Value Chain - a definition

The sequence of productive processes (functions)from the provision of specific inputs for a particular product to primary production, transformation, marketing and up to final consumption. An institutional arrangement linking and coordinating producers, processors, traders and distributors of a particular product.

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 (the functional view on a value chain).

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. According to the sequence of functions and operators, value chains consist of a series of chain links (or stages).

Value Chain Promotion - what is value chain promotion?

Value chain promotion fosters economic growth – as a necessary precondition for incomes to rise – by making sure that the additional income generated actually benefits poverty groups. This is to be achieved by strengthening the way that commercial product markets relevant for the poor function, by improving their access to these markets, and/or by influencing the distributive outcome of market processes. Value chain (VC) promotion thus harnesses market forces to achieve development goals.

It is oriented towards business opportunities, and consciously builds on the existing or emerging economic potential of the poor. Therefore, value chain promotion is essentially a development approach – and clearly needs to be distinguished from supply chain management. While value chain promotion takes a public perspective, supply chain management aims at optimizing the logistics of input sourcing and marketing – from the perspective of a particular lead company. The latter is a private management instrument and much more limited in scope.

Value chain promotion can be combined with other development approaches. It is not a substitute for other PPG (pro-poor growth) strategies.

Value Chain Development - as a tool againts poverty

The value chain describes the full range of activities that firms and workers do to bring a product from its conception to its end use and beyond. This includes activities such as design, production, marketing, distribution and support to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms. Value chain activities can produce goods or services, and can be contained within a single geographical location or spread over wider areas.

The competitiveness of firms not only depends on the functioning of suppliers and buyers within a cluster, but also and often most importantly, on the entire chain at the national and global level. The value chain approach helps to identify all the enterprises that contribute to the production of a good or service within and beyond a cluster and shows which actions are needed to support these enterprises.

Businesses in developing countries have to take globalization into account. Nowadays, markets in rich countries are usually accessed via value chains. If a company wants to survive as a supplier, it has to be reliable, and its products must be of unvarying high quality. In terms of development policy, it makes sense to help enterprises in poor countries to reach that goal.
Global value chains are radically altering how goods and services are produced--parts made in one country, for instance, are increasingly assembled in another and sold in a third. The promotion of value chains provides an opportunity to identify bottlenecks in chains, to link up all important economic actors within a chain, to reach economies of scale and to enable local producers to meet certain standards. This contributes to the realization of higher incomes and higher employment of local producers.

Private Sector Development is increasingly acknowledged by governments, donors and development organizations as an important step towards alleviating poverty and creating viable economies. Value Chain Development is a multiple and participatory process that leads to coordinated interventions. It has the enormous advantage to bring together stakeholders from different production stages and sectors, to create a productive and innovative dialogue and to draw the attention to “Collective Competitiveness”.

Value Chain Analysis

Once value chains have been chosen the next step in the approach is value chain analysis. The basic objectives of this analysis are to:

• Identify final sales market(s) and market segments
• Identify market channels and trends within the value chain
• identify the primary actors in the value chain, their roles, and interrelationships (with emphasis on linkages with targeted MSMEs)
• create a value chain map that describes the above
• identify constraints and opportunities that are holding back growth and competitiveness
• identify commercially viable solutions that can address value chain constraints

 

Case Study of Value Chain

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