Business Linkages: innovation in the value chain

– Carlos Alberto dos Santos
– Fausto Ricardo Keske Cassemiro  –

Market´s dynamization: the keyword is complementarity

imagesThe world of business has experienced significant and accentuated changes in  recent decades. Economic globalization, the financial crisis in Europe and the USA, which is starting to recover. The emergence of new global players and the strength of the Chinese economy, beyond the fast development of information systems, that accelerate and facilitate the exchange of information, have fierced competition for different markets. On the other end, consumers are increasingly well informed and rigorous about the quality and price of products and services, asking for changes.
To remain competitive in the long term, companies, despite their size, need to be alert to cyclical and structural changes in the markets and to anticipate changes, innovate and develop competitive advantages in order to be sustainable. How do companies can overcome the challenges of competitiveness before increasingly demanding markets and strong and efficient corporate constellations, since they are tuned to trends and consumer needs? And the small companies, that are most of the universe of firms, how are they going to survive in this environment of ruthless competition?
Large companies, especially the leaders of their respective markets, realized that the strategy of creating value in its supply chains is essential to develop and maintain competitive advantages. These companies understood that they cannot think about developing individual skills, they need to create competitive advantages in relationships between the various links of the value chain. It is strategic to the companies to interact and integrate with the links of the value chain, trying to create competitive advantages and thus maintain competitiveness. A nontrivial challenge resides in managing these processes, since large companies generally have stout and inflexible structures.
There is a new concept of relationship between large and small companies in a value chain. From simple suppliers, these companies become active partners of those who lead the relationship with the global market. Both large and small businesses, in this environment, act in complementarity. Contribute to this new attitude the fact that the small ones are highly functional and have the ability to adapt quickly to new market demands. Thus, the relationship between medium and large enterprises and small business happens to be an excellent opportunity to generate value.
In this context, the small must learn to position themselves among medium and large organizations, identifying specific niches, positioning, for example, as suppliers of large companies. Therefore, due to the high technological level and management of large buyers, small suppliers need to significantly and quickly increase their skills in product technology, process and management to meet the technical and commercial requirements of the chain.
At the distribution side of the chain, large companies have perceived new possibilities to expand the provision of services, delivering agility to the clients and increase the availability of strategic stocks. Many live with the challenges of a transition phase to new distribution formats, using small businesses to increase their participation in certain markets, particularly the ones that are closer to these markets. The desired results are directly linked to the greater proximity of local markets. Therefore, small business can participate in value chains through franchising, resale or undertaking the technical assistance to the products of big companies.

Overcome challenges

The Brazilian market is increasingly approaching the market of industrialized countries. There are several reasons for this change in recent years, such as: the income and employment rate increased significantly; social and economic inclusion; better access to credit as well as investments in various sectors. Domestic consumption has grown and continues to expand, providing feedback and stimulating our economy. In this context, the dynamics of participation of small businesses in job creation is quite significant and similar to developed countries, often reaching about 70% of all new jobs. It is also significant the participation (99%) of small business in the total number of formal enterprises in Brazil.
These indicators, however, don´t have a correspondence to the productivity. Persists the challenge to overcome, which is the productivity of small businesses in Brazil. While in industrialized countries, they yield a significant percentage of the Gross Domestic Product, like 33%(1) in Germany, 44% in France, 41% in the Netherlands, in Brazil, small businesses are responsible for approximately 25% of GDP. The low productivity of small business impacts the average productivity of Brazilian´s economy. Small companies generate jobs that do not reflected in productivity. It is necessary to change this situation, increasing the participation of small business in GDP.
In this sense, one of the alternatives for the country is a competitive and sustainable insertion of small businesses in value chains driven by large companies. Small businesses need to be productive, fulfill the requirements of competitiveness and productivity of large enterprises, since the average productivity is going to set the value chain competitiveness against international competition. Increasing productivity in these companies is not only a challenge to Sebrae, but also to the Brazilian economy.

The Business Linkages logic applied to add value in the chain

indexTo develop a strategy to the small companies, Sebrae has forged a definition to Business Linkages. The strategy is defined as cooperative, long-term and mutually attractive relationships, established between large and small companies of the value chain in order to prepare the latter to fulfill the requirements of the large companies and facilitate the conduct of business between them, improving the competitiveness of small and large companies and the value chain as a whole.
The experience started with the projects to develop suppliers in the 90s, evolved and established itself over the years, culminating in the creation in 2013 of the Business Linkages National Program. Currently, this program gives assistance to over 18,400 small businesses through 137 projects in 23 states out of 27 in the country.
The central aspect of the strategy is to develop the competence of small businesses that are able to conduct their own changes and increase their productivity, thus adding value to the business. On the demand side, Sebrae attempts to identify technology requirements and management of large companies. On the supply side, identify technological skills (process and product) and management of small businesses.
The process to teach new skills in small businesses should not be limited only in courses and consulting services to entrepreneurs, but seek to be comprehensive enough that these companies are able to learn with each other. Also, identify challenges in the value chain, position themselves competitively in this complex environment and expand their business opportunities, reducing their degree of dependence on large companies.
The set of solutions to promote the business linkage is identified, organized and implemented through the integration of supporting institutions that possess the required skills. Usually, the project of business linkage offers a grid of development that helps companies transform their reality in short, medium and long terms.
When a small company fulfills the requirements of one big company, most of the time it is also able to sell to other companies of the value chain and compete on equal terms with other companies, creating value for the chain. Furthermore, compliance with the requirements of a large company facilitates insertion into other value chains.

Conclusion

The strategy of seeking complementary partnerships between small companies and large corporations with a goal to ensure competitive and sustainable insertion of small business in value chain has proven its effectiveness in projects / programs implemented in several chains throughout Brazil. It is evident that flexibility and adaptability, that are natural for small companies, facilitates their integration in the value chain. Moreover, these factors give the potential of innovation for small businesses. When they innovate in partnership with large companies, they reduce the risk of failure and increase its effectiveness.
Despite the experience of Sebrae and other institutions in the implementation of Business Linkages in oil, gas, energy, mining, steel industry, among others chains, there is room to try the strategy in other relevant sectors to Brazil, as agribusiness, construction, fashion industry, technology-intensive goods, services among others.
Besides the benefits for small businesses and large companies, the experiences in business linkages have generated knowledge to Sebrae, preparing the institution to address the growing challenge of working in the complex environment of the value chain. Thus, Sebrae fulfills its mission to promote the competitiveness of small businesses and contributes to the strengthening of the Brazilian economy.

(1) SBA Fact Sheet 2012 – European Commission


Carlos Alberto dos SantosDr. Carlos Alberto dos Santos has an Economy  PhD from Freie Universitaet Berlin, Germany. He is the technical director of National Sebrae, specialized in the development policies and small businesses, has published several books and dozens of articles on the subject in many countries. Board member of the Brazilian Agency for Promotion of Exports and Investments (Apex-Brasil), of the National Quality Foundation (FNQ) and of the National Tourism Council (NTC). Santos is also executive vice president of the Association of Development Finance Institutions (ABDE).

Fausto CassemiroFausto Cassemiro is deputy manager of the Industry Unit at National Sebrae and also National Coordinator of the Business Linkages Program. With a master in mechanical engineering and a degree course in production engineer, the most significant experiences are in developing business linkages projects around Brazil and some countries of South America and Africa. Also, Cassemiro has relevant experiences in consultancy to implement managing strategies in companies, such as lean manufacturing, balanced scorecard and cleaner production.

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