An Anchor Firm Approach to Strengthening Value Chain Competitiveness A Look at the PRODEL Program in Ecuador FIELD BRIEF No. 13

The program aims to ensure sustainable impact at the household level by working with private and public sector actors to overcome obstacles to sustained growth. These obstacles include producers' physical isolation, limited knowledge of end-market requirements, difficulty in accessing financing for working capital or investments, and challenges in attaining economies of scale for profitable participation in value chains. PRODEL's design recognizes the significant capacity of lead firms, or "anchor firms," to multiply outputs and increase incomes for low-income populations. Anchor firms require a number of smaller firms and farmers to directly supply products as inputs into their production processes, can work well with a large number of service providers, and can offer differentiated products of greater quality and value, giving the market actors a competitive advantage. A primary focus of PRODEL is increasing value chain competitiveness, which comes from the ability of all actors in a value chain to anticipate and meet buyer needs, take advantage of end-market opportunities, and adequately respond and adapt to changes in market demand. PRODEL centers its efforts on working with high potential anchor firms to engage input suppliers, farmers, exporters, and retailers in order to foster a stronger, more efficient, and pro-poor value chain overall. PRODEL's market-demand-driven approach is grounded in a four-step process that is designed to ensure the appropriate selection of strategic anchor firms, based on competitive value chains and subsectors, and then target those firms and their participating producers groups to strengthen vertical and horizontal linkages, while working with supporting institutions to enhance the availability of financial services to the value chains. The four-step process includes analyzing value chains and selecting anchor firms, strengthening anchor firms, strengthening producers and producer groups, and linking producers to end markets. In Step 1, PRODEL works with USAID, its implementing partners, and key local stakeholders to identify priority value chains based on predefined selection criteria, including their relative position in critical economic corridors, the political will of local authorities, the potential for achieving results and impact, and proximity to border regions where farming communities are most at risk of engaging in illicit economic activity. PRODEL also seeks value chains in which there are lead firms who are interested in and/or who currently work with small-scale suppliers and MSEs to support business activities. In Step 2, PRODEL works with representatives from the selected anchor firm to conduct an in-depth business planning exercise, which explores each firm's technical, economic, and financial viability through an interactive dialogue pertaining to its marketing, sales, organizational, investment, and financial strategies. PRODEL has developed a set of business strengthening tools specifically for small and medium enterprises called the Program Planning Tools for Small Enterprises (4P+), which assists companies to identify their competitive advantage, develop strategies for market opportunities, and implement the value interventions and techniques necessary to ensure a steady supply of quality raw material. In Step 3, PRODEL recognizes that strengthening producer group associations and organizations is one way to accelerate employment creation and income generation for significant groups of people. While these producer groups exist in Ecuador, their lack of organization has been identified by PRODEL, anchor firms, and producer groups themselves as a key sector for improvement. Under the PRODEL approach, anchor firms lead the strengthening process, by guiding what are often informal groupings to coalesce and formalize into associations that can leverage economies of scale and enhance their capacity to take advantage of both horizontal linkages with other producer groups and vertical linkages with key anchor firms and input suppliers. In Step 4, PRODEL links producers to end markets by working with anchor firms to provide training in quality control, client-centric services, and compliance with domestic and internationally recognized standards and certifications. PRODEL's Economic Development Fund (EDF) issues small business grants that can be used by anchor firms to upgrade production or aggregation infrastructure in order to improve quality and efficiency. In some instances, the PRODEL team supports the participation of anchor firms in trade fairs, helping them to establish contact with critical buyers in target end-markets and facilitating these linkages, while empowering them to manage their relationships with buyers going forward on their own.