Value Chain

Analysis

Olaf Kula
ACDI/VOCA
WHAT IS VALUE CHAIN ANALYSIS?

• Analysis of activities required to bring a product or

service from conception to end markets

Value Chain
Selection
Monitoring &
Impact
Assessment Value Chain
Analysis

Implementation Design
VALUE CHAIN ANALYSIS

Identify:
• greatest opportunities for improving industry performance from
upgrading
• constraints to those opportunities in chain and firms
• set of stakeholders in industry who will benefit from investments in
upgrading
• subset of this group with incentives, skills, resources and power to
help drive/make these investments
COMPONENTS OF VALUE CHAIN ANALYSIS

Value Chain
Selection na lysis
A
ar ket
Monitoring & M
End
Impact
Assessment
Value Chain Chain Analysis
Analysis
Comp
et itiven
ess A
nalys
is
Implementation
Design
A VALUE CHAIN ANALYSIS PROCESS

Opportunities for
Upgrading
na lysis +
A
ar ket Constraints to these
M
End Opportunities
+
Value Chain Chain Analysis Who has Incentives to
Analysis take advantage of these
Comp Opportunities
et itiven
ess A
nalys
is
END MARKET ANALYSIS

• Identify end-market opportunities, including:

– Differentiation
– New Market Entry
 i
END MARKET ANALYSIS a
t
• Trend analysis (Boston McKinsey Matrix)
e
– generally available from secondary sources D
– assists go-no-go decision

• Trade Leads
– identifies actual & potential buyers
– shifts analysis from market to buyer

• Buyer Surveys & Benchmarking

– psychological power (buyer’s voice)
– power of information (buyer identifies most important w
criteria) o
L
– positioning information
TREND ANALYSIS: BOSTON-MCKINSEY MATRIX

Growth in market share

Relative market growth rate

TRADE LEADS

. -
BUYER SURVEYS & BENCHMARKING

What do buyers want?

Quality
5
Innovative 4
Design Price
3
2
India
1
Italy
0
Flexible Response
Large Orders Time

Flexible
Punctuality
Small Orders
 End Market Analysis:
Understanding Global Markets

Video
A VALUE CHAIN ANALYSIS PROCESS

Opportunities for
Upgrading
na lysis +
A
ar ket Constraints to these
M
End Opportunities
+
Value Chain Chain Analysis Who has Incentives to
Analysis take advantage of these
Comp Opportunities
et itiven
ess A
nalys
is
CHAIN ANALYSIS

• Mapping
• Interviews with firms all along the chain
• Analyzing firm data using framework in order to get to
chain level opportunities and constraints
• Vetting and verifying
MAPPING

Why do we do mapping?
To understand the structure of the VC including:
• Markets
• Functions
• Actors
• Linkages
• Relationships

What mapping does not tell you:

• Dynamics
• Structure of the End-markets
• Finance and other Supporting Markets
• Business Enabling Environment
 MAPPING

Market Actors outside Fredonia

Chocolate/Confectionary Markets Cosmetic Markets

Multinational
Manufacturing Manufacturers
Multinational
Processors
and
Manufacturers
(e.g. Mars)
Processing Regional Multinational
Processors Processors
(Asia)

Multinational
Trading/Importing Traders
n>8

Exporting Local Multinational Local Regional ProcESS

Exporters Affiliate Exporters Proc. Proc.
n<5 n < 12 (CocoaMac .) (Mars)

Market Actors in Fredonia

Local Processing [80% of cocoa exports]

Local Traders Pilot

Collecting/Bulking Buying
Station
(ProcESS )

Local Collectors

Cocoa Bean Smallholder Farmers Legend :

Production n > 400,000 Raw cocoa beans
Processed cocoa products
(liquor, butter, cake, powder)
WHAT ARE WE ANALYZING?

1. End Market

Global Enabling Environment Global

2. Enabling Environment
Retailers

Local/ National Enabling

3. Inter-Firm Linkages National
Environment
– Vertical Retailers
– Horizontal Sector-specific Exporters
providers Wholesalers

4. Supporting Markets
Cross-cutting Processors/Traders
providers
5. Upgrading
Producers
Financial (cross
6. VC Governance cutting)
Input Suppliers

7. Relationships
ANALYZING VALUE CHAIN GOVERNANCE

Market Balanced Directed Hierarchy

Buyers Buyers
Major Integrated
Buyer Firm

Price

Suppliers Suppliers Suppliers

(Tomatoes) (Organic Coffee) (Export Crafts) (Cut Flowers)
ANALYZING RELATIONSHIPS

A competitive industry
tends to be based on
relationships
that are
commercial
and
mutually reliant
ANALYZING IMPACT OF RELATIONSHIPS

Global
Retailers

National
Retailers
Sector specific
providers Exporters Wholesalers

Processors/Traders Incentives
Cross-cutting Trust
providers
Information
Producers
Payment
Financial Products
(cross-cutting) Input Suppliers Services
providers
IDENTIFY PRIORITY OPPORTUNITIES AND THEIR
CONSTRAINTS

1. Where are the greatest opportunities?

2. What is/has kept these opportunities from being

exploited?

3. Locate the constraints to upgrading in the chain and

its firms
ANALYZING CONSTRAINTS: WHO WILL DRIVE CHANGE?

• Identify which stakeholders in industry will

benefit from investments in upgrading

• Who has incentives, skills, resources, and

power in marketplace to help drive/make these
investments

• Actions that buy-down private sector risk to

upgrading
A VALUE CHAIN ANALYSIS PROCESS

Opportunities for
Upgrading
na lysis +
A
ar ket Constraints to these
M
End Opportunities
+
Value Chain Chain Analysis Who has Incentives to
Analysis take advantage of these
Comp Opportunities
et itiven
ess A
nalys
is