Structural Components

The structure of a value chain includes all the firms in the chain and can be characterized in terms of five elements:

End markets

The term end market is used to indicate where the final transaction takes place in a value chain. Typically it is where the end-user is located, meaning the individual or organization for whom the product or service has been created, and who is not expected to resell that product or service.

Business enabling environment

The business enabling environment includes norms and customs, laws, regulations, policies, international trade agreements and public infrastructure that either facilitate or hinder the movement of a product or service along its value chain.

Vertical linkages

Linkages between firms at different levels of the value chain are critical for moving a product or service to the end market. Vertical cooperation reflects the quality of relationships among vertically linked firms up and down the value chain. More efficient transactions among firms that are vertically related in a value chain increase the competitiveness of the entire industry.

Horizontal linkages

In a value chain, horizontal linkages are longer-term cooperative arrangements among firms that involve interdependence, trust and resource pooling in order to jointly accomplish common goals. Both formal and informal horizontal linkages can help reduce transaction costs, create economies of scale, and contribute to the increased efficiency and competitiveness of an industry. In addition to lowering the cost of inputs and services (including financial services), inter-firm horizontal linkages can contribute to shared skills and resources and enhance product quality through common production standards. Such linkages also facilitate collective learning and risk sharing while increasing the potential for upgrading and innovation.

Supporting markets

Supporting markets play an important role in firm upgrading. They include financial services; cross-cutting services such as business consulting, legal advice and telecommunications; and sector-specific services, for example, irrigation equipment or handicraft design services.

 

Detailed information on each component and possible interventions is provided by USAID’s Value Chain Development Wiki.

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