Climate Technology Program | In Brief No. 12 Scaling Green Sectors through International Business to Business Matches Lessons from Kenya As environmental challenges mount in Kenya, including in the plastics waste sector, a growing number of companies are seeking business opportunities in green sectors. Business-to-business partnerships, joint ventures, or franchising can offer a solution to the challenges faced by these firms to scale and help the diffusion into the Kenyan market of climate technologies and innovative business models that have been proven elsewhere in the world. Many attempts at replicating such technologies get stuck in a prototype phase, unless support is provided from intermediaries able to guide companies through the process of partnering and building a collective business case. This In Brief describes a novel approach to unlocking green markets through international matchmaking of green firms. Introduction As environmental challenges mount in Kenya, a growing number The CTP’s on-the-ground experience with the establishment of of companies are finding business opportunities in green sectors. Climate Innovation Centers in Kenya and elsewhere revealed Renewable energy and energy efficiency technologies are increasing demand for innovative support models to address firm- flourishing, while technologies to recycle waste or prevent air level and ecosystem challenges that prevent climate technology pollution are starting to gain attention from private sector players. entrepreneurs and green sectors from growing. One of the main thrusts of these new support mechanisms is to facilitate The State of Green Sectors in Kenya international business model diffusion by adapting validated products, services, and operating models to new markets in other The urgent need to find solutions is fueled by the enormity of geographies. Replicating and adapting business models that have the problems. The city of Nairobi alone generates 3,000 metric passed the proof-of-concept and trial-and-error stages and been tons of waste per day.1 Each year Nairobi generates over 500,000 successfully implemented in other markets reduces risk. tons of plastic waste.2 Only 15% of this waste is recycled and, ultimately, only 3% is regenerated into value-added products.3 In Most attempts at replicating such technologies get stuck in a Nakuru County, 1,250 metric tons of medical waste are generated prototype phase, unless support is provided from intermediaries each year. Forest area decreases by 1.5% each year4. Respiratory able to guide companies through the process of partnering and diseases linked to air pollution are on the rise in Kenya.5 Before the building a collective business case. Currently, the majority of B2B government banned plastic bags in 2017, 24 million were used matchmaking activities in Kenya are initiated by embassies of every month in the country.6 European countries. Trade missions are organized for European companies willing to trade or set up shop in the Kenyan market. Climate technology offers solutions to the increasing challenges of A prominent feature of such programs is their focus on the supply waste, energy demand, air pollution, and deforestation. But what side, supporting only the diffusers8 and neglecting the needs are effective approaches to introduce technologies that can have of Kenyan companies (adopters) and the demand-side market a significant impact? The World Bank Group’s Climate Technology dynamics in the country. Program (CTP) shows how this can successfully be achieved. The CTP’s Business Model Diffusion Program, a World Bank Group A Promising Demand-Based Solution initiative implemented by Enclude and GrowthAfrica in Kenya, is helping companies in developing countries find their “business One way to scale up green sector activities in Kenya and other match.” The goal is to facilitate, from a demand-side perspective, emerging markets is to diffuse7 or replicate climate technologies the adoption of validated products, services, and operating models and innovative business models that have been proven elsewhere by fostering collaboration with international businesses. in the world. This approach is especially valuable when building business-to-business (B2B) partnerships, joint ventures, or The concept was first tested in South Africa with GreenCape and franchising between international and local companies. expanded to Kenya with Enclude and GrowthAfrica. A key focus of the South Africa activity was testing the concept through facilitating of introduction and matches through green trade 1 From team interviews with different sector organizations and companies. missions coming into the country. The Kenyan activity builds on 2 http://eng.mst.dk/media/189822/kenya-plastic-packaging-report_final.pdf and validates the concept from South Africa, that business-to- 3 Based on industry estimations business matchmaking offers a solution to scaling green sectors. 4 http://www.greengrowthknowledge.org/country/kenya 5 http://www.who.int/phe/health_topics/outdoorair/databases/cities/en/ Similar activities are to start in Ghana from mid-2018. 6 According to the different interviewed plastic collectors and recyclers in country, and organizations active in the sector. 7 Diffusion in this context refers to the introduction and uptake through a partnership 8 European companies entering the Kenyan market for the first time and in need of an (e.g. trade relationship, joint venture, franchise) between two companies. intermediary organization to show them the way In Brief No. 12 | Page 2 What is business model diffusion? Building Blocks of B2B Diffusion – Lessons Climate technology or business model diffusion has been defined as from Implementation the establishment of a partnership (e.g. trade relationship, joint venture, franchise) between two companies. On one side is the diffuser: and The Phases of the B2B Diffusion international company — operating outside the adopter country — with To support companies in finding their “best match” and scale green a proven (tested in themarket) green technology or business model, and sectors, the team provided four types of services (Figure 1). Human- eager to expand their business activities to Kenya. On the other side the centered design thinking was used as an approach to develop the adopter: a mature Kenyan company with a well-performing business services in collaboration with the Hasso Plattner Institute of Design eager to step into a(nother) green business activity to unlock value for Thinking (d-school) at the University of Cape Town.9 themselves and for the green market in general. • Scoping: Quick mapping of the key challenges and opportunities Although the adopter company does not have to be involved in the in different sectors in Kenya. Getting an understanding of the green sector yet, it does help. In the end, only the adopters already potential for climate technologies in country. active in this green space in Kenya were able to portray the green solutions needed and committed to partner. On the diffuser side, • Pre-Match: Finding suitable adopters and diffusers, getting the long-list to a short-list by selecting the most suitable and companies with previous experience in partnering or setting up shop committed adopters and diffusors. in an African company were the quickest and easiest to find a suitable match for. • Match: First introduction of adopters to diffusers, follow-up meetings, and if the match shows potential, signing a letter of Intent (LoI). Key characteristics of an adopter Key characteristics of a diffuser • Post-Match: After the LoI signing, supporting the match in further Mature company with well- Proven (tested in market) green developing the business case, tailoring the business model to the performing business technology or business model local context, prototyping and making linkages to access finance. Eager to step into a new “green” Eager to expand business to Kenya The timelines above the figure are based on implementation in Kenya business opportunity and on previous experience in matchmaking. While implementing Committed to partner Committed to partner each of these phases, key lessons or best practices were identified as necessary to achieve successful diffusion. Each of these building blocks Previous experience working in is further detailed below. Already active in green sector helps Africa helps Figure 1: Overall Climate Technology Diffusion Process - From Sector Scoping to Post-Match Support *activities not covered in this knowledge piece 9 See Inbrief # 9 for more details on applying human centered design in projects. In Brief No. 12 | Page 3 1. SCOPING: Mapping Entrepreneurial • Business rationale or intrinsic motivations: Cost reductions, quality improvements or for instance Ecosystem Opportunities that Drive innovating to new business areas. Green Investments • Investor-driven: Accessing green funding, or investors with To have a good understanding of the clean tech context and specific environment-related criteria. opportunities, a key step was an extensive sector mapping. This helped the team understand the challenges and opportunities • Government and regulation driven: Regulations requiring companies to comply with certain industry standards. of clean technologies in Kenya and select the focus sectors. This mapping was based on indicators such as growth potential, The last driver, government regulations, was particularly number of SMEs (potential adopters), existence of frontrunners apparent for the plastic waste sector in Kenya. The ban on and initiators, and the drivers for adopters to invest in climate plastic bags in mid-2017 and the government’s current threat technologies (Figure 2): of a ban on plastic (PET) bottles led to the private sector being obligated to invest in recycling and in solutions for plastic • Buyer-led motivations: Differentiating from competition or alternatives. driven by a reputation risk. Figure 2: Example of Drivers for Green Investments Based on Implementation Experience In Brief No. 12 | Page 4 2. PRE-MATCH & MATCH: From market needs (Table 1). Each of the approaches is described in more detail in the next sections. Identification to Collaboration — Applying Different Approaches to Diffusion • Individual matching: matching one adopter with one diffuser. The market scoping activities in Kenya showed that the • Value chain matching: facilitating collaboration among private demand perspective or adopter-first approach was needed sector players in a value chain and matching them to one or two to offer distinguishing and more relevant support to Kenyan diffusors. companies. At the same time, adopters were struggling to present their business and clearly articulate their needs. Some • Online match-finding platform: for adopters to illustrate the solutions they are seeking and find a potential international match. sectors and solutions required a more holistic approach in targeting and improving the value chain to reach success. None of these activities can be seen in isolation. Implementation made Further, the role of finance in matchmaking showed to be a clear how each of the approaches are interlinked. For instance, the online critical component, for both adopters and diffusers. match-finding platform is a way for adopters to position and present themselves and a way to find potential diffusers. It is a starting point, Based on these key observations, three approaches were but once potential diffusers are identified, activities take place off the designed and tested throughout, each responding to the platform and are linked to the individual matchmaking activities. Table 1: Three Approaches Designed and Tested Approaches Key characteristics Works when Green Sector Challenges/ Tested Scaling Impact Limitations • Matching one adopter with one diffuser • Diffusion of technology and business Low to medium Can limit the impact model can happen in isolation to have Individual • Through network or open call, full effect (depending on the on scaling green matching find adopters and diffusers. degree of innovation sector due to isolated • Sector/business model is not too in the match) activity • Focus on low-hanging fruit complex and quick matching • With a group of companies • Requires a strong active in different phases • In underdeveloped value chains that independent third of the value chain, work require a disruptive innovation party to facilitate Value chain together to improve it matching • When companies in different stage of High the process and • Find diffusers that the value chain show commitments to build trust among the involved bring technological and making changes organizational solutions. companies • Similar platforms do not yet exist, which • Requires a Online match- • A way for adopters to present was the case in Kenya platform manager finding platform themselves and share their needed solutions • Adopters specify a need to be able N/A • Only for pre- to showcase their solutions needed match and first (exposure) introductions In Brief No. 12 | Page 5 An Online Platform for First Introductions Adopters mentioned the challenge of presenting their business to attract international partners. They often lack the necessary networks and access to platforms to generate sufficient exposure and endorsement. They are not familiar with the donor networks and therefore hardly in the picture when a trade mission is being organized. To accommodate this need, the team worked with CSR Netherlands’ matchmaking platform,10 where companies operatingin the green space worldwide can position themselves, identify potential partners and connect when looking for those. A Kenya-specific window was developed that gives adopters the necessary exposure to illustrate their business and sought solution.11 This window was merely a way for companies to profile themselves and find each other and was combined with off- line in-person support to help companies be most effective. Such search platforms, when combined with off-line and in-person support, can lower the costs associated to identification of global partners with appropriate solutions. Individual Matching: South-South vs. North-South Collaboration In matchmaking or diffusion there’s a general tendency to think of North-South collaborations. It’s often assumed that the proven climate technologies would come from developed countries. However, there are technologies and partners available within the African continent. Not only are most adopters equally interested in partnering with another African company, these technologies are often more suitable to the local conditions, having been tested in similar context already. The path to market is often quicker than when needing to adjust and test a technology that was proven fit for the European context and market. 10 https://futureproof.community 11 https://futureproof.community/circles/kenya-futureproof In Brief No. 12 | Page 6 Involving Companies along the Value Chain to Box 1: Examples of Establish the Scaling of Green Sectors South- South Collaboration Green markets are “push” markets, and although large in A good illustration of South-South collaboration developing countries, still immature and in need of nurturing. established together with GreenCape in South Most product offerings are not widely known in the marketplace, Africa, is the match established between the and the demand for these products is often not well articulated. Kenyan company OfGen and South African Hence, enterprises and other like-minded stakeholders must company TeamHL. OfGen is focused on work actively together to build the market, rather than simply developing and implementing waste-to-energy addressing an existing market with new offerings that may not solutions in Kenya and wants to expand its take off at all. business to the provision of low-cost but high- In Kenya, the need — from companies themselves — for quality wind energy solutions. TeamHL has been addressing issues along the value chain became urgent with refurbishing wind turbines in South Africa for the ban on plastic bags. To address the challenges of plastic the last year. Their solution is lighter and cheaper recycling and their transformation to high(er)-value products, the compared to importing a refurbished or brand- collection, segregation, and end product market linkages required new turbine. Although TeamHL will not be ready attention as well. Thus, the team piloted “from plastic waste to to start business in the Kenyan market until next building material’ activities: a partnership between six private year, both parties are interested in starting a sector players to test this (see box 2). partnership and completing feasibility studies for the Kenyan market. This value chain approach is in fact crucial in a context like Kenya, where the scalability of a climate technology solution is Another example is the match between negatively affected by a weak-performing and non-aligned value Microcare, a South African company, and chain. Therefore, the team incubated a coordinated, industry-led Skynotch, a Kenyan company. Skynotch provides approach to strengthen the plastic waste value chain. A series community-based grid solutions on a revenue of co-creation sessions including a core group of mature Kenyan share or where the users are direct beneficiaries. companies focused on: Although they currently have a small hydro grid solution, the company was looking to build the • Mapping the value chain; solar component of its business. Microcare has been innovating in solar technologies since • Vetting partners and facilitating discussions both 1990 in both off- and on-grid solutions and domestically and internationally; was looking to expand its business activities to • Matching and developing agreements through LoIs and other African countries. A quick match was made memorandums of understanding (MoUs); between these companies. • Helping to develop a collective business case; • Identifying and validating new product solutions; and • Supporting the engagement of other key stakeholders (government and civil society). In Brief No. 12 | Page 7 Box 2: Creating High-Value Products — From Plastic Waste to Construction Material Supported by the project team, a group of companies have joined forces to rethink the plastic recycling chain in Nairobi. During a series of collective workshops, the six partner companies focused on enhancing the performance of the plastic waste value chain by: • Aligning and improving the organization and output of the whole value chain; • Connecting the plastic recycling chain to the construction market, which can absorb large volumes of manufactured plastic waste products (e.g. affordable building materials) if manufactured with the right quality, price, and design; • Engaging foreign companies to enhance the performance of the whole sector by introducing an innovative value-adding design, technology and/ or business model, for which formal letters of intent have been signed; “These workshops created • Developing business cases for the different partners in the value chain. a breakthrough in the The great enthusiasm of the companies in the group plastic waste sector in has led to quick results: Within only three months, partnership agreements were signed, an action plan Nairobi, which consists was formulated, and the first business cases for waste- of actors who have never based construction material were developed. Moreover, several large potential clients were engaged, including collaborated before” the National Housing Corporation and the Kenyan Association of Architects. – Mr. Larsen, CEO Ramco Plexus In Brief No. 12 | Page 8 Figure: Simple illustration of the plastics value chain, including local and global companies involved The group is now working on identifying a location to develop prototypes and identifying suitable showrooms to showcase affordable building products manufactured from locally collected plastic bottles. In addition, several “For CGK the collaboration with the meetings took place to discuss the most feasible business model and setting up talks with potential investors. World Bank project team served The follow-up funding and facilitation of the activities are as an endorsement of our mission” led by Clean Green Kenya (CGK), a recently established industry-driven initiative that aims to enhance the – Mrs. Chakrabarti of Clean Green Kenya (CGK) performance of the plastic waste sector. With the World Bank Group’s support, the team from Enclude and GrowthAfrica will continue working with CGK and the companies in showcasing the success of these private sector-driven value chain activities. In Brief No. 12 | Page 9 3. Post-Match Support: The Essence of companies are typically challenged when it comes to attracting early stage capital for their business. The majority delivers a Linkages for Early Stage Finance physical product, requiring a longer route to market and more The support to each of the established matches, which starts capital for prototyping and testing than a software company (see before the matchmaking process, was based on continuous box below). They often require different types of financing suitable dialogue (phone and in-person) and keeping the momentum to their sector and company characteristics. In Kenya, over 50% going. This was especially important in getting to specific of the adopters and diffusers in the program expressed the need agreements and signing a partnership contract, but also in for financial support, either for purchasing technology or new determining who will provide what type and amount of funding, materials, or detailing the business model. This is specifically the the time commitment to get to market, and each party’s case for smaller companies. responsibilities in the partnership. The matched companies showed a need to map different types Further support included detailing the business case using of capital, including the use of equipment or working capital, to the business model canvas (lean model). Contextualizing the scale faster. This process requires attention from the facilitator, as solutions and potential barriers is an essential element here. As many adopters have difficulties sufficiently detailing how much part of this effort the team worked with the companies to further and for what they need financing. Once there is an initial match, size the market, identify ecosystem and regulatory environment the intermediary needs to work together with the adopter and challenges, and determine product development and pricing. diffuser to develop this investment/financing plan (getting them investment-ready). And throughout the support phase investor Finally, companies were supported in getting investment ready criteria was used to track whether businesses were on the right and with linkages to early stage funding. Climate technology path or whether they need additional support in certain areas. Green Companies in Kenya: Hardware Companies and Their Longer Route to Market Hardware entrepreneurs in Kenya typically take longer to make revenues and earn profits. Also, their external capex needs are high in the beginning due to numerous prototyping and testing rounds (see figure below). Therefore, they need more investment prior to serving their target market. Many of the companies rely on “soft” capital, generally in the form of grants, to take them through the validation stage to first revenue. Hardware companies also tend to face more regulatory restrictions (for example, safety and health regulations) than software ventures. Hardware has to be faultless, while software can fix bugs when already in the market. In Brief No. 12 | Page 10 Insights from implementation The Need for an Independent Facilitator There is a great demand for a “neutral intermediary” who Establishing Valuable Company Endorsement through can move between the different adopters, facilitate and a Light Due-Diligence Process at the same time improve the relationship between the When jumping into a partnership you want to know that you companies by building trust, endorsing the adopters, and can trust the person sitting across the table. The intermediary bringing in the right diffusers. It should be an organization facilitating the matchmaking efforts not only helps bring that represents private sector interests, is locally companies together, but also ensures they are both viable and embedded, has a business-driven approach, can support committed to the process. So how do you make sure you can the companies in articulating their needs, and can act as confidently provide this endorsement? A number of activities have catalyst and endorser in the establishment of relevant shown their effectiveness, including: business partnerships. The intermediary needs to address B2B matching in a pragmatic manner, and be viewed by 1. Multiple virtual and in-person conversations which took companies as a neutral player, and not driven by other place to determine the company’s commitment to partnering interests (whether government or key funders). and their established business activities. The first of these conversations aims at generally understanding their interest Going Beyond the Usual Suspects in partnering and need for solutions. Follow-up conversations Finding companies beyond the usual donor-funded focus on mapping the business model and activities: getting organization networks can be a challenge. In Kenya, insights into workflow, capacity, customers, growth plan, and generally, companies with no expatriate background main challenges/barriers. showed to be these ‘unusual suspects.’ These Kenyan 2. A visit to the companies premises to get an insight in their companies often miss the necessary international capacity, professionalism, and seriousness. networks or linkages with donor-funded projects like 3. A light due-diligence on criteria such as social and trade missions. As such, getting a foot in the door with environmental impact and general financial health on the an international company without the necessary linkages basis of a number of key indicators. For the value chain can be challenging. By addressing this segment with approach, the collective meetings were helpful to ascertain climate technology diffusion projects, not only is the the willingness to collaborate and share of information, group requiring most help supported, the probability of growth ambitions, and financial implications. a demonstration effect increases, leading to more local entrepreneurs actively prioritize green business models. 4. The World Bank label, and the GrowthAfrica and Enclude team’s network and efforts played a role in providing an “informal endorsement.” In Brief No. 12 | Page 11 Figure 3: Some preliminary results In Brief No. 12 | Page 12 Preliminary Lessons from Implementation • Contextualizing. A number of approaches and activities have proven to work in the context of Kenya and South Africa, but each The climate technology diffusion activity in Kenya is testing will have different effects in other contexts. To accommodate for how different approaches to B2B matchmaking can support contextual variations and still ensure success, each of the buildings both adopters and diffusers in their efforts to innovate blocks detailed in this n Brief are essential to keep in mind. On top and expand their business. But most importantly, it is also of this a modular approach to diffusion, tailored to the needs of measuring how effective each of the tested approaches has adopters and other stakeholders of that context, is advisable. been in scaling green sectors in Kenya. The building blocks detailed in the previous section illustrate several key elements • Taking the adapter-first approach is new and disruptive for international intermediaries as access points to diffusers. of success to diffusion in Kenya (Figure 3), and can be used to The adopters-first (demand-driven) approach has proven to be inform future programs. a successful way of initiating the diffusion process. It has been disruptive in unlocking potential from the adopter’s side to The following considerations from implementation are relevant partners with companies across the border. Traditional trade to increase effectiveness of diffusion: missions, which generally take a diffusers-first approach, are • Looking beyond the match: It has been clear that struggling to find adopters and to provide support as their for enabling diffusion and scaling climate technology financial compensation is built on diffusers only. Although local business models, there should be a strong focus on the businesses have more to say in current collaborations, the overall value chain, as well as individual matching. This requires “wait and receive inquiries” mindset — in which local business addressing issues beyond technical needs, and support only get to partner with international companies reaching out or with organizational, trust and finance challenges that those who come to visit — is still dominant. We see great value may arise. This includes addressing challenges in the in bridging this gap and supporting these traditional supply- wider ecosystem or value chain that affect the companies’ driven B2B matchmaking projects and trade missions to not business model and potential partnership. only represent the demand perspective but also ensure the right international companies are involved. Figure 4: Building Blocks of Climate Technology Diffusion In Brief No. 12 | Page 13 Climate Technology Program In Brief About Us The Climate Technology Program (CTP) In Brief series is a publication of the World Bank Group’s Finance, Competitiveness, & Innovation Global Practice. CTP focuses on the growing opportunities of the clean technology sector in developing countries. Through a global network of seven Climate Innovation Centers, the program provides local entrepreneurs with the knowledge and resources they need to launch and scale their innovative business solutions to climate change. CTP In Brief is a series of knowledge briefs highlighting important aspects of the CTP global and in-country operations and research. Acknowledgements © 2018 The World Bank Group This brief was prepared by Lisanne Heemskerk, Marjolijn Wilmink, 1818 H Street NW Ian Lorenzen, Esther Nyauncho, Danqing Zhu, Samiksha Nair, and Washington, DC 20433 Justine White