More Inclusive Policies Needed to Enhance Small and Medium-sized Businesses and Low-income Countries Participation in Global Value Chains

WASHINGTON, October 6, 2015–A new report from the World Bank Group and the Organisation for Economic Development and Co-operation (OECD) outlines the challenges faced by small and medium-sized enterprises (SMEs) and low-income developing countries (LIDCs) as they seek to integrate into global markets, and specifically into global value chains (GVCs).

“Low income developing countries and SMEs face specific challenges when they try to enter into global value chains, including a less supportive domestic business environment and higher fixed costs,” said Daria Taglioni, Senior Trade Economist at the World Bank Group and co-author of the report: Inclusive Global Value Chains: Policy Options in Trade and Complementary Areas for GVC Integration by Small and Medium Enterprises and Low-Income Developing Countries.

“Because of their size, capacity, resources, limited access to information and data, SMEs and LIDCs are at a significant disadvantage,” Taglioni added.

The report, released today on the second day of the G20-OECD Global Forum on International Investment, is the first comprehensive framework on how to facilitate SME and LIDC access to and upgrading within global value chains. It identifies policy-interventions at the global level needed to support domestic reforms in G20 and trade partner countries.

Between 1995 and 2011, LIDC integration into global value chains grew from USD 259 billion (6% of the world total) to about USD 1.5 trillion (11% of the world total).

SMEs in LIDCs predominantly operate in the informal economy and their participation in GVCs is concentrated in the agricultural sector and labor-intensive, very low value-added manufacturing and services activities.

Even SMEs in developed economies are vastly under-represented in GVC trade. Their participation happens mainly through indirect contributions to exports. SMEs are often the domestic supplier of an export company rather than exporters themselves.

Lessons in the report point to the need for policy actions at the national and multilateral level and through G20 leadership to ensure that inclusion of SMEs and LIDCs in GVCs is sustainable and longer-term—which requires country-specific diagnostics and interventions based on the design of incentives that are well-tailored to the specific needs of countries, types of firms, and value chains and that take a “whole of supply chain” approach.

The new report recommends three key broad areas for the G20:

• Establish a trade and investment action plan with clear definitions and goals on trade and investment policy and identify essential domestic policy actions.
  
  
• Complement trade, investment, and domestic policy by providing political leadership and support to enhance collaboration across sectors and establish global platforms for sharing and best practices.
  
  
• Provide political support to establish a realistic multi-year plan to expand and upgrade the statistical foundation necessary to increase the capacity of all countries to identify and implement policies that can contribute to stronger, more inclusive and sustainable growth and development, globally.