisans, which consists of train- Currently, she produces Sabra bamboo fiber ing in ICT, legal and regulatory requirements pillows.56 for artisans, basic marketing, photography, pricing, management, and product design. The Marketing and output logistics training is free for artisans, takes place in their Anou sells exclusively online without any workshops, and is financed by a fee subtracted active marketing. On Anou’s website, articles from each sale made. are tagged to specific artisans. Once an order During the photography training, artisans is made, artisans ship their products from practice basic photography skills that empha- their villages to Anou’s head office through the size the connection between the product, postal services of DHL. There, artisan leaders where it was made, and the person who made inspect the shipment for quality and order it. All pictures on the Anou online store are specification and process the customs forms taken and uploaded by the artisans using their that Anou has automated. own cameras or camera phones. 55. Anou website. https://www.theanou.com/about, Anou has three full-time employees, including accessed in May 2018. 56. See artisan profile on Anou website,https://www. the executive director, who is Anou’s founder; theanou.com/product/8882-black-white-bamboo- an expatriate technical director; and a direc- bamboo-pillow, accessed in May 2018.

MANAGING FOR GROWTH

ANNEX 1 Table A 1: Firms’ Rankings of the Business and Digital Environment and Aspects of the Innovation Ecosystem Affecting Firm Growth EFFECT ON GROWTH Very Very positive Positive Neutral Constraining constraining LABOR, SKILLS, AND EDUCATION Availability of educated workers and employees •• • • • Availability of adequately educated artisans •• • • • Availability of skilled employees and workers ••• • • Availability of basic technical artisans skills • •• • • Women’s rights to work outside the home ••• • • Other laws or customs affecting women or minority •• •• • to work or be an entrepreneur Accreditation for in-house skills training •• • •• ACCESS TO INFRASTRUCTURE IT infrastructure, Internet connectivity •• ••• Affordability of cell phones for artisans •• ••• Affordability of internet connectivity for artisans •• • •• Affordability of electricity prices • •••• Access to power • •• •• Access to land • ••• • ACCESS TO FINANCE Access to credit for independent artisans • • •• • Access to credit for company ••• • • Foreign currency regime •• •• • Availability of mobile money in areas where artisans are • •• •• TAXES AND DONOR/GOVERNMENT ASSISTANCE VAT • •••• Donor or gov. programs for firm’s exposure to exter- •• • • • nal markets Certification • • •• • Technical skills provisions at start of company • •• • • COMMUNICATION Social media • ••• • Launching competitions • •• •• Publicizing prices/awards • ••• • TRADE ACROSS BORDERS Import regulations • • • •• Export regulations •• • • • Customs processing • • •• • E-commerce regulation • • •• • CONFLICTS OR POLITICAL INTERFERENCES* Prior conflicts •• • •• Current conflicts • •• •• Political interference •• • ••

• One company rating , * positive rating means there were no prior or are current conflict, or no political interference. Source: WBG team’s Firm Business and Digital Environment and Ecosystem Survey in 2018.

FOUR LEVELS OF CAPABILITIES AND A 12 STEPS PROGRAM 56

MANAGING FOR GROWTH 57

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