Robert Kappel GIGA, Hamburg Global Change and SME Development November 2012 Lepzg
Introducton Globalsaton has changed North-South and South South trade relatons Exports growng faster than GDP Emergng economes are deepenng ther productve capacty, capturng producton of ntermedate nputs (that were prevously mported from OECD-countres) What s not known: whether the share of value added n total exports of developng countres s fallng or rsng. Because: Many countres reman n the assembly stage (more or less no dffuson of technology) Some countres entered global producton networks by specalsng n product assembly and later expanded nto nput producton and desgn and dstrbuton of goods (Tawan, Korea, Sngapore, and Chna) access to SME Development 2 technology and upgradng
Questons How can mported ntermedates be replaced by local producton? the VC analyss can show where t s possble Should enterprses from developed countres be encouraged to jon supply chans? Should governments nsttute complementary polces to help frms to upgrade? Whch ndustral polcy s helpful? Theses: before the unbundlng of ndustry and the ICT revoluton t was mpossble to develop a compettve ndustry wthout a deep ndustral base. Today ths has changed. SME Development 3
Presentaton Outlne 1. Value Chan (VC) 1.1 Upgradng through nnovaton 1.2 Technologcal capactes n VC 1.3 VC as ntegrated networks 2. The Model 3. Globalsaton s unbundlng 4. Concluson
1. Cooperaton by Value Chans vertcal, asymmetrc long-term, contracts mutual dependence support vs. nvestments spllovers, external economes governance upgradng Lead Frm Local Frms
1.1 Upgradng through nnovaton Process nnovaton effcency ncreasng cost reducng Product nnovaton qualty rsng varety expandng >>> establsh a natonal nnovaton system
1.2 Technologcal capactes n VC Competence level of local frms Technology ntensty of VC Productvty of VC
1.3 VCs as ntegrated networks Strategc networks of TNCs and SMEs VCs are embedded (ncludng foregn and local enterprses, and natonal nnovaton systems, governmental actors and cvl socety networks >>> create framework for norm-buldng processes wthn a value chan (norms, standards, governance, rents, technologcal upgradng)
1.3 VCs as networks nternatonal enterprses assocatons experts banks local/ natonal NGOs consumer trade unons
2. The Model VC Output Y fnal = A leader K γ leader D η L 1 γ η leader (1) Composte ndex of ntermedate nputs log D = log λ m x (2) Technologcal dffculty µ 1 λ (3)
2. Local Frm Productvty Innovaton theory yelds: LF research ntensty ι ( µ, L, a ) = (1 µ ) VC ntegraton adds: LF research ntensty, wth VC ntegraton ι =ι VC VC L a µρ (4) ( ι, ITT, SI, SPE) ~ VC ι = c + β ι + β IIT + β SI + β SPE + ε 1 2 3 4 estmate data collecton (6) (5)
2. Successful Upgradng LF negotaton power ~ np c + β 5ι + β6ln + β µ + ε = 7 (4) Polty IV OECC class. (7) UP ~ ~ + β np + β ε VC = c + β ι + β np SPE + 7 8 9 lead 10 (6) (7) VC governance data collecton
Upgra dng Actor SME Lead frm External Value Chan Intentonal Unntentonal Governance structure SME s own effort Specfc nvestment (SI) Support of partner (ITT) Spllover effects (SPE) External econom es Captve Modular Relatonal Possble Upgradng for SMEs Increase n competence level: - process upgradng - product upgradng + + + +? Set by lead frm, profts from spllovers Depends on SME s own ntatve Subject to negotaton wthn margns set by lead frm Promoton wthn a value chan: From prmary to supportng actvtes (functonal upgradng) + + +? Set by lead frm Depend on SME s own ntatve Subject to negotaton wthn margns set by lead frm Change nto a hgherqualty value chan (chan or ntersectoral + + - +? Very unlkely Possble n related sector Rather unlkely
3. Globalsaton s 1st and 2nd unbundlng Before 1980s successful ndustralsaton meant buldng a domestc producton base - Buldng up a compettve ndustry, broad and deep ndustral base. - - Example Korea (export-orented ndustralzaton): Steel, manufacturng ndustry, processng. - - Import-Substtuton Industralsaton (faled n many countres, but some were successful for some tme: Chna, Brazl, South Afrca): Create ndustry va mport protecton. Deep transformatons of ndustry and trade from 1985-late 1990s = regonalsaton of supply chans - 1st and 2nd ter local supplers ntegrated n VC: provde subcontractors, relable workers, and establsh hosptable SME Development 14 enronment
2nd Unbundlng Today: 2nd unbundlng: most successful developng naton ndustralsers jon supply chan of rch natons = makes ndustralsaton less complex and faster because supply chan ndustry s less lumpy and less nterconnected domestcally - TNC deploys ts frm-specfc technology n the foregn factory (combnng own technology wth low-wage labour (Chna: TNCs engagement n dfferent sectors; textle producton n Bangladesh; car-producton n South Afrca) - Today: Technology-lendng (dfferent from technology transfer of old ISI) changed the output overnght. - Natons ndustralse by jonng the supply chan (no need to buld a supply chan). No naton produces all the parts and components necessary for producng a fnal product. SME Development 15
No one has the whole value chan (example Chna: local value added s about 20% of processng exports). Industralsaton s easer and faster but less meanngful - example: durng the 1950s, ¾ of all ÚS-Amercan auto parts were made n Mchgan (close to Detrot). Today producton dsperson nternatonalsed - new trade-nvestment-servces nexus 1. ntertwnng of trade n parts and components 2. ntertwnng of nternatonal movement of nvestment n producton facltes, personal tranng, technology, and long-term busness relatonshp 3. ntertwnng of servces to coordnate the dspersed producton (nfrastructure: telecom, nternet, express parcle servce, ar-cargo, trade related fnance, customs clearance etc. Kappel, Regonal Powers, Hamburg, December 2011 16
4. Concluson 1. hgher benefts of nternatonal technology dffuson can only delvered wth parallel local nnovaton efforts 2. Necessary are modern nsttutonal and governance structures 3. conducve nnovaton systems necessary SME Development 17
Concluson 4. localsaton of nnovaton necessary for technologcal change and catch up - - Only n the presence of a local nnovaton systems TNC wll adopt a more ntegrated approach wth greater lnkages wth local economy, enablng greater opportuntes for transfer of knowledge. - Collectve local nnovaton efforts are a major drver of local techncal change (necessary for upgradng and rents for local enterprses). 5. value chan related to local nsttutonal setup, cvl socety networks. Upgradng, rents, and value added depends on norms, standards set by nteracton of TNC and local actors. SME Development 18
THANK YOU! SME Development 19