Business Linkages: innovation in the value chain

By Carlos A. and Fausto R., INSME, 01-10-2013

Market´s dynamization: the keyword is complementarity

The 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.>>>