The steps taken in the analysis parallel those of value chain analysis. Once the economic costs of key factors in the product flow are collected, we compare the efficiency of the targeted supply chain with competitors and global standards. Prior to designing strategies to overcome supply chain bottlenecks, developing a thorough understanding of institutional and infrastructural frameworks is crucial.
Likewise, developing a thorough understanding of how well a value/supply chain works demands primary and up-to-date information. Secondary desk research could suffice for understanding global and regional trends and demand. However, collecting data and information on domestic markets could be a great challenge, especially in developing countries due to limited data availability. It is both cost-and time-efficient to first look for already-existing relevant reports. In case such reports are not available or require updating, it is possible to build an estimate from scratch by conducting chain-wide surveys and interviews with stakeholders from relevant public and private institutions. In doing so, there are myriad factors to be taken into account.
Variables to consider for value/supply chain competitiveness
Value/supply chain analysis requires analyzing several variables that buttress a sector and, therefore, determine its competitiveness. They are broadly categorized into hard and soft infrastructure. The former includes:
- Transport infrastructure: There are three main modes of transport: land, air, and sea. A well-developed and connected network of roads, air links, and maritime shipping combined with an efficient trucking and cargo system will facilitate the movement of goods and services, while any poorly designed mode of transport will result in slow movement and higher shipping costs. The quality of transport infrastructure heavily influences the true economic distance along the value chain.
- Logistics: This refers to warehouses, refrigeration and distribution facilities, and cold-chain facilities. The importance of such facilities is greater for value chains that move time-sensitive and perish-able goods, such as in agribusiness.
The following variables that fall under soft infrastructure are as critical to sector competitiveness as those of hard infrastructure:
- Human resources: This refers to labour skills (including both life skills and job- and task-specific skills) and wages, which determine labour productivity. It also includes formal educational institutions as well as vocational training institutions, which are responsible for disseminating technology, technical and managerial skills, and knowledge. Without strong support of these institutions, a sector will not be able to compete, even with advanced transport infrastructure.
- Financial institutions: While physical infrastructure is crucial for moving goods and services from producers to consumers, the financial sector plays a pivotal role in the efficient allocation of resources and in facilitating payments. The financial services industry consists of five broad categories of services: banks, insurance, securities, asset management, and financial information. The importance of financial services becomes amplified if an industry engages in international trade; these services are also important for the growth of enterprises.
- Customs and freight forwarding: Moving goods from producers to consumers along the supply chain also depends on the quality of transport and associated services, such as customs and freight forwarding.
- Legal/regulatory framework: Governmental institutions provide services or set regulations that impact the competitiveness of trade logistics. Also, anticompetitive behavior and restrictive regulations towards transport services and infrastructure could increase transport costs and ultimately may undermine trade and market share. The private sector could play a major role in infrastructure investments as well as services, provided it gets the necessary credit for investments. Access to affordable credit by the private sector is particularly low in developing economies due to lack of strong institutions, poor enforcement of contacts, and weak rule of law. A weak regulatory framework makes investors apprehensive to invest in places where investments are most needed.
- Information and computer technology (ICT): ICT is a cross-cutting issue that facilitates information and knowledge sharing along the value chain. For example, the development of computerized customs systems significantly lowers human error, corruption, and the length of clearance processes. Also, improved communication along the supply chain lowers inconsistency and unexpectedness while improving inventory management.
- Business climate: In order for any sector to expand and grow, an economy needs investments and startups that could transform and support the development of existing and new products and services. In this regard, it is essential to have a business-enabling environment that promotes and rewards entrepreneurship and risk-taking.
- Safety and security: Security is a key prerequisite for economic growth. When there is an actual or perceived risk in security arising from military forces, terrorism, or religious fundamentalists, there is less likelihood for any future investment commitment. As the cost of doing business in an unstable environment is high, very little, if any, investment will flow in.
In addition to the aforementioned endogenous variables, there are other factors, such as geography and climate change, that fall beyond the jurisdiction of city or national governments and that also affect supply chain and trade efficiency. Although the effects must not be overlooked, improving on the above endogenous variables will bring significant improvement to a city’s supply chain and logistics performance. An efficient supply chain and logistics within a country is the gateway for participation in a global value chain.
Action-oriented participatory process
As the saying “a chain is as strong as its weakest link” suggests, components of the same value/supply chain are highly interdependent. The efficiency of one segment heavily influences the competitive-ness of another. For example, if a leather tannery produces leather sheets at high cost, leather shoe manufacturers are likely to increase the market price for their finished leather shoes. Overall coordination that generates trust and predictability along the value/supply chain also enhances the efficiency of a sector. This gives supply chain–wide incentives to collaborate to bring about a more integrated value chain approach. Thus, from the outset, it is important to engage the wide range of members of the value chain and supply chain from both the private and public sectors. This will allow the sectors to develop a common vision and thus bring about an integrated, sustainable, and competitive value chain and supply chain.
Analyzing a sector through a value chain and supply chain lens allows us to identify and plug the gap along the chain. Combined with the findings from global and regional trends and demand, local sectors could explore opportunities for value addition or expand their market share. In today’s globalized economic landscape, specialization of a competitive sector or a segment of a sector could allow a city to plug itself into a global value chain while productively connecting its people to the world.