2.5. Supporting Markets
Supporting markets play an important role in firm upgrading. They include financial services; cross-cutting services such as business consulting, legal advice and telecommunications; and sector-specific services, for example, irrigation equipment or handicraft design services. Not all services can be provided as embedded services, by value chain actors, and so vibrant supporting markets are often essential to competitiveness.
Promoting Supporting Markets
In value chain development programs, practitioners are interested in strengthening commercial relations that will result in improved competitiveness and greater benefit flows throughout the chain. While supporting markets are important for growth and competitiveness, they need not always be a component of a value chain development project; on the other hand, sometimes practitioners will be involved in strengthening supporting-market industries as value chains in their own right. For example, a project in Zambia targeting the livestock value chain focused much of its efforts on creating a competitive veterinary industry that was responsive to the needs of small-scale livestock producers.
What role to play and how to promote a supporting market should be based on the following considerations:
- Are there supporting markets whose products or services can resolve critical constraints to the competitiveness of the targeted value chain?
- Can the businesses in the supporting market be commercially sustainable by the end of the project? In addition, can supporting markets be made to see target value chain participants as viable clientele? Will the demand from actors in the targeted value chain be sufficient for supporting-market businesses to profit and grow? Conversely, can existing supporting market businesses be brought to see actors in the targeted value chain as a valuable market for their products or services? If the answers are no, then alternative approaches, such as embedded services should be explored.
- In the targeted value chain, is there a stronger rationale for promoting the needed products or services as embedded in relations between, for example, producers and their buyers? One strong rationale might be that producers in the value chain do not have the scale to afford stand-alone products and services. Another might be that value chain actors (that transact with producers) have strong incentives to develop, improve or expand the provision of embedded products or services. A third rationale might be the potential to signal to supporting market businesses 1) the demand for such services and 2) the potential value of investing in developing their own capacity to provide these services.
To promote the development of commercially viable supporting-market products and services practitioners may intervene to i) help supporting-market businesses overcome constraints to providing products or services in a commercially viable manner and ii) ensure that these businesses are not dependent on project activities for continued provision beyond the life of the project. To achieve these objectives, project implementers must first analyze the relationships among supporting-market businesses and value chain actors.