FAO-EU FLEGT Programme

Micro, small and medium enterprises: 10 strategies for success

15/11/2021

Between 2016 and 2021, the FAO-EU Forest Law Enforcement, Governance and Trade (FLEGT) Programme (hereafter the Programme) supported over 100 projects in 20 countries to help micro, small and medium enterprises (MSMEs) produce and trade legal timber and associated products. This support is premised on the reality that MSMEs are engines of economic growth, and supporting their transition to legal and sustainable practices has a multitude of knock-on benefits for poverty alleviation, provision of decent work, and supporting inclusive economic growth as well as promoting sustainable forest management.

Given the challenges of supporting this difficult-to-reach constituency at scale, the Programme’s experience offers a number of tried-and-tested strategies for working with MSMEs. Adopting these strategies is not only expected to replicate the success experienced by partners, but it is also likely to amplify this success by capitalizing on previous work and yielding new experiences that lead to innovations. Future focus areas have been identified within each strategy to aid forthcoming MSME support efforts.

The detailed analyses underlying the 10 strategies are caputured in the four publications below:

Stronger together: How trade associations in tropical timber-producing countries multiply benefits for forest sector MSMEs

Supporting forest sector micro, small and medium enterprises at scale

Unlocking the potential of community timber

Promoting legality within the private forest sector: obstacles and incentives to formalization

Strategy 1:  Establish long-term coaching and mentoring of MSMEs to achieve legal compliance

How it works: after awareness-raising sessions or trainings have taken place, a coach, trainer, or facilitator will work closely alongside individual MSMEs to ensure that they understand the requirements and implications of legality compliance and that they can undertake the necessary steps to achieve legality.

Why it works: capacity building and training events do not result in legal compliance without follow-up. Not only does it take a long time to change business practices, but each business’ needs are different. Long-term coaching provides the mentoring and individualized attention needed to support businesses in pursuing legal compliance.

See how it works: the Programme’s experience recommends a five-step process inspired by the work of the Kumasi Wood Cluster (KWC) in Ghana:

  1. Awareness-raising: technical trainings are preceded by awareness-raising of the advantages of legal compliance to increase motivation and buy-in of beneficiaries.
  2. Operator assessment: compliance gaps are identified through site visits or field surveys, followed by working with the individual MSME to develop customized action plans to address these gaps.
  3. Tailored capacity building: specific trainings are designed to address issues raised in assessments.
  4. On-site mentoring: long-term, individualized follow-up is provided to resolve compliance gaps, ideally on-site at the workshops of beneficiary MSME.
  5. Establishment of long-term support structures: associations or networks of trainers are created to continue providing consistent follow-up and coaching beyond a project’s lifetime.

KWC has become a specialized training provider to assist MSMEs to become compliant with Ghana’s Timber Legality Assurance System (GhLAS). Between 2016 and 2021, KWC has trained over 220 MSMEs, of which 70 percent have achieved at least satisfactory compliance levels with the GhLAS.

Future Focus: designing and piloting improved evaluation mechanisms to monitor the impact of training and mentoring initiatives, with the goal of further improving the capacity building model while identifying successful trainees that can provide “proof of concept” for other MSMEs to emulate.

Strategy 2: Package business skills development and improved production techniques together with capacity building on legal compliance

How it works: capacity-building programmes towards legal compliance are designed to include content on enterprise management and improved production skills, which may include:

  • accounting and financial management;
  • workshop layout optimization;
  • product design and creation of value-added products;
  • equipment operations and maintenance;
  • transformation techniques that improve efficiency;
  • wood treatment techniques (drying, painting, polishing and lacquering); and
  • market analysis, marketing and pricing.

Why it works: it enables MSMEs to appreciate the business case for legality in anticipating future market trends and regulations while equipping them to capitalize on the benefits of legality via their newly acquired skills to manage their businesses more efficiently, improve their production skills, and access wider markets.

See how it works: in Peru, the Center for Technological Innovations of Wood (CITEmadera) collaborated with the World Resources Institute (WRI), the Global Timber Forum (GTF) and the International Tropical Timber Organization (ITTO) to design a training programme for MSMEs and conducted a series of pilot workshops which reached 206 persons representing 149 organizations. The programme consists of four modules:

  1. Strengthening management practices and communications for associations;
  2. Risk assessment for the forestry sector enterprises;
  3. Strengthening productive management practices and business model design for enterprises;
  4. Good practices of responsible purchases of wood for wood-buyer organizations.

CITEmadera recommends that future trainings further explore themes of enterprise management for small companies, competitive pricing and development of added-value products. The modules developed are currently being adapted for rolling out in Colombia and Guatemala, and more widely in Peru via virtual training.

Future Focus: capacity building on skills to improve production efficiency and reduce wastage. This is a critical area for action as improved efficiency will enable MSMEs to generate more products per cubic meter, increasing their overall revenue while using less timber.

Strategy 3: Catalyze “pull” on MSMEs through engaging lead companies and fostering business-to-business dialogue

How it works: roundtables, networking meetings and site visits are facilitated between MSMEs and lead companies. MSMEs can use these fora to prove their ability to provide legality and transparency documentation to lead companies who require them for export markets.

Why it works: engaging with influential actors within a supply chain can catalyze related shifts towards legal compliance amongst their many suppliers, effectively pulling MSMEs towards legal compliance in order to create and/or maintain business relationships.

See how it works: in Viet Nam, the Handicrafts and Wood Association of Ho Chi Minh City (HAWA) developed an association-level Due Diligence System. All HAWA members uploaded the documentation needed by buyers conducting due diligence to a dedicated platform. To accomplish this, HAWA members must also ask their MSME suppliers to create accounts and upload documentation of legal compliance to this same platform. This not only incentivizes MSME suppliers to demonstrate compliance to maintain their relationship with the lead company but also allows MSMEs to obtain contracts with new companies looking for suppliers through the platform.

Future Focus: enable cross-sectoral dialogue amongst businesses and associations that host vibrant communities of MSMEs and smallholder producers in other sectors, such as agriculture and fisheries, which can offer additional lessons to the forestry sector on integrating MSMEs into global supply chains.

Strategy 4: Build an “ecosystem of support” through capacity building and involvement of civil society organizations (CSOs), governments and other actors

How it works: involve government and CSO actors in targeted capacity building for MSMEs, as these trainings can also improve government and CSO technical knowledge, enabling them to play their role more effectively in promoting legal compliance and supporting MSMEs.

Why it works: when all these actors simultaneously deploy their unique roles and strengths to support MSMEs, it can create a mutually reinforcing environment that provides the long-term and comprehensive assistance that MSMEs need. This strategy is rendered sustainable by involving actors that will remain in the locality beyond a project’s timeframe. This also ensures that stakeholder capacity and experience is in place when “windows of opportunity” open for policy reform.

See how it works: in Thailand, RECOFTC formed Thailand’s CSO FLEGT network in 2015 to enhance CSO participation in Thailand’s FLEGT voluntary partnership agreement (VPA) process. Over time, the CSOs’ technical understanding of the process improved, and, as a result, the CSOs began to identify challenges facing smallholder timber producers. One such challenge was a section of the Forest Act that restricted smallholders from harvesting certain species on private land for which they had previously received legal permission to plant with the promise of reaping economic benefits. The CSOs directly advocated for legal clarity and the revision of the Forest Act to remove this section, and ultimately the Forest Act was revised in 2019.

Future Focus: targeted engagement and capacity building for local government officials who may be able to include MSME work in government work plans, with dedicated annual budget allocations.

Strategy 5: Influence policy frameworks through piloting new concepts or feasibility studies that give confidence to governments​

How it works: providepublic authorities with useful forest sector data, case studies and experience-based recommendations which may be adopted to advocate for legal revisions and policies in the sector.

Why it works: by producing and presenting to the government evidence of what works, in practice, for the benefit of producers, consumers, local communities, the environment and authorities, policymakers will have a solid basis and incentive to push for specific policies and revisions. When provided with feasibility studies and revised ted pilots, governments are likely to perceive a lower risk in advocating for certain policy framework changes, as they have been previously tested.

See how it works: in both Ghana and Côte d’Ivoire, feasibility studies, by Ghana’s Forestry Commission’s Timber Industry Development Division and the Center for International Forestry Research, respectively,  have been used as part of efforts to boost legal timber supply on the domestic market. Both studies sought to understand the domestic demand for legal timber and provided a series of recommendations on how domestic supply could be increased, including the establishment of legal timber depots. The recommendations have contributed to broader efforts to operationalize public procurement policies to purchase sustainable, legally harvested timber.

Future Focus: continued focus on streamlining the approval processes for harvesting approvals, clearer tenure rights to allow smallholders to utilize their resources, and support to community-based enterprises.

Strategy 6: Create tailored tools that help MSMEs to achieve legal compliance and access markets

How it works: partners develop tools – such as specialized guidebooks, software, electronic platforms, or legality verification and supply chain control mechanisms – that are tailor-made for MSMEs to help them comply with specific legal requirements or access raw materials and markets. Online market platforms for timber products, for instance, allow MSMEs to continue to sell their products to domestic and international consumers despite global trade disruptions.

Why it works: legal frameworks may restrictMSME activities, yet MSMEs cannot wait for revisions to legal frameworks to simplify or reduce barriers to legal compliance. Specialized tools can be developed in the interim to support compliance, and such tools are effective because they can be:

  • custom-designed to local contexts and challenges;
  • developed and implemented during the course of a short project; and
  • simple and easy to understand and use.

See how it works: in Viet Nam, the Forestry Economics Research Center (FEREC) is updating its timber tracking system, iTwood, to include household plantation timber. To do this, FEREC developed practical guidelines for household plantations to comply with Viet Nam’s Timber Legality Assurance System and then upgraded the iTwood system based on feedback from field surveys in household plantations to ensure the final iTwood interface is more user-oriented.

Future Focus: support governments in moving towards digital registration and permitting processes which can save MSMEs significant time and costs.

Strategy 7: Implement communications campaigns for educating markets and creating public demand for legal wood and wood products

How it works: communications campaigns disseminate messages about the importance of responsible wood products consumption for curbing deforestation and promoting sustainability. These messages are circulated via printed and electronic media such as newspapers, magazines, websites and public places such as airports and bus stops.

Why it works: these campaigns can educate both the public and businesses simultaneously, creating the market pressure needed for businesses to pursue legal compliance and adopt more sustainable practices. By educating markets, campaigns help create demand for legal and sustainable wood products whilst removing preconceptions that exist in many countries towards the usage of wood products. The increased demand rewards MSMEs for their efforts to adopt legal and sustainable practices.

See how it works: in Guatemala, the National Forests Institute(INAB) commissioned a campaign entitled Todos a la Legalidad (Everyone for Legality), which reached 171 550 people through social media and resulted in the registration of 303 companies to the National Forest Registry. A parallel social media campaign entitled Todos contra la tala ilegal (Everyone against illegal logging) reached 781 554 people, illustrating the need to educate the public about their responsibility to protect forests through responsible purchasing. INAB hopes to run more campaigns like these in local languages that can speak to populations not reached by previous campaigns.

Future Focus: increase usage of social media campaigns to raise awareness and educate markets on the importance of purchasing legal and sustainable wood. These campaigns are relatively cost-effective and straightforward to put in place and can reach large numbers of people for minimal cost.

Strategy 8: Provide resources and technical support that enables private sector associations to provide additional services to their MSME members

How it works: existing national associations and federations typically offer a suite of services for their members, and additional resources can enable them to expand the amount and quality of services provided, such as:

  • training and capacity building for members;
  • joint purchases and/or sales on behalf of members;
  • sharing of regulatory and market information;
  • representation of members in national worktables, policy dialogues, etc.;
  • creation of networking opportunities and business-to-business learning;
  • dispute resolution and conflict mediation;
  • provision of legal support and protection to members; and
  • development of tools to help MSMEs achieve legal compliance and market access.

Why it works: the act of strengthening associations yields "multi-directional benefits", meaning that strengthening an association in one area can generate a multitude of benefits such as increased membership, network building, greater credibility and better representation. Stronger associations are able to bring more benefits and services to their members. This, in turn, attracts more members and funding, which further solidifies the association so the cycle of benefits and strengthening can continue.

See how it works: the Programme has collaborated with the Colombian National Federation of Wood Industries (FEDEMADERAS) since 2015 to build the capacities of MSMEs in legal compliance and facilitate the creation of legal business opportunities. FEDEMADERAS is considered a point of reference for the Colombian legal timber market, accumulating over 18 years of experience in representing 800 timber enterprises, establishing partnerships and advocating for the timber sector and timber legality. Programme support has enabled FEDEMADERAS to expand its services to members, such as technical assistance in achieving legal compliance and undertaking key initiatives such as the development and launch of the http://elijamaderalegal.com online market platform. Programme support has also contributed to developing a communications campaign with visual materials displayed at major public transportation hubs in Bogotá, Cali, Pereira, Bucaramanga and Manizales.

Future Focus: update and rollout association training programmes. The Global Timber Forum has developed a training framework that can be updated and expanded to associations. In addition, well-established associations and federations should be encouraged to provide services for other associations, such as organizing networking events, fairs and exhibitions.​

Strategy 9: Organize groups of MSMEs into new associations, cooperatives or federations to gain representation and bargaining power

How it works: existing groups of MSMEs or individuals seeking a joint objective – such as market access or greater political representation – can be grouped into new associations, cooperatives and/or federations depending on their objectives. Technical and financial support can enable these groups to undergo official registration processes and develop institutional codes and practices.

Why it works: formally grouping together MSMEs provides legal legitimacy as well as strength in numbers so that MSMEs can make collective purchases and sales, and it magnifies their voices in advocating for their interests in national-level policy discussions. Programme partners who have formed associations often later choose to register separately as cooperatives – which have a business mandate – or group with other associations to form a federation – which often have a higher level of political influence than national associations.

See how it works: in Cameroon, the Cameroonian Federation of Associations and Professionals of Secondary Wood Processing (FECAPROBOIS) recognized the need for MSMEs to group together to make joint purchases. FECAPROBOIS therefore founded the cooperative COOP-CA EXTRABOICAM, which enables MSMEs to buy legal timber from industrial companies and community forests collectively. FECAPROBOIS has found that buying timber through the cooperative gives MSMEs more credibility and represents a more attractive business opportunity for industrial companies looking to sell timber.

Future Focus: help wood-based associations build networks of support through long-term programmes specifically addressing the needs of small producers that link to existing training frameworks and institutions, as well as other sector-support programmes with business training and access to finance. Existing capacity building programmes for associations can be updated and adapted to national contexts. The rollout of these programmes can be paired with creating networks of associations within and between countries to enable new associations to learn from apex-level associations.

Strategy 10: Provide long-term support to partners to enable them to capitalize on previous work to pursue innovations

How it works: long-term support to several partners has led to the emergence of new and innovative ideas to support MSMEs, such as centralized log yards and purchasing centers, virtual capacity building programmes, and e-marketplaces for MSME timber products.

Why it works: organizations with deep experience working with MSMEs throughout several projects already have the relationships, network, and technical expertise to envision and pilot new solutions to existing challenges.

See how it works: in Côte d’Ivoire, the international NGO Association des Volontaires pour le Service International (AVSI) Côte d’Ivoire trained 1 200 MSMEs on legal requirements and formalization processes. As a result, AVSI capitalized on this critical mass of legal enterprises to form several associations of MSMEs, which then enabled them to enact innovative solutions for MSME support. These include pursuing the establishment of a legal timber purchasing center and consolidating a federation of MSMEs that would improve the representation of MSMEs in national policy processes.

Future Focus: pursue alternative, grouped legal certification models for MSMEs, such as jurisdiction-level certification (i.e. at the forest management unit level or district level). Under such jurisdictional schemes, all MSMEs within a given district could be certified as “legal” without requiring individual operators to pursue formal certification of legal compliance. Such a mechanism would award a strong mandate to local government to provide the oversight and budget to ensure on-the-ground compliance.

Final Message

These strategies represent two different types of interventions within an overall framework: (1) direct support to MSMEs and their supporting partners, and (2) creating an enabling environment. These two types of interventions are mutually supportive, and when enacted together in tandem, can yield benefits for MSMEs at larger scales. No single strategy listed above can prepare a nation’s worth of MSMEs to participate in the legal timber production and trade, but implementing a portfolio of these strategies in a comprehensive support package can help to realize the potential of MSMEs to move past traditional business-as-usual modes of operation towards green growth and a more inclusive economy.

Access detailed analyses underlying the 10 strategies in the four publications below:

Stronger together: How trade associations in tropical timber-producing countries multiply benefits for forest sector MSMEs

Supporting forest sector micro, small and medium enterprises at scale

Unlocking the potential of community timber

Promoting legality within the private forest sector: obstacles and incentives to formalization