COLLABORATING TO COMPETE – THE VALUE OF TRUST AND INTER-FIRM COOPERATION

1. COLLABORATING TO COMPETE –THE VALUE OF TRUST AND INTER-FIRM COOPERATION Ruth Campbell, ACDI/VOCA Rob Henning, OTF Group September 4, 2008

2. INTER-FIRM RELATIONSHIPS IN THE CONTEXT OF VALUE CHAINS

3. Global Retailers Global Enabling Environment Sector specific providers National Enabling Environment National Retailers Cross-cutting providers Sector specific providers Exporters Wholesalers Financial (cross cutting) Processors/Traders Cross-cutting providers Producers Financial (cross cutting) Input Suppliers THE USAID VALUE CHAIN FRAMEWORK Global Retailers National Retailers Exporters Wholesalers Processors/Traders Producers Producers Input Suppliers

4. WHY INTER-FIRM RELATIONSHIPS MATTER • Enable firms to respond to market demand • aggregate product • achieve economies of scale • address shared constraints • marketing, lobbying • Facilitate transfer of information, skills and services • buyers • suppliers • peers COOPERATION

5. WHY INTER-FIRM RELATIONSHIPS MATTER • Enable firms to respond to market demand • aggregate product • achieve economies of scale • address shared constraints • marketing, lobbying • Facilitate transfer of information, skills and services • buyers • suppliers • peers COMPETITION

6. WHY INTER-FIRM RELATIONSHIPS MATTER • Provide incentives for upgrading: • increase price-efficiency • improve quality • introduce innovation COMPETITION

7. WHY INTER-FIRM RELATIONSHIPS MATTER • Too little cooperation: • Industry unable to grow • Dominated by integrated firms • Too little competition: • Non-responsive to customers • Lose market share

8. ASSESSING VALUE CHAIN RELATIONSHIPS AND ATTITUDES

9. LOW PRICES LEAD TO LOW WAGES Context: Burundi Coffee Communications Campaign • OTF Group hired to design a communications campaign to support the reform of coffee industry. • Burundi’s coffee sells at a steep discount to next door Rwanda • A key constraint to competitiveness: lack of cooperation and common vision among stakeholders.

10. 4 MENTAL MODELS SEGMENTS • Comparative Advantage: • short-term focus, government economic leadership, and reliance on natural endowments. • Competitive Advantage: • long-term focus, private sector leads the economy, free market creates prosperity. • Cautious Followers: • long-term focus, but government leads the economy. • Need Change Now: • short-term focus, private sector leads the economy.

11. Urgent Need Change Now Need for Change Competitive Advantage Comparative Advantage Cautious Followers Not Urgent Comparative Source of Advantage Competitive = 20% of respondents SEGMENTATION OF ATTITUDES AND BELIEFS Source: OTF Group Survey of Burundi’s Coffee Value Chain, May & June 2007, n=262.

12. THE 4 FACES OF BURUNDI’S COFFEE SECTOR Ludoviko, Coffee Grower Salvator, Coffee Board Frédérique, Private Investor Fidélité, Washing Station Comparative Advantage Competitive Advantage Need Change Now Cautious Follower « I want the government to stay involved in the sector because I don’t think the private sector will help us…» « Everyone will win with the reform of the sector. Private investors can’t win in the specialty market with sharing revenues with the producers… » « Liberalization and privatization will be a good thing for the country, but we should go slowly … » « OCIBU (the coffee board) needs to get out of the coffee business. It is making the entire sector inefficient. »

13. COMMUNICATIONS STRATEGY OBJECTIVES • Create a common vision • of a competitive Burundian coffee sector. • Promote cooperation vertically • coffee growers, washing stations, exporters • Reinforce horizontal competition • to encourage innovation and continuous quality improvements.

14. Key Messages Positive Attitudes Constraints Regulation by the government will ensure everyone’s best interests. Quality begins with you and leads to higher prices. Push The private sector cannot win without a partnership with coffee growers. Liberalization is effective and privatization is certain. Pull COMMUNICATIONS STRATEGY – COFFEE GROWERS

15. TRANSFORMING VALUE CHAIN RELATIONSHIPS

16. INCREASING COOPERATION • Support transparency • transparent pricing • explicit contracts • objective quality standards

17. INCREASING COOPERATION • Support transparency • Reduce risk • guarantees • risk-sharing mechanisms • create a “safe space”

18. INCREASING COOPERATION • Support transparency • Reduce risk • Identify quick wins

19. INCREASING COMPETITION • Encourage non price-based competition

20. INCREASING COMPETITION • Encourage non price-based competition • Strengthen multiple relationships • among MSEs • between MSEs and input suppliers or service providers • between MSEs and multiple buyers

21. INCREASING COMPETITION • Encourage non price-based competition • Strengthen multiple relationships • Make MSEs attractive • development of associations • product improvement • branding • alternative financing

22. COOPERATION AND COMPETITION • Sufficient cooperation: • Industry able to grow • MSEs able to contribute and benefit • Sufficient competition: • Responsive to consumer demand • Innovate to increase market share

23. Inter-firm Relationships: Why they matter and how we can analyze and transform them COMMENTS?QUESTIONS?www.microlinks.org/breakfast