Component 2: SME Linkages in Competitive Sectors

Objective of Component 2 and subcomponent 2.1

The objective of the Component 2 is to establish a coherent framework to facilitate linkages and the integration of SMEs in existing and new competitive sectors.

Component 2 of the project SME Linkages in Competitive Sectors includes subcomponent 2.1. – Supplier Development Programs;

Subcomponent 2.1.: Supplier Development Programs

The purpose and objectives of the Subcomponent 2.1.

Initially operating in 2-3 sectors, the comprehensive Supplier Development Program (SDP) will increase the ability of Kazakhstani companies to supply goods and services to multinational corporations (MNCs), large local firms and State-Owned Enterprises (SOEs).

  • The SMEs engaged in the SDP are expected to attain world-class production standards to become viable suppliers to MNCs and SOEs, and they will, in the longer term, be able to export their products or services to global markets.
  • The SDP will directly address key areas of need of selected MNCs and SMEs. The program will identify potential demand and upgrade skills of suppliers, including attaining international certification, improving business and management practices, and facilitating communication and relationships between major buyers and potential suppliers.
  • There are five key players involved in creating a successful SDP:
    • MNCs -the program cannot be successful without the buy-in of MNCs, who help shape the program from the beginning. MNCs must be extensively involved and commit to contracting from suppliers, who have successfully gone through the program;
    • suppliers are the main beneficiaries who must invest time and financial resources in the program. Further successful development of local SMEs that have successfully gone through the program depends on the quality and timeliness of performance of their commitments as suppliers. Therefore, it is essential to secure the performance of commitments by the senior management of such enterprises from the very beginning, which is one of the benefits of the competitive element in the potential model outlined above
    • Local and foreign consultants are necessary to provide the specialized training and consulting expertise to the suppliers in the program and diagnose the primary needs of certain companies. Such specialist advice and support must be ensured as part of a coordinated and robust package, including mentoring and training;
    • Local universities, whose expertise must be identified. It is critical to support the process by using their capability to develop specific training classes and program to the needs of participating suppliers;
    • Established Supplier Development Office in cooperation with MNE EDD, which is responsible for coordination of the entire program and ensures close cooperation between the institutions involved to attain the continuous provision of necessary services and support to participating companies can contribute some of its own resources (e.g. technical staff) to specific activities of the program (e.g. performance assessments)
  • This Subcomponent will complement ongoing SME support programs by providing a focused emphasis on building linkages between SMEs and large buyers.
  • The program is focused on those SMEs (about 200 SMEs operating in engineering, metallurgy, chemical industry and possibly some other sectors of the economy) that have the potential to become suppliers of larger firms through enhancement in their capacity, efficiency and competitiveness using the instruments available as part of the Project:

  • - technical assistance;

    - consultancy;

    - mentoring;

    - reimbursement of the cost of international certification.

  • The establishment of the Supplier Development Office requires thorough analysis and appraisal of not only the availability of potential demand and supply, but also the existing institutional and political environment.
  • Independent consultant/firm may be hired to carry out comprehensive assessment of feasibility of the proposed activities including development of advice on the design, implementation arrangements for further incorporation into ToR.
  • The ToR for this work will be developed by PIU taking into account the opinion of MNE EDD and is subject to WB approval.

  • Institutional Capacity Building

  • The Project will finance the activities on building institutional capacity to develop and implement the SDP and to conduct analyses on competitive industries. It will work with the relevant stakeholders.
  • Based on the results of this work, the major MNE’s partner in establishing and ensuring the performance of the Supplier Development Service – "NADLOC" National Agency for Development of Local Content JSC (hereinafter – NADLOC) which in accordance with the Decree # 830 of the Government of the Republic of Kazakhstan dated December 13, 2018 has been reorganized by joining to KIDI JSC, has been identified. The proposed partner in implementing the SDP, as well as institutional, legal and financial aspects of the interaction and work system will be agreed upon with WB prior to approval.
  • The Project will finance training, capacity building, tools and methodologies for all of the aspects required to implement the SDP, as well as partial reimbursement of the cost of international certification.
  • Training and capacity building will be provided to all relevant public and private stakeholders involved in the SDP.
  • The Partner will ensure interaction between all SDP participants both during SDP development and implementation.
  • If necessary, PIU will hire a consultant to provide technical assistance to the Partner in implementing the activities in this Component and to be responsible for coordination of activities and interaction with all participants, at least until the Supplier Development Office is established.
  • The Project will provide training and capacity building, staff training to strengthen the capacity for further development and implementation of the SDP. This will include training workshops for staff of the Partner, MNE and other participants involved, as well as development of methodologies, instructions and other materials required to implement the SDP.

  • Supplier Development Office establishment as a Managing Agency for the Proposed SDP

  • Supplier Development Office will have a key role in ensuring that all the relevant corporations, departments and agencies work closely together to achieve a seamless delivery of the necessary services and support to the participating companies.
  • The Office will oversee the deployment of international and local assessors and consultants and the relationships and contracts with participating MNCs, NCs or SOEs and supplier companies.
  • The training of staff in the Supplier Development Office in the skills necessary to implement such a program, and set up an administrative system to support its management and monitoring will be an initial priority.  
  • Supplier Development Office staff will be trained in the skills necessary to implement such a program, and set up an administrative system to support its management and control.
  • The Partner supported by PIU and engaged consultants, if necessary, will determine the structure and staff for the Supplier Development Office (SDO).
  • To establish SDO, local consultants (individual consultants) will be selected. The criteria for selection of consultants to SDO will be determined.
  • SDO staff will be trained in the management and monitoring of the SDP. An administrative system to support SDP management and monitoring will be created.
  • For SDO, the Project budget will provide for premises, office equipment and operating costs including staff remuneration if such expenses justified by the analysis.

  • Sectors Selection and Framework Establishment for the Pilot SDP

  • This subcomponent will start with two pilot programs operating in parallel. The first pilot will focus on oil and gas and the second one - on railway equipment. Criteria for the selection of industries (sectors) will be developed by the SDO jointly with the Consultant.
  • International consultants will be selected through competitive tendering to undertake the sectors’ diagnostic business reviews and local consultants will be identified to work alongside them both to ensure transference of knowledge and skills and to facilitate communication and local understanding.
  • A parallel priority will be to confirm the MNCs, which are prepared to actively participate in and support the program, and engage with those MNCs in identifying opportunities, considering their views on the assessment procedure and recommendations on current and potential suppliers, which could be invited to participate in the program.
  • The list of companies to be invited to participate in the program will be finalized by drawing on these views and other sources of information, including intelligence held by Government agencies, trade associations, and universities.
  • During the SDP development, the procedures and selection criteria for listing potential suppliers based on the results of the diagnostic business reviews and a two-phase training program for SMEs being potential participants of pilot SDPs will also be developed.
  • The Terms of Reference for selecting sector/business area specific consultants will be prepared by the SDO supported by the Partner and PIU.

  • Implementation of Pilot Programs

  • The detailed approach proposed for the Kazakhstan pilots includes two phases and a competitive element.
  • In the first phase, suppliers selected for the program are evaluated against an assessment methodology in in-depth (2-day) business reviews, which looks at the totality of their business, such as provided by the European Quality Model, and which also ensures that the areas of performance of most importance to MNCs are addressed.
  • On the basis of these reviews, short-term (6-month) essentially self-improvement plans are agreed with the companies. These firms are then provided with general technical assistance and training through workshops, master classes and other mechanisms to improve their business processes and products, while they are implementing these plans.
  • At the end of the plan period, companies are re-assessed in a second business review on the progress made, the commitment and capacity for improvement shown and the level of performance attained.
  • On this basis, companies are selected for the second phase. In this phase, the firms are provided with more intensive and in-depth mentoring, consultancy support and training tailored to their specific needs.
  • As part of this process, mentoring teams of international and local consultants agree and monitor the implementation of the business development plan with a firm, as well as provide continuing consultancy, engage any other specialized expert support if necessary, and develop relationships and contracts with participating MNCs.

  • Figure1 Proposed approach to pilot SDP programs
  • SDO will implement pilot SDPs with the support of PIU. SDO will develop the criteria for selection of suppliers and the supplier assessment system, and on this basis SDO will select suppliers, recommend training workshops on business improvement, determine the subjects and content of such workshops and arrange them.
  • The first-phase training workshops will use the potential of non-financial support programs. Additional training and capacity building elements will be developed involving international and local consultants based on the results of the assessment of program participants’ needs.
  • Simultaneously, a supplier database will be established drawing on information obtained during the Project implementation.
  • The timescale for an effective pilot program to make a measurable impact on participating companies and for reviewing the experience and specific lessons learned would be 18 months to 2 years.
  • However, the intention is to create a sustainable institutional capability to run such programs beyond the end of the Project, particularly by developing the capacity of the managing agency to run such programs, and by developing local consultants to carry out the diagnostic reviews, consultancy and mentoring to international standards.
  • An additional element of the program would be the establishment of a supplier database, which would only be open to companies meeting the world-class standards required by MNCs. Not only would this help listed companies to obtain further businesses, but it would become a useful tool in helping Kazakhstan attract new inward investors and retain and encourage the expansion of existing investors.
  • As international experience shows, a Supplier of the Year competition for those participating in the program can be effective in raising the profile of the program, with awards for the highest ranking suppliers and the most improved suppliers.
  • The consulting services to be procured will be broken down into packages by objective and considering the complexity and time required to implement the activity. The packages of consulting services to be procured will be determined by PIU and included in the Project Procurement Plan.

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