The firms in an industry create the dynamic elements described below through the choices they make in response to the value chain structure.
Value chain governance
A distinguishing characteristic of value chain analysis is the emphasis not only on the dynamics of end markets but also on the dynamics and shifts in relationships. Value chain governance refers to the relationships among the buyers, sellers, service providers and regulatory institutions that operate within or influence the range of activities required to bring a product or service from inception to its end use.
This refers to the nature and quality of the interactions between stakeholders in a value chain. Relationships can be supportive of industry competitiveness that enhances MSE benefits or adversarial to it. Supportive relationships facilitate collaboration; enable the transmission of information, skills and services; and provide incentives for upgrading.
In order to respond effectively to market opportunities, firms and industries need to innovate to add value to products or services and to make production and marketing processes more efficient. These activities, known as firm-level upgrading, can provide MSEs with higher returns and a steady, more secure income through the development of knowledge and the ability to respond to changing market conditions.
Detailed information on each component and possible interventions is provided by USAID’s Value Chain Development Wiki.
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