McCormick+Schmitz Handbook for value chain research on - PACA

A <strong>value</strong> <strong>chain</strong> has another, less visible structure. This is made up of the flow of
knowledge and expertise necessary <strong>for</strong> the physical input-output structure to function. The
flow of knowledge generally parallels the material flows, but its intensity may differ. For
example, the knowledge inputs at a product’s design stage may be much greater than the
material inputs; production, on the other hand, needs large quantities of materials, but in
many cases requires only standard or routine knowledge.
The second dimension of a <strong>value</strong> <strong>chain</strong> has to do with its geographic spread. Some <strong>chain</strong>s
are truly global, with activities taking place in many countries on different continents.
Others are more limited, involving only a few locations in different parts of the world. A
UK retailer may, <strong>for</strong> example, contract with a Chinese fabric supplier to deliver cloth to a
garment producer in Sri Lanka. The finished goods will then be shipped directly to the
UK retailer. It is also possible to identify national, regional, or local <strong>value</strong> <strong>chain</strong>s. These
operate in the same way as the global <strong>chain</strong>s, but their geographic ‘reach’ is more limited.
The third dimension of the <strong>value</strong> <strong>chain</strong> is the control that different actors can exert over
the activities making up the <strong>chain</strong>. The actors in a <strong>chain</strong> directly control their own
activities and are directly or indirectly controlled by other actors. A retailer, <strong>for</strong> example,
controls the way he sells, but may be limited (indirectly controlled) by the range of goods
available from wholesalers and producers. A homeworker may find that almost every
aspect of her work is controlled by a distant retailer who has specified the design,
quantity, and quality of the garments she is producing. The pattern of direct and indirect
control in a <strong>value</strong> <strong>chain</strong> is called its governance. Since <strong>value</strong> <strong>chain</strong>s are basically
constellations of human interaction, the possible varieties of governance are endless. In
the real world, however, we seem to see the four main types of governance shown in
Table 1.1.
When the market governs a <strong>value</strong> <strong>chain</strong>, most transactions take place between buyers and
sellers dealing at arms length. The <strong>value</strong> <strong>chain</strong> <strong>for</strong> standard goods such as men’s cotton
athletic socks is a good example of a market driven <strong>chain</strong>. Many knitting mills all over the
world produce such socks. There is no need <strong>for</strong> buyers and suppliers to collaborate on
product definition because the item is standard. Buyers simply place orders <strong>for</strong> a given
quantity of a particular quality and size range.
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