ESCAP Studies in Trade and Investment

2414-0953 (online)
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This series focuses on developments in international and intra-regional trade, as well as economic and social development in Asia and the Pacific, as curated by researchers on the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
Enabling Environment for the Successful Integration of Small and Medium-sized Enterprises in Global Value Chains

Enabling Environment for the Successful Integration of Small and Medium-sized Enterprises in Global Value Chains

Country Studies of Bangladesh, Nepal and Sri Lanka You do not have access to this content

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31 Dec 2011
9789210553001 (PDF)

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Small and medium enterprises (SMEs) in South Asia and are effective job creators and income generators. In addition, SMEs play a key role in poverty reduction and inclusive economic growth. However, SMEs in the subregion often face considerable resource constraints and have limited capabilities to compete effectively in global and regional markets. Recent experience from a wide range of the Asia-Pacific countries, particularly from South-East Asia and China, indicates that domestic SMEs can access international markets through global (and regional) value chains (GVCs). This publication aims to propose practical policy interventions for improving business environments by targeting three South Asian countries — Bangladesh, Nepal and Sri Lanka, to facilitate SMEs’ access to global and regional markets through GVCs. Sector based value chain approach was adapted to focus on a few product groups with high export potentials: plastic goods from Bangladesh; coffee and ginger for Nepal and rubber and electronic products in Sri Lanka. National action plans and a subregional programme, together with operational strategies including needed institutional framework among stakeholders, for those products were developed and presented.
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  • Preface
    Small and medium-sized enterprises (SMEs) have played an important role in South Asia and remain a critical source for employment creation as well as income generation. SMEs occupy an important position in the development strategy for inclusive economic growth and poverty reduction. In this respect, export-oriented SMEs, supplying competitive products and services with greater potential for backward and forward linkages, would substantially contribute towards higher national income and overall socio-economic progress of nations. Therefore, the development of exportled SMEs should be promoted through effective policy options in South Asian countries. However, SMEs in the subregion typically face considerable resource constraints and currently have limited capabilities to compete effectively in global and regional markets. It is thus imperative to further expand SMEs’ capacity and competitiveness for survival and sustained development, particularly in the current competitive business environment.
  • Acknowledgements
    This research project was implemented by Masato Abe, working under the overall supervision of Ravi Ratnayake, Director of the Trade and Investment Division and Marc Proksch, Section Chief, Private Sector and Development Section, Trade and Investment Division, United Nations ESCAP. Bhavani P. Dhungana and Bhuban B. Bajracharya played advisory roles throughout the implementation of the project. Masato Abe and Bhuban B. Bajracharya drafted Chapters 1, 2 and 3. Posh Raj Pandy contributed to a section on the value chain approach in Chapter 1. Annex 1 was prepared by Sheikh Morshed Jahan and Mohammad Saif Noman Khan, while Posh Raj Pandey contributed Annex 2. Annex 3 was written by Ananda K.W. Jayawardane, R.A. Attalage and Masato Abe. K. Ramanathan provided valuable advice on different sections of the Chapters and the Annexes. Throughout the project implementation and finalization stages, members of national steering committees in Bangladesh, Nepal and Sri Lanka provided substantive guidance.
  • Acronyms and Abbreviations
  • Introduction
    Over the past two decades trade and investment have been the driving forces in accelerating economic growth in South Asia. In the recent decade South Asian countries have increased export competitiveness and foreign direct investment inflows. As a result, new business opportunities have opened up for domestic enterprises. Despite their tremendous potential, SMEs1 in South Asia are still at a disadvantage due to a lack of essential business factors such as capital, profitability, managerial skills, trained labour, brands and networking. Although SMEs account for more than 90 per cent of all private enterprises and employ roughly 60 per cent of the domestic workforce in South Asia, relative share of SMEs production in total domestic output is much smaller, approximately 35 per cent, as is the direct contribution of SMEs to merchandise export earnings, which is around 25 per cent (AAMO 2007).
  • Prospects of selected SMEs’ integration in global value chains: A synthesis of country studies on Bangladesh, Nepal and Sri Lanka
    Most of the South Asian countries have significantly improved their economic growth rates, with five to six per cent average annual growth during the last decade of earlier century and first decade of this new millennium (ESCAP 2009c). South Asian countries, perhaps with the exception of Nepal, have improved their trade performance, particularly exports, and have been successful in integrating their economies in the regional and global markets. Growing intraregional trade and further enacting trade and investment liberalization measures, new prospects for cross-country industrial linkages within emerging international production networks are providing new impetus to establishment of regional value chains. Such regional value chains, as well as individual enterprises in selected South Asian countries, are also establishing networks in global value chains.
  • Conclusion
    The three national studies on Bangladesh, Nepal and Sri Lanka covering plastics industry, agro-industry (coffee and ginger products) and industrial rubber and electronics products sectors strongly emphasized that SMEs in South Asia, despite having tremendous potential for growth and employment creation, were still in a precarious situation. Perennial problems such as a lack of financing, inadequate infrastructures, inaccessibility of public services and inadequate market intelligence were still major constraints hindering SMEs in South Asia. Such problems were further aggravated due to a lack of information on the markets, technological backwardness, inadequacy of human resources (both managerial and technical) and an intense competition coming from large domestic and foreign enterprises as a result of openness and economic liberalization measures.
  • Country study on Bangladesh using global value chain analysis: The plastics industry
  • Country study on Nepal using global value chain analysis: The argo industry (coffee and ginger products)
  • Country study on Sri Lanka using global value chain analysis: The industrial rubber and electronic products sectors
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