IPEC Value Chain Development and Market Systems Intro

IPEC

Value Chain Development and Market Systems - Intro Merten Sievers Value Chain Development and Business Services Coordinator Enterprise Department ILO Geneva Bangkok, June 2010

Structure of the presentation 1. MSEs, employment and the ILO 2. The changing landscape of Enterprise Support 3. Business Services and Value Chains 4. Value Chains and Markets

1. Enterprise size and contribution to employment Big Medium Small and Micro enterprises

…being small has disadvantages…

Enterprise size and contribution to job quality Employment contribution by enterprise size Employment conditions by enterprise size: High quality Low quality

Typical government bias in enterprise support What “weight” do different types of enterprises have for the government?

Why VC and Business Service Markets development? To create employment and incomes at the bottom of the pyramid it is essential to Ø Identify market opportunities for micro and small enterprises Ø Increase the capabilities of these enterprises to take advantage of the opportunities Ø Reach huge numbers of these enterprises Ø Demonstrate impact on these enterprises and their employees

2. The changing landscape of Enterprise Support The traditional approach: GOVERNMENT provides and pays for: Financial Services Business Development Services (BDS) Micro and Small Enterprises and startups

The approach has changed…. . Government improves framework conditions • Financial and Business Service markets, based on market dynamics (Demand Supply) • Developing market systems • Emphasizing commercial services and limits to subsidies • Providing an enabling environment Micro and Small Enterprises and start-ups

3. The BDS paradigm The « ideal » image: SE Provider Donor/ Government Facilitator Provider SE SE SE Public finance Private market Buying and selling BDS

Private BDS providers in Lima, Perú Machine retail and maintenance Shoe pattern designer Lawyer and accountant Private trainer

BDS Projects: Ugandan SME radio programmes

4. Value Chains and the service market Retail Embedded Services Wholesale Embedded Services Production Input Supply The business service market model did not work everywhere and all the time… Today more and more governments are working on a combined approach, and develop embedded services and business service markets in value chains… VCD is not an alternative to other approaches but it helps to understand how markets are governed and can be influenced… we talk about: Market Development approaches

Value Chain Definition A value chain refers to the “full range of activities which are required to bring a product or service from conception, through the different phases of production, delivery to final consumers” (Kaplinsky and Morris, 2001, p. 4). Ø We talk about VALUE CHAIN because at each link of the chain value is added to the final product Ø All companies are part of a Value Chain that competes against other Value Chains on a local or global level Ø Methodologies used all over…ie Kent (video)

5. Value Chains and Markets End market Final Consumers Global Retailers National Retailers Sector-specific providers Potential Business Service Markets Cross-cutting providers Exporters Wholesalers Buyers Producers Financial (cross cutting) Input Suppliers Internal Value Chain markets

Employment: numbers and quality Final Consumers Exporters Sector-specific providers Cross-cutting providers Wholesalers Buyers Producers Financial (cross cutting) Input Suppliers Embedded Services National Retailers Embedded Services Business Environment Global Retailers

The Market System “Donut“ for assessing Value Chain potential 3. Supporting functions and services (factor conditions): * training, technology, financial, legal, maintenance services Strong + weak points? 2. Main transactions in the Value Chain core market Strong + weak points? 1. Final Markets: Type of demand, prices, quality Strong + weak points? 4. Rules and Regulations: the role of the local and national state, informal rules and regulations Strong and Weak points?

What is the link to LED? Please let me know… 1. What are the key challenges for VCD at the local level? 2. What are possible solutions to these challenges? 3. Who needs to take the lead in providing the solutions?

Thank You Merten Sievers: sievers@ilo. org Value Chains: www. bdsknowledge. org www. microlinks. org www Linking Finance and BDS: www. itcilo. org/synergies