McCormick+Schmitz Handbook for value chain research on - PACA

Perhaps more important to users of this manual is the practical usefulness of <strong>value</strong> <strong>chain</strong>
analysis as a way to understand problems and find ways of improving the situation of the
“weaker” links in the <strong>chain</strong>, i.e., those with low returns and little bargaining power. We
highlight several areas in which <strong>value</strong> <strong>chain</strong> analysis can be helpful. 5 You may think of
others.
• Understanding problems of market access: Even when developed countries reduce
tariffs or eliminate other trade barriers, your country’s producers will not
automatically gain market access. This is because many <strong>chain</strong>s into European and
North American markets are directed networks. In order to participate in them,
developing country producers need access to the lead firms in these <strong>chain</strong>s. Larger
firms and those with other international connections are more likely to gain this
access than small, unknown producers.
• Acquiring production capability: Those producers that gain access to a <strong>chain</strong>’s
lead firm are pushed to upgrade their production capability very quickly. The lead
firms are very demanding with regard to reducing cost, raising quality, and
increasing speed. But they also transmit best practices and provide hands-on
advice on, <strong>for</strong> example, how to improve production flows and raise workers’
skills. This combination of high challenge and high support explains how
relatively underdeveloped regions can become major export producers in a short
period of time. Lead firms’ focus on transmitting production skills also explains
why it takes developing country producers much longer to become proficient in
design and marketing.
• Understanding the distribution of gains along the <strong>chain</strong>: Knowing how and by
whom a <strong>chain</strong> is governed helps to understand the distribution of gains among
firms along it. The ability to govern often comes from strength in particular
competences such as design, branding, marketing, which command high returns,
but are difficult <strong>for</strong> developing country firms to acquire. Developing country firms
tend to be locked into production activities, in which they manufacture to the
specifications of the lead firm. Since many producers are capable of doing this,
competition is intense and returns are low.
5
Here we draw on Kaplinsky (2000) and Humphrey and Schmitz (2000).
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