Master Thesis MscBA: Small Business & Entrepreneurship
Honey: A golden opportunity for smallholders in rural Mozambique?
Author: Rein Thiemann
Student number: s1540114
Date: 17-08-2011
Address: W.A. Scholtenstraat 3A
9711XA Groningen (Netherlands)
Phone: +316-49903595
Email: reinthiemann@hotmail.com Supervisor: dr. C.H.M. Lutz
Co-supervisor: M. Olthaar, MSc.
EXECUTIVE SUMMARY
In this research an investigation is performed into the attractiveness of the Mozambique Honey Company-initiative for smallholders in rural Mozambique, specifically in the provinces Manica and Sofala. The attractiveness of the initiative, compared to the other alternatives in the honey value chain, is judged based on the strategic position that is gained by the smallholders in each alternative.
In this research, the following two chains were analyzed through the use of Global Value Chain-analysis and a strategic analysis based on the Resource-Based View:
Current beekeeping value chain: In this chain two alternative functions were analyzed, namely the beekeeper function and the road-seller function.
The Mozambique Honey Company chain: In this chain the analyses were performed on both a smallholder-level and a company-level.
The results of both the global value chain analysis and strategic analysis indicated the following results: For the beekeeping function in the current chain: A low strategic position was discovered through which the smallholders have no access to strategic resources and capabilities that may lead to a sustainable competitive position. Also, a yearly per-hive profit was indicated of 4-8 USD per traditional hive.
For the seller function in the current chain: A stronger strategic position was discovered for the road-seller function through his ownership of strategic resources and capabilities. It was however indicated that this chain is very hard to reach for smallholders.
Next, for the Mozambique Honey Company-chain: The smallholders in this chain by themselves have a low strategic position as they do not possess strategic resources and capabilities. It was discovered that on a company-level strategic resources and capabilities were owned, and that the company possesses a strong strategic position. However, through the indirect ownership of the smallholders through representation by UCCN in the Mozambique Honey Company chain, the smallholders are co-owners of the strategic resources and capabilities of the Mozambique Honey Company.
It is therefore essential that the representation of the beekeepers through shared ownership is ensured if the smallholders are to gain a stronger strategic position through indirect possession of the strategic resources and capabilities of the Mozambique Honey Company.
Also, for the company it is imperative that the shared ownership structure is properly implemented so that a reliable production base may result, as the company’s strategic position is strongly dependent on the reliable production base that is facilitated through shared ownership.
Finally, the initiative was deemed attractive as it holds better financial rewards(19.20USD per modern hive per year, 7.50-15USD per traditional hive per year) than the beekeeper-function in the current beekeeping value chain. Together with proper representation, it also entails a stronger strategic position for the smallholder than the current beekeeper-function.
PREFACE
Throughout my studying period at the Rijksuniversiteit Groningen, I developed a special interest in a certain aspect of Business Administration, namely Entrepreneurship. When the opportunity arose to perform a research into smallholder development through a newly started enterprise in Mozambique, I was strongly interested. This research has allowed me to embark on what could best be described as an exciting journey in an unknown environment.
I wish to express my gratitude to Andre Vonk, for allowing me all the tools and responsibility required for performing my research in freedom and in a stimulating business environment.
Furthermore I want to thank all the experts for their time and efforts that have allowed me to develop deep understanding of the research subjects at hand.
My special gratitude goes out to my Faculty Supervisors dr. Clemens Lutz and Matthias Olthaar. I am grateful to them for the enormous support, valuable inputs and helping me through the critical moments of the research.
Table of Contents
Executive summary ... 2
Preface ... 3
Table of Contents ... 4
Chapter 1: Introduction ... 8
1.1 The mass die-off of bees ... 8
1.2 Business opportunities ... 8
1.3 Beekeeping and its role for development of rural livelihoods ... 9
1.4 The Mozambique Honey Company ... 11
1.5 Research Objective ... 14
Chapter 2 :Theoretical Framework ... 15
2.1 Background on value distribution ... 15
2.2 The Value Chain Framework ... 16
2.2.1 The Value Chain Analysis ... 17
2.2.2 Governance and lead-firms ... 17
2.2.3 Upgrading ... 20
2.2.4 Criticism on Governance and Upgrading; Value creation versus Value appropriation ... 21
2.3 The Resource Based View ... 22
2.3.1 Inside-out versus Outside-in Perspectives ... 23
2.3.2 Resources: ... 24
2.3.3 Capabilities... 25
2.3.4 Competitive advantage and fit with the environment ... 25
2.4 Rangone’s framework for assessing strategic value ... 26
2.4.1 The use of resources and capabilities in Rangone’s framework ... 27
2.4.2 Rangone’s strategic tests ... 27
2.4.4 Determining the overlap between the industry’s key success factors and the company’s
resource base ... 30
2.5 Conclusion and Conceptual model ... 31
Chapter 3:Methodology ... 33
3.1 Introduction ... 33
3.2 Research Design ... 33
3.2.1 Research Approach - Inductive ... 33
3.2.2 Research Method – Qualitative ... 33
3.2.3 Research Strategy – Sector study ... 34
3.2.4 Research Area ... 35
3.2.5 Data Collection ... 36
3.3 Quality of Research Design ... 37
3.3.1 Construct validity ... 37 3.3.2 Internal validity ... 38 3.3.3 External validity ... 38 3.3.4 Reliability ... 38 3.4 Operationalization ... 38 3.4.1 Introduction ... 38
3.4.2 External analysis (Step 1) ... 39
3.4.3 Internal analysis (Step 2) ... 41
3.4.4 Strategic testing (Step 3) ... 43
3.4.5 Attractiveness of the MHC-initiative (Step 4) ... 45
3.4.6 Level of analysis ... 45
3.5 Risk and limitations ... 45
Chapter 4: Analysis ... 46
4.1 Introduction ... 46
4.2 External analysis ... 46
4.2.2 Chain 1: Value Chain analysis (beekeeping) ... 47
4.2.3 Chain 2: The Mozambique Honey Company chain ... 52
4.2.4 Chain 2: Value Chain Analysis(MHC) ... 53
4.3 Key Success Factor Determination... 57
4.3.1 Chain 1: Key Success Factor Determination ... 57
4.3.2 Chain 2: Key Success Factor Determination ... 59
4.4 Internal analysis ... 60
4.4.1 Chain 1: The Current Beekeeping Value Chain ... 61
4.4.2 Chain 2: The Mozambique Honey Company-chain ... 62
Chapter 5: Strategic Analysis ... 65
5.1 The determination of the key capabilities ... 65
5.1.1 The key capabilities for Chain 1:The Current Beekeeping chain ... 65
5.1.2 The key capabilities for Chain 2: The Mozambique Honey Company chain ... 66
5.2 Determination of the resources influencing the key capabilities ... 68
5.2.1 Key resources of Chain 1: The Current Beekeeping chain ... 68
5.2.2 Key resources of Chain 2: The Mozambique Honey Company chain ... 69
5.3 Strategic testing ... 71
5.3.1 Strategic testing of the key resources and key capabilities in chain 1: The Current Beekeeping chain ... 71
5.3.2 Strategic testing of the key resources and key capabilities in chain 2: The MHC-chain ... 77
Chapter 6: Discussion and conclusion ... 87
6.1 Discussion of the results ... 87
6.2 Implications for the research objective ... 89
6.2.1 Research Question 1 ... 90
6.2.2 Research Question 2 ... 91
6.3 Conclusion ... 93
6.4 Recommendations ... 94
Reference List. ... 95
Appendix I ... 101
Appendix II: Description of interviewees ... 104
CHAPTER 1: INTRODUCTION
This chapter introduces the subject of the thesis by explaining how the initial motive for the study has arisen from global problems in bee populations and accordingly rising world prices and what benefits beekeeping may have for rural smallholders. Next, the Mozambique Honey Company-initiative is discussed, followed by the Research Objective and subsequent research questions. 1.1 THE MASS DIE-OFF OF BEES
Historically, bees have been used for the pollination of crops since ancient Egypt. Two-thirds of our food supply depends on bee pollination to survive, including seeded fruits such as apples and oranges. (Delaplane & Mayer, 2000) The constant use of bees in an ever-expanding and demanding industry, however, takes its toll on the colonies. Forcing bees to continuously visit commercially cultivated crops exposes them to pesticides, parasites and other pathogens, as well as causing them the stress of constantly being shipped around. Since their natural habitat has been taken away, they are often undernourished, feeding only on one of several crops rather than the multitude of plants they would encounter in a natural habitat (Manji, 2009). Although descriptive epizootiological studies provide evidence that this phenomenon of rapidly perishing bee colonies deemed “Colony Collapse Disorder (CCD)” is consistent with a contagious condition or reflective of common risk factors within apiaries, no single cause can be attributed to CCD (Brown, 2009). It is therefore assumed that a combination of the previous factors causes the pollinators to perish at an unprecedented rate in Europe, the US/South America and Asia (Kimble-Evans, 2009).
If the trend continues, there will not be enough bees to pollinate many of our most popular fruits, vegetables and nuts, researchers believe. Some 85 commercial crops, like avocados and asparagus, peanuts and peaches, depend on honeybee pollination (Tolin, 2009).
1.2 BUSINESS OPPORTUNITIES
The consequence of the current crisis related to the large scale demise of bees worldwide, has been a rise of honey prices due to a decreased honey supply(See Figure 1 below).
On the upside of the major dangers posed to our food supply, great benefits can also be found in these developments. There have been no reports indicating that the phenomenon of CCD is present in Africa, which perhaps can be deduced from the fact that pesticides and intensive bee keeping is not prevalent in most African countries, leading to a rather stable natural environment (Williamson, Ball and Pretty, 2008). This has led to a great market opportunity; the rising prices of honey and the diminishing honey supply enable highly profitable business ventures to be established in areas that do not suffer from the problems associated with CCD and the pollution of honey. The production of honey and side-products is currently mainly done on a traditional basis and lacks efficiency. Taking advantage of a business approach in practicing modern beekeeping may result in great benefits for new business ventures.
1.3 BEEKEEPING AND ITS ROLE FOR DEVELOPMENT OF RURAL LIVELIHOODS Besides the business potential that beekeeping in Africa offers, it also has another often overlooked potential; namely the function as a developmental tool for rural communities (Bradbaer, 2009).
Commonly, beekeeping tends to be regarded as a side-line activity, or a hobby. These descriptions may very well be valid, but beekeeping has the potential to be much more than that. A resilient livelihood, as in one that keeps people out of poverty, is one that has access to a range of options. Apiculture and related activities can be sources of strength to countless numbers of rural people’s livelihoods. Access to income in rural communities is often limited and small-scale beekeeping can contribute significantly to livelihood security.(Bradbaer, 2009)The product that most people first associate bees with is honey, although beekeeping has many more uses besides honey generation. Bees are essential components of every ecosystem, maintaining biodiversity through pollination. Although impossible to quantify, pollination is the most economically significant value of beekeeping ( Gallai et al.2009). Besides honey, other products can be harvested as well; like beeswax, propolis, pollen, royal jelly, venom and the use of bees in apitherapy.
Ways that beekeeping contributes to livelihoods and stimulates development.
Direct benefits are provided by honeybees to the beekeepers both as a source of food that has a high nutritional value and as an additional source of income through the sale of surplus honey and wax. (Illgner, Nel and Robertson, 2008)
Beekeeping practiced on a small scale is not particularly labor intensive and can be performed in periods outside peak work times(Mensing, 1993a). The beekeeper can perform his usual agricultural activities unhindered by this secondary activity. Beekeeping usefully complements crop production and may lead to increased yields and cash income if enough honeybees are present for pollination (Ntenga and Mugongo, 1991; Murless, 1995).
● A particular advantage in southern Africa is that even in areas with a low agricultural potential where little or no arable land exists or where rainfall is unreliable, beekeeping can be carried out. It is a natural resource, freely available in the wild. (Murless, 1995).
● Almost all population groups in southern Africa have good skills relating to beekeeping and the gathering of bee-products (Guy, 1971).
● Beekeeping does not require advanced production technologies, and allows for many ways of managing bees and gathering a crop from them. At its most basic level, beekeeping commands a relatively minimal financial in-vestment, especially compared with the many cash crops that require purchase of plants or seedlings, pesticides, and fertilizers (Mensing, 1993a). A subsistence-level farmer who keeps honeybees needs not purchase land and can construct hives from locally available material. Access to finance is of great importance however for the development of beekeeping enterprises. Beekeeping associations require credit for collecting, processing, marketing etcetera. However, for beekeeping on a subsistence level, significant financial assets are not required.
The use of local materials for production allows for more livelihoods to be established through the stimulation of different sectors within a society: village traders; carpenters (making hives and stands); tailors (making veils, clothing, gloves);container-makers and sellers. Bees can be obtained by placing empty, baited hives in trees, which are then occupied by wild swarms.(Sosu, 1991).
● The availability of many networks, producer and marketing associations in Africa are important for beekeeping development in rural areas. Associations allow beekeepers to unite, share experience, ensure protection of their bees, access to markets etcetera.
1.4 THE MOZAMBIQUE HONEY COMPANY
As previously highlighted, beekeeping in Africa has the ability to serve both as a profitable enterprise and a rural developmental tool; Mozambique is not an exception. Recent research conducted to determine the potential of developing apiculture in two districts in Central Mozambique (Machemeje & Júnior: 2009) found that there is great scope to develop the honey value chain into a viable commercial venture. Different market channels are available but are not well organized. This is the case not only for honey, but for beeswax as well which is currently not marketed at all. Several problems are currently limiting the benefits of beekeeping, some of the main ones are(Matavele, 2006):
Lack of beekeeper organization and thereby market power to reach other market channels
Low production and quality standards, also preventing access to higher value markets
Lack of (finance for) equipment for extraction, processing, packaging and distribution
Lack of knowledge to apply improved practices
Beekeepers are mainly unorganized and have difficulty finding a market for their product. The use of improved methods can improve and increase current production, but several barriers are limiting beekeepers from attaining this.
In response to the before-mentioned opportunities that beekeeping in Mozambique entails, a Mozambique-based company, V&M Grain Co Lda., participates in a new venture named Mozambique Honey Company(MHC). The Mozambique Honey Company has recently been formalized and registered as a joint venture between 3 different parties; private investors, UCCN and Eco-MICAIA, possessing shareholdership of 45%, 45% and 10% respectively. The MHC is a social enterprise that aims to improve the position of rural smallholders. A social enterprise can be defined as an “enterprise that trades for a social or environmental purpose”. As well as meeting their social and/or environmental goals, they have to be business-like and meet financial and commercial goals”(Spear, Cornforth and Aiken, 2009,p1). It does this by allowing smallholders to produce high quality honey which is purchased from them and consequently processed using modern technology. The Mozambique Honey Company is introducing improved locally made hives that will increase both the quantity and quality of production compared to traditional methods of production.
Mozambique Honey Company become shareholders indirectly in the processing and marketing company by way of participation in district co-operatives which are members of an overall Union(UCCN), that will represent the producers in the company. The approach to training will incorporate a model that facilitates benefit for artisans as well as beekeepers; for example in the manufacture of bee hives and smokers.
The goal of Mozambique Honey Company is to transform the traditional way and scale of commercial honey production and trade in central Mozambique by producing honey and creating beekeeper organizations through which over 5000 beekeepers can access high value markets and become member(including benefits like training, support and dividends) in a new commercial enterprise. The philosophy of the founders of the new company is that in order to be successful at both developing the position of smallholders on a large scale and reaching sustainability, one needs to focus not merely on the representation of the smallholders within the company, but also on creating a company that is able to compete on a commercial basis. Therefore, the combination of a focus on representation of smallholders and a profit-maximization focus is deemed the key to the success of this initiative.
The parties working together, as mentioned before are;
V&M Grain(Private investors) represented by Andre Vonk - Is a Mozambican based company operating throughout Mozambique specializing in the commercializing of subsistence farmers' crops for export and local consumption. The owner, Andre Vonk, is the promoter of the initiative, holds 40% of the shares of the company and is responsible for researching, planning and developing the core business, staffing it and overseeing operations. V&M Grain will also lead the search for funding for the company and training and assist in seeking funding for the UCCN and hive loan fund.
AgDevCo(Private investors), which is the leading Consultancy Company in the Beira Agricultural Growth Corridor, which is a partnership that aims to boost agricultural productivity in Mozambique and the wider region. AgDevCo believes that profitable agriculture with strong links to markets is the best route out of poverty for the majority of Africa’s rural poor. It uses a private sector approach and invests its own funds to develop early-stage agriculture enterprises which involve transformational
benefits for smallholder farmers and their communities. It has invested $ 50.000, and holds 5 % of the shares in MHC.
UCCN – Future representation for the producers and 45% shareholder of the company. Currently the shareholder-division has not been made as the producer part has not been formalized yet by Eco-MICAIA. UCCN will develop the capacity to initially represent the producers in the company and over time to take on issues such as producer training, environmental impact mitigation and reforestation. The aim is to build a capable producer organization that is capable of functioning without support from V&M Grain and ECO-MICAIA. It is important to notice that UCCN has not been formed yet, which means that the representation of the beekeepers is currently weak.
MICAIA – 10% shareholder with the additional role of facilitating the setup of UCCN. Eco-MICAIA, represented by Andrew Kingman, is a foundation registered in Mozambique aiming to help create new markets for community producers and to increase the flow of investment into community based enterprises. It will also take the lead in creating a support structure for technical training and capacity building of beekeepers. Eco-MICAIA has relevant and local experience in Mozambique of helping communities and local people gain better access to local markets and to secure a stake in owning and managing successful enterprises.
SNV – a Dutch NGO that has been involved from the beginning of the project in assisting with its development. Represented primarily by Martinus Ruijten, SNV will use experience gained in the honey sector in Ethiopia and other Sub-Saharan African countries and its diverse agribusiness to provide guidance and assistance where appropriate. SNV will in particular assist with seeking funding to expand the project to new areas and for the development of new training modules for prospective MHC-beekeepers.
To date the project has received funding in the form of shares in return for a loan from V&M Grain of US$ 409,000(long term interest-free loan); grant funding from Comic Relief(charity based in the UK) of $350,000 for capacity building and training of 2,000+ beekeepers and the establishment of the Union; and a grant from iTC(Community Land initiative) of $ 25,000 for legalization of beekeeper groups. Mozambique Honey Company also has a bank loan of $70,000,-. AgDevCo has invested $50,000.
The Mozambique Honey Company is an unusual business model. It is made unique by its uncommon property that associations of producers (beekeepers), without having to provide capital (although under certain requirements explained in Chapter 4:Analysis), are a 45% shareholder in the company. Individual smallholders will not be held liable for debt the company incurs. Any debts are covered by V&M’s collateral coverage through loan-agreements. The private capital part of the company will also own 45% of the company, and Eco-MICAIA owns the remaining 10%. This is done mainly to prevent majority shareholder votes by powerful private capital holders that limits power and prevents real capacity building of producers. The 45-10-45 division is aimed at providing a healthy balance between existing entrepreneurial expertise and focus by V&M Grain(and AgDevCo), a social empowerment-focus of ECO-MICAIA (with an intermediary role) and a Rural Developmental- focus of UCCN.
1.5 RESEARCH OBJECTIVE
As can be determined from the previous paragraphs, beekeeping holds promise to be a powerful developmental tool. The recent arise of the promising Mozambique Honey Company-project raises questions on how Inclusive Business projects, such as MHC, aiming to be sustainable and benefiting to low-income communities, can contribute to development of smallholders in developing countries.
This research paper focuses on the extent to which this initiative can allow smallholders to gain a strategic position, and thereby a sustainable competitive position, in the honey value-chain. To be able to answer this question, a sector study is performed in which the consequences for the strategic position of the smallholder are described for each alternative. It is thereby that the strategic position for the smallholder gained through working with the Mozambique Honey Company is compared with the other alternatives in the honey value chain.
Concluding, the main research question that this paper aims to answer is:
Is the Mozambique Honey Company an opportunity for smallholders to gain a strategic position in the honey value chain? Although the proposed company is possibly a very promising opportunity for smallholders to improve their situation through gaining a strategic position, it is interesting to dig deeper into what inclusion within MHC means for smallholders and what other opportunities might exist.
It is therefore the goal of this research to determine what alternative chains smallholders can access to improve their strategic situation by practicing beekeeping, what the alternative chains entail for their benefit from beekeeping and which one is most beneficial to them.
Aiming to answer this question, one requires dividing it into several research-questions: 1. What is the strategic position of smallholders in existing chains?
What position in the value chain do smallholders in each existing chain have and what requirements-for-entry are posed?
What strategic resources and capabilities do smallholders in each existing chain have? 2. What is expected to be the strategic position of smallholders in the Mozambique Honey
Company-chain?
What position in the value chain do smallholders have when they join the Mozambique Honey Company-initiative and what requirements-for-entry are posed?
What strategic resources and capabilities do smallholders have when they join the Mozambique Honey Company initiative?
actors. Also, the requirements-for-entry are described to determine the difficulty for the smallholder to enter the chain.
Next, in determining what strategic resources and capabilities smallholders in each chain have, which may lead to a sustainable competitive advantage, a strategic analysis of their resources and capabilities is performed. Concluding, answers to the previous questions allow for a comparison of the Mozambique Honey Company alternative with the opportunities in the currently existing value chains which will allow the determination of whether the Mozambique Honey Company is an attractive initiative for smallholders.
CHAPTER 2 :THEORETICAL FRAMEWORK
In this chapter, relevant theories and studies are discussed in order to understand the theoretical background that underlies this research. A range of insights from several theoretical perspectives is combined to form an encompassing theoretical framework ideally suited for this study’s research objective. The chapter firstly introduces the background on value distribution and how firms are integrated in value chains, followed by a description of the value chain framework. The Value Chain Framework is one of the two main approaches that give structure to this research by an analysis of the dynamics in the value chain for smallholders. Several concepts central to this literature, like Chain Mapping, Governance and Upgrading, are reviewed and integrated. The second approach that is utilized is the Resource Based View, providing valuable information on current and future smallholders’ strategic positions through concepts like Resources and Capabilities and Strategic value. These approaches combined provide a novel framework for the analysis of the strategic position of smallholders in the Mozambican beekeeping value chain.
2.1 BACKGROUND ON VALUE DISTRIBUTION
This chapter reviews the main literature related to researching what impact the alternative beekeeping value chains may have on the position of smallholders.
In the past, research has been done on how domestic markets have evolved to gain linkages with foreign actors and form so-called global value chains. The growing integration of the global economy has opened up opportunities for substantial income growth for many of the world’s population. In addition, this has resulted in better quality and differentiated products. However, globalization has also had a downside. “There has been an increasing tendency towards growing unequalisation within and between countries and a growing incidence in the absolute levels of poverty, not just in poor countries”(Kaplinsky, 2004, p75). Today, all countries are integrated to some extent into the global economy and are experiencing varying degrees of economic growth or decline. While economic growth generally reduces poverty, it does so at different rates in different contexts, with the greatest impact on poverty reduction occurring in those countries with the most equitable income distribution(Ravallion, 2004).
In order to gain more insight into how smallholders may gain more value within a market, it is important to analyze where the value is added along the chain in which a product is conceived until its end user. This requires the determination of the factors that drive the distribution of gains from production and exchange and the inquiry into why some parties gain and others lose from participating in business transactions.
2.2 THE VALUE CHAIN FRAMEWORK
The Value chain concept was originally coined and developed in 1985 by Michael Porter in his seminal work ”Competitive advantage”. Firstly, he defined “value” as “the amount that buyers are willing to pay for a product or service”(Porter,1985,p150).
Consequently, the “value chain” was conceived as the combination of the value added activities that operate within a firm that work interdependent to provide value to customers. Porter then continued by linking up the value chains between firms to form what he called a “Value System”, which in our current times of increasing outsourcing and linkages between multiple firm’s value creating processes has more commonly become called the “global value chain”.
While keeping the work of Michael Porter at its base, this literature on value chains was then further developed by several authors (e.g. Gereffi, Kaplinsky, Humprey and Schmitz) whom have given rise to the “Global Value Chain” framework as a source of literature that analyzes the distribution of value and allows insight into how this distribution comes about(Kaplinsky, 2000).
Expanding on this, various researchers have taken up the idea that international trade in goods and services should not be seen merely as a set of arm’s length market-based transactions (Kaplinsky, 2004). An important part of trade is conducted within multinational enterprises or through systems of governance that link firms together in a variety of sourcing and contracting arrangements (Campbell, 1995: 1).
The term “value chain” is then described as “the full range of activities which is required to bring a product or service from conception, through the intermediary phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use”(Kaplinsky, 2000). “As such, value chains include all of the vertically linked, interdependent processes that generate value for the consumer, as well as horizontal linkages to other value chains that provide intermediate goods and services”(Webber and Labaste, 2010, p9)
The concept of global value chains which has been used to describe the value chain was introduced into the literature by Gereffi during the mid-1990s. Gereffi’s contribution has enabled important advances to be made in the use of the value chain concept. Also, by focusing on the coordination of globally dispersed, but lined production systems, Gereffi has shown that “many chains are characterized by a dominant party(or sometimes parties) who determine the overall character of the chain. These so called “lead firms become responsible for upgrading activities within individual links and coordinating interactions between the links.(Gereffi, 1999)” The concept of upgrading will be discussed in paragraph 2.2.4.
Even though most of the recent literature focuses on value chains in a global setting, we attest that the principles and concepts of Global Value Chain analysis are equally applicable to analyses on a national domestic level, as performed in this research. As GVC-theory is rooted in value chain theory as purported by Porter, be it on a domestic or global scale, the basic premises remain equally applicable. More so, Global Value Chain literature has been developed as a tool that is particularly useful for the analysis of value chains and inclusion of smallholders in developing countries. This study uses the insights from this literature for the analysis of the domestic Mozambique beekeeping value chains.
2.2.1 THE VALUE CHAIN ANALYSIS
Gereffi and Memedovic(2003) lay emphasis on two elements for the description and outline of each chain that is focused on in this research:
1) The structure of the chain. This includes all individuals and firms that conduct business by adding value and help move the product toward the end market.
2) The dynamics of the value chain. This encompasses the determinants of individual and firm behavior and their effect on the chain’s functioning
Value Chain Mapping
“The first step of the value chain analysis is the so-called mapping. The main idea is to initially identify the actors and then “map the traced product flows within the chain including input supply, production, processing and marketing activities. The objective is to give an illustrative representation of the identified chain actors and the related product flows. A mapped value chain includes the actors, their relationships, and economic activities at each stage with the related physical and monetary flows” (Faße, Grote and Winter, 2009, p10)”
This review of literature on Global Value Chain analysis focuses on 2 themes that are recurrent in GVC literature, and are of particular relevance to African agricultural value chains (Webber and Labaste, 2010)
Governance Upgrading
In the following 2 paragraphs, these concepts will be presented in light of this study.
2.2.2 GOVERNANCE AND LEAD-FIRMS
take responsibility for the inter-firm division of labour and for the capacities of particular participants to upgrade their activities”(Kaplinsky, 2004,p84).
In a large number of Sub-Saharan Africa cases, the so-called “lead firms” have the capability to define the parameters of contracts and subcontracts in their supply chains. They can therefore “define chain-wide product and process standards, quantities, and conditions of delivery. This capability may be based on ownership of well-established brand names, proprietary technology, or exclusive information about different product markets, which enable the firm to act as a system integrator”.(Altenburg, 2006)
Gereffi et al. (2005) identify three key variables which shape internal GVC governance structures, namely: 1. Complexity of information and knowledge transfer required to sustain a particular transaction, particularly with respect to product and process specifications;
2. Codification of information and knowledge; i.e. can it be codified and transmitted efficiently without transaction specific investment between parties?
3. Capabilities of actual and potential suppliers in relation to the requirements of the transaction.
The state of these variables does not however need to be static and the following notes can be made regarding the dynamic nature of them:
The changing nature of the requirements of value chains (for example, product differentiation or compliance with the changing regulatory environment) changes the extent and complexity of information transfer.(Humprey and Memedovic, 2006)
At the same time, changing requirements also will change the level of codification of information. New requirements (for example, compliance with legislation on maximum residue levels) will initially lead to non-codified information flows between actors. At some later stage, this information may be codified. More generally, value chains may experience cycles of codification and de codification as a result of the tension between the cost reducing advantages of “order” and the dynamic advantages of “innovation” (as described by David, 1995: pp. 18-19).
Figure 2: Key determinants of global value chain governance (Adapted from Gereffi,Humphrey and Sturgeon, 2005, p90) On the basis of these variables, a characterization of governance can be made along a continuum of five types of relationships that center on information and the use of market power, displayed in Figure 2 (Gereffi, Humphrey and Sturgeon, 2005,p90).
The connections between industry activities within a chain can be described along a continuum extending from the market, characterized by "arm’s-length" relationships, to hierarchical value chains illustrated through direct ownership of production processes. Between these two extremes are three network-style modes of governance: modular, relational, and captive (Gereffi et al, 2005).
Market
This mode of governance deals with transactions that are easily codified, in which product specifications are relatively simple, and where suppliers are able to produce the product with little input from buyers. Asset specificity is low. Also, little or no formal coordination is required, as the complexity of information exchanged is relatively low. (Gereffi et al, 2005)
Modular
We assert that the explanation of the modular governance form as provided by Gereffi et al(2005) is less clear than the one provided by Sturgeon, Biesebroek and Gereffi(2008) which is why use the latter’s. In these chains, suppliers make products or provide services to a customer’s specifications. As generic machinery is used, switching costs are thereby kept low, and transaction-specific investments are limited, even though interactions between parties can be very complex. High volumes of information is flowing between participants, leading to more substantial linkages than simple markets, but at the same time codification schemes keep interaction from becoming highly complicated (Sturgeon, Biesebroeck and Gereffi, 2008).
Relational
Captive
“When the ability to codify – in the form of detailed instructions – and the complexity of product specifications are both high but supplier capabilities are low, then value chain governance will tend toward the captive type. This is because low supplier competence in the face of complex products and specifications requires a great deal of intervention and control on the part of the lead firm, encouraging the build-up of transactional dependence as lead firms seek to lock-in suppliers in order to exclude others from reaping the benefits of their efforts. Therefore, the suppliers face significant switching costs and are ‘captive’. Captive suppliers are frequently confined to a narrow range of tasks – for example, mainly engaged in simple assembly – and are dependent on the lead firm for complementary activities such as design, logistics, component purchasing, and process technology upgrading” (Gereffi et al., 2005, p86-87)
Hierarchical
Finally, hierarchical governance occurs when product specifications cannot be codified, transactions are complex and competent suppliers are not available. It is characterized by vertical integration and managerial control, within a number of lead firms that develop and manufacture products in-house (Gereffi et al, 2005).
2.2.3 UPGRADING
“Firms in developing countries, in common with firms everywhere, are under pressure to improve their performance and increase their competitiveness. New, low-cost producers are entering global markets, intensifying competition in markets for labor-intensive manufactures. How can firms in developing countries respond to this type of challenge while at the same time maintaining returns to both labor and capital from engaging in trade?”(Humphrey and Schmitz, 2002b, p1017). The literature on competitiveness suggests that the most viable response is to “upgrade”; to make better products, make them more efficiently, or move into more skilled activities(Ponte & Ewert, 2009). “The concept of upgrading has been used to highlight the possibility for (developing country) producers to “move up the value chain”, either by shifting to more rewarding functional positions, or by making products that have more value added to them, and that can provide better returns to producers”(Bolwig, Ponte, du Toit,Riisgaard and Halberg, 2008,p17).
In the GVC literature, the upgrading process is examined through the lens of how knowledge and information flow within value chains from ‘lead firms’ to their suppliers (or buyers)(Gereffi 1994). Upgrading is then about acquiring capabilities and accessing new market segments through participating in particular chains (Humphrey, 2002b).
Figure 3 Overview of upgrading types. (Adapted from Humphrey and Schmitz, 2002a)
2.2.4 CRITICISM ON GOVERNANCE AND UPGRADING; VALUE CREATION VERSUS VALUE APPROPRIATION
Despite the great emphasis that is placed upon governance and upgrading in the Global Value Chain literature, we cast doubts on whether they are really that relevant for gaining more understanding of how the MHC initiative may impact the position of smallholders.
Regarding governance, there is a focus on lead firms that determine the division of labor in a value chain, with some notions of how this capacity relates to power. We deem it remarkable that it remains quite unclear as to what this “power” is and how it works. We attest that the main issue that is at hand when discussing governance is not so much the question of who creates what, but more the question of who receives what value. The main issue thereby lies on the appropriation on value, not on the creation of value. We consider value appropriation a better indicator for the position of a smallholder’s position in the market.
We recognize the same issue regarding value appropriation in the concept of upgrading; In reviewing the existing literature on upgrading, it becomes clear that the focus of upgrading is to increase the value-added to a product or service, and thereby improve one’s position in the value chain. This focus on value creation neglects an essential fact stipulated before, namely the issue of value appropriation being the main factor influencing the position of an actor in the value chain. Upgrading thereby says nothing about whether the value that is created also comes back to the one that is responsible for creating it.
export of a commodity can depress its price in the world market to such an extent of making growth damaging for the country. That is, the negative terms of trade effect outweighs the positive effect of increased output. This shows that upgrading does not necessarily lead to improvements or higher incomes. Furthermore, other authors complement this criticism by describing that it is sometimes better to “downgrade”(Gibbon and Ponte, 2005). Downgrading entails the selling of lower value products sold in larger amounts which may, at least in the short term, be the most profitable strategy for some firms(Gibbon and Ponte, 2005).
Besides showing that upgrading is not always the best path, we have also indicated that the ones that do upgrade and increase added value, do not necessarily receive(appropriate) this value themselves. This bears the question, how can actors improve their position in the value chain? This issue is addressed by Kaplinsky(1998 and 2000) and Gibbon and Ponte(2005), although no explanation is provided as to why this issue with value appropriation takes place. In our view, it is clear that upgrading in the global value chain literature does not provide this answer, which is why we have chosen to utilize a different framework. The framework that does allow us to answer this question and understand how one can appropriate more value on a sustainable basis is the Resource Based View, in which an investigation into the strategic position of actors(in this case the smallholders) ensues which provides the needed information. Upgrading is therefore defined by us as “having a better strategic position within the value chain”. In Chapter 2.3 we will expand upon the Resource Based View and how its analysis may lead to insights into gaining a stronger strategic position and possibly a sustainable competitive advantage.
2.3 THE RESOURCE BASED VIEW
In this section, the main theoretical concepts of the Resource Based-view are presented, in which issues like strategy, strategic attributes and the relationship between resources are expanded upon.
The Resource-Based View(RBV), as before mentioned, is one of the key literatures that is utilized in this research. The RBV stems from the field of strategy since the developments of Ansoff (1968) and
Andrews (1971) in which it was researched how a firm could be positioned for competitive advantage through the correct understanding of its strengths and weaknesses. “This prescription, for a long time, had remained at a conceptual level, lacking tools for deeper analysis of firm’s resources, which constitute the ultimate basis for firms’ strengths and weaknesses”(de Oliveira Wilk and Fensterseifer, 2003,p996).
Today, the RBV, in its modern form, has been further developed by the works of Wernerfelt (1984), Rumelt (1984, 1991), Dierickx and Cool (1989), Barney (1986a, 1991, 2001), Teece (1986), Grant (1991), Mahoney and Pandian (1992), Amit and Shoemaker (1993), Peteraf (1993), Foss (1997), Teece et al. (1997), Rangone(1999), Castanias and Helfat (2001), Lockett and Thompson (2001), Mahoney (2001) and Makadok(2001), among others. It has become one of the most influential and cited theories in the history of management theorizing as it aspires to explain the internal sources of a firm’s sustained competitive advantage(SCA)(Kraaijenbrink et al, 2010). Its central proposition is that if a firm is to achieve long-term competitiveness, or better said; a state of SCA, it must acquire and control resources and capabilities that differentiate it from its competitors, that are durable and, that are difficult to imitate and substitute (e.g., Grant, 1991; Peteraf, 1993; Collis and Montgomery, 1995; Mahoney and Pandian, 1992; Barney, 1991; Prahalad and Hamel, 1990 and 1994; Stalk et al., 1992, Amit and Shoemaker, 1993).
interactions (Amit and Shoemaker, 1993; Black and Boal, 1994), the valuation of strategic resources (Collis, 1994), and the resource acquisition and formation processes (Barney, 1986; Bernardo and Chowdhry, 2002). In this research, a smallholder firm-level strategic analysis is applied. For this purpose, it is necessary to investigate the field of strategic management first. Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments(Nag et al, 2007). It is concerned with relating the firm to the environment it is operating in to be able to meet long-term objectives successfully (de Wit & Meyer, 2004).
Strategy
The difficulty that arises in strategic management is the competitive nature of the environment. De Wit and Meyer(2004) state that in order to be successful, one needs a competitive advantage over rival organizations. Preferably this advantage needs to be sustainable over a prolonged period of time. Reviewing the literature, we can clearly see that the attainment of this advantage is subject to ongoing discussion amongst both practitioners and academics.
How this competitive advantage can be attained, depends largely on how a firm utilizes its resources and capabilities in relation to its environment. This means that analysing the external environment is crucial for enabling the development of successful strategies.
2.3.1 INSIDE-OUT VERSUS OUTSIDE-IN PERSPECTIVES
It may be clear that in order to have organizational success, the academic world holds different perspectives on how this can be achieved. Two main views can be distinguished on how businesses should manage their resources to achieve this success (de Wit & Meyer, 2004).
1) Taking the environment as a base, also known as the outside-in view.
2) Taking the company’s unique resources and capabilities as a base, also known as the inside-out view. The first view assumes that an organization is constantly observing its environment to identify market opportunities in order to establish a competitive position and to respond quickly to external developments. “The firm’s current resource base should not be the starting point when determining strategy, but should merely be acknowledged as a potentially limiting condition on the firm’s ability to implement the best market strategy”(de Wit and Meyer, 2004, p331). In this case, the global value chain approach, in which focus is placed on the position of actors as compared to others in the chain and on the importance of demands placed upon actors by others higher in the value chain represents an outside-in perspective of how firms can gain a competitive advantage and shall function as the tool with which we gain information on the requirements of the environment of smallholders.
“While both views share the assumption that an alignment between the firm and the outside world must be established and maintained that assures competitive advantage, what divides them is their way of achieving such a fit”(de Wit and Meyer, 2004,p330). The discussion around these perspectives can be summarized(de Wit and Meyer, 2004) by questions like:
Should a company adapt itself to its surroundings or should it attempt to adapt the surroundings to itself?
Should strategist take as a starting point the environment, in which they choose an advantageous market position and obtain the resources needed to implement this choice?
Or should strategists take the organization’s resource base as starting point, selecting and/or adapting an environment to fit with these strengths?
Creating alignment to achieve competitive advantage can go both ways, and in this research both views are taken as inputs. The Resource Based view(inside-out) coupled with a market based view(outside-in) “enables the strategist to link the firm’s internal behavioural decisions and organizational choices with the need to secure a defensible positional advantage in the market”(McGee et al, 2005,p266).
Until now, we have discussed the relationship between the inside-out and the outside-in perspective with the competitive advantage of a firm and we have mentioned the concepts of resources and capabilities. Before continuing with the description of a competitive advantage, it is important to first expand upon the concepts of resources and capabilities.
2.3.2 RESOURCES:
Resources are the productive assets owned by the firm and can be described as inputs that enable an organization to carry out its activities and include all assets. Resources in and of themselves confer no value to organizations, only when they are put to some productive use that value follows. Valuable resources can take form as tangible assets or intangible assets but can also be divided in homogeneous classes. Rangone(1999) differentiates between the following homogeneous classes: financial resources (internally generated funds), physical assets, human resources, organizational resources (including external relationship networks), skills, know-how and competencies, brand and reputation (see also Grant, 1991; Aaker, 1989; Hall, 1992; Azzone et al., 1996).
In order to increase understanding of each of these resource classes, they can be further defined the following way:
Financial resources: These can be defined as all the different money resources that a firm can use to conceive of and implement strategies( Ishengoma, 2004)
Physical assets: Can be defined as the physical technology used in a firm, plant, equipment, geographic location, access to raw materials, distribution network, and technology.(Barney, 1991) Human resources; Can be defined as the training, knowledge, experience, intelligence, relationship
Organizational resources (including networks): Include a firm’s formal reporting structure, its formal and informal reporting structure, its formal and informal planning, controlling, and coordinating systems, as well as informal relationships among groups within a firm and between a firm and those in its environment(Barney, 1991)
Skills and Competencies: the concept skills includes knowledge acquired through previous or outside training, as well as employees’ experience within their current company(Ordaz,Alcazar and Cabrera, 2003); it also refers to “something a firm is able to do (e.g., advertising, efficient manufacturing) (Aaker, 1989; Hall,1992 and Rangone, 1999).
Know-how: Know-how can be defined as confidentially held, or better, 'closely-held' information in the form of unpatented inventions, formulae, designs, drawings, procedures and methods, together with accumulated skills and experience …. which …. can assist a firm’s in a competitive advantage. It is the sum total of all expertise needed for a certain function(Erasmus, Swanepoel, van Wyk and Schenk,2003). Depending on whether it is tradable, it can be both a resource and a capability(Amit & Schoemaker, 1993)
Brands and reputations: There is widespread agreement in the areas of both marketing (e.g., Aaker 1996; Kapferer 1992; Keller 1993; Shocker, Srivastava, and Ruekert 1994) and strategy (e.g., Amit and Schoemaker 1993) that brands can represent valuable firm resources. Brands can be defined as products, corporations, organizations, persons, symbols and places(de Chernatony, 2001 and Aaker, 1996) which comprise a cultural and relational facet(Kapferer, 2004). Reputation can be defined as a collective representation of a vendor’s pas actions that embraces the vendor’s ability to deliver value outcomes to multiple stakeholders(Kim et al. 2004) Markwick and Fill (1997) defined reputation as ‘the organization ’ s presentation of itself to its various stakeholders and the means by which it distinguishes itself from all other organizations’
2.3.3 CAPABILITIES
Resources are not productive on their own. To perform a task, a team of resources must work together, as a capability. An organizational” capability” is a “firm’s capacity to deploy resources for a desired end result.” (Helfat and Lieberman, 2002,p726) A capability is therefore the ability to perform a task or activity that involves complex patterns of co-ordination and co-operation between people and other resources. Capabilities would include research and development expertise, customer service and high-quality manufacturing. In this respect, capabilities are firm-specific and are used to engage the resources within the firm, such as implicit processes to transfer knowledge within the firm (Makadok, 2001; Hoopes, Madsen and Walker, 2003)
2.3.4 COMPETITIVE ADVANTAGE AND FIT WITH THE ENVIRONMENT
competitive advantage. Priem and Butler(2001a) have also criticized Barney’s definition of competitive advantage in that it fails to recognize that “it is the market environment….that determines the degree of value held by each firm resource in the RBV”(Priem and Butler, 2001a,p29), and value (which is determined by demand-side characteristics) is the fundamental component determining the extent of competitive advantage(Priem and Butler, 2001a).
This recognition of the fact that the consideration of the environment is essential in attaining a competitive advantage is also stipulated by Besanko’s(et al, 2009) solution of determining how competitive advantage arises. He defines competitive advantage the following way: “when a firm earns a higher rate of
economic profit than the average rate of economic profit of other firms competing within the same
market, the firm has a competitive advantage in that market”(Besanko et al, 2009, p. 346) One of the key issues regarding this definition is the analysis of the industry and environment, through which the fit can be determined that is required between the resource base of a firm and the needs of the environment in order to attain a competitive advantage(Besanko, 2009).
It may be clear that the discussion on the inside-out perspective and the outside-in perspective hold the same premises as the discussion on competitive advantage, namely the necessity to include both an internal perspective and an outside-in perspective that reflects the needs of the market.
Although a competitive advantage has the ability to become sustained, this is not necessarily the case. A competing firm can enter the market with a resource that has the ability to invalidate the prior firm's competitive advantage, which results in reduced rents(a surplus of revenue over cost)(Barney, 1986b). Rangone(1999), claims that a sustainable competitive advantage arises from resources having “strategic” value, and are thereby deemed “strategic resources or capabilities”. The following paragraph expands upon how a sustainable competitive advantage can be determined through Rangone’s(2009) framework for assessing strategic value.
2.4 RANGONE’S FRAMEWORK FOR ASSESSING STRATEGIC VALUE
Rangone(1999) claims rent-creation is possible when resources have strategic value and when they support the key performances of a firm. The key performances of a firm are dependent on the industry’s key success factors (Porter, 1980; De Vasconcellos and Hambrick, 1989; Hax and Majluf, 1984; Grant,1991), and on the core customer benefits the company wants to address(Prahalad and Hamel, 1989 and 1994). The resource-based view therefore does not consider all resources possessed by a company, but focuses “rather only on strategic resources, i.e. those that are the basis of the company’s sustainable competitive advantage”(Rangone, 1999, p234)
Many authors(see also Barney,1991; Wernerfelt, 1989; Zahra and Das, 1993; Amit and Shoemaker, 1993; Collis and Montgomery, 1995; Mohoney and Pandian, 1992; Porter, 1991; Grant, 1991; Prahalad and Hamel,1994) have written about the requirements that resources and capabilities must comply with in order for them to be rent-creating on the long term, and thereby strategic. These “tests” are discussed in chapter 2.4.2.
of the importance of capabilities, in which he purports that a competitive advantage of a firm does not only stem from selecting the separate resources of a firm, but also from the ability of the firm to combine them, which he calls “idiosyncratic bilateral synergy”, which in this case are previously described and defined as capabilities. Both resources and capabilities can be used to gain a competitive advantage, but capabilities are especially suitable as they are very firm-specific, unlike resources, which Makadok(2001) argues are often not a source of competitive advantage.
We deem the model of Rangone(1999) that only considers resources, as being weaker when it omits the testing of capabilities, and have therefore decided to adjust it by including the testing of groups of resources—capabilities--, as well.
2.4.1 THE USE OF RESOURCES AND CAPABILITIES IN RANGONE’S FRAMEWORK
Now that the main premises of Rangone’s(1999) framework regarding resources and capabilities have been described, it is important to determine how these resources and capabilities are used as inputs in this particular framework.
Regarding the use of resources as inputs
It is by use of the classes described in chapter 2.3.2 that each resource that is identified in this research is placed in order to be considered relevant and to be further investigated. We deem the described classifications as providing a properly broad basis for the purpose of this study and they are therefore used for the strategic analysis in this research.
Regarding the use of capabilities as inputs
The use of capabilities in this research is essential, as we use it as an input for our strategic analysis. For a description of what capabilities are, see chapter 2.3.3. As before highlighted, the competitive advantage of a firm can also be based on the capabilities of a firm.
As previously described, the remark that we make regarding Rangone’s framework is one concerning the importance of capabilities for a firm’s competitive advantage, which has been stipulated multiple times in the literature review. Rangone has, in our opinion, one flaw in his model; he fails to test capabilities for strategic value, as he only uses resources as inputs. We have decided to also incorporate the testing of capabilities in our use of his strategic framework, as we deem these essential for a proper strategic analysis.
The steps for determining strategic value are explained in the next paragraph.
2.4.2 RANGONE’S STRATEGIC TESTS
Zahra and Das, 1993; Amit and Shoemaker, 1993; Collis and Montgomery, 1995; Mohoney and Pandian, 1992; Porter, 1991; Grant, 1991; Prahalad and Hamel, 1994).
To transform a short-run competitive advantage into a sustained competitive advantage, 5 tests are proposed by Rangone(1999) that specify the requirements for resources to create sustainable rents and thereby become strategic resources:
Competitive superiority; the extent to which resources differentiate the firm from competitors (Rangone, 1999).
Imitability: A source of competitive advantage could arise when a valuable resource is controlled by only one firm. If this strategic asset cannot be duplicated by competitors, this advantage could be sustainable.(Peteraf, 1993; Barney,1986b) The term causal ambiguity is used to describe an important underlying factor of in-imitability. Causal ambiguity occurs when the source of a firm’s competitive advantage is unknown. (Peteraf, 1993; Lippman and Rumelt, 1982). In-imitability can also arise from knowledge based or socially complex resources. Conner and Prahalad go so far as to say that resources based on knowledge are the essence of the resource-based perspective” (1996)
Duration: Determines whether the resource benefits will also be generated in the long term.
Appropriability: Investigates whether the firm is able to exploit the generated advantages in the market.
Substitutability: Investigates how difficult it is for competition to replace the resource with an alternative providing the same advantages. If competitors are able to counter the firm’s value-creating strategy with a substitute, prices are driven down to the point that the price equals the discounted future rents (Barney, 1986a), resulting in zero economic profits.
After a resource fits the previously described characteristics it can be considered a strategic resource. These test are performed on a qualitative basis by the researcher or entrepreneur that wishes to assess the strategic potential of resources (Rangone, 1999). The usefulness of these tests may well be clear, their practical application however is weakly described, not just in Rangone’s article, but also by other authors. Rangone does not define when a resource passes the tests. He provides notions that the value of resources needs to be medium to high in order to be strategic. In his article, this translates to a score between 5.1 and 10(on a 1-10 scale) (Rangone, 1999). It however remains unexplained how this score is determined. Also, we deem the scoring on the tests as too strict, causing many resources to not be deemed strategic, although it may be of great importance to the firm. This leads back to our earlier argument that bundles of resources, capabilities, can also be strategic to a firm. Chapter 3, the Methodology, will further deal with these particular issues. Concluding, growing bodies of work in both strategic management and marketing argue that firms possessing such strategic resources can develop competitive advantages over rivals lacking such resources, and can leverage these advantages to gain sustained superior performance (e.g., Chaterrjee and Wernerfelt, 1991). For use in this study, the determination of competitive advantages that have a sustained basis will allow more insight in smallholders’ capabilities and long term positioning in a value chain.
2.4.3 KEY SUCCESS FACTORS AND FIT WITH THE COMPANY
link between the inside-out view(RBV-analysis) and the outside-in view(determining what the market requires).
The resource based-view analysis in this research is performed using the framework as depicted by Rangone(1999), in which key success factors need to be determined in order to analyze the overlap between the environment’s demands and the key performances. Rangone however, does not provide any directions as to how these Key Success Factors can be determined.
In their book Strategy: Analysis and Practice, McGee et al(2005)also discuss the link between the inside-out and outside-in view, and they define the concept of KSFs more extensively. They assert that the outside-in view, which they term the market-based view(MBV), coupled with the RBV, enables one to link the firm’s internal behavioral decisions and organizational choices with the need to secure defensible positional advantages in the market. They highlight how Amit and Shoemaker(2003) developed a model that incorporates a dimension called “Strategic Industry Factors”(SIFs), which are the sources of market imperfections that firms can capture as elements in their competitive advantage. After the development of the concept SIF, other ad hoc analyses developed, particularly the idea of Key Success Factors(KSFs). In general, KSFs can be seen as those elements in the industry that are deemed as important for customers. “Strategic industry factors are a way of articulating KSFs as those elements in the industry and in the market that are subject to market failure and therefore where firms can provide them they will have an advantage” (McGee, et al, 2005,p267). These factors are those firm specific imperfections that represent competitive advantage. The concepts of SIF and KSF are deemed equal in our view, and we therefore use the term KSF throughout the research although we use SIF theory to guide us to the required information. Amit and Shoemaker(2003) synthesize contributions from many authors in producing this list of characteristics that apply to strategic industry factors.
1 They are determined through a complex interaction among industry rivals, new entrants, customers, regulators, innovators, suppliers and other stakeholders.
2 They are strategic in that they are subject to market failures and may be the basis for competition among rivals.
3 They are known ex post but not ex ante, in particular, not all aspects of their development and interactions with other factors in the market will be known or controllable.
4 Their development takes time, skill and capital: they may be specialized to particular uses. 5 Investments in them are largely irreversible (i.e. sunk costs).
6 Their pace of accumulation is affected by own prior knowledge and experience and that of rivals (i.e. path dependent) and cannot be readily increased (doubling the investment will not usually halve the time)
7 Their value to any particular firm will depend on its control of other factors – the complementarity property.
“inputs from people who have an excellent working knowledge of the industry/business”. They claim it may not be as objective and thorough as other techniques, it is considered a rich source of fata, and offers advantages of being able to obtain information or perspectives not always available or discernable through using the more standard analytical techniques. This insight that experts can provide of an industry, is often an excellent source of CSFs/KSFs(Leidecker and Bruno, 1984). In this research, the use of interviews with industry/business experts is used for the determination of the key success factors.
2.4.4 DETERMINING THE OVERLAP BETWEEN THE INDUSTRY’S KEY SUCCESS FACTORS AND THE COMPANY’S RESOURCE BASE
Earlier we saw that the resource based view requires the analysis of both the resources and capabilities present within the company, but also the key success factors of the market/industry.
It is thereby by the following mechanism that we determine the overlap between these key success factors and the resource base of the company.
Firstly the company’s strategic intent is determined by deciding on which key performances the company relies. The key performances can be seen as those capabilities the company considers responsible for its success in the market. In Rangone’s(1999) framework, the key performances are a result of combining the key success factors and the core customer benefits the firm focuses on. We however have decided to approach the key performances somewhat differently. We propose to establish the key performances based on the strategy and core customer benefits the firm focuses on. The reason we do not combine the key success factors with the core customer benefits to form the key performances is that the fit that is assumed by Rangone(1999) between the key success factors and the strategy is not necessarily always present. If all firms in a market/industry were equally able to score high on the presumed key success factors, these factors will cease to exist as KSFs and do not determine a company’s profitability in a market/industry (Amit & Schoemaker, 1993; Prahalad & Hamel, 1990). The key success factors will be used however later on in our model as a means to determine the overlap between the key performances of the company and requirements of the market(KSFs). The capabilities that make up the key performances are then tested for their overlap with the key success factors of the market/industry. The capabilities that overlap with the key success factors are named the key capabilities. It is only after this process, that the strategic tests take place, as it is first required to test for overlap. The capabilities that do not overlap, are irrelevant and do not require testing for strategic value. The capabilities that do overlap, the key capabilities, are tested for strategic value.
2.5 CONCLUSION AND CONCEPTUAL MODEL
Concluding, in aiming to answer the main question of this research from the previously described literature we can determine the following conceptual model that links the theoretical concepts together:
Figure 4 Conceptual Model
In order to gain understanding of these facts, this research combines an outside-in perspective through Global Value Chain-analysis and an inside-out perspective through utilizing the Resource Based View-theory, as indicated in the conceptual model depicted in Figure 5.
GLOBAL VALUE CHAIN PERSPECTIVE
The Global Value Chain-perspective taken in this research defines the environment and thereby the context of this study. It enables us to gain perspective on what is produced, how much value is created through the activities at each stage of the chain and what actors are operating in the chain. By performing a Value Chain analysis one gains insight into what the environment requires of smallholders; thereby taking an “outside-in” perspective.
THE RESOURCE BASED VIEW THEORY
The resource based view theory leads us to define what resources and capabilities smallholders have in each alternative that may determine their strategic position. Combining the two views allows us to investigate what resources and capabilities are required by each chain and what consequences entering a particular chain has in terms of their strategic resources and capabilities and thereby strategic position.
THE LINK BETWEEN GLOBAL VALUE CHAIN AND RESOURCE BASED VIEW ANALYSIS Another factor in this model that influences the strategic position of the smallholder is Governance, although it has less value to our research as the Resource Based View analysis provides a much better measure of understanding the market position. The vague references to power and the focus on the inter-firm division of labor, which is often the focus of Governance analysis, is replaced by an analysis of the strategic position a smallholder has in each chain through the availability or possession of strategic resources and capabilities, which is measured by the Resource-based View.
Nonetheless, through a Governance-analysis one can gain insight on how buyers and suppliers relate to one another and what requirements are placed on suppliers/producers further down the chain. It will aid in describing the information complexities in the chain in which smallholders operate which will help determine how accessible the MHC-initiative is to smallholders.
