Shaped__省略_veforChineseSmes_Pyramid__Liu.docx

Copyright © 2013 SciRes. AJIBM American Journal of Industrial and Business Management, 2013, 3, 28-35 http:/dx.doi.org/10.4236/ajibm.2013.31004 Published Online January 2013 (http:/www.scirp.org/journal/ajibm) Value Chains and Small Enterprise Development: Theory and Praxis Edakkandi Meethal Reji School of Management, Centurion University of Technology and Management, Odisha, India. Email: rejimalayilgmail.com Received July 28th, 2012; revised August 30th, 2012; accepted October 1st, 2012 ABSTRACT Drawing insights from the literature on global value chains and similar approaches, it is argued that adopting a value chain approach could help Micro and Small Enterprises (MSEs) to gain from the benefits of integration into global/local value chains and making them competitive. This paper reviews the theoretical perspectives in value chains and the emerging market development paradigm for small enterprise development. It provides evidences from experiences of practitioners and development agencies on the adoption of value chain approach as a facilitation tool for integrating MSEs into market. The evidence from literature suggests that adopting a value chain approach provides enormous op- portunities for small enterprises to become competitive. Keywords: Value Chain; Micro and Small Enterprises; Competitiveness 1. Introduction Global value chain analysis offers a theoretical frame- work to understand the integration of firms into viable market system 1. Global value chain studies, mostly dealt with the process of integration of developing coun- try firms into the value chains of large firms in developed countries, examined the inter-firm relationships, govern- ance and upgrading practices by which firms improves their competitiveness. It is well established that integra- tion into global value chain helps the firms to improve their competitiveness. However, how far these new win- dows of opportunities are available to small producers is relatively unexplored. Integration of small scale produc- ers into market is constrained by a host of factors: small size, limited access to resources, information, skills, tech- nology and access to other business services. Integration of small scale producers into high value market is a topic of current interest. Value chain approach is widely used as a tool to facilitate this process of market integration. Unlike the traditional approaches to enterprise develop- ment, the value chain development emphasizes on facili- tating market linkages, developing business services mar- ket and improving the environment in which enterprises operate. Although much works have been done to define and conceptualize the idea of value chain and similar programmes, the concept is still in its evolution. It is ar- gued that adopting a value chain approach could help the small producers to benefit from integration into high value markets and improving their competitiveness. This paper examines how a value chain approach facilitate the process of integration of Micro and Small Enterprises (MSEs) in to high value market. The key sections of the paper covers: 1) concept of value chains; 2) approaches in integrating MSEs into market; 3) the current practices and emerging results from value chains and business ser- vice market development followed by summary of obser- vations and conclusion. 2. The Concept of Value Chains All firms are more or less embedded in network of firms 2. The value chains provide a theoretical understanding for this network firm paradigm 3,4. A value chain con- stitutes whole range of discrete, though interrelated, ac- tivities involved in the design, production and marketing of a product 5. Various chain conceptualizations men- tioned in the literature include: filiere approach 6, lin- kage approach 7, Porters value chain 5, commodity/ global commodity chain 8 and the global value chain analysis 9. All of them deal with the flow of products and services along the chain, relationships between firms and co-ordination of production chains. The linkage approach and Porters value chain consti- tute the two most influential chain conceptualizations. The linkages approach, proposed by Hirschman 8 ar- gues that investment in a firm produces demand effects that induce subsequent investment (backward linkages) by input suppliers. Porter 5 used the concept of value chain to explain firms competitive advantage within an Copyright © 2013 SciRes. AJIBM Value Chains and Small Enterprise Development: Theory and Praxis 29 industry. Porter used the concept to include all of the activities that a firm performs to design, produce, market, deliver and support its product. The filiere approach ori- ginally dealt with the vertical integration of firms in ag- riculture trade 6. It focused to map the actual commo- dity flows and to identify the agents and activities within a filiere (chain), which is viewed as a physical flow chart of commodities and transformations. During 1990s, the early filiere analysis was modified into a more comprehensive analytical framework called Global Commodity Chain (GCC) analysis. A global com- modity chain is defined as a set of transnational inter- organisational linkages that constitute the production, dis- tribution and consumption of a commodity 10. A major difference between these two approaches is that the fil- iere approach focused specifically on agricultural com- modities, but the GCC analysis focused on manufactur- ing firms in which economic integration goes beyond international trade in raw materials and final products. The GCC analysis has emerged as a framework to map and analyse the spatially dispersed and organizationally complex production networks that are an important as- pect in economic globalization 11. The global commodity chain analysis was subsequen- tly replaced with a more general term, global value chain (GVC) analysis 8,12. The GVC analysis mainly fo- cused on the governance structure of value chains, where the lead firms, the governors of value chains have the ca- pability and power to define and impose the parameters of contracts and subcontracts in their supply chain. One of the important distinctions of global value chain analy- sis from other chain conceptualizations, as referred above, is its emphasis on the typology of governance relations in value chains. Gereffi 9 identified two different govern- ance types: “buyer driven” and “producer-driven”. The buyer-driven chains are led by large retailers, branded marketers and trading companies; while producer driven chains are led by capital and technology-intensive firms. Building on these two concepts, Gereffi and Sturgeon 13 later developed a typology of governance relations con- sisting of five governance categories involving: arms length, modular, relational, captive and hierarchical, that has implications on governance structure of the value chains. Another key concept widely used in GVC analysis is upgrading. Humphrey and Schmitz 14 developed four typologies of upgrading that involves: process upgrading (enhanced efficiency), product upgrading (higher unit value through increased sophistication), functional up- grading (increasingly concentrating on skill content), and inter-chain/sector upgrading(moving up to a more profi- table GVC in another sector), that have significant im- pact on the competitiveness of the firms in the value chain. The GVC analysis provided new practical insights on governance structures and upgrading opportunities of the firms in the value chains of textiles and clothing 9, fresh fruits and vegetables 15, commodities such as woo- den furniture 16 and leather products 10. 3. Approaches in Integrating MSEs into Viable Market System 3.1. Value Chain Development In recent years, the concept of value chain is widely used as a facilitation tool for integrating small enterprises into high value market. The value chain development pro- grams focus on improving the competitiveness of the industry/sector in which the firm operates 17. The core of the value chain approach is the recognition that, the strategies for enterprise development needs to focus on the entire value chain rather than focusing on a particular aspect of provision of credit or input supply. The value chain approach emphasizes on identifying the opportuni- ties for and constraints to industrial growth by consider- ing the value chain actors (firms), linkages among firms, supporting markets, end markets, and the business ena- bling environment at all levels 18. The value chain ap- proach also emphasizes on other factors that influence the chains performance, including access to and the re- quirements of terminal markets, the legal, regulatory and policy environment, and the availability and quality of support services such as financial services, equipment ma- nufacture and repair, business management services and information technology. Value chain development is fundamentally about streng- thening market relationships so that businesses work better together to compete more effectively in the global market 19. Kula et al. 18 provides a step-by step guide to intervention design for achieving competitive- ness that benefits the poor: first industries are selected with potential for competitiveness, and then a value chain analysis is carried out; a strategy is developed to improve competitiveness and achieve an equitable distribution of benefits; an action plan is devised to achieve this strategy; and finally a system of performance monitoring and im- pact assessment is devised to evaluate the effectiveness of value chain interventions. It is argued that integration into value chains helps the small firms to: 1) increase the efficiency of its internal operation; 2) develop inter-firm linkages that reduce tran- saction costs; and 3) upgrade along the value chain (in- troduce product branding, new products, and improved version of existing products in the market faster than the rivals) 20. Studies also reveal that, by forging extensive collaborative ties between the firms facilitate: sharing of knowledge, technologies and inputs 21; develop greater responsiveness to global demands 22; and attain greater export levels as a result of collective efficiency 23 and Copyright © 2013 SciRes. AJIBM 30 Value Chains and Small Enterprise Development: Theory and Praxis improving competitiveness. 3.2. Business Service Market Development There is increasing recognition that MSEs need specific business development services (BDS) to reach higher value markets and/or improving competitiveness 24. However, the MSEs in general are constrained to access these business services. An important component of the most of the value chain development programs is the fa- cilitation of BDS market. BDS refers to the wide range of services used by entrepreneurs to help them operate effi- ciently and grow their businesses 25. Formerly known as “non-financial services” the field originally concen- trated on providing training, consulting, and other ser- vices that addressed the internal constraints of enter- prisestheir lack of education and technical capacity. The SEEP Guide to Business Development Services iden- tified seven BDS categories that include: market access, input supply, technology and product development, train- ing and technical assistance, infrastructure, policy/advo- cacy and alternative financing mechanisms. More recen- tly, the BDS field has grown to include marketing services and information resources that help firms gain access to services usually enjoyed only by larger firms. BDS market development initiatives are increasingly becoming part of broad development initiatives rather than stand-alone programs for provision of BDS ser- vices to individual entrepreneurs 26. The BDS market development aim to improve sector competitiveness, develop the private sector, and help micro-enterprises to compete in global markets. The BDS market develop- ment proposes a new vision for success, one that looks like a healthy, private-sector, business services market: numerous, competitive BDS suppliers who sell a wide range of BDS commercially, to large numbers and types of small enterprises 25. The BDS market development process start by under- standing the existing supply of BDS from the private sector, donor supported programs and government, and the market failures that lead to a gap between supply and demand for services. The goal of market development interventions, thus, is to overcome these market failures and take advantage of opportunities to expand the service market for small enterprises. The desired result is that numerous small enterprises buy the BDS of their choice from a wide selection of products offered (primarily) from unsubsidised, private sector suppliers in a competitive and evolving market. McVay and Miehlbradt 27 provide a summary of various strategies used to promote business services to MSEs. Some of these strategies include: use of vouchers and matching grants, providing information to consumers that aim to expand the demand for BDS by making small enterprises aware of available services and potential be- nefits, help small enterprises overcome diseconomies of scale in purchasing BDS by enabling them to purchase services in groups by operating in clusters and networks, create or expand BDS embedded within business rela- tionships between them and other firms, build the capac- ity of new or existing BDS suppliers to profitably serve small enterprises through technical assistance, comer- cializing of new products through existing suppliers by assisting with product development, market testing and initial marketing of new products. In response to MSEs demand for business services, some common trends in delivery of BDS are emerging. Some of these common BDS practices include: common sector-common services; information and communica- tion technologies; media sector services; and BDS fi- nances 25. It is found that majority of the programmes in BDS have a sector focus. For example, programmes that targeting horticulture sector focuses on establishing sub-contracting, technical assistance to grow appropriate crops, micro-irrigation, organizing producer association/ groups, access to inputs and price information 28. Si- milarly, the BDS programs promoting animal husban- dry focuses on providing veterinary services at village level through paravets and on improving infrastructure for marketing of fresh products 29. Programs promot- ing handmade products (crafts) have a focuses on linking the producers with international/national markets through organizing trade shows, product development and design, continuous quality improvement, association and group development, ensuring adequate supply of inputs, sup- plies and funds 30. 4. Value Chain/Business Service Market Development in Practice 4.1. The Farm Implements and Too