1.4.3. Competitiveness Strategy - Overview
What is a Competitiveness Strategy?
Designing a competitiveness strategy is the third of the five phases of the project cycle. A competitiveness strategy is a plan for moving the industry toward sustained growth. 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.
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Key Point: 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. |
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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.
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Footnotes
- ↑ USAID/India – Growth-Oriented Microenterprise Development Program (GMED)
- ↑ Weaving Micro and Small Enterprises into Global Value Chains: The Case of Guatemalan Textile Handicrafts USAID and ACDI/VOCA, Dunn, E. and Villeda, L.; 2005.