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 Producers Traders Another typical value chain: Garments from Santa Catarina Sewing Cotton Spinning Commissioning Export Weaving 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 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 perspective Value-chain perspective == Value chain perspective Functional Perspective customer-driven perspective Interaction between Cluster companies Cluster perspective Territorial Specialisation between = perspective companies focus of often Territorial is action plans supply-driven Learning by interacting perspective perspective Upgrading by interacting and specialising Functional focus of action plans How is value chain promotion connected to local economic development? 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 chain – 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 is – 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, furniture) – 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 capital access to national and international markets possibly assistance by customer to solve problems – consistent quality – compliance with standards 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 opportunities Value chain collaboration and innovation 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 Infrastructure A simple value chain mapping: The textile and garments industry industry Chemical inputs Labels Buttons (Technology) Packaging material Cotton Spinning Weaving Benefiting Man- Dyeing Sewing Distri- made Cus- bution fibres tomer Capital goods (Technology) Training Product/Process Consultants 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 Producers Inputs Training providers Design Production Colorifícios Techn. ass. Design Stock institutes Distribution Design Wholesalers studios Logistics Construction Specialized Home firms shops Centers Tilers Different types of mapping: Examples from the tourism industry (Source: Heike Glatzel, Futour, Marketing for Quality, 2003) ... the tourist’s perspective Pre visit Pre visit Making Journey to image/ information bookings destination messages Information Places to Places to Initial in eat stay welcome destination Attractions Infrastructure Farewell After visit and and and return contact and amenities environment journey memories ... the functional perspective ... the local value added perspective Analytical mapping Scotland’s Food & Upgrading & Innovative Research Institutes No presence Drink Chain Institutions e.g SABRIs Universities Training Providers Weak Medium 1999 Imported Commodities/ Raw Materials Colleges Strong Key driver Fish Rendering/ Farming Basic By Products Customers Processing Food Value Added Brokers Fishing Fish Fish Processing Multiple Industry Markets Retailers Prepared Meats & Fish Breeding Meal Co’s Poultry Solutions Discounters Gourmet End Users Foods Auction Red Independent/ Farmers Abattoirs Meat Speciality Marts Snacks Consumers UK Retailers Bakery & Distributors Confectionary Dairy Food Feed Service Non-Alcoholic Drinks Further Specialist Vegetables Processing Beer Outwith Growers In Mkt Scotland Whisky Agents/ Distrib’s 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 chain 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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