ValueLink Concept

1. ValueLinkConcept G. Ch.-Trede APPLICATIO Training & Management GmbH

2. Facilitator / Consultant • E. Tamir • xxx • Gerelchimeg Ch.-Trede • MBA, with specialisation on economics, business management and marketing • 20 years of professional experience in SME and RED promotion, private sector development and business linkages • Southern Africa, Central Asia, Eastern Europa • Head of Asia department of APPLICATIO Training & Management GmbH, consultant and trainer for capacity building and international business linkages, value chain support and institutional development

3. Introduction Workshop objectives – Why we are here? • The ValueLinks Workshop aims at: • introducing all stakeholders to the Value-Chain Approach incl.: • exercising Value Chain • selection • mapping, • value added calculation, • strategy development • supporting networking and peer learning between the players

4. Contents A. The “ValueLinks Approach” B. Value Chain Selection

5. Introduction Workshop schedule – How to go there?

6. Introduction Workshop rules • Active team work • Promotion of networking and collection of ideas • Each cell phone ring: 1000 MNT are payable • Coming too late: 100 MNT per minute are payable

7. Do We Know Each Other? • Who is who? • Exercise „Profile“ • Name • Institution/Organisaton? • Role in Value Chain Promotion

8. Do We Know Each Other? Expectation I want… I don’t want…

9. A. ValueLinks Approach

10. The ValueLinks Approach What is a Value Chain? • the sequence of related business activities (functions) from the provision of specific inputs for a particular product to primary production, transformation, marketing and up to final consumption. • the set of enterprises and institutions that performs these functions i.e. the producers, processors, traders and distributors of a particular product. • a business model for a particular commercial product using a particular technology and a particular way of coordinating production and marketing. A Value Chain is always based on a final marketable product

11. The ValueLinks Approach What is a Value Chain Promotion? Value chain (VC) promotion thus harnesses market forces to achieve development goals. Value chain promotion is essentially a development approach – and clearly needs to be distinguished from supply chain management.

12. The ValueLinks Approach Goals of value chain promotion • To add value to the local products by ... • improvingproductquality • addingprocessingsteps • improvingsupplychainefficiency • andby ... • innovatingnewproducts • applying modern packagedesigns • fulfilling international standards • brandingtheproducts

13. The ValueLinks Approach Benefits of value chain promotion • Higher incomeforcraftsmen/farmers (throughbetterpricesand/orincreasedefficiency) • New markets for exporters or traders (throughimprovedquality, productinnovationsorbrandnames) • Stabletradingrelations(throughbetter linkages with local and international buyers) • Higher exportearnings • More investment • More jobs • Environmental sustainability

14. The ValueLinks Approach Pro Poor Growth (PPG) Pro-poor growth stresses the need to make the poor participate directly in the economic growth, and does not rely on social transfers.

15. The ValueLinks Approach Pro Poor Growth (PPG) ““Pro-poor growth” = greater employment and income of poor people Poverty alleviation = the poor benefit at least equally or above average from the income generated (poor get their “share of the cake”) Economic growth = greater volume sold, higher value products (“the cake grows”)

16. The ValueLinks Approach GIZ Concept of Value Chain Support “ValueLink” • ValueLinksis an evolving concept. In its present state, it embraces the generic methodologyof value chain promotion. • Of particular interest is its application to business opportunities at the bottom of the pyramid. • Promoting pro-poor growth can take different perspectives depending on the subsystem of the economy that is to be promoted.

17. The ValueLinks Approach GIZ Concept of Value Chain Support “ValueLink”

18. The ValueLinks Approach Concept: micro – meso – macro levels Functions directly related to the product Micro Traders (salespt.) Specific Input providers Packers, Agroindustry Consumersof pineapplejuice (themarket) Farmers, (primary producers) Meso Support functions benefiting all operators alike Fairs, joint marketing Public Research search, finances Advocacy/ common interests Information Markets, partners Promotion projects Collaboration Macro Functions supporting the business climate Legal framework: Food laws, taxes Political framework Sectorsupport Infrastructure : Roads, electricity, water

19. B. Value Chain Selection

20. The ValueLinks Approach GIZ Concept of Value Chain Support “ValueLink”

21. The Value Chain Selection Selection Process Definition ofCriteria Roughanalysisof potential chainsaccordingtocriteria (oversectorboundaries) Pre-Selectionof Chains Detailedanalysisofpre-selectedchainsaccordingtocriteria Selectionof Chain

22. The Value Chain Selection Classifying value chains - levels of aggregation (Example 1)

23. The Value Chain Selection • Exercise 1 • Group work • Identification of chains for Sub-sectors sheep’s wool and sea-buckthorn • Result: List of available chains

24. The Value Chain Selection • Exercise 2 • Group work • Setting up of selection criterion • Weighting of criterion according to priority • Result: List of criterion and their severity

25. The Value Chain Selection Economic criteria

26. The Value Chain Selection Socialcriteria

27. The Value Chain Selection Environmental criteria

28. The Value Chain Selection Institutional criteria

29. The Value Chain Selection • Exercise 3 • Group work • Pre-selection of priority value chains according to criteria (application of results form the exercise 1 and 2) • Result: List of pre-selected chains

30. The Value Chain Selection Example: Selection Matrix

31. The Value Chain Selection Example: Multi-Sector Comparison of VCs

32. The Value Chain Selection Example: VC Selection – Sheep wool (GIZ RED Project) (Example RED Mongolia) Criteria Market potential Pro-poor potential Stakeholder position Challenges / gaps Quick win • Pre-Selected Value Chains: Products from sheep wool - Sartuul wool products - Insulation products - Felt products Proposed VC for Further Analysis: Felt Sartuul wool products Insulation products The most promising onetobesupportedfurther

33. C. Value Chain Analysis

34. The Value Chain Analysis GIZ Concept of Value Chain Support “ValueLink”

35. The Value Chain Approach Value Chain Analysis • Value Chain Analysis aims at…. • identifying the most promising Value Chains in a region, country, sector... • identifying Stakeholders (players) within the Value Chain • mapping the Value Chain incl. all players, supporters, etc. • identifying material flows, value added opportunities • identifying potential for optimisation, economic growth, and poverty reduction • etc. Value Chain analysis is a situation analysis of the specific value chain at stake.

36. Value Chain Analysis Why do stakeholdersengage in VC Analysis? • The results are used to prepare decisions on objectives and strategies: • Private enterprises use results of value chain analysis to engage in upgrading VC processes and to plan investments. • Public administration and development projects use VC analyses for strategy formation, planning and implementation. • VC analysis is also used to formulate impact indicators and create the basis for monitoring.

37. Value Chain Analysis Elements of value chain analyses • Elements of VC analysis are grouped into four parts comprising of • Structural Analysis (Value Chain Mapping) and the different dimensions of sustainable development: • Economic Analysis of value chains (economic growth) • Environmental Analysis of value chains (environmental sustainability ) • Poverty and Social Analysis of value chains (Social inclusion )

38. Structural Analysis: Value Chain Mapping • Value chain maps are the core of the baseline. • A good value chain map • has a clear purpose and message • respects the recommendations laid out • avoids an overload of information • is understandable to people • A basic overview VC maps can be designed very quickly within a day or two, and still be adapted and refined later on. • To become useful for decision making and planning, the value chain map has to be complemented by information that allows comparing the current state of the chain with potential alternative states. (bench mark)

39. Value Chain Mapping • Structural Analysis - Value Chain Map • A value chain can be characterized by seven generic element: • Marketed product or group of products defining the value chain • End market(s) in which the product is sold to costumers • Series of functional steps/business operations through which the product reaches the end market(s) • Enterprises/chain operators conducting the relevant business operations • Business linkages connecting these operators at the “micro level” • Support service providers at the “meso level” • Public agencies performing a regulatory function at the “macro level”

40. Value Chain Mapping - Example

41. Value Chain Mapping Steps Specify the final product and end market(s) Establish the stages of the chain (specifying the functions performed) Establish the main sequence of operators Map business linkages between operators Map operational service providers Map support service providers Map chain enabler

42. Value Chain Mapping Exercise 1 - Functional Map Tasks (Mapping steps 1-2): Identifying and segmenting end products and end markets Establish the stages of the chain (specifying the functions performed)

43. Value Chain Mapping Mapping process 1: Specify the final product and end market(s) • Identifying and segmenting end markets. The number of market segments to be included in the VC map depends on the overall degree of detail sought. • Segmentation criteria: • Variants of the end product (e.g. fresh/processed; conventional/organic, loose or in package) • Product quality (low/standard/premium) • Types of consumers (e.g. above/below poverty line; private consumers/institutional buyers) • Type of market place (rural/urban; supermarket/street market) • Locationof buyers/ consumers (local/national/foreign)

44. Value Chain Mapping Mapping process 2: Establish the stages of the chain (specifying the functions performed) • The functional analysis of the chain means listing all business operations currently performed to create the products and sell them in the end markets defined earlier. • The analyst works both upstream and downstream • End products require the largest number of business operations. • The individual business operations are grouped into chain “links” or “chain stages”, such as “primary production”, “processing”, “wholesale trade” and “retail”. • The chain stages are visualized by a series of hollow arrows. • Most enterprises combine several operations in their business model. • Mapping the sequence of business operations and mapping of operators thus has to be done iteratively.

45. Value Chain Mapping Mapping process 2: Establish the stages of the chain) • Challenges • if the chain map covers several variants of the end product and within the same value chain map, the technical processes and business operations may differ considerably. • Options: • the specific functions can be specified further in more detailed versions of the VC map, e.g. by a second line below the hollow arrow symbols. • to differentiate the map into separate “channels”.

46. Value Chain Mapping Mapping process 2: Establish the stages of the chain (Example)

47. Value Chain Mapping Mapping process 2: Establish the stages of the chain -Example Functionsof Value Chain sheep wool Step 2 Primary production Step 4 Transformation Step 3 Transformation Step 5 Transformation Step 6 Sales Step 1 Preparation • Shearing • Wool collection Wolle • (storage) • transport to wool scouring • Wool cleaning • Carding • Dyeing • Transport to further processing • Production manage-ment • Quality • control • Spinning or • Weaving/ • Walken/ • Felting • Creation of model design/ sewing patterns • Marketing (Source: Mendel, C., Weineisen, M. et al (o.J.), Leitfaden zur Wertschöpfungskette Schafwolle im Alpenraum. Verlag Eugen Ulmer: Stuttgart,.42.)

48. Value Chain Mapping Exercise 2 - Operator Map Tasks (Mapping steps 3-4): Identify main OPERATORS according to your aggregation criteria Identify the BUSINESS LINKAGES between the operators

49. Value Chain Mapping Mapping process 3: Establish the main sequence of operators • The value chain map only includes operators who become owners of the product. • The chain map places the symbols for different operators exactly below the chain stage or stages in which they are working, • Criteria for aggregating enterprises is the similarity of their business models: • the size of enterprises (e.g. smallholders or large farms; Small scale/large scale firms); • type of ownership (individual owners, cooperatives or corporations); • the technology level (artisanal, mechanized, industrial). • The differentiation of the types of operators depends on • the importance and • the number of enterprises contained in each category. The “business model” of an enterprise is the particular combination of a product (the “value proposition”), technology and resources utilized, costumers and supply partners

50. Value Chain Mapping Mapping process 3: Establish the main sequence of operators (Example) • In the nut trade and cracking/packaging stages, three different business models: • wholesale traders of dried nuts and fruit who sell to bazaar retailers directly, • traders/processors who process and deal in kernels for the domestic market • and one large enterprise doing these operations for the export market.