Value chain Analysis and developments

CHAPTER ONE (1)

1.1. Definition of value chain
Value is defined as:
 A fair return or equivalent in goods, services, or money for something exchanged.
 The monetary worth of something: market price.
 Relative worth, utility, or importance.
 A numerical quantity that is assigned or is determined by calculation or measurement.
 The relative duration of a musical note.
 A: relative lightness or darkness of a color: luminosity B: the relation of one part in a
picture to another with respect to lightness and darkness.
 Something (as a principle or quality) intrinsically valuable or desirable! Value is what
makes something desirable!

What makes something desirable?

Things that make something desirable could be price, e.g. cheap or high value; Appearance,
e.g. looks; Experience, e.g. taste; Ease of use, e.g. fresh-cut and washed; Availability, e.g.
year round like Coca Cola. Above all consumers determine value.

The term ‘Value Chain’ was used by Michael Porter in his book "Competitive Advantage:
Creating and Sustaining superior Performance" (1985). Therefore “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 and finally,
retail. It is so called because value is being added to the product or service at each step.

By definition: a value chain comprises of interlinked value-adding activities that convert

inputs into outputs which, in turn, add to the bottom line and help create competitive
advantage. This means that businesses within the value chain are involved in handling and
adding direct value or consuming the product and also the service network indirectly
involved in the production (eg. quality control, ICT, financial partners (banks, insurance, and
training and research).

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 Value chain Analysis and developments

A value chain is a connected string of companies, groups and other players working together
to satisfy market demands for a particular product or group of products.

A value chain links the steps a product takes from the farmer to the consumer. It includes
research and development, input suppliers and finance. The farmer combines these resources
with land, labor and capital to produce commodities.

The value chain describes the full range of activities which are required to bring a product or
service from conception, through the different 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. Considered in its general form, it takes the shape as
described in Figure 1.

Design and Production Marketing Consumption/

development -Inward logistics Recycling
-Transforming
of a product - Inputs
- Packaging
- Etc

Figure 1: Four links in a simple value chain

As can be seen from this, production per se is only one of a number of value added links.
Moreover, there are ranges of activities within each link of the chain. Although often
depicted as a vertical chain, intra-chain linkages are most often of a two-way nature – for
example, specialized design agencies not only influence the nature of the production process
and marketing, but are in turn influenced by the constraints in these downstream links in the
chain. In the real world, of course, value chains are much more complex than this. There tend
to be many more links in the chain.

In addition to the various links in a value chain, typically intermediary producers in a

particular value chain may feed into a number of different value chains. In some cases, these
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 Value chain Analysis and developments

alternative value chains may absorb only a small share of their output; in other cases, there
may be an equal spread of customers. But the share of sales at a particular point in time may
not capture the full story – the dynamics of a particular market or technology may mean that
a relatively small (or large) customer/supplier may become a relatively large (small)
customer/supplier in the future. Furthermore the share of sales may obscure the crucial role
that a particular supplier controlling a key core technology or input (which may be a
relatively small part of its output) has on the rest of the value chain.

A value chain is a network of strategic alliances between independent companies that

together manage the flow of goods and services along the entire value-added chain.
“Strategic” implies that the partnership is entered into deliberately by groups of people who
jointly undertake activities they could not undertake themselves. The result is “competitive
intelligence,” and win-win strategy whereby information that could not be accessed
independently is gathered and shared.

1.2. Dimensions of Value Chain

The value chain concept has several dimensions.
A. 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. At its simplest, we can
think of a chain as having five main sections.
1. A product is first designed,
2. raw materials are purchased(input supply)
3. production takes place
4. product
5. distribution through wholesalers and retailers.

At each stage, services such as transport or finance may be needed to keep the process going.
As we will see when we start mapping real chains, some of these stages may be subdivided
and others combined or compressed. Nevertheless, the five stages - design, inputs,
production, wholesale, and retail - remain a handy device for understanding each step of the
process.

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 Value chain Analysis and developments

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.

B. The 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.
C. 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.
1.3. Importance of Value chain
A. Increases market access for smallholder farmers and agribusinesses.
B. Increases profitability of optimal-sized investments in agro-processing as markets
expand.
C. Keeps jobs and agro-processing industries.
D. Ensures dynamic efficiency of agricultural commodities and high-value exports.
E. Financial services—value chain analysis can identify mechanisms for financial
service delivery embedded in market transactions and assist lending institutions with
expanding their definition of creditworthiness.
F. Natural resources management—the value chain approach can be used to
strengthen the competitiveness of natural resource-based industries and to develop
competitiveness strategies that are beneficial both to the environment and to local
business development.
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 Value chain Analysis and developments

G. Health—value chain tools can be used to mobilize industry participants to identify

and address health-related constraints to competitiveness and can be used to increase
the effectiveness of service delivery in the health industry itself.
H. Conflict mitigation and management—value chain analysis can prioritize industry
constraints and opportunities in post-conflict situations and value chain tools can
bring together diverse, even antagonistic, stakeholders to work towards a common
economic vision.

1.4. Value chain versus Supply chain

Value chains are concerned with what the market will pay for. Hence, the focus is to make
what you can sell profitably (chain). The main objectives of value chain management is to
deliver quality as desired by the customers/consumers and the focus is on pie-growing,
coordination, and continuous improvement & innovation. Whereas, supply chains are
concerned with what it costs and how best we can utilize our capacity profitably (Individual
business profit). The main objectives of supply chain management are to maximize capacity
utilization and the focus is on pie-sharing, capacity and profit optimization, maintaining
status-quo.

Figure 2: Pictorial depiction of value chain and supply chain

Supply chain management is mainly product oriented while Value chain management is
mainly consumer oriented. Value chain managed when we have taken all relevant indicators

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for value creation into account; when we have determined our long term strategy concerning:
in company production, outsourcing, market orientation and seller – buyer relationships.
Supply chain is a subset of Value chain.

Supply chain: one entity often has most power, short-term relationship and value chain is
partnership with shared power, long term relationship.

Elements of the value chain concept are also incorporated within the innovation systems
approach. This involves the use, adoption, uptake, or commercialization of existing
knowledge. Successful innovation not only requires appropriate research outputs, but also
relies on a supportive policy and institutional environment, the availability of credit and
technical support, and the existence of healthy markets and functioning infrastructure. It is
also likely to involve a wide range of key actors from farmers through to policy makers,
private-sector companies, entrepreneurs, as well as journalists. Success is likely to depend on
addressing all of these interrelated factors.

1.5. Traditional Marketing Systems versus Value Chain Marketing System

1.5.1. Traditional Marketing Systems
In the traditional marketing system, farmers produce commodities that are "pushed" into the
marketplace. In this marketing system, marketing is market “Push”. Farmers are generally
isolated from a majority of end-consumer and have little control over input costs or process
received for their goods. The primary exception is where local farmers sell produce in local
markets and where there is a direct link from farmer to consumer. In most traditional selling
systems formers/producers tend to receive minimal profit. Any integration up or down the
value chain can help to increase the profit.

This tends to be based on independent transactions at each step, or between each node.
Products may often be sold into a crowded and competitive market. The farmers are largely
isolated from the consumer, and from the demands and preferences of consumers Research
and Development is focused on production and on reducing costs of production, and may not
take account of other steps, links, or dependencies in the chain (e.g. environmental or social
costs).

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1.3.2. Value Chain Marketing Systems

In a Value Chain marketing system, farmers are linked to the needs of consumers, working
closely with suppliers and processors to produce the specific goods required by consumers.
Similarly, through flows of information and products, consumers are linked to the needs of
farmers. Using this approach, and through continuous innovation and feedback between
different stages along the value chain, the farmer's market power and profitability can be
enhanced.

Rather than focusing profits on one or two links, players at all levels of the value chain will
benefit. Well-functioning value chains are said to be more efficient in bringing products to
consumers and therefore all actors, including small-scale producers and poor consumers,
should benefit from value chain development. Here the system is market “Pull”. This is based
on integrated transactions and information. Consumers purchase products that are produced
according to their preferences. The farmer becomes the core link in producing the products
that the consumers desire. Research and development, whilst including techniques targeted at
increased production, is also focused on consumer needs, and attempts to take account of all
of the links, and dependencies in the value chain, e.g. processing, environmental and social
costs or considerations, as well factors such as health impacts, education and learning.

Communication is in both directions. It is important that both consumers and processors

are made aware of factors limiting production, just as much as farmers and other producers
are made aware of consumer requirements. In order to generate improvements in the supply
or quality of any product, one needs to consider all aspects of the range of steps in the chain
of events from production to consumption, including both opportunities and constraints, and
the demand and supply of necessary products and services. An integral component of the
value chain is the agricultural supply chain, and in the literature these terms value chain and
supply chain may at times be used interchangeably, or are at least closely related. However,
there is difference in the two concepts. Let’s learn what the difference is between value chain
and supply chain.

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 Value chain Analysis and developments

CHAPTER TWO (2): VALUE CHAIN ANALYSIS

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 organizations products or services. This idea
was built upon the insight that an organization is more than a random compilation of
machinery, equipment, people and money. Only if these things are arranged into systems and
systematic activates it will become possible to produce something for which customers are
willing to pay a price. 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. 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 scene (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. Value chain analysis identifies demand for financial services within
value chains; recognizes that optimal levels of investment require a range of services from a
range of providers, including financial institutions and value chain actors; and prioritizes
needs for donor intervention in financial services and limits of Value Chain Finance are tied
to the quality of cooperation between actors.

2.1 Basic concepts in agricultural value chain analysis

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 Value chain Analysis and developments

There are four major basic concepts in agricultural value chain analysis: value chain, stages
of production, vertical coordination and business development services. 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.

2.2 Purposes of value chain analysis

Value chain analysis is conducted for a variety of purposes. The primary purpose of value
chain analysis, however, 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 data. In general, agricultural value chain analysis can be used to:

understand how an agricultural value chain is organized (structure), operates (conduct) and
performs (performance). Performance analysis should concern not only the current
performance of the value chain, but also likely future performances, as well.

 identify leverage interventions to improve the performance of the value chain

 analyse agriculture–industry linkages
 analyse income distribution
 analyse employment issues
 assess economic and social impacts of interventions
 analyse environmental impacts of interventions
 guide collective action for marketing
 guide research priority setting
 conduct policy inventory and analysis

In sum, the concept of value chain provides a useful framework to understand the production,
transformation and distribution of a commodity or group of commodities. With its emphasis
on the coordination of the various stages of a value chain, value chain analysis attempts to
unravel the organization and performance of a commodity system.

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 Value chain Analysis and developments

The issues of coordination are especially important in agricultural value chains, where
coordination is affected by several factors that may influence product characteristics,
especially quality. The value chain framework also enables us to think about development
from a systems perspective.

Key issues in 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.

2.3 Steps in Value Chain Analysis

Value chain analysis is a process that requires four interconnected steps: data collection and
research, value chain mapping, analysis of opportunities and constraints, and vetting of
findings with stakeholders and recommendations for future actions. These four steps are not
necessarily sequential and can be carried out simultaneously.

The value chain team collects data and information through secondary and primary sources
by way of research and interviews. Mapping helps to organize the data, and highlights the
market segments, participant/actors, their functions and linkages. The collected data is

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analyzed using the value chain framework to reveal constraints within the chain that prevent
or limit the exploitation of end market opportunities. The resulting analysis of opportunities
and constraints should be vetted with stakeholders through events such as workshops, focus
groups or “reporting-out” days.

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. The aim is to
familiarize the team with the industry, its market and the business environment in which it
operates, as well as to identify sources for additional information. Information such as
statistics on exports/imports, consumption reports, global trade figures, etc., can be obtained
through the Internet, phone calls and documents from trade, commerce and industry
ministries, specialized industry journals, and professional and trade association newsletters.
Once the desk research is conducted, an initial value chain map can be drafted for refinement
during the primary research phase.

Interviews are conducted with 1) firms and individuals from all functional levels of the chain,
and 2) individuals outside the value chain such as writers, journalists or economists. In
addition to providing information about the movement of product and the distribution of
benefits, the interviews should inform on value chain actors’ current capacity to learn; how
information is exchanged among participants; from where they learn about new production
techniques, new markets and market trends; and the extent of trust that exists among actors.
Interviews can help to identify where chain participants see opportunities for and constraints
to upgrading. Missing or inadequate provision of services necessary to move the value chain
to the next level of competitiveness can be identified locally, regionally or nationally.

In addition to individual interviews, focus group discussions are a useful way to explore
concepts, generate ideas, determine differences in opinion between stakeholder groups and
triangulate with other data collection methods. The group may consist of 7-10 people who
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 Value chain Analysis and developments

perform the same or a similar function in the value chain. Guided discussion better captures
the social interaction and spontaneous thought processes that inform decision making, which
is often lost in structured interviews.

The qualitative data gathered by these methods will reveal dynamic factors of the value chain
such as trends, incentives and relationships. To complement this, quantitative analysis of the
chain is necessary to provide a picture of the current situation in terms of the distribution of
value-added, profitability, productivity, production capacity and benchmarking against
competitors. Analyzing these factors highlights inefficiencies and areas for reducing cost.

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.

Porter distinguished two important elements of modern value chain analysis: The various
activities which were performed in particular links in the chain. Here he drew the distinction
between different stages of the process of supply (inbound logistics, operations, outbound
logistics, marketing and sales, and after sales service), the transformation of these inputs into
outputs (production, logistics, quality and continuous improvement processes), and the
support services the firm marshal to accomplish this task (strategic planning, human resource
management, technology development and procurement).

The importance of separating out these various functions is that it draws attention away from
an exclusive focus on physical transformation.

Porter distinguishes between primary activities and support activities. Primary activities are
directly concerned with the creation or delivery of a product or service. They can be grouped
into five main areas: inbound logistics, operations, outbound logistics, marketing and sales,
and service. Each of these primary activities is linked to support activities which help to
improve their effectiveness or efficiency. There are four main areas of support activities:

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 Value chain Analysis and developments

procurement, technology development (including R&D), human resource management, and

infrastructure (systems for planning, finance, quality, information management etc.).

Some thought about the linkages between activities: These linkages are crucial for corporate
success. The linkages are flows of information, goods and services, as well as systems and
processes for adjusting activities. A certain commodity value chain can be mapped as:

Figure 3: A comprehensive value chain map

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 also
help to identify information gaps that require further research.

A two-phased process for developing the value chain map is recommended, as follows: a)
initial basic mapping and b) adjusted mapping. Initial mapping is based on the information
derived from desk research and knowledge at the outset of the analysis. The second phase
includes revisions based on interviews and feedback from firms and individuals brought into
the analysis process. As value chain maps are representations of a complex system, the

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analysis must balance the need to generalize with the desire to charge the map with details.
Mapping is a dynamic process; therefore, adjustments should be made as needed.

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. If the chain cannot be competitive, the success of individual firms is
compromised. Therefore, taking a systemic approach is key to sustaining the competitiveness
of the chain and the micro and small enterprises (MSEs) operating within it.

The factors affecting performance of the chain are further analyzed to characterize
opportunities and constraints to competitiveness. These factors are classified under structure
and dynamic components. 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 and MSE benefits.

Structure

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

1. End market opportunities at the local, national, regional and global levels—the
framework prioritizes this element because demand in end markets defines the
characteristics of a successful product or service.
2. Business and enabling environment at the local, national and international levels
—this includes laws, regulations, policies, international trade agreements and public
infrastructure (roads, electricity, etc.) that enable the product or service to move
through the value chain.

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 Value chain Analysis and developments

3. 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.
4. 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.
5. Supporting markets—these include financial services, cross-cutting services (e.g.,
business consulting, legal advice and telecommunications) and sector-specific
services (e.g., irrigation equipment, design services for handicrafts).

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. With an open format, such structured events foster
buy-in to the analysis process.

Participants are selected based on the role they play in the value chain, or their responsibility
for critical market functions. There should also be MSE, medium and larger firm and
association representatives who, during the interview phase, exhibited an understanding of
the issues related to the value chain (especially the opportunities), a strong interest in the
types of questions posed during the interview, and leadership skills among peers or the
community.

Vetting events can take on several forms from simple one day reporting-out sessions to more
structured workshops that stretch to two or three days. The events are planned to reinforce
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 Value chain Analysis and developments

the importance of knowing and understanding the end market. In presenting the findings of
the value chain analysis, workshop leaders should stress that to remain competitive,
stakeholders and other participants must continuously learn what end markets demand in
terms of product specifications, quality, and other requirements.

It can be powerful to have a series of buyers present at the workshop. Where not possible, a
phone call or pre-recorded video interview can be an effective means for stakeholders to see
and hear directly from the buyer.

The event should include facilitated discussions, review and adjustments of value chain map
and a review of the analysis table mentioned above. For this exercise, it is recommended that
the completed table be projected on a screen, and additions and modifications made during
discussions inserted with the computer projecting the table. This assures a participatory
process and on-the-spot adjustment witnessed by attending participants. If changes are made,
the updated table can be rapidly printed and distributed to participants before they leave.

In environments characterized by a number of donor partners working with the same group
of firms, burn-out and skepticism particularly among the most important change drivers is
likely. In some instances, the firms most important to driving change may not attend a full-
day workshop even though they may be highly committed to the upgrading process and
strategy for making the industry more competitive. If time allows, the analysis team can meet
with these firms in advance of the workshop to convince them of the value of the competitive
planning process. If this is not possible, the analysis team should meet with these firms as
soon after the workshop as possible to vet findings and secure buy-in or commitment to the
industry competitiveness planning process.

In most industries, it is rather unusual that a single company performs all activities from
product design, production of components, and final assembly to delivery to the final user by
itself. Most often, organizations are elements of a value system or supply chain. Hence, value
chain analysis should cover the whole value system in which the organization operates.
Within the whole value system, there is only a certain value of profit margin available. This
is the difference of the final price the customer pays and the sum of all costs incurred with
the production and delivery of the product/service (e.g. raw material, energy etc.). It depends

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on the structure of the value system, how this margin spreads across the suppliers, producers,
distributors, customers, and other elements of the value system. Each member of the system
will use its market position and negotiating power to get a higher proportion of this margin.
Nevertheless, members of a value system can cooperate to improve their efficiency and to
reduce their costs in order to achieve a higher total margin to the benefit of all of them (e.g.
by reducing stocks in a Just-In-Time system).

Hierarchy Firms are vertically integrated, so that they can directly control all or most of the
activities of the chain

Some value chains can best be described as balanced networks. Firms form networks, but
because the power relations among them are fairly equal, no one firm or group of firms
dominates the network. In balanced networks supplier and buyer jointly define the product
and combine complementary competencies. An example might be collaboration between
producers of ‘eco-friendly’ knitted fabric and garment manufacturers who make this fabric
into fashion garments. Since both are involved in high value-added production, they can
work together more or less as equals.

Other value chains are governed by lead firms. We call these directed networks. The lead
firms do not merely buy goods in the market. Rather they specify what is to be produced by
whom, and they monitor the performance of the producing firms. In some cases, the
networks are directed, or “driven”, by large producers such as transnational corporations or
other large integrated industrial enterprises. The automobile industry is a good example of a
producer driven value chain. The large automobile companies dominate the chain by setting
the specifications that must be followed by firms joining their networks of component
suppliers.

Other chains are driven by the buyers of the products. In clothing and footwear, many
leading brand-name companies do no production themselves. Instead, they concentrate on
design and marketing. Their strength as buyers enables them to dominate certain value
chains. They determine what fabrics will be used, what styles will be produced, and in what
colors.

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Finally, some chains are characterized by vertically integrated firms. In these cases, firms,
acting through their own decision-making hierarchy, can directly control chain activities.

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