Cooperation with the private sector in value chain development initiatives

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Cooperation with the private sectorin value
chain development initiatives

• Thomas Finkel
• Small and Medium Enterprises Development Program,
  Vietnam

Value Chains for road based development, Berlin,
May 2007
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Lead questions

• How can we maximize the outreach of value chain
  promotion?
• How can we avoid a race to the bottom?
• How can we enhance the effectiveness of capacity
  building?

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Potential answers to these questions

• Working on structural changes within a specific
  sector that go beyond the impact on a small group
  of beneficiaries within a pilot project are the
  best way to guarantee outreach and contribute to
  broad based development
• Social and environmental standards are a good
  vehicle to avoid a race to the bottom and
  increase the income level throughout the value
  chain
• Engaging the private sector as partner within
  development partnerships (PPP) is the best way of
  enhancing the effectiveness of our value chain
  projects

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Working on structural changes

• Companies that are partners within value chain
  development initiatives have a clear interest in
• Improving the business and investment climate in
  general
• Improving laws and regulations in specific
  sectors
• Building up business development services to make
  upgrading of local suppliers more efficient and
  less expensive
• Strengthening local business associations and
  cooperatives that are able to better organize the
  local value chain stakeholders

5
Social and environmental standards

• Companies that are partners within value chain
  development initiatives have a clear interest in
• Improving the quality of their products through
  applying social and environmental standards since
  they reap better prices on the market
• Improving the image of their business by applying
  social and environmental standards
• Increasing the efficiency of the value chain
  through better management practices introduced
  through standards

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Engaging the private sector

• Donor projects can benefit from engaging private
  companies as partners within their value chain
  development initiatives as they
• Have a clear commercial interest in upgrading
  their local suppliers
• Contribute in cash and in kind to upgrading
  projects
• Provide a far better leverage effect at the
  target group level
• Have a long term interest in good local
  suppliers, engaging with the local suppliers
  beyond the scope of project cycles
• Have an effect on the modernization of the whole
  sector as the key drivers of change

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Untapped potential for more partnerships

• Most donors have initiated programs that engage
  the business community in their projects
• A lot of these joint efforts are value chain
  development initiatives
• Some programs have been running quite
  successfully over the past years, with
  significant contributions in cash and in kind
  from private companies
• Yet, the vast potential for engaging more
  companies or build up bigger, longer term
  relations that generate larger impact remains
  untapped

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Some reasons why

• Cultural differences and sometimes ideological
  barriers between both sides remain
• There remains a lack of understanding of each
  others concerns, motivations and objectives
• In donor agencies, there is a clear lack of staff
  that has hands on private sector experience, and
  vice versa
• Although the willingness to cooperate often is
  there, most project and headquarter staff lack
  the network to the private sector
• Thus, finding the right partner for a specific
  project is often left to the individual project
  staff and his or her effort and luck to find a
  suitable business partner
• Once identified, the lack of partnership
  brokerage skills often prohibit the partnership
  from materializing or taking off

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Solution Nr. 1

• Improve capacity of staff
• donors need to better select their personnel and
  hire more staff that has private sector
  experience and networks
• They also need to train their staff in
  partnership brokerage skills of their existing
  staff

• While bullet point number one is the task of each
  donor and its HR department, existing training
  offers can be used or easily set up by
  experienced consulting companies
• Training and coaching programs can be organized
  in a joint donor initiative or customized for
  specific donor programs

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Solution Nr. 2

• Build up a match making service
• A platform that summarizes and highlights the
  different donor AND private sector initiatives
  that have partnership potential needs to be
  established (a website with summaries and links
  could be a first start)
• The website should also feature active
  partnership match making functions, where
  interested projects or private companies can
  offer their partnership proposal (ex. German
  solar energy company looking for partner to
  expands its operations in Laos)
• While some match making will take place without
  the assistance of an active broker (direct
  contact established through the website will be
  sufficient), other cases will require partnership
  brokerage services by a match making service
  provider

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Thank you for your attention!Contact and
informationthomas.finkel_at_gtz.de
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Cooperation with the private sectorin value
chain development initiatives- is there a way
for a more strategic approach to find partners ?

• German Mueller
• Engineering Capacity Development Program (ecbp),
  Ethiopia

Value Chains for a broad based development,
Berlin, May 2007
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Example Ethiopia Strategy to engage private
sector

• Country situation
• Amongst the 5 poorest countries in the world
• One of the lowest investment (including FDI)
  numbers worldwide
• Transitional country from communist / socialist
  past
• Very low understanding of even large and medium
  sized companies on domestic and international
  markets and marketing tools
• Outside image dominated by war, drought, desert
  and famine, hardly anyone in the international
  private sector thinks of Ethiopia as potential
  business place
• Recent developments
• Industrial Development Strategy and PASDEP with a
  strong focus on export increase and the building
  up of industrial production to keep value in the
  country
• Investments from local private entrepreneurs in
  production facilities are increasing
• Policies especially for export businesses are
  gradually improved

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Levels of international enterprise involvement
targeted
Market Intelligence
low
Market Exposure
Marketing and Opportunities
Technology and Know How Transfer
Requirements (Qual., Stan, )
Degree of engagement
First orders
International Customers
Quality, Design, Pricing
Single Supplier Upgrading
BDS, Associations, Institutions
PPPs
Supply Chain Topics (B2B)
Policy Improvement
Advocacy Support
Investment Climate
Joint Ventures
Foreign Direct Investment
high
Direct Employment Generation
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Engagement of national companies in ecbp

• Public Private Cooperation
• ca. 4 lead companies per Value Chain form
  together with Ministries, Universities and
  Associations Public Private strategies to upgrade
  sectors and initiate policy discussions and
  changes
• 80 of final product manufacturers per VC form
  Technical Working Groups to resolve common
  challenges (e.g. quality management, marketing of
  sector)
• Public Private Partnership
• Ethiopian pilot fund for Ethiopian companies
  targeted to the selected VCs
• In the 1st phase mini projects shall be initiated
  along value chains to strengthen suppliers and
  the whole system
• Commitment for such projects and engagement
  being generated through
• International companies involvement
• Upgrading services for companies through existing
  institutions and external consultant support
• Quick wins generated through other activities

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Implementation structure

• Nation Branding Process
• Ministries and pilot embassies, sector
  associations, companies
• What do we stand for, how to position ourselves,
  which communication tools do we use?
• Matchmaking
• Long-term personnel
• 3 Sector specific consultant companies in Europe
  which already work with strategic potential
  customers / partners
• Business Development Consultancy (diverse
  partners, corporate finance, JVs)
• Sector Associations / Chambers / Embassies
  (Ethiopia, Germany and selected European
  countries)
• Value Chain specific other target markets
  possible (e.g. in the case of
• industrial food products (Middle East, COMESA))

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Activities to involve international enterprises

• Strategic external marketing analysis of
  potential competitive product groups
• Selection of potential high performing companies
  in Ethiopia (up to 10 per Value Chain)
• Support to resolve major bottlenecks and quick
  wins in a twinning model (local institutions
  together with external consultants)
• Contacting in a pilot phase strategic potential
  buyers
• Broader based mailing to 100s of potential
  companies including telephone follow up
• Visits and discussions with a core group of
  interested EU companies
• International Trade Fair exhibition with
  preparation and follow up (through associations)
• ecbp facilitates
• partnership brokerage to initiate B2B
  partnerships
• Involvement in B2B supplier upgrading
• To enlarge development impacts through PPPs

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Towards common effort amongst Value Chain based
programs

• Different programs in different countries partner
  up in similar approaches
• Common systems could be used in pre-planning
  phase of programs
• Common initiatives of development programs in
  different countries (e.g. cotton, coffee,
  aquaculture, bamboo etc.)
• Initiatives involving different donors on similar
  VCs

Synergies and higher development impact and /
or Increased complexity, competition and less
efficiency
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Thank you for your attention!Contact and
informationgerman.mueller_at_gtz.de
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First Achievements number crunching (Back up)

• 25 european companies in dialogue with ethiopian
  companies
• 13 companies in first negotiations for potential
  PPPs
• 3 formal PPP contracts signed, 3 informal PPPs
  underway
• 5 international buyers ordered sample products (3
  sectors)
• 1 european company in concrete Joint Venture
  negotiations
• 3 sector policy reforms in discussion, 1 in trial
  
• 1 ethiopian retailer in PPP discussion to develop
  system for the support services of 100 Micro and
  Small Enterprises (Clustering)