Enhancing, or adding value?

28 Aug, 2020 - 00:08 0 Views

eBusiness Weekly

Clifford Shambare

Value addition has become a common term among Zimbabweans these days.

That said, it is a term that I feel in most cases, is misused, or even abused. In order to appreciate better, the basis of my thinking here, let me first define what value is.

As usual, I do not want to use a dictionary definition in this case since it tends to put me into a straight jacket.

The way I see the matter, value starts with the human being, his attitude and perception of things around him, including himself. In simple terms, value relates to something whose worth (to him) he can measure or assess relatively easily.

When considered in relation to non-material things, the concept of value becomes more complex. In that case, it becomes more difficult to measure-or to use a related term-to evaluate.

So, following this line of argument, the reference point of value is man himself. In that case, value is related to the usefulness or otherwise, of something to him.

Because of his high level of intelligence, man is constantly-almost subconsciously-evaluating his environment and all that is in it, whether material or non material.

This implies that anything that attracts his attention or affects him in any anyway, must have some value, whether negative or positive-to him. This is why some objects that are ubiquitous in the general environment are regarded as “worthless” or “valueless”, by some people, societies or communities, while they are valued, or even loathed, by others.

This argument places a question mark on the term “value addition” since almost every part of the Earth and its environs, has some basic value to mankind, though in specific circumstances.

On the other hand, to my mind, “value enhancement” becomes more appropriate in this context since it applies where an item already has the said basic value to its user who in this case, is doing something to it in order to shift its value to a level higher than the one it had before.

Be that as it may, in order to avoid gravitating into semantics, let us revert back to the conventional term — that is, value addition, in the process, zeroing in on the Zimbabwean context.  In this country, this term or concept, is used quite loosely in many situations.

Sometimes one gets the impression that when people refer to the concept and/or process of value addition, they will not be thinking deeply about the subject, or treating it seriously enough for it to contribute meaningfully to their individual lives and to the country’s economy as a whole.

Looking more closely into the issue, one comes to realise that in the business context, value addition is a strategy that production and/or manufacturing firms practice at different levels.

As an example, the other day, while I was attending a meeting with my fellow church members, brainstorming on how to raise money for church projects, one member pointed out that while at university he had done a masters degree that included value addition, among other subjects.

As if to show off his knowledge of the subject — or may be to try and implement what he had learnt — he went on to suggest that those congregations of our church who lived in the rural areas, could be made to also contribute to the project by packaging mfushwa (dried vegetables), sugar beans and other farm produce, and then selling the products at higher prices than would otherwise be possible.

Now, there is nothing wrong with this notion since such action is actually a form of value addition. However, what is questionable is the profit margin that this action can contribute to the profitability of selling such a product as mfushwa.

The men and women at Mbare Msika fruit and vegetable market in Harare, follow a similar strategy as ProBrands, a well-known company that has been growing in leaps and bounds over the past decade or so, but they are nowhere near the latter in terms of the profits they make from similar products.

The difference between the two comes through several aspects.

The major aspect has to do with the level of sophistication of the whole process, covering the packaging, branding and consistency of quality, quantity and supply of the product itself.

This speaks to a process of backward, forward and even sideways, integration.

This means that, for the company concerned to succeed, it has to work with other parties operating in that and related industries, towards the goal of value addition, and ultimately, realising a profit from same.

These parties will be producers/farmers; farm equipment, fertiliser and crop chemical manufacturers; packaging manufacturers, as well as graphic designers and advertisers.

On the other hand, there has to be clients and /or customers, who desire or need that product at the other end.

Their buying habits and/or preferences as far as this product or brand is concerned, will be affected by its availability on the supermarket shelves. Where brands of the same product will be in competition, the brand that beats the rest in terms of these attributes will always win the day.

And if a company can meet all these conditions, it can become quite profitable and grow from trading in such apparently simple products as sugar beans, roasted ground-nuts, peanut butter, rice, salt  and kapenta, for example.

In this case, in addition to ProBrands, consider a company such as National Foods — one of the oldest companies in the food industry in the country, and see how well it is integrated backwards and forwards and how well it is performing on the business front.

So, like I have always maintained, in this case, it boils down to the systems, values and cultures that create the environment for the value addition strategy of these, and many other products.

So, ultimately what this means is that a company can produce an excellently presented product, but if there are no buyers, its producers will lose in the end.

Considered from the marketing perspective, this is why one must never start to produce a product before they identify a market for it.

Now, if we consider the environmental aspect of the matter, we find that the demand for some products that have undergone the value addition process rises quite sharply in certain markets, thereby earning their producers high profit margins.

Here, I have in mind, products that are made of naturally produced raw materials that have been put through a minimum processing regime, but are well packaged and branded.

Here, South Africans top the list with such products as Amarula Liquor Brandy and Rooibos Tea, that are made from wild Marula tree fruit and Cape red bush (Afrikaans, rooibos), respectively.

The Amarula case is interesting in that the Marula plum juice that is eventually made into a highly sought after alcoholic drink, grows in the wild in south western Zimbabwe and the north western region of South Africa.

The locals ferment it using rudimentary apparatus, to produce the alcoholic beverage that they enjoy drinking. These locals are said to really love mkumbi/umkhumbi, the alcoholic drink that they make from the Marula (tree) fruit.

It is even rumoured that elephants get intoxicated from eating fermented marula fruit. Be that as it may, in such rather primitive environs, its commercial value is virtually insignificant.

Now, consider it in the South African context and you come across a fascinating scenario.

There, they have created a whole industry to produce a highly priced drink, Amarula. This is a really sophisticated and attractive — almost exotic product — that fetches high prices in the export markets.

And the manufacturers make its taste more sophisticated by adding other ingredients such as creamy milk, to it.

Compared to the raw materials used to make it, its final value in the market is way above the former.

Consider here, the environment in which this product is produced. The industries that are associated with it comprise sophisticated alcohol manufacturing technology, sophisticated and attractive packaging, label and brand.

This situation speaks to huge benefits from the value addition strategy.

Now, let us continue to look into the aspect of depth and sophistication of the value addition strategy in order to appreciate the effect of putting some effort into the strategy, instead of adopting a slap dash approach to it as Zimbabweans are wont to do.

Here we find that the sort of changes that a raw material goes through during the manufacturing process determines the depth of the value adding process itself.

In this regard, consider such products as steel, chrome plated products, glass products, furniture, and so on. During its production, each of these products goes through its own processes in which other by products can also be produced, thereby imparting uniqueness to the value chain of that process.

In general, the greater the change and the longer the value chain, the more costly the process and usually, the more profitable the value addition process.

This explains why developed economies are richer than the rest; they have systems, values, and cultures that demand high value and are prepared to pay for it.

Paying high prices for products creates more value and wealth for the system or economy concerned. As an example, a piece of sculpture made from a stone collected from the wild is usually valued at what the local market is prepared to pay for it.

Let us suppose there are 1000 pieces of a given sculpture and Zimbabweans are only prepared to pay US$1 for it because that is their perception of its worth. In such a case, the total value in Zimbabwe cannot exceed US$1 000.

If Americans — who love and appreciate art better than Zimbabweans — are prepared to pay US$20 000 a piece, for same, the total value of this sculpture can rise to as much as US$20 000 000  in the USA.

If an American purchases 1000 pieces of this sculpture and takes them to America, the overall effect of this action is the enrichment of the American people and economy — and not that of Zimbabwe — by US$ 20 000 000!

What this boils down to, is that the attitude to, and approach used by Zimbabweans to the matter of value addition will ultimately affect the level of wealth enhancement that the country obtains from the implementation of this strategy therein.

If Zimbabweans pay lip service to the strategy, or if they only skimp the surface of same, by doing the minimum in the process, as they tend to do today, then the benefits to the country from it, will be equally paltry.

So, let us go for high level value addition, and not only stop at packaging and branding mfushwa and madora — in order to make our economy grow genuinely and solidly!

Clifford Shambare is an agriculturalist cum economist and is reachable on 07749609937 or 0775218248.

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