Value Chain - Economic Growth and Poverty Reduction

8/10/2019 Value Chain - Economic Growth and Poverty Reduction

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Value Chain Approach:

An Industry-Based Approach to Economic Growth with

Poverty Reduction

Value Chain Analysis: What it is, Why we do it, How we use it

World VisionWashinton! "#C#

$ay %&th! %&&'

(teve $cCarthy

AC"I)V*CA


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*VERVIEW

Value Chain (election Value Chain Analysis

CompetitivenessStrategy (ta+eholder Wor+shop ImplementationAction Plan: Whowill do it?; Howto do it?

ValueCha

in

(election

ValueCha

in

Analysis

Competitiveness

(tratey

(ta+ehold

er

Wor+sho

p

Implementation

ActionPla

n


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Goal o, the wor+shop

To understand value chain methodology andterminology, and how it can be used to identiy andcreate o!!ortunities or economic growth to drive!overty reduction

"e will use the value chain a!!roach, to understandtrends in global and national mar#ets and conditionsunder which micro and small enter!rises $%S&s' can

contribute to and beneitrom the increasedcom!etitiveness that globali(ation brings)


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*.ectives *, /he Value Chain Approach

Improve the rowth potential o, VCswith largenumbers o small irms

Enhance small ,irm contriutionsto VC growth

&nsure small irmsene,its


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/he Value Chain Approach0#

*in#s theoretical understanding o how economies wor#with !ractical a!!roaches to ma#ing them wor# better

+norms donorunded economic growth activities A-.

!rivate sector investment

Allows sta#eholders to drive the !rocess


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1inancial 2cross

cuttin3

(ector speci,ic

providers

Cross-cuttin

providers

W4A/ I( A VA56E C4AI78

Producers

/

Producers

E9porters

7ational

Retailers

Wholesalers

Processors

Gloal

Retailers

Input (uppliers

0ull range o activities that are

re1uired to bring a !roduct orservice rom its conce!tion to itsend use, including all the mar#etchannels available to all irms


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Be,ore we o into depth0

W4A/ I( 4APPE7I7G I7 $ARE/(0

2lobali(ation

Trends3 *iberali(ation o tari and nontari barriers

4ilateral ree trade agreements

3 Consolidation o national and global retailers "al%art

3 Consumer concerns and standards *abor !ractices, SPS, &56&P2AP

3 2rowth in branding

S!ecialty coee3 -iche and s!ecialty mar#ets 7rganic vegetables

Structure $industry 8 irm'3 +ncreased concentration into international su!ermar#ets


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W4; P*VER/; RE"6C/I*7 WI/4 EC*7*$IC GR*W/48

Poverty reduction cannot be sustainable withouteconomic growth

&conomic growth re1uires growth o industries

&conomic growth is necessary or !overtyreduction, but in itsel, it is insuicient

3 Poor have to be lin#ed into growth o!!ortunities


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Globalization changes competitive envionment

2lobali(ation Shits the Com!etitiveness Strategy

0irms within one country are not com!eting

against each other, but industries are com!eting

0irm ocus Industry ,ocus

W4; I7"6(/RIE( RA/4ER /4A7 1IR$( 8


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($A55 1IR$( $A//ER /* EC*7*$IE(


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CA7 ($A55 1IR$( C*$PE/E8

es


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Value Chain (election

(teve $cCarthy

AC"I)V*CA


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VA56E C4AI7 (E5EC/I*7 CRI/ERIA

4ihCompetitivenessPotential

Gender7R$4IV)AI"(

Competitiveness

ImpactCross-cuttin

IssuesEmploymentIncome$($E potentialIncome distriution$($E rowth5ivelihood and (ecurity


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Competitiveness

The ability o a irm or industry to achieve and maintaina com!etitive edgeover mar#et rivals, by= +m!roved eiciency>cost advantage= Product dierentiation>1uality

= Ta#ing advantage o changes in demand

ow to assess or measureit?

Several a!!roaches to selecting or ran#ing industries:

3 Boston $atri9%3 Porters 1ive 1orcesD $odel

>3 "ecision $atri9


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4IG45*W

$ARE/ GR*W/4

$AR

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4

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5

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6E(/I*7

$AR(8"*G(

CA(4C*W(

(/AR(

B*(/*7 $A/RIF


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Comparin value chains ased on:

0a short list in selection

Competitiveness $ar+et demand and rowth

potential

$atch etween local capacitiesand nature o, competitive

advantae

Competition 2 Gloal threats3 Industry 5eadership (ustitutes End $ar+ets 2 *pportunities3 (upportin $ar+ets Enalin Environment In,rastructure Policy

Impact -umber o %S&s 5!grading !otential Potential or livelihood

im!rovement Potential or

em!loymentgeneration

while keeping the future trends in mind

Cross-cuttin

-6% $-atural6esource%anagement'

2ender Traic#ed

women +V>A+.S


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PI/1A55( I7 VA56E C4AI7 (E5EC/I*7

Selecting local avorite industry

2overnment > &nabling &nvironment can dictate what is com!etitive

Selecting industry with most !oor in it $but no !otential or growth'

Selecting industry with high growth !otential $but no > ew !oor in it' e)g)hightech industry

Selecting industry without com!aring to other industries internationally orincountry $i)e) not #nowing industry enough' thereore ris#ing overloo#ingcom!etitive threat

Selecting industry on which there has already been a signiicant investmentin sun# costs but which is not necessarily the most strategic industry


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/he Value Chain 1ramewor+

(teve $cCarthy

AC"I)V*CA


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VA56E C4AI7 1RA$EW*R

A tool to analy(e:Actors0actors6elationshi!sor the Industryand or the Firm

ValueChain

(election

ValueChain

Analysis

Co

mpetitiveness

(tratey

(ta+eholder

Wor+shop

Im

plementation

ActionPlan


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*BEC/IVE( *1 /4E VA56E C4AI7 APPR*AC4 /*:




A systematic, industy!basedapproach for design and

implementation to


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VA56E C4AI7: A 1RA$EW*R

Actors Relationships

Value

Chain

Analysis

1actors


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1inancial 2cross

cuttin3

(ector speci,ic

providers

Cross-cuttin

providers

AC/*R(

Producers /Producers

E9porters

7ational

Retailers

Wholesalers

Processors

Gloal

Retailers

Input (uppliers


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1actors in,luencinValue Chain Competitiveness 0

# End $ar+et

%# Business EnalinEnvironment

2lobal -ational

># Inter-1irm Cooperation3 Vertical3 ori(ontal

=# (upportin $ar+ets3 Sector s!eciic3 Cross cutting3 0inancial

H# 1irm 5evel 6pradin

Gloal Enalin Environment

7ational Enalin Environment

1inancial 2cross

cuttin3Input (uppliers

(ector speci,ic

providers

Cross-cuttin

providers

/Producers

WholesalersE9porters

7ational

Retailers

Processors

Gloal

Retailers


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E7" $ARE/(

"nd #a$ets %de&ine univese o& oppotunities

0inal 4uyer3 +nternational wholesalers and

retailers'

3 -ational and *ocal %ar#ets %ar#ets deine !roduct

attributes Potential to drive u!grading

investments

End market demands drive

standards



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers


7ational

Retailers

Processors

Gloal

Retailers

G5*BA5 B6(I7E(( A7" E7AB5I7G


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'usiness and "nabling "nvionmentdefines boundaries of

opportunities

"T7 %ultilateral agreements 0ree Trade Agreements Standards 7rganic, air trade

G5*BA5 B6(I7E(( A7" E7AB5I7G

E7VIR*7$E7/



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers


7ational

Retailers

Processors

Gloal

Retailers


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4usiness &nvironmentim!oses costs on small irms

Pro!erty rights .uties Taris 4usiness licensing %onetary and 0iscal Policies Public +nrastructure

Policy 8 6egulation

7A/I*7A5 B6(I7E(( A7" E7AB5I7G E7VIR*7$E7/



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers

Gloal

Retailers


7ational

Retailers

Processors

'usiness and "nabling "nvionmentdefines boundaries of

opportunities


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+nrastructure3 Trans!ort,

telecommunication

6egional !olicies

5*CA5)REGI*7A5 B6(I7E(( A7" E7AB5I7G

E7VIR*7$E7/



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers

Gloal

Retailers


7ational

Retailers

Processors

'usiness and "nabling "nvionmentdefines boundaries ofopportunities


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Vertical Linkagesare fundamental to growth

6elationshi!s among verticallylin#ed irms, e)g) between:

in!ut su!!ly

distribution to inal consumer

I7/ER-1IR$ C**PERA/I*7: VER/ICA5 5I7AGE(



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers

Gloal

Retailers


7ational

Retailers

Processors


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Horizontal Linkages create collective efficiencies

6elationshi!s amonghori(ontally lin#ed irms!erorming li#e unctions

Create economies o scale +ncrease bargaining !ower

e)g) in!ut and bul# sales

I7/ER-1IR$ C**PERA/I*7: 4*RI*7/A5 5I7AGE(



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers

Gloal

Retailers


7ational

Retailers

Processors


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upporting !arkets include "#

Sector S!eciic !roviders

Crosscutting !roviders

0inancial $cross%cutting&!roviders

(6PP*R/I7G $ARE/(



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers

Gloal

Retailers


7ational

Retailers

Processors


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Firm%Level 'pgrading re(uires supporting markets

6pradin y:

3 +m!roving !roducts

3 +m!roving !rocess

3 S!eciali(ing in newunctions

3 %oving into new mar#et

channels

6pradin reJuires:

3 Access to su!!orting m#ts

3 Access to learning, #nowhow, s#ills

3 A!!ro!riate incentives$consider ris#s, e/!ected

returns'

)))current capacity to be able to respond to opportunities

1IR$-5EVE5 6PGRA"I7G


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VA56E C4AI7 1RA$EW*R

# End $ar+et

%# Business EnalinEnvironment

2lobal -ational

># Inter-1irm Cooperation3 Vertical3 ori(ontal

=# (upportin $ar+ets3 Sector s!eciic3 Cross cutting3 0inancial

H# 1irm 5evel 6pradin



1inancial 2cross


(ector speci,ic

providers

Cross-cuttin

providers

/Producers


7ational

Retailers

Processors

Gloal

Retailers

5sing the VC lens < to understandopportunities andconstraints0


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01/18/15

IntegratedFirm

VA56E C4AI7 G*VER7A7CE

Price

Suppliers

Buyers

Suppliers

Buyers

Market Balanced Directed Hierarchy

MajorBuyer

Suppliers

(Tomatoes) (Organic Cofee) (Export Crats) (Cut Flowers)


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Input SuppliersFinancial(cross-cutting)

providers

Sectorspecifc

providers

Cross-cuttingproviders

Producers

Global

etailers

!"olesalers#$porter

s

%ationaletailers

&rocessors

1low o, Relationships:

@@

Products

Services

+normation

G5*BA5 VA56E C4AI7 AC/*R(


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$ARE/ RE5A/I*7(4IP(

Power5earnin Bene,its

Aect

Access to 5earnin

Access to Bene,its

"istriution o, Power1low o, Relationships:

@@Products

Services

+normation


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5earnin K Bene,its K Power


"here will learning come rom over time?

3 4uyers as catalysts or change and learning

3 +n!ut su!!liers as sources o inormation

3 Traders as disseminators o innovation

3 Service !roviders contributions to learning

Are there mar#et incentives to im!rove learninglows?

0oster learning

RE5A/I*7(4IP(


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&/!and de!th 8 breadth o beneits

Sources o 4eneit: &iciency gains

Product dierentiation>1uality

-ew or increased demand

Createincentives or investment

RE5A/I*7(4IP(

5earnin K Bene,its K Power5earnin K Bene,its K Power


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Promote winwin relationshi!s

Asymmetrical Win-Win

RE5A/I*7(4IP(




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(6(/AI7I7G VA56E C4AI7 L ($A55 1IR$ GR*W/4

0oster learning 25earnin3

&/!and the de!th and breadth o beneits 2Bene,its3

Sustain winwin relationshi!s 2Power3

Creating systemic change


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/he Value Chain $ap

(teve $cCarthy

AC"I)V*CA


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*BEC/IVE( *1 /4E VA56E C4AI7 APPR*AC4




A systematic, industy!basedapproach for design and

implementation to


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VA56E C4AI7: A 1RA$EW*R

Actors Relationships

Value

Chain

Analysis

1actors


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Whatis a Value Chain $ap8

A visual tool that allows us to understand and !resenthow the industry wor+s, including unctions, actorsand relationshipsbetween value chain !artici!ants

Can be used or showing 1uantitative data3 -umber o enter!rises, volume sold, returns, etc) 5seul in identiying bottlenec#s Can be basic or highly detailed


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Whatdo we map8

Basic map

0unctions3 Product lie cycle rom

conce!tion to end use

Partici!ant$s' at eachunction

*in#ages between the!artici!antshori(ontal andvertical

"etailed $ap

Added value or grossmargins o each unction

-umber o irms !erorming

each unction Volumes moving betweenlevels

V l Ch i $ i B i $


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Value Chain $appin:Basic $ap

0our ste!s:

B) +dentiy the unctions

) +dentiy the !artici!ants

D) Com!lete the wor# sheetE) .raw the initial ma!

(t Id ti, 1 ti


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(tep :Identi,y 1unctions

1unctions3 6etail3 "holesaling3 Processing

3 Assembly3 Production3 +n!ut Su!!ly

(t % Id ti, th P ti i t


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(tep %:Identi,y the Participants

Participants3 Village Stoc#ists3 +n!ut Su!!ly Com!anies3 Small Scale Producers

3 Producer Associations3 %ediumscale and Commercial Producers3 7il Processors3 "holesalers3 6etailers

( > (


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(tep >:Participant 1unction Wor+ (heet

1unctions

Participants

Wholesalin

Processin

Assemly

Production

Input(upply

Villae(toc+ists

Wholesalers

/raders

*ilProcessor

s

Input(upply

Companies

(mall(cale

Producers

$edium-(cale

andCommerci

al

Producers

Producer

Associations

1unctions


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Input(upply

Production

Assemly

Processin

Wholesalin

Village Stoc#ists

+n!ut Su!!lyCom!anies

Seed0ertili(erPesticide

(mall (cale

Producers

ProducerAssociations

$edium-(cale andCommercial Producers

/raders

*il Processors Ca+e

Wholesalers

"omestic *il $ar+et 5ivestoc+)Poultry 1eed $ar+et

5easin

Companies

Policy $a+ers

Commercial an+s)7on Ban 1inanc#

Institutions

/oacco

Company

Retail

$oMamiJue *ilseeds Value Chain

V l Ch i $ i " t il d $


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Value Chain $appin:"etailed $ap

B) +dentiy the unctions) +dentiy the !artici!ants

D) Com!lete the wor# sheet

E) .raw the initial ma!

F) Analysis o overlays3 -umber o actors !erorming each unction3 Volumes moved between one level to another

3 Value added>gross margins

A l i tit ti " t


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AnalyMin uantitative "ata


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"esin ,or Competitiveness

(teve $cCarthy

AC"I)V*CA


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(/EP(: "esinin A Competitiveness (tratey


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(/EP(: "esinin A Competitiveness (tratey

B) +dentiy competitive advantae at the end mar#et

) .evelo! a commercial upradin stratey

D) Create a !rocess to sustain competitiveness

A process for improving competitiveness

(/EP : Identi,y Competitive Advantae at the End $ar+et


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5nderstanding the Structure o the end mar#et "here can + com!ete < endmar#et segment

5nderstanding the .emands o the end mar#et ow can + com!ete < given buyer demands

%ar#et !ositioning

"here can + com!ete < which strategy



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*nd%market #emand+ ,hat do buyers want-

&

%>

=

HGuality

Price

6es!onseTime

Punctuality0le/ibleSmall 7rders

0le/ible*arge 7rders

+nnovative

.esign

+ndia+taly



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!A./*0 12I0I23I34

trategies for creating competitive advantage:

E,,iciency com!etition based on !rice"i,,erentiation

com!etition based on dierentiation

$ar+et 1ocus niche mar#ets, air trade, organic

(/EP : Identi,y Competitive Advantae


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&/cellentCost

&/cellent

PoorPoor

"i

,,erentiation

Intense competition in the low-cost! low

di,,erentiation Juadrant ma+es it

unattractive

+ndia

China

Aghanistan

!A./*0 12I0I23I34+ ,here can Afghanistan compete-

(/EP : Identi,y Competitive Advantae

(/EP %: "evelopin An 6pradin (tratey


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To turn comparative advantae into

competitiveness, industries>irms must resolve #ey

constraints and ta#e advantage o o!!ortunities by

develo!ing upradin strateies#



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aiti crats com!etitiveness strategy 2o u!mar#et ighly dierentiated !roducts -ew designs every H months +m!roved trans!ort

4angladesh shrim!s com!etitiveness strategy +m!rove 1uality Guality assurance>seal 0inance

Ienya tree ruits com!etitiveness strategy Guality 8 Guantity Guality &56&2AP Guantity Variety

1rioritizing constraints using competitiveness lens



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1rinciples for developing upgrading strategy

0oster incentivesor change>u!grading3 Select interventions $constraints and o!!ortunities' that will

result in short term beneits3 4alance longer term com!etitiveness and shorter term

beneits to %S&s

5!grade using small Jris#ableK ste!s

Start wherethe industry is


(/EP >: (ustainin Competitiveness


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#efinition+

to achieve and sustain rowth,

industries>irms must be able to respond tochanin mar+et demands

eiciently and eectively



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0his could re(uire+ 4etter enabling environment

Coo!eration 8 coordinationamong sta#eholders

%ore constructive com!etitionamong irms

"inwin relationshi!s Shared vision Collective action

Access to learning 8 innovation Changed behavior

4readth 8 de!th o beneits



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/he (ta+eholder Wor+shop

(teve $cCarthy

AC"I)V*CA

1acilitatin a (ta+eholder "riven Competitiveness


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4y "7% and 7"?

1acilitatin a (ta+eholder "riven Competitiveness

(tratey

ValueChain

(election

ValueChain

Analysis

Competitiveness

(tratey

(ta+eholder

Wor+shop

Implementation

ActionPlan

"AT to .7?

(ta+eholder Wor+shops


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p

"e,inition and *.ective

A structured5 facilitated discussionwith selected value chainparticipants who are responsible for critical market

functions5 service provision and the legal5 regulatory and

policy environment

The end goal o the sta#eholder wor#sho! is

3 to bring together the !artici!ants rom the value chain who haveincentives to drive investments in upradin, and

3 to develo! an action plan to et there

1acilitatin (ta+eholder Wor+shops


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Who Attends8

BFDL value chain !artici!ants identiied during value chainanalysis with incentives to rin chane to theindustry

When are they conducted8

Ater value chain analysis are com!leted

Periodically ater action !lan



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p

Why do we conduct it8

%to put the pivate secto sta$eholde into

the dive seat%

1acilitatin the Wor+shop

, ,


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Presentation o, the value chain with eneral in,ormation

Present a brieoverview o theindustry and itsactors

Present the valuechain ma! andas# !artici!ants ithey agree with it

/ransactions

.omestic 7il %ar#et

6etailing

"holesaling

Processing

Assembly

Production

+n!ut Su!!ly

&/tension

1unctions

Small ScaleProducers

%ediumScaleand Commercial

Producers

Village Stoc#ists

Chemengo 6etailers

Su!ermar#ets

Processors

5EGE7"

N Participant in

the Value Chain

N $ar+et-Based

N 1inal $ar+et

Production

N $ar+et ,unctions

+n!ut Su!!lyCom!anies

Seed0ertili(erPesticide

2il ProcessorsM 6ake

Producer

Associations

&ngineering Services

0inancial Services

Agents and 4ro#ers

%achinery and&1ui!ment Su!!liers

Traders

"holesalers

*ivestoc#>Poultry 0eed %ar#et

*ivestoc#>Poultry 0eed

(ervice Providers

N Participant in the

Value Chain! ro+en

line indicates

s+ipped ,unctions

ProducerAssociations

N Balanced networ+

N Captive networ+

-27s



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"iscussion o, how a more competitive industry would loo+ li+e: Industry Vision

Start the discussion around how the industry would loo# li#e i it weremore com!etitive

2uide discussions around e,,iciency! productdi,,erentiationandnew demand or mar+ets

3 J"hat are the characteristics o success in this industryNglobally andnationally?K

3 Jow can this industry more eiciently com!ete in global>local mar#ets?K

3 J .oes it have to dierentiate itsel in branding, mar#eting, 1uality or!rice?K

VI(I*7



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Participatory identi,ication o, action needed to achieve the vision


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Participatory identi,ication o, action needed to achieve the vision

0he session will enable the participants to da&t an action planaddressing the constraint and opportunities prioritized

Iee! grou!s ocused on discussing and develo!ing a !lan thatidentiies

3 Whatneeds to be done in order to overcome the constraint orta#e advantage o the o!!ortunity?

3 Whois going to do it? ( o We vs) *ou3 Whenit is going to be done?

EFPEC/E" *6/C*$E(


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Place em!hasis on short termresults

&nhance and>or e/!loit incentives or sta#eholders tocreate win-win relationshipswithin value chain

Avoidredundancyin industry and donor activity

Clearly de,ine roleo !rivate sector !layers, -27s orcontractors

7utline clear action plan3 "ho will do "hat and "hen?3 Clearly articulated e/it strategy


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/he Implementation Action Plan

(teve $cCarthy

AC"I)V*CA

I$P5E$E7/A/I*7 AC/I*7 P5A7


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ow to build industry

sta#eholders ownershi! othe com!etitiveness!rocess?

4ow "o We (upport a (ta+eholder "riven Implementation


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Action Plan8

W4A/ needs to e done8

"hat needs to be done to createcom!etitive advantage

Activities

W4A/8

W4*intervenesand 4*W8

ow to !romote change andsustain com!etitive advantage

Approaches

W4*8 O 4*W8

W4*8


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"E1I7I7G R*5E(

Private (ector+nternal actors) Conduct business in a com!etitive environmentbased on economic incentives)

Government

+nternal actors) 0oster a conducive enabling environment and!rovide !ublic goods in the !ublic interest)

Implementin *raniMations

&/ternal actors) Create incentives or industry actors to create and

sustain com!etitiveness)

"onors

&/ternal actors) Plan, design, and und activities to buildcom!etitiveness and learn rom !ast e/!eriences)

W4*8


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"E1I7I7G R*5E(

Industry-5ed

+nternal actors have a lead role in develo!ingthe strategy and course o action)

,hat are the implications for e7ternal actors-

Pro.ect-5ed

&/ternal actors dictate the strategy andcourse o action)

,hat are the implications for internal actors-

W4*8


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I7/ER7A5 CA/A5;(/(

+s there an actor in the value chain with:

3 +ncentives3 S#ills3 6esources

to drive upradin investmentsin the value chain?to e9ploit opportunitiesin the mar#et?

4*W8


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1*C6( *7 I7CE7/IVE(

.oes my intervention create incentivesor value chainactorsto change behavior !ositively aecting

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Value Chain - Economic Growth and Poverty Reduction

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