This presentation on systems dynamics is Module 2 of the USAID value chain development training.

1. Module 2 Session 2
System Dynamics
What are the two ways
people relate in value
chains?

Compete

Cooperate
Global Rules
Global Retail
National / Local Rules
National
Retail
Sector-specific
commercial
systems
Cross-cutting
commercial
systems
Export
Wholesale
Buyer/Processing
Production
Cross-cutting noncommercial
systems
Input Supply
versus
and

2. System Dynamics
What defines effective
performance?
 Ongoing

upgrading
defined by
performance
factors
More inclusive
and shared
benefits
Growth with
Poverty
Reduction
Global Rules
Global Retail
National / Local Rules
National
Retail
Sector-specific
commercial
systems
Cross-cutting
commercial
systems
Limited
Growth with
no Poverty
Reduction
Export
Wholesale
Buyer/Processing
Production
Cross-cutting noncommercial
systems
Input Supply

3. System Dynamics
Limited
Growth with
no Poverty
Reduction
TIME
Growth with
Poverty
Reduction
Ineffective Competition:
Effective Competition:
• Drives resistance to
improvement
• Drives improvements
• Competition between
people/firms doing
different things
• Competition between
people/firms doing the same
thing

4. System Dynamics
Limited
Growth with
no Poverty
Reduction
TIME
Growth with
Poverty
Reduction
Ineffective Cooperation:
Effective Cooperation:
• Collusion to ensure
win/lose
• Responsive to joint threats
and opportunities leading to
win/win
• Short term, distrustful
• Long term, trusting

5. System Dynamics
Limited
Growth with
no Poverty
Reduction
TIME
Growth with
Poverty
Reduction
Unsupportive Benefits:
Supportive Benefits:
• Benefits isolated to a few
• Broader distribution of
benefits
• Social/economic
benefits often at odds
• Social and economic benefits
mutually reinforcing

6. Understanding Forces Driving Change
Do changes in relationships, rules and inter-connected systems lead to
upgrading?
Effectiveness
Competitio
n
Cooperation

7. Module 2 Session 2
“Have you Heard”
Orientation and Task




Listen to the statements
Are theses examples of a horizontal or vertical
relationship? Between which actors?
What does each statement imply about the
nature and degree of competition and/or
cooperation?
Are there any rules that may have influenced
each statement?

8. Understanding a System
Plenary Illustration
8
HAVE YOU EVER HEARD A FARMER SAY:
“My neighbor brags too much about how well he does.
He should act more like the rest of the community.”
“We have tried to pool our money to buy larger amounts of
inputs to get a better deal, but we couldn’t get it to work as
many of us could not hold cash long enough to get organized.”
“I try to learn from my neighbor because I know he gets
better yields. But he is tight lipped about how. I don’t
know anybody else to learn from.”

9. Understanding a System
Group Task
Group 1: Have you ever heard a TRADER say…
Group 2: Have you ever heard a MILLER say…
Group 3: Have you ever heard an INPUT SUPPLIER
say…
Group 4: Have you ever heard an IMPORTER say…

10. Understanding a System
Group Task
Instructions




Review your statements
Does it describe a vertical or horizontal
relationship?
Choose the box that corresponds to the nature
and degree of competition and/or cooperation
Pin your cards in the appropriate box on the
CC4U flipchart

11. Vertical Relationships Examples:
Competition
Effective:
 Product upgrading
 Operations upgrading
Global Rules
Global Retail
National / Local Rules
Ineffective:
 Price-only tactics


no productivity gains
Zero-sum negotiating tactics




information hoarding
misinformation
political connections
social position
National
Retail
Sector-specific
commercial
systems
Cross-cutting
commercial
systems
Export
Wholesale
Buyer/Processing
Production
Cross-cutting noncommercial
systems
Input Supply

12. Vertical Relationship Examples:
Cooperation
Effective:
 Additive negotiation tactics
to perform
 repeat transactions over time
 longer-term interdependent
relationship
Global Rules
 incentives
Embedding services
 Joint marketing
 Advocating on common issues

Ineffective:
 Reducing competitive pressure
 Gaining unreasonable margins
 Concentrating benefits
 Raising barriers to entry
Global Retail
National / Local Rules
National
Retail
Sector-specific
commercial
systems
Cross-cutting
commercial
systems
Export
Wholesale
Buyer/Processing
Production
Cross-cutting noncommercial
systems
Input Supply

13. Horizontal Relationship Examples:
Competition
Effective:
 Product upgrading
 Operations upgrading
Ineffective:
 Price-only tactics


no productivity gains
Zero-sum negotiating tactics




information hoarding
misinformation
political connections
social position
Global Rules
Global Retail
National / Local Rules
National
Retail
Sector-specific
commercial
systems
Cross-cutting
commercial
systems
Export
Wholesale
Buyer/Processing
Production
Cross-cutting noncommercial
systems
Input Supply

14. Horizontal Relationship Examples:
Cooperation
Effective:





Joint marketing
Bulking orders to lower costs
Sharing capacity
Learning from peers
Advocating on policy issues
Ineffective:
Colluding to
 reduce competitive pressure to
upgrade
 achieve unreasonable margins
 concentrate benefits
 raise barriers to entry
Global Rules
Global Retail
National / Local Rules
National
Retail
Sector-specific
commercial
systems
Cross-cutting
commercial
systems
Export
Wholesale
Buyer/Processing
Production
Cross-cutting noncommercial
systems
Input Supply