Global Value Chains (GVCs) for Building National Productive Capacities

1. Global Value Chains (GVCs)for Building National Productive Capacities Fiorina Mugione, Chief, Enterprise Policies and Capacity Building Section Division on Investment and Enterprise Fiorina.mugione@unctad.org

2. PRESENTATION OUTLINE • Importance of Global Value Chains • How can small and medium enterprises improve their positioning in global value chains and reap benefits? • Best practices and policy options

3. GLOBAL VALUE CHAIN: TEXTILE AND GARMENTS Raw materials Textile Apparel Wool Raw cotton Spinning Weaving Knitting Dyeing, Printing, Finishing Cutting Sewing Finished Garments Component network Production network Brand-name apparel companies Overseas buying offices Trading companies Export networks Marketing networks Retail Outlets

4. VALUE ADDED FORMATION IN THE TEXTILE AND GARMENTS SUPPLY CHAIN Finishing Garment production Raw Cotton Textile Yarn 16.0% 54.5% 11.3% 11.3% 6.9% Source: Gherzi

5. MAPPING THE VALUE CHAIN • Identify final markets • Identify key functions/ activities • Identify participants • Map participants according to functions they perform • Map inter-relationships between participants

6. GLOBAL VALUE CHAIN:THE AUTOMOTIVE INDUSTRY Interior & Electrics Engine Finance Glasses Transmission & Gearboxes Service Energy Aftermarket Parts Chassis Tyres Breaks and suspension UPSTREAM DOWNSTREAM

7. COLOMBIA: SUPPLY CHAIN FOR THE AUTOMOTIVE INDUSTRY Source: Departamento Nacional de Planeación

8. Lead firms coordinate the value chain : innovate, create brands, control the whole production process Producer driven Large firm or TNC controls production network Upstream and downstream linkages Capital and technology intensive industries (i.e. automobiles, aircraft) Buyer driven Decentralised production network Labour intensive industries (large retailers and branded manufactureres, i.e. GAP, Nike) GOVERNANCE STRUCTURES OF VALUE CHAINS Integrated Firm Lead Firm Buyers Buyers price Suppliers Suppliers Suppliers

9. Improving Process Improving Products Specialising in new functions Moving to a new VC Introduction of better quality control systems or new production equipment. A footwear producer shifts from mass produced low-cost shoes to more fashion-intensive footwear sold for higher prices Moving from a manufacturing to a design function. Move from TV to computer monitor production UPGRADING IN GLOBAL VALUE CHAINS

10. CASE STUDY: SOFTWARE INDIA • Challenges • Moving up the value chain, away from low cost services: • Understand what the client wants • Long term relationship (know how, investment, trust) • Retention of trained and experienced people (high rotation) • Provide whenever possible niche solutions in new « open » areas such as security, biometrics, system integration) Source: UNCTAD, forthcoming.

11. IMPACT OF VALUE CHAIN UPGRADING • Increased growth in incomes and employment • Increased efficiency in the linkages between buyers and sellers • Improved delivery in the quantity and quality of supporting services • Increased cooperation and coordination among stakeholders • Improved and accelerated learning and benefit flows

12. POLICY MEASURES Improving the investment climate Providing strategic guidance and policy coordination Specific linkage policies Strengthening absorptive capacity Strategic FDI attraction Source: Altenburg, 2005.

13. SUPPLY CAPACITY BUILDING • South Africa • The Workplace Challenge • The Competitiveness Fund • The Sector Partnership Fund • Overcoming the information gap • Encourage investment in local manufacturing • Reduce imports and logistic costs • Enhance technology, skills and managment of local suppliers

14. CLUSTER DEVELOPMENT • Based on specialised skills and networking dynamics • Electronics in Malaysia • Electronics in Mexico • Automotive industry in Thailand

15. CLUSTER DEVELOPMENT IN THAILAND • Cost competitiveness based on low factor input costs, which are raising now. • Challenge: improve productivity and lower costs or move up to the next tier within the GVC. • Opportunity: subregional coordinated strategy to involve neighboring countries to become lower tier suppliers. • Automotive industry in Thailand Source: Thailand Automotive Institute

16. PUBLIC-PRIVATE PARTNERSHIPS • Czech Republic Supplier Development Programme • Matchmaking, seminars, fairs, capacity building • Business Linkage Programme Uganda • Supported by UNCTAD and its local EMPRETEC centre • Projecto Vínculos Brazil • i.e. linkage partnership between Petrobas and Sebrae under the National Mobilization Programme for the Oil and Natural Gas Industry • Managment training • Enhancing technical level (quality, health safety and CSR management systems)

17. Ghana Fanny NaanaYawaAnku is a young woman who until recently engaged in tailoring out of a little outlet in Accra. After being admitted to the EMPRETEC programme, Fanny opened her first store, Naku’s Fashion. EMPRETEC gave her customized help in creating a business plan as well as strategies for various horizons and capacities of her business. In addition to planning, EMPRETEC provided guidance and implementation, helping her to raise capital for her business. Today, Fanny has expanded her business to include 20 employees and five showroom/boutiques. Now she says that - thanks to the programme’s training and encouragement - “I know what I want and I can get there by working hard”. X EMPRETEC CENTRES Uganda Nina Interiors, a Ugandan SME founded by Nina Karugaba, benefited from the business development services of Enterprise Uganda, the institution running the EMPRETEC programme in Uganda. After three years of training, hand-holding and mentoring, the company has increased the amount of tax revenue it provides to the Government from $30,000 to $850,000 annually, at a combined cost of $12,000. Enterprise Uganda also assisted six firms that have linked with 26 local businesses in order to streamline their supply chains. X Brazil The Brazilian EMPRETEC Programme, implemented by SEBRAE, has been able to promote best practices within the country. One of the strategies of EMPRETEC is to use the power of networks to help entrepreneurs navigate through the various processes of business creation and development. Formal programmes, such as the Business Linkage Programme, also assist in the growth and development of local enterprises by connecting them to large transnational corporations. Zimbabwe Divine Ndhlukula, CEO of Securico Security (Pvt.) Ltd., provides security services and money transfers for commercial and domestic properties and financial institutions. Divine started her company in 2001. Today, her business has not only grown in terms of profits, turnover and employment creation, but also geographically (as she has opened an office in Malawi). Divine is an active member of a mentorship programme, and sponsors the annual EMPRETEC Zimbabwe Award for Young Entrepreneurs X X El Salvador The FundaciónEmpresarialpara la Acción Social (FUNDEMAS), which manages the EMPRETEC Centre in El Salvador, promotes the culture of corporate social responsibility, entrepreneurship and innovation. The Centre obtained the certification ISO 9001:2000 for its system of quality management. Pablo Durán, of Pan Santa Eduvigis, says “my professional life is divided into two: before and after EMPRETEC. After two years, I am sending my first container to export my products to Thailand.” X Jordan A participant of the local entrepreneurial training stated: “This course gave me the courage to open my own business. I became more efficient in information seeking and knowing which institutions to seek for support. It also taught me which points are important and what to take into account in a business. This is important for start-ups, especially if you want to start right. Thank you, EMPRETEC.” X Chile Thanks to the excellent performance achieved in more than 10 years of operations, EMPRETEC Chile has been selected by the Government to develop curricula for primary and secondary schools. A recent evaluation confirmed that more than 50 per cent of EMPRETEC programme participants experienced increased product quality and profitability. X Uruguay PROEX EMPRETEC assisted participating companies to make them export-ready, with 74 per cent of participants creating an export department. X Click on the orange dots to get some examples.

18. Business Linkages: Uganda • Six firms have teamed up with 26 local businesses to streamline their supply chains. • For example, Uganda Breweries assists over 2,000 farmers with supply chain management and guarantees barley supplies locally. In Western Uganda, Kinyara Sugar Works Limited has introduced a new credit scheme enables farmers to save and access small loans. Signing of partnership agreements in Uganda

19. Business Linkages: Brazil • Projeto Vinculos: 11 large corporations are helping over 80 local partners upgrade in order to meet quality and environmental standards. For example, following a successful pilot phase, BASF has decided to extend its supplier upgrading programme to all its Brazilian operations, covering 100 per cent of the costs. Projeto Vinculos in Brazil

20. Business Linkages: Vietnam • Unilever Viet Nam plans to step up domestic production by 59 per cent. • Unilever Viet Nam supports the training and development of SMEs in total productive maintenance (TPM) in safety, hygiene, performance monitoring and a manufacturing sustainability improvement programme. • Domestic producers became exporters

21. IN CONCLUSION • Global value chains which operate in a transparent and accountable way can be engines for economic growth and sustainable development • Innovative policies to favour business upgrading essential for sustainable development and SME support • Important to include in the Aid for trade initiative the enterprise dimension in building productive capacities, to unleash enterpreneurial talents and skills in developing countries • Dynamics effects of regional integration and South-South co-operation • Public Private Partnerships deliver good results