CC BY
45
Luu Thai Binh ©
Ph.D. Regional Academy of Politics - Public Administration 1. Ho Chi Minh National Academy of Politics
and Public Administration. Viet Nam
CHARACTERISTICS OF THE VALUE CHAIN OF THE GLOBAL VALUE CHAIN AND THE
SCOPE OF THE CHAIN ANALYSIS
Summary
The value chain of vegetable industry is a line of production - processing - business of vegetable under the mode of globalization, of which, economic subjects of many countries involve in the different stages in the chain. The method of global approach under the value chain has been developed over time and is used as an analysis tool in market research of the global vegetable industry. Three key elements of the pattern of analysis scope of the global vegetable value chain analysis of the global vegetable industry are identified, namely: firstly, factors related inputs - outputs and geo-economic factors; secondly, institutional framework and administrative structure. Thirdly, method of benefit sharing between the participating factors of the vegetable value chain. The value chain of global vegetable industry is studied through the analysis of organization of economic activities as well as participating factors from the vegetable production, vegetable processing to the market, determination of the structure of vegetable production, trade and consumption of vegetable products on the global market vegetables. There are five patterns of development of the vegetable industry. These patterns can be linked to households of small vegetable production and enterprises of vegetable processing or vegetable business with market to create the value chain of the global vegetable industry available competitiveness and sustainable development.
Keywords: the value chain, the vegetable industry, approach to the global chain, pattern of development.
I. BACKGROUND
During the period of international economic integration, links create the end value of a vegetable product going out Viet Nam's borders - Territory. Each vegetable product is produced and has many values. It includes a link of chain with multiple connected values, or a pure product is original from one nation, but it can still bear the global value. In the process to create the global value global of the vegetable industry, there are three main stages: research and development - intellectual property, production, establishment of trademark and business. Stages on research and development, establishment of trademark and consumption, are links bearing the most profit and surplus that all are held by developed countries. The global added value flows into lower places. It means that this value flows from poor countries to rich countries. There is not the reverse flow. The world economy is in the trend of globalization, regionalization and liberalization of trade. the vegetable industries of developing countries need to find better ways to join into world market by method of approach to global of research of the vegetable value chain. Method of global approach through research on analysis framework of the value chain of the global vegetable industry, development of chain pattern, mode of deep and broad participation in global value chains have been applying in many countries around the world.
II. CONTENTS AND RESEARCH METHOD
Scope of analysis: It is based on basic reasoning of the global value chain, the global value chain of the vegetable industry; synthesis and analysis of issues on the value chain of the global vegetable value industry, characteristics of the chain, structure of the added value, activities of the global vegetable value industry. Learned lessons inside and outside of Viet Nam are reviewed to propose The scope of analysis of the global value chain for the vegetable industry, factors affecting the development of the chain and method participating in the global vegetable value chain. Method of approach: (i) the method of global approach to the study of vegetable value chain; (ii) access to the system of solution - the factors affecting and impacting to global vegetable value chain. Method of gathering literatures and data: It inherits results of research papers carried out inside and outside of Viet Nam and published through books, newspapers, journals and statistical yearbooks.
III. RESEARCHED RESULTS AND DISCUSSION
1. Concept on the global value chain of the vegetable industry
The value chain describes the full scope of activities required to make a product or service developed from concept through various stages of the production process (design, finding of raw materials, selling of input products and marketing) to the product distribution, customer support post-selling and treatment of
© Luu Thai Binh, 2013 r.
waste after using [6,7]. The value chain considers linkages upstream and downstream from the stage of research and development to that of consumers. It includes also issues of organization and coordination, strategies and power relations of the various participants in the chain, what links them together, what information is shared, how their relationship is formed and developed. The value chain is a coalition among business facilities in vertical linkages to reach more deserved position in the market. Cooperation creates the added value and reduces costs. Although enterprises within the value chain are legally independent, they become interdependent due to common goals and operations to achieve these issues. They have worked together for a long time. They are together to discuss and solve problems how to reach the most effectiveness. This relationship is sometimes very simple, but stronger than that of long-term contracts and often creates more value than what there was.
Each vegetable product produced is also available values. It includes a link of the chain created by many connected value. In the period of international economic integration, links created the final value of a vegetable product are beyond national borders - territories, or a pure product created in a specific local, but they are also to bear the global value. In the process of creation of the value of the global vegetable industry, there are three main stages: research and development - intellectual property, production, establishment of trademark and business. Although the stages of research and development, trademark and consumption are links of the chain bringing the largest profits and surplus, all stages are governed by developed countries. The global added value flows into lower places. It means that this value flows from poor countries to rich countries [7], not vice versa. If the developing countries like Viet Nam did not choose to reach the goal to couple with two stages generating high added values, the gap between developing countries and developed countries increase more and more.
The value chain of the vegetable industry is a line of production - processing - business of vegetable by method of globalization, including economic subjects of many countries involved in the different stages from research and development, design, production, distribution and marketing. The value chain of the global vegetable industry is a system of activities production - business of vegetable in order to provide values to customers and to meet the needs of consumers worldwide. Pattern of the value chain of the global vegetable permitting stages in the line of production - business of the chain located in different countries can achieve the highest economic efficiency with the lowest cost. Nations worldwide participate more increasingly and greater in the global value chain, seek to improve their positions in the chain. The goal of nations in approaching to the global value chain is to gain stages available high added values.
2. Characteristics of the value chain of the global vegetable chain.
Firstly, operation is a key characteristic in analyzing under the method of the value chain of the global vegetable industry. Operation is a non-market coordination of economic activities. This coordination is implemented through a number of leading firms in the value chain setting out the criteria that other firms within the global value chains have to follow. The leading company starts is the flow of resources and other information along the global value chain by developing vegetable products and marketing final products.
Secondly, vegetable commodities available quantity of stages in the value chain are shorter than that of industrial goods and added values of some stages are also different. Stages are from the stage of research vegetable breeding and development of successful pilot production success for cultivating, then the stage of vegetable processing, marketing and distribution of vegetable to end consumers. In pattern of the value chain of the global vegetable industry, the largest added values are in tern from stages of research and development, distribution, marketing and processing of vegetables. The lowest added value is the stage of vegetable cultivation. This pattern partially explains why multinational companies operating on a global scale often focus on activities of distribution and marketing, research varieties and production process and then transfer to underdeveloped countries and developing countries to vegetable produce.
Thirdly, the value chain of the vegetable industry is different from value chains in general is that the factors involved in the stage of production of the chain are mainly farming households, farms and some businesses. However, the request let and factor can participate in the value chain, it is necessary to meet international standards or provisions of each chain. At the stage of production, there is the lowest added value. If it does not meet requirements of quality of vegetable production and delivery conditions, participation in global vegetable value chains is impossible.
Fourthly, in order to the vegetable factor participating in global value chain, it is very important that connection of the chain of small vegetable producers can meet requirements of standards or provisions of the global vegetable value chain. If it wishes to participate in the global value chain, it is necessary to build and develop the value chain for vegetable from small to large, from the vegetable value chain in local areas to regions and direct to participate the vegetable value chain under some patterns connected closely among factors involved in the effective operating chain .
3. Reasoning on analysis scope of the value chain of the global vegetable industry
Three key elements of the pattern of the value chain of the global vegetable industry is defined namely: First, the factors related input - output and geo-economic factors. Secondly, these are institutional framework and administration structure. Thirdly, method of benefit sharing between the factors participating in the vegetable value chains (Chart 1).
Pattern of analysis scope of the added value of the global vegetable industry
Chart 1
The relationship of inputs - outputs includes factors related to inputs of vegetable production, activities and parties involved in the process of vegetable production, trade and finance for consuming market of vegetable products as well as geographical factors due to the particular requirements of the vegetable production. Institutions and administration of the value chain of the vegetable industry include barriers to entry the global vegetable value chain, operations of coordination for the chain and support services for involved factors. Pattern of connection and method of benefit sharing among factors participating in the chain is a condition for the global vegetable commodity chain to operate effectively and develop sustainable.
In the scope of this study, the fourth aspect is that the relationship between operators of the chain and suppliers of support services is also referred to. The analysis can also be used as a tool to study of vertical integration. The vertical business connections are transac contracts relating to operators in the different stages of the vegetable value chain. In strategies to upgrade the value chain, the connection between vegetable producers and major buyers (collective purchasing traders, exporters and vegetable processing plants) is especially interested in. Because of the large purchasing plants available potentially to perform this contract, they are considered as the "clue companies" or "leading firms" in the value chain of the global vegetable industry and sellers with small scale have adjust by themselves to fit requirements of the clue
companies.
Movement of free markets to business links vertically by the leading companies gave rise to the concept of "management of operation of the value chain". It describes as "a pattern of industrial organization between whole organization of the intermediate market of vegetable production and the vertical coordinate. Pattern of administrative management of the vegetable value chain also decides form of horizontal coordination among providers. According to experience of international organizations, there are five patterns of development of the vegetable industry. It can link households of small vegetable production, vegetable processing enterprises or vegetable business with the market to create the value chain of the vegetable industry available competitiveness and sustainment:
Firstly, parttern links farmers producing vegetables and market vegetables: farmers linking to service markets and other stakeholders in the chain through organizations providing support services.
Secondly, contract patterns of farmers of vegetable production and enterprises: farmers of vegetable production associated with enterprises through contract system. There are two types of contracts. They are contracts directly between enterprises and farmers of vegetable production and contracts indirectly through collectors and suppliers. Contracts may be an effective method to attract farmers of vegetable production engaging in the chain, particularly to involve failures of market and disseminate new technologies, services and support risk reduction. However, this method also has limitations, including the breach of contracts, abuse of unfair power relationships, not good solving mechanism of improper choices of contract households.
Thirdly, the pattern of big business and farmers of vegetable production: farmers producing vegetables are considered partners in enterprises, not just a supplier in the contract. Major private enterprises guarantee market of output for a group of relevant parties, as well as provide agricultural extension services and credit under the investment form of investment in production. In order to programs of major private enterprises of successness, enterprises need to have certain management for vegetable production and post-harvest activities of relevant parties, as well as to have social responsibility for farmers of vegetable production.
Fourthly, the model linking small and medium enterprises and the market: enterprises associated with market services and other relevant parties in the value chain through support services of the institutional orgenizations, such as non-governmental organizations (NGOs).
Fifethly, the pattern of the chain of supermarket supply: farmers of vegetable production associated with supermarkets and major retailers through supply organizations. Supermarkets and other retailers will be responsible for give quality standards required for vegetable products, as well as the terms of contracts to suppliers. Supplier will be responsible for organizing farmers of small vegetable production and farmer groups to provide vegetable products under requirements of quality standards.
In the value chain of global vegetable industry, besides operators of the value chain - enterpreneurs performing basic functions of the vegetable value chain - producers of vegetables, vegetable-purchasing enterprises, vegetable processing companies, wholesalers and retailers and importers and exporters of vegetable. At the macro level, there are other factors involved in the vegetable value chain, these factors may be organizations and state agencies to create a favorable business environment, through policies of development for the vegetable investry, public services, structure of infrastructure serving of vegetable industry, etc. The supply chain of the vegetable industry in the world market, for various reasons, is almost involved by the government in promoting and marketing these vegetable products. The state agencies support vegetable production through the input credit systems combined with the free support services widely advertized through marketing agencies and in some cases, policies applied to stabilize prices for some vegetable kinds at risk of oversupply on the consumed market. At the micro level, these factors are providers operating services and support services. providers of support services such as services on research and development of production technology and processing of vegetables, agreement on professional standards, marketing services, mobilization and propaganda of development policies of vegetables production, etc. Providers of operated services and direct services perform functions of the vegetable value chains on behalf of operators of the chain, or contact directly with them. Therefore, operated services of are services between enterprises and businesses. The relationship among these factors create the institutional framework of the value chain of vegetable industry. There are four main institutional frameworks as follows:
* The institutional framework - countries producting or exporting vegetables.
Policy of development of the vegetable industry of countries of vegetable production/export is varied. It includes measures of assistance on technology, finance or provision of marketing services for households of the smallvegetable production. In which, it also includes the stipulation of minimum purchase price, encouragement of high-quality vegetable production, etc and the price support system to limit the
negative impact on discount of the natural cycle of vegetable items on the world market. In developing countries with low incomes, vegetables are produced by households or small farms. The change in number of factors participating the value chain of vegetable industry leading to changes in profitability and profit sharing, linked forms of linked institutions in the chain. Vegetable processing plants can be operated independently under cooperatives or linked with the vegetable exporters. The independent plants of vegetable processing tend smaller scale, but they are usually to buy for collecting vegetables from farms smaller than that two orgernized forms of remaining plants. Quantity of exporters of vegetables has been increasing in recent years due to the vegetable export in liberalization and without the control of the government agencies.
* Institutional framework - countries importing vegetables.
Commercialization of vegetable industry tends to centralize more and more. The small and medium businesses of vegetables have found that they are difficult to compete in the market. Therefore, there is the tendentcy to merge quickly and form major companies of business and commerce of vegetables. In recent years, development of vegetable products bearing own brand of retail group has developed very quickly, especially in developed markets like Japan, USA and EU. These groups process directly vegetable, package and label with individual trademarks.
* Institutional framework - the international agreement on the vegetable industry
Organizations and international institutions, commodity trade associations and other support
organizations have a positive role in strengthening participating capacity of the value chain of the global vegetable industry. Previously, the value chain of the vegetable industry is often determined by manufacturers (companies and farms). It means that vegetable producers are eatablishment of "rules, price and quality". The international traders are only directly involved in vegetable production in exceptional cases such as participating in establishing agreements on quality of vegetables, quality control and price negotiations in relation quality of vegetables. With the expansion of vegetable cultivating area and together with advancement of science and technology and productivity of vegetables increased rapidly while demand for increase of vegetables has limited that makes vegetable product prices reduce significantly. Most of developing countries, which are producers / exporters of vegetables, are poor mainly due to low prices. In order to balance this trend, individual vegetable producers have been involved in international associations of the vegetable production. Associations of the vegetable industry have made efforts to control vegetable prices. These efforts are in two forms: the first form is agreement of vegetable storage. It means that vegetable oversupply in the world is purchased by association in order to aims to keep a price as expected and The second form is vegetable export control. It means that quota of domestic export is applied. Development of the value chain of the global vegetable industry should focus on coordination of subjects participating in the chain. Many issues can be solved only effective if all operators of the chain (even all subjects of the chain) join together to solve.
4. Factors affecting the formation and development of the global vegetable value chains
Globalization and regionalization with integration of the international economy increase deeper and
wider than ever. That creates conditions for outbreak of global value chains, including the global value chain of the vegetable industry. The value chain of the vegetable industry has become a prominent structure of the world economy in the context of globalization. Liberalization of trade and investment facilitates for mobilization of input factors of vegetable production (land, capital and labor) worldwide. Vegetable production can occur at any place with the lowest cost to export vegetables without significant obstacles from tax or other barriers. Liberalization of trade and investment is an important environmental factor for the formation of the value chain of the global vegetable industry. It promotes leadership role of transnational companies. They often have a key role in the administration of the system of vegetable production and global trade. Therefore, transnational companies likely dominate the participated outlook of companies in global vegetable value chain as well as initiatives of the value chain of the vegetable industry under their objectives and strategies. The development of science and technology, especially information technology and communications with the rapid spread of knowledge and technology are favorable conditions for the expansion of the value chain of the global vegetable industry. Transport conditions become easier with lower transport costs. The ability to transport vegetables in the global vegetable supply chain controlled by transnational companies brings a large effection through a combination of transport methods and vegetable distribution centers.
5. Methods involving into the value chain of the vegetable industry
The participation of enterprises on producing, processing and exporting vegetables in the global value chain of the vegetable industry can be implemented in four main methods:
Method 1. Selling vegetables for independent buyers on the open market of foreign countries
(independent exporters and importers of vegetables). It can be seen easily that enterprises of vegetable production and business participating in this method are based on a simple relationship, buying and selling vegetable products on the market. The participation of enterprises on production and business of vegetables and linkages with other enterprises in entire network is pretty simple through the international purchase contracts (a main form of buyout and partial sale). The key of relations between buyers and sellers of vegetable is price and relationships usually terminate when vegetable products are delivered and paid by customers. This is the lowest and simplest level of participation of enterprises of business production of vegetables in the globla vegetable value chain.
Method 2. Vegetable products are sold for foreign customers knowing, the cooperation and closer links with foreign partners through investment, joint venture, commercial franchise, etc. This is the participation of enterprises of business production of vegetables under forms of network management such as module, relation or dependent network. Participating level of business enterprises of business production of vegetables in the global vegetable value chain under these forms is more complex and deeper. The associated level of producers of vegetables in the network also has increased. Requirement on integrating information and participating capacity in linking also requires far more than the simple form-based marketing relationship. Enterprises of business production of vegetableto have to achieve the level of acertain internationalization, they can participate in these types of links.
Method 3. The production and business enterprises participate with a role of one link of the chain, a division of vertical linking networks of transnational companies. Common form of participation in this network is the form of dependency links and vertical integration. Transnational companies in their global strategy have tend increasingly to outsource for simple activities, straightforward technology or transfer abroad to produce some stages in the vegetable industry to achieve the highest added value. Therefore, it creates new opportunities for the participation of producers of vegetable business of countries available comparative advantages in vegetable products or stages of certain vegetable production.
Method 4. Enterprises of business production of vegetables involve in as dominant persons of value the chain of the vegetable industry. This enterprise form of business production of vegetables successful operation in domestic country and become exporters of vegetables with mature international experience and participate in international linking activities and become transnational companies. Transnational companies in the vegetable industry are potentiality of large enough on capital, capacity of technique and profession, knowledge and mastery of international law and available the global network of customers. That will take advantage of new opportunities opened by globalization, liberalization of trade and investment to expand production and business activities of vegetabes outside the borders to increase global competitiveness and ensure high efficiency for activities of transnational companies.
IV. CONCLUSION
From the above studies, lessons available meaningfully on reasoning methods, orientations, measures in method of approaches in the international market of the vegetable industry, the way to the vegetable industry of a country can involve effectively into the global market. Point of notes : To participate in global vegetable value chain, it should understand to research international vegetable market vegetables, the value chain of the global vegetable industry, characteristics of the chain, international rules and regulations etc. Vegetables industry of developing countries need to promote participation in stages in the value chain with high added value, that provide a higher income for the vegetable industry. If wishing to enter the global vegetable value chain, the vegetable industry of a country needs to have the trans-national company with a leading role in operating and entering the value chain of the global vegetable industry. The vegetable industry need to upgrade its position in the global value chain through activities of production -business to reach international standards. It should combine with many methods suitable for the vegetable industry to participate better in the value chain of the vegetable industry worldwide.
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