microReport #78: Integrating Micro and Small Enterprises into Value Chains: Evidence from Guatemalan Horticulture and Handicrafts

Using in-depth field interviews and a survey of buyers and producers, this study takes a “bottom-up” perspective to investigate the nature, determinants, and consequences of MSE participation in the textile handicrafts and high-value horticulture value chains in Guatemala. It empirically tests the characteristics of value chain linkages that facilitate or inhibit the formation of collaborative inter-firm relationships, both vertically (between firms at different levels of the value chain) and horizontally (among firms at the same level of the value chain). This is followed by an analysis of the impact of these vertical and horizontal relationships on MSE owners’ ability to innovate, or upgrade, their enterprise. The results indicate the importance of market information, inter-firm communication, reduced transaction costs, risk-offsetting opportunities, and effective group governance in building strong horizontal and vertical relationships that promote MSE upgrading and enhance the competitiveness of value chains.