Building Trust for
Scale
Sound Practices for Effectively Managing
Inclusive Distribution Networks
Executive Summary
Executive
Summary
This document presents organizations looking to scale their
inclusive distribution networks (IDNs) with a proposed set of
sound practices for effectively managing and promoting such
networks. IDNs are programs in which brands belonging to
commercial corporations (or “anchor companies”), 1 social
enterprises, or nonprofit organizations engage microdistributors of goods or services as part of the brand’s
distribution chain to reach base of the pyramid (BoP)
consumers.
A key to scaling an IDN is to build trust within the network -between the anchor company and its micro-distributors, and
also between the network and its customers. Building trust with
micro-distributors and consumers, however, requires a deep
understanding and knowledge of the BoP and the culture(s)
where the IDN operates.
The following sound practices for effectively managing an IDN
as it scales are drawn from current practices of anchor
companies operating in Latin America, as well as from desktop
research conducted on franchise laws in Latin America and the
experiences of a microfinance-oriented, consumer protection
initiative called “The Smart Campaign.” The below practices
are organized according to the life cycle of an anchor
company’s relationship with its micro-distributors.
Guidelines for Identifying an Inclusive Distribution
Business Opportunity:
• Develop realistic profiles for target micro-distributors. Profiles
should be tailored to and grounded in the specific activities,
products, services, and likely customers of the IDN, and
these profiles should be adjusted based on experience.
• Develop an assessment mechanism or process for
determining the extent to which the candidates satisfy the
profile.
Guidelines for Entering into an Inclusive Distribution
Business Relationship:
• Ensure that before committing to the proposed relationship,
prospective micro-distributors understand their rights and
obligations, as well as the benefits that they can expect and
when they can expect to secure those benefits.
2
• Give potential micro-distributors time to review information
about the business opportunities offered by the IDN, and the
roles and responsibilities of micro-distributors and anchor
companies, so that potential micro-distributors can make
informed and carefully thought-out decisions before entering
into the relationship.
• Provide transparent fee structure, use clear language, and
provide complete cost information to the micro-distributors,
and instruct any agents acting on behalf of the anchor
company to do the same.
• Establish clear rules about the use of the brand, emphasizing
the importance of brand loyalty to the anchor company. If the
program involves proprietary products or technology, anchor
companies should have micro-distributors expressly
acknowledge the anchor company’s ownership.
• At the beginning of the relationship, clearly identify goods,
equipment, or products that are to be returned by the microdistributors upon the winding down of the program or the
relationship, as well as training in how to take care of the
equipment provided to micro-distributors.
• When loans are made to micro-distributors to finance the
costs of joining an IDN (whether directly by an anchor
company, or indirectly by a financial institution or
microfinance institution working in collaboration with the
anchor company), ensure that the lender does so in a
manner consistent with The Smart Campaign Principles.
Guidelines for Managing an Inclusive Distribution
Business Relationship:
• Provide the micro-distributors with both initial and on-going
training, adapted to the needs/capacities of the microdistributors. The initial training should cover topics such as
product characteristics, product presentation to potential
customers, and display of brand identity on the microdistributors’ persons or facilities. The ongoing training should
cover topics such as changes in the program structure,
financing, product offerings, and marketing strategy.
• Provide ongoing support to the micro-distributors appropriate
to the type of program (e.g., product research, supply chain
management, operating procedures, marketing concepts,
customer service techniques, as well as other benefits) in
order to optimize micro-distributor performance and
profitability and reduce attrition rates.
• Have consistent qualitative and quantitative standards for
reviewing micro-distributors’ performance and systems for
providing performance feedback to micro-distributors on a
regular basis.
3
• Create mechanisms for systematically soliciting feedback
from micro-distributors and from clients of micro-distributors
in order to increase engagement and the profitability and
effectiveness of the network.
• Tailor existing corporate codes of ethics to address anchor
company/micro-distributor relationships. Companies should
also adapt and refine their internal procedures, such as
manuals, communications, supervision, and strategy, to
support the launching and scaling of the IDN.
• Notify affected micro-distributors if the company decides to
wind down the program or to terminate the business
relationships with the individual micro-distributors, and allow
micro-distributors a reasonable time to adjust before they
must leave the program.
Guidelines for Winding Down an Inclusive Business
Distribution Network or Terminating Relationships with
Individual Micro-Distributors:
• Manage micro-distributor defaults so as to preserve the
relationship when possible, thus minimizing attrition.
• Identify how disputes are resolved in the local culture and
consider incorporating those resolution mechanisms to the
extent appropriate.
• Anticipate methods for recovering property at the end of the
relationship and communicate to the micro-distributors – and
to other members of the community, if needed – what would
be considered appropriate procedures for returning materials
and property to the anchor company.
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Section
1
Discussion
Section 1
Discussion
IDNs, as defined here, often contain one or more of the
following three main characteristics:
1) They seek to leverage the power of brands and existing
organizational resources to increase the commercial success
of the micro-distributors involved;
2) They put systems in place that help to standardize
business processes and approaches in order to facilitate the
establishment and advancement of micro-distribution
enterprises; and
3) They include processes and systems to advance
knowledge transfer and business development so as to
sustain the economic viability and well-being over time of both
individual micro-distributors and the IDN as a whole.
Drawing from a sampling of current practices by anchor
companies engaged in IDNs, the proposed practices seek to
advance IDNs that offer micro-distributors opportunities for
income generation, enterprise, and empowerment, in addition
to quality-of-life improvements for micro-distributors and the
communities in which they they live and work. By pioneering
sound practices, anchor companies organizing these networks
may both set themselves apart from their competitors and
reduce their risks of adverse economic and reputational
consequences from unsuccessful programs.
The proposed practices discussed below are based on four
projects that the International Transactions Clinic2 performed for
SCALA3:
1) a survey of anchor companies operating IDNs in Latin
America, which focused on identifying sound practices for
promoting successful anchor company/micro-distributor
relationships;
2) a series of follow-up interviews based on the IDN survey;
3) a desktop review of franchise laws in Latin America; and
4) a study of the evolution and goals of the Smart Campaign,
a client-protection initiative in the field of microfinance4.
The recommendations made here come with some limitations
as there are several challenges to defining a single set of sound
practices that will fit all IDNs. First, many IDNs are relatively
new and have not yet had the time to fully develop concrete
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business practices. The varying stages of maturity of these
networks shape the business models and related relationships
of anchor companies with their micro-distributors. Second, IDNs
also vary widely in terms of the products and services they
offer, physical setting, distribution model, non/for-profit status,
and other factors that make it difficult to draw a set of
generalizable practices. Third, the anchor company/microdistributor relationship typically evolves over time. Accordingly,
the sound practices adopted by anchor companies to manage
their IDNs need to be calibrated to the changing objectives and
experiences of the parties at each stage of the anchor
company’s relationship with its micro-distributors5. Four key
stages will likely shape the practices adopted by anchor
companies: 1) identifying an inclusive distribution business
opportunity; 2) entering into an inclusive distribution business
relationship; 3) managing an inclusive distribution business
relationship; and 4) winding down an inclusive distribution
business network and terminating the business relationships
established with individual micro-distributors. Because of these
challenges, articulating a set of sound principles for IDNs will be
an iterative process that will likely continue for years to come.
Of the proposed sound practices outlined below, some have
been already adopted by anchor companies that were surveyed
and/or interviewed by the ITC; others have been inferred from
analysis of The Smart Campaign and Latin American franchise
laws. The proposed practices focus on advancing an adequate
disclosure of risks and responsibilities among anchor
companies and micro-distributors, informed decision-making by
all parties, cultural awareness, sensitivity to the unevenness of
the playing field between anchor companies and microdistributors, robust partnerships with organizations that have
extensive knowledge and experience in working with people
living at the BoP (such as microfinance institutions and other
types of support agents that can integrate these networks into
existing opportunities in the field such as food security, housing,
and other value chains), and careful selection of the most
promising candidates for micro-distributor roles. By adopting
these practices, anchor companies can mitigate the risks of
micro-distributor attrition and program failure, as well as
enhance both social impact and financial results for both
themselves and micro-distributors.
Besides identifying sound practices that are already being
tested by anchor companies working with micro-distributors,
this document highlights areas where there is room to develop
additional and improved practices by referring to current
practices in commercial franchising and in organizations
working with individuals who live at the BoP. The goal of the
present draft is to elicit feedback that SCALA and other
stakeholders in IDNs can use to refine the following set of
sound practices. Anchor company feedback is particularly
important, especially in the form of concrete examples of how
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the following practices (or others) have been or might be
implemented in IDNs.
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Section
2
Proposed Sound Practices for
Effectively Managing Inclusive
Distribution Networks
Section 2
Proposed Sound Practices for
Effectively Managing Inclusive
Distribution Networks
The following practices track the lifecycle of the anchor company/micro-distributor
relationship through four stages:
1.! Identifying an inclusive distribution business opportunity;
2.! Entering into an inclusive distribution business relationship;
3.! Managing an inclusive distribution business relationship; and
4.! Winding down an inclusive distribution business network, and terminating
business relationships with individual micro-distributors.
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Identifying an Inclusive Distribution
Business Opportunity
!
Once an anchor company receives the buy-in of its leadership
team to engage in an inclusive business distribution initiative6,
time needs to be spent identifying potential inclusive distribution
opportunities that are likely to connect micro-distributors with
the anchor company’s brand and products/services, and
ensuring that there is sufficient understanding within the anchor
company about why it is creating an IDN7. This understanding
then needs to be communicated to target micro-distributors8.
In identifying potential micro-distributors, anchor companies
should carefully consider the characteristics of the individuals
they hope to include in the micro-distributor role, as well as
determine how best to identify these individuals within a given
community. By proactively making these decisions, company
management teams will be better positioned to maximize both
financial and social returns of their IDNs.
Guidelines for Identifying Inclusive Distribution Business
Opportunities
1. Develop realistic profiles for target microdistributors. Profiles should be tailored to and
grounded in the specific activities, products,
services, and likely customers of the IDN, and
these profiles should be adjusted based on
experience.
Examples
• One anchor company’s first IDN model was unsuccessful
because micro-distributors inexperienced in business were
borrowing too heavily to finance their micro-distribution
enterprises, and therefore took on too much financial risk. As
a result, some of these micro-distributors defaulted on their
loans and dropped out of the network.
• Another anchor company initially targeted certain skilled
laborers as micro-distributors/franchisees that would make
use of the anchor company’s products. The anchor company
realized, however, that many of these skilled laborers
preferred to keep their business activities “informal,” that is,
they were unwilling to comply with the standardized policies
and procedures required by the anchor company or the
regulatory requirements imposed by governmental authorities
on registered business entities. Now the anchor company
recruits recent college graduates that have the required skills
and expertise -- focusing in particular on those college
graduates with expertise in some degree of entrepreneurship
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but who are willing to accept the rules and contractual
obligations required by the anchor company of its network.
• Re-evaluating the target profile can be useful to ensuring that
the network is not overly (and, hence, counterproductively)
selective. One anchor company had to rethink its initial plan
to target only women as potential micro-distributors when
men began banning their female relatives from attending
micro-distributor trainings. The men, it turned out, were
uncomfortable because they did not understand what the
women were being trained to do. After the anchor company
changed its selection criteria (and also changed its program
slogan from “building opportunities for women” to “building
opportunities for all”), men started to participate in the
trainings and then also permitted their spouses to participate
too.
Recommendations
• Define a specific set of characteristics in their profiles that the
candidate should meet, such as age, gender, background,
education level, a certain set of skills, familiarity with a
particular product, sales experience, access to financing,
business acumen, time availability, risk aversion, family
situation, standing in the community, ability to travel, etc.
• Consult with NGOs or other organizations with experience
and expertise of working at the BoP in the community where
the anchor companies plan to develop the IDNs. These
organizations with BoP experience can help provide cultural
context, give guidance on how to work with local leadership,
and may be able to set more realistic expectations about the
level of entrepreneurial skills necessary (and present) within
the communities where network plans to operate.
• Assess factors such as the third-party financing available to
micro-distributors within a specific region (including the cost
of such financing), the capacity of the average member of the
community to access such financing, and over-indebtedness
prevention.
• Consider gender dynamics in creating profiles for particular
programs, such as deciding to focus on hiring female
distributors where the program’s products target women. Also
consider whether the program activities are typically
associated by the community with a particular gender or
whether the time demands of the micro-distributor role are
well-suited to the other responsibilities commonly assumed
by that gender in the community (such as family care,
housekeeping, or other gender-defined tasks).
2. Develop an assessment mechanism or process
for determining the extent to which the
candidates satisfy the profile
Examples:
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• To select its first 50 micro-distributors for its IDN, an anchor
company interviewed 200 candidates to gauge their suitability
for this kind of relationship with the company.
• Another anchor company partnered with a global nonprofit
organization’s operations to be able to offer the program to
another group of beneficiaries already trained in financial
literacy by a previous project.
• Yet another anchor company identified a written list of
minimum qualifications expected of its micro-distributors.
• One anchor company developed a sales trial for potential
micro-distributors, whereby these potential micro-distributors
are given a week to demonstrate their salesmanship skills
and overall compatibility with the network. Only after
successful completion of the sales trial is a formal
arrangement established and training provided.
has engaged a psychologist in its assessments to make sure
that the recruitment process results in finding microdistributors that meet the company’s criteria.
Recommendations:
• Include references, skills tests, role playing, on-the-job trials,
and personality tests in the set of assessment tools.
• Disclose the profile to potential micro-distributors in order to
allow the candidates to self-select based on the companies’
criteria.
• Ask the micro-distributors they have already selected, as well
as community leaders, to identify other promising candidates
within the community.
• Another anchor company outsourced some of its recruitment
needs by hiring a specialized company to visit potential
micro-distributors in their homes to verify information as well
as develop candidate selection criteria.
• One anchor company has observed that gender issues can
arise in the interview process, noting that having a male
interview a woman (or vice versa) can compromise the
truthfulness of the candidates’ answers. This company also
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Entering into an Inclusive Distribution
Business Relationship
as the benefits that they can expect and when
they can expect to secure those benefits.
Examples:
Anchor companies should enter into their inclusive distribution
business relationships with micro-distributors as transparently
as possible. By making the rights and obligations of both parties
clear from the outset of the program, anchor companies can
avoid raising unrealistic expectations among the microdistributors concerning program benefits, costs of participation,
the level of support provided by the anchor companies, and the
(legal) nature of the relationship. This, in turn, will likely help
anchor companies lower their micro-distributor recruitment,
monitoring and attrition costs as it promotes micro-distributor
retention and compliance with program
requirements. Additionally, this transparency could satisfy
compliance with legal requirements to the extent that the
relationship may be subject to domestic franchise laws.
Guidelines for Entering into an Inclusive Distribution
Business Relationship
1. Ensure that before committing to the proposed
relationship, prospective micro-distributors
understand their rights and obligations, as well
• One anchor company provided micro-distributors with written
agreements when it gave them credit. It is currently working
to expand the use of written agreements.
• Another anchor company also uses one-page agreements for
its program.
• A third anchor company enters into a written agreement that
describes mutual responsibilities and obligations of the
anchor company and its micro-distributors. (This agreement
is also shared with the government where the anchor
company operates; the government in turn pays part of the
initial franchise fee charged by the anchor company on behalf
of the micro-distributors.)
• Another anchor company learned that it is important to tell
potential micro-distributors about the anchor company’s
intentions for this initiative, and not just provide information
about the business opportunity to sell the anchor company’s
products. Accordingly, this anchor company provides
information to micro-distributors about the anchor company’s
goal of improving the health of consumers of its products.
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• Yet another anchor company focuses on building trust within
the IDN. For this reason, it chooses micro-distributors from
the communities where the network will operate. Then, in its
communications with micro-distributors, it emphasizes that
micro-distributors will be serving their own communities. This
anchor company takes the view that it cannot tolerate any
unfulfilled promises within its network, noting that society has
“failed” vulnerable communities so many times that it is
unlikely that the company will have a second chance if it too
fails in meeting community expectations.
• Another anchor company designates a spokesperson who is
prepared to talk with prospective micro-distributors about the
anchor company/micro-distributor relationship.
Recommendations:
• Provide potential micro-distributors with simple checklists and
timelines in order to foster understanding of the terms of the
contracts and provide full disclosure.
• Introduce potential micro-distributors to micro-distributors that
are already working in the network so that candidates can
ask questions of their potential peers.
• Read the contractual terms out loud, and use pictures,
videos, or other visual aids to explain the terms and the
concepts behind the terms. These tools would be particularly
important for, but need not be limited to, micro-distributors
who cannot read or who have other barriers to
understanding, such as physical disabilities or, for youth, lack
of business experience.
• Before entering into the relationship, notify the potential
micro-distributors of the terms and logistics of the training to
be provided, and of the anchor companies’ expectations as to
attendance at the training (e.g. if attending a certain number
of training hours is required to join or stay in the program).
• Provide operating manuals to the micro-distributors at the
time of entering into the relationship as a way of promoting
understanding of the business model.
• Develop policies and disclose procedures for dealing with
micro-distributors’ temporary inability to participate in the
program, such as illness, pregnancy, etc.
2. Give potential micro-distributors time to review
information abot the business opportunities
offered by the IDN, and the roles and
responsibilities of micro-distributors and anchor
companies, so that potential micro-distributors
can make informed and carefully thought-out
decisions before entering into the relationship.
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Recommendations:
• Allow cooling off periods after the commitment has been
made (for example, after a contract has been signed by a
micro-distributor) to let the micro-distributors get out of the
deal early in cases of pressure, change of heart, or force
majeure/unexpected circumstances.
3. Provide transparent fee structure, use clear
language, and provide complete cost information
to the micro-distributors, and instruct any agents
acting on behalf of the anchor company to do the
same.
Example:
• One anchor company that provides multiple products to its
micro-distributors to sell has found that transparency about
fee structures is enhanced when it provides homogeneous
discounts across all products, rather than product-by-product.
While admitting this is not easy, the anchor company has
found that it helps its micro-distributors to understand better
their overall rates of return.
Recommendations:
• Avoid requiring micro-distributors to waive legal rights9 and
provide ample notice of changes in pricing, terms, or fees.
• Implement a standard formal pricing procedure (e.g., by using
a published price list) and disclose any fees that may be
involved when anchor companies are selling products to
micro-distributors.
• Outline, either orally or in writing, the anchor companies’
expectations regarding the micro-distributors’ short term and
long term sales performance and profitability.
• Disclose, either orally or in writing, how long the program has
been in operation and whether there has been a pilot
program.
4. Establish clear rules about use of the brand,
emphasizing the importance of brand loyalty to
the anchor company. If the program involves
proprietary products or technology, anchor
companies should have micro-distributors
expressly acknowledge the anchor company’s
ownership.
Example:
• The operating rules for IDNs are not static, one anchor
company has noted. Accordingly, after it developed an
operating manual for its micro-distributors, the company also
developed a process by which amendments to that manual
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are to be communicated to its micro-distributors. Each time
that an amendment is made to its operating manual, the
company conducts training to explain the amendment.
Recommendations:
• Provide a style guide, or perhaps even a video, depicting how
the micro-distributors can and cannot use the brand.
• Provide examples from micro-distributors’ own experience
with local brands to illustrate the function of brands in
attracting clients.
5. At the beginning of the relationship, clearly
identify goods, equipment, or products that are to
be returned by the micro-distributors upon the
winding down of the program or the relationship,
as well as training in how to take care of the
equipment provided to micro-distributors.
Examples:
• One anchor company provides products to micro-distributors
to be sold on consignment. Accordingly, micro-distributors
don’t hold legal title to the products when the program winds
down. The anchor company also provides its microdistributors with equipment, such as tables, calculators,
stands, shelves, etc.
• Another anchor company notes that it stopped using a
consignment model because of slow sales. It now provides
its micro-distributors with financing that is secured by the
products to be distributed. This financial arrangement allows
the company to take back unsold products if the loan is not
repaid by the micro-distributor.
Recommendations:
• Provide the micro-distributors with checklists enumerating the
materials they would need to return upon withdrawal from or
termination of the relationship.
• Use tamper-proof labels or serial numbers for equipment and
packaging, or perhaps even GPS chips or similar technology.
6. When loans are made to micro-distributors to
finance the costs of joining an IDN (whether
directly by an anchor company, or indirectly by a
financial institution or microfinance institution
working in collaboration with the anchor
company), ensure that the lender does so in a
manner consistent with The Smart Campaign
Principles10.
Examples:
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• One anchor company’s inclusive distribution model
succeeded because the company began working with a local
microfinance institution, which gave the company’s microdistributors the loans they needed to get started in the
business. The microfinance institution has endorsed The
Smart Campaign Principles.
• Encourage micro-distributors to learn whether their banks or
microfinance institutions (e.g. the lending institutions from
whom they borrow) are signatories to or otherwise comply
with The Smart Campaign Principles.
• Another anchor company’s micro-distributors finance their
products through Kiva.org, which is a signatory to The Smart
Campaign.
• A third anchor company’s micro-distributors finance their work
via banks and microfinance institutions. At least one of those
microfinance institutions is a signatory to The Smart
Campaign.
Recommendations:
• Develop metrics for assessing micro-distributor use of the
loans to benefit the network, as well as for determining
whether the lending practices of the microfinance institutions
are sufficiently tailored to the needs of the network. For
example, companies could consider whether the
microfinance loans are available in time to support network
sales activities, and whether the loans are subject to
prohibitive interest rates or cumbersome processing
procedures.
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Managing an Inclusive Distribution
Business Relationship
ongoing training should cover topics such as
changes in the program structure, financing,
product offerings, and marketing strategy.
Examples:
In order to support the micro-distributors in their endeavors,
anchor companies should provide training and ongoing support,
as well as continue to review the micro-distributors’
performance and the effectiveness of the program. Doing so
will help ensure that the program continues to become more
profitable while maximizing the social impact on the microdistributors. Without training and ongoing support, there is a
risk that the system may become stagnant, unresponsive to the
market changes, and inconsistent in delivering on the brand
promise11.
Guidelines for Managing an Inclusive Distribution
Business Relationship
1. Provide the micro-distributors with both initial
and on-going training, adapted to the needs/
capacities of the micro-distributors. The initial
training should cover topics such as product
characteristics, product presentation to potential
customers, and display of brand identity on the
micro-distributors’ persons or facilities. The
• One anchor company incentivizes training participation by
providing certificates to the micro-distributors who complete
the training programs.
• Another anchor company requires its micro-distributors to
complete a certain number of training hours in order to
remain in the program.
• Yet another anchor company’s initial approach was simply to
provide the community members with a job. Then the anchor
company began holding workshops in order to educate its
micro-distributors on the uniqueness of the products they
were selling and to instill in them an awareness of the brand.
This anchor company also uses experienced microdistributors to supervise groups of newer micro-distributors.
• Another anchor company has introduced ongoing training of
micro-distributors as a key element for the development of
the model.
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• Another anchor company explains to its micro-distributors the
value of the product at the onset of their involvement with the
network.
• Yet another anchor organizes mixes of products to be sold by
its micro-distributors according to the nutritional needs of its
customers (on a household basis). Micro-distributors are
provided special training to enable them to collect this
nutritional information. * A nonprofit anchor company
launched and then transferred its IDN program to a large, forprofit company, but the nonprofit still provides training support
to micro-distributors participating in the network.
• Some anchor companies have noted that scaling training can
be challenging and that partnerships with other organizations
are crucial for training at scale.
** Sometimes this partnership is found within the network. For
example, one anchor company has addressed this training
challenge by implementing a two-tier distribution system,
whereby leaders chosen from existing micro-distributors are
trained and then asked to oversee and train approximately 20
other micro-distributors. Even this is challenging, however,
noted the anchor company, as not all leaders are able to fully
communicate knowledge that they received in training. Finding
“encounter points” where those with training can meet to train
others is important to the success of this tiered system.
Recommendations:
• Provide micro-distributors with an initial “crash course”
training that would allow them to begin their work.
• Conduct ongoing training, one-on-one or in workshops, to
update the micro-distributors on changes in the market,
product, and sales/marketing strategies.
• Partner with NGOs and other organizations with the
experience and expertise of working at the BoP and who
could assist in providing training to the micro-distributors.
2. Provide ongoing support to the microdistributors appropriate to the type of program
(e.g., product research, supply chain
management, operating procedures, marketing
concepts, customer service techniques, as well
as other benefits) in order to optimize microdistributor performance and profitability and
reduce attrition rates.
Examples:
• In critical zones, where the product is taking off more slowly,
one anchor company pays micro-distributors upfront for
promotional services in order to prevent them from becoming
frustrated when sales don’t take off immediately.
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• Another anchor company found that attrition of microdistributors declined when the micro-distributors received
social support with healthcare, child care, financial literacy,
etc.
• Two anchor companies have experimented with having
micro-distributors sell on credit and have found that this
results in excessive financial risk. They now discourage
micro-distributors from selling products on credit.
• Sales and mix of products are constantly changed by two
anchor companies to increase levels of income generated by
micro-distributors.
• One anchor company’s micro-distributors meet with their
supervisor once a week. Each of the anchor company’s
territories also holds a territory-wide meeting every month in
order to evaluate how the program is doing and to have
micro-distributors present on their experiences.
• One anchor company’s micro-distributors get written
performance plans every month. The plan details the
incentives and the goals that the micro-distributor has to
reach, and outlines the growth plans for the coming month.
There is a certain percentage of sales revenue given as an
incentive if the micro-distributor reaches certain goals so the
micro-distributor can establish a plan for supporting herself.
• Another anchor company uses a mix of targeted incentives to
its micro-distributors. At first it gave these incentives to
micro-distributors that finished the network’s training
program. Then it realized that the incentives were more
effective when tied to the actual outcomes of the training.
Local law in some cases, however, may limit the extent to
which incentives can be tied to sales outcomes by
independent contractors.
• Another anchor company has tailored its sales strategies and
metrics for micro-distributor performance to an analysis of the
population density where the micro-distributor is to work,
noting that in rural areas micro-distributors may be able to
reach only one-tenth of the households as in a peri-urban
area.
• Yet another anchor company has learned that the immediacy
of the incentive is highly valued. So it now provides its
incentives to micro-distributors as soon as possible upon
actual performance.
Recommendations:
• Maintain a call center that micro-distributors could call for
advice on how to handle issues they encounter in the course
of the program.
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• Partner with NGOs and other organizations with experience
and expertise of working at the BoP to monitor not only the
commercial performance of the micro-distributors but also
their economic and social progress. Understand how to
support growth, development, and economic opportunities for
micro-distributors to better incentivize micro-distributors and
to promote their retention.
3. Have consistent qualitative and quantitative
standards for reviewing micro-distributors’
performance and systems for providing
performance feedback to micro-distributors on a
regular basis.
Examples:
• One anchor company has developed “the ladder of success”
to support motivation instead of leaving everything up to the
micro-distributors.
• One anchor company, which believes that it is better to invest
in a small number of highly productive micro-distributors
distributors than in a larger amount of mediocre microdistributors, tailored its performance plans and training
programs accordingly. It also uses social impact metrics to
analyze whether its strong performers are receiving both
positive social as well as financial returns from the
relationship.
• One foundation has given support to IDNs that make use of a
central data management system so that these networks can
compare sales information from different programs and/or
distributors.
• Another anchor company has used disincentives to respond
to disappointing behavior by micro-distributors. For example,
it lowers commission rates if clearly stated (and understood)
performance measures are missed. While consistency in use
of disincentives is important, this anchor company also gives
exceptions when it becomes aware of events outside of the
micro-distributor’s control that prevented the micro-distributor
from performing.
Recommendations:
• Develop a scoring system based on periodic in-person
inspection of the micro-distributors’ activities.
• Establish award/recognition programs for micro-distributors
for high performers.
• Establish benchmarking programs that facilitate learning by
weaker performers from stronger performers.
22
• Establish a “probation” system for the lowest performers that
leads to exit from the program if performance does not
improve.
• Take into account the different demands on male and female
time when assessing performance, such as expectations that
women perform house work and take care of the children to
the exclusion of employment.
• Use third parties to evaluate micro-distributor performance in
order to avoid getting skewed results where the person
conducting the training is also the person doing the
evaluation.
• Establish transparent and clear procedures at the beginning
of the relationship for dealing with sudden changes of
circumstances and micro-distributors’ temporary inability to
participate in the program, such as illness, pregnancy, etc.
4. Create mechanisms for systematically soliciting
feedback from micro-distributors and from
clients of micro-distributors in order to increase
engagement and the profitability and
effectiveness of the network.
• One anchor company uses a variety of methods to evaluate
the quality of the products created by the micro-distributors in
its network. This includes direct observation by the anchor
company of production methods used by the microdistributors, personal visits to customers that have acquired
products created by micro-distributors, and an anchor
company-sponsored webpage that is available for receiving
feedback (including complaints) from customers of the microdistributors.
• Another anchor company gathers market intelligence by
asking micro-distributors for information about the
competitors, prices, other products that could be placed on
the market, how the anchor company’s products compare to
others in terms of quality, and whether there are better offers
on the market or whether the anchor company should be
making better offers. The company also encourages microdistributors to suggest new ways of selling the products on
their own initiative, so as to boost their commissions by
boosting sales.
• Another anchor company used its micro-distributors to help
develop marketing materials aimed at consumers at the BoP.
Recommendations:
Examples:
23
• Create an advisory council of micro-distributors selected by
the company or elected by their peers. This can empower the
micro-distributors and motivate sales.
that can help prevent inappropriate dealings with microdistributors.
• Set up a physical, mobile, or online suggestion box. Conduct
formal or informal surveys of micro-distributors, either directly
or through an independent local agent.
5. Tailor existing corporate codes of ethics to
address anchor company/micro-distributor
relationships. Companies should also adapt and
refine their internal procedures, such as manuals,
communications, supervision, and strategy, to
support the launching and scaling of the IDN.
Recommendations:
• Adjust anchor company codes of ethics to promote
awareness of micro-distributors’ local culture and respect for
diversity, and also to ensure that full disclosure and
transparency marks its communications with microdistributors.
• Address the risk of corruption on the part of the
representatives of the anchor companies and/or their agents
in their dealings with micro-distributors, and develop systems
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Winding Down an Inclusive Business
Distribution Network and Terminating
the Business Relationship with the
Individual Micro-Distributors
Anchor companies should minimize any harm that may come to
the micro-distributors as a result of individual termination or the
winding down of a program (such as loss of income, social
standing within the community, and business reputation). This
will promote a positive opinion of the anchor company and its
brand in the micro-distributors’ communities and leave these
communities open to future involvement with IDNs.
Guidelines for Winding Down an Inclusive Business
Distribution Network
1. Manage micro-distributor defaults so as to
preserve the relationship when possible, thus
minimizing attrition.
Recommendations:
• Adopt a forbearance policy that suspends default and
termination if the micro-distributor participates in remedial
training, etc.
• Require micro-distributors to provide notice of withdrawal in
advance of their intention to leave the program, giving the
anchor company a reasonable amount of time to find
replacements if necessary.
2. Identify how disputes are resolved in the local
culture and consider incorporating those
resolution mechanisms to the extent appropriate.
Example:
• One anchor company refers disputes to a non-binding council
of fellow micro-distributors, followed by referral to the village
chief in accordance with local custom. This two-tier dispute
resolution mechanism is described in writing in the contract
that governs the anchor company/micro-distributor
relationship.
• Another anchor company notes that in certain regions, a
person’s “word” is more binding than a written agreement,
and so has tailored its processes accordingly.
• Adopt a system of progressive warnings on compliance
issues before escalating to notice of default or termination.
25
3. Anticipate methods for recovering property at the
end of the relationship and communicate to the
micro-distributors – and to other members of the
community, if needed – what would be
considered appropriate procedures for returning
materials and property to the anchor company.
Recommendations:
• Offer a small payment for returning the materials promptly, or
a financial penalty for not returning them promptly.
• One anchor company has standardized and documented the
termination of relationships by sending micro-distributors
written notices.
Recommendations:
• In the event of a winding down where the micro-distributors
have done well, make an effort to assist micro-distributors in
finding other employment, for example by serving as
references, writing letters of recommendation, or connecting
micro-distributors with other distribution networks.
• Appeal to local community members or other microdistributors for enforcement assistance when dealing with
non-compliant micro-distributors.
4. Notify affected micro-distributors if the company
decides to wind down the program or to
terminate the business relationships with the
individual micro-distributors, and allow microdistributors a reasonable time to adjust before
they must leave the program12.
Examples:
26
In addition to the practices, guidelines and recommendations
proposed in this document, anchor companies should continue
to monitor practices and policies for engaging with microdistributors within their own organizations as well as within
other anchor companies and by other actors in this nascent but
growing field, so as to continually assess whether the practices
and policies are serving the social and financial objectives of
their IDNs.
We hope that these proposed practices will help spark a
discussion leading to the formation and adoption of practices
that will improve anchor company/micro-distributor relationships
in a wide range of inclusive distribution business opportunities.
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Endnotes
Endnotes
1 This
document uses the term “anchor company” to mean private sector, for-profit companies operating IDNs. Although other types of organizations, such as social enterprises and
non-profit organizations, can and do sponsor such networks, this document primarily focuses on the practices and experiences of anchor companies. Lessons learned from these
anchor companies may be equally relevant, however, to less commercially-motivated organizations.
2 The
International Transactions Clinic (ITC) of the University of Michigan Law School was founded in 2008 to offer law students an experiential learning opportunity in advising
clients that are engaging in cross-border transactions, primarily in emerging markets. Information about the University of Michigan’s ITC can be found at www.law.umich.edu/ITC.
3 SCALA
is a project of the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IDB) and is supported by Citi Foundation and Canada’s International
Development Research Centre (IDRC). SCALA aims to scale the impacts of inclusive and social business through a strong learning and research component. Its main focus is on
initiatives in Latin America and the Caribbean, while open to learning from and adding to the global context. It focuses on leveraging value chains to create economic opportunity,
empowerment and enterprise for people at the BoP through the distribution of goods and services.
4 Information
about the Smart Campaign can be found at the following link: http://smartcampaign.org/index.php.
5 One
funder of IDNs has pointed out that key to the success of such networks is ensuring that the network cultivates trust among its members, and respects the dignity, cultural
nuances, language, and customs of the communities where the network operates.
6 As
one anchor company has noted, this also may require obtaining shareholder support to engage in BoP-focused initiatives more generally.
7 The
business model of the IDN being created will likely be shaped, at least in part, by the types of products and services to be distributed, and regional differences in the markets
where the network aims to operate (such as population density, cultural differences, educational levels of micro-distributors, etc.).
8 See
below discussion about “Entering into an Inclusive Distribution Business Relationship.”
9 An
example would be a contractual integration clause (or “entire agreement” clause) that seeks to prevent the micro-distributor from relying on pre-contractual disclosures.
However, it should be noted that in commercial franchising, an anchor company might consider an integration clause to be a sound practice, in order to mitigate the anchor
company’s risk that the pre-contractual disclosures will be remembered differently or interpreted differently.
10 There
are currently seven Smart Campaign Principles: 1) appropriate product design and delivery, 2) prevention of over-indebtedness, 3) transparency, 4) responsible pricing, 5)
fair and respectful treatment of clients, 6) privacy of client data, and 7) mechanisms for complaint resolution. (For further details, see http://www.accion.org/content/smartcampaign-adds-seventh-client-protection-principle).
11 Furthermore,
at least one anchor company has learned that training combats attrition as well as increases the amount of sales per micro-distributor. It has observed that microdistributors that receive training are likely to remain in the network more than twice as long as those without training, which in turn translates into increased sales for the network.
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12 There
may be circumstances, however, where a micro-distributor’s actions put customers in danger (and, related, also jeopardize the anchor company’s reputation). In those
cases, the anchor company may need to take immediate steps to terminate its relationship with the offending micro-distributor.
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Authors
Author
Collaborative effort led by the International Transactions Clinic, University of Michigan
Design
BSD Consulting
Editing
BSD Consulting
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