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Upgrading--Overview
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http://www.microlinks.org/print/465
1.3.8. Upgrading--Overview
Introduction
In order to respond effectively to market opportunities, micro and small enterprises (MSEs) and industries need to innovate to add value to products or services and
to make production and marketing processes more efficient. These activities are known as upgrading. Firm-level upgrading can provide MSEs with higher returns
and a steady, more secure income through the development of knowledge and the ability to respond to changing market conditions. Upgrading also leads to
industry competitiveness and to national economic growth. Upgrading at the industry-level focuses on increasing the competitiveness of all activities involved in
the production, processing, and/or marketing of a product or service and mitigating the constraints that influence value chain performance.
Upgrading is a multi-dimensional process that seeks to increase the economic competitiveness (profits, employment, skills) and/or social conditions (working
[1]
Upgrading involves a learning process through which firms acquire knowledge and skillsoften
conditions, low incomes, education system) of a firm or industry.
through their relationships with other enterprises in the value chain or through supporting marketsthat can be translated into innovations or improvements that
increase the value of their products or services. Upgrading is based on a firms capabilitiesits internal capacity to learn and change from what it has done in the
past, as well as to innovate and ensure continuous improvement in products and processes. Essential to upgrading are both the opportunity and ability to learn and
the incentives for firms to invest in upgrading: if firms do not foresee viable benefits to investments, like higher incomes, secure markets or lower risks, they are
unlikely to spend time or resources on upgrading.
The pursuit of upgrading provides many opportunities to firms that range from increased efficiency and output to access to new market channels and industry
knowledge. There are five types of upgrading that firms undertake: process upgrading, product upgrading, functional upgrading, channel upgrading and intersectoral
upgrading. The various types of upgrading are frequently connected. Read more on trajectories of upgrading.
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1.3.8. Upgrading--Overview
2 of 2
http://www.microlinks.org/print/465
response to dynamic markets. For example, selling exclusively to the highest-priced market will not always maximize a firms risk-adjusted returns. Upgrading
is not for everyone, and MSEs do not always benefit from upgradingindividual circumstances and risks may outweigh potential gains or the current situation
may be acceptable for a firms aspirations.
Footnotes
1. Explaining Concepts. A Guide for Value Chain Analysis and Upgrading,Herr, M.; Hultquist,I.;Rogovsky, N.;Pyke, F. ;(pp. EC-1-EC-23);Geneva, Switzerland:
ILO, 2006
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