ValueLink Concept

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

2. Facilitator / Consultant • Э. 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 collecting of ideas • Each cell phone ring: 600 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. A Value Chain is always based on a final marketable product

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 • Resulting in • 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 Why Value Chain Support? • Private Enterprises • Markets do not always develop & function on their own! • The growth potential remains unused, because public support services • areinsufficient: infrastructure is bad, the legal & administrative rules are not appropriate lack of trust, skills, transparency • Economicglobalisationcallsfor • close coordination of production and distribution along the chain to comply with quality requirements and reduce cost of logistics • Public Enterprises • Economic development generates social benefits • Bypromotingmarketsuccess: • jobs are created and revenues increase • more tax income is generated that can be spent on education, health etc. • SMEs can be integrated into markets, remote regions can catch up • The environment needs to be protected and resources wisely used • No development at the expense of natural resources and the climate, • growth within the limits of the ecological carrying capacity.

15. The Value Chain Approach Why Value Chain Support? Income Distribution: A more equitable Income Distribution is supportive of both Growth and Poverty Reduction. Why? • Super-rich save relatively less (due to capital flight, tax havens, luxury consumption) than the middle classes (saving for retirement) • High inequality may weaken social & political stability; • High inequality may promote “rent-seek” and excessive lobbying, and political influence of the super-rich who then promote their own interests thereby worsening potential instability • 4. Relationship with Poverty is obvious

16. 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. To what extent (Grosse) will it be possible to achieve the double objectives of economic growth and poverty alleviation in the given development situation?

17. The ValueLinks Approach Pro Poor Growth (PPG) • There is a relative and an absolute concept of pro-poor growth. • The relative concept of pro-poor growth - Economic growth is considered to be pro-poor if the incomes of the poor grow faster than those of the non-poor (so that the inequality between the poor and non-poor narrows). • The absolute concept of pro-poor growth - Economic growth is considered to be pro-poor if poor people increase their incomes above the poverty line, even if their share in the national income does not improve (i.e. a positive growth rate for the poor).

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

19. 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.

20. The ValueLinks Approach GIZ Concept of Value Chain Support “ValueLink” Setting project boundaries Chain analysis and strategy Implementation Monitoring Analysing a value chain Strengthening business linkages Monitoring and managing impact 0 2 5 Deciding whe-ther to engage in chain pro-motion 11 Engaging in public- private partnership 6 Selecting a value chain for promotion 1 Determining a chain upgrading strategy 3 Strengthening services in VCs 7 Financing VCs 8 Facilitating the chain develop-ment process 4 Introducing social, & quality standards 9 Obligatory 10 Improving the biz environment of VCs according to priorities

21. 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

22. The ValueLinks Approach Project Cycle of value chain promotion Selection Value Chain VC Analysis VC promotionStrategy, Implementataion Monitoring & Evaluation

23. B. Value Chain Selection

24. The ValueLinks Approach GIZ Concept of Value Chain Support “ValueLink” Setting project boundaries Chain analysis and strategy Implementation Monitoring Analysing a value chain Strengthening business linkages Monitoring and managing impact 0 2 5 Deciding whe-ther to engage in chain pro-motion 11 Engaging in public- private partnership 6 Selecting a value chain for promotion 1 Determining a chain upgrading strategy 3 Strengthening services in VCs 7 Financing VCs 8 Facilitating the chain develop-ment process 4 Introducing social, & quality standards 9 Obligatory 10 Improving the biz environment of VCs according to priorities

25. The Value Chain Selection Selection process – basic rules • The delimitation of a value chain for development should always extend to end markets. • VC development also has to be distinguished from “supply chain management” • The identification and selection of economic opportunities in the context of local economic development is yet a different process • The point of departure for scoping thus always is the horizontal boundary of VCs • It is not advisable to define the vertical or spatial boundaries of a value chain before selectingit in a development program. • The set of alternative value chains should always refer to the national level. • Limiting VC development to particular stages or regions is a strategic decision after an assessment of end markets and after planners have an overview of all production locations. • Limiting the VC development to particular locations or stages of the value chain (e.g. farmers only) can make sense for pragmatic reasons, but runs the risk of actually losing the value chain perspective.

26. The Value Chain Selection Selection process • 1. Classifying value chains • Horizontal boundaries-number of products, size of markets, (width of VC, Market assessment) • (Vertical boundaries - outreach of end markets (length of VC) • Spatial extension –regional • Determining the scope of VCs in development- How many VCs to support (resource, time, aggregation) • Selecting Value Chain to promote– list of products, selection matrix according to critea

27. The Value Chain Selection Classifying value chains • How to categorize, aggregate or disaggregate products and markets • so as to define the value chains to be targeted in each particular case. • Drawing a boundary around the value chain to be promoted implictlydetermines the scope of the development effort. • The literature on economic structure uses the terms • “markets”, • “value chains” • “subsectors” and • “industries” interchangeably.

28. e.g. Horticulture: • - French Beans • Tomatoes • … • e.g. Wildlife Tour. • - National Park visit • Animal watching • Safaris • … • e.g. Clothing: • - Apparel • Knitwear • … according to marketing and retail system - e.g. brand name apparel sold in specialty stores according to end product / marketing system - e.g. table tomatoes sold in supermarkets according to marketing system - e.g. as part of a package offered by tour operators The Value Chain Selection Classifying value chains - levels of aggregation (Example 1) Agriculture & Food Sector Textiles & Clothing Tourism Clothing Textiles Carpets … Horticulture Dairy Meat Flowers … Wildlife Tourism Cultural Tourism Beach Tourism Conferences … Sub Sector Chain Sub-Chain

29. The ValueLinks Approach Classifying value chains - levels of aggregation (Example 2)

30. The Value Chain Selection Determining the scope of VCs in development • With limited resources, programs can only work with one or few value chains. This is true for government programs, development agencies and private companies alike. • Decision makers have to pick those value chains from the set of alternatives that offer the greatest potential for achieving the desired impact. • Planners should not go for the smallest categories, sub-chains and market channels, though. • There are limits below which a further disaggregation loses sense, either because • the business community becomes too small and value chain promotion inefficient, or because product variants are made by the same operators.

31. The Value Chain Selection Determining the scope of VCs in development (Example)

32. The Value Chain Selection Selection of Value Chain to promote- Growth potential • The economic, environmental and social dimensions are interconnected and overlap. • To guarantee the success of a VC development program, it is of utmost importance that the different dimensions are already combined in a holistic VC selection process. • The growth potential is determined both by the demand and the supply side: • the unmet domestic and export market demand and • the competitive position of the value chain

33. The Value Chain Selection Economic criteria (1/3) (suggested by Schneemann and Vredeveld (2015))

34. The Value Chain Selection Economic criteria (2/3) ( suggested by Schneemann and Vredeveld (2015))

35. The Value Chain Selection Economic criteria (3/3) ( suggested by Schneemann and Vredeveld (2015))

36. The Value Chain Selection • Socialcriteria - Povertyalleviation potential • A value chain has poverty alleviation potential if it is • a major source of livelihoods for the poor, • generates employment, • offers business opportunities for poor entrepreneurs or, • at least, delivers products consumed by poor people. • Economic growth only contributes to poverty reduction if an increasing part of the poor actively participate in economic processes.

37. The Value Chain Selection • Socialcriteria (1/3) • (suggested by Schneemann and Vredeveld (2015))

38. The Value Chain Selection • Socialcriteria (2/3) • (suggested by Schneemann and Vredeveld (2015))

39. The Value Chain Selection • Socialcriteria (3/3) • (suggested by Schneemann and Vredeveld (2015))

40. The Value Chain Selection • Environmental criteria (1/2) • (suggested by Schneemann and Vredeveld (2015))

41. The Value Chain Selection • Environmental criteria (2/2) • (suggested by Schneemann and Vredeveld (2015))

42. The Value Chain Selection • Environmental criteria • (suggested by Schneemann and Vredeveld (2015))

43. The Value Chain Selection • Institutionalcriteria • The institutional criteria refer to the ‘enabling environment’ and include favorable policies and a regulatory environment promoting or hindering green and inclusive development. • Reasons and needs for a public investment • Evidence of private sector / government / donors having plans for investments in the VC • Sector policies and regulations are in place and effective • Chain actors / government / donors / supportorganisations’ readiness to change, to collaborate and to align interventions • Feasibilityoftheintervention

44. The Value Chain Selection • Selection Matrix • A matrix is usually constructed to compile the criteria and to prioritize one or more value chains. • The criteria to be included and the matrix will be already defined in an early phase of the decision-making process

45. The Value Chain Selection • Selectionprocessphases (Example GIZ RED VC analysis) • Preparatoryphase • Step 1: Starting point: scope and mandate of the programme • Step 2: Screening and shortlisting of promising value chains • Step 3: Development of matrix with dimensions & criteria, optional weighing and scoring • Data collectionphase • Step 4: Desk study • Step 5: Instruction of field staff and local consultants • Step 6: Field investigation • Concludingphase • Step 7: Workshop for validation and recommendations • Step 8: Findings review, analysis and recommendations

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

47. The Value Chain Selection Approach to VC Selection –Sheep wool (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

48. The Value Chain Selection Scoping Value Chains – Unmet Market Demand Unmetmarketdemand No. MSMEs

49. C. Value Chain analysis

50. The Value Chain Analysis GIZ Concept of Value Chain Support “ValueLink” Setting project boundaries Chain analysis and strategy Implementation Monitoring Analysing a value chain Strengthening business linkages Monitoring and managing impact 0 2 5 Deciding whe-ther to engage in chain pro-motion 11 Engaging in public- private partnership 6 Selecting a value chain for promotion 1 Determining a chain upgrading strategy 3 Strengthening services in VCs 7 Financing VCs 8 Facilitating the chain develop-ment process 4 Introducing social, & quality standards 9 Obligatory 10 Improving the biz environment of VCs according to priorities