SECTION C - DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK

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1 Page 4 of 72 SECTION C - DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK C.1 INTRODUCTION The United States Agency for International Development (USAID) in El Salvador contemplates the award of a contract to implement a Trade Development Program for Small and Medium Enterprises (SMEs) during the period 2011 through Prospective contractors will develop constructive and effective proposals to implement this initiative. To this end, the resulting contractor will jointly work with the Government of El Salvador s Ministry of Economy and its institutions ascribed, as well as other donors, international cooperation agencies and the private sector. Funding for this contract will be on an incremental yearly basis, subject to availability of funds. The total estimated implementation is a four-year base period with an option of an additional 12-month extension. C.2 OBJECTIVES The objective of this USAID program is to help micro; small and medium enterprises have better access to business development services, increase their productivity and competitiveness, and expand operations in local and exports markets. A sustainable business expansion will contribute to the Salvadoran economy to grow and expand job creation. The program will provide technical assistance, training, institutional strengthening and information technology equipment to the Ministry of Economy and its ascribing institutions such as the National Commission for Micro and Small Enterprise (CONAMYPE), the Export Promotion Agency (EXPORTA), the Investment Promotion Agency (PROESA), the Ministry of Agriculture, and private sector organizations to serve as effective trade and business development service providers for micro, small and medium enterprises in El Salvador. The program will contribute to the accomplishment of the USAID/El Salvador s Mission Strategic Objective Economic Freedom: Open, Diversified, and Expanding Economies, through Intermediate Result No. 2 More Competitive Market Oriented Enterprises by helping the GOES and private sector reorganize and improve effectiveness of their business and export development services to help SMEs become more productive and competitive, expand their business activities in the domestic and export markets, and create more jobs and better opportunities for Salvadorans. See attached USAID/El Salvador Economic Freedom Program Results Framework FY C.3 BACKGROUND Micro, small, and medium firms (MSMEs) are classified in El Salvador based on the number of people employed and the sales level reached. Micro firms have up to 10 employees and maximum annual gross sales of $100,000. Small firms have up to 50 employees and gross sales up to $1,000,000. Medium firms have up to 100 employees and gross sales up to $7 million. 1 Based on the VII Economic Cense of 2006 conducted by the Ministry of Economy s General Directorate of Statistics and Censes (DIGESTYC by its Spanish acronym), there are 463,803 micros for subsistence (ambulant and self-employed people), 158,574 micro firms with fixed establishments, 13,208 small firms and 2,624 medium firms. 1 Ministry of Economy s publication: Generando Riqueza desde la Base: Políticas y Estrategias para la Competitividad Sostenible de la Mipyme at

2 Page 5 of 72 According to DIGESTYC, as of 2005, there were 174,406 MSMEs in fixed establishments, which accounted for 99.6 percent of total Salvadoran businesses. More importantly, these MSMEs employed 65.5 percent of the total population working in the private sector. In particular, the segment of small and medium enterprises (SMEs) is recognized as a driver of economic growth. While SMEs totaled only 15,832 and represented little more than 9 percent of businesses, they employ more than one-third of the country s workforce in the private sector and contribute nearly one-half of the GDP. From now on and for simplicity purposes, all micro, small and medium businesses will be referred to as SMEs. According to data published by the Central Reserve Bank, total Salvadoran exports reached $4,549 million in 2008, growing 14.2% from Of this, non-traditional exports accounted for 50%, maquila for 42% and traditional products (coffee, sugar, and shrimps) for 8%. The U.S. was the major export market for El Salvador accounting for 50% of total exports. Since 2000, El Salvador has been able to expand total exports by 55%. Clearly the star products have been the non-traditional (agricultural fresh products, food processed, ethylic alcohol, clothing, beverages, plastics, iron and steel, paper and carton, pharmaceuticals, petroleum derived, machinery and parts, and others) which were able to grow 135%. With the impact of the international financial crisis, Salvadoran exports were drastically affected in Total exports decreased by 17% to $3,797 million. Non-traditional exports decreased 13% to $1,991 million accounting for 52.4%, maquila decreased 39% to $1,487 million accounting for 23%, and traditional exports decreased 4.7% to $319 million accounting for about 8%. USAID has been instrumental in supporting export development in El Salvador. USAID ended implementation of its two-phased seven-year Export Promotion Program in July 2009, which significantly contributed toward enhanced SMEs competitiveness, increased export sales and the creation of more related jobs through assistance to SMEs. Through this intervention, USAID was able to work with the private sector, business associations and the GOES to strengthen Salvadoran business capacity, increase sales and jobs, and expand access to appropriate technologies. Assistance was provided to strengthen the GOES institutional export promotion capacity and its current instruments; improve access to market information and increase business contacts; analyze market trends and product requirements; improve business skills and management practices; improve plant process and production efficiencies; promote participation in trade fairs to identify opportunities as well as increase sales; increase linkages with larger companies for SMEs to be product and service providers; and increase access to innovative business practices through a technical assistance and co-financing fund. As a result, USAID was able to technically assist more than 800 small and medium firms 3, helping them to become more productive and increase export sales. Over $120 million of increased sales (new domestic and exports) were directly attributed to USAID assisted SMEs, which generated over 6,700 new jobs. Many firms were able to penetrate niches where they are well positioned to grow quickly in the future. Examples run the gamut from firms selling ethnic specialties to U.S. supermarkets (Wal-Mart, Whole Foods), medical tourism, to an architectural design firm that is creating animated digital presentations of large architectural projects for major U.S. architecture firms. In addition to USAID assistance, the GOES is also assisting SMEs to become more competitive and enter international markets. GOES areas of assistance are: access to information, facilitation of legalizations procedures, training, associative groups formation, access to credit, co-financing for export projects, quality improvement and productivity, and technological development. 2 See Central Bank s Web site with Trade Account data: 3 See attached the document The Experience of the USAID Export Promotion Program in El Salvador

3 Page 6 of 72 C.4 CHALLENGES ENCOUNTERED Nonetheless, despite the assistance received by SMEs and the diversity of instruments currently under implementation, there are still several challenges that need to be addressed to guarantee future SME growth and competitiveness. In addition, the global financial crisis has affected export growth experienced by SMEs since the year 2000, urging a revision of the effectiveness of current SME growth supporting instruments. The following are aspects that need to be considered: a) Transition from USAID direct assistance to SMEs to other GOES and private sector institutions: During the next strategy period ( ), USAID will move to a new phase of assistance to promote private sector growth. USAID will no longer directly assist SMEs and will foster a second wave of domestic sales and export growth by helping the government and private sector rationalize the current mix of institutional assistance to SMEs and exporters, and strengthen this institutional framework to broaden the level of assistance to a larger number of SMEs in the country. USAID plans to help build effective capacity in the GOES institutions and private sector organizations to guarantee sustainability in SME development. b) Restructuring of GOES instruments for assisting SMEs more effectively: The GOES has been providing assistance in areas such as access to information, facilitation of legalizations procedures, training, associative group formation, access to credit, co-financing for exports, quality improvement and productivity, and technological development. In each of these areas, the GOES developed and implemented a wide variety of SME supporting instruments that include: competitive intelligence, market information and business opportunities, business incubators, co-financing for export development (FOEX and FAT) and technological transfers, productive or value chain formation, government purchases, and others. 4 How effective are the current GOES assistance instruments for SMEs? In conversations with client SMEs, USAID has identified some constraints related to efficiency and access to these instruments. For example, several firms have expressed that the multitude of instruments available produces confusion among them. Some questions arise such as which of these instruments provides the best opportunity for export development? Should these instruments be integrated based on the target recipients (i.e. microenterprises, small firms, small and medium firms, or medium firms only)? Are these services fulfilling SME needs and priorities? What reforms are needed? How could the GOES be more efficient and respond rapidly to SME needs? What other reforms are needed to improve support for SMEs. To address this issue, the new GOES authorities are reviewing the existing supporting instruments for SMEs and are developing policies and putting new mechanisms in place to foster productive development 5 such as the new Export Development Strategy (Estrategia Integral de Fomento de las Exportaciones) and the Small Business Development Center model. c) Innovation and technological development are needed to increase SME productivity 4 More information on business and export development instruments can be found in the Ministry of Economy s publication during the previous Administration Generando Riqueza desde la Base: Políticas y Estrategias para la Competitividad Sostenible de la Mipyme. See also the current Government s Estrategia de Acompañamiento a la Micro y Pequeña Empresa at 5 See GOESdocument Estrategia Integral de Fomento de las Exportaciones en Ministerio de Economía ones&catid=100:proyectosestrategiafomentoexportaciones&itemid=146

4 Page 7 of 72 SMEs and private sector organizations have expressed the fundamental importance for SME productivity and competitiveness in El Salvador and the development of an institutional framework to promote innovation and technological development to increase SME efficiency. El Salvador needs to strengthen its capacity to compete in the knowledge economy, by enhancing the policy and institutional framework for innovation and competitiveness, improving the impact of priority innovation programs, supporting key interfaces in the innovation system, improving the quality of research by enhancing public-private research linkages, and stimulating technology transfer and the creation of new technology based enterprises. To address this challenge it is necessary to help the GOES identify actions and participants on the subject to help develop policies and programs to provide guidelines for spurring innovation and technological development in the country. Active participation of private sector organizations, academia, and international cooperation is needed as well to coordinate and support this effort. Best international practices in innovation and technological development need to be transferred to small and medium firms to become more productive and competitive in global markets. C.5 EXPECTED AREAS OF ASSISTANCE For a new trade development activity in El Salvador, USAID envisions possible assistance in four major areas. These areas are interrelated and mutually supportive. A. Helping the GOES to Restructure SME Assistance In March 2010, USAID finalized the SME Support Network Assessment 6 with interesting findings relevant to the broad network of services provided by the GOES and private sector institutions for SME development. The assessment confirms that SMEs have been able to experience an improved performance and stable employment growth over the last five years. However, business activities have been reduced and difficult during 2009 due to the financial crisis experienced but overall, SME growth and performance remained stable during the period. The assessment also confirms that there is a large and diverse menu of SME programs and implementers in El Salvador. SMEs are taking advantage of these programs and are generally pleased with the type of assistance received. However, there are notable gaps between the needs and programs currently available, especially in areas of business management, marketing, innovation/technology, and support for export development. Another interesting finding is that the SME network is highly fragmented. SME programs and instruments work independently of each other with practically no coordination. It is difficult for SMEs to know what programs are available at any given time and which are best suited for their needs. There is not a framework established for systematically monitoring and evaluating project s performance and impact, or sharing knowledge and lessons learned to avoid past mistakes. For that reason, it is also difficult for implementers to effectively tailor programs to business needs because there is limited information on previous and current programs progress, performance, and impact. USAID conducted several meetings with the two Vice Ministers of Economy and their technical teams and a common factor generally found and agreed by most of them was the fact that the assistance provided to SMEs is scattered and diffused. Therefore, it is a priority for the new government to improve the network of assistance to this sector. To do this, the GOES is developing new initiatives in a joint effort with other public sector institutions, academia, municipalities, NGOs, and the international cooperation to better coordinate and improve current standards of assistance to the sector, and broaden its outreach towards new businesses and already established SMEs in the country. 6 See attached document SME Support Network Assessment developed by USAID/El Salvador contractor Booz Allen Hamilton under the Customs and Business Environment that Promotes Trade and Investment Project.

5 Page 8 of 72 The Ministry of Economy s National Commission for Micro and Small Enterprise (CONAMYPE) Strategic Plan , defines seven priority subsectors in which assistance will be focused for SME development: 1) agro-industry and food processing, 2) textiles and clothing, 3) information technology and communications, 4) chemical pharmaceutical, 5) tourism, 6) construction, and 7) handcrafts. Strategies and plans are being designed with special attention towards these sectors to reframe the offering of services available for SMEs, helping them to become more productive and competitive in local and export markets. As a key GOES strategy to decentralize assistance, currently concentrated in San Salvador, Santa Ana and San Miguel, the plan is to expand it to the country s local regions to develop economic and productive opportunities in prioritized sectors through the creation and operation of small business development centers or Centros de Desarrollo Empresarial para la Micro y Pequeña Empresa (CDMYPES.) This initiative was designed by MINEC with the Technical Secretariat of the Presidency and the Ministry of Finance and receives full support and an operational budget from both institutions. MINEC and its institution CONAMYPE are leading this initiative, which now forms part of CONAMYPE s Strategic Plan and the target is to have seventeen centers operating around the country by year The centers will be implemented by private sector organizations such as universities, technological institutes, foundations, business associations, NGOs and MEGATECS, with MINEC support and would likely be specialized or geographically regionalized depending on the needs of SMEs in the country. In June 2010, CONAMYPE launched a competitive process whereby five organizations were selected and agreements were signed in August 2010 stating commitments, conditions, budget contributions, and other obligations from each part for the implementation of the first CDMYPES. Three universities and two local NGOs were selected for the development of the first five centers in El Salvador. These are the University of Sonsonate in the Western zone, the University Francisco Gavidia in the great metropolitan San Salvador, and the Catholic University of El Salvador in the Para Central zone. The NGOs are the Association of Municipalities of Cayahuanca in the Northern zone, and the Local Development Association ADEL Morazán in the Eastern zone. These centers will be the pilots for the whole program and their operations will be monitored and evaluated to make the necessary adjustments for the launch of twelve additional centers during the period. To develop and operate these centers, CONAMYPE is following the successful experience and methodology of the U.S. Small Business Administration s model for developing Small Business Development Centers (SBDCs. ) With USAID assistance, MINEC organized in 2010 a set of workshops with representatives of academia, municipalities, business sector organizations, private consultants and NGOs to assess the interest of these sectors and create favorable conditions to jointly invest to develop productive capacities and competitiveness for SMEs. The opinions gathered from participants were very favorable. Approximately 91% of participants found the methodology to be excellent or good. About 98.9% found that the methodology applied could be successfully adapted to El Salvador needs, confirming that SBDCs would be an excellent model for promoting an integrated, sustainable, and inclusive approach to SME development. About 93% confirmed that their institutions would be able to contribute resources (combining cash and in-kind) for the creation of the centers. Furthermore, a delegation of 25 people led by the Vice Minister of Economy and conformed by two Congressmen (diputados), the Executive Director of CONAMYPE, other high GOES officials and representatives of universities and NGOs visited the U.S. in April 2010 to get a first-hand understanding of how SBDCs programs work and assist small businesses in growing and creating jobs via their counseling and training services. 7 Estrategia de Acompañamiento a la Micro y Pequeña Empresa , CONAMYPE s Website

6 Page 9 of 72 In view of this, USAID envisions supporting the GOES and private sector efforts of developing a network of CDMYPES in El Salvador. CONAMYPE will be the main USAID counterpart for the implementation of this component. The centers would primarily help grassroots entrepreneurs to formalize and start their own business and support existing micro and small enterprises to expand operations in the local markets. Systematic training would be developed to prepare the staff and trainers of the centers to strengthen their capacity to provide adequate services to SMEs. Baseline studies and data gathering could be conducted to develop information and monitoring systems to measure progress and evaluate effectiveness and impact of services provided in the centers. Certifications or accreditation of centers would be implemented based on international standards and best practice models. Operational manuals, control mechanisms, brand image, specific layout designs, and other tools similar to a franchise operation could be developed and standardized to maintain an adequate quality and a strong image of the centers. In addition, to broaden the benefits of economic growth and job creation in El Salvador, an assessment of the productive potential that local regions have is needed nationwide. This will help identify each region s productive vocation, the links needed among communities and regions, the role and level of involvement of national and local governments and the potential investment needed in prioritized sectors and subsectors of the economy. El Salvador needs to identify its growth engines to develop and implement a long-term strategy to reach an inclusive and sustainable growth. USAID will assist CONAMYPE in mapping out potential productive activities in local regions, prioritized activities and implement technical programs and instruments needed to effectively respond to SME needs in those regions. Illustrative areas of assistance could be: 1. Determining How to Measure Results and Impact of CDMYPES in El Salvador: CONAMYPE will require assistance from the Contractor with the creation of a formula for determining the impact of CDMYPES assistance based on the Salvadoran socioeconomic context and reality. In the United States, factors that are taken into account for determining economic impact include the number of clients receiving assistance, increased sales and exports of clients assisted, total counseling hours, number of counseling sessions, hours per client, jobs created and retained, financing secured for SBDC clients, etc. In El Salvador, the Contractor will assist in developing and implementing a similar system for monitoring and evaluating results and impact as well. 2. Developing a System for Ensuring Accreditation and Quality Standards at the CDMYPES: It is important to have organizations such as the Association of Small Business Development Centers (ASBDC) in the U.S. assisting the Salvadoran centers to implement an accreditation process. It may also be desirable for the accreditation standards to comply with the U.S. standards as much as possible to ensure the quality of the assistance and to increase the prospects of harmonization of such standards as the SBDC program continues to spread throughout the Americas including the United States, Mexico, Colombia, and now El Salvador. In the United States, the ASBDC Accreditation Committee is in charge of accreditation of state and regional SBDC programs. The state and regional programs must be reaccredited every 4 years and a failure to be reaccredited will result in the loss of SBA funding. The Contractor shall assist the CDMYPES network to establish an adequate accreditation process in El Salvador with an international accreditation program complying with international quality standards and ensuring quality of assistance and services to SMEs.

7 Page 10 of Developing Standards and Procedures for CDMYPES counseling: CDMYPES in El Salvador will have to maintain high quality standards and uniformity of procedures in counseling to the greatest extent possible. The Contractor will assist CDMYPES to create minimum quality standards and ensure these standards are met at all times. It is also important that strategic planning be carried annually out by each center with the establishment of individual and network centers plans, goals and results to be achieved. 4. Selecting and Providing Adequate Information Technology and Communications (ITC) for Operating, Recording Counseling Sessions and for Tracking Impact of CDMYPES work: In the U.S., there are different software programs for operating and keeping track of SBDC counseling and training. This is important as an audit tool and allows for the determination of the economic impact of SBDC work. The Contractor shall help CDMYPES to acquire or develop these programs to effectively implement them and keep track of counseling and assistance/training services in El Salvador. This may also include other information technology and communications equipment required to implement an effective impact tracking system. 5. Developing Job Descriptions and Profiles for hiring CDMYPES Directors, Counselors and other Key Personnel and training them to improve Professional Skills: It is imperative that the quality of the SBDC network be guaranteed by ensuring that only properly qualified staff be hired. For example, centers that specialize in International Trade should be required to hire only experts with both real life and theoretical knowledge of International Trade. In addition, specialized training for certain positions that leads to a credential as well as continuing education must be required. For example in Illinois, all SBDC counselors must be trained and receive a credential as a Certified Business Specialist within a certain amount of time in order to retain their jobs. The ASBDC and some states have annual conferences where SBDC counselors of all types can earn continuing education credits. Another good example of continuing education can be seen with the International Trade Specialists who have to receive a minimum number of hours of training per year. To do so, most attend the annual North American Small Business Educators (NASBITE) conference where specialized training ranging from beginning to highly advanced is offered. NASBITE also oversees the training and the exam for Certified Global Business Professional (CGBP) designation, which is now being offered in Mexico as well. The Contractor shall assist CONAMYPE and the CDMYPES network in not only developing descriptions of job profiles for their technical personnel, but also proposing and implementing a specialized training system to ensure that personnel from the centers receive appropriate and continuing education to improve professional skills and performance. This may include among others diplomados, seminars, workshops, study tours to learn best practices of other countries with similar systems. 6. Helping CDMYPES Determine Areas for Future Specialization in El Salvador:

8 Page 11 of 72 The trend in the U.S. for small business development centers is that after being in operation for some years the centers specialize in particular areas depending on market demand, trade opportunities, macro and microeconomic trends, and other factors. For example, a CDMYPE operating in Eastern El Salvador may visualize in the medium range opportunities in transportation, logistics, or tourism and may decide to specialize in any of these areas. Another CDMYPE may consider more important to specialize in entrepreneurship and may become a business incubator. The Contractor will assist CDMYPES select and implement areas of specialization. The Contractor will present alternatives on how centers in other countries have specialized and funded expansion and help CDMYPES management prepare and implement an action plan for future growth. 7. Assisting CONAMYPE to expand SMEs activities in potential regions: The Contractor shall assist CONAMYPE to assess, identify, and prioritize potential economic activities that could be developed in local regions. Based on the findings, the Contractor will assist CONAMYPE in implementing prioritized programs tailored to the needs of each region to foster productive investment and business expansion for SMEs. These programs may be in entrepreneurship, business culture, innovation, productive/value chains and others aimed at expanding opportunities for SME growth in local regions. B. Helping the GOES to Strengthen SME Trade and Innovation Support Mechanisms The GOES is restructuring its Export Promotion Agency (EXPORTA) and the Investment Attraction Agency (PROESA) to merge and provide a more effective assistance to SMEs having more experience in the local market. This assistance will help SMEs to access or expand operations to export markets. Both institutions will now work together and complement resources and capacities under direct guidance of the Ministry of Economy to develop the country s export potential and investment attraction and expand economic and social opportunities for the Salvadoran people. PROESA/EXPORTA is planning to have a more focalized and integrated approach for providing services to more experienced SMEs. The approach envisions helping SMEs develop productive ideas and turn them into projects, create or adapt new export products using innovative processes, and focusing on high potential sectors such as food and beverages, information and communication technologies, plastics, textiles and apparel, chemicals and pharmaceuticals, and services. The Ministry of Economy is also restructuring other SME supporting instruments such as the Export Promotion Fund (FOEX/FONDEPRO), the Innovation and Technology office (INVENTA), and the Quality and Productivity Office. In addition, the U.S. and the Chilean governments signed a Memorandum of Understanding in January 2010 to assist the Government of El Salvador (GOES). Under this trilateral cooperation, El Salvador will receive assistance conducted by USAID, the Chilean International Cooperation Agency (ACCI), and the Ministry of Foreign Affairs of El Salvador. One of the priority sectors selected for assistance is Agriculture, where technical assistance will be focused on developing agriculture for exports and ag-industry development options. Illustrative areas of assistance: 1. Strengthening PROESA/EXPORTA in developing a more focalized and integrated approach for providing effective services to SMEs Most of the time, SMEs require guidance to identify trends in international markets that might become opportunities or threats. Once the opportunities are identified, SMEs need assistance to explore markets and develop a market entry strategy. This will require market analysis and segmentation to determine consumer

9 Page 12 of 72 needs and behaviors, market conditions, competition level, entry requirements and other factors. With this information, SMEs need to identify particular niches, develop new or adapt existing products and services using innovative processes, complying with technical requirements, quality standards and consumer needs of target markets, and find prospective buyers to close business deals and start exporting. In order to be successful, SMEs need to be coached through the whole export development process. This is the role that PROESA/EXPORTA needs to play as the key GOES leading institution in export development. The Contractor shall assist PROESA/EXPORTA in its effort of developing a more focalized and integrated approach for providing effective services to SMEs with potential to start exporting or to expand existing exports to new markets. 2. Strengthening the Ministry of Economy to provide streamline and more effective services to exporting SMEs The Contractor will also assist the Ministry of Economy (MINEC) to restructure some offices that may also provide services to exporters to have a more streamlined, integrated and coordinated approach with EXPORTA in providing effective export services. This may include the Export Promotion Fund (FOEX/FONDEPRO) or the Innovation and Technology office (INVENTA), depending on the needs of MINEC and availability of program resources. 3. Helping the Ministry of Agriculture to Assist Agricultural Producers and Exporters In addition, we expect the Contractor to help the Ministry of Agriculture provide services to producers and food processors to meet technical requirements and comply with international standards for accessing foreign markets, gather market data and information needed to apply market intelligence, improve food safety for export markets, apply good agricultural practices and develop other technical skills and practices to improve agricultural exports under the Trilateral U.S. - Chile - El Salvador initiative. C. Supporting Business Associations and other Private Sector Organizations to Strengthen SMEs Networking for Export Growth There are private sector organizations (PSOs), such as business associations, foundations, universities, technical institutes and large exporting firms currently working or interested to work with SMEs to help them team up and organize in associative groups, conglomerates, trading companies, supply chains, and productive or value chains. SMEs grouped under similar objectives are enabled to better take advantage of economies of scale; spread export marketing risks and costs across all members; build a larger capacity to overcome the limited offer in volume and variety; develop, produce and market products overseas; create stronger alliances to deal with foreign importers requirements; and expand operations in a more organized and sustainable way in international markets. USAID envisions establishing alliances and working with some of these PSOs in El Salvador to assess export market opportunities and link them to SMEs operating in key productive sectors. These sectors could be food and beverages, information and communication technologies, plastics, textiles and apparel, chemicals and pharmaceuticals, and services. SMEs interested in taking advantage of export market opportunities could then be organized by PSOs in sector groups to form either trading companies or follow productive chains, value chains or similar approaches working around larger exporting firms and becoming chain suppliers. The Contractor shall perform a rapid assessment to propose groups of SMEs and PSOs that will be linked and organized under any of indicated approaches to be assisted under the program. Following this methodology, the Contractor will work with PSOs to help them coordinate assistance needed by participating SMEs and/or develop productive ideas, prepare business plans to be turned into sound projects, and develop new or adapt existing products using market oriented innovative processes to build up a more diversified and attractive export offer with

10 Page 13 of 72 high-valued products/services for reaching niche markets overseas. The Contractor shall establish alliances with PSOs committed to co-share cash or in-kind resources to form and assist SME groups. This approach will also serve to strengthen PSOs methodologies to work with SMEs and ensure continuity and sustainability after the program ends. The contractor, in close coordination with PROESA/EXPORTA and the PSOs, shall identify demand from international buyers, wholesalers and exporters in target markets and help SMEs develop Salvadoran high-quality products/services that would meet the needs of these prospective international buyers. The Contractor will also organize a group of local consultants in diverse technical areas to improve their capacity, work with PSOs, and provide consulting and training services to SMEs. These consultants will be assigned to different PSOs being part of the initiative to help them coordinate SMEs participation and assistance. Particular areas of assistance may include: 3.1 Understanding the Market SMEs are often particularly poorly placed to understand the nature and complexity of the markets they serve. They fail to recognize that these markets are both segmented and dynamic, and that different market segments are characterized by different critical success factors. This is a particular problem when the markets in question are distant and serve consumers with different tastes. In terms of priorities, therefore, providing support for SMEs to enhance their capacity to hear their markets is a first-order policy imperative. 3.2 Identifying Core Competences It is not uncommon for SMEs to lack a grasp of their distinctive core competences to reach niche or high-valued markets, i.e. the capabilities that meet all of the following three conditions: they are of value to final customers; they are relatively unique; and they are difficult to copy. Without core competences, it will be difficult for Salvadoran SMEs to participate effectively in global product markets. If the required core competences do not exist, then the firm has to have the capacity to develop them. 3.3 Defining an Appropriate Business Strategy An effective business strategy comes from an alignment of market opportunities and core competences. If the two do not match, there is little scope for sustained penetration of external markets. In many cases, either SMEs have no explicit strategy, or it is one, which the existing and potential portfolio of competences does not support. 3.4 Defining a Product Strategy The dynamic nature of most final markets requires a capability to upgrade the products offered. In some cases the modifications may be so minor that they are well within the existing grasp of SMEs, but more often they require new skills. Innovation and new product development will thus be important parts of the export agenda for SMEs. 3.5 Defining a Manufacturing Strategy Even if an SME is aware of what it needs to produce, sometimes lacks the capability to manufacture this with the appropriate flexibility and quality, and at the required price. This may involve a change in internal quality and logistics procedures, new forms of layout, and/or the acquisition of new equipment. In other cases if

11 Page 14 of 72 resources are limited for investment, firms may set up strategic alliances among similar producers to build appropriate capacity or develop contract-manufacturing schemes to outsource production from larger firms 3.6 Implementing Change to Improve Productivity and Competitiveness SMEs may gather and design in their groups different intelligent strategies for improving business, product, or manufacturing. However, implementation is a different story, and this is a challenge, which requires heavy investments in people and in the development of trust relations, processes of continuous improvement and changes in organizational structures. Participating SMEs need to understand and trust in each other, be able to negotiate jointly and have clear communication among them to develop strong productive alliances with local suppliers and foreign buyers. Assistance in this area will enable SMEs to strengthen the links with each other work and implementing joint strategies for achieving competitiveness and sustainability. In addition to the Expected Areas of Assistance indicated in Section XI and sub-sections A, B and C, the Contractor, in close coordination with the USAID/Economic Growth Office, will search potential GOES and private sector organizations interested in developing and hosting an awareness and communication system/network to promote SMEs understanding of market trends and product demands in the US, European, Asian, Latin American and other regions. The system/network will be used to disseminate information on trade opportunities, market research results, studies and other relevant data and documentation needed to promote and increase trade flows between Salvadoran businesses and foreign buyers. The Contractor should propose to USAID options for a sustainable long-term solution for the hosting of this network beyond the life of the project. C.6 OTHER KEY CONSIDERATIONS FOR IMPLEMENTING USAID ASSISTANCE A. Coordination and Linkages with other USAID Projects USAID is or will soon start implementing projects aimed at expanding economic opportunities in the country by having more competitive and market oriented firms and increasing employment for Salvadorans. The USAID Improving Access to Employment Project is already in full operation by contractor CARANA Corp. implementing innovative informational systems to produce and disseminate useful information on labor market needs, trends, and supply and demand. In addition, trainers will be provided with knowledge, skills and teaching methodologies needed to train young and adult people in skills demanded. This will help more people integrate into the labor and productive market. USAID is also preparing young people at risk to acquire the necessary vocational and life skills to secure a decent employment or engage in productive activities through the Employment Creation for Economic Recovery Project with the Catholic Relief Service (CRS), which is hoped to indirectly mitigate the problem of crime and violence. The USAID Municipal Competitiveness Project also started implementation by contractor Research Triangle Institute (RTI) to help a group of Municipalities improve services to local businesses and potential investors. The project will contribute to improve the business-enabling environment to attract private sector investment in productive activities and expand economic opportunities and jobs in local regions. USAID also anticipates implementation next year of a Financial Sector activity to help update and modernize regulation and supervision of non-bank financial intermediaries and help them create adequate products and services for micro and small enterprises. Improving economic opportunities for the Salvadoran people through SME development and job creation are key results that USAID will achieve through these projects. Therefore, it is of crucial importance that the Contractor establishes strong links and effective coordination with all USAID projects to maximize results, avoid duplication of efforts, and looking for synergistic opportunities. Through these projects, SMEs will be able to expand their business opportunities and Salvadorans will be able to access better job opportunities.

12 Page 15 of 72 B. Supporting Women s Entrepreneurship Women s entrepreneurship and the critical role of women in the household economy are areas of increasing recognition in Latin American countries. Governments and international organizations alike are coming to realize that fostering women s economic development through enterprise creation can have a positive impact in a number of areas. In El Salvador, 80% of women s jobs are created in enterprises that are owned by women according to the International Labor Organization. Women s entrepreneurship enhances economic growth and provides employment opportunities for the business owners and their workers. In addition, providing economic opportunities for women can also improve the social, educational and health status of women and their families. In El Salvador, women-led businesses play an important role in the country s economic and social development as the income they generate provides food, education and healthcare for their families. However, few programs exist to provide these women the entrepreneurial training or mentoring required ensuring their success. While international trade agreements, such as CAFTA-DR, provide opportunities to increase exports, expand investment, and diversify products and services, women entrepreneurs lack the skills and information in order to fully take advantage of these opportunities. During implementation of the USAID Export Promotion Program, which ended in 2009, women had limited participation in SMEs assisted. Around 37% of SMEs had female decision makers in top management positions (owners or general managers) and 75% had women on their board of directors. In addition, around 53% of the jobs created in SMEs assisted were female, a trend consistent during the life of the activity. For this new USAID program, the Contractor shall ensure that women have broader opportunities to participate in this initiative, receiving technical assistance and training to start, improve, or expand their businesses and take advantage of the opportunities provided by global trade. The contractor shall look for opportunities to coordinate, leverage other resources, and work with foundations and/or NGOs to further support womenfocused benefits in El Salvador. C. Gender and Disability Issues: Given the critical role of women in development, it is essential that the organization demonstrate knowledge and capacity to address gender-based constraints. Based on the different needs and roles of men and women (boys/girls), strategies for addressing these needs and for ensuring women s full participation in all proposed activities must be part of the methodology/proposed approach. In addition, to explicitly addressing women s needs and participation the proposed methodology/approach shall also address: 1) How will the different roles and status of women and men within the community, political sphere, workplace, and household (for example, roles in decision-making and different access to and control over resources and services) affect the work to be undertaken? 2) How will the anticipated results of the work affect women and men differently? Furthermore, the program strategy shall demonstrate how activities will be monitored, tracked, and evaluated to measure the impact on women and on gender relations. All people-level results and indicators must be disaggregated by sex. The offeror should also discuss activity disability issues, if any, in the background/problem analysis section in the proposal that they will submit to USAID. In addition, as part of the program description, the offeror should describe how a climate of nondiscrimination against people with disabilities will be fostered, and how the inclusion of people with disabilities under the activity will be considered and accommodated, as appropriate.

13 Page 16 of 72 C.7 EXPECTED RESULTS Through this trade development initiative, USAID will be able to ensure that: 1) MINEC, MAG and other public institutions and private sector organizations improve their capacity to provide higher quality and coordinated export assistance to SMEs, adding sustainability to the process after the program ends. 2) Coordination becomes an essential part of the process and prevails among public and private sector organizations working with SMEs. 3) Additional resources are leveraged by private sector organizations committed to participating in this effort through the formation and operation of more efficient business groups, export conglomerates, value chains or any other form of business networking. In addition, USAID will be able to improve exports of local high-valued product and services, contributing to a healthier and growing economy that creates more employment in the country, better income opportunities for the people and better operating conditions for SMEs in global markets. The selected contractor must include in the proposal benchmarks or milestones and targets that show progress towards achieving results and demonstrate how they will be achieved in the different areas of assistance. USAID has defined the following results and key indicators to measure implementing performance under this contract: 1) Ministry of Economy with a better and effective network of seventeen CDMYPES established, assisted by the contractor and internationally accredited to provide effective high quality services to small and medium firms 2) No less than 3,500 small firms receiving trade capacity assistance from CDMYPES with contractor s support 3) No less than 400 additional small and medium firms receiving trade capacity assistance from EXPORTA, Ministry of Economy, Ministry of Agriculture and Private Sector Organizations to increase export sales as a result of this contract. 4) Domestic sales and exports from small and medium firms assisted by the CDMYPES, EXPORTA, Ministry of Economy, Ministry of Agriculture and Private Sector Organizations, increased by $90 million through the life of the program. By increased sales and exports, it should be understood as additional sales and exports generated by firms that can be attributed to the assistance received from the Contractor. 5) 4,000 new jobs (disaggregated by gender) created by participating firms from business growth attributed to the assistance received from the Contractor. 6) No less than 5,000 entrepreneurs, private sector organization representatives, and government officials (disaggregated by gender) trained in business and export management topics. 7) No less than 50 consultants and other capacity building service providers (disaggregated by gender) trained by the Contractor to work in CDMYPES, private sector organizations or government entities participating in the project. 8) No less than 5 private sector organizations working with SMEs in networks (forming trading companies, clusters, or value chains) assisted by the Contractor to take advantage of trade opportunities in global markets.

14 Page 17 of 72 9) An information system in operation with local partner and sustainability plan to disseminate trade opportunities, market research results, studies and other data and documentation produced in the program to promote and increase trade flows between Salvadoran businesses and foreign buyers. C.8 PERSONNEL The contractor will have ultimate responsibility for managing the contract and achieving results, thus will determine the appropriate staffing pattern and assemble a team with the required knowledge and experience in the components mentioned in section VI. The team may be a combination of an expatriate with strong Spanish capabilities and local permanent staff. To complement or develop part of the overall work, short-term consultants, local and/or international, may be contracted for the necessary period needed. The structure of the team and an organizational chart shall be included in the proposal with the name, position, and resumes of proposed personnel. The contractor shall identify personnel considered as key. Illustratively, the following key positions are anticipated: Chief of Party/Team Leader: The Chief of Party (COP)/Senior Trade Specialist will be responsible for: a) providing the vision and overall leadership to the team; b) managing the Contractor s technical and business assistance; c) implementing activities with a total business oriented philosophy, d) making the necessary business links among the projects participating institutions; e) developing strategic alliances for SMEs; f) ensuring effective coordination with other USAID projects; g) preparing and submitting reports requested by USAID; and h) coordinating USAID assistance with key GOES counterparts. The COP should have a Master s Degree in International Trade, Economics, Business Administration or Trade and Investment related areas. Fifteen years of relevant prior experience as team leader of trade and investment development or competitiveness exercises in countries similar to El Salvador, past experience in private sector development in this region, substantive background in at least one of the relevant industry proposed cluster or value chain areas, excellent skills in intercultural communication, and proven experiences in facilitating dialogue among high level leaders. The assignment will require the COP to work in close coordination with other donors, government institutions, and private sector organizations. Required proficiency in Spanish/English (FSI levels 4-5.) Deputy Chief of Party (DCOP): Responsible with the COP to prepare the Annual Work Plans for project implementation and monitor progress towards established goals. Will supervise and coach long- and short-term consultants to advance their work. Will also be responsible for monitoring and reporting results achieved, indicators and other data needed. The DCOP should possess a Master s Degree from an accredited university in business administration, marketing, finance, international trade or economics is required. Preferably 10 years of relevant experience in international business, especially in a developing country environment; prior experience working in private business and economic development projects highly desirable. Ability to analyze competitiveness in exports and investment mobilization, including both private investment and quality of public investment in infrastructure and other areas related to competitiveness, prior experience with competitiveness assessments, monitoring, and evaluation of donor funded projects. Required proficiency in Spanish/English (FSI levels 4-5.) Trade/Investment Specialists: Responsible for providing technical assistance to partner institutions and beneficiary firms in regard to SME development and trade activities. Develop scopes of work for the short-term technical assistance based on needs identified in the Annual Work Plan. Promote the program among prospective participants and coordinate their selection. Design action plans for participating SMEs. Monitor progress towards goals and expected results.