WEDF 2012: Plenary Session III

Growing Value: Meeting the demands of new consumer markets while strengthening local value addition.
 
The third plenary session, moderated by Dr James Zhan, Director of the Investment and Enterprise Division at UNCTAD, discussed how the expansion of the middle class in emerging economies creates new demand for higher value products and services. Panellists concluded that there was a fundamental shift in value chains in light of changing consumer behaviour and preferences. The new demand for higher value added products creates opportunities for even small nations to gain market access and benefit – as long as they are able to find niche sectors in which they can be competitive and where their companies can scale. As for policymakers, they need to realize the magnitude of the change and find the appropriate ways to respond, to create the business environment that will enable their exporters to benefit.
 
Dr Mari Elka Pangestu, Indonesia’s Minister of Tourism and the Creative Economy and former Minister of Trade, highlighted how the increase in purchasing power and change in taste have brought about a shift in consumer markets. She pointed to the overwhelming importance of women in consumer spending decisions. The effects of this change in consumer behaviour are as follows:

• Just-in-time delivery has moved out of the realm of supply chains and into consumer markets, a change to which companies need to respond.
• At the same time on the supply slide fragmentation, the new phenomenon of trade in tasks, is creating a new ecosystem, including in knowledge-based sectors such as film. It is the role of governments to nurture and enable creativity and innovation so that good ideas can be transformed into viable businesses.

As the world has become more complex, new opportunities have opened up for small companies, she concluded.
Mr Tim Groser, New Zealand’s Minister of Trade and Climate Change Issues and Associate Minister of Foreign Affairs, emphasized that new market situation offers opportunities to not only large but also small countries, provided that they find their areas of comparative advantage. He illustrated this point the following way:

• Not only can China become a place for manufacturing, but a tiny Pacific island state such as Western Samoa has also been able to find a niche supplying organic virgin coconut oil to the Bodyshop company, at seven times the price of ordinary oil. He said he was optimistic about the future of small economies that participated in the global value chains of successful companies.
• Specialization, he said, has always been the key to advancement: countries need to integrate their own economies, then with their neighbours, and finally with the world, finding their own niche.
• Countries need to establish domestic connectivity, both hard infrastructure such as roads, but also the internet, which has become essential for participation in global value chains.
• He urged the need for a sustained focus on productivity, reducing compliance costs and integrating into the global system of standards

Mr Muhamad Chatib Basri, of Indonesia’s Investment Coordinating Board, described how growth of the middle class in Indonesia has attracted greater investment from countries like Japan and Korea, wanting to tap into growing demand. He said the role of government is no longer to follow the classic industrial policy of import substitution and protectionism, but instead to focus on the supply side by providing assistance in the development of human capital, capacity building, investing to stimulate innovation and providing tax incentives for research and development. This in turn will drive investment and open opportunities for local SMEs to join global value chains. Governments, he said, should support companies by streamlining processes and providing a conducive environment through incentives.
 
Mr Douglas Comrie, Managing Director of B&M Analysts and Chief Facilitator of the Durban Automotive Cluster in South Africa, illustrated the challenges of clustering and industrial cooperation within a sector.

• He described the issues facing the automotive industry in South Africa, where production of 700,000 vehicles annually represents only 0.6% of global production. This means that local companies are not in a position to dictate design or location.
• As the domestic market is growing at only a modest rate, and while regional growth is more robust, exports have to compete with imported second hand vehicles. The strategy being followed is to grow the domestic market with more local content, to improve competitiveness and to work on expanding regional trade.
• He drew a comparison with Thailand’s highly successful auto industry. Thailand is now the world’s 8th largest producer of light vehicles, and, he said, South Africa could learn much from the Thai model in terms of clustering and cooperation between players in the same industry.

Ms Zuhai Mansfield, Chairperson of TMG Mining and Manufacturing Ltd and President of the Turkish-Egyptian Business Council, Foreign Economic Relations Board, described Turkey’s progress from being an exporter largely of agricultural products, worth some US$ 3 billion in 1980, to an exporter mostly of industrial products in the chemical, textile and automotive sectors, worth some US$ 114 billion in 2010. She highlighted the importance of South-South trade in this transition.
 
Mr Suryo Suwignjo, President Director of IBM Indonesia, said that markets all over the world were changing, and for companies to be successful, they need to follow this paradigm shift. Information technology is empowering consumer decision-making, and to be successful in the global value market companies need to identify what differentiates them and their products in order to serve markets better: what matters is no longer where a product was manufactured, but what the product is.