2.7.2. Benefits of Supportive Relationships
Ways in which Supportive Relationships Contribute to Competitiveness
Supportive relationships contribute to industry competitiveness in a number of ways. In particular, they:
- facilitate collaboration in response to market demand
- enable the transmission of information, skills and services
- provide incentives for upgrading
The ability of a value chain to respond to market demand is facilitated or hampered by the nature of relationships between actors in the chain. Firms must cooperate to aggregate product, achieve economies of scale, address shared constraints and market or lobby effectively. Further, sustaining competitiveness requires the capacity to respond to changes in the market. This response, in turn, is dependent upon sharing information, cooperation and trust between parties.
AMAP research has shown that most learning that helps MSEs increase production efficiency or product quality occurs through:
- buyers—buyers need to satisfy the demands of their clients and so may have an incentive to help MSEs reduce costs and increase product quality by providing embedded services; MSEs are often more responsive to upgrading initiated by buyers because it may translate into increased sales
- suppliers—if input suppliers see MSEs as a potential client base they have an incentive to invest in their relationships with them
- peers—family members, neighbors, association members and competing MSEs are common sources of learning through deliberate information sharing or as a result of observation and imitation
Research suggests that relatively little learning comes through stand-alone, fee-based service providers.
Various types of benefits—income, secure markets, access to learning and social benefits—create incentives for upgrading. Relationships that promote a performance-based distribution of benefits provide firms with an incentive to invest in upgrading, increasing the competitiveness of the whole chain. Conversely, relationships that concentrate benefits in the hands of a few firms within an industry or that result in unpredictable benefits limit incentives for upgrading and threaten long-term competitiveness.