chapter  1
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Governance, inclusion and embedding: Raising the issues: A. H. J. (Bert) Helmsing and Sietze Vellema

ByA. H. J. (BERT) HELMSING AND SIETZE VELLEMA

Global value chains, and in particular, the proliferation of a wide range of voluntary standards governing cross-border trade, have received much attention of late. This is reflected in the growing body of scholarly literature on the globalization of production networks, on competition and regulation in international trade and on commodity chains (Gereffi 1994; Humphrey and Schmitz 2000; Gereffi et al. 2005; Kaplinsky and Morris 2001) as well as in policy documents, project interventions and manuals in increasing use by development NGOs and donor organizations active in the South (e.g. GTZ 2007; ILO 2009). In the realm of development policy and practice, global value chains and the development thereof are considered instrumental for achieving desired outcomes, such as poverty alleviation, entrepreneurship and decent labour conditions. In the realm of scientific analysis, global value chains are a phenomenon for investigation. The concept primarily serves as a heuristic device that allows us to come to grips with the complexities of economic development, as it focuses on the networks and arrangements that bridge the entire chain of actors involved in the production of a particular commodity or service. Analysis places a value chain within the context of service providers and of participants that regulate the transactions between actors. This broader yet more specific conception of economic development aims to facilitate dialogues between these different actors. This volume complements this scholarly and practical work. It endeavours to enrich the conceptualization of governance within the boundaries of value chains and to unravel the connections of value chains to the behaviour of non-chain actors in a variety of socio-economic contexts. The book approaches value chains from a clearly developmental perspective, emphasizing the historical and socio-economic context to explain the development outcomes of integrating small and medium enterprises, producers and workers into cross-border value chains. From a development perspective, both analytical and interventionist value chain approaches have their limitations. These limits are in part related to the nature of social and economic relationships within value chains or in which value chains are embedded. The conceptual and empirical studies collected here try to come to grips with the implications of the permeable boundaries of global value chains. All of the contributions

share the idea that explanations and interventions purely derived from the internal logic of a value chain or production network do not suffice. The volume thus shifts attention away from framing value chains as a development strategy towards penetrating the conditional nature of pro-development outcomes. The contributions illuminate the conditions for (emerging) pro-development outcomes by unravelling the institutional complexities under which integration takes place, i.e. inclusion (Part I), and by revealing the dependence of value chains’ development impact on their alignment with contextual capacities and connectivities with non-chain actors, i.e. endogenous development (Part II). This sets an agenda for practitioners and policymakers engaged with development partnerships that may alter the configurations of inclusion and alignment (Part III). First, this book has a particular interest in the degree and conditions of inclusion of small and medium entrepreneurs, producers and workers into governance mechanisms operational within a value chain configuration. The central message of this volume is that inclusion of particular social groups in value chains can best be conceptualized in ‘the terms of their participation’, which implies seeing inclusion as an evolving process and not as a fixed outcome. International trade is increasingly undertaken through organized global value chains in which quality-based competition plays a central role. Quality-based competition involves increasingly complex standards and the introduction of new productivity-enhancing technologies both at the level of individual nodes in the chain and at the level of their interactions (transactions and logistics). This raises the complexity and interdependence of the chain as a whole. These requirements and their associated costs make networked markets an increasingly predominant form of exchange. But they also force distinct actors to work more closely with one another, something which can be complicated by the different perspectives, values and meanings that each particular actor carries. In this context, it seems timely to develop a deeper, integrative understanding of how contemporary forms of governance and regulation condition and are conditioned by the development perspectives of particular social groups. The various contributions reveal the importance of the absence of a public (multilateral) governance structure at the level of international trade, which induces ‘private’ or ‘contractual’ chain-specific governance structures to fill this institutional gap. ‘Chain governance’, which denotes the manner in which the various actors operating in the chain are coordinated and shapes how standards are defined, implemented and enforced, must come to grips with these multiple perspectives, meanings and values. Consequently, the contributions in this volume investigate matters of politics and representation at different scales in processes of inclusion, as well as forms of collective action and association, the role of the state as mediator and chain actor, and the mingling of different conventions. With this more socialized point of view, the volume examines how the internal dynamics of value chains shape the terms of participation of smallholder producers and workers. Second, the book investigates the degree and nature of alignment of value chains with the strategies and policies of various stakeholders in a specific locality or region where the chain touches ground. It considers value chains as

socially embedded configurations. A key underlying characteristic of the global value chain framework is that it limits itself to inter-firm relations and abstracts from these interactions of chain actors with non-chain actors. This is perhaps because the influence of relations internal to the chain are hypothesized to be so strong as to relegate the influence of local relations with non-chain actors to secondary importance. Another reason may be that one considers the influence of the environment to be similar across spaces, and hence one can abstract from it to explain differences between chains. While globalization has meant a greater incidence of external factors and forces in local development, and over time has resulted in a loss of local control, endogenous development implies a (re) gaining of local control over the conditions that shape the development path in a territory. Under conditions of globalization this concerns improving the terms of participation of local firms, producers and workers while raising their capacity to respond to global challenges and their adaptability to global changes. This is not only chain specific but also area specific; hence the interest in the local embedding of value chains. Precisely this interaction between the internal and external dynamics may form an important point for action towards desirable development processes, complementary to an exclusive emphasis on development interventions through value chains per se. Several contributions in this volume, combining global value chain frameworks with business systems theory, elaborate on the multi-dimensional and evolving nature of endogenous business systems. They aim to explain when and how the alignment of chain-based interventions and the features of business systems either support or annul probable pro-development outcomes. Contributions address questions such as ‘how do business systems influence the terms of participation of workers, producers and firms in the territory in which the chain touches ground’, ‘to what extent are chain and business system level institutions aligned in this regard’ and ‘to what degree does this alignment affect the terms of participation of small producers, firms and workers positively or negatively’. This exercise also points to the importance of taking a similar route in deepening our understanding of how the articulation of nation-states, which requires the use of dedicated theorizing, with the dynamics within value chains sets conditions for development. The discussion on endogenous development sketches the contours of a debate on the extent to which connectivity among chain and non-chain actors, including firms, their associations, producers, workers, government agencies and NGOs, leads towards economic activity that is resilient to external pressures and to financial and environmental crises. It also feeds a discussion on the capabilities of value chains and chain-based development strategies to use local strategic resources and partnerships in order to provide incomes and revenues for a territory in the medium and long term. Third, this volume centres on partnerships as an organizational model that may (re)configure terms of inclusion and alignment. Partnerships are broadly considered to be voluntary and collaborative arrangements between actors from two or more societal domains. NGOs, producer associations and, to a considerable degree, buying companies are engaged in partnerships. Governments are less

active in partnerships, which might even flourish as a substitute for government action. The partnerships investigated in this volume share an institutionalized, yet non-hierarchic structure, and they strive for a sustainability or development goal, such as the ‘greening’ of food provision or the economic development of smallholder producers. The previous discussions on inclusion and embedding value chains in territorial business systems entail a number of challenges for development practice and policy that steer the formation of such partnerships. These challenges relate mainly to the institutional complexities of inclusion of vulnerable economic actors and to the construction of coalitions and management of tensions between partners that are institutionally remote and have various conceptions anchored more strongly in either the functionality of a value chain or in a community. They also concern processes of scaling up micro-level development interventions, for example, supported by a partnership between a buying company and a development NGO, which depend strongly on alignment with the institutions and non-chain actors in a territory. The emphasis on partnerships indicates how a focus on terms of inclusion and endogenous development may fill the void observed at the meso level between general policies at the macro level and development interventions at the micro level. The discussion in this volume suggests that terms of participation can also be modified from the business system, and not exclusively by newly installed governance models in the value chain. For example, conditions favourable to development may be constructed by multiple interventions: cooperative laws, industrial policy, regulatory measures mediating relationships or contracts between chain actors, restrictive environmental regulations, legislation arranging negotiations and creating a level playing field in newly forged alliances, and policies raising local autonomy in problem solving via decentralization of service provision. The inclusion of vulnerable social groups in market-led development, therefore, implies not only overcoming low productivity and the disadvantages of small scale and of (historically grown) market exclusion but also addressing institutional and knowledge gaps at the level of (critical segments of) the chain and the territory where it touches ground. Accordingly, the volume proposes that the alignment of contextual conditions, policy measures and social embedding with the governance and architecture of value chains is the focal point for finding conditions that may lead to desired or undesired development outcomes. An important contribution of the book is the inclusion of actors other than firms and producers in the analysis of the governance and economics of value chains. Also incorporated, for example, are the state, producers’ organizations, business associations, workers and NGOs. These varied perspectives need to be better understood. Dealing with multiple perspectives brings out issues of language. What can we learn about tailoring the ways researchers analyse and discuss their findings to the way business, policy and development organizations analyse and discuss matters? The complexity and multi-dimensional character of value chains may lead to misunderstandings. Also, the separate worlds wherein we operate contribute to or give rise to conflicting interpretations. Hence, language is vital for making exchanges fruitful. But there is more to language than would seem at

first sight: each actor uses his or her own frameworks of understanding concrete realities. This observation induced the process through which this volume came about. As editors we purposefully composed writing teams drawing together different disciplines and combining a variety of empirical evidence. The chapters are based on existing research and it is especially the combination of authors through which the comparative discussion is realized. New combinations of researchers from a range of disciplines and theoretical traditions explore the conditions that make global value chains inclusive to vulnerable groups, such as small producers and workers in the South. In addition, the ways in which global value chains align with endogenous development processes are examined. Furthermore, by linking this research effort with the knowledge and experience of practitioners and policymakers, we tried to make the exchanges presented in this volume evidence-based, that is to say, grounded in well-documented actual experiences and practices, as formulated by government officials, related by NGOs, told by companies and reported by researchers. The contributions explore contrasts – between contexts, between industries or commodities/products, and between conceptual frameworks. The chapters cut across a variety of domains, such as international business studies, strategic and supply chain management, development and regional studies, economic geography, sociology and anthropology, the political sciences, industrial organization theory, labour studies and new institutional economics. Likewise, the context dependency of development impact necessitates cross-case investigations. The chapters in this volume cover an impressive geographical area, ranging from Latin America (Belize, Brazil, Colombia, Ecuador, Jamaica, Nicaragua and Peru) to sub-Saharan Africa (Benin, Burkina Faso, Ghana, Kenya, South Africa, Tanzania and Uganda) and Asia (Malaysia, Pakistan, Thailand, Philippines and Vietnam). These are combined with processes taking place at a global level, such as the proliferation of standards and the growth of roundtables and multi-stakeholder partnerships. By its focus on contrasting case studies and theoretical frameworks, the volume aims to reveal the diversity of mechanisms that make value chains work for development outcomes. Perhaps in contrast to other edited volumes, the contributions collected here do not intend to examine an empirically rich data set in order to draw theory-informed conclusions. Rather, the teams of authors deliberately engage in a debate based on theoretical variety in order to reveal what may be concealed if a single-theory approach is taken. All of the chapters show that a dialogue between conceptual frameworks is an important step in unpacking the composite nature of value chains and in unravelling the interaction between value chains and development contexts. The volume reports on the value of such an iterative process and does not adopt a single definition of what a value chain is and how a value chain performs.