Executive Forum 2002
Managing Competitive Advantage:
The Values of National Strategy

SESSION 2 SUMMARY

Thursday, 26 September, 2002

Session 2: Capturing Value: A Value Chain Approach to National Export strategy Development

Moderator Hendrik Roelofsen commented that in the past, if we were talking about export promotion, we were basically looking for answers to questions like “Where can I find a market for my products? Today the questions are: “Am I in the right business?” “How can I capture and retain maximum value for the products I export?” There are still sectors that show growth in global markets, such as the ICT sector. Even now that explosive growth has disappeared, ICT is still growing at approximately 15% pa. Citing the example of one make of mobile phone, Roelofsen noted it had parts originating in 63 different countries. How does an exporter capture a share of that market, he asked? 

30 years ago, the EC opened its borders for products originating in so-called ACP (African-Caribbean-Pacific) countries, which gained duty free access for almost all of their products. The share of ACP countries in European markets then was 7%. Now, it is 3.5%. Yet two years ago, the US African Growth and Opportunity Act (AGOA) came in, giving these countries preferential access to US markets. Since then, countries such as Kenya, SA and Lesotho have doubled, sometimes tripled, their exports for certain products. “Does the value chain have anything to do with that?” he asked. “Can an examination of the value chain provide any insight into that? 

Ian Sayers, Senior Adviser, Supply Chain Management, for ITC, proposed that current export strategies and the way of formulating them were out of step with the way that international business is carried out today. “I don’t know any business that is basing its marketing strategy on the basis of competitiveness statistics formulated from historical data.” 

Export promotion and market access is less than half the story when it comes to trade strategies. Trading patterns have evolved into complex interlinked systems. When you are part of such a system, said Sayers, “You have to know where you are to know where you can go.” Value chain analysis maps the system and clearly demonstrates where issues arise and interventions will have the greatest impact. The value chain approach to strategy development represented a relevant tool to develop sector level export strategy, he said. 

John Humphrey from the Institute of Development Studies, University of Sussex, UK, used the example of a banana to point out that today, supermarkets and consumers make buying decisions based on complex issues such as fair trade labeling. Certification on lack of pesticides etc -- in other words, traceabilty. A buyer now has to be assured that a product can be linked back to where it was produced, either through certification, supply chain management etc. Buyers running on zero inventory levels also need consistent supply year round, rapid logistics, guaranteed supply, consistent producers. “The country exporting this product, is not exporting a banana, but a physical product with a range of sophisticated services attached to it. Even a simple banana is a sophisticated product in the modern world.” It has its own value chain and strategy must fully address each step in the chain, from the consumer to the banana grower. 

Humpreys offered two propositions:

1)       Capturing value doesn’t mean abandoning labour-intensive or agricultural products.

2)       If you want to be in global business, increasingly traceability and reliability are now minimum market entry requirements.  

Sayers stressed that key questions include: What business can we compete in and actually capture value? And how can we be a part of those businesses? He also noted that the way you develop your strategy is as important as the strategy itself. “If you don’t build it in the right way you won’t build a mandate to implement the strategy.” He pointed out, not only the complexities of value chains, but the need to know where you are, to know where you’re going. 

It was also important to note that, while exporters often have the greatest influence on export strategy, it is often the people who provide the primary inputs who have greatest impact on reliability of export delivery. Good information flow from buyer to primary inputs is the key to performance. There are often fragmented vertical institutions involved, and information often doesn’t get from buyers back to those that have most impact on performance.  

And it is crucial to create a strategy fast. “You can’t spend months and years deciding a strategy, because markets change,” says Sayers. 

He emphasized the critical importance of strategy-makers embracing a four step value chain approach. 

1. Where to begin? Start with some kind of market analysis, not just statistical, by examining the dynamics of attractive markets. Is there a niche you can get into? What do buyers value? What do they look like?

2. Work with local institutions to find likely success stories, study national supply chains and producers to see how they’re working.

3. Get all “actors” in several sectors together; e.g., ministries, customs, port handling, transportation, suppliers, cool chain warehouses. Bring in some international buyers to complete the map of the chain to provide an external perspective.

4. Once you have information and have done the sectoral analysis, you need to find some way of putting order into it and consolidating it into a national export strategy. 

This four-step process is quick, repeatable, and seems to be very successful, he said. Export promotion and market access alone are not going to improve trade. Sayers called for a move from a myopic fixation on exports to strategies that traverse all sectors. Export strategy only told half the story. A strategy has to be inclusive. All exports have some imports associated.  

Humphreys noted that the difference between Africa’s response to AGOA, and to earlier duty free access agreement, was the realization by producers that that the US garment value chain was actually driven by Asian buyers. This information was then successfully exploited to establish alliances, not with the US, but with East Asian textile manufacturers. “ These alliances so important. The value chain helps understand which buyers you put together.” 

Floor Comments from table discussions:

Sok Siphana, of Cambodia:  “Many of the examples you talk are more of innovation-driven economies. We are still factor-driven, half way through being investment-driven. I think it's good to have a holistic approach.” 

Simon Ethangatta, of Kenya: “The process helped us recognise the importance of the private sector as the driving force. Policy sectors weren’t aware what role they played. We also moved to improve conditions for FDI. We separated each sector's problems, removed impediments for each sector.” 

Ismail Dockrat (South Africa): “Two sectors we focused on were clothing and textiles, and the auto industry. The auto industry is a producer-driven value chain, clothing a buyer-driven chain. The first tends to involve large transnationals; clothing, and buyers, large retailers, marketers and branded manufacturers play a role. The motor industry development programme was very successful. Clothing industry is much more fragmented, but we have had success, especially around AGOA. We’re now in the process of developing a common vision.” 

Florence Kata (Uganda): “We all realize the relevance of public private and donor partnerships. The value-chain approach is a fantastic tool for bringing together private, public sector and the donor community in a planning process, where each one recognizes his role, and his failure in not doing the right part. It helped to bring out the chain’s weakest link. We look forward to utilizing it in more detail and adopting it to our own country peculiarities.”  

Summing up after a table discussion in which participants identified potential new export products and examined value-chain aspects of their chosen product, Humphreys noted that, in horticultural exports, whereas five years ago, almost all flowers sent through wholesalers in Amsterdam, today in the UK, about 25% are directly sold to large retailers. By one estimate, within 10 years, 75% will go to large retailers. “Exporters have to think about the different requirements of those buyers,” said Humphreys, noting that, for example, Kenya was now attempting to nationally brand its flowers as environmentally and socially acceptable. 

Sayers summed up by underscoring three points:

1)  Where ITC has run the four-track process of value-chain identification, it has generated ownership of ideas and real participation. 2)  It’s quick compared with other processes; countries have worked for three to six months to develop a strategy, while the value chain process can be carried out in a few days. 3)  And it leads to relevant strategies with a popular mandate for implementation.