Qualitative approaches to value chain analysis

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Presented by Karl M. Rich at the Training program for “Methods for livestock value chain analysis: Qualitative and quantitative methods”, ILRI, Nairobi, 1 July 2013 …

Presented by Karl M. Rich at the Training program for “Methods for livestock value chain analysis: Qualitative and quantitative methods”, ILRI, Nairobi, 1 July 2013

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  • 1. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Qualitative approaches to VCA Prof. Karl M. Rich, Ph.D. Training program for “Methods for livestock value chain analysis: qualitative and quantitative methods” ILRI, Nairobi, 1 July 2013
  • 2. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Outline • Overview of different toolkits • Basic elements of VCA • Extensions of VCA • Applications and practice
  • 3. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt VCA toolkits • A dime a dozen, really! • Lots of VCA toolkits exist in the development literature: – Handbook for value chain research (IDS) – Making value chains work better for the poor (M4P) – ValueLinks (GIZ) – … and many others too!
  • 4. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Are they really that different? Actually, not really. • All (the good ones!) are based on the IDS platform of value chain analysis (Kaplinsky and Morris 2001) that outlines the basics of what’s behind a value chain and VCA. • The newer toolkits add some new twists and emphasize slightly different things, but at the roots are mainly the same. VCA toolkits
  • 5. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • In this course, we will primarily focus on the original IDS methodology for value chain analysis • However, we will highlight, reference, and add to this themes from: – ValueLinks – The SCM and strategy literature • For each of the different steps, we will do a practical exercise as well. VCA toolkits
  • 6. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Key elements to any value chain analysis – Mapping the chain – Identifying governance structures within the chain – Exploring areas of upgrading within the chain – Assessing benefits in chain participation • ValueLinks (rightly) adds additional elements for practitioners (i.e., those creating or engaging with VCs): – Assessment of value chain for promotion – How to implement and facilitate VC promotion (linkages, finance, environment) – Monitoring and evaluation Steps in value chain analysis
  • 7. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • If the interest is in establishing a value chain, placing boundaries on what to establish is critical. • Main tasks: – Scope of markets and market segments to be promoted – Market research (does demand exist?) – Defining priorities across products and value chains Step zero: which value chain to promote
  • 8. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Market scoping: – Develop hierarchies of product classifications (start at sub- sector, work down to value chain and sub-chain) to establish appropriate segments – Provide rationales for why (or why not) such segments might make sense Step zero: which value chain to promote
  • 9. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):33
  • 10. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):34
  • 11. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Market research: – Assess current market demand and potential – Conditions of market entry and competition – Competitive advantage of value chain operators in market • To add to this, consider potential competitive strategy (remember Porter earlier!) Step zero: which value chain to promote
  • 12. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Priority setting – Establish criteria assessing growth potential – Establish criteria assessing potential along other dimensions (e.g., poverty alleviation, environmental protection, etc.) – Pragmatic criteria (chances of success, sustainability) Step zero: which value chain to promote
  • 13. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):44
  • 14. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Your tasks: – For your sector, define a particular commodity or service in which you wish to further develop? – From this commodity or service, which sub-products/chains could be considered and why? (recall the table before) – How would you rank between different VCs to promote? Develop a set of criteria (with weights) and evaluate the potential of these VCs along those criteria. Exercise 1: Selecting a value chain
  • 15. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 1: Mapping the value chain • This step is crucial whether establishing a chain (starting at step zero) or analyzing one (starting here). • A lot (too many!) analysts ONLY do this stage – but this is only a part of the value chain story.
  • 16. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 1: Mapping the value chain Key goals: • Assess the characteristics of actors and their linkages • Understand role of chain activities in terms of broader livelihoods context (profit/income) • Identify service providers and roles of public sector • Characterize business environment of the chain • Compute flows of goods throughout the chain, including prices and seasonal variation • Compute inventories that exist in the chain
  • 17. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Main outputs: – Graphical maps of actor linkages and product flows (between actors and across space) – Quantification of role of activity in livelihoods – Identification of production practices and costs – Typologies of chain actors based on income – Identification of different chains based on relationships, etc. – Transactions costs and chain constraints Step 1: Mapping the value chain
  • 18. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 1: Mapping the value chain • What should value chain maps look like? • There are no set rules, as the following slides will demonstrate. • However, ValueLinks provides a nice guideline for shapes and illustrations to use that we’ll adopt.
  • 19. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt From Taylor et al. (2008)
  • 20. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt From Taylor et al. (2008)
  • 21. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Garissa livestock marketing value chain Local Somali producers Somalia Garissa Market Traders Traders, brokers, trekkers (60% of cattle) Butcheries GSA Traders NRB. & MSA (66% cattle;63% shoats Meat W/sellers Meat Retailers Consumers Brokers S/house, Transporters KMC Ranches Traders, brokers, sellers of fodder etc. Butcheries Supermarkets Abroad Shipping agencies CARE LIME Project Consumers GSA Hotels Transporters, trekers From Wanyoike and Rich (2007)
  • 22. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Ijala livestock marketing value chain Livestock Producers Kotile Mkt Small scale traders Other Mkts in IjaraBrokers Garissa Mkt Traders (cattle) Ranches in coast Mkts in coastBrokers Traders, transporters, trekkers Butcheries/retail outlets Meat w/sellers, abattoirs, transporters abattoirs Export countries Consumers Traders Local butchers Local Butcheries abattoir Consumers From Wanyoike and Rich (2007)
  • 23. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt From Kobayashi (2006)
  • 24. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach Source: GTZ (2008):11
  • 25. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach: basic map Source: GTZ (2008):56
  • 26. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach: expanded map (1) Source: GTZ (2008):58
  • 27. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach: expanded map (2) Source: GTZ (2008):61
  • 28. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach: including subchannels Source: GTZ (2008):59
  • 29. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach: manufacturing chain Source: GTZ (2008):63
  • 30. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach: services chain Source: GTZ (2008):63
  • 31. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt ValueLinks approach: tourism chain Source: GTZ (2008):64
  • 32. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 1: Mapping the value chain • So far, lots of pretty pictures! • But, we can add some quantitative analysis here: – Volumes and values of product flows – Levels of inventories (important later in governance section) – Numbers of operators/jobs/employees in each segment – Market shares – Value-added calculations (but be careful here!)
  • 33. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt From Kobayashi (2006)
  • 34. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt From Kobayashi (2006)
  • 35. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):67
  • 36. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):70
  • 37. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):70
  • 38. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Be careful here! Your units of comparison should be the same across the chain if there is transformation of the product from production to consumption (e.g., animal to meat, fruit to juice) Source: GTZ (2008):71
  • 39. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Exercise 2: Value chain mapping • Stay in the same groups as before and consider one of the VCs you identified in the last exercise. • First, map the functions in the VC: how do you get the product from producers to consumers? Are there different processes for different channels? Denote these using a • Next, determine the operators taking the functions above. Denote these using a
  • 40. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Exercise 2: Value chain mapping • Finally, identify the supporting organizations involved in the value chain, as far as service provision, etc. Denote these with a if they are a service provider • Denote with a * on the shape if they are an enabler
  • 41. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 2: Governance in the value chain • Main ideas: – Identify the nature of relationships and coordination mechanisms that exist between actors in the value-chain. – Provide details on aspects of the business environment of the chain – Identify power relationships in the value chain
  • 42. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 2: Governance in the value chain • Main outputs: – Who decides what is produced – How the rules of trade are determined – The nature of relationships between the participants – Roles of associations – Coordination mechanisms (contracts, market sales, etc) – The extent of chain “power,” based on the relative size of a particular actor, share of chain profits, or control over a key technology
  • 43. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Types of coordination – Arms length (spot markets) – Full vertical coordination (total integration of supply chain) – Intermediate forms (contracts, etc. – in between arms length and full coordination) • While usually described in a narrative, it is useful to map governance relationships graphically too. Step 2: Governance in the value chain
  • 44. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Structures of governance Source: Gereffi et al (2005):89
  • 45. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Structures of governance Governance type Complexity of transactions Ability to codify transactions Capabilities in the supply base Market Low High High * Modular High High High Relational High Low High Captive High High Low Hierarchy High Low Low Source: Gereffi et al (2005):90
  • 46. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt From Kobayashi (2006)
  • 47. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):60
  • 48. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • The dynamics of governance relationships can also change due to different types of technical or organizational interventions. Step 2: Governance in the value chain
  • 49. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Structures of governance Source: Riisgaard et al (2008):13
  • 50. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Issues related to the nature of production matter as well. Take, for instance, inventories. • Some nodes of the value chain will retain excess inventories (why?). • These inventories, and their management, will influence not just the organization of the chain, but the bargaining ability of actors. Step 2: Governance in the value chain
  • 51. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Exercise 3a: Value chain governance • In your same groups, take your previous value chain map and identify the governance links between each node. • Distinguish between: – Market-based governance – Contractual or hybrid governance – Vertical integration • Identify in the chain which actor(s) coordinate activities, in terms of setting rules, market power, etc. Is the chain buyer- or producer- driven?
  • 52. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Governance is not just about coordination forms, but about the specific nature of the relationships behind those. • Based on your knowledge of your value chain, discuss in a short narrative (bullet points OK) the nature of relationships between different links in the value chain, focusing on: – Who decides what is produced – The nature of production itself (inventories at each node) – How the rules of trade are determined – Power relationships – Roles of associations • Based on your knowledge of the chain and the last figure, to what extent will governance change in the chain you are promoting? Exercise 3b: Value chain governance
  • 53. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • The usual way we think about upgrading in value chain analysis are ways to add value for specific actors in the chain • Four types of upgrading can be identified: – Product upgrading – Process upgrading – Functional upgrading – Chain upgrading Step 3: Identify opportunities for upgrading in the value chain
  • 54. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 3: Identify opportunities for upgrading in the value chain • Product upgrading: improving existing products and/or developing new ones • Process upgrading: improving efficiency of internal and external processes within the chain • Functional upgrading: changing one’s position within the chain to add value • Chain upgrading: moving to a new VC altogether. Can you think of examples of each?
  • 55. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 3: Identify opportunities for upgrading in the value chain • Main outputs: – What are the opportunities for adding value in the chain? How do governance or other constraints influence this? – What are the drivers for change? What are the incentives? • Tasks: – What is the vision for upgrading? – Opportunities and constraints (SWOT analysis) – Operational objectives for upgrading – Actors involved in upgrading (role of governance important!) – Impact of upgrading (trickier – related to step 4 on benefits)
  • 56. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Vision defines what the VC is all about – its value proposition • Vision provides strategic direction and perspective – focus is on the competitive issues facing the VC • Vision provides a basis for joint ownership and common goals among participants Step 3: Identify opportunities for upgrading in the value chain
  • 57. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Upgrading vision is combined with strategies needed to achieve this in action, in terms of improving processes, capacity, and relationships. • These strategies should be viewed from the standpoint of the different types of upgrading discussed earlier. • One should also not lose sight of governance aspects either Step 3: Identify opportunities for upgrading in the value chain
  • 58. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):80 Establishing upgrading vision
  • 59. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):81 Establishing upgrading vision
  • 60. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):82 Establishing upgrading vision
  • 61. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):82 Establishing upgrading vision
  • 62. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):82 Establishing upgrading vision
  • 63. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Interface of governance & upgrading Source: Riisgaard et al (2008):13
  • 64. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 3: Identify opportunities for upgrading in the value chain • SWOT analysis is a good tool to assess the opportunities and constraints present in a given chain • This is combined with the strengths and weaknesses of the current chain to give context to capacity to engage in upgrading. • SWOT can be done graphically on the chain map or in tabular form.
  • 65. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):85 SWOT analysis: a graphical illustration
  • 66. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):85 SWOT analysis: a graphical illustration
  • 67. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Positive influences Negative influences Internal factors STRENGTHS WEAKNESSES External factors OPPORTUNITIES CONSTRAINTS SWOT analysis: a tabular illustration
  • 68. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 3: Identify opportunities for upgrading in the value chain • For those engaged in value chain development, operationalizing upgrading is a key component. • Main ideas: – Identify and prioritize actions to be taken – Link enablers and enabling activities to upgrading strategies in the value chain – Identify “champions” in the chain itself to pursue such actions.
  • 69. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):88 Operationalizing upgrading in the VC
  • 70. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Operationalizing upgrading in the VC Source: GTZ (2008):88
  • 71. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Operationalizing upgrading in the VC Source: GTZ (2008):89
  • 72. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 3: Identify opportunities for upgrading in the value chain • The identification of “champions” in the chain itself to pursue such actions is critical. • This can include capacity development to upgrade the skills of those involved in value chain upgrading.
  • 73. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 3: Identify opportunities for upgrading in the value chain • The process of value chain upgrading can be iterative. • It might be in the process of developing vision or strategies that other value chains might be more lucrative or feasible.
  • 74. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Source: GTZ (2008):107
  • 75. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • The creation of business or value chain is not a static process. • Market conditions, rents, barriers to entry, etc. all change over time. • Staying ahead of the competition is important. Dynamics of innovation
  • 76. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Christensen (1997) looked at the dynamics of innovation and new product development, exploring the paradox of why successful firms often fail to keep up with technology advances. • Leading firms often focus on one technology or specific attribute of a product that allows competitors to displace them by focusing on other, disrupting technologies • These disrupting technologies may not be as good in the short-run, but over time can become more popular. Dynamics of innovation
  • 77. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Meanwhile, leading firms are locked into existing VCs that prevent them from changing course until it’s too late. • These firms took existing needs of the market as given, rather than looking at new technologies as a source of innovation for new markets Dynamics of innovation
  • 78. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • Some examples: – Televisions – Disk drives (think of the evolution of floppy disks to flash drives today) – Laptops and tablets Dynamics of innovation
  • 79. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt This figure graphically illustrates the model of Christensen (1997). When the product offerings of an incumbent firm over time overshoot market needs for a particular product attribute, there is an opportunity for new firms to emerge with a disruptive technology that may be inferior to the existing product in some ways, but meet market needs in others. As the disruptive technology improves, it often displaces the incumbent.
  • 80. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Once the market need for a specific product attribute has been met, opportunities for competition will shift towards other attributes, creating opportunities for innovation as the market is oversupplied on different attributes. Eventually, competition may end up on the basis of price rather than differentiation along attributes.
  • 81. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Strategy 1: Push upmarket towards higher-end customers Strategy 2: Stay with customers Strategy 3: Change the market’s demand for functionality Functionality Time Source: Christensen (1997): 227
  • 82. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Exercise 4: Upgrading in the value chain • For your group’s existing value chain, do the following – Identify an upgrading vision, as well activities to implement viz.: • What are the strategies required • What types of upgrading does it involve • How would it look visually in your chain? – Where are the constraints in your vision? Map these, along with the opportunities, in your value chain diagram • Use for opportunities, for constraints – Which chain actors and enablers could facilitate these upgrading strategies, and where might capacity strengthening be needed?
  • 83. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 4: Distributional issues • Value chain analysis can be used to identify who gains and who loses in value chains. • It can also be used to assess the impact of different upgrading strategies … sort of • One component of this is calculating how value-added is distributed among chain participants
  • 84. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Step 4: Distributional issues • An overlooked component of distributional aspects is that the size of the pie is as important, if not more so, than the distribution. • Policies that increase total value chain profits benefit all actors, even if particular shares for some are small. • Both issues need to be taken into account.
  • 85. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Farmers Traders Processors Retailers Farmers Traders Processors Retailers Same share of a bigger pie?
  • 86. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt Farmers Traders Processors Retailers Or, larger piece of the same pie? Farmers Traders Processors Retailers
  • 87. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt • How do we do this in the field? – Stakeholder interviews – Focus groups – Semi-structured interviews – Primary surveys – Supplementary secondary data – Personal observations – Other “creative” techniques (e.g. flagging down trucks) Methods of data collection
  • 88. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt What are the strengths of value chain analysis? • It is systematic: it provides a tested, peer-reviewed, and organized analytical framework to look at value chains that is multi-disciplinary in approach • It provides a holistic overview of the supply chain, actors, and relationships, based on fieldwork and primary data collection with key stakeholders
  • 89. Norwegian Institute of International Affairs Norsk Utenrikspolitisk Institutt What are the weaknesses of value chain analysis? • Over-emphasis on constraints, under-emphasis on solutions • Ignorance of feedbacks present in value chain • Lack of quantitative rigor: difficult/impossible to rank policies to improve value chains and smallholder participation • Limited insights on how to put recommendations into action: how do we capture innovation processes to add value for smallholders?