When we had our first conference call, there was a bit of discussion between the difference between value chain development and market development. I have put together a small paper that pulls together the link between private sector development (PSD)- pro-poor market development (PPMD)-Making Markets Work for the Poor (MMW4P or M4P) and value chain development.
Essentially it is PSD that is driving our field and in the context of poverty reduction, we as practitioners are facilitating the development of markets which benefit the poor as suppliers and buyers.
M4P is an approach that incorporates a new institutional economics (NIE) perspective that looks at how formal (laws, regulations, treaties, etc.) and informal (social, cultural, mores, etc.) institutions affect economic behaviour and market development. M4P identifies markets that will benefit the poor as consumers and suppliers.
Value chains are a diagnostic tool to understand a firm’s competitiveness. It has been adapted to development to identify competitive markets where the poor can reach higher value markets. Value chain development is the operationalization of pro poor market development.
Have a read, and let’s discuss it!
cheers
mary morgan
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16 Comments
Value Chain and Market Development
Market Development per se has proved to be a “pregnant” phenomenon. It however gave the foundation that built the phenomenon of value chain development. Emphasis is now on Private sector led market development. I have attached a small piece for you to read and comment.
response to james
Hey James;
I have inserted some comments into your paper which is very interesting. I agree with you that value chain development came out of market development…. value chains are market systems and developing value chains is a means to develop markets. Markets are places where goods and services are exchanged and these are regulated by informal and formal institutions which are the rules of the game. You are correct to say that the emphasis is on private sector led market development. The private sector comprises of MSEs, smallholder farmers, small firms, large firms and transnational corporations. As market development practitioners who are focusing on developing value chains which are specific market systems, we are challenged with how to strengthen the private sector actors who are poor, lack information, technology, skills and capital to participate in and benefit from the markets in which the value chains operate.
Nice to chat and your project looks very interesting!
Cheers
mary
Value Chain vs Market Development
I am not a professional economist,but I am convinced to believe that different environments call for different approaches. I agree with you on some of your comments. However, the ones that have DFID and other donor references do not convince my conscience. When you also say smallholders are part of the private sector, we are talking the same language.However I wish you knew how much lack of information is a major issue in this relationship.This is a real issue and dont even rely on economic literature.Get recent research.
Second you talk about growth at the micro level; no one objects to this,it is actually an obvious factor.The issue is make the understanding of economic growth simpler and achievable at that level.If you are economist you can later collect data and know what indicators at that level contribute to growth.I am referring to the ordinary citizen.I like development processes where issues are kept simple,clear and practical.
Well that makes two of us,
Well that makes two of us, not being professional economists. I think of myself as a ‘popular economist’; an economist of the people. Lack of information is definitely a key factor in failed markets—the poor just don’t know where to get good input supplies or where to get the best price because of so many factors—remoteness, illiteracy, no access to radios or tvs, no contacts, and the list goes on. It is distressing.
And yes there needs to be new ways of measuring economic growth which reflects the actual distribution of income— when the news says an economy is growing by 10%, who is benefitting from it? Probably not the poor. Nigeria being a case in point with the sale of oil.
good points you have made
cheers
mary
PSD,PPMD, M4P, Value Chains-use of "Market Development"
Terminology in our community of practice is a challenge, and it is important for helping us come together and market ourselves to funders and other communities.
I have found the term “Market Development” useful when we were moving away from subsidized, direct services from NGOs to enterprises. For the “business development services” community, it meant – let’s develop a sustainable, vibrant market for services that will continue to expand over time. Now, I sometimes use it to refer to our community of practice – so, value chain development and commercial business services. For this site, I chose the term “enterprise development” as being very clear and also broad enough to include social enterprise.
If we have a mroe universal term like “microfinance” it woudlmake it easier for us to move forward as a group …
What are your thoughts?
Mary McVay, Facilitator
Value Chain Development my preferred term
Value chain development in my view confers the meaning and perspective of enterprise continuity along whatever chain of activities that generate value. Enterprise Development may have a different meaning to some of the folks I deal with, as many of them see enterprises the same as the capitalistic models that are used to make money for the resource advantaged against those that are not resource endowed. However, the value chain could be understood from a money oriented venture to a socially oriented one and hence more aligned to development thinking.
Many people who are opposed to too much monetization of development programmes would love to isolate incremental value enhancement from one level of production to the next, with opportunities being exploited at that level as more socially driven than enterprise development. This can very easily come to create a term that can be as common as microfinance, so long as many of us can try and unpack it better.
enterprises development
As a field level practitioner, I do agree with the term “enterprises development”. It can touch all level of social factors. Sometimes market development and value chain development terms are more applicable in ideal situation where private sector are emerging, market economic and policy environment are more favorable. In some case like in post conflict environment and extreme week market situation, we have to start all the process from social awareness level. In some cases we have to compromise with other humanitarian supports and subsidies
Ekanath and Mary; Ekanath,
Ekanath and Mary;
Ekanath, you have touched on a really inmprotant issue in our field—the reality of weak markets and even collapsed markets as in post conflict settings. These weak/collapsed markets certainly need to start with supporting enterprises. But don’t you think that when we choose the enterprises to support, we are actually developing the market systems they operate within? For instance with agricultural products, we look at the inputs they need, the TA they need and the end market opportunities whether it is in the town or capital city. Even in enterprise development we are looking at where the inputs are coming from and where the end markets are and what sort of strengthening the actual enterprise requires to be viable. Working with other humanitarian supports and subsidies to jump start a market system that has collasped is not bad in my books IF in the end it is working towards a sustainable outcome with the market carrying on without supports.
Mary, it has been a real challenge getting a term that we all can work with. In practice i have found that when we are talking about enterprise development we look at the development of individual businesses, and when we talk about market development we look at where enterprises are located in a market system in relation to how they access input and output markets. I just remember clearly when a participant in a training in Guinea had an “Ah Ah” moment when he recognized that when his NGO provided business development training to redundant government workers, they did no work in connecting the businesses to input and output markets. In 6 months not one of his businesses was operating because they had no market outlets and their sales were so low they could not operate. This really made it clear to me why developing markets makes sense when we are working with the poor.
Social enterprises are also integral actors in markets where they are operating. Kim shared the eye glass social enterprise which needs access to inputs and output markets. Aprotech, another social enterprise is also involved in ag production markets. Starting a socail enterprise requires doing research on which market to enter where the soical mission can be achieved while at the same time breaking even or achieving a profit.
I am a fan of the market development term as it keeps me on my toes to always be looking out for how the poor can connect to quality accessible input markets, support markets that provide quality accessible supports and end markets which pay premium prices for the product being produced. Reducing transaction costs, improving revenue and reducing risk for individual enterprises requires that these enterprises have the appropriate links in the market system they are operating within.
just a couple of thoughts
mary (morgan)
"market development" and "enterprise development"
In community work,it’s always best to refer to people the way they refer to themselves – i.e. when choosing between word like “ethnic group” or “tribe”, “black” or “African American” or “previously disdvantaged individuals.” As you both say, “enterprise development” seems to mean working wiht individual businesses and “market development” with the market, so I like market development.
But, if we want to market our principles and programs to new communities of funders and practitioners, we need to uselanguage that they will respond to, so that’s why we went with enterprise development … the term “economic strengthening” is use a lot among public health practitioners working with people impacted by HIV and AIDS. Economic recovery or reconstruction are popular among peoeple working in crisis affected areas.
I think our work would have more momentum and support if we develop and market a brand – like microfinance or social enterprise…
(P.S. In Mary Morgan’s email: “Kim” is Kim Alter, founder of Virtue Ventures and a global thought leader in Social Enterprise, and “Aprotech” is now Kickstart – they were a more traditional NGO and chose to go the social enterprise route. They sell tradle manual irrigation pumps to eradicate poverty in Africa.)
Ideas?
Mary McVay, Facilitator
Language and conceptual frameworks
‘When I use a word,’ Humpty Dumpty said, in a rather scornful tone,’ it means just what I choose it to mean, neither more nor less.’
‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’
‘The question is,’ said Humpty Dumpty, ‘which is to be master – that’s all.’
from: Through the Looking-Glass by Lewis Carroll
Greetings — I enjoyed reading the postings above and the attachments. The vocabulary of every emerging discipline tends to become its own sub-discipline — so, as mind-numbingly detailed – or heated — as some of these nomenclature debates can get, we should derive some pleasure from there being a vigorous discussion at all!
My own preference as a capstone term is: Private Sector Development (PSD). At Mary McVay’s request I want to post here a relevant request I made to her privately…
I am seeking referrals to useful typologies/conceptual frameworks of PSD interventions. To me the ideal one will be fairly broad and comprehensive, and depict in some meaningful array the wide range of activities that one might expect to be categorized under PSD, from e.g. micro-credit (one sub-set of microfinance) to building local public sector research abilities under trade capacity building, and everything in between and surrounding them. A detailed annotated diagram would be ideal.
I would be most appreciative of any references readers might provide.
Cheers, Steve Londner
References on Private Sector Development Frameworks
I thought I’d check Mary Morgan’s paper before digging around in my files and I see she mentions the main papers I would also site that provide general grameworks for private sector development – thanks, Mary! Many of these can be found at www.bdsknoweldge.org
ALBU, M. 2007. Comparing M4P and SLA frameworks: Complementarities, divergences and synergies. The Springfield Centre, Durham, UK (on behalf of the FAUNO consortium).
DFID, 2005. Making Market Systems Work Better for the Poor (M4P)- An Introduction to the Concept. Discussion paper prepared for the ADB-DFID ‘learning event’, February 2005 ADB Headquarters, Manila.
DOWNING, J., SNODGRASS, D., NORTHRIP, Z. & WOLLER, G. 2006. The new generation of private-sector development programming: The emerging path to economic growth with poverty reduction. microReport #44. Washington DC: USAID.
MCVAY, M. & MIELBRADT, A. 2005. The 2005 Reader: From BDS to Making Markets Work for the Poor. Geneva: ILO. Also, the 2006 Reader.
OECD, DAC Network on Poverty Reduction, 2004. Accelerating pro-poor growth through support for private sector development: An analytical framework. Paris: OECD.
SIDA, DEPARTMENT FOR INFRASTRUCTURE AND ECONOMIC CO-OPERATION, 2004. Policy guidelines for Sida’s support to private sector development: Private sector development. Switzerland: Sida.
UKGOVERNMENT, House of Commons International Development Committee, 2006. Private sector development: Fourth report of session 2005-06. London: House of Commons.
A core foundational document for competitiveness and value chain development is:
PORTER, M. 1985. Competitive advantage: Creating and sustaining superior performance. New York, New York: The Free Press a Division of Simon & Schuster Inc.
Kim Alter of Virtue Ventures is also putting together a framework that includes social enterpirse and bottom of the pyramid approaches. For a brif diagram, see: http://communities.seepnetwork.org/edexchange/node/89
I hope this is helpful. There has certainly been enough writing on the topic …
Cheers,
Mary McVay
both terminology are equally strong
I don’t have any argument on the terms. All the terms are equally important in different situation/environment. In some cases, social entrepreneurs could be important players in value chain development. Individual enterprise is considered as important players in the competitive market. For example in agric enterprise ,input supplier could be an individual enterprise.
In whole process of local economic development, we can categorise the interventions in two generations. In First generation, we can create the entrepreneurship environment through business awareness/ entrepreneurship development and 2nd generation issues will lead for market development.
In overall both terminology are equally strong. Before choosing the appropriate terms, we have to consider various factors and actors together. With out looking complex business environment, the enterprises can not be sustained either it is individual enterprise or group enterprises. Now a day s co operative enterprises are becoming more popular in developing countries especially where people do not have negotiation capacity for their produce. Like co operatives for agriculture produces or Milk co operatives are more popular in developing countries especially very week market situations .
Even sometime it is difficult to find individual enterprise in post conflict situation due to lack of market economic and other business environment and if exist we have to start working with the individual small scale enterprise. By then we can gradually promote other individual entrepreneurs for bigger markets. In a process gradually private /investors emerged in the market. To attract the private sector first we have to create the foundation. But It is really difficult in real life….Value chain development
I certainly agree with those terminologies used in economic development. Usually value chain describes a full range of activities that local entrepreneurs do to bring a product from its conception to its end use and beyond. However, there should be win-win outcomes from the local entrepreneurs to large businesses firms. This can be done by ensuring two things; 1. Building the flexibility of low income earners to respond to business opportunities in relevant value chains. 2. Absorbing some of the transaction costs and risks faced by these big business firms in building market development with smallholders. I believe if this is done, it can help to ensure sustainability and viability of the value chains
Value Chain and Market development
The Small enterprise sector is so broad and has cut accross many sector of economies. It in not easy to deal with and in most cases it confuse service providers (public and private) about which sector one is dealing with and with which intervention.
The value chain concept bring us to the level where the public and private sector can work together in order to develop the market sustainably. The private sector got a big role to play in this sector which was originally fed with hand out from traditional NGOs which eventually made it very prone to below average quality service and eventually not sustainable in the long run. It also made SE waiting to receive free service/ subsidized service. This need to be done until a time when they have to be weaned out.
Value Chain vs MD
I beleive that we should be keeping things simle if we are to broaden the ambit and enable more enterprise development organisations in learning from the dialogue and this platflorm. To my understanding whatever approach we take ultimately intervenes in the value chain and it is the value chain which changes due to our interventions. However, in our rush for private sector participation lets not forget that it is only the growing or potential to grow kind of economies which is attract the private sector participation. In areas where there are low returns on investments by the existing value chain players, private sector participation will need to be greatly supported by way of incentives. One of the key issues now a days is related to agricultural productivity. While there are plethora of examples on PS participation in this sector, it would be good to understand how can we really enable investments in this sector at a mass scale without putting the producers into higher levels of risk or forcing them to directly intervene at higher levels of market.
greetings Rahul; But what
greetings Rahul;
But what about economies where 80% are actually MSEs operating in the informal sector? This is also private sector…. and small holder farmers are also private sector actors… These actors invest into their enterprises and farms with the money they earn from sales, and sometimes selling their labour. I think sometimes we let our way of thinking to be dominated by orthodox economics that dictate that only huge corporations that can invest huge amounts into buidling new factories should be considered private sector. In many ways it is quite radical for donors to acknolwedge that it is the MSEs and smallholders that are the potential engine of economic growth and constitute the private sector.
cheers
mary