Benefiting from value chains through TNC-SME linkages: UNCTAD's approach

Transcription

1 International Seminar Expanding the role of SMEs in value chains between Asia and Latin America ECLAC, Santiago, 29 April 2015 Benefiting from value chains through TNC-SME linkages: UNCTAD's approach Fulvia Farinelli, Division on Investment and Enterprise UNCTAD

2 Investment, Trade and Participation in Global Value Chains

3 Investment, Trade and Participation in Global Value Chains FDI helps countries increase participation in GVCs But the presence of TNCs that participate in GVCs does not guarantee participation of local SMEs Relationship between GVC participation and FDI inward stock, 189 countries over 20 years

4 Fragmentation of production: the example of the Boeing 787 Dreamliner Wing box: Mitsubishi Heavy Industries (Japan) Wing ice protection: GKN Aerospace (UK) Vertical Stabiliser: Boeing Commercial Airplanes (USA) Centre fuselage: Alenia Aeronautica (Italy) Rear fuselage: Boeing South Carolina (USA) Lavatories: Jamco (Japan) Doors & windows: Zodiac Aerospace (USA) PPG Aerospace (USA) Forward fuselage: Kawasaki Heavy Industries (Japan) Spirit Aerosystems (USA) Escape slides: Air Cruisers (USA) Flight deck seats: Ipeco (UK) Raked wing tips: Korean Airlines Aerospace division (Korea) Horizontal Stabiliser: Alenia Aeronautica (Italy) Aux. power unit: Hamilton Sundstrand (USA) Centre wing box: Fuji Heavy Industries (Japan) Flight deck controls: Esterline (USA), Moog (USA) Engines: GE Engines (USA), Rolls Royce (UK) Engine nacelles: Goodrich (USA) Passenger doors: Latécoère Aéroservices (France) Cargo doors: Saab (Sweden) Prepreg composites: Toray (Japan) Landing gear: Messier-Dowti (France) Electric brakes: Messier-Bugatti (France) Tires: Bridgestone Tires (Japan) Tools/Software: Dassault Systemes (France) Navigation: Honeywell (USA) Pilot control system: Rockwell Colins (USA) Wiring: Safran (France) Final assembly: Boeing Commercial Airplanes (USA)

5 Major Flow of Intermediate Goods and Finished Goods in Asia (Electrical/Electronic) 1.6times ( ) 5.9times( ) US/ Europe China/ Hong Kong 9.8times ( ) South Korea 3.2times ( ) Taiwan 1.1times ( ) Japan ASEAN 1.3times ( ) 2.1times ( ) Flow of finished goods Flow of intermediate goods * Electric/electronic machinery export value (billion USD) Source: RIETI-TID(2009), White Paper on International Economy and Trade 2010 (METI) 5

6 The Emergence of Regional Value Chains There is a significant structural diversity and a high degree of complementarity of emerging regional production systems Production networking and regional division of labour result in massive intra-industry trade in parts and components within regions Intermediate goods are the «blood stream» that irrigates regional supply chains

7 What are the implications: consequences for SMEs New opportunities But also risks: Being pushed towards lower value added functions Being pushed towards lower tiers of suppliers

8 Results of UNCTAD s case studies on the software industry: 1. Leading software providers (such as Microsoft in Egypt or IBM in Vietnam) depend on local companies to adapt their products to the local market and to support local customers. 2. Rivalry among local companies is strong and is driving a constant upgrading process. 3. This, in turn, gives companies visibility and credibility not only in their domestic market but also in their region.

9 Results of UNCTAD s case studies on the audiovisual industry: 1. TNCs dominate the most important production networks. Creative industries face structural changes triggered by technology, both at the production and the distribution side. 2. The issue of local preferences, culture, formats and language is still a determining factor in shaping the emergence of new value chains in creative industries. 3. This opens up new opportunities for new, specialized entrants, such as the Colombian 3-D animation producers and local movie producers in Nollywood (Nigeria).

10 Results of UNCTAD s case studies on the automobile industry: 1. Most local suppliers in the case of Toyota in South Africa, and Volkswagen in Mexico did not succeed to become global sourcing partners. 2. In South Africa, a downgrading process took place. Domestic SMEs are now linking up with first tier suppliers of large TNCs. 3. Both in Mexico and South Africa, large opportunities appear to have emerged in secondtier sourcing.

11 TNC-SME Linkages Local SMEs competitiveness and growth

12 The potential benefit of TNC- SME linkages TNCs can be a powerful sources of demand for the output of local suppliers and subcontractors. They can raise the capabilities and quality to international level more effectively than links among domestic firms.

13 Common challenges SMEs Little knowledge of TNCs procurement procedures and requirements Unable to meet corporate requirements or international standards (price, quality, delivery, etc.) Lack of market information, international exposure and networks Limited human and financial resources to handle large volumes Weak managerial skills and entrepreneurial behaviour TNCs Lack of communication with local suppliers (ICT tools, procurement procedures, culture) Financial transaction requirements (bank accounts, bookkeeping) Complex payment procedures and requirements for local sourcing (time, volumes, standards) Limited flexibility with short-noticed orders/changes

14 Moreover: Under import substitution regimes, many countries forced the pace of local content by imposing local performance requirements. Today, local content provisions are under the purview of the WTO Agreements. TNC-SME linkages are increasingly driven by pure cost and efficiency considerations.

15 UNCTAD's approach: The technical assistance response Business Linkages for Inclusive Value Chains

16 Success stories Successful policies promoting linkages can be found in Ireland, Chile, Mozambique, Brazil, Malaysia, Thailand, South Africa and Singapore Several TNCs implement their own supplier developing programmes(toyota, Unilever, FIAT, AngloAmerican, DymlerChrysler, Volkswagen, INTEL, IBM, Tata) Many donors and international organization are active in linkages building. Among others, DFID (the Business Challenge Fund), IFC, ITC, UNDP, UNIDO, USAID, the World Bank, GTZ, UNCTAD

17 Main lessons learned from successful cases 1. The establishment of sustainable linkages does not happen automatically, as a direct consequence of the presence of TNCs, but requires the participation and collaboration of all interested stakeholders (i.e. TNCs, local suppliers, government). 2. Only if a conducive policy environment is set up, specific linkages promotion programmes have a chance to be transformed from isolated cases, to sustainable and inclusive mechanisms to build the local productive capacity.

18 Integrated policy framework Improving the investment climate Providing strategic guidance and policy coordination Strategic FDI attraction Specific linkages policies Strengthening absorptive capacity

19 Primary strategic objectives of IPAs in developing countries (% of respondents) Job creation 86 Transfer technology/skills 62 Linkages for local suppliers 43 Increase in exports 35 Industry diversification 22 Widening tax revenue base 16 Competitiveness of local firms 14 Import substitution 11 Infrastructure 8 Privatization 0 Other Source: UNCTAD World Investment Report 2013 IPA Survey

20 Main objectives of UNCTAD's linkages programmes Help develop domestic industry by upgrading local SMEs to meet international standards Deepen the involvement and strategic interest of TNCs in host country partners Maximize local purchasing of TNCs and facilitate import substitution when possible Provide policy advice on improving the environment for sustainable business linkages Share effective international business linkage strategies with the various stakeholders in order to deliver tangible results for all

21 UNCTAD s Business Linkages Programme connects large companies with domestic suppliers in developing countries Currently operational in Argentina, Benin, Brazil, Mozambique, Peru, Tanzania, Uganda, Viet Nam and Zambia

22 Empretec (Emprendedor + Tecnología) UNCTAD s entrepreneurship capacity-building programme since 1988 Helps entrepreneurs to build innovative and internationally competitive SMEs Integrated with UNCTAD s research and policy work on entrepreneurship and SME development (EPF)

23 Brazil: Projeto Vínculos Fill competitiveness gap between TNCs and SMEs 300 SMEs 2500 employees 20 TNCs

24 Ceará Results monitoring: Brazil Manaus Pernambuco 15 Income increases of employees 14 Employment increases 12 SMEs expand 13 Other SMEs copy Bahia 11 SMEs perform better 10 TNC/SME doing business São Bernardo do Campo 8 SMEs capable 9 Bottlenecks resolved 7 SMEs action plan implemented 6 SMEs action plan developed 5 SMEs on board 4 SMEs selected 3 TNCs on board 2 Needs of TNC identified 1 Proposal to TNC

25 Forging partnerships 3-level approach Macro-level Meso-level Micro-level Policies Institutions Companies

26 Projeto Vínculos Brazil Results suppliers upgrading

27 Argentina: Promoting Business Linkages Implementation of the Business Linkages Programme in Argentina by the Fundación EMPRETEC with the support of Banco de la Nación Argentina, the Corporación Andina de Fomento and UNCTAD. Participation of the car manufacturers Fiat Auto Argentina S.A., General Motors Argentina S.A. y Renault Argentina S.A. Participation of SMEs (12): ACM Argentina S.A., Bartolomé Macchiarola S.A., Compañía de Planeamiento Acústico S.R.L., Fumiscor S.R.L., HAAS International Corporation, Ingeniería Plástica S.R.L., Laboratorios Funken S.A.I.C., Metalúrgica Pollastrini y Cia. S.R.L., Montich S.A., Papelera Bragado S.A., Pellacani S.R.L., VMG S.A.

28 Impact of the Business Linkages Programme in Argentina Impact on employment: 60% of the SMEs experienced higher employment rates. Impact on sales: The amount of sales of 70% of the SMEs increased during and after the implementation of the Programme. Before the implementation of the Programme, 80% of the SMEs had confirmed being constrained in their investments because of the uncertainty of the sales forecast by TNCs. 70% of the participating SMEs increased their investments during the Programme. The planning of purchasing between the car manufacturers and 90% of the participating SMEs improved significantly. 90% of the SMEs asserted that the Programme produced crucial changes within their enterprises.

29 Good practices Customization Copying linkages from one country or sector to another without understanding neither the country or the sector does not work All linkages must be market-driven SMEs and anchor companies are in business and deals should make sense Critical mass of purchasers and suppliers Pilot activities taken up by national counterparts Building the capacity of national counterparts and involving them since the beginning of the programme may increase its survival beyond the project lifecycle Policy perspective Incentives work better than legislative controls to attract anchor companies to join a linkage programme

30 Thank you!