Introduction to Value Chain Development
The USAID value chain approach is a powerful tool to create wealth in poor communities and to promote equitable economic growth. To ensure that the poor are not left out of economic growth strategies, this approach focuses on linking micro and small enterprises (MSEs) into global, regional and local value chains (through linkages with larger firms).
USAID’s value chain approach seeks to understand how and when MSEs can successfully compete in growing value chains, targeting sectors where the poor are concentrated—agriculture, natural products, and labor-intensive industries. The approach then works to improve the competitiveness of industries (or value chains) in which significant numbers of small firms participate while addressing the constraints that hinder MSEs’ potential contributions to and benefit from value chain growth.
Assisting low-income entrepreneurs to compete in globalized markets (either export-oriented or affected by imports) where they have a comparative advantage requires an integrated approach to addressing the constraints and opportunities along the value chain and within the enabling environment in which the value chains operate. USAID’s value chain framework for analyzing value chains includes the business enabling environment, end market competitiveness, inter-firm cooperation, firm-level upgrading and the relationships between firms that create incentives or disincentives for investing in improved performance (or upgrading). This framework offers a systematic look at MSEs in markets and an approach by which MSEs can become more viable partners in their country’s key industries, earning higher incomes, generating more jobs, and contributing to economic growth.
Key Background Resources
The documents below are general references on value chains and are meant to provide a background on the value chain approach from the perspective of researchers and donors. A Handbook for Value Chain Research: This guide aims to assist researchers in formulating and executing value chain research and conducting value chain analyses, particularly with a view to framing a policy environment which will assist poor producers and poor countries to participate effectively in the global economy.The Governance of Global Value Chains: This seminar work by Gary Gereffi, John Humphrey, and Timothy Sturgeon builds a theoretical framework to help explain governance patterns in global value chains. It draws on three streams of literature – transaction costs
economics, production networks, and technological capability and firm-level learning– to identify three variables that play a large role in determining how global value chains are governed and change.
Integrating SMEs in Global Value Chains: Toward Partnership for Development: This report explores the changing role of the private sector in economic and industrial development and how the insertion of SMEs into global value chains can contribute to SME development. This research from the University of Sussex assesses the measures that can be taken to promote partnerships with the private sector.
Local Enterprises In The Global Economy: Issues Of Governance And Upgrading: Hubert Schmitz edited this 2004 book that examines the upgrading strategies used by local enterprises in industrial clusters in Europe, Latin America, and Asia to have market share in the global economy. The book provides a number of perspectives on challenges and approaches to upgrading.
Understanding the USAID Value Chain Framework
The following key documents outline USAID’s value chain approach to microenterprise development, and provide a foundation for understanding USAID’s strategies and methodologies in using the value chain framework.A Value Chain Framework for Economic Growth That Reduces Poverty: This briefing paper provides an overview of the Value Chain Framework as an effective tool for identifying and analyzing the relationships between firms to effectively design donor-sponsored economic growth interventions that reduce poverty by increasing the competitiveness of an industry and the firms within that industry.
A Value Chain Framework for Economic Growth That Reduces Poverty: Presentation delivered by Jeanne Downing, of the USAID Microenteprise Development office, in July 2005.
Key Elements of the Value Chain Approach: This briefing paper outlines some of the key elements of the value chain approach as articulated and promoted by USAID’s Microenterprise Development office. The value chain approach is used to drive economic growth with poverty reduction through the integration of large numbers of small enterprises into increasingly competitive value chains.
Globalization and the Small Firm: A Value Chain Approach to Economic Growth and Poverty Reduction: This AMAP publication explores how micro and small enterprises (MSEs) and the industries they dominate can compete in globalized markets. The paper argues that linking the poor to growth opportunities is crucial to generating sustainable economic growth with poverty reduction.
Lexicon: This AMAP publication defines the common terminology in key value chain concepts.
The New Generation of Private-Sector Development Programming: The Emerging Path to Economic Growth with Poverty Reduction: This AMAP report presents a conceptual framework for understanding the new generation of private-sector development (PSD) programming developed since the mid-1990s by USAID and other donors. The framework offers an exploratory model of PSD and defines the range of options open to donors seeking to accelerate and/or improve PSD in developing and transition economies.
See the "Linking Small Firms to Competitiveness Strategies" Breakfast Seminar Series page for additional presentations on value chain methodologies and approaches.
Key Websites
Re-Governing Markets: This site supports a collaborative research project that analyzes the growing concentration in the processing and retail sectors of national and regional agri-food systems and its impacts and implications for rural livelihoods and communities.
Global Value Chain Initiative (GVCI): The GVCI is an industry-centric view of economic globalization that highlights the linkages between economic actors and across geographic space. The Initiative is supported by the Rockefeller Foundation, and seeks to consolidate and foster the global value chains (GVC) perspective. The site provides the results of research related to value chains on a range of industries and activities from agriculture, to services, to manufacturing, as well as practical resources such as manuals and handbooks.
BDS Knowledge: BDS Knowledge is an inter-agency website for the exchange of information on service markets. While its origins are in Private Sector Development, the site is dedicated to systemic approaches: developing whole markets for services to maximise scale and outreach.
The Future of Small Farms: Proceedings of a Research Workshop: This section of the International Food Policy Research Institute's website provides a number of useful resources from a 2005 international conference on the subject of "The Future of Small Firms." Resources include information on topics including the role of agriculture in pro-poor growth; market opportunities: markets, trade, and competitiveness; and smallholder farming in difficult circumstances.
WIEGO: Women in Informal Employment: Globalizing and Organizing (WIEGO) is a global research-policy network that seeks to improve the status of the working poor, especially women, in the informal economy through better statistics, research, programs, and policies and through increased organization and representation of informal workers.
Donor Committee for Enterprise Development: The Donor Committee, composed of representatives of bilateral and multilateral donor organizations, promotes enterprise development, particularly for small enterprises, in developing countries. It provides a forum, in which member agencies can exchange information about their programmes, and the lessons learned through those programmes.
The SEEP Network: The SEEP Network is an organization of more than 50 North American private and voluntary organizations that support micro and small business and microfinance institutions in the developing world. Its mission is to advance the practice of micro and small enterprise development among its members, their international partners, and other practitioners.