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Building productive capacities in developing countries to enhance their participation in global supply chains

Background:

Building productive capacity and enhancing international competitiveness is crucial for the economic growth of developing countries. Internationalization is one of the essential ways to strengthen the competitiveness of firms in developing countries. It includes strategies based on globally integrated forms of productive networks, such as linkages between transnational corporations (TNCs) and small and medium-sized enterprises (SMEs), clusters and global value chains. This project is aimed at enhancing the supply capacity of developing countries through enterprise internationalization, particularly in respect of small and medium-sized enterprises. The role of small and medium-sized enterprises and their contribution to economic growth, social cohesion, employment and local development is recognized by Governments worldwide. Therefore, strengthening the competitiveness of domestic small and medium-sized enterprises is vital for developing countries to benefit fully from international trade and investment opportunities and to achieve the Millennium Development Goals, in particular the goal of eradicating extreme poverty and hunger.

This project will combine advisory services and exchange of best practices on the internationalization of small and medium-sized enterprises for effective policy change and the delivery of technical assistance for the establishment of business linkages. It will develop business linkage capacity, identifying demand, targeting quality FDI and matching potential business partners in selected countries.

The project will be executed by UNCTAD, which will seek to collaborate with Governments, UNDP and other United Nations agencies, and selected private sector institutions. It will focus on three subregions: West Africa, the ASEAN subregion and the Common Market of the South subregion. Selected pilot projects will also be implemented in five countries, including at least three least developed countries.

Objective:

To strengthen the participation of developing countries in global supply chains through the adoption of policies and support measures for enhancing the international competitiveness of small and medium-sized enterprises in developing countries and their integration into the world economy through business linkages and outward investment.

Expected accomplishments:

  • Enhanced capacity of national institutions to design, initiate and implement strategies, mechanisms and policies to facilitate formation and deepening of business linkages between TNCs and SMEs, and growth of SMEs.
  • Increased dissemination of best practices, improved understating of business linkage constraints and benefits and enhanced regional cooperation.
  • Enhanced capacity of stakeholders to provide SMEs with related tools, solutions and information to potential business linkage partnerships, and share expertise and best practices.

Implementation status:

The business linkage pilot project in Mozambique was very successful and the first bottles of beer will be produced as of January 2011. Farmers could diversify their sources of income, learned how to become small entrepreneurs, and how to run their farm as a business. Hundreds of families involved in the barley production saw their income rise from an average US$300 to US$700. In addition CDM has committed to setting up a US$10 million barley processing plant in the central region of Mozambique, should a critical mass of barley be locally produced. Several farmers were able to upgrade their production techniques, acquire more sophisticated tools and buy cattle for agricultural activities, thereby increasing their productivity by 150 per cent.

Moreover, as a result of the project, a large number of SMEs were themselves able to obtain loan financing on the basis of using their business linkage relationship as collateral. In Uganda alone, for example, 16 of the 24 participating SMEs received financing to a total amount of US$1,751,895 (although it should be mentioned that US$1million of this represents a grant to one SME).

As a result, the national linkages programme in Argentina developed a diagnostic tool to spot common weaknesses amongst suppliers and provided focussed technical assistance aimed at improving suppliers’ competitiveness in five key areas (products, services, price, delivery and innovation). 8 of the 12 SMEs participating in the pilot phase of the programme succeeded in increasing their sales of automotive parts to the TNCs, 7 generated new jobs, and all companies reported that they benefited significantly from the training received. One of the SMEs, VMG S.A., succeeded in internationalising due to successful linkages with General Motors Argentina. In cooperation with General Motors, the company manufactures components that are directly exported to Brazil. In Brazil, the company now has itself established an alliance with a local supplier in order to be able to supply on a regular basis. VMG S.A. is now also looking into the possibility of exporting to the United States.