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9 Sustainability

Sustainability in the B2B context concerns partnerships, which continue after the disbursement from the programme ends and which are likely to survive as commercially successful businesses. It also concerns whether the knowhow transfers, which have taken place and improved on local company performance (whether there is a partnership or not), especially in environmental aspects and CSR.

9.1 Sustainable partnerships

Of all partnerships, Pilot only and Projects, the Evaluation estimates based on the random sample that one out of four will continue after the grant funding is over as earlier discussed. The partnerships might continue as it was set out from the beginning, for example as a joint venture, or in a different format than envisaged. Overall, the real performance of the surviving partnerships tends to be much less successful than anticipated by the partners themselves, and the process of development considerably slower than was projected in the application documents. To some extent, some partners interviewed admitted that the applications were exaggerated in terms of expected increase in turnover and employment in order to increase the likelihood to receive the grants. (There were rarely any assessments of the realism in the figures in the embassy appraisals). Feasibility studies carried out by consulting companies in some cases also painted a too optimistic picture of the business idea including the financial aspects. As such, the partners were often taken by surprise of the difficulties to get the ventures going. The E-survey shed some light on this as indicated in the graph below on the question whether the company respondent found entering into partnership more challenging than expected:

Figure 19: E-survey response to the questions:
Did you find entering into the B2B partnership more challenging than expected?

Figure 19

9.2 Factors determining sustainability of partnerships

Section 6.6 discussed the contextual factors which have some positive correlation with the likelihood of a sustained partnership beyond the B2B Programme based on the analysis in the random sample. In summary, the relative importance of company size gives a mixed picture both for Danish and local companies, however with an overweight of large Danish companies being able to sustain the partnership. There are slightly more established Danish partners that are able to sustain partnerships than younger companies, whereas there is a rather clear correlation between the age of the local partner and sustainability – the more established the company, the better sustainability. Both Danish and local partners with considerable international experience have better sustainability, and the same goes for the financially robust companies, though none of them are strong factors. As regards business motive, market extension projects are more sustainable as are buy/sell and JV type of partnerships. Sector wise, the ICT sector is the one that has the least chance of sustainability. See also Annex E.

9.3 Sustainable company development

The failure rate of partnerships whether taking place in the Pilot phase or in the Project phase, is not the same as a failure of the local companies. The survival of the local partner companies is overall high in the B2B Programme. Joint ventures might break up or fail, but according to the studies in Uganda, Bangladesh and in the random sample, the rate of closed-down local companies is small. The estimate is that about nine out of ten local companies continue to exist since they joined the B2B (as of June 2014). This must over a period of five to six years on the average be considered a good rate.

Many of the local companies, which have participated in the B2B Programme, are large ventures, some also part of conglomerates with considerable financial and management resources.[59] Failures in attempted partnerships have not had any significant impact on these companies. There is a higher ratio of closed-down Danish firms than locals as discussed below and possibly also an overall better commercial performance of local partner firms than of the Danish. The reason for the latter can only be speculated: factors such as that the economic growth rates in all the B2B countries were higher than in Denmark during the B2B period which would support company survival; and the economic crisis in 2008-2009 which had a much stronger negative impact in Denmark than in all B2B countries as reflected in changed of economic growth rates.

9.4 Sustainable knowhow transfers

The sustainability of knowhow transfers and learning cannot be quantified, but as the learning has been hands-on and delivered by experienced business persons in the same sector, it is likely to be highly sustained in partnership where some trust was developed. In-depth interviews in Uganda testified to this. This type of knowledge transfer might also be sustained in local companies that otherwise have been ‘failed’ partnerships in terms of the long-term aspects.

9.5 Transfers from B2B to IFU and other support forms

The Danida Action Plan from 2006 has as one of its objectives for a revised business alliance programme that a stronger linkage to IFU’s loans and equity instruments should be promoted, and also to Denmark’s mixed credit programme, today called the Danida Business Finance. The random sample analysis indicated that for one out of five of the applications for Project phase support, the partners planned to seek other funding from IFU and/or the mixed credit scheme. As mentioned earlier, only a few of these partnerships actually had such funding. In some cases, IFU turned down the applications, in other cases, the partners did not go ahead with an application for a variety of reasons such as the partnership ran into problems or that the partners realised that the chance to get IFU to investment was small. Also emerging distrust between the partners played a role: An example of the latter was a joint venture in Uganda between two companies in the cleaning service industry. The partners intended to set up an industrial laundry service facility and sought for that purpose an IFU credit. IFU approved of the loan, but the partners never signed the papers. The Ugandan company, which had acquired a building lot in the outskirts of Kampala, commissioned the architectural drawings, and had begun constructing the foundation, claimed that the Danish partner pulled out just before signing. The Danish partner claimed it was the Ugandan partner which had not gone ahead.

The problem of creating linkages between donor-funded business alliances and commercial development finance is a common feature in many similar programmes. All the Nordic business alliance programmes referred to earlier have this problem even if both the Swedish and Finnish programmes are implemented by DFIs. The main reason is the gap in size between the SMEs in the donor funded programmes, on one hand, and the threshold when DFIs become interested on the other. DFIs generally require larger investments than what is sought by companies in the partnership programmes in order to justify the administrative costs related to process loan application or engagement as owners as DFIs are supposed to be self-financing and provide a certain return on their capital. In many countries there is an on-going discussion on how to close the gap and have a stronger linkage between the two financial systems which both have the objective through public funds to stimulate business in developing countries. This discussion is also relevant in Denmark.

9.6 Sustainability of the Danish companies

Based on the random sample the Evaluation estimates that one out of five of the Danish companies that participated in the Pilot or Project phases have collapsed, generally through bankruptcy. A ‘death’ rate of mostly micro and SMEs at that rate of 20% over five to six year period is not out of the normal, especially as the B2B period coincided with one of the worst financial crisis in Europe over the last three-four decades. On the other hand, an assessment of the financial robustness in the random sample when the companies applied for support shows that about 20% of the Danish companies had a weak financial situation.[60] Notwithstanding, the review of projects has not come across any company which seemingly collapsed as a result of the B2B. Events at the home market and other key markets triggered the downfall, not the often marginal engagement by the companies in B2B.

[59] Company structures in some of the B2B countries build on creation of conglomerates with a number of smaller firms belonging to the same family, seemingly independent, partly of political reasons to reduce exposure.

[60] The Evaluation defined financial robustness as follows. Strong: At least USD 1 million in equity (DKK 6 million), equity percentage above 20% of assets, and profit above 10% of turnover. (If company has had profit in the last three years, an average of between 5-10% is sufficient) Medium: At least DKK 1 million in equity, equity percentage above 15%, and at least break-even last year. Weak: The rest.


This page forms part of the publication "Evaluation of Danida Business-to-Business Programme 2006-2011 – Evaluation 2014.05" as chapter 9 of 11.
Version no. 1.0, 2014-11-14
Publication may be found at the address http://www.netpublikationer.dk/um/14_danida_btb_programme_2006_2011/index.html