WEDF 2012: Parallel Session III-1

LDCs: Integrating SMEs into global value chains
 
Mr Rajesh Aggarwal, Chief, Business and Trade Policy at ITC and the session’s moderator noted that the key question, how best to integrate SMEs into global value chains, had in fact been an ongoing underlying theme throughout the first two days of the Forum. The first step, he said, was getting multinational corporations to invest in LDCs. The second challenge is to then strengthen SMEs, so they can supply global value chains, which are generally controlled by multinational companies.
The key conclusions of the session were:

• Of great importance, particularly to LDCs, is the ability to attract investment into productive sectors, given that global value chains are mostly governed by multinationals.
• The government has an important role in assisting SMEs in improving their productivity, efficiency and quality in order to be able to access markets and integrate into global value chains.
• Weak SMEs need to be strengthened in domestic markets before being integrated into regional and eventually international supply chains.
• There is a mutual interest between large sourcing companies and SME suppliers in building a strong supply chain. The rationale for this is not philanthropy but business motives, as having competitive suppliers is in the interest of the buying companies.

Mr Fonotoe Nuafesili Pierre Lauofo, Deputy Prime Minister and Minister for Commerce, Industry and Labour and Trade Negotiations of Samoa, told the session that his Government encourages investment in key sectors, which include tourism, manufacturing, agriculture, fisheries and infrastructure in order to strengthen the economy through the inflow of technology, capital and management skills. The Government is keen to create an enabling environment for growth and investment, and has therefore launched a reform programme, mostly for the benefit of SMEs. AS part of this programme, the international dateline was shifted so that the island trades on the same days as its main trading partners, New Zealand, Australia and other Pacific Isalnds. Another key element has been the privatization of state assets and enterprises. A five-year development strategy has subsector plans for agriculture and manufacturing. The intention is to boost domestic agricultural production. In manufacturing, efforts are focused on strengthening the institutional framework for value addition and export diversification.

Mr Siaosavath Savengsuksa, Vice-Minister, Ministry of Industry and Commerce, Lao P.D.R., gave an overview of SMEs’ situation in his country. SMEs account for 98% of all enterprises and generate more than 81% of employment. He explained that the Lao PDR is at the centre of an economic corridor, linking China in the north with ASEAN in the south – and the development of this corridor will provide new opportunities for SMEs in the country. SMEs in the wood processing, handicraft and coffee sectors have already integrated into global supply chains, but challenges still exist regarding quality standards. Other challenges include: lack of entrepreneurship; lack of expertise and market information and lack of skills; networking and market linkages; and access to finance.

Ms Melanie Dharmosetio, Vice President, PT Lion Super Indo, Indonesia, said that from the perspective of a large company there are business opportunities in engaging SMEs as subcontractors. As a retailer, her company needs to differentiate by customer, catering to different tastes, and it does this by using a large number of SME producers. The differences in products by region and island provide a real choice to customers, she explained. The company needs to provide confidence to consumers that its products are of consistent quality and are available without interruption, so it works with SMEs to ensure that these are guaranteed. The company helps SMEs in distribution by setting up logistics centres closer to SMEs, which lowers transportation costs. It also supports them financially, providing cash flow, and has an interest in building the capacities of SMEs to ensure they can meet the required quality standards and remain competitive.