80% of the global trade in goods currently takes place along value chains in which each link represents a different task. Better integration and positioning within local, regional and global value chains can help producers in developing and transition countries to participate more in markets and increase their benefit from the added value created in the chain.
SDC applies the value chain approach and cluster development in order to analyse the market access options available to producers in its partner countries, identify entry barriers and potential, and on this basis formulate specific supporting measures. Examining a value chain or cluster as a whole enables a better understanding of the competitive conditions and structural integration of economic activities. The objective is to identify promising market potentials and promote them through development measures.
SDC activities focus on the development of local and regional value chains and clusters in rural regions in which poor farmers, as well as small and medium-sized enterprises, can participate. In addition to providing support for producers, this often necessitates intervention at various points along the value chain and within the cluster, as well as measures to improve institutional, political and legal frameworks. SDC supports its partners in the following ways:
- Improving the transparency of markets, in particular by analysing value chains and facilitating access to market information.
- Encouraging the creation of manufacturer associations and the initiating business contacts.
- Supporting the development of clusters of micro, small and medium enterprises and their participation in local, regional and global markets.
- Establishing and expanding competitive services for investment projects, technical improvements, quality management and qualification.
- Providing advice to governments and the private business sector on issues related to market development and regulation as well as to the introduction of quality standards.
Within the next 25 years the world gross domestic product is set to double. The benefits will be derived by countries and regions whose businesses succeed in integrating local, regional and global value chains, leveraging markets as well as cost and specialisation advantages, and learning from technological innovation processes. At present, many producers in developing countries are either completely excluded from value chains or obliged to compete with products that offer only few opportunities for local added value – typically agricultural products.
The value chain concept covers the interrelated stages of product manufacturing, processing, trading and retail or exports. Within the context of private sector promotion in developing and transition countries, the value chain approach aims to improve the access of businesses to value chains and their position within such chains through targeted promotional measures. The aim is to strengthen their economic position by ensuring ways of adding more local value, diversification into higher-value products, quality management and secured market access. The point of entry is the use of small producers’ competitive advantages in labour-intensive and niche products.
One way of strengthening the performance and competitiveness of small producers and downstream businesses in a specific region is cluster development. Typically, clusters consist of a geographical concentration of companies (producers, suppliers, specialised service providers etc.) operating within the same sector or related sectors. Cluster development aims to improve the performance and efficiency of the sector as a whole. This involves measures promoting cooperation to achieve economies of scale, strengthening state and private institutions, mobilising local capital or promoting joint learning and innovation processes.