Determinates of Value Chain performance of Micro and Small ...

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Determinates of Value Chain performance of Micro and Small Manufacturing
Enterprises’ in the case of North Gondar Zone, Ethiopia
Tadlo Sintayehu
Department of Logistics and SCM
Abstract
Recently, empowering micro and small enterprises through sustainable value chain and market
linkage is one of the top ranked issues in Ethiopia taking in to consideration its tremendous
contribution to the socio-economic development for the country; however, there is only little focus on
analyzing the value chain of manufacturing MSEs to identify the various actors and factor affecting
value chain, identify opportunities and challenges for MSEs’ value chain and the role of integrated
value chin for the economic development the zone in the North Gondar zone, Ethiopia. The objective
of this study is, therefore, to assess and analyze the value chain of MSEs’ manufacturing sectors. To
achieve this objective the researcher was employed both quantitative and qualitative research
approaches. The target population of the study was all micro and small manufacturing enterprises in
North Gondar zone. A survey questionnaire, semi-structured interview, FGD and observation were
used as data collection tools. Descriptive statistics, multiple and binary logistics’ regression and
factors analysis will be used as techniques of data analysis, and then analysis results was be
interpreted accordingly.
1. Background: Relevance And The State Of Knowledg
The idea of a value chain is very simply focused on the activities needed to turn raw materials into
finished products and sell them, and on the value added at each link (Kaplinsky & Readman, 2001;
UNIDO, 2002).
Adopting a value chain approach could help specially micro and small enterprises (MSEs) to
gain from the benefits of integration into global/local value chains and making them competitive
(Gereffi et al., 2001). It constitutes whole range of discrete, though interrelated, activities involved in
the design, production and marketing of a product (Porter, 1985). In recent years, the concept of value
chain is widely used as a facilitation tool for integrating small enterprises into high value market, and
its development programs focus on improving the competitiveness of the industry/sector in which the
firm operates (Jones, 2011).
The core of the value chain approach is the recognition that, the strategies for enterprise
development needs to focus on the entire value chain rather than focusing on a particular aspect of
provision of credit or input supply. It emphasizes on identifying the opportunities for and constraints to
industrial growth by considering the value chain actors (firms), linkages among firms, supporting
markets, end markets, and the business enabling environment at all levels (Kula et al., 2006).
It is argued that integration into value chains helps the micro and small firms to increase the
efficiency of its internal operation, develop inter-firm linkages that reduce transaction costs and
upgrade along the value chain (introduce product branding, new products, and improved version of
existing products in the market faster than the rivals) (Kaplinsky, 2000).
Value chain development issues are very relevant to developing countries as traditional
production systems are usually isolated and struggle to build relationships with local, regional or
global markets. In particular, small-scale entrepreneurs or micro and small enterprises (MSEs) find it
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difficult to leverage market opportunities provided by advances in information, technology and
communication, as well as globalization.
Particularly over the last decades, the world has witnessed a gradual relocation of
manufacturing activities from developed to developing countries, opening up new opportunities for
employment, increased income and economic growth for some of the world’s poorer and less
developed countries. However, the process of industrialization has not benefitted all developing
countries equally. In the 2009 Industrial Development Report, UNIDO makes a distinction between
the countries of the ‘bottom billion’ trying to break into global markets for manufactured goods, and
the middle-income countries attempting to move up to more sophisticated manufacturing since the
manufacturing sector has got a national and international concern in employment creation and
encouraging exports with import substitution of very important manufacturing products.
Various studies also confirm the importance of value chain analysis specifically for MSEs to
assess and identify their competitiveness (Kebede & Abera, 2014, Reji, 2013, Gereffi et al., 2001). The
concept of value chain emerged from the realization that appreciable and continual improvements in
system design and performance can only occur when businesses seek closer coordination and
integration with suppliers and customers than traditional, transactional buyer-seller relationships allow.
Developing closer strategic relationships with customers and suppliers through value chain enables
businesses to learn and adapt more effectively and this helps even to achieve national development
plans (CAPI, 2012).
Similarly, the government of Ethiopia is implementing a growth and transformation plan (GTP)
as a strategic framework to boost growth in different sectors. As stated in the 2010/11 to 2014/15 GTP
plan, one of the major target of the strategy is to conduct training and research for about three million
operators in the areas of entrepreneurship, handicraft, technical and manufacturing. Therefore, analysis
of value chain specifically on manufacturing micro and small enterprises is one of the eye-catching
areas to fight poverty.
Value chain analysis offers a theoretical framework to understand the integration of firms into
viable market system (Gereffi et al., 2001). Value chain studies, mostly dealt with the process of
integration of developing country firms into the value chain of large firms in developed countries,
examined the inter-firm relationships, governance and upgrading practices by which firms improve
their competitiveness. It is well established that integration into value chain helps the small firms to
create opportunities and improve their competitiveness. However, how far these new windows of
opportunities are available to small producers is relatively unexplored (Reji, 2013). Moreover,
according to Gebrehiwot and Wolday (2006) integration of micro and small scale producers into high
value market is a topic of current interest.
In Ethiopia, micro and small enterprises (MSEs) sector is the second largest employment-
generating sector following agriculture (CSA, 2008). According to CSA (2008) the sector contributes
3.4% of GDP, 33% of the industrial sectors contribution and 52% of the manufacturing sector’s
contribution to the GDP. In spite of the enormous importance of the MSEs sector to the national
economy with regards to job creation and the alleviation of abject poverty in Ethiopia, the sector is
facing various challenges, which impeded its role in the economy (Kebede & Abera, 2014). However,
Penny et al. (2013) states that to integrate the value chain of small firms in developing countries to
participate in international trade with the full range of capabilities, it is necessary to identify the
various local factors since there is no one-size-fits-all. Moreover, in Ethiopia the underlying factors
affecting MSEs’ value chain are not well addressed (Debele & Verschuur, 2014). Hence, this study
will identify the various local factors and actors that affect the MSEs’ value chain performance in the
study area.
In addition, MSEs’ manufacturing products are marketed through different channels. However,
the concept of its value chain is not well known in Ethiopia and it doesn’t meet even the domestic
demand for manufacturing products (Debele & Verschuur, 2014). As a result the country imports large
volumes of manufacturing products per annum to meet the domestic demand. Thus, a comprehensive
chain aimed at sustainable development of the manufacturing sector is lacking. To build a successful
and sustainable manufacturing sector, all possible entry points for intervention across the value chain
have to be identified (Penny et al., 2013). Thus, this should be investigated to make sure that different
parts of the value chain need different kinds of support and interventions.
Moreover, in Ethiopia, value chain studies were conducted for livestock, sesame seeds, milk,
honey, teff, fruits and vegetables, poultry and other products in different localities (Getnet, 2010). But
the manufacturing sector (the sector with a bright prospect) is neglected and there is no research to
date on this sector.
2. Objective Of The Study
The general objective of the study is to assess and analyze the value chain of MSEs’ manufacturing
sector in North Gondar zone.
Typically the study has the following specific objectives
To measure the extent of factors affecting MSEs’ value chain performance.
To discuss opportunities and challenges in various stages of the MSEs’ value chain.
To describe the role of value chain factors in local economic development
3. Research Questions
The broadly stated as well as the specified objectives call for the formulation of basic research
questions. Therefore, the following basic and interrelated questions are raised in an attempt to meet the
objectives and also guide the course of this research:
What does manufacturing MSE value chain look like in North Gondar Zone?
What major challenges (external) confront the existence/operations of MSEs and their value
chains?
What are the major areas of upgrading and forms of inter-firm relations in the manufacturing
MSE sector?
4. Scope Of The Study
In recently, the concept of value chain is widely used as a facilitation tool for integrating micro
and small enterprises in to high value market especially in developing countries. This study will
focus on assessment and analyzing the value chain of manufacturing MSEs which are engaged in
metal work, wood work, garment, and food and beverage sub sectors in north Gondar zone. The
justification of focusing only on manufacturing sector is that the sector has got a national concern
in employment creation, encouraging export with import substitution of very important
manufacturing products. Besides, the studies also identify opportunities and challenges that
positively and negatively affect of MSEs by using Porters’ value chain model. Moreover, the
study will focus the role of having integrated value chain for the job creation and livelihood
improvement of entrepreneurs at large.
5. Research Methods And Materials
I. Description of the study area
The state of Amhara is located in the north western and north central part of Ethiopia. The state
shares common borders with the state of Tigray in the north, Afar in the east, Oromia in the south,
Benishangul in the south west and the republic of Sudan in the west. North Gondar zone is found in
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this region and basically includes the
proposal is directed to. The three districts are among 105 districts in the region.
North Gondar is bordered on
Gumuz Region, on the west by Sudan
and on the southeast by Debub Gondar
This study mainly focuses on 3 major districts of N/Gondar zone; particularly in Debark,
Ayikel and Genda-Wuha districts.
have started diversifying of their economy through the involvement of MSEs in different activities;
such as manufacturing, service and other activities. Therefore, any attempt to minimize dependency on
single economy should be supported with a research of this k
diversification or livelihood options and productivity through sustainable value chain of
Manufacturing MSEs.
II. Research design
The design of this study was
and be analyzed to get findings. To address the objectives stated in the very beginning of this research
proposal, questionnaire, interview and observation and focus group discussion will be used as a data
gathering methods. Thereby, the researcher
corroborate of the findings within the study (Creswell, 2003).
III. Research approach
Mixed research paradigms help to make the data collection and analysis more accurate and the
inference more useful because it can represent a plurality of interests, voices and perspectives (Patton,
2002). Correspondingly, qualitative and quantitative methods
data that helps to collected from different sources. Ho
and qualitative data is given equal importance but practically the emphasis is given for qualitative or
quantitative (Creswell, 2003). In line with this prevailing fact and so as to meet the research
of this particular research, the quantitative approach will features much. Besides, this priority is also
given because of in business and social responsibility research, qualitative approach may offer an
epistemological potential to the researc
RJCBS : Volume: 08, Number: 08, June 2019
this region and basically includes the Debark, Aykel and Genda-Wuha districts, in which this project
North Gondar is bordered on the south by Lake Tana, West Gojjam, Awi
Sudan, on the north by the Tigray Region, on the east by
Debub Gondar.
Wuha districts. These three districts are highly dependent on agriculture and now
tarted diversifying of their economy through the involvement of MSEs in different activities;
single economy should be supported with a research of this kind to improvement of income
was cross-sectional in which data has been shot at a single moment
To address the objectives stated in the very beginning of this research
by, the researcher used make triangulation to cross validate, confirm
corroborate of the findings within the study (Creswell, 2003).
nce more useful because it can represent a plurality of interests, voices and perspectives (Patton,
Correspondingly, qualitative and quantitative methods was applied in this research to analyze
collected from different sources. However, ideologically the priority for quantitative
). In line with this prevailing fact and so as to meet the research
epistemological potential to the research field (Saunders, M. 2009).
Page 4
districts, in which this project
Awi and the Benishangul-
, on the east by Wag Hemra
are highly dependent on agriculture and now
tarted diversifying of their economy through the involvement of MSEs in different activities;
ind to improvement of income
shot at a single moment
To address the objectives stated in the very beginning of this research
make triangulation to cross validate, confirm and
nce more useful because it can represent a plurality of interests, voices and perspectives (Patton,
applied in this research to analyze
wever, ideologically the priority for quantitative
). In line with this prevailing fact and so as to meet the research objective
IV. Target population
The target population of the study was micro and small scale manufacturing enterprises of
North Gondar zone. The report from Technical and Vocational Development Office (2013) for North
Gondar zone indicates that there are 2180 micro and small manufacturing enterprises in North Gondar
zone. In these districts, there are four major types of manufacturing enterprises: metal work, wood
work, food and beverage, and garments. The justification behind selecting manufacturing sector is that
the sector has got a national concern in employment creation, encouraging export with import
substitution of very important manufacturing products. More specifically, the issue is the interest of the
Technical and Vocational Development Office of North Gondar zone.
V. Sample size and sampling technique for survey questionnaire
The ultimate objective of sampling is to select a set of elements from a population. Godden
(2004) states that to calculate the sample size for infinite population (population > 50,000), the level of
precision (sampling error), the level of confidence interval, and the degree of variability in the
attributes being measured should be considered. Therefore, for this study:
Confidence level of 95%
Maximum tolerable error (sampling error) was 5% (w).
Based on the above assumptions, the sample size (SS) for very large population can be calculated as
follows:
W 2
Where: ‘Z’ is 1.96. Since the value of ‘Z’ is depend on tolerable error.
SS = (1.96 2 ) x 0.5 x 0.5 = 384
0.05 2
However, the target population in this study is 2180 which is finite according to Godden (2004).
Therefore, based on the finite population correction formula the sample size for this study can be
reduced as follows:
384 + (2470 + 1) + 1
Moreover the researcher add 10 % of the total sample size for the non response rate and incomplete
questionnaire . Therefore the total sample of this study will be 368.
Sampling techniques: The study was used a two-stage sampling procedure to select respondents and
for distributing survey questionnaire: stratified and simple random sampling techniques sequentially
were used. In the first stage, micro and small manufacturing enterprises were be stratified based on the
nature of the business (metal work, wood work, food and beverages, and garment). Stratified sampling
techniques applied here because according to Creswell (2003) it can ensure that specific groups are
represented, even proportionally, in the sample.
As far as the second sampling stage concerned, micro and small manufacturing enterprises
from all woredas will be selected by using simple random sampling technique based on the number
generated using random number generator, and then they were contacted based on their address.
Simple random sampling technique was used because it provides an equal chance of selection for each
element of the population (Blumberg et al., 2011). However, the concept of proportionate sampling
was applied to eliminate non-representativeness distortions for each sector in all woredas. The
proportionate ratio is 0.135 ( !"# $%#
Table 1: Application of proportionate sampling for each sector and district
Source: Organized by researcher, 2018
VI. Sampling Technique for key Informant Interview To triangulate the survey questionnaire result from the micro and small manufacturing
enterprises, the researcher was conducted key informant interview from officials of Technical and
Vocational Development Office (TVDO) in all woredas. Accordingly, two officials from the
concerned management body of the zone office was selected interviewed purposively. Moreover, one
value chain expert was interviewed in each woreda. To select the interviewees, the researcher was
employed purposive sampling technique to get the needed information from the experts.
VII. Sampling Procedure for Focused Group Discussion Focused group discussion is a rapid assessment, semistructured data gathering method in
which a purposively selected set of participants gather to discuss issues and concerns based on a list of
key themes drawn up by the researcher/facilitator and usually a group member of 6-12 is used within
one FGD (Zikmund, 2009). Hence, in this study, mainly respondents that were not be included and
addressed in the survey questionnaire were under FGD participants to learn from the target population.
The composition of the FGD each woreda with a minimum of two successful enterprise in each sector
(metal, wood, garment and food and beverages).and concerned government officials and organizations
were selected purposely.
VIII. Methods of Data Collection
The methods of data collection to be used in this study include focus group discussion, semi-
structured interview, questionnaire (open ended and close ended) and observation and focus group
discussion. In this study, the research was observeed the challenges and the prospects of value chain at
each stage as observation enable to record the behavioral patterns of people, objects, and occurrences
as they happen (Zikmund, 2009).
The research also used semi-structured interview in order to get basic data on the institutional
arrangements and know the performance level of the enterprises. The interview was conducted with
value chain experts in each woreda and officials from the concerned management body of the North
Gondar zone. The rationale behind using interview is that through the help of this tool, we can gather
valid and reliable data that can be relevant to our research question(s) and objectives (Saunders, 2009).
Additionally a questionnaire was used to collect data on the key actors and the different factors
affecting value chain of MSEs.
Lastly, focus group discussion was applied in order to get data on the interventions to be
implemented at each stage of the value chain and recent innovation activities in relation to MSEs’
future prospects.
IX. Methods of data analysis
In this study descriptive statistics was used as the first stage of the analysis of data to provide
detail information about each relevant variable used (age, gender, number of employees, experience of
the enterprise owner, the value chain stages the business applies). At this stage, mean, standard
deviation, maximum and minimum values of the required variables will be computed.
The study also used qualitative analysis methods in order to analyze the data to be collected by
using focus group discussion, interviews and observation. This helps to triangulate results by
considering the specific objectives. According to Creswell (2003) triangulation could result in well-
validated and substantiated findings through crosschecking the findings of a single approach with
others wherever possible.
Moreover, the study also used a multiple regression and factor analysis to measure the
simultaneous impact of the various factors affecting value chain of manufacturing MSEs and the
economic contribution of integrated value chine for entrepreneurs livelihoods improvement and job
creation. Furthermore, multiple regression and a mean-comparison tests were employed for comparing
the performance of the four manufacturing sectors (metalwork, woodwork, food and beverage and
garment).
X. Validity and Reliability of Research Instruments
Reliability and validity are the basic principles of social research. A valid measure produces
true results that reflect the true situation and condition of the environment that is supposed to study
(Blumberg et al., 2011). Therefore, in this study, validity was checked by distributing the questionnaire
to senior researchers and by reading various relevant literatures to understand and correctly measure
since the items must be consistent with theory and the concept under study.
To achieve reliability, the questionnaire was verified for accuracy and completeness of all the
items. Each question was framed succinctly to reduce ambiguity and minimize bias, thereby ensuring
the high statistical value of the data. In order to ensure that the questions in the questionnaire reliably
measured, Cronbach's alpha will be run using STATA. The value of Cronbach's alpha ≥ 0.6 will be
considered as acceptable (Yoshida & James, 2010).
4. Results And Discussions
4.1. Discussion on Demographic variables The study was sought to establish the information on the respondents employed with regards to the
gender, age, their level of education and duration of service. The study participants were 88.9 percent
of males and 8.9 are females who are engage in garments (53.3%) , wood work (26.7%), metal work
(8.9 %) and food and beverage (6.7%). The educational background of the enterprise owners are
majorly below grade 10 (42.2) and 10 completed (37.8%) under the age bracket of 21-30 and 31-45
years of old who has working service on 2 to 5 years (54.6%) and above 5 years (31.8%). This
implies that micro and small scale enterprises are running by low education level owners which
makes the enterprises are not performed well even to have more than 2 years service experience
since establishments. One important thing observed in this study is the owners who run business are
productive labor age even though they do have educational gaps to run businesses.
4.2.Basic variables of the study : Correlations and regressions result
Value chain performance is positively correlated with enabling environment, supportive
market, and vertical integration and horizontal integration at 1 percent. The correlation result shows
that enabling environment is correlated with supportive markets, vertical integration and value chain
performance at 1 percent level of significance. Support market is correlated with vertical integration
and value chain performance at 1 percent level of significance. vertical integration is correlated with
horizontal integration is significant at 5 percent and vertical intergradations is correlated with value
chain performance at 1 percent significance. Horizontal integration is correlated with value chain
performance and service institutions at 1 percent level of significance. The value chain performance in
micro and small scale enterprises is good (2.09) in terms of suppliers’ evaluation, horizontal
integration, supportive markets, enabling environment, and vertical integrations. However, the service
of institutions is poor for micro and small scale enterprises like cooperatives, insurance and customs
operations.
SUPPTSE
R
VERINTG 1 .317 * .462
HORINTG 1 .538 **
.068 .526 .254
** Correlation is significant at the 0.01 level (2-tailed)., * Correlation is significant at the 0.05
level (2-tailed).
The regression result shows that about 65.5 percent of value chain performance is explained by
enabling environment, horizontal integration, vertical integration, support market, institutions service,
and supplier evaluations and local economy. Here Support market and horizontal integration have
positive and significant effect on value chain performance at 5 percent and 1percent respectively. As
indicated the ANOVA table indicated that Value chain performance and supportive service has
positive and significant impact on local economic development. This results that if micro ad small
scale manufacturing enterprise has emphasized on value chain analysis and look through the
supportive services it results that the local economic development has been improved. As indicated in
the one sample test the mean value of enabling environment and institutional service is poor. This
implies that, micro and small scale manufacturing enterprises has no conducive working environment
to run businesses in terms of transport, taxation, rules and regulations, water supply, electricity,
telecommunication and sewerage facilities and services. In addition to this, micro ad small scale an
enterprise has been faced a problem of institutional services like cooperatives and unions, customs
operation systems.
Micro and small scale enterprises should improve horizontal integration to have cooperation
with other sectors and entrepreneurs in order to solve problems and challenges, to create conducive
working environment, and increase purchasing power in the market. Besides to this, micro and small
scale enterprises should work together with customers in terms of product design, sufficient credit
availability, raw materials, training, and consultation and demand of products in support market.
Table 6.2. Regression results
Std. Error of the
a. Predictors: (Constant), ECO, ENEVT, SUPEVAL, HORINTG, INSSERV, SUPPTSER, VERINTG
b. Dependent Variable: Value chain performance
ANOVA
Model
5. Concussions Ad Recommendations
Conclusion
Value chain performance in micro ad small scale enterprises is influenced by a number of
factors like enabling environment, supportive service, vertical integration, Horizontal
integration, Supplier evaluation, institutional service, and Local economic development.
Value chain performance is positively correlated with enabling environment, supportive market,
and vertical integration and horizontal integration at 1 percent.
The working environment is not enabling and institutional services has problems in micro and
small scale manufacturing enterprises
Micro and small scale manufacturing enterprises Value chain performance has positive and
significant impact on local economic development
A micro and small scale enterprise has faced a number of challenges like infrastructure,
institutional bureaucracy, marketing and capital. However, having these challenges in the study
area micro ad small scale manufacturing enterprises have huge opportunities in job creation,
capital accumulation and business development.
Recommendations
The government should make emphasis on value chain performance of micro ad small scale
manufacturing enterprises in order to have competitive advantage
The government needs to improve enabling environment and institutional linkages in order to
enhance the enterprises in the market
To exploit opportunities of micro and small scale enterprises in value chain analysis the
stakeholders need to emphasis on actors integrations
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