What’s general definition about Value Chain?

Michael E. Porter (Harvard Business School) has introduced the concept of a value chain first. He, who is also well known releasing the Five Forces Model to show businesses where they rank in competition in the current marketplace, discussed the value chain concept in his book “Competitive Advantage: Creating and Sustaining Superior Performance” (Free Press, 1998).

The idea of the value chain is based on the whole of process view of organisations, the idea of seeing a manufacturing / service organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

Ideally, the global value chain model helps identify areas that can be optimised for maximum efficiency, and be also managed the whole of model in your business for the final innovation value and profit.

However, the making differentiation through the value chain is that it seems not to generate the benefit.

It would be a matter of time turning into competitive situations even if you found your new market and released new products. Nowadays, your rivals easily imitate your products and business model through the IOT and technology progress speed.

Therefore, It is NOT enough only making differentiation and cost reduction in the manufacturing process for your business. 

Basic trading business concept is that someone brings a product from an existing market to another new market. However, it is easy turning into competitive situations and we saw that many Japanese products sales Eastern Asia such as Hong Kong, Taiwan, Singapore, where the supply from Japan are higher than their market demand,  and they are participate into price wars.

How long can you enjoy such peaceful market said non-competitive “Blue Ocean”? When it will be turned into  competitive situation “Red Ocean”?

A purpose of global value chain is usually recognised for cost reduction way only for mass market, but as a global market main stream, the global value chain makes your business for innovation value in your market, and the innovative value let your business protect from competitors.

“Do not compete in your market, Make Innovation Value for your customers”

I. Support (Management) Line

1 Agreement & Negotiation 契約&交渉
2 Investigation & Research 調査
3 Communication 情報共有
4 Settlement / Account 決済
5 Trading Administration 貿易実務
6 Preferential Tariffs 関税特恵

II. Primary Line

1 Inbound Providing made in (by) Japan materials
2 Manufacturer OEM/ODM/PB Factories in Japan
3 Logistics Delivery from the factory in Japan to your destination
4 Marketing Making differentiation using by Japan quality in your market
5 Sales  Easily sales by Japan unique for your customers

Advantage of the Model

There are two aspects of advantage regarding the supply chain analysis.

Innovative advantage: Identifying the activities that create the most value to customers is the priority. These can include using relative marketing strategies, knowing about products and systems, answering phones faster, and meeting customer expectations. The next step is evaluating these strategies in order to improve the value. Focusing on customer service, increasing options to customize products or services, offering incentives, and adding product features are some of the ways to improve activity value. Lastly, businesses should identify differentiation that can be maintained and adds the most value.

Cost advantage: After identifying the primary and support activities, businesses should identify the cost drivers for each activity. For a more labor-intensive activity, cost drivers could include how fast work is completed, work hours, wage rates, etc. Businesses should then identify links between activities, knowing that if costs are reduced in one area, they can be reduced in another. Businesses can then identify opportunities to reduce costs.