Annual World Bank Conference on Development Economics 2009, Global

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depicts FDI stock and network exports (both expressed in per capita terms) in Eastern European and Central Asian countries, many of which have been very successful in joining global production chains. Given the meager success of Africa in attracting FDI inflows, producer-driven networks are likely to play a limited role in Africa’s exports in the near future. In contrast to producer-driven commodity chains, buyer-driven networks may offer greater promise to African countries. Buyer-driven networks are organized by large retailers, branded marketers, and branded manufacturers and do not necessarily require large FDI inflows. The products are designed and marketed by the buyer. They are typically labor-intensive consumer goods such as apparel, footwear, furniture, and processed food products. Buyer-driven commodity chains are characterized by highly competitive locally owned and globally dispersed production systems. Profits do not come from scale, volume, and technological advantage but, rather, from market research, design, and marketing. Buyer-driven production networks in the food and apparel sectors may be particularly relevant to African countries. Global food markets have undergone a rapid transformation in recent years, driven by changes in consumer demand, increased concern about food safety, and the rise of modern retail systems. Two trends in the food industry during the past two decades are worth mentioning. The first is the consolidation of food retailing. In 2001 just 30 grocery retail chains jointly took in more than US$1 trillion in revenue, accounting for about 10 percent of global food sales. Within this group, the top 10 retailers constituted 57 percent of the combined total (World Bank 2005, 27). The second trend is the increasing reliance of major retail chains on their own agents for sourcing and thus the declining importance of wholesale markets. Whereas in the past wholesale and terminal markets were responsible for 20 or more percent of food sales, their share of sales in industrial countries has dropped to about 10 percent (World Bank 2005, 27). The consolidation of food retailing has given market leaders extraordinary market and purchasing power and has resulted in a strong tendency toward global sourcing, the introduction of preferred-supplier arrangements, supply chain integration and rationalization, and lower average prices, but also lower variability in prices for contract or program suppliers (World Bank 2005). In addition, it has led to the emergence of numerous private sector codes of practice or other technical protocols that nowadays tend to play a dominant role in the market. There are several advantages of being a supplier servicing a supermarket chain. These include higher margins than in wholesale transactions, more consistent and more predictable demand, access to detailed information on changing developments and requirements within the market, detailed guidelines for operations and good practice, and the ability to enhance one’s reputation by being a supplier to a major retail chain (Jaffee 2003). In the South African context, Barrientos and Kritzinger (2004) found that producers selling fruit to U.K. and European supermarkets were able to obtain more stable outlets for their produce. For instance, most supermarkets negotiated purchases six months in advance. Moreover, producers servicing supermarkets on average received better prices than those selling on the open market.


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