KEY ELEMENTS OF THE VALUE CHAIN APPROACH
WHY USE THE VALUE CHAIN APPROACH?
Many people talk about the “value chain approach” but interpretations of what this approach entails—the principles upon which it is based and how these principles are applied through analysis, project design and implementation—vary. Moreover, donors and their implementing partners have different motivations for drawing upon the approach. This paper outlines some of the key features of the value chain approach as articulated and promoted by USAID’s Microenterprise Development office (USAID/MD). USAID/MD applies the approach to drive economic growth with poverty reduction through the integration of large ...view middle of the document...
Such a broad scope for industry analysis is needed because the principal constraints to competitiveness may lie within any part of this market system or the environment in which it operates. While it may be beyond the capacity or outside the mandate of a donor or implementing agency to address certain constraints, the failure to recognize and incorporate the implications of the full range of constraints will generally lead to limited, short-term impact or even counter-productive results. The decision of where to intervene in a value chain should be primarily driven by the end goal of sustainable economic growth with poverty reduction. Interventions that target a particular part of a value chain (e.g., processing) or group of beneficiaries (e.g., small-scale producers) must therefore be designed and implemented: i) within the context, and with an understanding, of the value chain as a whole; and
1 For a description of the framework which underpins this approach, and definitions of basic terms, see “The Value Chain Framework” Briefing Paper www.microlinks.org/ev.php?ID=21629_201&ID2=DO_Topic 2 For a discussion of upgrading and its relevance to MSEs, see “MSE Upgrading in Value Chains” Briefing Paper www.microlinks.org/ev_en.php?ID=17737_201&ID2=DO_TOPIC
ii) with an explicit focus on benefits to MSEs. 3 A Focus on End Markets The end markets into which a product or service is sold—whether local, regional or international—provide the opportunities and set the parameters for economic growth. Generally there are multiple actual and potential end markets, each with different demand characteristics and returns. It is therefore important to segment the market: list each of the potential end markets, what is required to compete in them, and what benefits and risks can be expected by selling into them. Since end markets are dynamic, the identification of trends should complement information about the current situation. By benchmarking key attributes (e.g., quality, price, reliability of supply, flexibility, time from order to delivery) against competitors, industry stakeholders can see where they have a competitive advantage and where they need to upgrade in order to compete. The information needed for benchmarking can often be obtained through simple interviews with end-market buyers; secondary information alone is generally insufficient. Buyers can often also provide information on market trends. Using market-trend information, together with information about the capacity and constraints within the value chain and its environment, industry stakeholders can develop a strategy to position themselves in the market: competing through a combination of price, quality and innovation. To sustain end-market competitiveness, this strategy will have to be continually revised in response to changes in the end markets, in the enabling environment or within the chain itself. 4 Additionally, inter-firm relationships need to be such that firms are able and willing...