Value Chain upgrading in Palestine ‐ Past 

Experience and Outlook

Prepared By: 
Data Studies and Consultations 

Submitted to 
The Second National Conference on SMEs Development in Palestine  
Bethlehem, Palestine 
 
June 2008
 TABLE OF CONTENTS
WHAT IS A VALUE CHAIN? .................................................................................... 3 
TYPES OF VALUE CHAINS...................................................................................... 3 
WHY IS VALUE CHAIN ANALYSIS IMPORTANT? ........................................... 4 
MAPPING VALUE CHAINS ...................................................................................... 4 
HOW DO SMEs FIT INTO GLOBAL VALUE CHAINS?...................................... 5 
II. Introduction................................................................................................................... 6 
RESAERCH OBJECTIVES ........................................................................................ 6 
METHODOLOGY ....................................................................................................... 6 
III. Findings ....................................................................................................................... 8 
The olive oil sector ........................................................................................................ 8 
The food processing sector ......................................................................................... 10 
The furniture sector .................................................................................................... 12 
The pharmaceutical sector ......................................................................................... 14 
The stone and marble sector ...................................................................................... 16 
IV. Conclusions ................................................................................................................ 19 
Lessons and Benefits ................................................................................................... 19 
V. Recommendations ....................................................................................................... 21 
Appendices........................................................................................................................ 24 
I. Background
WHAT IS A VALUE CHAIN?

T
he value chain, also known as value chain analysis, is a concept from business
management that was first described and popularized by Michael Porter in his
1985 best-seller, Competitive Advantage: Creating and Sustaining Superior
Performance.
A value chain is a chain of activities. Products pass through all activities of the chain in
order and at each activity the product gains some value. The chain of activities gives the
products more added value than the sum of added values of all activities. It is important
not to mix the concept of the value chain with the costs occurring throughout the
activities
The "primary activities" include: inbound logistics, operations (production), outbound
logistics, marketing and sales (demand), and services (maintenance). The "support
activities" include: administrative infrastructure management, human resource
management, information technology, and procurement. The costs and value drivers are
identified for each value activity. The value chain framework quickly made its way to the
forefront of management thought as a powerful analysis tool for strategic planning. Its
ultimate goal is to maximize value creation while minimizing costs.

The concept has been extended beyond individual organizations. It can apply to whole
supply chains and distribution networks. The delivery of a mix of products and services
to the end customer will mobilize different economic factors, each managing its own
value chain. The industry wide synchronized interactions of those local value chains
create an extended value chain, sometimes global in extent. Porter terms this larger
interconnected system of value chains by the “value system”. A value system includes the
value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the
firm distribution channels, and the firm's buyers (and presumably extended to the buyers
of their products, and so on).

TYPES OF VALUE CHAINS

1. The Simple Value Chain

The value chain describes the full range of activities which are required to bring a
product or service from conception, through the different phases of production (involving
a combination of physical transformation and the input of various producer services),
delivery to final consumers, and final disposal after use. Moreover, there are ranges of
activities within each link of the chain.
2. The extended value chain
In the real world, of course, value chains are much more complex than this. For one
thing, there tend to be many more links in the chain. Take, for example, the case of the
furniture industry. This involves the provision of seed inputs, chemicals, equipment and
water for the forestry sector. Cut logs pass to the sawmill sector which gets its primary
inputs from the machinery sector. From there, sawn timber moves to the furniture
manufacturers who, in turn, obtain inputs from the machinery, adhesives and paint
industries and also draw on design and branding skills from the service sector. Depending
on which market is served, the furniture then passes through various intermediary stages
until it reaches the final customer, who after use consigns the furniture for recycling.

3. One or many value chains

In addition to the manifold links in a value chain, typically intermediary producers in a
particular value chain may feed into a number of different value chains. In some cases,
these alternative value chains may absorb only a small share of their output; in other
cases, there may be an equal spread of customers. But the share of sales at a particular
point in time may not capture the full story – the dynamics of a particular market or
technology may mean that a relatively small (or large) customer /supplier may become a
relatively large (or small) customer/supplier in the future.

4. One or many labels?

There is a considerable overlap between the concept of a value chain and similar concepts
used in other contexts. One important source of confusion – particularly in earlier years
before the value chain as outlined above became increasingly widespread in the research
and policy domain – was one of nomenclature and arose from the work of Michael Porter
in the mid 1980s.

WHY IS VALUE CHAIN ANALYSIS IMPORTANT?

There are three main sets of reasons why value chain analysis is important in this era of
rapid globalization. They are:
• With the growing division of labor and the global dispersion of the production of
components, systemic competitiveness has become increasingly important
• Efficiency in production is only a necessary condition for successfully penetrating
global markets
• Entry into global markets which allows for sustained income growth – that is,
making the best of globalization - requires an understanding of dynamic factors
within the whole value chain

MAPPING VALUE CHAINS

Having identified, the value chain in question, the task is then to put numbers and values
to the variables under investigation. Here, which variables are chosen will reflect the
primary questions being addressed in the research – for example, a gender focus may
suggest that a specific gender-lens be utilized to collect issue-specific data which identify
the role played by women throughout the chain. But, leaving aside these specific
interests, it is likely that all value chain analysis will gain from constructing a “tree” of
input-output relationships which include most of the following primary general
accounting identities: gross output values, net output values (that is, gross output, minus
input costs), the physical flow of commodities along the chain, the flow of services,
consultants and skills along the chain, employment, gender, ethnicity , destination of
sales, concentration of sales amongst major buyers; number of buyers, imports and
exports, and to which region.

HOW DO SMEs FIT INTO GLOBAL VALUE CHAINS?

One of the concerns often expressed in development policy is the way in which small
firms can be integrated into global value chains. Occasionally SMEs are a focus of
interest in their own right – for example, because they are considered to be wellsprings of
innovation, or to embody agility. But, more often, the focus on SMEs is a way of getting
into some of the distributional issues raised in the previous discussion, since in general
they are associated with poor people (especially when micro enterprises are involved),
poor regions and poor ethnic groups. So, where there is a focus on distributional issues,
there may be better ways of getting into the determinants of income distribution by
focusing more directly on the recipients of income than on SMEs. On the other hand,
since individuals generally receive income through their participation in institutions
(particularly in producing enterprises), SME development can be an important vehicle for
policy delivery. Many SMEs tend not to be incorporated in global value chains.
II. Introduction

A
fter four decades of occupation, restrictive measures, violent confrontations and
war like conditions continue to dominate economic prospects of the Palestinian
territory. Setting the Palestinian economy on a path of sustained growth requires
understanding the conditions that influenced its long-term development prospects,
particularly the structures established after the occupation of West Bank and Gaza Strip
and the institutional set-up affecting the growth dynamics.

The shift in the industrial base towards low-productivity, low-pay activities. In addition
to depletion of the economy’s capital base and the drop in private investment, the period
since the year 2000 witnessed an overall contraction in the average size of enterprises and
an expansion of micro-enterprises, with less than five workers. Nonetheless, small and
medium enterprises acted as a shock absorber for the troubled economy.
So, many attempts have been tried to help improving the performance of the outputs of
the Palestinian economy. One of these is the introduction and utilization of the value
chain concept.

RESAERCH OBJECTIVES

The services of the consultancy assignment are required to summarize past and current
activities and experience in value chain development and sub-sector promotion in
Palestine as well as potentially upcoming new efforts in this field. The outcome of this
work shall be utilized for the Second National Conference on SME development in
Palestine, called Promoting Value Chains for business competitiveness, and for other
purposes as well:

• To highlight the benefits and importance of value chain utilization in the business
culture in Palestine
• To demonstrate the Palestinian experience using the value chain methodology
• To explore the potential opportunities for using the value chain methodology in
other sectors

METHODOLOGY

This report intends to provide an analytical overview about the value chain interests in
Palestine. The terms of reference for this report intends to provide the followings:

Collection of relevant information and studies in the country, analysis of information and
summary of findings of these researches, preparation and conduct of a conference
presentation, and submitting all expected reports and studies.
The research team used the published and non published experience about the utilization
of value chain methodology in Palestine. The team used the following tools:

1. literature review of the published reports:

• PALTRADE experience with ACDI/VOCA regarding olive oil and food
processing
• DAI studies about the clustering of main subsectors
• Other reports that focused on the small and medium size enterprises in
Palestine
2. interviews conducted with major players in the SMEs sector; i.e., industrial
associations, Chamber of Commerce, Ministry of Economy, PALTRADE,
ACDI/VOCA, PICTI and PITA, IMC, PFI and other institutions
3. the accumulated practical experience of the research team
4. field visits to certain SMEs in the southern part of the West Bank
III. Findings
The olive oil sector

The Palestinian Olive Oil Sector: trade development strategy

Study title

PALTRADE – Agribusiness Trade Development and Promotion Project

Conducted by
Submitted to

March, 2005
Date

Given its significant contribution to agricultural output and employment, the olive oil sector is
considered the backbone of Palestinian agriculture. It has the potential to create job
opportunities and generate income for large sections of the Palestinian society. This sector also
plays an important political roll since it helps in preventing the confiscation of land for
settlements expansion.
Introduction
 The main goal of the study is to form the basis for interventions in the olive oil sector aimed at
developing the sector's competitiveness and exports.
Principal
goal

1. the olive oil sector is considered the backbone of Palestinian Agriculture

2. Palestinian olive oil price levels until very recently were much higher than those oils from
international markets
3. Level of commitment to international standards and the ancillary marketing services of the
production and marketing authority are still lagging behind in comparison with those of
other countries. This situation has resulted in decrease of relative competitiveness of
Palestinian olive oil.
4. Despite the abovementioned issues, in the last four decades there has been a proportional
growth in the area planted with olive trees.
5. The local market was and is still the major outlet for Palestinian oil.
6. There is a burgeoning increase in the share of other vegetable oils out of the total volume of
local demand for oils.
Main findings

7. The olive oil sector in Palestine is suffering from several problems. First, production
techniques and service low level. Second, disease and insect fighting is also weak. Third,
there is a drop in productivity and fluctuation of production as opposed to a rise in rates of
costs and decline of consumption, weakness of credit services, and manufacturing services.
Fourth, there is an absence of a unified body to lead this sector.
In order to benefit from the potential opportunities, there is a need to work on raising
Conclusions

Palestinian olive oil competitiveness through improvement of productivity and post-harvesting

practices. This is in addition to the necessity of studying the potential markets to determine
competitive conditions, consumer tastes, oil standards and specifications, required promotion,
bottling and distribution mechanisms as well as other marketing mix tools.
Development of the Palestinian olive oil sector with the purpose of giving it a distinguished
Recommendations

position at the local, regional and international markets. There is a need to:
1. Meet international quality and standards
2. Promote domestic and international sales
3. Create a supportive legal and regulatory environment
4. Supply company with know-how, and marketing information.
The food processing sector

The Palestinian Processed Food Sector: trade development strategy

Study title

PALTRADE – Agribusiness Trade Development and Promotion Project

Conducted by
Submitted to

March, 2005
Date

Palestinian food manufacturing industries significantly contribute to food security for

Palestinian people. Processed food represents some 27% of the value added of manufacturing
Introduction

industries and accounts for over USD 14 million in Palestinian exports. The sector employs
over 7800 workers.
 The main goal of the study is to form the basis for interventions in the food processing sector
Principal

aimed at developing the sector's competitiveness and exports.

goal

1. The foodstuff sector consists of a wide variety of sub-sectors and products, each with
its own unique value chain and sector relationships. The key common stages in the
value chains of food processing industries in Palestine are: product development, raw
material procurement, production, packing, marketing and distribution. The following
shows the status for each stage in the value chain of food processing:
• There are few large factories which invest in research and development, and product
development.
• It is estimated that 80-90% of raw materials used in food industry are imported from
abroad or from Israel. The sector suffers from high dependence on imported raw
materials and weak distribution networks, causing it to be vulnerable to competition
from Israeli and other imported products in the local market.
• There is a low utilization due to instability to secure a steady supply of inputs, poor
maintenance, and reduced market demand due to loss of market share to imported
products.
• Operations and quality management is seen as still in need of development.
• The majority of the food processors directly distribute to retailers or even to
Main findings

consumers. Export marketing and distribution is particularly underdeveloped.

2. A number of business services critical to the growth and development of the sector are
weak or nonexistent, including:
• Marketing, testing, certification, packaging, and financial services.
• Merchandising and distribution functions are highly underdeveloped.
• Consulting and finance services are limited
3. Furthermore, the regulatory environment within which the sector operates poses even
greater challenges, with inconsistent and weak regulatory enforcement of standards on
locally manufactured products combined with unchecked and uncontrolled entry of
imports into the market.
4. The performance of Palestinian products in regional and world markets is limited but
demonstrates notable successes in meat products, confectionaries and biscuits, and
tahini products. Opportunities in Arab markets could be developed with improved
market research, the implementation of the tariff waiver on Palestinian exports to
Arab markets, and trade facilitation at Arab customs. Palestinian traditional products
are also deemed competitive in ethnic markets in Western countries if proper
packaging and distribution channels were developed.

The study shows that the food processing is a promising sector. As well, the study argued that
Conclusions

there are weaknesses in the factor conditions; demand conditions; firms' strategy, structure and
rivalry; and related and supporting industries.
 To develop a Palestinian food product that has the ability to compete at the national social and
health requirements, there is a need to:
1. develop producers' management and technical capacity
Recommendations

2. reinforce the position of the Palestinian food products and expand their share of both
the local and foreign markets
3. effective representation of the food industrial sector in order to create a suitable work
environment
4. provision of appropriate information at the right time and dissemination of business
knowledge

The furniture sector

Cluster Competitiveness Assessment

Study title

Eight industrial and services clusters in the West Bank and Gaza

DAI – PED project

Conducted by

The United States Agency for International Development

Submitted to

January 2007
Date

This report provides a systematic review of the global and local factors, trends, and context that frame and influence
Introduction

potential USAID assistance to the West Bank and Gaza sectors through the Palestinian Enterprise Development (PED)
project. The report draws upon local and international available research and data for the sectors as well as PED`s
extensive interaction with members of the West Bank and Gaza industry members.
 The study was prepared against the backdrop of the best-case scenario of the economic performance of WBG and its
Principal

implication on the private sector. And its ability to address the problems of humanitarian assistance to the Palestinians
goal

in light of the critical political conditions and their economic consequences. The study focused on the potential of
these sectors to generate new employment to mitigate against looming unemployment and poverty projections.

1. There has been substantial industry expansion and development, including new categories such as interior
design, hospitality, and commercial furnishings as well as advancements in design and manufacturing.
2. The industry includes 600 establishments in Gaza that use sophisticated manufacturing techniques and
employ more than 5,500 workers.
3. The estimated annual sales of Gaza manufacturers are $44 million.
4. Sales percentages: 76% in Gaza, 8% in WB and 16% is exported (mostly to Israel).
5. Strengths of the cluster are mainly typified in high carpentry workmanship skills; good factory
conditions; fine quality of produced furniture; and newly emerging, original Palestinian designs. In addition,
Palestinian firms have established buyer networks in Israel and other markets and have started to pursue
Main findings

market opportunities aggressively through industry associations and partnerships.

6. Weaknesses of the cluster are characterized by limited use of technology in management,
communication, and marketing; lack of specialized skills, costly export distribution channels; and the limited
use of proper strategies to reach global markets.
7. Opportunities for the furniture cluster lie in the development of new original and ethnic designs, in
accessing target markets with favorable trade agreements, and in upgrading the industry’s technological
infrastructure
8. As with “growth potential,” the furniture cluster receives high marks for “cluster readiness”.
9. Threats are mainly the closures which impede the imports and the exports to Gaza and out of Gaza.
Besides the increasing competition from the low-priced products from far east.
Furniture sector

10. The competitive advantage of the industry is its wide product range and the variety of product features,
combined with high carpentry craftsmanship.
The industry offers considerable promise for generating growth, it receives high marks for its readiness and
committed support institutions. Improving programs for establishing marketing cooperative and facilitating
Conclusions

its access to new markets alongside with design initiatives and capacity building programs will enhance the
competitiveness of the industry.
From the value chain cost analysis of the study it is apparent that 40% of the cost is related to the design and
raw material phase (inbound), which means that considerable effort has to be placed there. As well as the
manufacturing assembly and testing (25%) and the direct sales and promotion elements (10%).
1. From the value chain analysis a lot of emphasis and attention has to be paid to the inbound part of
the value chain of this sector.
2. The competitive advantage element of this industry is highly important to build on it.
3. some other recommendations can be summarized as:
• Design promotional tools for better access to local and foreign markets.
Recommendations

• Establishing a form of cooperation between manufacturers, especially in the purchase of raw

material and marketing.
• Supporting a national furniture show and an expo center.
• Searching for a furniture industrial zone.
• Enhancing the accessibility to financing and attracting more investments in the sector.
• Enhancing the design capacity and adaptation of new technologies.
• Paying more attention to the quality control.
• Workforce and management development and capacity Building.
 The pharmaceutical sector

Cluster Competitiveness Assessment

Eight industrial and services clusters in the West Bank and Gaza
Study title

DAI – PED project

Conducted by

The United States Agency for International Development

Submitted to

January 2007
Date

This report provides a systematic review of the global and local factors, trends, and context that frame and influence
potential USAID assistance to the West Bank and Gaza sectors through the Palestinian Enterprise Development (PED)
project. The report draws upon locally and internationally available research and data for the sectors as well as PED`s
extensive interaction with members of the West Bank and Gaza industry members.
Introduction
 The study was prepared against the backdrop of the best-case scenario of the economic performance of WBG and its
Principal goal

implication on the private sector. And its ability to address the problems of humanitarian assistance to the Palestinians in
light of the critical political conditions and their economic consequences. The study focused on the potential of these
sectors to generate new employment to mitigate against looming unemployment and poverty projections.

1. Today, the industry consists of six companies, and it has gone through several mergers
over the last 40 years.
2. Two companies are listed on the stock market and all companies are generic drug manufacturers.
3. All six pharmaceutical companies are members of the Union of Palestinian Pharmaceutical Manufacturers
(UPPM).
4. Palestinian pharmaceuticals are marketed mainly in the WBG, while a small portion is
exported mainly to the Arab countries and Eastern Europe.
5. Most Palestinian drugs are of good quality and are competitive in price.
6. Some companies have joint ventures with international partners to produce drugs locally or in other countries, all
for foreign markets use.
7. There are more than (4,500) four thousand five hundred Palestinian, Israeli and foreign pharmaceutical products
in the Palestinian market.
8. The industry is currently engaged in producing 670 medicines distributed over 12 categories.
9. The anti-infectives are the most selling medicines for the industry followed by musco-skeletal and alimentary
medicines.
10. Market key players are the Public Sector (MOH), the private pharmacies and the associations of pharmacists,
Pharmaceuticals

Main findings

Non-Governmental Organizations (NGOs), Union of Palestinian Pharmaceutical Manufacturers (UPPM) and the
Palestinian Medical and Pharmaceutical Suppliers Association.
11. Strengths of the industry are its commitment towards development in terms of expansion and investment.
Besides its market share of 60% of local consumption, the industry has an advantage of practical labor and
management skills and knowledge. Good quality products, with competitive prices in addition to its strong
association are other strengths.
12. Weaknesses of the industry are the production of similar products rather than diversification, relative absence
of GMP, weak expertise in research and development, and the limited access to other chains in the industry, i.e,
maintenance, transportation, material handling and marketing.
13. Opportunities for the pharmaceuticals lie in the export potential after the GMP certification. The increased
governmental compliance with drug registration procedures will increase the domestic market share, and
considering new product lines such as veterinary medicines, natural products and others.
14. Threats are summarized in the political instability, border closures, and delays at checkpoints especially for the
special handling of some material. Also the high competition from Israeli and foreign products, the incapable legal
and regulatory environment are other threats.
15. The competitive advantage of the industry is its relative high quality and low costs and bonus offers available
in the local market. In addition to the skilled labor force.
 The value chain cost analysis of the industry shows that 69% of the cost is raw material and manufacturing, where
Conclusion

considerable steps in productivity improvements can be taken. As well, the manufacturers get only 54% of the
price of the medicines. The expansion potential of the industry is so high and the diversification of products is
another possibility.

1. Increasing cooperation with local universities to promote research and development and qualify
pharmacists on GMP and other related skills.
2. The competitive advantage element of this industry is highly important to build on it.
3. Much of effort is to be targeted towards research and development.
4. MOH has to simplify its regulations to assist the companies.
5. some other recommendations can be summarized as:
Pharmaceutical Industry: revising the selection of medicines produced to better cover the local needs,
bridging programs between the industry and the universities, building costing system at the local firms,
marketing campaign targeting the perception issues and export access program.
Pharmacies: capacity building programs, IT diffusion, and continuous pharmacy education.
Recommendations

Medicine consumption: rational drug use (the level of anti-infective misuse in the country), inspection for
smuggled and forged medicines.
Pharmaceutical market: capacity building in drug control and registration department at MOH, capacity
building in the pharmacy department at MOH, building capacity in both pharmacist associations in WBG,
unify pharmacy regulations in WBG and enhancing networking between players.

The stone and marble sector

Cluster Competitiveness Assessment

Study title

Eight industrial and services clusters in the West Bank and Gaza

DAI – PED project

Conducted by

The United States Agency for International Development

Submitted to

January 2007
Date
 This report provides a systematic review of the global and local factors, trends, and context that frame and influence
Introduction

potential USAID assistance to the West Bank and Gaza sectors through the Palestinian Enterprise Development
(PED) project. The report draws upon locally and internationally available research and data for the sectors as well
as PED`s extensive interaction with members of the West Bank and Gaza industry members.

The study was prepared against the backdrop of the best-case scenario of the economic performance of WBG and its
Principal

implication on the private sector. And its ability to address the problems of humanitarian assistance to the
goal

Palestinians in light of the critical political conditions and their economic consequences. The study focused on the
potential of these sectors to generate new employment to mitigate against looming unemployment and poverty
projections.
1. The stone and marble industry is considered to be one of the most significant and most active industries in
Palestine.
2. This sector contributes approximately 25% to Palestine’s overall industrial revenue and 3.9% to the total
Palestinian GNP. (before the intifada)
3. The stone and marble industry is also distinguished as the employer of a large percentage of the Palestinian
labor force with more than 15,000 workers engaged in the sector.
4. The annual Palestinian production of finished stone and marble is about 16 million square meters.
5. In a broader sense, stone is classified as polished stone, rough stone, bush light chiseled stone, flamed,
antique look and others.
6. The raw material exists only in the West Bank, and more importantly in the Hebron area, and this clarifies
the existence of the industry in the West bank and not in Gaza.
7. Bethlehem and Hebron factories are more modernized and more equipped and have very high production
capacity.
8. the majority of sales goes to the Israeli market, one forth goes to the local market and the rest to the
Stone and Marble

international market.
Main findings

9. Strengths of the industry are mainly the high quality and the variety of the natural stones (colors and
products), in addition to the religious significance. The industry enjoys a longstanding tenure in the West
Bank which assures high availability of skilled and unskilled labor. The leading exporting Palestinian
companies have installed up to date processing machinery with high capital investment, a development that
has helped the industry to access and export to many regional and international countries.
10. Weaknesses of the industry exist in the constraints of the size of the deposit or the quarrying method
which limit the size of homogeneous material, in addition to the unknown of the actual size national reserve.
While the industry enjoys skilled labor, there is a big lack of management and marketing skills in the sector,
as well the absence of vocational or technical training programs, lack of national standards. Moreover, small
factories and workshops are dominant which have its implication on the industry. As well the amount of waste
is so high.
11. Opportunities are extracted from the steadily growing trend of stone and marble regionally and globally.
The majority of potential markets afford tariff free access to Palestinian products. Promoting new product
lines such as tombstones, mosaic, statuary and garden décor will have a positive impact on the industry.
12. Threats are mainly the shrinkage of the Israeli market, the closure and the widespread checkpoints, the
Chinese competition, the environmental constraints, and the intense quarrying and sale of low value added
raw material.
13. The competitive advantage of the industry is its uniqueness in color and textures and its religious related
values, in addition to the relative proximity to international markets.
 The industry consists of private firms, the vast majority of them are family businesses, and offers considerable
promise for generating growth, it receives high marks for its readiness and committed support institutions.
Members of the industry are open to change and new ideas. The value chain cost analysis shows that 41% of
the cost is raw material, which clarifies the tendency of industry to possess quarries. As well direct and
Conclusions

indirect labor comprises 21% which implies the importance of these two chains. The absent elements of the
input chains are the research and development, the adequate infrastructure and utilities and quality control.
Whereas, waste management, testing labs, training and education and specialized consultants are absent
elements of the outputs and supported chains of the industry.
1. From the value chain analysis a lot of emphasis and attention has to be paid to the related and
supported chains of this sector.
2. The competitive advantage element of this industry shows that paying more attention to the new
products will give a value to the existing products.
Recommendations

3. More solid relationships with higher educational institutions are needed.

4. Some other recommendations can be summarized as:
• Total quality training programs
• Technology transfer programs
• Environmental and cleaner production programs
• Comprehensive geological survey program and GIS system.
• Certified training program, specially for management, marketing and costing.
• Industry – engineers and contractors cooperation program.
• On the job safety programs.
IV. Conclusions

C
hain mapping is the core of VC analysis. It serves both an analytical purpose and
a communication purpose, as maps reduce the complexity of economic reality
with its diverse functions, multiple stakeholders, interdependencies and
relationships to a comprehensible visual model. We started with a “basic map” providing
an overview of the value chain. This basic map can be differentiated to show “sub value
chains” according to product variations or distribution channels. In all of the sectors and
sub sectors, the basic value chain map visualizes:
• The sequence of production and marketing functions performed
• The value chain operators taking these functions
• Vertical business links between the operators (arrows)
• Chain supporters at the meso level

If conducted in a participatory fashion, chain mapping is not only an analytical but a

communication instrument as well: It helps to build trust between groups of operators,
facilitates client-oriented services and improves the understanding of policy makers of
private sector needs.

Our experience has clearly demonstrated what the Value Chain Approach could
accomplish for the development of a favorable sector specific business environment,
especially by strengthening the role of the private sector. In this respect we would like to
emphasize the following issues or better said advantages of the Approach:
• A comprehensive view of all production stages and correspondingly of all related
issues from the buyers’ perspective till the making of inputs;
• A hands-on approach by including the stakeholders, specifically from the private
sector –the owners of the production process - into analysis and implementation;
• The private sector recognizes that they can contribute to an enabling business
environment or even create it;
• The public sector is participant and understands better the needs of the private
sector and shows a higher readiness for quick reforms, specifically with regard to
sector specific changes in the business environment.

In Palestine, although many of the macro issues still await lasting solutions, in the last
years many improvements on the micro and meso level in the supported sectors could be
expeditiously achieved; but to emphasize it again the process kicked off in the first place
through private sector contribution and commitment.

Lessons and Benefits

During the research, lessons can be benefited on both levels:

1. Sectoral level:
• The general agreement on the mapping of the sector is the corner stone to
best use the value chain methodology
 • Defining properly the roles of each partner in the chain and enhancing the
communication tools between them is an essential step
• Defining the accurate linkages and integrations between the chains of the
whole business cycle (from raw material to consumer satisfaction) is a
must for the success of the process
• The support of the decision makers in the public institutions and the donor
agencies and the integration between these activities is essential to develop
enabling business environment
• Longstanding partnership between the public and private sectors is another
important element toward sustainable development

2. National level:
• The absence of a national policy toward utilizing the value chain methodology
is obvious
• There is an unstable and intermittent, un-continued treatment of the value
chain in any subsector (olive oil is an exception)
• The absence of proper coordination Leeds to waste efforts
• The most potential sectors that can benefit from the value chain methodology
can be; stone and marble, furniture, pharmaceuticals, IT, construction, textile
and clothing and leather and tanneries.
V. Recommendations

V alue chain analysis does not in any sense imply that firms, countries and peoples
are marching down a one-way upgrading street. There are negative policy
implications as well as positive ones, and this reconfiguration of the global order
in the developing world is itself subject to processes of change. For downgrading can also
occur as a result of firms getting locked into global value chains which obstruct the
acquisition of intangible competencies.

Palestinian SMEs often find themselves in a double bind through participating in global
value chains. Global governance has introduced a process of homologation (that is the
application of uniform global rules and standard conformance requirements with respect
to issues such as quality measures, specific material grades, environmental standards,
adoption and application of ICT systems etc.) governing the integration of SMEs into
value chains. However Palestinian SMEs suffer from a real technology deficit in the
broad sense. So although the globalization of value chains offers the real possibility of
linking into more profitable export markets and opens up the potential for serious
upgrading, SMEs often simply do not have access to the necessary resources, equipment,
materials and professional management skills to meet these conformance requirements
which require them to operate at a level beyond their local environment.

Palestinian SMEs can be assisted to acquire new competencies and take on activities or
functions associated with being located elsewhere in the value chain. Governments can
facilitate firms (either individually or through sharing collectively in the process) to
upgrade their knowledge intensive process competencies. Palestinian SMEs can shift into
other sectors/value chains as a result of the acquisition of new competencies. Upgrading
can be the result of the diffusion of management/skilled worker skills as personnel
migrate from firms located in sectors/value chains where supply chain learning has been
strong to jobs in other sectors/value chains. This will bring the knowledge intensive
upgrading process to practically bear on their new firms. Government can foster the
resource development and capacity expansion of the national system of innovation to
raise the general knowledge intensive environment from which firms draw their resources
and within which they operate.

Overall macroeconomic management has a role to play – for example, without a stable
and realistic currency; there may be little incentive for the productive sector to enhance
its capabilities. Similarly, the productive sector will require access to an educated and
skilled labor force, realistic policies to encourage investment, appropriately defined
corporate and property laws and so on. The achievement of sustained income growth is
thus an outcome determined by a range of policy interventions, backed by a social and
political compact which favors sustained and stable accumulation.
The next question arising, once the issues that have to be tackled in order to improve the
competitiveness of the enterprises active in a value chain and to put a favorable business
environment in place, would be: Who is doing what? Are these issues falling mostly in
the responsibility of the Government or/and of public sector institutions or what would be
the role of the private sector? In the case of enterprise related measures (micro level), the
answer is quite clear that they can nearly exclusively be implemented by the enterprises
and their organizations themselves. And with regard to the macro issues it is also quite
obvious that they fall into the category of “public goods” and therefore have to be taken
up by the Government. The interesting question is what happens with the sector specific
“meso” issues? Who is in the driver’s seat? .
Maybe it comes to many as a surprise: A great deal of the reforms with regard to sector
specific framework conditions is auto-set or heavily influenced by the private sector. It
has to be emphasized that these initiatives and reforms have been achieved under the
formerly described complex and difficult circumstances in Palestine. As we could
observe, the Value Chain Approach with its inherent investigative, participatory and
democratic elements unleashes knowledge, ownership and commitment, specifically
among private sector representatives which are also the prime beneficiaries of business
environment reforms. Derived from the experiences of the Value Chain Approach the
role of the private sector with regard to business environment reforms seems threefold:
• The private sector as advisor (particularly in the process of identification of issues
and potential solutions)
• The private sector as implementer (specifically with regard to matters of standards
and certification, of sector organizations and of business services)
• The private sector as lobbyist (mostly with regard to policies and regulations).
At the same time, representatives of the public sector have been present from the
beginning of the “Value Chain Initiative”, they should participate in the “mapping
exercises”, and they could develop a better understanding of the sectors’ situation and
bottlenecks. All that led to a much improved business friendly attitude. It could be
observed that decision makers in touch with the “Initiative” were much more open for
well justified reforms. As a result the above mentioned reforms with regard to regulations
and policies could be reached.

Specifically the audience of the conference focused on the following specific

recommendations:
• There is a big need to analyze and map properly the potential sectors and
specify precisely the interventions needed in each sector
• Globalization is a challenge that the SMEs have to meet the global consumers
needs and to understand the global suppliers
• Rehabilitation and upgrading of local resources is vital to utilize the value
chain concepts
• Encouraging the research and innovation is a competence for value chain
• The three parties have to play their roles properly
1. private sector: to improve their productivity and competitive
advantages
2. public sector: to develop an enabling competitive business climate
 3. donor agencies: to exchange international expertise and support the
needed activities and interventions

The research team would like to suggest a project that aims to:
• Transfer of the VC methodology and international “good practices” (e.g.
steps of VC cycle, mapping exercise, concept of systemic competitiveness)
• Organization of dialogue platforms and networks (e.g. Core Groups)
• Infusion of advanced sector and development know-how via international
and regional expertise (e.g. standards for organic production, “green
labeling”, linkage promotion)
• Visits to interesting programs and institutions in other countries as well as
participation in international conferences
• Use of local know-how (e.g. capacity building of local sector organizations)
• Provision of access to Government institutions, decision makers and other
donors.
Appendices
# Cluster Competitiveness Assessment “Eight Industrial and Services Clusters in
the West Bank and Gaza”

# Report: Financing Palestinian SMEs

# Palestinian Enterprise Development (PED) Project “Medicine Consumption &

Supply Study

# Role of Small – Businesses in the Palestinian Economy and Impact of Recent

Israeli Economic Sanctions and Measures

# "‫ "واﻗﻊ و رؤﻳﺔ ﻧﻘﺪﻳﺔ‬:‫دراﺳﺔ ﺣﻮل اﻟﻤﺸﺮوﻋﺎت اﻟﺼﻐﻴﺮة ﻓﻲ ﻓﻠﺴﻄﻴﻦ‬

# The Palestinian Olive Oil Sector: “Trade Development Strategy”

# Olive Oil Industry Supply/Value Chain Development Component under the Olive
Oil Industry Development Project – West Bank

# PFIA assessment

# Summary of recommendations

# Building Competitive Advantage in the Palestinian Economy, different studies,

MOPIC, August 1998.

# The Palestinian ICT Cluster: Assessment Report 2006

# The Value Chain Approach – Linking National Producers to International Buyers

and Markets

# A Handbook for Value Chain Research

# The Power point presentation presented at the conference