Competitiveness Strategy

From microLINKS Wiki

C. Competitiveness Strategy

1. End Market Competitiveness Plan

2. Upgrading Plan

3. Plan to Sustain Competitiveness

4. Developing an Industry Competitiveness Strategy: Tools and Examples

D. Design and Implementation

E. Monitoring and Evaluation

III. Resources

microLINKS Enterprise Development Pages

1 What is a Competitiveness Strategy?
2 Why is it Important?
3 Competitiveness Strategy Components
4 Developing an Industry Competitiveness Strategy: Tools and Examples
5 Recommended Good Practices and Lessons from the Field
6 Resources
7 Footnotes
8 Navigation

What is a Competitiveness Strategy?

Industry competitiveness, as opposed to firm competitiveness, is systemic, the result of complex and dynamic interactions between national-level social and economic factors. An industry's competitiveness depends on the ability of firms and other actors in the chain to anticipate and meet buyer demands, take advantage of end-market opportunities, and respond to or influence changes in market demand. An industry can enhance its ability to compete by improving product differentiation, operations or branding. Though firm-level interventions may improve the competitiveness of individual enterprises in the short term, if industry-wide constraints such as a difficult policy and legal business environment or a lack of supporting markets are not addressed, impact is likely to be limited and of short duration.

A firm has a competitive advantage when it delivers products or services at a lower cost or higher quality than that of its competitors, or when it has unique characteristics that cannot easily be replicated elsewhere (such as off-season vegetables or Blue Mountain coffee). How a firm is organized and how it uses its resources and capabilities to create unique, better or lower cost products or services determines its ability to develop a competitive advantage, become an industry leader and create excellent value for its customers and higher profits for itself.

The value chain approach promoted by USAID’s Microenterprise Development office is the direct result of nearly ten years of practice and research in the areas of global value chains, competitiveness and micro-, small and medium enterprise (MSE) development. Though small firms cannot contribute to the competitiveness of every industry, some value chains do provide them with opportunities to engage competitively. In general, situations that support competitive MSE participation are seasonal and relatively labor intensive, use non-repetitive production processes, produce small volumes, and require very little capital. The horticulture, tourism, construction, and apparel industries are among those that are particularly well-suited to small business involvement on a competitive level.

A competitiveness strategy provides a roadmap for moving an industry toward higher, sustained rates of growth—it is not just a plan for helping individual firms become more profitable. However, implementing a competitiveness strategy could require working first with a limited number of firms that are willing to invest in order to create a demonstration effect for other firms. This was the case with the GMED^[1] project in India where initially one wholesaler was willing to buy from smallholders and enter into a partnership with the project. In the case of Cambodia, improved competitiveness depended on better use of inputs, but suppliers were unwilling to work with poor farmers. However, once they realized that training farmers could lead to a substantial increase in sales for their businesses, input suppliers were eager to improve farmer (and, therefore, value chain) productivity. The challenges to developing a coherent strategy—one that stakeholders are willing to buy into—can be met by forging a shared vision of a competitive industry and developing a plan that benefits everyone, including MSEs.

The design of a competitiveness strategy should follow the selection and analysis of those value chains having the greatest potential to contribute to sustainable economic growth. Value chain analysis is a crucial step in the project design process that identifies end-market opportunities and the constraints that affect industry competitiveness. The competitiveness strategy includes a prioritization of constraints to taking advantage of selected opportunities. Based on this exercise, a plan is developed to address these constraints.

Why is it Important?

Without a competitiveness strategy for their industry, it is difficult for the individual firms that operate within it to overcome the tendency to see one another as anything other than competitors, which hinders their ability to work together, leverage resources and overcome problems they share. A well-designed strategy uses the value chain analysis findings to foster inter-firm cooperation, address common constraints, target and exploit opportunities and combine incentives for firms to invest in its implementation. To attract and retain the commitment of and participation by the private sector and ensure successful implementation of the strategy, firms throughout the chain must understand that full engagement by all actors benefits everyone. A competitiveness strategy can have short, medium and long timeframes; include multiple markets—local, regional and international markets and low to high quality products; and involve small steps and manageable risk. While some Guatemalan handicraft ^[2] weavers decided to compete on price by using a foot loom to increase their speed and produce more and larger pieces of cloth, others wanted to continue using their back-strap looms, a more labor intensive method suited to producing intricately designed quality textiles that sell well in high-end markets. However, this group also understood that to be competitive they needed to produce more pieces so they simplified their complex designs in order to boost their production.

Competitiveness Strategy Components

When designing a competitiveness strategy for industries with high levels of MSE participation practitioners need to involve stakeholders at all levels of a value chain in developing 1) an end-market competitiveness plan that determines the industry’s competitive advantage, 2) a commercial upgrading plan, and 3) a plan for sustaining competitiveness. These elements rely on both information from the value chain analysis and active involvement by the private sector to create a focused approach to improving and sustaining industry competitiveness.

Developing an Industry Competitiveness Strategy: Tools and Examples

Once development professionals have selected and analyzed an industry that has high levels of MSE participation, there is a broad range of tools available for them to use in developing a value chain competitiveness strategy. These tools help practitioners, stakeholders and strategy developers identify the industry’s competitive advantage, develop a commercial upgrading strategy to make it more competitive and create a process to sustain its competitiveness. See more tools and examples.

Recommended Good Practices and Lessons from the Field

Buy-in by stakeholders throughout the chain is critical—a lack of ownership can sabotage the best of intentions and strategies.
Follow-up support by development partners, lead firms, government and/or others (e.g., local NGOs, trade associations, etc.) is critical to sustain momentum.
Look to the end market for the appropriate international standards—HACCP, ISO 9000, etc.—to be included in microenterprise development program designs.
Use the adoption of product standards to build partnerships between producers, buyers and input suppliers.
Engage buyers and input suppliers in providing producers with embedded services to help them reduce the time and costs of upgrading.
Improve communications among MSEs to foster the adoption of new technologies and improved production processes by example.
Intermediary agents / traders can play a vital role in identifying and establishing relations with international buyers and in managing logistics.
Readily available, consistent access to supplies, finance and affordable services for product development and to information on the requirements of the market can promote growth at many levels of a value chain.
A secure political environment encourages legitimate business, competitiveness and regional and international trade.
Export market buyer interest is closely tied to the ability of producers to meet three important requirements: quality, quantity and reliability.
If there is not enough inter-firm cooperation to develop a common vision, a focus on short-term results around quick win-win activities can create positive reinforcement for collaboration.
It is critically important that industry leaders be able to anticipate and respond to changing market conditions quickly, efficiently and effectively.