Challenges and Opportunities of Global Value Chains in the Context of SMEs

Transcription

1 Challenges and Opportunities of Global Value Chains in the Context of SMEs National Consultation on SDGs Industrialisation and Employment for Sustainable Growth in India 2-3 rd August 2016, New Delhi Pranav Kumar, Head, International Trade Policy, Confederation of Indian Industry

2 Presentation Coverage Rising Influence of Global Value Chains (GVCs) Where do Indian SMEs stand? Integrating Indian SMEs into GVCs: Challenges and Opportunities India s Response

3 Rising Influence of Global Value Chain GVCs New Channel of Trade Between 1995 and 2011 (the latest year for which data are available), most developed and developing countries significantly increased their contributions to GVCs As per the WTO data, In 2011, nearly half (49 per cent) of world trade in goods and services took place within GVCs, up from 36 per cent in Main Trigger Large enterprises sought access to low-cost labor and production inputs, resulting in spreading investment across a range of low-, middle and highincome countries. Sectors which are Prominent The electronics and automobile production networks in East and Southeast Asia are well known, as are the outsourcing (services) value chains of India, the Philippines, and other countries. Hungary and Poland, for example, joined manufacturing production chains for chemicals, transport and electrical equipment after joining the EU.

4 Rising Influence of Global Value Chains Countries which Responded Asia is a leading region in the globalization of production value chains. East Asian economies have increased significantly the share of imported components in their exports. These countries have deepened connections between local firms supplying and subcontracting to large foreign firms The most prominent example is Cambodia, a leastdeveloped country which increased its vertical specialization by 24% between 1995 and 2011, demonstrating how quickly integration into regional supply chains can take place.

5 Where do Indian SMEs Stand? India, at present, has limited number of products where it owns GVCs, as a result, its share in total value added created by global trade is not more than 1 per cent. India exports and imports of intermediates are much smaller than countries like China. In the year 2014 India imported intermediates worth of US$213bn (US$1147bn for China) and exported only US$140bn (US$963bn for China) The new FTP aims at raising India s participation in world trade as well increasing domestic value added content in India s exports along with promoting brand India. One of the ways in which these objectives can be simultaneously achieved is, if India initiates its own Global Value Chains (GVCs) in a manner that it not only increases its share in world trade but also increases its trade competitiveness. Make in India and FTAs could be leveraged to attract more FDI and using them to connect Indian SMEs to large firms.

6 B20 SME Development Taskforce Recommendations on GVCs Bottlenecks hindering SMEs access to markets include limited access to information and communication channels; hurdles in complying with international labor, social, environmental, quality standards and sustainability goals; and issues in gaining awareness, visibility and trust with prospective customers. Multinational corporations typically search for supplier-smes that possess key attributes such as management quality and good financial reporting practices. However, SMEs are frequently not aware of international, regional, or (sometimes even) national standards. Also, they lack the capacity and the resources to implement them: SME Competitiveness Outlook 2015 of ITC report shows that the ability to conform to standards is the most important trade issue for SMEs access to the GVCs, especially for SMEs in emerging economies.

7 SMEs Competitiveness Outlook 2015, ITC

8 India s Response Access to Global Value Chains Powered by Innovation The Make in India an important step to promote India as an investment destination and global hub for manufacturing, design and innovation. This will enhance the linkages of Indian MSMEs with international markets. Providing support for innovation through schemes such as Digital India and the design clinic scheme. The Marketing Development Assistance for MSME Exporters, training programmes, national awards for quality products, financial assistance to encourage the adoption of international product standards and bar coding, etc. are some of the other initiatives to boost exports from the MSME sector. Industry compiled important recommendations for providing Indian MSMEs access to global value chains. The top recommendations include the following: There is a need for a deeper penetration of technology related platforms in the sector There is a need for a policy guideline encouraging FDI participation in the MSME sector Cloud technology must be introduced in MSME clusters for knowledge sharing, building competitiveness and effective use of Information and Communication Technology (ICT) platforms Awareness sessions must be organized across the country to promote the usage of advanced technology by MSMEs

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