COLLABORATING TO COMPETE – THE VALUE OF TRUST AND INTER-FIRM COOPERATION Ruth Campbell, ACDI/VOCA Rob 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 Wholesalers Exporters National Retailers Processors/Traders Global Retailers Processors/Traders Global Retailers National Retailers Input Suppliers Producers Wholesalers Exporters 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. Need for Change Urgent Not Urgent = 20% of respondents Competitive Advantage Comparative Advantage Cautious Followers Source of AdvantageComparativeCompetitive 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 Push Pull Positive AttitudesConstraints 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?