SMEs and the rise of global value chains
Globalization and increased regional economic integration have intensified competition in both domestic and international markets, and triggered new models of global business. The most substantive and pervasive of these models has been the development of global value chains or production networks. At the core is an original equipment manufacturer, usually a multinational enterprise; critical to this development has been the need for flexibility in production, cost competitiveness, and reduced business risk. These developments have presented new challenges as well as opportunities for small and medium-sized enterprises (SMEs). Despite the many barriers and capacity constraints they face arising from their relatively small size, SMEs remain a vibrant and essential ingredient for economic growth and employment generation across many regions of the global economy. To survive in an increasingly competitive environment requires a new growth paradigm and business strategy for SMEs, which focuses on knowledge and skill acquisition, technology upgrading, innovation, and wealth creation. These are likely to be necessary attributes for SME participation in regional and global production networks, and in particular for the high value-adding parts of such networks. This chapter conducts an overview of the role and significance of the SME sector in trade, economic development, and value chain developments. It briefly discusses the potential opportunities and challenges facing SMEs from participation in production networks, while highlighting key areas for capacity building if SMEs are to achieve their full potential from this participation.