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"When we look at the world from the vantage of an artisan in a small community without roads, telephones, and electricity, the route toward economic and social betterment is a long slow trek toward a distant light in the market, the only reliable guide something instinctive in the hand and a sure eye for beauty and a potential customer. Craft is the creative path toward economic and social change." (from Handmade Money by Walter F. Morris)

Crafts play an important role in the survival of micro-enterprises. In the past, artisans made utilitarian objects for their own needs and decorative or virtually significant pieces for communal events such as marriages, funerals, and religious festivals. Craft production inevitable fitted into the rhythm of a working day and the work seasons of the year. Increasingly the purely economic reasons of the artisans have become more important. Today, handicrafts is evolving in relation to market demand.

Micro-enterprises are defined as very small income-generating units owned and managed by entrepreneurs in urban and rural areas. Entrepreneurs work in it themselves, from which they derive most of their livelihood, which employ very few people, if any, mainly relying on family members, and using very little capital. Among the productive units that can be considered as micro-enterprises are traditional family and cottage industries or artisanal unit, and the self-employed. When one talks about community-based micro-enterprises, it reflects a wide array of distinct and unique features since it encompasses area-based resources, traditions, culture, weather conditions, existing infrastructure, and community economics.

Latest figures show that microenterprises comprise the largest number of establishments in the Philippines as shown in the following table:

Micro: 0-9 Employees
Small: 10-99 Employees
Medium: 100-199 Employees
Large: >200 Employees

Source: National Statistics Office, List of Establishments, using the Philippine Standard Industry Classification (PSIC) Code

There has been renewed interest in the role of small and microenterprises in development. Development have shifted from medium- and large- enterprises, which can absorb large amounts of growth capital and be amenable to technological adaptation from industrialized countries, to small and microenterprises, which can satisfy basic human needs such as poverty alleviation and growth in terms of employment and income generation. The mergence of the educated unemployed, the increase in unemployment in urban areas, and the structural imbalance between rural and urban areas are now leading to a new interest in rural non-farm activities. In the context of developing countries where absorption of excess labor seeking employment is a problem, where rural-urban migration occurs as a response to disparities in income-earning opportunities and standards of living, small and micro-enterprises have a major role to play in an alternative development strategy with more desirable employment and distributive characteristics than concentrated industrialization and modern agriculture could give.

Economic challenges that many businesses presently face are magnified among the micro-entrepreneurs. Alleviation of poverty requires both the generation of stronger growth and the reduction of income inequalities. Everyday thousands of enterprising women and men strive to increase their income by maximizing the return on their labor and that of household members. Very often, however, overall skill differentials and inequitable/lack of access to business and financial support services largely contribute to inequality. Levels of skills and education, however, mitigate the effect of such efforts. Being micro often means having low income. Low income means low purchasing power, and, consequently, low capacity to obtain goods and services.

Services and support to enterprises have traditionally been separated into two categories: financial (micro finance) and non-financial. Non-financial services are widely referred to as business development services, or BDS. The last few years have witnessed a significant change in prevailing views on BDS and micro finance. The drive for sustainability has been the heart of this revolution. Even if one chose to fight poverty with charity and dole-outs there are simply not enough resources to sustain such an approach. Instruments for intervention should therefore facilitate the incorporation of the 'disadvantaged' or the 'marginal' group into the mainstream market. The biggest challenge for development practitioners is to create a level playing field, where each and every enterprise can have access to business and financial support services that they need to improve their businesses.

BDS Intervention Design and Approaches. A successful BDS intervention requires a highly focused effort, with specific goals and action steps. At the same time, it must have a high degree of flexibility to respond to a very dynamic marketplace and to the various economic opportunities. Intervention design principles and methodologies are emphasized, as are the range of BDS intervention instruments.

Market Linkages. There is a close relation between poverty and distance from markets. It has been established that access to profitable markets is a key factor, which determines the long-term success for all businesses. Small and medium scale microenterprises, however, often suffer from a number of constraints, such as inadequate technology, geographic isolation, lack of raw materials and saturated local markets.

Marketing. Enterprise development interventions should: a) search for new product and market opportunities; b) assess those opportunities using criteria such as costs, benefits, strategic fit, etc.; c) develop innovative concepts; and d) pursue these opportunities through well-thought marketing plans and strategies.

Microfinance. Starting or expanding a business requires capital. Yet, many enterprises are unable to gain access to the working capital they need because they are poor and have no capital. Today, there are various mechanisms that provide access to loans through simple procedures at affordable rates be it from the government and private sectors.

Education, Technology, and Social Dimensions. A strong sense of ownership among all stakeholders is an essential prerequisite to the sustainability of an organization or any other enterprise for that matter. Levels of ownership are dependent on the extent that organizations implement practices that distribute power, information, knowledge and rewards throughout the organization. Organizations and enterprises must be provided with the tools and perspectives necessary to strengthen their capacity and capability through regular performance assessment, diagnosis of internal strengths and weaknesses, identification of capacity building needs and design of action plans.

Any program or intervention in a community, although linked with national goals, should always be community and people centered and should promote a sustainable system suited to their own dreams and aspirations. Different strategies, different approaches with one common theme: helping people help themselves. Sustainable development is not just about means of production but also about means of living. Poor people are no longer interested in academic analysis. What they want/need are implementation of laws and policies through practical strategies, tools, systems, and methodologies which are simple and in which they can understand and therefore can actively participate.

But before we proceed in the specifics on how product development can help in achieving these goals , let us take a short look first of what is happening in the industry in my country where micro-enterprises play a significant role: the export market.

In the Philippines, micro, small, and medium scale enterprises have been major contributors to export sales of furniture, gifts, toys, houseware, fashion accessories, garments, mangoes, dried fruits and seaweeds. Microenterprises mainly serve as subcontractors to small, medium, and even large companies who cater to the local and export markets.

Among the 10 export winners in our country, furniture, gifts, toys and housewares (GTH), and the fashion accessory sectors are dominated by micro, small and medium enterprises. The other sectors are generally investment driven industries consisting of large and multinational companies. Growth of the three selected export-oriented industries would depend on their success in competing with other products from abroad.

One of the oldest industries in our country, gifts, toys and housewares include a wide range of merchandise including basketwares, Christmas and other holiday decors, artificial plants and flowers, handmade paper and paper products, furnishings, and home accessories. Products are generally handmade. Philippine exporters of gifts, toys and housewares have been challenged by stiff competition from our low-cost foreign counterparts. Aside from this, sales have been decreasing in the last years influenced by our country's economic and political situation.

Through this period, the industry has seen a general shift from low-end decorative items to midrange to high-end functional pieces using mostly mixed media as a way of sidestepping its rivals. As competition intensifies from other countries, manufacturers are continuously challenged to come up with decorative and functional items using new and innovative materials and blends. And these innovations can start at the grassroots level, from the micro-enterprises, which is the reason why product development should be intensified at this level.

1001 Strategies envisions to provide services to SMEs especially microenterprises to help strengthen the competitiveness of locally produced products both in the domestic and international markets and address the continual challenges of globalization on the local industries. Through intensive product development programs together with our partners, we aim to provide services that will:

Facilitate the introduction of product innovations through new approaches in material manipulation, techniques, handling, and finishing;
Accelerate the diffusion and adoption of production techniques consistent with existing and emerging market trends;
Strengthen the production base for export activities;
Enhance and further develop product development capability, and
An information base for the sourcing, producing, and channeling of market and product related information to both manufacturing and design industries

In order to give you concrete examples on how we undertake such programs, I would like to present to you two case studies in the area of product development in my country, thus changing its role from mere designing to a holistic one that encompasses a wide array of activities geared in helping micro- and small enterprises achieve sustainability.

1001 STRATEGIES
N-22 SCI Makaturing St., 1550 City of Mandaluyong
P H I L I P P I N E S
Telefax: (+63) 02 532-8776 Mobile:(+63) 09175363023
E-mail: strategies@manila-online.net

CASE STUDY 1: The Gabay sa Bagong Pag-asa Program
Product Diversification as a Strategy in Market Repositioning

Oxfam is among Britain's largest charity organizations. It has a one-program approach where development, emergency response, and advocacy are simultaneously carried out through partnerships. Funding and support for capacity-building and advocacy are the main forms of support Oxfam provides to their partners. Oxfam promotes fair trade practices and parallel to these are efforts towards helping their producer partners penetrate the mainstream market.

1001 Strategies is involved in Oxfam's capacity-building through developmental programs for their partner producers in the countryside. Objectives are to enhance the producers' skills, introduce product innovations and update their designs to current market demands. The ultimate goal of such assistance is to enable them "to develop a growing and financially viable business that demonstrably builds their skills and capacities."

One of Oxfam's partners in the Philippines, "Gabay sa Bagong Pag-Asa sa Napo" or GBP-Napo (in English: "guide towards new hope") was selected to undergo an intensive training program to diversify their product lines due to dwindling sales of their traditional products. Oxfam feels that GBP-Napo has the potential to diversify because of their skills and the abundance of natural materials in their area.

Intervention was directed towards achievement of the following objectives:

1. Promote export readiness by introducing specific designs and skills enhancement, improving costing systems, and laying the groundwork for the establishment of cost-efficient production operations to prepare GBP as a reliable supplier of Oxfam for the new lines as well as qualify as competitive subcontractors or suppliers to other exporters and institutional buyers.

2. Introduce product innovations through new approaches in material manipulation, techniques, and handling.

3. Accelerate the diffusion of appropriate production techniques on a grassroots level.

4. Develop products that would establish a special/distinct statement that the organization can introduce and sustain.

6. Harness the potentials of the region/province through the optimum utilization of resources within the context of ecological balance and preservation.

Phase 1: Development Planning
Phase 2: Design Folio Preparation
Phase 3: Skills Training/Prototyping Workshop
Phase 4: Report Generation/Consolidation

Resource assessment and needs analysis to determine relevant product directions, skills training, and design assistance needed by the organization to successfully implement product diversification program. This phase takes around 2 days of plant visit and another 4 days preparing for the necessary paper work. Outputs are the following:

A company audit that involves on-site visits and interviews is conducted in order to gather information that is vital for the planning and implementation of the program. The audit includes company history, production data: machineries, equipment, workers, skills; marketing strategies, product policy, future plans, etc. From the audit, a SWOTs (Strength, Weaknesses, Opportunities, Threats) analysis is made in order to make a detailed assessment of the organization. Finally a design brief is presented to define the scope of the development effort to a particular market opportunity and lays-out the constraints and objectives for the project.

Napo is a small community two hours away by land from Cebu City, our "Queen City of the South". Cebu City is 45 minutes by air from Metro Manila. Napo can be reached thru unpaved roads and a shallow river. GBP has a modest office, cum showroom, cum production center built in the 80s. This structure and most of their equipment were grants from Oxfam. During the visit, we go around their area and visit places such as the town market to get a wider picture of what is available. Like many micro- and small enterprises in the Philippines, GBP has only a membership of 13 people with their families assisting in production. When orders come in, quantities are distributed to the membership and produced in their respective homes. The products are then delivered to their office for quality inspection and packing. Finally goods are delivered by land or by sea to their buyers. Before this project, they only produced wind chimes, coco midrib baskets, bird houses out of coco spikelets, and some fashion accessories. Sales have been going down due to increasing competition and lack of new designs.

This phase, taking around 14 days, involves the gathering of market information from Oxfam since Oxfam intends to buy from them, from other buyers, and from market trends. Output are the following:

The following are just a few of the concepts generated using the various raw materials of GBP: (pictures to be presented)

Full size working drawings are made with material specifications. Planning of training follows.

Skills training focused on how to make selected designs in the folio into actual products. Costing and quality control were also undertaken. Considerations for the production of the designs are the following:

� Products should promote optimal utilization of skills and indigenous resources abundant in the area. Raw materials to be directly gathered by the producers or sourced from direct suppliers.

� Rationalization of components so that, for example, individual components or sub-assemblies are common to several items. Also includes rationalization of sizes to serve as standard for each item.

� The range should maximize the most cost-effective equipment/processing skills in the organization. Production recommendations will also be given in terms of processes and needed equipment.

� Consideration should be given to construction methods in order to simplify finishing.

� Consideration should be given to transport, e.g., reduction of damage in transit; nesting to reduce volume, etc.

For the training, we let the organization decide who will attend but we encourage that the head and good sample makers to be present. From our experience, most of them go to trainings, confirming their enthusiasm. On our side, a design consultant (or two at most) and a technical consultant/trainer conduct the training. The design consultant should also have some handwork skills in order to assist the trainer.

Training starts with a short debriefing on the tasks at hand. Designs, materials, and skills involved are explained. Trainings such as these only takes four to five days so we have to maximize the time and work until evenings. We would like to have the training longer if not for budget and time constraints.

Raw material preparation and processing are taught first. Then we divide the producers according to the tasks involved and if time allows, rotate the skills among them because in small groups, flexibility is important. The more experienced weavers were assigned to do all the new woven baskets and the men did framing work. For example, for the guinit or "coco bark" basket collection, the men constructed the frames by using the band saw and finishing nails. The women in turn covered and sewn the coco bark on the frames. It was quite tedious to do the frames since they are nailed one by one. We asked the Oxfam representative who visited the training to provide the producers a gun tacker in the future so that the process will be faster. Fortunately, the tool was bought immediately!

The following pictures show the producers at work with different materials and the samples they were able to make based on the designs. During the course of the training, we also taught them how to measure materials and the time consumed making them. This will aid the producers in their costings.

After the training, an evaluation of the samples are done where everyone is asked on their experiences, for example, on which processes are difficult and what should be done about it. It is also possible that during evaluation, we totally remove a process, a material, or a product. Our aim is to make production realistic and practical. If certain equipment and tools are needed, we relay this to Oxfam for further action.

Preparation of final report, project documentation including recommendations. Output is a final project report.

This is standard for all consultancy projects for Oxfam. A detailed report is needed in order to conduct proper monitoring/follow-up on the project. Marketing of the new lines are done by Oxfam (for export) and also by the producers themselves (both for export and local markets).

A few months after the training, GBP met some buyers, including one from Japan, who were looking for regular suppliers of baskets. Due to the new skills they have learned, they offered the products and from there, the rest is history. They now regularly supply various basketware to several buyers aside from Oxfam, providing their organization a stable source of income up to the present.

A project with the Swiss Foundation for Technical Cooperation (Swisscontact)
January to April 2001

The roads to the upland communities are still narrow and rugged � oftentimes, muddy after a heavy rainfall, making access difficult. But the unseen barriers that trap them are slowly starting to crumble.

Three municipalities in the province of Itogon (Poblacion, Loakan, and Bokod) in the northern part of the Philippines were tapped for this Product Development Program (PDP). These areas are near Baguio City, our country's "summer capital".

Notwithstanding the long tradition of basket weaving in the areas mentioned, businesses have remained at the backyard level. Small, varied orders have not encouraged community organizations on purchases of modern equipment needed for more specialized, volume-oriented production. The weavers rely on existing local markets and, oftentimes, have had to cut margins to compete. Likewise, due to smallness of operations, obsolete designs, and low quality, they find it difficult to penetrate bigger markets. Most of the weavers increase their income by maximizing the return on their labor and that of household members. Their levels of skills and education, however, mitigate the effect of such efforts.

Tapped by the EU-DA CASCADE program, Swisscontact Philippines identified our group as one of their partners under the Business Development Services (BDS) programs. We were given the task in the design and implementation of product support packages to address the concerns I mentioned earlier. While it would be easier in the short-term to hold the weavers with apron strings, the intervention framework made conscious efforts, to the extent possible, at avoiding such a situation so that, in the end, they will be able to stand on their own. A main strategy employed by our team was linking delivery of product development and marketing services to Manila-based exporters. The process involved working directly with buyers in the development of new designs vis-?-vis the capabilities and skills of weavers and resources abundant in the area. The new designs were then introduced to the weavers through workshops. Integrated in the skills training were lectures and coaching on quality control, pricing and costing and the distribution channels, raw material preparation, packing and transporting of products, concept of production assembly and specialization.

Although most of the costs involved in the development of the mechanisms and the pilot delivery of the services were funded through the program, a part of the direct costs involved in product development activities were paid through the margin between the purchase and the selling price of the products. In the second phase of the program, it is expected that a greater portion of the costs can be embedded in the mark-ups and there would be more 'willingness' from the weavers to invest in product development.

One of the objectives during the pilot phase was to expose the communities to tangible results of BDS in order to overcome problems of understanding/awareness and valuation of benefits/costs of services. From the feedback, the strategy is beginning to work. With a clear market in mind, participants were very eager to learn during the various workshops. They were reluctant to stop working even during mealtimes. Some of the participants even requested that they be allowed to bring their work home to finish it in order to have more time in learning new techniques and making new designs the following day. There were participants who easily adapted to the new skills. They assisted others who were having difficulties in their samples. At the end of the workshops, the team has identified 6 weavers who can be tapped as trainers in their communities and assist in future skills training.

The product support package developed for this sector was directed towards development of products that would help the enterprises become suppliers to Manila-based exporters. But for this to be successful, the producers from Poblacion, Loakan, and Bokod must be made ready to meet demands on quantity, quality, pricing, and delivery. The implementation of the product support package served as an initial step towards building this capability and capacity among the weaver communities in the abovementioned areas. Below are the highlights of the implementation activities.

� We noted during the site visit that the selling prices are high considering the products being produced and sold. This was traced to labor cost of production, materials preparation, insufficient knowledge on costing and pricing and limited market exposure, which is limited to the retail outlets in their area (Baguio City).

As such, producers were advised to acquire materials directly from the source and not through middlemen/traders in Baguio market in order to reduce costs. Net- working through the assistance of our government's Department of Trade and Industy offices in the region was also presented as an alternative. As much as possible, raw materials should be bought processed. This means that the materials are ready to be used and require minimal preparation (e.g., nito - instead of buying the vine itself and splitting it, it should be bought in split form already; the same with split rattan as binder ---instead of splitting the labtang to make binders which is labor intensive and time consuming, a processed split rattan in different sizes can be used which is more economical and do not break easily).

� Sales of pine needle/cone products decreased during the last few years primarily due to lower priced products from China. The only way for Philippine products in general to compete is to move up to a higher end of the market rather than the low-end. The demand for natural, simple products and the design trend focusing on the "Asian/Far East" look has initiated a comeback for many materials such as coco wood, wood, straws, grasses, and bamboo. These materials are now being rediscovered in a wide variety of functional and decorative products emphasizing new and exciting forms, material combinations, textures, and finishes. This is a direction that could be taken advantage of by the pine based subsector.

� Other raw materials identified by the team that can be used in combination with pine cones/pine needles are: bamboo and split rattan.

� Based on skills assessment, training on the following areas was recommended: material preparation and sizing, basketry techniques, new weaving patterns, and finishing.

� It was also observed that producers lack a working knowledge on costing and quality. As such, it was deemed necessary to integrate topics on basic costing techniques and quality inspection in the training. There is also a need for producers to be assisted in systemizing production flow in order to maximize their capacity to service bigger orders in the future.

� Letters were sent to a list of Manila-based exporters and retailers to determine their interests. The products and raw materials samples were presented to those who showed interest. Product development was undertaken with the buyers in order to focus on their specific market requirements. Design briefs were presented based on our inputs and those of the exporters/retailers who will undertake market linkaging. These resulted in the preparation of several sketches and material combinations for four Manila-based exporters.

� A bottleneck with all the companies involved pricing. Prices quoted by the producers are very high maybe because they are used to the retail market or because of the very limited knowledge on costing and pricing. Labor cost was based on the minimum wage instead of piece rate and on the time spent preparing prototypes, which is usually longer. Raw materials consumption varies significantly from one producer to the other. We assisted the CASCADE-assisted enterprises in coming out with suggested prices and facilitated the negotiations regarding pricing between the producers and prospective buyers.

� A major concern also among exporters was the production capacity of the enterprises and their ability to supply and maintain the required quality. Apprehensions of exporters were understandable considering that marketing and promotion activities for the prototypes involved significant investment from their end.

� We experimented on different weaving techniques, raw material manipulation and combinations. We prepared prototypes of some of the designs and brought these during the skills training for participants to see, imitate and experiment.

� Designs and raw materials combinations were prepared and introduced to the CASCADE target groups.

� Training methodology is hands-on and coaching. Approved designs were reproduced on large sheets of paper in their actual sizes to serve as guide. Materials to be used were also indicated in the sketches. Training materials were sourced from the producers' areas, Baguio and Manila since the exporters wanted material combinations.

� 5 training sessions were conducted and participated in by 135 weavers. A total of about 145 prototypes were developed

� With initial market linkages established and improved production skills, the PDP then has to examine how micro-enterprises need to be organized in order to promote economies of scale, efficient and increased production volume, and better control over their resource bases (raw materials, facilities, group marketing, etc.).

� Recognizing the limitations of DTI and other local organizations, it is recommended for CASCADE to work towards the continuous development of both the supply and demand of BDS through market mechanisms. This will include assistance in the development and conduct of awareness and promotional campaigns to stimulate and increase micro-enterprises appreciation and willingness to pay for BDS. Parallel to this, there is a need to support the development of private BDS providers.

� Factors critical to the production of the samples still have to be addressed such as material processing and consumption, time and motion study, quality, transport, and costing. The weavers were given pointers on these matters but hands-on coaching and mentoring may be needed for them to internalize and fully understand the concepts.

� Production capacity is still a major concern. There were good market opportunities but the absorption capacity was very limited. Full development of community-based production and enterprises should be started on the next product development program implementation.

� Follow-up product and market development support to target groups in the pilot phase implementation is necessary during the expansion phase but in a limited scope and in a transactional basis (i.e., cost-sharing scheme between enterprises and CASCADE for business support services and demand for these services should be initiated by the enterprises themselves). The follow-up support will facilitate the transition towards fee-based BDS and, at the same time, ensure that gains made during the pilot phase implementation will be maintained and further accelerated through continuous access to business support services.

The following are the results of the marketing efforts done by the partner-buyers.

WCL Philippines showed the votives during the Hongkong Fair and the April 2001 International Market FAME Show. The new designs generated inquiries and sample orders from Italy, Japan, Singapore, Sweden, Israel, and South Africa.

Casa Filipinas Crafts showed the paper mache boxes and coiled baskets/containers during the April 2001 Market week. The fruit bowl was the best seller. According to Jojo de Guzman, a US buyer initially placed three 40 feet container vans as orders. Unfortunately, during coordination with the producers, the order was impossible to meet due to production capacity limitations.

From 3,000 pieces, the order was trimmed down to 1,000, then 500, down to 250, trickled to 100 until it settled to 75 pieces. The US buyer visited the communities and understood the situation and placed the trial order to test production capacity. This sample order will be shown in the different shows and trade fairs across the US over a period of time.

Likewise, Casa tapped a US food manufacturer, which could use the paper mache-pine needle boxes for packaging. The exporter placed an initial order of 100 sets, which is due for delivery on August 15. A buying agent for a British company placed sampled orders for the flower vases for presentation to the board of directors in London. Update on this is so far favorable but the buying agent admitted that the British national is comparing the quality with that of China. Other inquiries are from Belgium, Japan and the Middle East countries.

In general, there were good market opportunities but the absorption capacity was very limited. A major concern among exporters was the production capacity of the enterprises and their ability to supply and maintain the required quality. Apprehensions of exporters were understandable considering that marketing and promotion activities for the prototypes involved significant investment from their end.

Despite these initial setbacks, the exporters are still willing to give the communities and the products another push during the forthcoming October Manila FAME show. The weavers are still bent on pursuing their dreams of making it to the export market. The weavers may not have the capability to take giant leaps, but a hundred little steps will do just as well. We all have learned our lessons� and we will strive to go beyond our previous experiences. The story has just begun and we all look forward to a 'happy ending'.

Many small enterprises do not have access to a variety of business support providers, are inexperienced at managing them, and cannot afford the costs. The traditional response has been to provide microenterprises with highly subsidized services, but experience have shown that this is anti-sustainability. Instruments of intervention should therefore facilitate the incorporation of the disadvantaged and microenterprises in the mainstream market rather than excluding them or treating them as "charity cases". This has been the approach of Oxfam and Swisscontact which we integrate in our product development efforts.

By looking at this approach as more than trading but as a "development process of enlarging the range of people's choices by expanding their opportunities and realizing their potential," it is envisioned that product development programs will serve as the initial step in realizing viable community-based craft enterprises that will be able to contribute to economic and social change.