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An Introduction to Value Chain Analysis
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Agenda What is a value chain? What is value chain analysis?
How Does VCA helps in understanding sectors? How can we conduct value chain analysis? How does the VC approach help in Greening?
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Origins of value chain Michael Porter,1990, Competitive Advantage of Nations Gereffi, 2005, The Governance of Global Value Chains
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Sector, Sub-sector and Value Chain
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What is a Value Chain
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What is a value chain The full range of activities that are required to bring a product or service from its conception to its end use.
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Goatery Value Chain
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Retailing Processing Wholesale Production Inputs
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Ginger Value Chain
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Source: Linda Jones, VCA Presentation, Coady, 2012
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A Value Chain System An economic system that has a value chain and its transactions at its core Places the value chain within a larger system The system includes enabling environment, business environment, socio-cultural context, and support services including finance In development, when people talk about ‘value chain development’ they are typically referring to the whole system
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How does sub sector analysis help?
Vertical perspective Cooperation Competition – Cost advantage and product differentiation Leverage Source: Haggblade and Gamser, 1991
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Value Chain (VC) A sequence of related business activities (functions) from the provision of specific inputs for a particular product to primary production, transformation, marketing, and up to the final sale of the particular product to consumers. This is the functional view of a value chain. VC definitions adapted from the GTZ ValueLinks Manual, The Methodology of Value Chain Promotion, First Edition, Eschborn, 2007
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Value Chain (VC) The set of enterprises (operators) performing these functions i.e. producers, processors, traders and distributors of a particular product. Enterprises are linked by a series of business transactions in which the product is passed on from primary producers to end consumers. This is the operational view of a value chain. According to the sequence of functions and operators, value chains consist of a series of chain links or stages. VC definitions adapted from the GTZ ValueLinks Manual, The Methodology of Value Chain Promotion, First Edition, Eschborn, 2007
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Typical Value Chain (Actors Only)
Farmers (Formal and informal groups) Suppliers Transporters Processing Factories (Value Addition) Retailers Consumers at Formal Market Wholesalers Input Suppliers Value Chain Operators Commercial (and social) interests Consumers at Informal Market
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Typical Value Chain (Actors & Supporters)
National / International Enabling Environment Farmers (Formal and informal groups) Suppliers Transporters Processing Factories / Value Addition Retailers Consumers at Formal Market Wholesalers Input Suppliers Value Chain Operators Intra-chain / Inter-actor support, coordination, management. Improving efficiency and transparency of transactions Commercial (and social) interests Consumers at Informal Market Interventions, business support Support of development goals and public interests, payment Value Chain Supporters / Service Providers Research Bodies NGOs BDS Providers Extension State Bodies Banks Financial Services Non-financial Services Microfinance Institutions
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Value Chain Approach: Key Principles
A system perspective A focus on end markets Understanding the role of value chain actors and governance Recognition of the importance of relationships Facilitating changes in enterprise behavior and relationships Linkages and empowerment
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How Does VCA helps in understanding sectors?
The approach helps visualize the big picture and the environment under which the economic activity operates The value chain structure, processes and relationships It can shed light on how firms, regions and countries are linked to the global economy Identifies key stakeholders Identifies opportunities and constraints (in order to achieve desired outcome) Helps in assessing competitive potential It allows for the analysis of ‘leverage’ – small focused inputs that generate commensurately larger outputs Main Points/Highlights: Instructions: ► Move to next slide.
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VCA Different Entry Points
Primary area of interest Entry point What to map Example The global distribution of income The final consumer in a sector Backwards down the entire chain to retailers, buyers and producers In food, begin with supermarkets Gender, age and ethnicity Role of women at production Use of female labor throughout value chain In clothing, women in cotton farms, factories, export agents, design houses, advertising agencies, retail stores Informal economy producers and traders Home based workers, street traders Forwards to processors, assemblers or third party organizers/distributors, backwards to retailers Outsourcing in clothing and shoes, recycling cardboard cartons to mills, street based tourist handicrafts Low carbon
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How does the VC approach help in Greening?
The idea of value chain is associated with the concept of governance which is of key importance from greening standpoint By mapping a range of activities along the chain, and within a relatively complex system, it can help to identify where greening, climate science fits It can help to identify where public incentives (regulations, subsidies etc. ), and private incentives fit and how these can be aligned Both push and pull strategy (not just provide the technology but the economic incentive to do that).
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Steps in value chain analysis
Sub Sector/ Value Chain Selection Mapping and analysis Analysis of the markets Analysis of potentials/opportunties and constraints Analysis of solutions, Design of interventions
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