In part one of this blog series, we shared how in response to the COVID-19 pandemic, UNCDF, in collaboration with UNDP, worked closely with TONIBUNG and Moyog Innovation House (MIH) to map out a new market value chain connecting rural producers to consumers in urban areas. In December 2020, we demonstrated the feasibility of an alternative rural e-commerce system in Moyog, Sabah to ensure business continuity for the informal economy during the crisis. This blog explores the lessons learned from the scale-up of the pilot in Moyog for 2021 and pilot implementation in Pagalungan, the experience of the stakeholders, and future plans for these communities.
Improving digital adoption: Initially, the products were marketed via social media and word-of-mouth with existing customers. The business attempted to use a digital platform called Koondos! for online marketing and ordering. However, this proved challenging as many customers were more comfortable with traditional methods of placing their orders (via phone or WhatsApp) due to familiarity with the aggregators — a large majority of customers (92%) were from the local area, including many relatives and friends who were more comfortable placing their orders directly.. To incentivize the use of Koondos!, new marketing tactics such as online promotions and discount coupons were offered to customers who placed their orders via the platform.
Reducing the cost of logistics: Despite offering high-quality products that are valued by customers, businesses still face challenges in keeping their prices competitive due to high delivery costs associated with the remote location of the participating kampungs (villages). To address this, our team pivoted from retail to wholesale buying. Instead of purchasing small quantities of inventory for individual customers, larger quantities are purchased and then sold to businesses, re-sellers and agents on Koondos!. This allowed us to take advantage of bulk discounts, and also allowed businesses and consumers to receive their products earlier due to improved product availability. We partnered with local NGOs like TONIBUNG and PACOS Trust acting as aggregators for community outreach also lowered cost and facilitated transport of goods through authorised transporters.
Enhancing product quality and shelf life: Most agricultural products have a limited shelf life after harvest and fetch low margins without further value-add. It was therefore important to improve the shelf-life of these items for them to be commercially viable, and to improve margins by improving the quality and packaging of the products. We thus supplied the necessary technology and equipment e.g. vacuum packing, food-drying ovens, and chest freezers to the rural farmers and entrepreneurs for food processing and quality enhancement. They also received a Malaysia Global Innovation Center (MaGIC) Penjana SIM grant to purchase new equipment such as solar dryerr to scale and sustain their business.
Readapting promotion activities: Being a relatively new and small social enterprise, Koondos! struggled to market and differentiate itself against more established e-commerce platforms that ran large-scale marketing campaigns. In a collaboration with MaGIC, Koondos! promoted itself as a social enterprise in their BuyforImpact Initiative with Lazada in the scale-up phase, targeting a more socially-conscious consumer segment.
Visibility and business sustainability: To improve the visibility of their business and products, we also facilitated speaking events and webinars from our networks for entrepreneurs to share their insights and experiences. Some also travelled to bigger cities to participate in physical exhibitions where they were able to sell their products, build networks, improve market exposure and expand their customer base. They were also featured in print media that helped improve their credibility.
Julita Mikin (pilot participant entrepreneur) comes from Kampung Togudon, Penampang. She has been a farmer for more than 20 years, working in the field with her family growing crops such as ginger, tuhau, vegetables, rice, cassava, and lemon. The farming business has its share of challenges due to uncertainties in production (pests, extreme weather events, and other environmental conditions) and fluctuating market demand.
Journey to the pilot
When the COVID-19 pandemic hit Sabah, economic activity in the region was brought to a standstill, and subsequently reduced incomes for Julita’s business. Previously, Julita could sell her items on the local market directly to the customer, but this market closed due to the pandemic. She came on board during the first phase of the e-commerce pilot, selling her products through WhatsApp Business and Facebook. She also received training on digital content creation, photography, and graphic design.
The use of Facebook and WhatsApp Business helped Julita to improve the sales of some of her products to pre-pandemic levels, and she was keen to explore Koondos! to further her business. MIH helped Julita by offering logistics service to pick up and process her produce into products with a longer shelf life suitable for e-commerce sales such as oven-dried ginger and lemon. Today, Julita sells her packaged products through Koondos! to a larger audience. Moving forward, Julita looks forward to learning about digital payments and e-wallets to replace the cash-based transactions that her business currently relies on.
Learning from Pagalungan and Koondos! Keningau
While Pagalungan in Sabah is a place rich with agricultural products of yam, ginger, chilli, and hill rice, it suffers from difficult terrain and a high poverty rate. The state of infrastructure is also lacking; villagers make arduous journeys through boats and trunk roads to reach the nearest town to sell their produce, and poor electricity supply and mobile phone coverage make establishing an e-market in Pagalungan a challenging task. Hence, supporting the rural communities in Pagalungan to broaden their customer reach, diversifying their products and improving their income are priorities of the pilot project. We focused on improving certain aspects of the pilot that will refine the scaling-up process and drive Koondos! ahead in full throttle.
1. Brand Awareness: It takes six months to a year for a business to build up its brand, and we intend to conduct education and sensitization drives both for businesses to market their products, and to incentivize the use of the Koondos! platform. Health and safety benefits of contactless trading, ease in delivery, and quicker receipt of revenue via e-wallet will be crucial highlights. Businesses should also tailor their marketing strategies to their target population, for example using more traditional methods for less tech-savvy communities such as the elderly.
2. Digital Payments: The project, in collaboration with Maybank, is also exploring options to introduce digital payments for participating businesses. In addition to the direct benefits of contactless transactions, record-keeping, and security, we hope that digital payments can improve rural communities’ access to the wider ecosystem of public services by improving their digital presence.
3. Going-Green: We are experimenting with greener and more economic methods in managing the food supply chain- from production, processing, packaging, to long last-mile delivery. The team started using a prototype solar dryer in partnership with University Malaysia Sabah (UMS) and TONIBUNG. The team was also selected to participate in the Japanese Innovation Challenge, funded by the Japan Cabinet via the Japanese Innovation Network to prototype a mobile and locally assembled solar dryer with industrial experts from Japan. The project is also exploring a blended approach by combining traditional knowledge (airtight bamboo containers, dried corn skin, fermentation enzymes from local Bambangan mangoes), with the latest technology and machinery on green packaging to further prolong product shelf life.
Through this pilot programme, UNDP and UNCDF are also aiming to engage federal and state governments in policy-level discussions to deliver better access to entrepreneurial training, digital education and leveraging e-commerce for income enhancement of rural communities, especially women entrepreneurs and smallholder farmers. Such interventions will bring us a step closer to achieving the UN Sustainable Development Goals, particularly SDG 8: Decent Work and Economic Growth.