SMEs urged to climb up value chain

MANILA, Philippines - As the role of global value chains in international trade grows, small and medium-sized enterprises (SMEs) have the opportunity to increase exports through trade policies that connect them to international markets, a panel of trade experts said.

SMEs in developing countries face major obstacles that dull their competitiveness and weaken their link to the world market, the experts said during a recent forum organized by the International Trade Center (ITC) in Geneva, Switzerland,

These hurdles include a lack of information about clients’ requirements, expensive road transport, and the absence of international certification.

“Without assistance, players in these countries are bypassed by global value chains, which increasingly dominate international trade,” said Jean-Marie Paugam, ITC’s acting executive director.

Policymakers, trade promotion organizations, private sector trade associations, and logistics companies can help in the SMEs’ integration process, the international panel pointed out.

They can create the right policy environment, strengthen exporters’ institutional support network, and devise the right set of economic incentives to facilitate SME exports, said Anabel González, Costa Rica’s Minister of Foreign Trade.

SMEs should be equipped with market knowledge and understanding of value chains to allow them to identify new markets and forge close ties with global buyers.

There should be more transparency into how value is distributed within supply chains, said Debapriya Bhattacharya of the Centre for Policy Dialogue in Dhaka, Bangladesh, and former Ambassador of Bangladesh to the WTO.

Once a market need is identified, these enterprises must get their products to those markets. Policymakers must remove obstacles like high transportation costs and slow customs procedures to reduce delays and waiting time.

The panelists likewise highlighted the need to support companies in obtaining international certification, often a prerequisite to becoming suppliers to multinationals.

González said: “It is not only a matter of putting SMEs and MNEs together but developing SMEs so they can supply MNEs.”

Additionally, trade policy has to be targeted to be effective. Countries will have to decide which sectors and which size of companies to target for SME support, said Bhattacharya.

At the same time, retaining value addition should be the collective focus. “The success story lies not in entering the value chain but in climbing up the value chain. Entry is not good enough if diversifying and scaling up are not there,” Bhattacharya said.

SMEs need to be assisted in carving out niche markets in areas of higher value, rather than focusing on competing solely on costs. “If you compete on price there will always be a country that can do it more cheaply,” said González.