The role of SMEs in driving economic growth, creating employment opportunities and narrowing the gender gap in the workforce cannot be underestimated. There are currently more than 70 million SMEs in ASEAN. Of these, 65.5 million are in Indonesia, with the majority in Thailand (3.2 million), Malaysia (1.2 million), the Philippines (1.1 million) and Vietnam (700,000).
Engaging in international trade is a complex process for many SMEs. SMEs may find it difficult to independently find end-user buyers in foreign markets, comply with national export requirements, and effectively manage complex logistics networks or obtain the skilled human resources to do so. Engaging in trade through established global value chains (GVCs) through relationships with locally based players in global trade networks can provide them with an entry point into international trade activities.
OECD research on Southeast Asia found that 23% of ASEAN SMEs import (directly or indirectly) and less than 12% export (directly or indirectly). This highlights that SMEs are underrepresented in GVCs compared to larger firms, with 58% importing and 54% exporting. Furthermore, many of these larger firms are foreign-owned (30% are large importers and 23% are large exporters), highlighting the disparity. In terms of SMEs importing and exporting, only 4% and 2% are foreign-owned, respectively, which may explain their lower participation in GVCs.
Therefore, establishing linkages between SMEs and transnational corporations (TNCs) is crucial for integrating SMEs into GVCs. It is essential to foster a supportive environment for foreign direct investment (FDI), as FDI plays a key role in creating strong linkages between SMEs and TNCs. Research shows that FDI-facilitated relationships with foreign firms can significantly enhance SMEs’ participation in GVCs through access to global networks and technologies. This can be achieved through a variety of collaborative efforts, including strategic partnerships, contractual arrangements, and technology licensing, among others.
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The Challenge of SMEs in Global Value Chains
Internal factors such as competitiveness, human resources and finance are important for SMEs to participate in GVCs. OECD research shows that highly productive firms with long-term growth potential tend to participate in GVCs. Improving the competitiveness of SMEs requires targeted support such as technology upgrading and specialized training. Access to advanced technology helps SMEs streamline operations and meet international standards, while training in supply chain management and other programs that enhance export readiness equip them to meet the challenges of global trade. In addition, partnerships with larger firms can provide greater learning opportunities through shared expertise and resources.
External factors pose significant challenges to the participation of SMEs in GVCs. Domestically, SMEs face constraints such as limited access to finance, poor infrastructure, inadequate logistics systems, unreliable broadband internet connectivity, especially in rural areas, and lack of digital skills. These challenges can limit their operational capacity and growth potential. Public policy initiatives should promote inclusive development and take into account the challenges faced by SMEs.
Financial constraints remain a major obstacle to the growth of SMEs, especially startups. Traditional banking, through loans and credit schemes, remains the dominant source of finance in the region. However, the emergence of financial technology (FinTech) has begun to improve SMEs’ access to finance. It is important to continuously review policies to create an enabling environment for FinTech and explore alternative financing options such as venture capital, angel funding, public equity, peer-to-peer (P2P) lending and equity crowdfunding. These measures can support the diverse financing needs of SMEs, enhance their access to finance and thus lay the foundation for greater sustainability of their businesses.
Digitalization also plays an important role in improving the competitiveness of SMEs and facilitating their integration into global value chains. The 2018 SME Policy Index shows that exporting firms are generally more advanced in adopting digital technologies, which help them manage logistics and comply with international standards more efficiently. In contrast, non-exporting SMEs often use digital technologies primarily to increase their market visibility. There is an urgent need to expand the understanding and use of advanced digital technologies among SMEs to help level the playing field for participation in global value chains.
In addition, lack of access to information about international markets continues to hinder the participation of SMEs in global value chains. Despite national policies and strategies to support SME exports – a key component of participation in global value chains – awareness of these programmes among SMEs remains low. Raising awareness and facilitating access to these support mechanisms is essential to ensure that SMEs can effectively take advantage of opportunities.
ASEAN supports and guides SMEs
ASEAN as a regional organization continues to address the challenges of integrating SMEs into global value chains, with a key initiative being the ASEAN Strategic Action Plan on SME Development 2016-2025, which establishes a platform to discuss the challenges and opportunities of SMEs, provides SMEs with better market access information through business-to-business networking, promotes partnerships with multinational companies, and adopts international quality standards.
In 2018, the ASEAN SME Policy Index was established to monitor and evaluate the effectiveness of policies supporting SMEs. Preparations are underway for the ASEAN SME Policy Index 2024, which will reflect recent changes and emerging trends in the SME sector. The index will serve as an important tool for policymakers to better design and implement relevant policies to meet the evolving needs of SMEs.
Going forward, it is essential to have a comprehensive understanding of the challenges SMEs face in participating in global value chains. One way to facilitate this is to collect reliable data. Currently, most research on SME participation is based on a combination of enterprise surveys, case studies and administrative data, which often suffer from limitations such as incomplete national coverage, inconsistent time series analysis and different definitions of SMEs within and across regions. With better data, more targeted, evidence-based policies can be implemented to focus on improving access to finance, streamlining export procedures, supporting technological upgrading and raising SME awareness of import and export support programmes.
At the regional level, ASEAN plays an important role in facilitating the exchange of best practices and regulatory updates, as well as discussing trends or challenges facing SMEs that can inform regional initiatives. ASEAN is also a significant contributor to the collection of SME-related data. In addition, regional initiatives to enhance SME competitiveness include the facilitation of business networking events and thematic capacity building programmes, which are essential to increasing SME opportunities to participate in GVCs.
Continuous monitoring, evaluation and adjustment of SME policies at the national level remains essential, as is enhanced regional cooperation. Aligning domestic policies with regional developments will help ASEAN SMEs make the most of the opportunities presented by regional and global economic integration, thereby promoting sustainable growth and greater resilience of the region to global challenges.
Source: https://congthuong.vn/asean-thuc-day-chien-luoc-tham-gia-chuoi-gia-toan-cau-cua-cac-doanh-nghiep-vua-va-nho-SME-335679.html
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