Value chain promotion is considered a key element of private sector development strategies and pro-poor growth. However, (value) chain concepts are rather complex and unclear.

This paper unravels the concept of global value chains and studies the diversity of key value chain-related (supply chain, commodity chain, value chain) approaches. To this aim, we reviewed academic literature and donor agencies’ reports, and consulted a limited number of key informants of donor agencies. This paper distinguishes between the strategic management perspective and the development perspective and reviews added values and limitati ons of each approach. The results suggest that practioners use an eclectic approach towards the value chain concept, although the concept originates from clearly distinctive paths and could be susceptible to miscommunication and misuse. The authors avoid misunderstanding by explicitly opting for a public and pro-poor perspective of the concept of the Global Value Chain

Drost, S. (Sarah)

Vellema, S.R. (Sietze)

Wijk, J.C.A.C. (Jeroen) van

Erasmus University Digital Repository

DEVELOPMENT VALUE CHAINS MEETBUSINESS SUPPLY CHAINS: The concept of Global Value Chains unraveled.Value chain promoti on is considered a key element in the development strategy of corporati ons and other actors to promote sustainable development and poverty alleviati on. However, value chain is a complex and diffi  cult concept to grasp as it appears in a number of academic literature streams that have diff erent theoreti cal backgrounds and focus. The diversity of forms and defi niti ons are explored in this paper, where the authors make an overall disti ncti on between the strategic management perspecti ve and the development perspecti ve. They review added values and limitati ons of each approach. Since the concept is used by practi ti oners mostly via an eclecti c approach, it is suscepti ble to miscom-municati on and misuse. The authors avoid this by explicitly opti ng for a public and pro-poor perspecti ve. Strategic management perspecti ve compared with development perspecti veThe strategic management and development perspecti ves are the two most important/dominant schools of thought that govern the relati onship between value chains, corporati ons and development.      The Strategic Management Perspecti veThis perspecti ve has two primary focuses that are advocated by the two dominant streams of this literature: supply chain and Porters’ Value Chain. The focus of the supply chain theory is that the lead fi rm should manage the exchange of informati on and the movement of goods by improving the logisti cs as a means to reduce transacti on costs and im-prove effi  ciency. Porter’s Value chain on the other hand focuses on how a fi rm can organize its supply chain in order to outperform its competi tors. The focus is on value added to a product, however within an individual company. Goal is the maximizati on of profi ts by controlling and designing the supply/value chain in a way that will be most benefi cial for a lead or individual company.   Supply chain management Porters value ChainOrigin  Supply chain Management Supply chain managementPurpose It was developed to manage the total fl ow  It was developed to create competi ti ve advantage for  of goods from suppliers to the ulti mate user. a fi rm (through cost reducti on measures and   diff erenti ati on)Focus Improving logisti cal operati ons of the lead Improving competi ti ve advantage of individual fi rms   fi rm to increase effi  ciencyLimitati on Unsuited for analyzing social and Focusing solely on one company and unsuited for  environment sustainability analyzing social and environmental sustainabilityDevelopment Perspecti veIn contrast to the strategic management perspecti ve, commodity/value chain concepts from a development perspec-ti ve are concerned with the whole process of value creati on from primary processing to consumpti on, instead of mainly focusing on the ‘retail side of the chain’. This perspecti ve incorporates the linkage between networks, households, coun-tries and societi es in general into the analysis of the value chain. In additi on to this it analyses the diff erent value add-ing acti viti es of all parti es involved in the chain. Furthermore, the analysis shows how fi nancial, material, and human resources are allocated and fl ow within a chain as a result of power relati ons. This level of analysis off ers a new paradigm for practi ti oners as well as According to Bair (2009), the ‘global chains’ literature started with the world-systems tradi-ti on of macro- and long-range historical analysis of commodity chains (Hopkins and Wallerstein 1986), was elaborated with the Global Commodity Chain (GCC) concept of Gereffi   (1994) and others within a politi cal economy of development perspecti ve, and was fi nally developed into the Global Value Chain concept; clearly inspired by its GCC predecessor, however, also derived from other theoreti cal and disciplinary affi  niti es (see next paragraph). Global commodity Chain Global Value ChainOrigins World System Theory World System Theory, Global Community Chain Added Value Developed a new paradigm to handle  Develop a model to analyze the governance of global distributi on of wealth along the value chain, value chains. Model was developed by analyzing the spurring development along the chain. levels of coordinati on, power asymmetry, capability   as well as the transacti on costs that exist between   partners. Focus Enti re length of the global supply chain with Create a bett er understanding of the dynamics of an emphasis on the eff ect on countries the value chain. Including the importance of  manufacturers in establishing the rules of the gameLimitati on Minimal defi niti on of GCC; regulati ons and GVC is not comprehensive enough as value insti tuti onal factors have not been factored chains are embedded in broader relati onships.  into the theory; rigid classifi cati on of chains The Global Value Chain (GVC) concept originated out of the Global Commodity Chain (GCC). The GCC disti nguishes value chains on the basis of the power relati ons that exist between producers and buyers in primary and industrial sectors. The GCC identi fi es the power structure within the chain, that determines how fi nancial, material and human resources are allocated and fl ow within it. In a buyer driven chain, such as fashion retailers, manufactures have decentralized produc-ti on networks while in producer driven chains, the aerospace industry for example, the manufacturers have control and power within the chain. Global commodity Chain Global Value ChainOrigins World System Theory World System Theory, Global Community Chain Added Value Developed a new paradigm to handle Develop a model to analyze the governance of global distributi on of wealth along the value chain,   value chains. Model was developed by analyzing the spurring development along the chain. levels of coordinati on, power asymmetry, capability as  well as the transacti on costs that exist between partners. Focus Enti re length of the global supply chain with an Create a bett er understanding of the dynamics of the  emphasis on the eff ect on countries value chain. Including the importance of manufactur-  ers in establishing the rules of the game Limitati on Minimal defi niti on of GCC; regulati ons and GVC is not comprehensive enough as value chains are  insti tuti onal factors have not been factored embedded in broader relati onships.  into the theory; rigid classifi cati on of chainsBuilding on the work of the GCC, the GVC concept identi fi ed three criti cal variables that determine the structure of a value chain: the complexity of transacti ons, the ability to codify transacti ons, and the capabiliti es in the supply-base (e.g. highly knowledgeable users, such as manufacturers in the automobile industry). GVC increased the understanding of value chains by providing explanati ons for the existence of entry barriers and unequal access to markets as well as the uneven power and wealth distributi ons along the chain. The importance of the manufacturers in the global chain is emphasized by the GVC as manufactures can aff ect the rules of the game due to their specializati on and their knowhow. The GVC also identi fi ed fi ve types of value chain governance that are: hierarchy, capti ve, relati onal, modular, and market. These types range from high to low levels of explicit coordinati on and power asymmetry and next to this, they range in transacti ons costs of switching to new partners (i.e. in a market type of governance the costs of switching to new part-ners are low for both parti es). Figure 1: History of the GVC conceptSource: own compilati onThe practi ti oner approach to GVCThere is a need for developing country governments and donor agencies to bett er understand the dynamics of value chain integrati on, and to assess its risks and opportuniti es especially for poor persons in developing countries. Prac-ti ti oners (development workers, trainers and government workers) are mainly concerned with the questi on of how economic actors can gain access to the skills, competences and supporti ng services required to parti cipate in global value chains. In general, practi ti oners construct an operati onal concept by synthesizing the diverse range of literature on supply/value chains. A reason for this eclecti c use of sources could be that NGO’s experience diffi  culti es in adopti ng both pro poor growth and commercial objecti ves, and therefore apply knowledge on supply/value chains from both development and business literature. The pro-poor growth strategy (practi ti oner approach) clearly disti nguishes itself from the supply chain management as the latt er aims at opti mizing the logisti cs of input sourcing and marketi ng in order to achieve profi ts from the perspecti ve of a parti cular company. While the practi ti oners approach, GTZ (Deutsche Gesellschaft  für Technische Zusammenarbeit) for example develops elaborate models to promote economic development within a value chain perspecti ve. According to GTZ the value chain promoti ons harness market forces to achieve development goals. This concept evolved from a public perspecti ve and aims at economic growth as a means to achieve poverty alleviati on. Global Value Chains: Partnership resource center defi niti onSince the paper highlights the clearly disti ncti ve paths the value chain concept originates from, this can easily lead to miscommunicati on and misuse. Therefore, the authors wish to make the path and history of their concept of preference explicit. For their defi niti on, they adopt insights of the Global Value Chain Initi ati ve, since it evolved from a public per-specti ve and aims at economic growth as a means to achieve poverty alleviati on. In additi on, it is apt for studying social and environmental sustainability, governance and uneven power and wealth distributi ons along the chain.Neo-Liberalism1990: GCC Gereffi  World Systems1980: CCHopkins & Wallerstein2000: GVCGereffi   et al.GPN1985: Porter’s Value System1982: SCM Oliver & Webber1960 Filière1960 Subsector1960 1970 1980 1990 20001995 Global Sourcing/ off shoringSustainable pur-chasing manage-ment (SPM)Defi niti on used by the Partnership Resource CentreThis defi niti on combines insights form the Global Value Chain Initi ati ve and GTZ. The Global Value Chain Initi ati ve de-fi nes a value chain as “the full range of acti viti es that fi rms and workers do to bring a product from its concepti on to its end use and beyond. This includes acti viti es such as design, producti on, marketi ng, distributi on and support to the fi nal consumer.” GTZ states that: “All operators adding value to a parti cular marketable product on its way from raw mate-rial to the fi nal consumer are considered part of the chain. Value chain promoti on harnesses market forces to achieve development goals. The GVC concept evolved from a public perspecti ve and aims at economic growth as a means to achieve poverty alleviati on. Value chains are not only an economic concept but also consti tute social systems in which people interact.”

Development Value Chains meet Business Supply Chains

http://repub.eur.nl/pub/77655/brief_development_value_chains.pdf

Development Value Chains meet Business Supply Chains

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