Forward linkages and well being of outsourcee microenterprise households in Peru

This report focuses primarily on the ME households that reported outsourcing relationships with medium and large enterprises (LEs). The information on households before and after entering into outsourcing relationships with LEs is used to examine the association between outsourcing and household well-being. In addition, preliminary results are also provided comparing well-being indicators between MEs in the sample that are engaged in outsourcing relationships with LEs (treatment group) and those MEs that are not currently in outsourcing relationships with LEs (comparison group). The importance of linkages into higher-level value chains for increasing ME incomes and business investments is underscored. The majority of outsourcee MEs respond that the current outsourcing relationships with LEs produce positive effects, and that they would be worse off without them. It is noted that if current LE clients were not available, they would search for linkages with other higher-level clients in the value chain. A considerable percentage of MEs, after linking with LEs, invest in business improvements. However, consumption of household goods and dwelling improvements are not found to be affected by the outsourcee relationships with LEs. The results tend to hold both when results are compared for the outsourcee MEs before and after outsourcing relationships, and when compared with non-outsourcee MEs. Outsourcee ME firms purchase fewer consumer items and make fewer dwelling improvements after the linkages (compared to before linkages), and also compared to non-outsourcee ME firms. In sum, the analyses indicate that outsourcing relationships boost ME sales, household income and business improvements. However, the increase in income may not translate into other measures of improved household well-being such as the purchase of consumer durables and dwelling improvements. The research above helps identify some effects of outsourcing on MEs households. In the future, however, a thorough examination of the effects of outsourcing relationships with LEs on MEs is essential to draw clear policy and programming conclusions. The analyses, using a larger sample for each category, could focus primarily on the following: (i) analysis across agricultural and non-agricultural sectors, (ii) the incorporation of household characteristics, and (iii) analysis of the poverty status of outsourcee and non-outsourcee households using a poverty assessment tool tailored to the information available in the survey such that new survey is not essential to capture information required by the existing poverty assessment tool for Peru.