Dragon Vietnam Investment Company Limited: Business development support | Small And Medium Sized Enterprises | Sustainability

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Many rural people in Vietnam barely make a living from small scale agriculture. Small businesses have great potential to create jobs and spread prosperity, but many lack business expertise or struggle to access the financing they need to grow. Dragon Co., which works with small farmers to cultivate the high-value crops of ginger and gac, is among the first group of social enterprises to benefit from Oxfam Novib
    DRAGON VIETNAM INVESTMENT COMPANY LIMITED BUSINESS DEVELOPMENT SUPPORT OXFAM NOVIB CASE MARCH 2015  2  DRAGON VIETNAM INVESTMENT COMPANY LIMITED OXFAM NOVIB CASE SUMMARY TACKLING POVERTY THROUGH SOCIAL ENTERPRISE IN RURAL VIETNAM Many rural people in Vietnam barely make a living from small scale agriculture. Small businesses have great potential to create jobs and spread prosperity, but many lack business expertise or struggle to access the financing they need to grow. Dragon Co., which works with small farmers to cultivate the high-value crops of ginger and gac, is among the first group of social enterprises to benefit from Oxfam Novib’s investment and business development support. CASE DESCRIPTION AIM OF THE PROJECT Established in 2012, the Dragon company’s  core business is to grow ginger and gac, a kind of fruit common in south-eastern Asia. It has invested in 125 hectares in Hoa Binh province, and also purchase ginger and gac from Nghe An and other provinces. Each year, it contracts and purchases products from more than 2,000 poor ethnic minority households in mountainous areas. The income these farmers can earn from ginger and gac is at least three times higher than from traditional crops such as cassava. With business development support from Oxfam Novib, Dragon is reviewing its operations and distribution channels and improving its business plan and management systems to enable it to access more capital and scale up its business, creating more social impacts for small scale farmers. CONTEXT Seventy percent of Vietnam ’s population of more than 90 million live in rural areas, and half of them make a living from agriculture. Many are small scale farmers who are suffering from unstable prices and low yields from their small plots, and can barely make enough income to survive, let alone to grow their business. Small scale agriculture is led by the older generation, with the young typically moving to towns to seek better paying  jobs. In 2010, over 20% of Vietnam’s population was below the poverty line of $2.25 per person per day. Increasing income for small scale farmers and creating more job opportunities for young people in rural areas are key to combating poverty in Vietnam. Developing SMEs (small and medium size enterprises) in rural areas could potentially be an answer, especially as the Vietnamese economy is growing rapidly. According to a survey by the Asian Development Bank, by the end of 2011 Vietnam had more than 550,000 companies registered, of which 97% are SMEs. However, more recent figures from the Ministry of Planning show that survival rates of SMEs have been going down: in 2013, approximately 60,700 SMEs stopped operations, up 11.9% on 2012. One of the main barriers to SME survival and growth is a lack of finance. Many have difficulty accessing bank loans, especially long term bank loans, as they have neither collateral nor long track records. Another common barrier is the lack of business knowledge and skills, particularly in the areas of governance, financial accounting and marketing.  DRAGON VIETNAM INVESTMENT COMPANY LIMITED 3  OXFAM NOVIB CASE Dragon is an example of a company which shows potential, but needs support to grow sustainably and realise its potential impact for small scale farmers and women and youth employees. WHY DID OXFAM NOVIB GET INVOLVED? Oxfam strongly believes that private sector actors such as Dragon have great potential to promote positive social change for men and women living in poverty. By identifying the right entrepreneurs and working with experienced partners to provide business development services and finance based on the needs of the companies involved, Oxfam believes a stronger SME sector can generate more employment and income for small scale farmers, women and youth. Oxfam selected Dragon as one of the beneficiaries of its business development support programme on the basis of the company’s  economic potential and social drive. From the company’s perspective, Dragon is interested in the potential capital offered by Oxfam’s Inclusive Impact Investment fund. Dragon is looking for a loan to scale up its production and storage capacity, enabling it to purchase more products from farmers, thereby creating more jobs for farmers and increasing their income. However, the company needs to strengthen its business plan and management system to make it ready for investment. While it could obtain business development support from any conventional service provider, Dragon sought support from Oxfam because it also wants to strengthen its performance on environmental, social and governance issues. Oxfam’s support for Dragon fits with our broader strategy for Vietnam of improving livelihoods and empowering men and particularly women in marginalised rural and indigenous communities. THE INTERVENTION Oxfam works with a local partner, CSIP,   to deliver business development support for SMEs in Vietnam, including Dragon. This involves: -  Organising training courses for SMEs covering topics such as doing business in a social way, developing business plans, communication with investors and impact measurement. -  Conducting organisational capacity assessments to identify the needs of the companies and engage appropriate consultants; -  Providing intensive, tailor-made business coaching support for 4-6 months to strengthen the company’s investment readiness, including in financial management, leadership, human resources, operational management and social impact measurement. Dragon will receive support to review its business plan, its distribution channels and human resource management system. -  Organising network meetings to link SMEs with investors, train them in pitching, and support them in their financial analysis to ensure they gain access to the right financial products that support them in growing sustainably. During the support period, Oxfam and CSIP conduct regular meetings with the SMEs to review progress made and make timely adjustments to the support provided. Oxfam puts SMEs in contact with its own fund manager and other investors, captures lessons learned and uses these to advocate for better government and financial sector policies and practices to support further sustainable SME development.  4  DRAGON VIETNAM INVESTMENT COMPANY LIMITED OXFAM NOVIB CASE RESULTS Dragon is among the first eight SMEs that participated in Oxfam’s business development support programme. We expect Dragon will improve its financial performance and social impact, and develop a more concrete business plan enabling it to identify the resources it needs and to access more capital. Ultimately, the project aims to influence the social and political environment to ensure a more enabling environment for future sustainable SME growth. The project expects to achieve indirect outcomes in the various value chains the SMEs operate in, for example in terms of employment and compliance with suppliers’ social and environmental standards. In the case of Dragon, this will result in 3,000 more farmers growing ginger and gac and seeing their income grow 3-5 times, and 150 women and men gaining access to employment in the company’s processing facilities. LESSONS LEARNED The screening process for SMEs took much longer than srcinally planned due to the need to do extensive environment, social and governance checks on the companies and their suppliers and customers, and verify this with Oxfam policies. Finding viable SMEs that pass Oxfam’s compliance test s and ethical screening proved to be much more difficult than expected. However, with all criteria and assessment tools developed, it is now clearer for Oxfam’s partner in the programme what kind of companies Oxfam is interested in investing in and supporting.  Another lesson learned is that companies’ own willingness and commitment to invest in the support process need to be clear. Although a separate memorandum of understanding was developed between CSIP and the SMEs, one dropped out in the course of the programme. In the future, the commitment of the companies will be verified even more thoroughly.  A final lesson learned is that donors and foundations who have a strong entrepreneurial background are very well suited to support the programme, in part because they can potentially connect the Vietnamese entrepreneurs with their own business networks, creating opportunities for market access and knowledge transfer. Support from the G-star Raw Foundation and Oxfam Novib’s “ entrepreneurs for entrepreneurs ” network (comprising over 800 Dutch SMEs) is a promising start. READ ON Company’s website:  www.ginger.vn  Oxfam Novib’s Impact Investment programme website:  www.inclusive-investments.com 
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