Magazine article International Trade Forum

Value Chain Analysis: A Strategy to Increase Export Earnings. (Exporting Better)

Magazine article International Trade Forum

Value Chain Analysis: A Strategy to Increase Export Earnings. (Exporting Better)

Article excerpt

An innovative, sector-based approach to competitiveness focuses on getting more value from goods and services produced for export. Value chain analysis can help developing countries make the most of their exports.

From the perspective of exporters, a national export strategy may seem irrelevant. How, concretely, will a national strategy help the firm grow its business? The most likely area of interest for exporters will be in national programmes that help the sector in which they perform.

Strategy-makers must respond to this 'sector-centric' preoccupation, for two reasons. First, exporters need to 'buy in' if the strategy is to be successful. Second, without a sector-specific orientation, the strategy won't address key competitiveness issues that ultimately dictate national export performance.

Sector-level strategy means more than identifying market opportunities and organizing related support programmes. 'Best practice' requires deeper analysis, and a wider audience than the exporter.

Value chain defined

Value chain analysis, in this context, is an innovative tool that developing countries should consider. The value chain approach analyses, at the sector level, each link in the chain of activity' - from the time when the product or service is only an idea to the time when it is disposed of after use. A value chain for any product or service extends from research and development, through raw materials supply and production, through delivery to international buyers, and beyond that to disposal and recycling. By 'mapping' this process from start to finish, strategy-makers can better determine where they can capture greater value within the national component of the global value chain.

Newcomers to value chain analysis should note that international buyers determine value. Quality, dependability, volume, traceability and speed of delivery are among the elements that buyers take into account. Buyers' requirements, together with market conditions -- such as market access, standards and regulations, and consumer preferences -- determine whether firms from a given country can compete effectively.

Thus, a successful sector-based strategy to capture more export earnings needs to reflect market conditions, buyers requirements and the processes required to deliver a product to the market.

This rather obvious conclusion has a less than obvious implication. Designing sector-level strategy requires full participation of the private sector. Only the private sector has the breadth of market knowledge to construct a model of the sector's global value chain with sufficient detail for a sound analysis.

An example -- fresh vegetables chain

Twenty years ago, small exporters in Kenya would normally buy green beans in local wholesale markets or directly from smallholders, pack them in boxes or sacks and send them to importers in the United Kingdom, who would sell them through national wholesale markets. They would then be bought by a variety of retailers (large and small).

Since then, the business has been completely transformed, notes John Humphrey of the Institute of Development Studies, University of Sussex.

* Fresh vegetables are now mainly sold through large supermarkets. Five supermarket chains account for over 70% of all fresh food retail sales in the UK.

* Cash-rich but time-poor consumers buy products that are easy-to-use - ready-trimmed, washed and mixed with other ingredients. They are much more likely to be wrapped in trays or cellophane packs than presented loose.

* Product freshness and shelf life have been enhanced by speedier passage through the supply chain. Levels of quality, continuity of supply and consistency of quality across the whole year have become the objectives.

* Food safety requirements and standards are much stricter, particularly with regard to pesticides and minimum residue levels fixed by the European Union. …

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