Integrating Smes into Global Value Chains (gvc)

Integrating SMEs into Global Value Chains (GVC)                  

A value chain describes the full range of activities through which a good or a service passes from its conception to its distribution and beyond. Global Value Chain (GVC) is a chain of activities which are divided among multiple firms in different geographical locations. As the world becomes more open and countries are increasingly embracing globalization, countries especially developing ones, are faced with new opportunities and challenges. It is important that the SMEs are well equipped to take part in this new era of globalization for the development and growth of their respective countries.  Therefore, it is important policy makers, the government, academia, the public sector and the private sector and other major stakeholders make it their top priority to ensure that SMEs are properly enabled to participate in the global value chain.

The major areas for policy focus are described as follows:

1. Access to Finance: A major hindrance for most SMEs in becoming competitive (expansion, upgradation, R&D etc.) or to connect to global value chains is finance or the lack thereof. Higher transaction costs, perceived risk, lack of SME transparency, and lack of bank expertise in the evaluation of SME loans render it unprofitable for commercial banks to focus on such enterprises as their main debt clientele. In addition, most SMEs do not have a bankable business plan, which could reduce stringent bank demands for quality collateral. Therefore, government must ensure low cost financing especially for SMEs and also make it profitable for banks to lend to SMEs, to ensure adequate financial resources for SMES.

1. International Quality and Standards: Another issue that is highly relevant in the context of GVCs is compliance with international standards. Compliance includes both product and process quality standards. In many developing countries there is no quality standards regulation in place, and getting international quality certification is expensive and often times there is a lack of information regarding the process and availability of such certifications. It is required that governments should assist local suppliers to meet international quality standards by: a) providing information and professional training to implement product quality standards required for exports, b) encouraging SME participation in the standard-setting process c) ensuring that national certification systems do not impose excessive burdens on SMEs and d) there is trust and credibility in the standard and quality checking system

1. Access to Technology: It is necessary to engage in continuous technological upgrading in order to meet company and international standards. Ultimately, the main trigger of innovation in SMEs is the foreign buyer or the lead firm in the GVC, which demands constant innovation from suppliers that want to remain in the GVC. The most important action a government can take to support SMEs to meet these requirements is the granting of financial incentives so that SMEs can invest in appropriate technology. Strengthening of the national innovation systems at a local, regional and sectoral level can help SMEs to develop their R&D capacity.

1. Access to Skilled Human Resources:  Human resource development for SMEs will require a comprehensive approach that will include: (i) social structures and systems, such as broad educational reforms; (ii) encouragement of entrepreneurship, the acquisition of business skills, and encouragement of innovation in society; (iii) mechanisms for developing self-learning, and ongoing training and enhancement of human resources; and (iv) supportive governmental programs.

1. Access to Timely Information: A major problem faced by many SMEs is access to timely and relevant information.  Accurate and timely information on, for example, market opportunities, financial assistance, and new technology is crucial for SMEs to compete and grow in a global market environment. It is imperative that governments as well as the private sector work together to play a major role in bridging the information gap.

SMEs represent an integral part of many developing and developed economies. They make significant contributions to economies from many perspectives; output, growth, employment, exports, entrepreneurial activity, poverty alleviation, and economic empowerment. The role of governments, in collaboration with the private sector, will be essential in establishing policies for a conducive business environment in which the private sector, and in particular SMEs, can be nurtured, developed, and made more internationally competitive.