c.pietrobelli@uniroma 3.it CREI, Università Roma 1 Clusters, Value Chains and Clusters, Value Chains and Technological Capabilities Technological Capabilities Building Building Carlo Pietrobelli Carlo Pietrobelli Professor of Economics Director of CREI, University of Rome 3, Italy [email protected]www.pietrobelli.tk Brussels Rural Development Briefings Brussels, European Commission 23 September 2009 http://brusselsbriefings.net
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[email protected] CREI, Università Roma Tre 1 Clusters, Value Chains and Technological Capabilities Building Carlo Pietrobelli Professor of Economics.
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Competitive SMEs are necessary !Competitive SMEs are necessary !
Micro, Small and Medium-sized Enterprises (MSME) play a key role in terms of employment and income generation in developing countries.
… but their development and performance also contribute to poverty reduction. “…The World Bank estimates that 80% of poverty
reduction is due to economic growth. ..... the private sector drives the economic growth developing countries need. ....companies offer people the chance to get a job and earn a living. ... the private sector creates wealth and helps individuals and nations lift themselves out of poverty. The private sector does not just mean multinational companies. Small firms and enterprising individuals matter just as much.” (DFID, 2009).
…But being competitive is not enoough….. Rents and barriers to entry
• All activities contribute to total value, but some add more value than others: crucial to identify which activities provide higher rents along the value chain;
• Rents arise in case of differential productivity of factors and barriers to entry (scarcity of factors and imperfect competition). Rents can depend on technological capabilities, organizational capabilities, skills and marketing capabilities (brand names);
• These differences among activities are relevant to understand the opportunities open to developing countries’ firms
• Moving into more sophisticated products with increased unit value;
• Producing a large range of products with different specifications across the whole range of quality and/or origins (e.g. wine portfolios representing all major regions, varietals, and price points);
• It is sometimes difficult to distinguish product and process upgrading, especially in agro-food products, where new processes generate new categories of products (e.g. organics, ‘‘sustainable” products).
• Example: the apparel commodity chain in Asia upgrading from discount chains to department stores (Gereffi, 1999)
• changing the mix of activities within the firm and acquiring new functions that increase the skill content of activities (for example from manufacturing to design).
• Example: Torreon’s blue jeans industry upgrading from maquila to “full-package” manufacturing (Bair & Gereffi, 2001).
• Applying competences acquired in one function of a chain and using them in a different sector/chain;
• Learning what is taking place in one strand of a value chain (e.g. the one oriented towards domestic consumption) and applying to another (e.g. the one oriented towards export).
• Example: in Taiwan competence in producing TVs later used to make monitors and thus move into the computer sector (Humphrey & Schmitz, 2002, Guerrieri & Pietrobelli, 2004).
Why the concept of VC is useful:Why the concept of VC is useful: It acknowledges the increasing importance of non-
production activities (e.g. marketing; design, sale) for the creation of value added;
It emphasises the growing importance of global buyers and producers as key drivers in the formation of globally dispersed and organizationally fragmented production and distribution networks;
These external linkages are key channels of knowledge for LDCs’ firms;
Upgrading (and/or innovation) of firms participating in a value chain depends on the nature of the relationships (governance and power asymmetries ).
The Micro foundations of TCs and GVCsThe Micro foundations of TCs and GVCs
• Few studies explicitly explore how firms learn through external linkages (i.e. the mechanics, the pre-conditions, the investments and behaviour required);
• In GVCs and clusters this is often taken for granted and firms’ learning processes and technological change are not analyzed;
• diffuse determinism in combining specific GVC arrangements to learning patterns;
• the extent and variety of technological efforts at firm level are rather neglected.