Solomon VCAD Materialllllllllllllllllllllllll.ppt

ARBA MINCH UNIVERSITY
COLLEGE OF AGRICULTURAL SCIENCES
DEPARTMENT OF AE
Value Chain Analysis and Development (ABVM3101)
By
Hilina G. (MSc.)
2021/22 AY

Learning Objectives
After completion of this course, students will be able to:
•Explain concept of value chain and Value Chain Approach
•Examine the underlying assumptions, principles, characteristics and
importance of the Value Chain Approach
•Distinguish between the various approaches in identifying the
challenges and opportunities for Value Chain Development.
•Identify value-adding activities in the chain.
•Analyze and map commodity value chain

…

Apply different value chain approaches and principles for the improvement of the
chain

Evaluate chain governance to facilitate chain formation

Identify the critical/leverage points among the constraints in Value Chain
Development.

Identify active, innovative and leading change agents in Value Chain Development.

Develop participatory approach for Value Chain Development.

Develop intervention strategies for addressing identified constraints and utilize
prevailing opportunities,

Assure quality and safety along the value chain

CH 1
Concept of the value chain

The term ‘Value Chain’ was used by Michael Porter in his book
"Competitive Advantage: Creating and Sustaining superior
Performance" (1985).

Value chain” refers to all the activities and services that bring a
product (or a service) from conception to end use in a particular
industry—from input supply to production, processing, wholesale,
retail and finally, consumption.

It is so called because value is being added to the product or
service at each step.

…

A value chain comprises of interlinked value-adding activities that
convert inputs into outputs

A value chain is the full range of activities required to bring a product
from conception, through the different phases of production and
transformation.

Flow of seed to farmers and grain or tubers to the market occurs
along the chains

…

These can be referred to as value chains because as
the product moves from chain actor to chain actor
e.g. from producer to intermediary to consumer it
gains value.

The starting point of the value chains is market
intelligence and they are demand driven

Such issues come to view by asking questions like
what are the needs in the market (consumer, export
market, major clients like retailer or food industry)

…

Value chain players organize/align the work among
themselves based on market signals and capabilities

They are always on the look-out to build new and complimentary
capabilities (e.g., aggregators and traders focus to build primary
processing, packaging and other value add capabilities).

This implies that value chains can be competitive only when
they innovate and not by maintaining the status-quo.

…

With innovation a larger pie is created which provides
greater incentives to share which in turn fosters
further innovation (as a result new and higher value
products would come out of the chain).

This will result in innovatively processed products
such as fresh fruits juices, smoothies… coming out of
the fresh produce value chain.

…

In the value chain approach innovation drives the chain facilitates

There is a need to deliver quality (as desired by the market), for
continuous improvement and setting and upgrading the standards

The operational elements like forecasting, inventory, production
planning and everything else are still very important.

However, they are designed based on market-demand and not on
capacities.

…

Under specific circumstances, depending on the type of product and
available seasons, an optimal push-pull combination is used (e.g.,
raw material productions could be push-based because of
seasonality, but value addition better be pull based).

A competitive value chain identifies and works towards
achieving the right trade-offs in push/pull based production plans

The value chains survive and prosper on work alignment and
incentive alignment

In essence, the value chains are by definition innovative, value &
market-driven and follow an optimal push-pull mechanism.

1.3Value Chain Actors

Value chain approaches have been used to analyze the
dynamics of markets and to investigate the interactions and
relationships between the chain actors.

A value chain is made up of a series of actors (or stakeholders)
from input (e.g. seed) suppliers, producers and processors, to
exporters and buyers engaged in the activities required to bring
product from its conception to its end use.

Value chain stage defines the various chain actors and their
roles for the functioning of the entire chain.

…

Actor is a corporate person, a natural person or other
entity, that is able to influence its direct surroundings

Actors are usually defined trough their input-output
transformations and inter-actor transactions.

The concept can be nested, i.e. a chain or network can
also be considered as an actor within a larger network

…

…

The various actors in the value chain can
be grouped under three levels or stages
based on the roles they play
1Value chain main actors
2Value chain supporter
3Value chain influencer

…
1. Value chain Main actor

The chain of actors who directly deal with the products

Activities of value chain main actors regarding a specific product
or group of products involves producing, processing, trade and
owning the produces.

…

Actors in a value chain may include input suppliers, producers,
collectors (small and mobile traders who visit villages and rural
markets), assembly traders (also called primary wholesalers who
normally buy from farmers and other itinerant collectors and sell
to wholesalers), wholesalers (who deal with larger volumes than
collectors and assemblers and often perform important storage
functions), retailers (who distribute products to consumers), and
processors (firms and individuals involved in the transformation
of a product).

…
2Value chain supporters:

The services provided by various actors who never directly deal with
the product, but whose services add value to the product.

Closely related to the concept of value chains is the concept of business
development services or value chain supporters

These are services that play supporting role to enhance the operation
of the different stages of the value chain and the chain as a whole

…

In order for farmers to engage effectively in markets,
they need to develop marketing skills and receive
support from service providers who have better
understanding of the markets, whether domestic or
international.

Local business support services are, therefore,
essential for the development and efficient
performance of value chains.

…
3Value chain influencers:

These include the regulatory framework, policies, etc.

Specific policy and regulatory service elements
influencing value chain performance include land
tenure security, market and trade regulations, investment
incentives, legal services, and taxation.

1.2 Underlying Assumptions of Value
Chain Approach

There are a number of basic assumptions underpinning
the Value Chain Approach. These include:

Clearly stated policy statement indicating the expected
role of agriculture in the socio-economic
development of the country.

Understanding of the gap between agricultural
potential and actual performance.

An assessment of the strength and weaknesses,
opportunities and threats (SWOT analysis) in the
agricultural sector.

…

Clear identification of the various value
chains and market opportunities

All chain actors and facilitators
understand and assume their roles with
dedication and purpose.

Certain actors or change agents are
willing and able to motivate others to
follow.

…

Operators/actors act in their individual and collective
interest and assume responsibility from the start.

All actors benefit from upgrading

Both positive and negative experiences are taken as
basis for progress.

Timely availability of critical information

Importance of Value Chain Approach

The agricultural sector in Ethiopia has, to a large extent, failed
to utilize its huge potential to generate significant levels of
employment and income for the rural population

Rural Ethiopia’s population lives in poverty in spite of the
potential of the agricultural sector to serve as the engine for rapid
economic growth and development.

The situation is especially acute for food producers, who suffer
from lack of market access, high levels of wastage, distorted
market prices and inadequate infrastructural support.

…

The importance of the Value Chain Approach lies in seeing
agriculture as a comprehensive system of agro-based business
activities comprising input provision, primary production,
processing, marketing/trade and consumption.

In this approach, market and consumer demands determine the
nature, conduct and performance of modern agri-business at any
point of the value chain.

The Value Chain Approach therefore aims at making agricultural
production and marketing more efficient by increasing value
addition as well as improves incomes for all operators along the
agricultural production system.

…

The importance of the value chain to the
various actors are:
Enables the Producer to do the following:
i. Bring about product differentiation
ii. Retain his/her customers
iii. Improve the quality of his/her produce
iv. Increase quantity of his/her produce

…
v. Produce at minimum cost
vi. Stay competitive in the market
vii. Increase his/her income
viii. Remain sustainable (employed)
ix. Develop customer and consumer confidence
x. Ability to project market supply

…

Enables the Processor to ensure the following:
i. Reliable supply of raw materials
ii. Quality supply of raw materials.
iii. Optimum supply of raw materials (Just-In-Time)
iv. Production of finished products
v. Reduced cost of raw materials
vi. Reliable employment opportunities
vii. Reliable supply of finished goods

…

Enables the Consumer to enjoy the following:
i. Quality products assured
ii. All year availability of products
iii. Quality products at reasonable prices
iv. Wider range of goods to choose from
v. Healthier life

1.2 The Principles of the Value
Chain in Agriculture

The basic principles underlying the Value Chain Approach in
agriculture are agricultural markets and consumers
demands determine the nature, structure and conduct of
modern agri-businesses

Changing international markets create new opportunities
from expanding markets but also create additional business
risks for developing countries due to increased competition in
the domestic, regional and international markets.

…

The principles mentioned earlier are listed below:
i. The breakdown of the course of production (input supply to
consumption) into chain links
ii. Chain links are activities
iii. Value is added to each activity
iv. Overall output will be with improved quality, improved quantities and
reduced cost
v. Be able to stay in the competitive world

1.4 Characteristics of Value Chain Approach

A value chain is characterized by:
• Production line consists of series of chains
• Each chain consists of activities
• Value added to an activity affects all other activities (link)
• Works when there is free and timely flow of information among
the operators/actors
• Each of the operators of the activities monitors and evaluates
along the chain
• All the operator/actors benefit when value is added

…
• A sequence of production processes (also known as linkages) from
the provision of specific inputs for production, transformation,
marketing and to the final consumption.
• The quality of linkages and coordination between producers,
processors, traders and distributors of a particular product
development determine the success of the value chain.
• Value chain operators understand that they can access markets if
they succeed to supply competitive products in a joint effort.

…

Thus the actors, (input suppliers, farmers, brokers and processors)
have to apply appropriate production and handling technologies,
become business-oriented and understand each other as partners
in the value chain for success.

Value chain is competitive and its competitiveness depends on
trust, cooperation and communication among actors.

The performance of every single partner in the chain determines
the strength of the entire value chain.

…
• The weakest link in the value chain also determines the
competitiveness of the final product.
• Certain actors or change agents are willing and able to motivate others
to follow
• Operators act in their individual and collective interest and assume
responsibility from the start.
• All actors benefit from upgrading

1.5.Dimensions of Value Chain

The value chain concept has several dimensions

The first is its flow, also called its input-output
structure

In this sense, a chain is a set of products and services
linked together in a sequence of value-adding
economic activities

A value chain has another, less visible structure

…

This is made up of the flow of knowledge and expertise
necessary for the physical input-output structure to function.

The flow of knowledge generally parallels the material flows, but
its intensity may differ.

For example, the knowledge inputs at a product’s design stage
may be much greater than the material inputs; production, on the
other hand, needs large quantities of materials, but in many cases
requires only standard or routine knowledge

…

The second dimension of a value chain has to do with its geographic
spread.

Some chains are truly global, with activities taking place in many countries on
different continents.

Others are more limited, involving only a few locations in different parts of the
world.

A UK retailer may, for example, contract with an Ethiopia fabric supplier to
deliver cloth to a garment producer in Sri Lanka.

The finished goods will then be shipped directly to the UK retailer.

It is also possible to identify national, regional, or local value chains. These
operate in the same way as the global chains, but their geographic ‘reach’ is
more limited

…

The third dimension of the value chain is the control that different actors can
exert over the activities making up the chain.

The actors in a chain directly control their own activities and are directly or
indirectly controlled by other actors.

A retailer, for example, controls the way he sells, but may be limited (indirectly
controlled) by the range of goods available from wholesalers and producers.

A home worker may find that almost every aspect of her work is controlled by a
distant retailer who has specified the design, quantity, and quality of the garments
she is producing.

The pattern of direct and indirect control in a value chain is called its
governance.

CH2
Value Chain Analysis (VCA)

Value chain analysis is a way to visually analyze a company's business
activities to see how the company can create a competitive advantage for
itself.

Value chain analysis describes the activities within and around an
organization, and relates them to the analysis of the competitive
strength of the organization.

Therefore, Value chain analysis helps a company understands how it adds
value to something and subsequently how it can sell its product or service
for more than the cost of adding the value, thereby generating a profit
margin.

Value chain analysis frame work

When an organization applies the value chain concept to its own
activities, it is called a value chain analysis.

The value chain framework is made up of five primary activities

Inbound operations the internal handling and management of resources
coming from outside sources -- such as supply chain sources.

These outside resources flowing in are called "inputs" and may include
raw materials.

a long-term relationship with the customers who have purchased a
product or service.

Cont…

Operations. Activities and processes that transform inputs into
"outputs" -- the product or service being sold by the business that
flow out to customers.

These "outputs" are the core products that can be sold for a higher
price than the cost of materials and production to create a profit.

Outbound logistics. The delivery of outputs to customers.
Processes involve systems for storage, collection and distribution to
customers.


This includes managing a company's internal systems and external
systems from customer organizations.

Marketing and sales. Activities such as advertising and brand-
building, which seek to increase visibility, reach a marketing audience
and communicate why a consumer should purchase a product or
service.

Service. Activities such as customer service and product support,
which reinforce a long-term relationship with the customers who have
purchased a product or service.

Secondary activities

These are services that play supporting role to enhance the operation
of the different stages of the value chain and the chain as a whole

Such as technology development.

Human resource management

Company infrastructure.

Service providers

…

Value chain analysis facilitates

Improved understanding of competitive challenges

Helps in the identification of relationships and
coordination mechanisms

Assists in understanding how chain actors deal with
powers and who governs or influences the chain

…

Value chain analysis plays a key role in understanding the
need and scope for systemic competitiveness

The analysis and identification of core competences will lead the
firm to outsource those functions where it has no distinctive
competences.

Value chain analysis is useful for identifying constraints and
opportunities for the provision of financial services.

…

The process of value chain analysis helps

To identify demand for services within value chains

Recognizes that optimal levels of investment requirement of a
range of services from a range of providers

Including enabling institutions and value chain actors

Prioritizes needs for donor intervention in financial services

Limits of value chain finance are tied to the quality of
cooperation between actors.

BASIC CONCEPTS IN AGRICULTURAL VALUE CHAIN
ANALYSIS

There are four major basic concepts in agricultural
value chain analysis:

Understanding the value chain and context

Development of interventions and innovations

Testing and implementation

Evaluation and recommendations for improvement

…

Since value chains are composed of hierarchy of chain stages, the
concept of stages of production is basic in value chain analysis

Closely related to the stages of production is the concept of
vertical coordination

A value chain needs business support services to function

Hence, the fourth basic concept is the concept of business
development services

…

Value chain analysis describes the activities within and around an
organization, and relates them to the analysis of the competitive
strength of the organization.

Therefore, it evaluates which value each particular activity adds to the
organization’s products or services

Porter argues that the ability to perform particular activities and to
manage the linkages between these activities is a source of
competitive advantage.

…

Value chain analysis facilitates an improved understanding of competitive
challenges, helps in the identification of relationships and coordination
mechanisms, and assists in understanding how chain actors deal with powers
and who governs or influences the chain.

Developing value chains is often about improving access to markets and
ensuring a more efficient product flow while ensuring that all actors in that
chain benefit out of it.

Changing agricultural contexts, rural to urban migration, and resulting changes
for rural employment, the need for pro-poor development, as well as a changing
international prospect (not least the increase in oil prices) all indicate the
importance of value-chain analysis.

…

Value chain analysis plays a key role in understanding the need
and scope for systemic competitiveness.

The analysis and identification of core competences will lead the
firm to outsource those functions where it has no distinctive
competences.

Value chain analysis is useful for identifying constraints and
opportunities for the provision of financial services.

…

Key issues that can be addressed through the value chain
analysis

Share of benefits and costs from value chains and market
development

Distribution of added value along the chain

Market share of the different actors and corresponding size of sub-
sector

Institutional and legal framework, such as regional production and
processing zones, trade protocols, regulations on movement of
people, agriculture marketing policies and financial institutions

…

Growth potentials (nodes with market potential)

Infrastructure development

Potential for poverty reduction and rural income generation

Potential for sustained food supply at affordable competitive prices for
consumers

Potential for maximization of returns on capital investment at different
levels of the value chain strategy

Potential for strengthening sector and regional complementarities and
interdependence through implementation of horizontal and vertical
integration approaches in the commodity production value chains strategy.

Purposes of value chain analysis

The primary purpose of value chain analysis, is to understand the
reasons for inefficiencies in the chain, and identify potential leverage
points for improving the performance of the chain, using both qualitative
and quantitative approaches

Value chain analysis is a useful analytical tool that helps understand
overall trends of industrial reorganization and identify change agents
and leverage points for policy and technical interventions.

…

Value chain analysis involves breaking a chain into its constituent parts in
order to better understand its structure and functioning.

The VCA consists of identifying chain actors at each stage and discerning
their functions and relationships; determining the chain governance, or
leadership, to facilitate chain formation and strengthening; and identifying
value adding activities in the chain and assigning costs and added value to
each of those activities.

The flows of goods, information and finance through the various stages of
the chain are evaluated in order to detect problems or identify opportunities
to improve the contribution of specific actors and the overall performance of
the chain.

…

Value chain analysis also reveals the dynamic flow of
economic, organizational and coercive activities
involving actors within different sectors

It shows that power relations are crucial to
understanding how entry barriers are created, and how
gain and risks are distributed

It analyses competitiveness in a global perspective

…

Value chain analysis helps participating
actors to develop a shared vision of how the
chain should perform and to identify
collaborative relationships which will allow
them to keep improving chain performance

…

Value chain analyses are conducted through a combination of
qualitative and quantitative methods , featuring a further
combination of:

Primary survey

Focus group work

Participatory rapid appraisals

Informal interviews

Secondary data sourcing

The information is useful by itself to understand the linkages and structure of
the value chain and serves as the basis for identifying many of the key
constraints and policy issues that require further exposition.

…

Agricultural value chain analysis can be conducted for the
purposes:

Understand how an agricultural value chain is organized (structure),
operates (conduct) and performs (performance).

Identify leverage interventions to improve the performance of the
value chain

Analyze agriculture–industry linkages

Analyze income distribution

Analyze employment issues

Assess economic and social impacts of interventions

Analyze environmental impacts of interventions

Guide collective action for marketing

Guide research priority setting

Conduct policy inventory and analysis

2.1Steps in Value Chain Analysis

Value chain analysis is a process that requires four
interconnected actions:

Data collection and research

Value chain mapping

Analysis of opportunities and constraints

Vetting of findings with stakeholders and recommendations for future
actions

…
Step One: Data Collection

Good value chain analysis begins with good data collection, from the initial desk
research to the targeted interviews.

The value chain framework—that is, the structural and dynamic factors affecting
the chain—provides an effective way to organize the data, prioritize opportunities
and plan interventions.

The desk research consists of a rapid examination of readily available material.

…
Step Two: Value Chain Mapping

Value chain mapping is the process of developing a visual
depiction of the basic structure of the value chain

A value chain map illustrates the way the product flows from raw
material to end markets and presents how the industry functions.

It is a compressed visual diagram of the data collected at different
stages of the value chain analysis and supports the narrative
description of the chain.

…

A certain commodity value chain can be mapped as:

…

The purpose of a visual tool in the analysis process is to develop a
shared understanding among value chain stakeholders of the
current situation of the industry.

The mapping exercise provides an opportunity for multi-
stakeholder discussions to reveal opportunities and bottlenecks
to be addressed in subsequent stages of the chain development.

Maps are also used to identify information gaps that require
further research.

…
Step Three: Analysis of Opportunities and Constraints Using the Value
Chain Framework

Step three uses the value chain framework as a lens through which the
gathered data is analyzed

The framework is a useful tool to identify systemic chain-level issues rather
than focus on firm-level problems.

While interviews give the value chain team the chance to gather
information from individual firms, the value chain framework helps to
organize this information in such a way that the analysis moves from a
firm-level to a chain-level perspective.

…

The structure of the value chain influences
the dynamics of firm behavior and these
dynamics influence how well the value chain
performs in terms of two critical outcomes:

Value chain competitiveness

MSE benefits.

…
Step Four: Vetting Findings of Chain Analysis through
Stakeholder Workshops

Value chain analysis helps develop a private-sector vision to
reflect stakeholders’ interest in improving the efficiency and
competitiveness of the chain.

The fourth step, vetting findings, uses value chain analysis through
a structured event (or series of events) like a workshop or reporting-
out day to facilitate discussion with and among selected participants.

…

The objective of these events is to bring participants together
who are responsible for critical market functions, service provision,
and the legal, regulatory and policy environment.

The goal is to have these participants—who have an incentive to
drive investments in upgrading—to develop and assist in
implementing a private sector-led competitiveness strategy.

To develop this strategy, the stakeholders will need to prioritize the
opportunities and constraints identified during the value chain
analysis.

2.2. Horizontal and vertical linkage in
Value Chain

In many value chains there is a gap between what end markets want
and what MSEs produce due to a win-lose mentality or lack of trust
between vertically linked firms.

As a result the flow of information between consumers and producers
is blocked.

Such inefficient vertical relationships negatively affect the
competitiveness of the value chain and can prevent MSEs from effectively
meeting market demand .

Mutually beneficial vertical linkages on the other hand facilitate a
smooth transmission of information from end markets to small
producers

…

Vertical linkages between firms at
different levels of the value chain—these
are critical for moving a product or
service to the end market and for
transferring benefits, learning and
embedded services between firms up
and down the chain.

Effective vertical linkages are generally
characterized by

Mutually beneficial relationships

Knowledge transfer

Quality standards

Embedded services

Financial flows

What are Horizontal Linkages?

Horizontal linkages between firms at the same level of the value chain—
these can reduce transaction costs, enable economies of scale, increase
bargaining power, and facilitate the creation of industry standards and
marketing campaigns. E.g. cooperatives.

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.

Horizontal linkages can help

Reduce transaction costs

Create economies of scale

Contribute to the increased efficiency and competitiveness of an industry.

…

In addition to lowering the cost of inputs and 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.

Small-scale producer groups have strong potential to
increase their bargaining power in the marketplace, while
processors, suppliers and traders may also form their
own groups to strengthen their position within industries.

Why Horizontal Linkages?

Through effective coordination, horizontal linkages can benefit firms in many of
the following ways:

Facilitate bulk purchasing of inputs and services

Reduce transaction costs for buyers

Increase bargaining power of smallholders

Promote collective learning

Enable risk sharing

Influence the creation of industry standards

Catalyze the implementation of marketing strategies and provide access to
new markets (for smallholders who cannot sell individually, but can do so as a
group)

Encourage firms to advocate for change

Pool resources to purchase expensive shared equipment or services

Supply large quantities demanded by buyers and importers

…

2.3 GENDER ISSUE IN A VC
What is Gender?

Social meaning given to being a man or a woman,
characteristics used to define a man or woman that do not
stem from biological differences is what we mean gender.

While sex is the biological difference that man and
woman has.

Gender as a social relation

Gender relations are specific to societies and time

Gender relations change in response to wider changes -- they are not
fixed for all time

There are differences among women (and men) - class, caste,
religious community, race etc.

Gender influences division of tasks, access to information,
knowledge, networks etc and therefore upgrade opportunities exist
in this regard.

Gender relations are social relations of power.

…

Meaning of being a woman or a man differs in every
society and changes over time.

In a value chain all actors are related and these relations
are relations of power.

Gender is a cross cutting power issue between these
actors (which is also related to education, position in the
chain, access to information etc).

Power = for example access to information, knowledge,
education wise, networks etc.

Women generally have less access to all these issues,
which can be revealed in a gender analysis

Assignment
Each group is expected to reflect on the following questions
1.What are the key issues that can be addressed through the value chain
analysis?
2.Discuss how the value chain approach important for economic growth?
3.Discuss the purpose of Value chain analysis?
4.Indicate basic requirements in value analysis?
5.Discuss how governance is a necessity in value chains?
6.How do you relate value chain with networking?

QUIZ
True /false
1.Arba Minch textile factory integrating his business with
cotton producer cooperatives this types of business
integration is horizontal integration (2 pt)
2.Discuss value chain framework primary activities(3 pts.)

CH3
Value Chain Development

Approaches to Identifying Challenges and Opportunities in the Value
Chain

Constraints is defined as any factor that prevents a unit or system from
being effective or achieving its objectives.

Constraints may differ from one component of the value chain to the
other; it may also differ from one linkage point in the chain to another.

Opportunities, may be defined as avenues/openings within a unit or
system which have the potential to enable the unit/system achieve its
objectives or enhance its effectiveness, if utilized.

…
Constraint identification approach

The constraint identification approach considers the
problems the producer faces in marketing his/her produce
as the starting point of the value chain development

The producer identifies these problems and works
towards solving them to enable him/her market his/her
produce efficiently.

…
Market analysis approach

The market analysis approach considers the evaluation of
opportunities from the market perspective by assessing consumer
demand as the starting point for value chain development.

It is important for the actors in the value chain to understand that
they can only access market if they succeed in supplying
competitive products through joint effort.

…

This means that all the actors – input suppliers, producers
(farmers), brokers, processors- must apply appropriate
production and handling technologies, become business-
oriented and understand each other as partners in the value
chain.

The competitiveness of the value chain depends on trust,
cooperation and communication between all actors.

The strength of the entire value chain depends on the
performance of every single partner in the value chain.

Opportunities for Value Chain Development

Several opportunities exist for developing a value chain. These
include the following:
a)Globalization of trade:

The way modern technology and transportation have integrated the
world economic systems.

Globalization enables us to get information about sources of inputs,
market opportunities, technology, etc.

That can help us to produce to meet the demands of the market.

…
b) World Trade Organization (WTO) agreement on
agriculture:

It is an organization established to break the barriers to
trade and regulate international trade by ensuring the
enforcement of international standards.

WTO creates wider market opportunities and ensures
transparency in the market at the national and
international levels

…
c) International standards:

These are standards set at the international level to
ensure that quality goods are supplied to the market.

They also prevent discrimination against weaker
countries

…
d)Changing consumer preferences and
behavior:

People’s taste and preferences change
because of availability of alternative products
on the market.

This creates opportunities for new products
to be introduced.

…
e)Factor endowment:

This has to do with comparative advantage

The producers might have certain resources that enables
them to produce certain goods better than others.

These resources thus become opportunities for the
producers to produce more of these goods for the market.

…
f)Advances in technology:

Advances in, communication, transportation, information,
production and processing technologies have created
opportunities to create and add value thus ensuring the efficient
production of goods.

…
g) Proximity to the European market:

This leads to reduction in cost in terms of freight and
ensures the supply of fresh products to the European
market

…
h) Liberalization of agricultural trade:

This has led to the removal of some trade
barriers and ensures the free movement
of goods

…
i) Expanding domestic market:

Increases in population and income levels as well as changes in
consumer preferences and taste have combined to expand the
domestic market thus creating opportunities for producers to
introduce more products onto the market.

…
j)Trade agreements:

Agreements between regional and international economic
groupings like the economic community of west african states
(ECOWAS) and african, caribbean and pacific (ACP) and the
european union (EU) as well as bi-lateral agreement between
trade partners have created opportunities for the production
of diverse goods to satisfy the demands of the market

They have also created opportunities for accessing inputs,
capital, technical assistance and technology.

Challenges in Value Chain Development
1.Input:

This refers to the basic items required for production by various actors
along the value chain
The challenges at the input level include:
a) Low performance genetic materials: e.g. seed, planting material,
breeding stock, etc. When these are of inferior quality they do not give
the optimum yield.

…
b) Inconsistency in quality and supply of
raw materials:

Lack of consistency in the quality and
supply of raw materials like agro-
chemicals can lead to low quality output.

It can also hamper the regular supply of
products to the market.

…
c) Variability in raw material quality:

Variations in the quality of raw materials for
production and processing result in inferior goods
on the market, high down time (under capacity
utilization), high cost of production and loss of
market share.

…
2. Production
a)Limited protocols on good agricultural practices for
commodity chains:

Limited availability of manuals that provide information
on steps for good agricultural practices (GAP).

…
b) Producers not fully integrated into the
market economy:

Many producers are not business oriented
and are not producing in a business-like
manner to satisfy the demands of the market.

In other words, most production is not
influenced by market expectations and
demands.

…
c) Misuse of agrochemicals:

This can lead to the production of inferior
quality goods with serious health hazards
for the producer, the consumer and the
general public, loss of market share,
increase in cost of production, lower
competitiveness, etc.

…
d) Seasonal fluctuations in production: this can lead to low
utilization of the factors of production, inadequate supply of goods
to the market and price and income instability.
e) Lack of good agricultural practices: can lead to the production
of inferior quality goods, increase cost of production and lower
productivity
f). Excessive dependence on climate: it can sometimes lead to
complete crop failure and livestock death, increases the uncertainty
of production and unreliable supply of raw materials and final
products to the market.
g) Poor caliber and quality of labor: this leads to low productivity,
high wastage, inefficient utilization of information and technology,
etc

…
3. Processing
a) Lack of value addition to farm produce: caused by inadequate research
and development. This affects innovativeness thus leading to lower incomes,
increase in wastage and environmental problems.
b) Lack of adequate processing systems: there is no adequate processing
capacity, obsolete processing equipment. These lead to high cost of
production, uncompetitiveness, loss of profit margins and discourage basic
production.
c) Inappropriate packaging material: unattractive final products, shorter
product shelf life and low value capturing.

…
4. Marketing
a) Stringent market requirements by
supermarkets: refers to ever increasing safety
and quality requirements by supermarkets and
consumers leading to difficulties in market
access.

…

b) Barriers to external markets as a result of
domestic measures of trading partners:
subsidies provided by governments of our
trading partners coupled with the removal of
agricultural subsidies by our government make
the domestic products uncompetitive.

…

c) Cost of certification: the high cost of certification of
products tends to discourage producers from
accessing international markets.

d) Misuse of Sanitary Phyto-Sanitary (SPS) and
Technical Barrier to Trade (TBT) agreement:
possible abuse of phyto-sanitary and technical
requirements can lead to denial of market access.

…

e) Lack of appreciation of quality
management along the chain: the various
actors along the chain sometimes fail to realize
that the quality of the final product delivered
to the market is a combined effect of their
quality management in the different segment
of the chain.

…
5. Consumption
a) Lack of appreciation of consumer culture and behavior:
consumers generally have low appreciation for health and safety
consciousness. This results in ineffective demand for safe and quality
goods.

…
b) Weak and inactive consumer associations: consumer
associations are poorly organized making them weak and inactive.
This does not drive the production and processing segments of the
value chain to be competitive.
c) Lack of effective demand for quality products: Low disposable
incomes of most households leading to low effective demand for
quality products.
d) Most consumers are not health or safety conscious and may not
insist on buying quality products.

…
6. Physical Infrastructure

Physical infrastructure includes irrigation, roads, storage
facilities (dry and cold), utilities (water, electricity,
telephone, etc.) and port facilities: these are inadequate
and unreliable thus affecting production, processing,
distribution and storage of primary and final products.

…
7. Social Infrastructure

Social infrastructure comprises networking for Value
Chain development (strategic partnership), group
formation and development, and trust among others.

Their effect increases transaction costs, cheating, lack
of transparency, moral hazard, and unhealthy
competition among the various actors in the value chain.

…
8. Policy and Administration Issues

Policy, administration and institutions relating to certification, patenting,
business establishment, standards and standardization, negotiation and
enforcement of contracts, slow change in national policy in response to
global trends, consistency in public policy, taxes and levies, sustainable
institutions capable of supporting VC development, lack of clearly
specified roles of supervising institutions.

These increase transaction costs, business risk, lower business
confidence as well as competitiveness.

…
9. Environmental Concerns

Environmental concerns relate to waste management and the
potential unintended impact of value chain activities on the
environment.

This can lead to environmental degradation and loss of market
opportunities (e.g. some buyers are averse to environmental
degradation caused by production) and social conflicts.

Sources Of The Value Chain Development
Challenges

Operators

Service providers

Government

Trading partners (local and external)

Development partners

Institutions (banks)

Consumers

3.1 Approaches to value chain

Four different approaches to value chain
1.The Netherlands Development organization (SNV’s)
Approach
2.German Technical Cooperation (GTZ’s) Approach
3.NIMPF approach to value chain
4.The ICEBERG approach to value chain

The Netherlands Development organization
(SNV’s) Approach

SNV Business Organisations and their Access to Markets (BOAM) programme
considers that enhancing the inclusion of small farmers in local, national and
global value chains, is a good strategy to increase production, income and
employment opportunities for these small farmers

It follows a demand driven value chain development approach which is
characterized by the combination of strengthening whole sectors as well as
supporting individual businesses as traders/exporters, processors and farmer
organizations and their business to business value chain relationships

…

Sector development provides for new opportunities to the actors
in the sector, business-to-business development assures that the
opportunities are turned into concrete results.

These results are related to the increased number of business to
business value chains, increased volumes, value added,
equitability of margins, efficiency and overall competitiveness of
individual businesses and the value chain(s).

…

SNV and other service providers are providing services,
which will be increasingly market based and with
increased volumes to match the up-scaling requirements
of the value chains.

To achieve a sustainable up-scaling of the approach to
new sectors and value chain(s), SNV works on knowledge
development and an increased service provider capacity
building.

…

Key interventions areas for this demand driven value
chain approach are therefore:

Sector development

Business development

Knowledge development and learning

And service capacity development

German Technical Cooperation
(GTZ’s) Approach

GTZ interventions are targeted to strengthening the relationship
between actors at different level of value chain (production,
processing, trading).

GTZ promoted value chain of honey in Nepal focusing on two areas:
1) Market orientation meaning the greater volume sold and/or better
end price gained,
2) Income distribution- the poor benefit at least equally or above
average from the income generated (poor get their “share of the cake”).

...

GTZ used the following value chain integration map to explain its
experience in value chain development in SiriLanka

NIMPF Approach to value
chain

NIMPF approach follows eleven steps in four phases for value
chain development

…

As we can see from Figure 11, the first step at the diagnosis phase is to
decide on the scope of the value chain, in terms of what level to
consider (sector or business to business), what objectives (transitional
or innovation objectives) and which linkages to consider, etc.

Then, as a second step, we carry out stakeholder analysis to identify key
actors, their roles, driving forces, internal and external relations, visions,
values, power relations, dependencies, and effect or role in the project.

The third step is to undertake network analysis and identify possible
relationships such as dynamics in the network, transactions,
transformations, value flow or added value, transactions and coordination
costs, risks and incentives.

The fourth step in this phase is very important step as it helps us to
identify and prioritize bottlenecks and opportunities in the value
chain.

We can use a multilevel SWOT analysis; identify incentive structures,
assess infrastructure, socio-cultural, natural, economic and political
conditions. These processes will lead us to the second phase.

…

The second phase is known as device change phase. In this phase there
are three steps.

The first is to invent improvement possibilities which to be followed by
valuing and effecting analysis of each improvement activity.

In this step we can also identify decoupling points (the points where we
can make changes for improvement).

In this phase, the last step is to develop different scenarios from which
we select to implement.

…

The third phase is to carry through change which
involves steps of trying out as a first step and thereby
entering into full implementation.

The third step in this phase is consolidation.

Phase four is all about evaluation (process and results
evaluation).

In most conventional project evaluations, the focus is on
the results/outputs.

The value chain approach gives emphasis to the
process (who, how, etc.) equal to that of results.

The ICEBERG approach to
value chain

The Iceberg approach is similar to the NIMPF approach that
we discussed above.

The following figure implies that each phase is dependent on
the process and results of its previous phase.

For example, inventing improvements in the second phase is
nearly impossible or would be misleading without a careful
identification of stakeholders, their roles and networks as well
as careful analysis of bottlenecks and opportunities in the
first phase.

…

Why do we do Value Chain Development?
1.Promote inclusive development
2.Sustainable development
3.Equitable wealth creation
4.Poverty reduction/livelihood security
5.Empowerment and social justices
6.More decent jobs

3.2 STEP IN VCD

3.3 Identify Leverage points from
constraints and opportunities

The fact that some chains are governed by lead firms
from developed countries provides leverage for
influencing what happens in supplier firms in
developing countries.

This leverage point has been recognized by
government and nongovernmental agencies
concerned with raising labour and environmental
standards.

3.4. Upgrading/ማሻሻል

In order to respond effectively to market
opportunities (MSEs) and industries need to
innovate to add value to products or services
and to make production and marketing
processes more efficient. These activities are
known as upgrading.

Firm-level upgrading can provide MSEs with
higher returns and a steady, more secure income
through the development of knowledge and the
ability to respond to changing market conditions.

…

Upgrading also leads to industry competitiveness
and to national economic growth.

Upgrading at the industry-level focuses on increasing
the competitiveness of all activities involved in the
production, processing, and/or marketing of a product
or service and mitigating the constraints that influence
value chain performance.

…

Upgrading is a multi-dimensional process that seeks to
increase the economic competitiveness (profits,
employment, skills) and/or social conditions (working
conditions, low incomes, education system) of a firm or
industry.

…

Upgrading involves a learning process through
which firms acquire knowledge and skills—often
through their relationships with other enterprises
in the value chain or through supporting markets
—that can be translated into innovations or
improvements that increase the value of their
products or services.

…

Upgrading is based on a firm’s capabilities—its internal capacity
to learn and change from what it has done in the past, as well as
to innovate and ensure continuous improvement in products and
processes.

Essential to upgrading are both the opportunity and ability to
learn and the incentives for firms to invest in upgrading: if
firms do not foresee viable benefits to investments, like higher
incomes, secure markets or lower risks, they are unlikely to spend
time or resources on upgrading.

Types of Upgrading

The types of upgrading firms undertake are
characterized under the following categories:

Process upgrading

Product upgrading

Functional upgrading

Channel upgrading

Intersectional upgrading

Process Upgrading

Process upgrading increases the efficiency of production
either through better organization of the production
process or the use of improved technology.

The need to cut costs and/or increase output in response
to intra- or inter-chain competition drives process
upgrading, reducing the per-unit cost of production.

Product Upgrading

Product upgrading—improving product quality and increasing
value for consumers—may be stimulated by changes in end
markets, usually stemming from changes in customer
preferences, or the desire for higher value added, higher quality,
and consequently more profitable products on the part of MSEs.

To remain competitive in rapidly changing markets , MSE
producers must be able to upgrade their products on an
ongoing basis in order to adapt to new trends and achieve higher
standards.

Functional Upgrading

Functional upgrading is the entry of a firm into a new, higher
value-added function or level in the value chain.

There are two ways functional upgrading can occur:
1) An entire level of firms may be effectively eliminated, thus changing the
structure of the chain and often improving the quality of information
flowing to MSES
2) a single MSE producer or group of producers can acquire or develop
productive capacity in higher-value stages to capture more of the
product’s value.

Channel Upgrading

Channel upgrading is when firms enter one or
more new end markets in the same basic
product—domestic, regional or global.

Participation in a range of markets provides
MSEs with more effective risk management
options and the capacity to enter new channels.

…

Channel upgrading is also a response to changing market
conditions —as new markets open up, old ones may shut down,
consumer preferences change, and prices fluctuate in existing
markets.

In some cases, MSEs seek out new channels for lower quality by-
products that are not currently being sold, such as when avocado
or almond producers sell low quality product to oil processors at a
lower cost to earn additional income and reduce wastage of
product that cannot compete in higher-value channels.

Intersectoral Upgrading

Intersectoral upgrading is the entry of a firm into a completely
new value chain or industry using knowledge acquired through
production of another product or a specialized service.

Intersectoral upgrading typically requires multiple upgrading
strategies to occur simultaneously or in sequence in order to enter
the new industry successfully.

Intersectoral upgrading is especially notable as it facilitates a
firm’s acquisition of more skill, knowledge, or technology specific to
the new product.

CH 4.
Enabling Environment for Value Chain
Development

The business enabling environment (BEE)
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.

…

The business enabling environment at the national and
local level encompasses policies, administrative
procedures, enacted regulations and the state of public
infrastructure.

Analysis of the BEE at these levels may need to be further
broken down in terms of firm size since there may be
constraints and opportunities distinctly facing micro- and
small enterprises (MSEs).

…

In addition to these more formal factors, social norms,
business culture and local expectations can be powerful
aspects of the business enabling environment.

Understanding these unwritten rules of society is
essential if practitioners are to understand why value
chain actors behave the way they do, and reasonably
predict how they will behave in response to value chain
interventions.

BEE and the Value Chain
Project Cycle

…

Improving the business environment by lifting
constraints and filling gaps in the regulatory and
administrative support mechanisms is central to any
comprehensive competitiveness strategy for a targeted
value chain.

Consideration of the enabling environment should
inform each stage of a value chain development project.

4.2.Enabling Institutional Support for
Chain Development

To support agro-value chain development , United Nation
Industrial Development organization applies a strategy that has
three main components:
(i) Assistance in the area of business environment and
industrial policy
(ii) Support to institutions whose actions have a positive impact
on the structure and growth of value chains
(iii) Specific direct interventions at one or more stages of the
value chain.

…

The interventions rely on the wide range of development
assistance services rendered by the various specialized branches
of the Organization.

It is the analysis of the targeted value chains that indicates which
services should be provided, the links of the chain where they
should be brought to bear, and how these specific interventions
must be blended with the promotion of an environment
conducive to agro-value chain development.

4.3.Improving Access to Business
Development Services

United Nation Industrial Development organization services
in the area of business environment and industrial policy are
based on the generic principles of:
(i) Accepting the central role of the private sector in economic
development and poverty reduction
(ii) Developing a balanced approach that recognizes both market
and government failures
(iii) Designing inclusive industrial policies

…
(iv) organizing search processes and feedback loops
together with the private sector rather than relying on
“solutions” hammered out in isolated state
bureaucracies or development agencies
(v) ensuring a systemic approach to integrating
elements at all levels of economic activity
(vi) customizing policy advice to specific circumstances

…
The services provided include:

Advisory and capacity building support to improve the
overall business environment.

The assistance covers the policy, legal and regulatory
dimensions of business environment reform across sectors.

Designing and implementing specific policies for SME
development

…

Creating and training “pockets of excellence” in strategic
government and private sector agencies, called Competitiveness
Intelligence Units (CIUs) and composed of highly skilled young
technocrats who are equipped with state-of-the-art logistical
infrastructure and have direct access to the highest level of policy
making and strong links with the private sector

…

Establishing an Industrial Competitiveness
Observatory.

The Observatory is the cornerstone of the
logistical infrastructure set up to support the
staff of the Competitiveness Intelligence Unit

…

Capacity building in support institutions for analysis of
industry and trade competitiveness, and value chain
studies

Brokering public-private partnerships at the national and local level.

CH5
Value Chain governance And Business
Ethics/
የእሴትሰንሰለትአስተዳደርእናየንግድሥነምግባር

What is governance?

Do you think governance is a necessity in value
chains?

How do you relate value chain with networking?

5.1 What is value chain
governance/
የእሴትሰንሰለትአስተዳደር

Governance refers to the inter-firm relationships
and institutional mechanisms through which non-
market coordination of activities in the chain is
achieved.

Within global value chains, for example, leading
supermarkets in European country may exercise
control over their fresh vegetable supply chains.

…

Clearly, governance in value chains has
something to do with the exercise of control
along the chain.

At any point in the chain, the production process
(in its widest sense, including quality, logistics
design, etc.) is defined by a set of parameters

…

Governance can be exercised in different ways,
and different parts of the same chain can be
governed in different ways.

Governance, in the sense of arrangements that
make possible the non-market coordination of
activities, is not a necessary feature of value
chains.

5.1Why does Governance
matter?/
አስተዳደርለምንአስፈላጊነው
?
The issue of governance in value chains is important for the following reasons:
a) Provide market access to small growers or producers in developing
countries
b) Fast track to acquisition of production capabilities: lead firms transmit
best practices and provide hands-on advice on how to improve layout,
production flows and raise skills.
c) Distribution of gains: Understanding the governance of a chain helps to
understand the distribution of gains along the chain

…
d) Leverage points for policy initiatives:

The fact that some chains are governed by lead firms from
developed countries provides leverage for influencing what
happens in supplier firms in developing countries.

This leverage point has been recognized by government and
nongovernmental agencies concerned with raising labour and
environmental standards.

…
e) Funnel for technical assistance:

The central idea is to combine technical
assistance with connectivity.

The lead firms of chains become the entry
point for reaching out to a multitude of
distant small and medium sized suppliers.

Why chain governance needed?/
ሰንሰለት

አስተዳደርለምንአስፈለገ
?

Governance by the buyer is costly, requiring asset-
specific investments in relationships with particular
suppliers.

Such investment also increases the rigidity of supply
chains by raising the costs of switching suppliers.

Nevertheless, many instances of parameter setting
and enforcement along the chain are evident.

…

There are five generic ways that firms coordinate, or
‘govern’ the linkages between value chain activities:
1) Simple market linkages, governed by price
2) Modular linkages, where complex information
regarding the transaction is codified and often digitized
before being passed to highly competent suppliers

…
3) Relational linkages, where tacit
information is exchanged between buyers
and highly competent suppliers;
4) Captive linkages, where less competent
suppliers are provided with detailed
instructions;
5) Linkages within the same firm, governed
by management hierarchy.

…

These linkage patterns could be associated with predictable
combinations of three distinct variables:

The complexity of information the production of a good or
service entails (design and process)

The ability to codify or systematize the transfer of knowledge
along the chain

The capabilities of existing suppliers to produce efficiently and
reliably, for which the dynamic nature of governance can be
largely accounted.

5.2 SOCIAL AND ENVIROMENTAL
STANDARD

A given value chain said to be sustainable when it meets the
needs of the present consumers without affecting the needs
of the future generation in terms of minimizing environmental,
improve social impact and animal welfare in the value chain in
order to guarantee the needs of future consumers.

Currently, sustainability issues include: climate change,
biodiversity, exploitation of land and/or water, social aspects,
animal welfare, product safety, waste- and packaging reduction.

Issue of sustainability has about seven core subjects under it.

…

5.3. SAFTY AND QUALITY ASSURANCE IN A
VC
Food quality versus food safety

Most of the time people understand food quality and safety as one concept
but it has different meaning.

Food quality is related to what you (consumer or other chain partner/s)
expect; mostly observable by sensory elements(visible, smell, texture etc.);
more easily controlled by taking precautions and less controlled by
government agencies.

Food safety could be measured objectively only after laboratory
investigation, which takes time and money.

Realisation of food safety is a supply chain related issue and it is high concern
for government agencies.

Table 2: Types of food hazard/
የምግብ

አደጋዓይነቶች
Physical Chemical Physiological Microbiological
Stones Environmental and
industrial contaminants
Pesticides, PCB, heavy
metals
Fytotoxins produced by
the plant (like cyanide in
cassave) or alkaloid
(solanine) in potatoes
Mycotoxins in animal feed
and food
Metal pieces Veterinary drugs
(antibiotics)
Toxins (saxitoxins) in
shellfish
Infectious agents
(Salmonella, E.coli etc.)
Plastic parts Spore and toxin producing
micro organisms
Radioactive
contamination

…
Table 1: Special types of food hazards
Entomoeba histolytica Giardia lambia Toxoplasma gondii
Drinking water and raw
vegetables
Drinking water and raw vegetables Contaminated water and
meat
Dysentery Diarrhoea Severe illness in foetuses

…
Table 1: Heliments
Heliment type Taenia solium (tapeworm) Trichinella spiralis
Cause Raw or uncooked pork meat Raw or uncooked meat
Symptoms Anorexia , nervous disorders Gastrointestinal disorders, diarrhoea and fever

5.4 BUSINESS LAW AND
ETHICS/
የንግድሕግእናሥነ
-ምግባር

Law can be defined as the system of rights and obligations which
the state might enforce.

The state in order to regulate the conduct of its people and to
maintain peace and order in the society, formulates certain rules
of conduct to be followed by the people. These rules framed by
the state to be followed by the people are called Laws.

According to the Oxford English Dictionary the word “Law” means
“rule made by authority for the proper regulation of a community
or society for correct conduct in life”

…

In the words of Woodrow Wilson, “Law is that portion of the
established habit and thought of mankind which has gained
distinct and formal recognition in the shape of uniform rules
backed by the authority and power of the Government.”

Broadly speaking, the term “Law” denotes rules and principles
either enforced by an authority or self- imposed by the members
of a society to control and regulate people’s behavior with a view
to securing justice, peaceful living and social security.

Business law/
የንግድሕግ

Business law, also called commercial
law or mercantile law, the body of rules,
whether by convention, agreement, or
national or international legislation,
governing the dealings between persons
in commercial matters.

Features of Law/
የሕግ
ባህሪዎች

The main features that make law different from other
forms of social control include:

Law is obligatory

Law has to be made by competent authority

Law is backed by sanction

Law is established in permanent

Law may apply specifically

Law has enforcement institutions

Sources of Law:

The term “source” is subject to various meanings.

In general, when we say source of law, we mean from where
the law derives its binding force and its contents.

Source of law may be material or formal.

Material source of law is from which the law derived the
matter, i.e. the content

Business Ethics

Business ethics reflects the philosophy of business, one of whose
aim is to determine the fundamental purpose of a company.

Ethics is related every aspect of our life

In today’s world of scams, frauds, corruptions due to cut throat
competition, it is essential for new entrants to ensure that one
adheres to the basic ethical standards.

Business ethics is not only applicable to any particular type of
businesses but is applicable to every type of business.

Business ethics

The study and examination of moral and social responsibility in
relation to business practices and decision making in a business.

Not limited to company alone but involves

Suppler

Manufacturer

Marketing and distribution

Customer care

Features of Business Ethics

Business ethics is a code of conduct which business men
should follow while conducting their normal activities

Business ethics has universal application

It is a relative norm

It differs from business to business

It is far-reaching concept and goes beyond the idea of
making money legally

…

It works a great deal in making long-term, long-lasting relationships

Business ethics is based on well accepted moral and social values

Practice of business ethics gives protection to customer and other
social groups related to a firm

Business ethics provide the legal, social, moral, economical and
cultural limits with in which business has to be conducted

…

It cannot be enforced by law.

It has to be accepted as self-discipline by
business-men

It requires the formal education program,
training guidance in order to motivate the
business men to follow ethical practices

Advantages of Business Ethics
1.Attracting and retaining talent:

Ethical organizations create an environment that
is

Trustworthy

Making employees willing to rely

Take decisions and act on the decisions

Actions of the co-employees

…
2.Investor loyalty:

Investors are concerned about ethics, social
responsibility and reputation of the company in
which they invest.

Investors are becoming more and more aware
that an ethical climate provides a foundation for
efficiency, productivity and profits.

…
3.Customer satisfaction:

Is a vital factor in a successful business strategy.

Repeated purchases/orders and enduring relationship of mutual
respect is essential for the success of the company.

An organization with a strong ethical environment places its
customer’s interest as foremost.

Ethical conduct towards customer builds a strong competitive
position.

It promotes a strong public image.

Thank you!

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