COLLABORATING TO COMPETE –THE VALUE OF TRUST AND INTER-FIRM COOPERATION

Ruth Campbell, ACDI/VOCARob Henning, OTF Group September 4, 2008

INTER-FIRM RELATIONSHIPS IN THE CONTEXT OF

VALUE CHAINS

Global Enabling Environment

National Enabling Environment

Financial (cross cutting)

Input Suppliers

Sector specific providers

Cross-cutting providers

Producers

WholesalersExporters

National Retailers

Processors/Traders

Global Retailers

Processors/Traders

Global Retailers

National Retailers

Input Suppliers

Producers

WholesalersExporters

Financial (cross cutting)

Sector specific providers

Cross-cutting providers

Producers

THE USAID VALUE CHAIN FRAMEWORK

4

WHY INTER-FIRM RELATIONSHIPS MATTER

Enable firms to respond to market demand– aggregate product

– achieve economies of scale

– address shared constraints

– marketing, lobbying

Facilitate transfer of information, skills and services– buyers

– suppliers

– peers COOPERATION

5

WHY INTER-FIRM RELATIONSHIPS MATTER

Enable firms to respond to market demand– aggregate product

– achieve economies of scale

– address shared constraints

– marketing, lobbying

Facilitate transfer of information, skills and services– buyers

– suppliers

– peers COMPETITION

6

WHY INTER-FIRM RELATIONSHIPS MATTER

Provide incentives for upgrading:– increase price-efficiency

– improve quality

– introduce innovation

COMPETITION

7

WHY INTER-FIRM RELATIONSHIPS MATTER

Too little cooperation:– Industry unable to grow

– Dominated by integrated firms

Too little competition:– Non-responsive to customers

– Lose market share

ASSESSING VALUE CHAIN RELATIONSHIPS AND ATTITUDES

LOW PRICES LEAD TO LOW WAGES

Context: Burundi Coffee Communications Campaign

• OTF Group hired to design a communications campaign to support the reform of coffee industry.

• Burundi’s coffee sells at a steep discount to next door Rwanda

• A key constraint to competitiveness: lack of cooperation and common vision among stakeholders.

4 MENTAL MODELS SEGMENTS

• Comparative Advantage: – short-term focus, government economic leadership, and reliance on

natural endowments.

• Competitive Advantage: – long-term focus, private sector leads the economy, free market

creates prosperity.

• Cautious Followers: – long-term focus, but government leads the economy.

• Need Change Now: – short-term focus, private sector leads the economy.

SEGMENTATION OF ATTITUDES AND BELIEFS

Source: OTF Group Survey of Burundi’s Coffee Value Chain, May & June 2007, n=262.

Coffee Growers

Association Members

Washing Stations

Coffee Board

Exporters

Others

Need for Change

Urgent

Not Urgent

-4

-3

-2

-1

0

1

2

3

4

-5 -4 -3 -2 -1 0 1 2 3 4 5

= 20% of respondents

Competitive AdvantageComparative

Advantage Cautious Followers

Source of AdvantageComparative Competitive

Need Change Now

THE 4 FACES OF BURUNDI’S COFFEE SECTOR

Ludoviko, Coffee Grower

Comparative Advantage

« I want the government to stay involved in the sector because I don’t think the private sector will help us…»

Salvator, Coffee Board

Cautious Follower

« Liberalization and privatization will be a good thing for the country, but we should go slowly … »

Fidélité, Washing Station

Need Change Now

« OCIBU (the coffee board) needs to get out of the coffee business. It is making the entire sector inefficient. »

Frédérique, Private Investor

Competitive Advantage

« Everyone will win with the reform of the sector. Private investors can’t win in the specialty market with sharing revenues with the producers… »

COMMUNICATIONS STRATEGY OBJECTIVES

• Create a common vision – of a competitive Burundian coffee sector.

• Promote cooperation vertically – coffee growers, washing stations, exporters

• Reinforce horizontal competition – to encourage innovation and continuous quality

improvements.

COMMUNICATIONS STRATEGY – COFFEE GROWERS

Pu

shP

ull

Positive Attitudes Constraints

Quality begins with you and leads to

higher prices.

Regulation by the government will

ensure everyone’s best interests.

The private sector cannot win without a

partnership with coffee growers.

Key Messages

Liberalization is effective and

privatization is certain.

TRANSFORMING VALUE CHAIN

RELATIONSHIPS

INCREASING COOPERATION

• Support transparency – transparent pricing

– explicit contracts

– objective quality standards

INCREASING COOPERATION

• Support transparency

• Reduce risk– guarantees

– risk-sharing mechanisms

– create a “safe space”

INCREASING COOPERATION

• Support transparency

• Reduce risk

• Identify quick wins

INCREASING COMPETITION

• Encourage non price-based competition

INCREASING COMPETITION

• Encourage non price-based competition

• Strengthen multiple relationships – among MSEs

– between MSEs and input suppliers or service providers

– between MSEs and multiple buyers

INCREASING COMPETITION

• Encourage non price-based competition

• Strengthen multiple relationships

• Make MSEs attractive– development of associations

– product improvement

– branding

– alternative financing

22

COOPERATION AND COMPETITION

Sufficient cooperation:– Industry able to grow

– MSEs able to contribute and benefit

Sufficient competition:– Responsive to consumer demand

– Innovate to increase market share

Inter-firm Relationships: Why they matter and how we can analyze and transform them

COMMENTS?QUESTIONS?

www.microlinks.org/breakfast