THE government is helping the country’s small and medium enterprises (SMEs) become competitive suppliers of products and services through global value chains (GVCs), kick-starting the process with the holding of a two-day GVC conference workshop at the Dusit Hotel in Makati City starting Monday.
Dubbed as “Global Value Chains, Industrial Policy, and SME Integration in GVCs: Transformation Strategies for More Inclusive and Sustainable Growth,” the two-day conference workshop is a venue for learning and capacitating the estimated 200 participants from various industries and sectors o f SMEs, regional development councils, government agencies, the academe, and other representatives and stakeholders in the GVC arena.
Organized by the Board of Investments (BOI), the industry development and investments promotion arm of the Department of Trade and Industry (DTI), the conference workshop is a continuation of the BOI’s industry roadmap localization efforts, highlighting the convergence of the DTI’s Industry Development Group and the Regional Operations Group.
“The importance of understanding global value chains (GVCs) in today’s interconnected world cannot be overemphasized, especially for the Philippines as we seek to sustain our high growth trajectory,” DTI Undersecretary for Regional Operations Group Zenaida C. Maglaya said on Monday.
“The remarkable last five years of 6.6 percent average annual GDP growth rate of the Philippine economy was driven by the manufacturing industry,” she noted.
The country’s SME sector accounts “for about a third of our GDP, about a fifth of our manufactured exports, and about two-thirds of employment generated – making SMEs key to achieving inclusive growth,” she added.
But, like many SMEs in other developing countries, they continue to face challenges such as access to raw materials, capital, skilled workers, and technology, she said.
“Hence, our efforts are focused on resolving these issues in order to promote healthy and globally competitive SMEs.”
GVCs are the process of producing goods from raw materials to finished products wherever around the world the necessary skills and materials are available at competitive cost and quality. For example, Macbooks, iPhones and iPads are designed in the United States but are assembled in China and some parts of these products are from Japan, Germany, France, Korea, among others.
Maglaya said there is a need to push SME integration and participation in GVCs.
“Firstly, it is already happening with some SMEs participating as suppliers of intermediate products used by direct exporters, such as in the case of Yokohama in rubber, Kennemer in cacao, or Moog in aerospace parts,” she said.
“Second, participation in regional and global production networks will provide SMEs access not only to export markets, but also access to newer technologies. Lead multinational firms usually provide their local affiliates and local suppliers with more rapid technological upgrading and greater attention to quality control, cost control, and human resource development,” she said.
GVCs provide opportunities for SMEs to specialize in activities within an industry value chain in which they have expertise. Instead of competing throughout the value chain, SMEs can specialize in a task in the GVC in order to add more value to its production and thereby derive greater benefits, Maglaya explained.
Through specialization, SMEs can become more productive, more capable of competing in the global market, and generate more income,” she added.
She said the Philippines is pursuing a cluster-based strategy to build strong and competitive regional economies.
“To make this happen, we are focusing on the development of agro-industries particularly, and shifting to high value crops like rubber, coconut, coffee, cacao, fruits, vegetables and other resource based industries in order to transform our regions, create quality and high-paying jobs, reduce poverty, and sustain economic growth.”
“Given the opportunities that GVCs offer, integrating our industries and upgrading in GVCs would be crucial. Our SMEs can serve as suppliers of outsourced parts or services that have increasingly grown in sectors such as automotive, machineries, electronics, garments, and food,” further said.
Rafaelita M. Aldaba, DTI assistant secretary for industry development group, said most products are now actually “Made in the World,” whether for processed food and even for low-tech products like T-shirts whose production is also characterized by GVCs.
“The Philippines supplies chocolate to Mars, (brand is Almond Joy) and mangoes to Costco Kirkland Signature dark chocolate covered mangoes. We also play a role in the auto and electronics GVCs of MNCs like Toyota, Mitsubishi, Denso, Yazaki, Texas Instruments, Amkor, Fujitsu Ten, Sunpower, Canon, Brother, Epson, Toshiba, Samsung, etc,” she said.
“IMI, which started as an SME is now an MNC supplying to Bosch. In garments, Filipino manufacturers also play a role in the GVCs of large retail chains like Gap, Banana Republic and Coach. Uniqlo is also eyeing the Philippines as a production site global retail network,” Aldaba said.
“Over the last decades, the global production landscape has witnessed significant changes with global value chains or GVCs becoming a dominant feature of international trade.
GVCs entail the process of producing goods from raw materials to finished products being carried out wherever the necessary skills and materials are available at competitive cost and quality,” she said.
With the emergence of GVCs, goods must now cross borders several times, first as inputs and then as final products. To succeed in international markets, countries must have both the capacity to import world class inputs and the capacity to export. In a GVC world, the view that exports are good and imports are bad and that market access is a concession in exchange for access to a partner’s market is clearly self-defeating, the DTI officials said.