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 opportunities for small enterprises to become competitive.
Global value chain analysis offers a theoretical framework to understand the integration of firms into viable market system [
All firms are more or less embedded in network of firms [
The linkage approach and Porter’s value chain constitute the two most influential chain conceptualizations. The linkages approach, proposed by Hirschman [
During 1990s, the early filiere analysis was modified into a more comprehensive analytical framework called Global Commodity Chain (GCC) analysis. A global commodity chain is defined as a set of transnational interorganisational linkages that constitute the production, distribution and consumption of a commodity [
The global commodity chain analysis was subsequently replaced with a more general term, global value chain (GVC) analysis [8,12]. The GVC analysis mainly focused on the governance structure of value chains, where the lead firms, the governors of value chains have the capability 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 analysis from other chain conceptualizations, as referred above, is its emphasis on the typology of governance relations in value chains. Gereffi [
Another key concept widely used in GVC analysis is upgrading. Humphrey and Schmitz [
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 programs focus on improving the competitiveness of the industry/sector in which the firm operates [
Value chain development is fundamentally about strengthening market relationships so that businesses work better together to compete more effectively in the global market [
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 transaction costs; and 3) upgrade along the value chain (introduce product branding, new products, and improved version of existing products in the market faster than the rivals) [
There is increasing recognition that MSEs need specific business development services (BDS) to reach higher value markets and/or improving competitiveness [
BDS market development initiatives are increasingly becoming part of broad development initiatives rather than stand-alone programs for provision of BDS services to individual entrepreneurs [
The BDS market development process start by understanding 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 [
In response to MSE’s 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 communication technologies; media sector services; and BDS finances [
The FIT program is an example of successful private sector supply of BDS in Uganda [
Another example of successful private sector supply of BDS under FIT program involve a participant of the ILO sponsored training program called Improve your Business Training, who offered fee based training to [her] fellow enterprises. The commercial small enterprise radio program initiated by FIT provides market information and promote interaction among small enterprises and BDS suppliers. They have been instrumental in eliminating policy bottlenecks and opening markets for milk traders and fishermen, increasing safety and sanitation in physiccal markets, and reducing electrical and telecommunications costs. They reach over 300,000 listeners.
Action for Enterprise (AFE), with USAID funding, is developing the Shea subsector in Mali by improving its access to export markets, which benefit a large number of rural women who harvest and process Shea nuts [
The project team started by exploring the potential for exporting higher value Shea butter, which included market research and development, Shea butter quality assessment, and assessment of constraints to market penetration. The project then attempted to induce exporters to invest in production and supply chain improvements that would result in a more marketable product. These activeties included facilitating contact with international buyers, promoting Mali Shea butter and suppliers via a website, building the capacity of exporters to respond to buyers with quotes and professional samples, and troubleshooting logistical (packaging and transportation) issues, many of which involved sharing costs with exporters and buyers.
In view of the comparatively poor quality of Mali’s Shea butter and high cost logistics, the opportunities for exporting high quality Shea butter went mostly to neighboring countries, notably Ghana. However, opportunities for exporting high quality Shea kernels materialized through contact with European buyers and were developed as a means of promoting quality improvements to the raw material for Shea butter and increases in rural incomes of Shea kernel suppliers. In addition, exporters viewed investments to improving Shea kernel quality as more manageable and less risky in view of the significance of the market opportunity. At this point, the project team helped exporters improve their supply chain by improving the linkages between exporters and their suppliers, and between suppliers and women Shea gatherers. The project team helped exporters organize their suppliers, for example, by carving out territory for each one to cover. AFE developed training materials and trained exporters to use these materials in training their Shea traders. Some topics included were: Shea quality criteria, operational procedures for procuring and handling Shea kernels, financing policies and arrangements, attracting Shea gatherers, and communicating with and providing technical guidance to Shea gatherers. The project also developed and cost-shared new types of promotional activities, such as radio spots to inform Shea gatherers of the opportunity and quality concerns. Costs were kept low and techniques simple so that exporters could easily replicate the strategies once the project ended. According to project management, building these linkages required steady attention to the expectations and issues of market players in order to coax the process forward in a sustainable manner. This meant finding a balance between too much and too little involvement. For example, when project staff learned that both the importer and the exporter were looking for communication from each other and not getting it, project staff coached each party to take the initiative to send an e-mail, rather than transmitting the information themselves. Although this coaching role takes longer than more direct involvement, it establishes more durable market linkages.
This is a Ford foundation assisted project that operates in 200 villages in Muzaffarpur region in India [
A vast literature on value chains and BDS market development provide evidences on small firm’s access to market. Humphrey and Alemann [
Several organizational forms and business models have emerged for facilitating MSE’s integration into market. Jenkins et al. [
A study by Harilal et al. [
Harper [
Deka and Kumar provide the experience of PRADAN, a national level NGO in India working on development of small holder poultry in Madhya Pradesh [
International Development Enterprises (IDE) Nepal is helping small and marginal farmers in remote rural areas to increase production from subsistence to commercial levels [
The Tripple Trust Organisation (TTO) in Africa is strengthening the links between spaza owners (small retail shops) and product manufacturers and wholesalers who are interested in penetrating the township market [
There is increasing evidences on MSE’s access to a variety of business services as a result of inclusion in value chains. Kashyap [
Manaktala [
A study by the International Labour Organization [
In Kenya, Tototo Home Industries is providing business services to a large number of women’s groups [
The FIT program in Ghana and Kenya facilitate commercial BDS market for MSEs [
The various chain conceptualizations, particularly the global value chain analysis provide a framework to map and analyze the spatially dispersed and organizationally complex production networks that are an important aspect of economic globalization. The studies in global value chain analysis examined market integration of firms in terms of inter-firm relations, governance relations and upgrading practices. It is well recognized that integration into global value chain improves firm’s competitiveness. The integration of small firms into global value chains is an emerging area of research. In recent years, there is an increasing effort in linking small producers into high value market.
Value chain development and BDS market development constitute two widely used approaches in integration of small producers into market. While value chain development emphasizes on strengthening market relationships, the BDS market development aims to improve sector competitiveness through creating a viable market for business services. Most of the studies dealt with value chain business models and experiences of agencies promoting value chain development. Experiences of promoting pro-poor value chain suggest that integration small producers in to global/local value chains provide opportunities for them in improving their competitiveness.
An important outcome of the value chain development and BDS market development, as revealed by several studies, is the improved market access for small producers. This market access is made possible by strengthening of inter-firm relationships, fostering collective action and creating an enabling business environment. Several models of integration have emerged. In most cases the small producers are facilitated to work in groups/producers’ organization. Another commonly found linkage model is the initiative of a lead firm.
Developing a market for business services is an important aspect of integration of small producers into the market. In most cases, small producer’s access to business services is made possible through inter-firm linkages and developing market for business services. Unlike the traditional approach to provision of BDS involving subsidized training or market support, the BDS market development emphasize on private provision of business services. The emphasis is on building capabilities of the BDS providers to extent cost effective BDS to small producers. A key learning from BDS market development and value chain development is that even the smallest producers will also be able to benefit from market integration, by creating appropriate models of market integration.
The author gratefully acknowledges the support and encouragement received from Dr. Samapti Guha, Dr. Satyajit Majumdar and Dr. Bino Paul, Professors in Tata Institute of Social Sciences (TISS), Mumbai, India, for preparing this paper. The author also acknowledges the constructive suggestions from the anonymous referees for revising the paper.