Analyzing and Promoting Value Chains by dfhdhdhdhjr


									Analyzing and Promoting
Value Chains

                 Jörg Meyer-Stamer
What is a value chain?

  The entire sequence of economic activities from the
   generation of raw materials to the delivery of a final
   product to a customer
  Within a given location, there is rarely more than a
   few elements of a value chain
  Value chains span locations, and are often organized
   at the global level.
The example of the Sri Lankan
cinnamon value chain

          Customers              Exporters

Another typical value chain:
Garments from Santa Catarina


                         Cotton     Spinning



What is the difference between
LED, cluster development and
value chain development?
  LED and Cluster: There is none!
    – Cluster development is a selective approach to
  LED and VC development:
    – LED and cluster promotion involve VC
      development at the local level
    – the VC perspective takes us out of the local
      perspective = addresses the linkage between the
      local economy and the larger economy
The Cluster and the Value Chain
                   Value-chain perspective ==
                    Value chain perspective
                    Functional Perspective

                     Interaction between
  Cluster                companies
  perspective                                   Territorial
                   Specialisation between
  = perspective           companies
                                                focus of
  Territorial is                                action plans
   supply-driven    Learning by interacting
     perspective   Upgrading by interacting
                       and specialising

                       Functional focus of
                          action plans
How is value chain promotion
connected to local economic
  LED needs to be informed by the value chain perspective
    – how are local producers connected to their market?
  A series of LED efforts / LOCA exercises in different
   locations in one region often leads naturally to value
   chain promotion
    – producers in various locations suffer from the same
      problems in terms of market access
       • e.g. spice producers in Central Province
    – complementary activities in the same value chain are
      present in different locations in the same region
       • e.g. tourism: regional VC initiative to package
          attractive product
Structure of the presentation:

  Why address value chains?
  How to understand value chains?
  How to promote value chains?
Why address value chains?
Why address value chains?

 If we try to promote specific companies, we may find
  that their competitiveness is compromised by
  inefficiency elsewhere in the value chain
 The effectiveness of business promotion activities
  may be dependent on the collaboration of powerful
  actors in the value chain
 The value chain perspective introduces a strong final
  customer-focus all along the chain
   – how do you move a chain?
 Organizing collaboration along the value chain may
  give rise to innovation
 Value chain promotion is a problem-driven approach
  to business development.
Isolated inefficiency
compromising the whole value
chain: The stupid cow syndrome
  Competitiveness of leatherware
   producers compromised by low
   quality of leather
  Tanneries complain about the low
   quality preparation of hides
  Slaughterhouses complain about the
   quality of cattle
  Cattle farmers blame the cows’ habit
   to scratch, and hurt, themselves at
   barbed wire.
Relevance of actors for value
chain, and vice versa
  It is not rare to find that a given actor is very relevant
   for the value chain, but that the value chain is not
   important for that actor
  Example: Slaughterhouses and the leather value
    – quality of hides is crucial for competitiveness for
        tanneries and leather product manufacturers
    – sale of hides typically represents 5 - 10 % of
        income of slaughterhouses
    – it is difficult to raise the slaughterhouses’ interest
        in quality of hides.
The final customer-focus

   Companies in a value chain look at and deal with their
    direct suppliers and customers
   They do not necessarily know who the final customer
     – which type of wholesale/retail company?
     – which type/segment of consumer?
   They do not necessarily know what the final customer
    wants, and they do not care
   Improved communication and collaboration along the
    value chain may lead to a better understanding of the
    final customer and to a better quality product.
Powerful actors in the value chain

  A value chain may be dominated by
    – foreign buyers (e.g. ceramics, garments, footwear,
    – big national retail chains
    – big industrial corporations (e.g. car industry,
      electronics industry)
  Dominating players
    – often organize support for their suppliers
    – like to keep suppliers dependent
    – don’t like suppliers to organize themselves, and
      possible to desert to another customer.
The SME perspective:
Trade-offs involved in value chain
 Advantages:                    Disadvantages:
  stable relationship to        dependency on customer
   customer                      constant pressure by
    – justifies investment         customer to reduce price
    – facilitates access to
  access to national and
   international markets
  possibly assistance by
   customer to solve problems
    – consistent quality
    – compliance with
The SME perspective:
Trade-offs involved in value chain
development initiative
 Advantages:                  Disadvantages:
  resolution of problems      possibly souring relationship
   outside the reach of          to company that governs the
   individual company            value chain
  creation of new business
Value chain collaboration and
  Closer collaboration among companies along the
   value chain, or from different points in the value chain
   may give rise to innovative products
  Example: Textile industry initiative in NRW --
   innovative products based on collaboration with
    – medical products producers
    – construction materials producers
    – car manufacturers.
How to understand value chains
Simple mapping

 Try to depict the overall structure of a value chain by
  looking at
   – the sequence of main producers
   – the supporting industries and services
   – the supporting institutions
   – the distribution channels.
Descriptive cluster and value
chain mapping

                         Upgrading institutions
                        (university, research ...)

     Suppliers                  Core:
                                                     Customer of product
    Related and              Main value
                                                          or service
supporting industries    generating industries

A simple value chain mapping:
The textile and garments industry
                               Chemical inputs
                                                        Labels   Buttons
Man-                                         Dyeing
                                                        Sewing    Distri-
made                                                                            Cus-
fibres                                                                         tomer

               Capital goods

                                       Training       Product/Process
                                      institutions      Certification
                                                              Test laboratory

                       Clay              Mining
                     suppliers                                      Subcontractors

                                         Atomi-                  Capital Goods
                     Atomizers           zation    Machines       Producers
                                                   New prod.      Packaging Presses
  R+D                                                                       Printing
institutes               Ceramic Tile              Techn. ass.    Transfer
                                                                  Inspection Kiln
providers                                          Design
                             Production                            Colorifícios
                                                  Techn. ass.
 Design                          Stock
                 Wholesalers                                       studios

      Construction        Specialized          Home
         firms              shops             Centers

Different types of mapping:
Examples from the tourism
(Source: Heike Glatzel, Futour,
Marketing for Quality, 2003)                    ... the tourist’s

    Pre visit
                    Pre visit       Making          Journey to
                  information      bookings         destination

    Places to      Places to                          Initial
       eat           stay                            welcome

   Attractions   Infrastructure    Farewell         After visit
       and            and         and return       contact and
   amenities      environment      journey          memories
... the functional
... the local
value added
Analytical mapping
Scotland’s Food &                                                       Upgrading &
                                                                         Innovative Research Institutes                             No presence
Drink Chain                                                             Institutions   e.g SABRIs
                                                                                       Universities Training Providers
1999                                                      Imported Commodities/
                                                              Raw Materials
                                                                                            Colleges                                Strong
                                                                                                                                    Key driver
             Fish                                                   Rendering/
             Farming                           Basic                By Products
                                            Processing                                       Food
                                                                   Value Added               Brokers
             Fishing         Fish             Fish
                                                                    Processing                                       Multiple
             Industry        Markets                                                                                 Retailers
                                                                    Meats & Fish
Breeding                                                             Meal
Co’s                                          Poultry                Solutions                                       Discounters
                                                                     Gourmet                                                             End Users
              Auction                         Red                                                                    Independent/
  Farmers                    Abattoirs        Meat                                                                   Speciality
              Marts                                                  Snacks                                                              Consumers
                                                                                                UK                   Retailers
                                                                    Bakery &               Distributors
                                              Dairy                                                                  Food
Feed                                                                                                                 Service
                        Specialist           Vegetables                                                              Processing
                                                                     Beer                                            Outwith
                                                                                              In Mkt                 Scotland
                                                                     Whisky                   Agents/
                                             Cereals                                                                 Overseas
       Critical linkage - strong                                    Value Added                                      Markets
       Critical linkage - medium                                    Components
       Critical linkage - weak                                          Infrastructure/services

Equipment                   Transport and                         Marketing/           Market             Industry          Specialist      QA and
Suppliers    Packaging                         Legislation         Design           Intelligence           Bodies          Consultants
                             Distribution                                                                                                 Food Safety
Differentiated mapping: Looking
at different aspects of a value
                 Technical Function          Organization

 Materials      Technical sequence      Organizations involved
   flow        of production process    in production process

 Knowledge    Sources and destinations Organizations generating
    flow           of knowledge         and using knowledge

 Monetary                               Monetary flows among
               Financial instruments
   flow                                    organizations

   Power                                Organizations exerting
  structure                              power in the chain
How to promote value chains
Sequence of activities in value
chain promotion

   Understand the basic features of the value chain:
     – what is the geographical reach?
     – who are the main players?
        • souces of information:
            –   local businesses
            –   locally available research reports
            –   Internet
            –   buyers / wholesale traders
            –   export agents / foreign buyers
        • do not spend more than a few days:
            – interview key informants
            – mine information on the Internet
Sequence of activities in value
chain promotion

   Ask yourself: Can we reach a sufficient number of
    companies at different stages of the value chain?
     – Are they in your geographical reach?
     – Is there something you have to offer to them?
         • facilitation of self-help / collective action
         • facilitation of interaction with other players in the
           value chain
Sequence of activities in value
chain promotion
  Ask: Are there powerful players
    – who may object to your initiative?
    – who may get involved in your initiative?
        engage with powerful players
        get top-level buy-in for value chain initiative
        address buyers: what is their main headache
         when they interact with a given value chain?
Sequence of activities in value
chain promotion

   Get companies and other organizations from different
    stages of the value chain together
     – Conduct a participatory mapping or present +
       discuss a prepared mapping
     – Facilitate discussion to identify key bottlenecks in
       the value chain
     – Facilitate discussion to identify possible remedies:
         • within certain stages
         • between stages
         • along various stages.
Sequence of activities in value
chain promotion

   Agree with companies and organizations involved in
    the value chain on
     – priority goals
     – priority measures (3 PACA criteria)
     – division of responsibilities
     – how to do monitoring & evaluation
   Go into implementation cycle:
     – planning, implementing, evaluating, re-design
     – use Compass of Competitiveness for M+E.
Thank you for your attention!

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