In the previous unit, Mark White explained the industry clusters–interconnected groups of industries–can play in strengthening a region’s competitive advantage. Cluster-mapping describes and documents critical groupings and linkages, but does not dissect the nature of these interdependencies. To trace flows of production and transactions, economic development researchers use an analytic approach known as “value chain mapping.”
What, then, is a value chain? Like the cluster concept, the term was popularized by Michael Porter. Porter’s definition of a value chain is a collection of activities that are performed by a company to create value for its customers. From an economic development perspective, It allows one to understand where, how, and by whom economic value is created and distributed within a region.
Identifying the components of a value chain means creating a visual representation of the connections between enterprises and industries in value chains. In its simplest form it is merely a flow diagram. Porter’s generic diagram is provided below:
In the video module that follows, Mark White outlines how to map value chains to identify the industries linked to a core industry in a region. Understanding these interdependencies can clarify where an area should focus its development efforts.