By Samuel Chan
Lots of orders, not enough people
We gasped as we stepped off the tricycle. My partner, Tessa, and I never expected our woven mat co-operative to be located in an upscale mansion. Founded in July 2015 as a spin-off from the local Mormon church, we were impressed to hear Jagna Relief Society (JRS) Livelihood had a workforce of 29 – at least until chairperson Rebecca Tokong, who is also my host mother, said that only three people show up on a typical day. And the worksite? It’s actually the home of Luz Ranara, a fellow churchgoer who provided the initial startup capital and now serves as JRS’ auditor.
Sitting in the bank with Tessa that day, we had a eureka moment when talking about ways JRS could boost its sales. We decided to look into the feasibility of selling the woven mats online and targeting overseas markets. But before that, we were curious to know how much they earned locally.
Luz and Rebecca both mentioned they only sell in Jagna through select retailers, with items ranging from 1 peso (HK$0.16) for a surface cleaning rug to 30 pesos (HK$5) for a medium-sized doormat. The prices are a steal – at least by Hong Kong standards – and so we decided to set off for the Jagna Public Market to conduct a survey with samples in hand.
Surprisingly, many respondents valued the products at more or less the same price as the existing selling price, although we suspect this may have been due to the anchoring effect (familiarity with price point). Nonetheless, we received feedback on ways we could enhance its appeal. Nearly all of our 15 respondents thought it would be a good idea to offer customised doormats with letterings such as their names or text such as “Welcome” and “God Bless You.” But the only hitch is purely technical – Rebecca and the team are not sure how to stitch words in. They’re currently experimenting with the process, and for a good reason too. In our survey, respondents said they were willing to pay a 25-50% premium. The weaving is already highly manual, and this incremental change would add considerable value it would appear.
With this in mind, we started analysing the cost structure and realised their margins were tiny. For a 20 peso small doormat, 9.5 went into raw material, 7 into labour and 2 into offsite cloth cutting. Upon cross-checking with other students, we also recognised that members were poorly remunerated even for the Philippines. The highest earning individuals made about 600 pesos for working 15 days a month, or about 40 pesos per day on a piece rate basis. Yikes.
It is frustrating because their issues are a vicious cycle: Low margins mean they cannot offer workers competitive pay, and in turn that means difficulty in attracting workers and finally, insufficient workers leads to unfulfilled orders. So why not raise the price? Apparently there is a price ceiling, but we are trying to get that sorted out. It’s indeed a classic example of the trap I read about in Poor Economics.
We’re still evaluating whether or not the existing business model works if JRS continues to sell locally. Who knows, perhaps higher paid workers would lead to greater productivity? In the meantime, we’ve been busy working to file an application for accreditation by the local municipality, which would make JRS eligible to receive a grant up to 500,000 pesos from the Department of Labour and Employment. It is quite an effort having to make everything from bylaws and resolutions to an annual financial report – way too much red tape for a small business like this in my opinion.
On the sidelines, we’re also researching the logistics if JRS were to launch an e-commerce platform. Payment and shipment are difficult in this country, let alone the fact that we’re in a less developed town. Beau mentioned the possibility of connecting us to the Mormon network in countries like the US, where we could potentially position JRS as a handwoven mat co-op benefiting less privileged believers, and hopefully that would work out. As an added plus, this target segment would presumably be more understanding with any bumps in the process. All the content, which include photos uploaded to this post, is already on standby.
For one thing, I’m glad I have Tessa, who studies accounting and finance, as my business partner. I definitely would not have been able to handle all the calculations on my own as a journalism and marketing major, and so far I have been primarily responsible for the qualitative aspects. Luz mentioned that if not for us they would be lost in the process, which made us feel good about the work we’re doing.
Next week, we plan to meet with the remaining JRS members to share our findings (fingers crossed they’ll show up), especially finances. Luz thinks it will be good to make the whole business more transparent and to demonstrate that despite the small profits, it’s all going back to the members. Hopefully that will motivate them to contribute more.
Update: Check out our newly launched Facebook page at fb.com/jrsjagna.