Market potential assessment

Large Scale Problem

In a new territory, the major problem faced in entrepreneurship promotion is lack of market potential intelligence –

  • In unorganized sector, especially in rural India, the market intelligence does not exist. The metrics and the stats, through which this intelligence can be drawn, is available till district level only. There is no mechanism to derive which businesses will be viable in a particular block or village. This leads to uninformed promotion of businesses, thereby, leading to overcrowding, herd behavior and eventually, high mortality. Habitually and traditionally, herd mentality had been a prevailing model for setting up new micro enterprises. This has led to creation of vulnerable livelihoods, providing income barely enough to meet the survival needs of the entrepreneur.
  • In conduct of rural Entrepreneurship Development Programs (EDPs) by self-employment institutes in India, the size of trainee batch does not conform to market potential of particular business in the region, thereby, leading to wasted resources. For e.g. if market potential in a region is for five new businesses only, it is wastage of resources to train thirty for starting up
  • Further, absence of Market Potential Assessment leads to missed opportunities –
    1. Untapped internal markets – whose demand exists but supply is limited
    2. Hidden markets – whose demand is unknown e.g. solar, sanitation, hygiene, non-FMCG etc
    3. External markets – which can be tapped through aggregation/ collectivization or clustering
    4. Government spending related markets – which facilitate last mile implementation of government programs
  • For last mile financier, the risk of business loan can be broadly divided into market risk and individual risk. Market risk pertains to either the absence of market or the saturation of market. Without market intelligence, it becomes impossible for Last Mile Financier to quantify market risk and therefore, the risk of business loan. As a broader scale, it becomes impossible for Last Mile financier to quantify the portfolio risk. Without knowledge of portfolio risk, it becomes a non-starter for any formal institution to lend in unorganized sector.

How the problem can be addressed

Evidences and learning from past government programs linked with Micro Enterprise promotion indicate that such programs had majorly taken Qualitative approach to estimation of demand-supply gap at block level for promotion of enterprises. The focus had majorly been on concentration of resources, primary activities, and traditional skills to create the strategies for micro-enterprise promotion for external markets. Promotion and strengthening of micro enterprises in internal markets had more or less been neglected.

The uniqueness of approach presented here is its emphasis on Quantitative approach to demand-supply estimation. Attempt is made to capture the data in real-time through mobile application to eliminate the translation losses. Further, capturing of latitude and longitude at location of enterprises results in elimination of instances of data manipulation. Further, the plotting on Google Map of ‘Points of Interest’ – hotspots which influence viability & dynamics of enterprises in local areas – facilitate region-specific.

Design

The first step in Market Potential Assessment is Enterprise Census, Household survey, stratified enterprise survey and focussed group discussions to assess supply and demand in a region. This is followed by analysing the addressable gap that can be filled by strengthening the existing enterprises and setting up of new enterprises.

The entire exercise of demand-supply estimation and market potential assessment is divided into three steps –

  1. Training – Capacity building of MVCs on topics like business management
  2. Data Capture (Surveys)
  3. Data Analysis

The data capture (through primary surveys) is as follows –

Enterprise Census

  • Capture of all variables that may influence enterprise dynamics like market type, shop type, road type, size of business etc
  • Capture of all possible enterprises in a block be it mobile vendor, fixed shop or one located in a haat
  • Answers majorly based on visual observation, thereby, eliminating cognitive biases and instances of non-cooperation of entrepreneur

Stratified Enterprise Survey

  • 5 – 10% stratified sample selected in such a manner to represent the enterprise population as per market type, shop type, road type, size of business etc
  • Capture of financial details (like sales, expenses, seasonality, employee details etc) of each type of enterprise captured in Enterprise Census

Household Consumption Survey

  • 5 – 10% stratified sample selected in such a manner to represent the households distribution as per economic status
  • Capture of the expenditure pattern of households – expenditure on each & every product, amount of purchase, location of purchase and frequency of purchase
  • Capture of economic status of households to derive the correlation between purchasing power and household expenditure

Market Potential Assessment

The exact number of new enterprises is then estimated taking into account the existing enterprise base and local context in a particular block. The demand-supply gap is corrected by accounting for potential growth of existing enterprises in the Block. It is assumed that existing small enterprises may grow into medium scale enterprises in 3-4 years. Therefore, the potential demand-supply gap may reduce by factor of growth potential of existing enterprises. Further, an addressable demand-supply gap is estimated based on local context and market dynamics in the Block. The number of recommended enterprises is then arrived at using regional benchmarks of particular business segments in a block

The Market Potential Assessment exercise enlists the following –

  1. Potential number of businesses serving untapped internal market demand

These are businesses that can cater to the needs of the village or cluster of villages in its immediate vicinity. The untapped market can be tapped by strengthening existing businesses first and then by incubating new businesses. Strengthening existing small businesses must be prioritized over setting up of new businesses. There are many businesses that are making subsistence level incomes. There is need to assist them so they can tap into the growth potential of the market. Creating new enterprises without first assisting existing enterprises can lead to loss of the livelihoods.

  1. Potential number of businesses serving hidden market demand

Businesses that can act as distributors of non-FMCG items like solar, water filters, sanitation etc

  1. Potential number of businesses serving external market demand (sub-sector)

Businesses that can be run through forward or backward aggregation of resources as in collectives or clusters

  1. Potential number of businesses tapping the government spending

Businesses that fill the last mile gap for implementation of government programs e.g. Indira Awas Yojana, sanitation programs, digital literacy programs etc.

MPA provides real-time market-analytics on google map about the feasibility of business in particular village. A potential entrepreneur, through assistance of MVC, is able to assess feasibility of particular business at one’s preferred location.

The MPA also assists in phasing out of villages, based on ease of doing business, for micro enterprise promotion. Based on identified demand saturation, places with higher ease of doing business must be targeted first. These places have a higher chance of success and prepare MVCs to work in much more competitive markets.