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Rural Market Development Using Corporate

Approach in Value Chain Analysis

Article in SSRN Electronic Journal · May 2009

DOI: 10.2139/ssrn.1399792

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Rural Market Development
Using Corporate Approach in Value Chain Analysis

Syed Munir Khasru1, Mohammad Muaz Jalil2, Subrata Kumar Kundu3

Abstract

[Rapid economic progress has resulted in the formation of pockets of growth which
are acting as attractor of economic activities. This is causing huge rural–urban
migration thus causing greater economic disparity between urban & rural areas and
socio-economic problems in the urban areas themselves. The situation is worsening
and the authorities urgently need to mitigate this problem. The article elucidates the
current bleak situation and then focuses on establishing the private sector as the
engine of pro-poor growth. Few broad level objectives are laid down as a guiding
principal for the market development of rural areas. The article then provides a
comprehensive framework, with real life examples, which is a synthesis of Value
Chain Analysis and Corporate Strategic Management Theory. The framework can be
used by the Government and Donor Communities alike for Market Development of
rural areas.]

1
Associate Professor, Institute of Business Administration, University of Dhaka
2
Business Consultant, KATALYST

3
Senior Executive, Sheba Telecom

Electronic copy available at: http://ssrn.com/abstract=1399792

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Electronic copy available at: http://ssrn.com/abstract=1399792

1. Introduction

Urbanization has been rapid and largely imbalanced. A quarter of the population now

lives in urban areas, while in 1960 the number was just 5%. Fifty percent of GDP is

spent on urban activities. Urbanization has been skewed towards Dhaka, making it

among the fastest growing metropolises in the world. This is adding to growing

concerns about congestion, lagging urban planning and management, and

skyrocketing real estate prices. Bangladesh although still has a low level of

urbanization (25 percent), its total urban population is a huge one (30 million). In fact,

it is one of the largest urban populations in the world. This population has recorded

very rapid growth during the last three decades (nearly 7 percent annually), and

continues to grow rapidly (at over 5 percent annually).

Dhaka, the capital of Bangladesh is the primate city of the country as its share of

national urban population was 25% in 1981, 31% in 1991 and 34% in 2001

respectively. Dhaka’s dominance not only in terms of population, but also in terms of

economy, trade, commerce, and administration is obvious. In 1991 among the thirty-

four mega cities of the world having a population of more than five million, Dhaka

ranked twenty-fifth (BBS, 1997) while in 2000 it ranked eleventh and it is predicted

to be the world’s fourth largest city by the year 2015 with an estimated population of

21.1 million (Lizin, 2002). The advantages of this agglomeration have been almost

fully derived while the disadvantages and negative impacts are now being

experienced by all.

Even after such urbanization, almost 75% percent of Bangladesh’s population lives in

the rural areas, with 54 percent of them employed in agriculture and the remainder in

3
the rural non-farm (RNF) sector. The rural economy constitutes a significant

component of the national GDP, with agriculture (including crops, livestock, fisheries

and forestry) accounting for 21 percent and the non-farm sector, which is also driven

primarily by agriculture, for another 33 percent.

On top of that income inequality in Bangladesh rose considerably over the decade.

The data that inequality in the distribution of private per capita expenditures, as

measured by the Gini coefficient, increased from 0.259 in 1991-92 to 0.306 in 2000.

Decomposing the national Gini coefficient by sector suggests that the increase in the

national Gini was due not only to rising inequality within sectors, but also to rising

inequality between the urban and rural sectors, especially with Dhaka. This situation

is likely to worsen in the near future. The underlying reason for this prediction is that,

a region with greater economic activities and opportunities will stimulate greater

migration to that region till the benefit from migration is outweighed by the cost, a

fact that is captured by the simple Harris-Todaro Model of migration. The distinctive

concept in the model is that the rate of migration flow is determined by the difference

between expected urban wages and rural wages. One implication in the model is that

job creation in the urban sector worsens the situation because more rural migration

would thus be induced.

4
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So we can see that as the urban centric economic growth takes place, the real urban

wage in relation to rural wage will increase and if the opportunity to get a job in urban

area does not alter then rural-urban migration will start. And the situation is worsened

by falling rural wage.

2. Pro Poor Growth and Private Sector

As can be seen this prevailing situation of highly localized economic growth is by no

means a pro-poor growth. The intense and focused growth of Dhaka city and much of

the urban areas of Bangladesh has appreciably increased the competition between

different profit making organizations in such urban areas. As a result more jobs are

becoming available and on top of that urban wage rate is also rising. These

developments in the urban areas are exerting a huge pull on the rural population, who

are attracted by the prospect of higher real wage and better jobs. Since the return is

higher for skilled/educated workers, it can be hypothesized that migration is skewed

towards skilled and semi skilled workers. If this is the case then it is likely that

inequality will further increase between rural and urban areas and also the

5
productivity of rural areas will further decline. In view of the previously mentioned

gravity model and H-T model, the only way to reduce this migration will be to

increase the benefit of staying in rural areas thereby increasing the opportunity cost of

migration. Hence there is an urgent need to rapidly develop the rural side of

Bangladesh and at present the bulk of the responsibility lies with the government and

development agencies working in the country.

The private sector includes the poor as well as businesses and is the engine of growth.

Risk taking to earn profits and incomes provides the motivation for private actors,

including the poor, to participate in markets, driving growth. The poor benefit from

growth as workers, farmers and entrepreneurs, consumers and recipients of tax funded

basic social services and transfers. Market outcomes influence both the rate and

pattern of growth, determining the extent to which the poor are provided with

opportunities to benefit from growth. Institutions determine the rules of the game for

markets and the governance exercised over them and so have a major influence on

market outcomes. They have a crucial role to play also in ensuring the long term

sustainability of development. Policies to enable the poor to benefit from the

opportunities provided by a growing economy influence the extent to which market

outcomes are pro-poor.

Rapid and sustained growth is facilitated by a virtuous circle whereby

entrepreneurship and investment lead to higher productivity, which increases the

return on investment, making it possible to invest larger sums in the future and for

wages to increase. Productivity increases through a process of creative destruction,

brought about by competition, by which innovators replace the less efficient. For

6
productivity to increase, productive resources should also flow to sectors in which

they earn the highest returns, facilitated by appropriate institutions for regulating

markets and ensuring equitable and sustainable natural resource use. To accelerate

growth that is particularly pro-poor, productivity needs to rise in sectors from which

the poor earn their livelihoods and in the sectors that provide new opportunities for

them to participate in and benefit from growth, supported by institutions to

disseminate knowledge and policies to invest in the productive assets of the poor.

Thus not only the private sector has to be used as the engine of pro poor growth but

those sectors should be targeted where poor are involved.

The aim of government and development organizations should be to bring about

systemic change, altering the incentives provided to the private sector in order to

make it deliver pro-poor outcomes. For the purpose of long-term sustainability, it is

preferable that attempt to change the system without becoming part of the system. For

institutional change, they may foster the emergence of change agents who can build

constituencies for change, overcome vested interest and institutionalize stakeholder

engagement with participatory monitoring and evaluation. To improve the supply of

goods and services, they may use facilitators to catalyze the development of markets

intervening pre and post delivery. In this way, the sustainability of the intervention

will be driven by market forces.

3. What needs to be done

In view of this disquieting situation there is an immediate need for Government and

development practitioner alike to stimulate sustainable pro poor growth in the rural

areas with private sector as the focal point. To achieve this requires fulfillment of the

following objectives:

7
 1. Prioritizing Rural Sectors based on growth potential, poor participation

rate and employment elasticity.

2. Developing the sectors on the top of the priority list as they will provide

immediate results and slow down the migration process.

3. Continue developing rural sectors which will result in greater rural

economic activity and in turn reduce migration/ income inequality.

In developing the sectors, value chain analysis can be used. However the analysis can

be supplemented by incorporating Corporate Strategic Framework, whereby the entire

facilitation process is internalized in to the system. The strategic framework can also

make the process more goal-oriented, focused, efficient and less time consuming.

The strategic framework should take in to consideration that enterprises within a value

chain or sector grow only when market for the particular product or service they

produce, grows. Unless the product or service market grows sustainably, enterprises

fail to grow. Thus focus should be placed on market environment where the value

chains as a whole competes rather than only related enterprises.

On the basis of Frank Lusby Subsector model, the Richard Hatch cluster and Ed

Canella broker strategies, the Harriet Matsaert Actor Linkage and UNIDO cluster

approaches the following model can be developed.

8
 Subsector/Cluster Selection

Subsector/Cluster Analysis

Problem Areas Identification of Constraints

& Opportunities

Formulating Strategy

Service Market Identification

Problem Areas

Service Market Assessment

Intervention Design

Problem Areas
Implementation of
Interventions

Impact Assessment

Fig 1: Value Chain Development

Lusby’s value chain analysis model takes into account analysis of market trend and

competitiveness, value chain mapping, value chain governance structures, relation

among the value chain actors and their constraint and opportunities nonetheless

programs are designed based on enterprise constraints and opportunities (categorized

under 7 broad headings). Enterprise constraints/ opportunities are identified first and

then the solutions to address those constraints/opportunities are short listed according

to their potential to increase value chain competitiveness following a bottom-up

approach.

Such analysis can be further enhanced by incorporating growth strategy that is based

on the understanding of the market environment within which the value chain

operates. e.g. Increasing production efficiency of the farmers without knowing what

9
stimulates consumption of vegetables might become counterproductive. If we help

reduce cost of cultivating vegetables, assuming total production remains same, we

benefit a large number of farmers without helping the sector to grow further. But if

the cost of cultivation remains same or even increases and the total production of

vegetables increases too, then there might be supply glut and subsequent fall in price.

That will not only be detrimental to existing farmers but will also discourage other

farmers from venturing into vegetable cultivation.

The discussions so far suggest that value chain analysis can be supplemented with

framework developed for Strategic Management, which could be utilized for analysis,

program design and impact evaluation of regional value chains development program

in rural settings. This paper builds on the model proposed in Value Links Manual,

elaborates it further with concrete reasoning and brings in the corporate approaches in

crafting strategy based on firm understanding of impediments to market growth.

4. Value Chains And Corporate: Are There Similarities?

In order to use corporate approaches in designing programs for developing product or

service markets that value chains produce, at first we need to understand the

similarities that exists between the two concepts, “value chains” and “corporate”.

The term “corporate” here refers to business/ firm or corporate firmament, not a

multi-business conglomerate.

What is a value chain? A value chain describes the full range of activities that are

required to bring a product from its conception to its end use and beyond. This

includes activities such as design, production, marketing, distribution and support to

the final consumer. The activities that comprise a value chain can be contained within

10
a single firm or divided among different firms. Value chain activities can be contained

within a single geographical location or spread over wider areas. Source: IDS Value

Chain Website; Goletti (2004).

This definition of value chains in general can be applicable to agricultural sub sectors

as well as corporate. Michael Porter in his 1985 book Competitive Advantage

introduced a generic value chain model that comprises a sequence of activities found

to be common to wide range of firms. Porter identified primary and support activities

of value chain as shown below:

Fig 2: Porter Model

According to Porter, it is useful to separate business system into series of value

generating activities referred as value chain to better understand the activities through

which a firm develops a competitive advantage and create shareholder value. A firm’s

value chain is again part of a larger system that includes the value chains of upstream

suppliers and downstream channels and customers. Porter calls this series of value

chains the value system, shown conceptually below:

11
Supplier Value Chain > Firm Value Chain > Channel Value Chain > Buyer Value Chain

Linkages exist not only in a firm’s value chain, but also between value chains. While

a firm exhibiting a high degree of vertical integration is poised to better coordinate

upstream and downstream activities, a firm having lesser degree of vertical integration

can still forge agreements with suppliers and channel partners to achieve better

coordination. Clearly, a firm’s success in developing and sustaining competitive

advantage depends not only on its own value chain, but on its ability to manage the

value system of which it is a part.

So far, the focus of the academia has been on global value chain analysis i.e.

footwear, electronics etc. in a broader market scope. But similar arrangements can be

found in regional agricultural subsectors or industrial clusters. If we define value

chain by its end product then these subsectors or clusters are nothing but a collection

of value chains. These regional value chains (from now onward this term will be used

instead of subsector or cluster) have competitive advantage in their target markets be

it internal or external and their value system is very well comparable with that

illustrated by Porter. In case of regional value chain different actors involved in the

chain represents the functional units of a firm. The schematic diagram below will

make the comparison more apparent.

12
 Consumers Consumers

Retailers Retailers

Wholesalers Wholesalers
End Market End Market

Distribution Trading (Traders)

Production Production (Farmers)

Procurement Input Sellers

Input Suppliers Input Suppliers

Firm Regional VC

Fig3: A Corporate Value System Fig 3: An Agricultural Value System

Box I:

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It is obvious that both the firm and regional value chains need to analyze its target

market, external and internal environment in order to be competitive. However,

dissimilarity that exists between them is in case of a firm there is a central decision

making body which manages the value system but apparently non existent in case of

regional value chains. The interesting fact is that the regional value chains are either

producer-driven or buyer-driven. So, one group of actors always plays an important

role in upgrading the value chain e.g. vegetable traders in case of fresh vegetable,

shrimp processors in case of shrimp value chain.

13
Having proven the resemblance of a corporate and a regional value chain the next

section elaborates strategic management process followed by a corporate and how that

can be applied in product or service market development of regional value chains.

5. Corporate Strategic Management Process

Strategic Management refers to the managerial process of forming a strategic vision,

setting objectives, crafting a strategy, implementing and executing the strategy and

then over time initiating whatever corrective adjustments in the vision, objectives,

strategy and execution are deemed appropriate. This process consists of five

interrelated managerial tasks that are elaborated below:

Developing a Strategic Vision and Business Mission: Effective strategy making

begins with a vision where the organization needs to head. The starting point for

forming a strategic vision is to come up with a mission statement that defines what

business the company is presently in and conveys the essence of “who we are, what

we do, and where we are now.” The mission statement is then used as a basis for

deciding on a long term course, making choices about where one is going, and

charting a strategic path for the company to pursue. Choosing a company’s future path

requires reasoned answer to the following questions:

a. What changes are occurring in the market arenas where we operate, and what

implications do these changes have for the direction in which we need to move?

b. What new or different customer needs should we be moving to satisfy?

c. What new or different buyer segments should we be concentrating on?

d. What new or geographic or product markets should we be pursuing?

14
e. What should be company’s business makeup look like in five years?

f. What kind of company should we be trying to become?

Setting Objectives: Setting objectives converts strategic vision into specific

performance outcomes for the company to achieve; these objectives can be strategic

as well as financial. Strategic objectives relate to outcomes that strengthen an

organization’s overall business position and competitive vitality e.g. a bigger market

share or higher quality product than rival. Financial objectives relate to financial

performance targets management has established for the organization to achieve e.g.

growth in revenue or higher profit margin.

Crafting a Strategy: Strategy shows the way to achieve organizational objectives and

to pursue the business mission and strategic vision. Strategy making is all about how -

how to achieve performance targets, how to outcompete rivals, how to achieve

sustainable competitive advantage, how to strengthen company’s long term business

position, how to make management’s strategic vision for the company a reality. A

strategy is needed for the company as a whole, for each business the company is in,

and for each functional piece of each business. In single-business enterprise there are

three levels of strategy making i.e. business strategy, functional strategy and operating

strategy.

Judgments about what strategy to pursue need to flow directly from the solid analysis

of company’s external environment and internal situation. The two most important

situational considerations are industry and competitive conditions and company’s own

15
competitive capabilities, resources, internal strength and weakness, and market

position.

The industry and competitive analysis aims at developing insightful answer to

following seven questions:

a. What are the industry’s dominant economic features? (market size and growth

rate, geographic scope, number and sizes of buyers and sellers, pace of

technological change and innovation, scale of economy, experience curve

effects, capital requirements)

b. What is the competition like and how strong is each of the competitive forces?

(Porter’s five forces of competition: rivalry among competitive seller, threat of

new entrants, competition from substitutes, power of suppliers, power of

buyers)

c. What is causing the industry’s competitive structure and business environment

to change?

d. Which companies are in the strongest/ weakest position?

e. What strategic moves the rivals are likely to make next?

f. What are the key factors for competitive success?

g. Is the industry attractive and what are the chances of above average

profitability? (factors making industry attractive/ unattractive, special industry

issues/ problems, profit outlook favorable/ unfavorable)

Similarly, there are five key questions to consider in performing company situation

analysis:

16
 a. How well is the present strategy working?

b. What are company’s resource strengths and weaknesses and its external

opportunities and threats? (the SWOT analysis)

c. Are the company’s prices and costs competitive?

d. How strong is the company’s competitive position?

e. What strategic issues does the company face?

The above mentioned analyses provide a solid ground for crafting business strategy.

One important element of the business strategy is the “competitive strategy” which

deals exclusively with the management’s action plan for competing successfully and

providing superior value to the customer. Keeping in mind the significance of

competitive strategies in business decision making the following section elaborates it

in full detail.

Michael Porter has described a category of scheme consisting of three general types

of strategies that are commonly used by businesses. These three generic strategies are

defined along two dimensions: strategic scope and strategic strength. Strategic scope

is a demand side dimension (looks at the size and composition of target market) and

strategic strength is a supply side dimension (looks at the strength or core competency

of the firm; these are product differentiation and product cost or efficiency). This is

illustrated in the following diagram:

17
 Market Target/ Type Low Cost Uniqueness

of Competitive Competency Competency

Advantage Pursued

Overall Low-Cost Broad

A Broad Cross-
Leadership Differentiation
Section of Buyer
Strategy Strategy

A Narrow Buyer

Segment Segmentation Strategy

(Market Niche)

Fig 4: Porter’s Generic Strategies

Porter explains that the firms with high market share were successful because they

pursued a low cost strategy and firms with low market share were successful because

they used market segmentation to focus on small but profitable market niche. Market

segmentation strategy is consistent with a product differentiation strategy, as a niche

segment is likely to demand a highly differentiated or unique product. Thus this

combination of two strategies is an effective way of matching firm’s product strategy

to the characteristics of its target market. But combinations like cost leadership with

product differentiation are hard to achieve due to the potential conflict between cost

minimization and the additional cost of value-added differentiation. This is true in

those cases where same facilities are used for producing two types of products.

Cost leadership strategy emphasizes on efficiency. By producing high volume of

standardized products the firms hope to take advantage of the economies of scale and

experience curve effects. The product is often basic no-frills product that is produced

18
at relatively low cost and made available to large customer base. Maintaining this

strategy requires continuous search for cost reduction is all aspects of business. The

associated distribution strategy is to obtain most extensive distribution as possible and

promotional strategy often involves trying to make virtue out of low cost product

features. To be successful this strategy requires a considerable market share advantage

or preferential access to raw materials, components, labor or other important inputs.

Differentiation strategy involves creating a product that is perceived as unique. The

unique features or benefits should provide superior value for the customer if this

strategy is to be successful. Because customers see the product as unrivaled or

unequaled, the price elasticity of demand tends to be reduced and customers tend to

be brand loyal. This can provide considerable insulation from competition. However,

there are usually additional costs associated with the differentiating product features

and this could require a premium pricing strategy.

In segmentation strategy firms concentrate on selected few target markets. This is also

called focus or niche strategy. By focusing marketing efforts in one or two narrow

market segments firms can better meet the demand of target markets. In this case,

firms typically look to gain competitive advantage through effectiveness than

efficiency.

After formulating the business strategies, strategies for each functional unit of the

business (production, marketing, finance, human resources, other etc.) are set which

in turn will help in realizing the overall business strategies. Functional strategies are

further broken down into operating strategies and actions to be performed by each of

19
the functional units. All these together form a strategic action plan, which is presented

below in a simplified format:

a. Strategic Vision and Mission

b. Strategic Objectives (short-term/ long term)

c. Financial Objectives (short-term/ long term)

d. Overall Business Strategy

e. Supporting Functional Strategy (Production, Marketing, Finance, HR etc.)

f. Recommended Actions to Improve Company Performance (immediate,

longer-range)

The next two steps are implementing and executing the chosen strategy efficiently and

effectively and evaluating performances and initiating corrective adjustments in

vision, long-term direction, objectives, strategy or execution in light of actual

experience, changing conditions, new ideas, and new opportunities.

6. Strategic Management Applied To Regional Value Chains

Having discussed the possibility of enhancing value chain analysis and aptness and

facets of corporate strategic management process in the preceding sections, this

section will focus on how corporate strategy making process can be incorporated to

upgrade the existing operational model. For the sake of completeness, this section will

initiate discussion from the first step of the operational model.

Selection of Regional Value Chains: After rural area selection wherever applicable,

the following criteria can be used for selection of regional value chains:

20
From Market Perspective:

a. Demand for products or services produced

b. Growth potential

c. Potential for value addition

d. Competitive advantage in the internal and external markets

From Development Organization’s Perspective:

a. Outreach (no of SMEs involved)

b. Potential for income generation/ employment creation

c. Core competency of the project

d. Favorable policy environment

e. Time of impact

Area potential studies conducted by a third party and interview of key informants can

be used for collecting necessary data for selection of regional value chains.

Value Chain Analysis: After selection of the value chain, the next step is to analyze

the value chain. The emphasis should be on analyzing its business environment and

the impediments that holds back growth of the product/ service market. Ideally a

value chain analysis should provide answers to the following questions, which are

grouped together under four broad headings.

21
I. Understanding the Value Chain II. Market and Consumer Taste

1. What are the product/ services produced by the 1. Which are the markets it caters to? What is its

VC? market share?

2. Who are the actors involved in the value chain 2. What are the product segments and critical success

and value system? factors (price, quality, others etc.) in the final

3. What functions each of the actors play in the market?

value chain? 3. How are the products/ services distributed to final

4. What are the business issues faced by each actors market?

of the value chain? 4. Who are the consumers and what are their

5. How much value addition takes place at different preferences?

levels of the value chains? 5. What is the consumer trend and how it is changing?

6. How revenue and profit are distributed along the 6. How does the policy and regulation influence on
value chains? performance of the VC?

III. Competition IV. Value Chain’s Structure

1. Who are the competitors of the value chain (there 1. How is the value chain organized? What are the

can be substitute products or imports)? power relations among the members of VC? Is it

2. What are the products/ services offered by producer-driven or buyer-driven?

competitors? At what price? 2. How well is the present strategy of the VC working?

3. What strategic moves the competitors are likely to 3. What are the VC’s resource strengths and

make next? weaknesses and its external opportunities and

4. Are there threats of new entrants? threats?

5. Are the prices and costs of products offered by 4. What are support services required by the VC? What

VC competitive? How efficient is the production services are presently consumed?

system of VC? 5. What strategic issues does the VC face?

6. How strong is the VC’s competitive position?

22
The methodology for conducting value chain analysis will include collection of

information from secondary sources, interview of the all the actors involved in the

value chains, interviews of the value chain actors of competitors, FGDs/ workshops

with the regional value chain actors, interview of actors and consumers in the end

market and FGDs/ Workshop with the actors in the end market.

The value chain analysis is expected to produce a value chain map, identify

products/services and related features, markets and competition, organization of the

value chain and strategic issues faced by the value chain (the business) and the value

chain actors (the functional units). The analysis is also expected to suggest what the

impediments to market growth are and how internal and external issues of the value

chain relate to that. The issues that impede the market growth can be:

a. Related to the products/services produced

b. Related to chain functions

c. Related to chain operators

d. Linked to chain relations / governance

e. Access to services and inputs at micro level (chain operators)

f. Availability of support services

g. Constraints of the business environment (regulatory framework, infrastructure)

Identification of business (the regional value chain) constraints and opportunities are

an integral part of value chain analysis. This is done simultaneously and thus not

discussed in separate section.

Setting Vision, Objectives and Crafting Business Strategy: As it has been discussed

that the first step of strategy making process is to develop a strategic vision and

23
business mission. The value chain analysis provides necessary information in defining

what business the regional value chain is in and what is its current position. The

strategic vision is formulated based on the present status of the business and future

opportunities. Here is an example of business mission and strategic vision of a

regional value chains Jessore Floriculture:

“We are the pioneer in the cut flower business and have been supplying largest

volume of cut flowers in the internal market.”

Our Strategic Vision is “To provide best quality cut flowers at an affordable price to

Bangladeshi consumers and create income and employment opportunities through

sustainable growth.”

The strategic vision is then translated into measurable performance outcomes:

strategic objective and financial objective. In case of Jessore Floriculture, the strategic

objective is to “To retain the no. 1 position in cut flower business” and the financial

objective is to “Increase X% sales of cut flowers within next two years”. To better

understand the market scenario and to grasp under what considerations business

strategies are formulated to achieve financial and strategic objectives, a brief is

provided on status of Jessore Floriculture, the regional value chain in consideration.

Crafting Functional Strategies: The functional strategies for each of the functioning

units (input supply, production, and trading) of the business are then derived from the

analysis of the impediments to attainment of the business strategy. Value chain actors

who form the functional units of the regional value chain are no more treated in

24
isolation but seen as a unit of collective entity. The key question that should be asked

is “what is impeding from realization of the business strategy?”

Box II4:

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( $ !* $ ( " # + " . " 0 ( ( *!
! 56 !( *! # !
! " ( ( !* " (
$ ! . " " ( " ( (
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( ( ! (! ! ( "

3 / ! ! " ( * $ ! ! $
( 7 7 ! ( ! " ( ! 8 $
" ! $ %! ( ( *! !
( ! ( ( ! ! 3
( ! ( *! (
" ! 0 ! ( " ( "
( !* (* ! ! ! ( ! (
! # ! " 9 $ " ! !

In case Jessore Floriculture, the functional strategy of the production unit (a group of

producers) would be to increase production efficiency for realization of the first

business strategy because by increasing production efficiency, the value chain can

attain a cost advantage to further penetrate the low price product market segment.

The business strategies build on the analysis of the constraints impeding the

realization of the objective. This can involve improvements in process, products or

functional positions and in extreme cases moving out of the value chain, into a new

value chain. Based on the analysis made above, business strategies that Jessore

Floriculture is going to pursue are:

4
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25
 a. Focus on the low price market segment (marigold and tuberose) and attain

cost advantage to increase sales

b. Focus on the high price market segment and attain differentiation (variety/

season) advantage to increase sales

To realize the second business strategy two functional strategies are required.

Functional strategy of the production unit (same or another group of producers) would

be to introduce off-seasonal and new/alternative varieties and functional strategy of

the distribution unit (traders) would be to improve efficiency of distribution ensure

quality of the flowers at the final market. So, the functional strategies are:

a. To increase production efficiency of the flowers at low price segment

(marigold and tuberose)

b. To introduce off-seasonal and new/alternative varieties at the high price

segment (rose, gladiola and new high value flowers)

c. To improve distribution efficiency of the flowers at the high price segment

Crafting Operating Strategies, Service Assessment, Intervention Design and

Implementation: The functional strategies are further analyzed and broken down to

operating strategies. Again the key question that should be asked is “what is impeding

from realization of the functional strategies?” The operating strategies are comparable

with service requirements of the value chain and analysis of service requirements will

suggest what types of interventions are required; whom to work with to implement the

26
interventions, what activities needed to be performed and what services (knowledge,

information and skill) provision will be strengthened through the interventions.

For example, two major impediments in increasing production efficiency are

unavailability of better quality seeds/ planting materials and specific pesticides and

inefficient usage of the available ones. The situation leads to kind of an assessment of

the suppliers and users to identify the mismatch i.e. why it’s not happening on its

own? Why better quality seeds/planting materials, specific pesticides and usage

information is not available?

Output of the assessment suggests working with quality seed/ planting material

suppliers to supply and inform users or local suppliers on efficient and effective

usage. This leads to selection of the implementing partners, designing an intervention

plan and execution as per plan. However, detail activities are kept flexible to respond

to changing market conditions. Sometimes, changing market condition can lead to

reviving the present strategy leading to new set of interventions.

On the other hand, the major impediment in introducing off-seasonal cultivation of

gladiolus is timely unavailability of gladiolus corms (the propagative unit). Why

gladiolus corms are not available on time? Gladiolus corms need cold treatment for

germination and farmers usually keep the corms in cold storages (mainly used for

potato). These cold storages remain closed from November- February thus farmers

can not cultivate gladiolus in the off-season and are deprived of better market price

especially when market demand is high.

27
This situation again suggests an assessment of suppliers of cold storage facilities and

users. The lead questions here are: Why the cold storage owners do not keep the cold

storage open during that period? Is there enough volume of materials that makes it

economically viable to keep it open? Can it be kept open during that period under

special arrangements? What would be rent for this period? How much the farmers

will benefit if they avail cold storage facilities during that period? How much they are

ready to pay? How many farmers will avail this facility? Can the cold storage operate

profitably at that volume? If the conclusions are positive it is only about informing

farmers about the new facility through certain promotional activities.

Similar methodical steps can be followed to break down other functional strategies

into operational strategies and operational strategies into concrete actions. A strategic

action plan format for Jessore floriculture detailing strategic vision, objective,

business strategies, functional strategies, operating strategies and actions is included

in the annexure. The format also establishes relationship with the strategic format

developed by the project. The enhanced operational model, which combines value

chain analysis and Strategic Management theory, now will have the following steps:

28
 Regional Value Chain Selection

Value Chain Analysis

Setting Strategic Vision and Objective

Crafting Business Strategy (Regional

Value Chains Development Strategy)

Crafting Functional Strategy

(Enterprise Performance Improvement
Strategy)

Crafting Operating Strategy

(Identification of Service Requirement)

Service Assessment (Optional)

Intervention Design and

Implementation

Impact Assessment

Fig 5: Enhanced Value Chain Model

Impact Assessment: Impact assessment, the last step of the operational model, is quite

important because in one hand it helps the Government/Development practitioner to

prove how the work contributes and on the other hand provides feedback on how to

improve performance. Impact assessment is equally important for the member of the

regional value chains and external facilitators need to communicate this to them.

7. Conclusion

The article shows that there is an urgent need to develop the rural side of Bangladesh.

Only through unlocking the economic potentials of different rural sectors can the

immigration from the rural to urban areas be reduced. It will also reduce the growing

economic inequality and disparity that exist between rural and urban areas. It has

29
been mentioned in the introduction that enterprises within a value chain or sector

grow only when market for the particular product or service they produce, grows. The

proposed operational model aims at developing strategies for product or service

market development of regional value chains and its effective implementation will not

only ensure growth of the enterprises but also secure sustainable development of BDS

markets. To achieve this, the paper has provided a comprehensive framework for rural

market development by drawing extensively on Value Chain methodology and

Strategic Management Theory.

30
Annexure: The Strategic Action Plan Format for Jessore Floriculture

The Strategic Action Plan Format for Jessore Floriculture

Poverty Vision To provide best quality cut flowers at an affordable price to

Reduction Bangladeshi consumers and create income and employment
Strategy opportunities through sustainable growth

Sector Objective Increase X% sales of cut flowers within next two years
Development
Strategy Business Focus on the low price market segment (marigold Focus on the high price market segment and attain
Strategy and tuberose) and attain cost advantage to increase differentiation (variety/season) advantage to
sales increase sales

Enterprise Functional Improve Produce off-seasonal Improve efficiency

Performance Strategies Production and new/ alternative of distribution
Improvement Efficiency varieties
Strategy

Service Operating Ensure supply and Ensure supply and Ensure timely Organize Cut down
Requirements/ Strategies usage of better usage of specific availability of production and distribution time to
Intervention seeds and pesticides gladiola corms marketing major markets
Results planting materials activities

Interventions Actions Increasing Streamlining supply Increasing Introducing Improving

awareness on and improving awareness on contract farming awareness on
benefits and use knowledge of usage of special system for benefits of
of quality seeds/ retailers on input cold storage cultivation of evening market
planting materials usage facilities alternative
31
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