building linkages to boost smes competitiveness:...
TRANSCRIPT
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BIT/CBU: Competitiveness, Business Environment and Upgrading Unit
Building linkages to boost SMEs competitiveness: clusters, industrial parks and FDI
National Conference on Integration of ASEAN Economic Communities 2015
Challenges and Opportunities for SME sector in Cambodia
December 16-17, 2014 Phnom Penh, Cambodia
Michele Boario UNIDO Senior SME Expert Yangon, Myanmar
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1. Clusters and Industrial Parks to foster SMEs competitiveness
2. SMEs and FDI
3. Lessons on SMEs-FDI linkages from Singapore and Malaysia
4. UNIDO’s Myanmar experience
5. UNIDO’s Industrial Upgrading and Enterprise Competitiveness Initiative
Outline
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I. Clusters and Industrial Parks to foster SMEs competitiveness
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The need for a cluster-based strategy
There is a need for a strategy that allows SMEs to connect
to other business partners,
thus overcome their size constraints.
CLUSTERS ??
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•Clusters are promising environments for the development of linkages for
competitiveness.
•Within clusters – SMEs overcome isolation & reach collective efficiency from the
organization of
•Joint actions among firms
(e.g. bulk inputs purchase, joint advertising, shared equipment)
•Joint actions between firms & their support institutions
(e.g. provision of technical assistance by business associations or
investments in infrastructure by the public sector).
•By engaging in joint actions, cluster firms can achieve results that are out of reach
for individual enterprises.
•Clusters = geographical concentrations of related firms & support institutions……
……WE HAVE MANY. WHY DOESN’T IT WORK THEN?
Why supporting clusters?
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The productive space without performing clusters
Firm
Support Institution
Supplier
Firm Service Provider
Firm Local Government
Support Institution
Service Provider
Firm
Firm
Firm
Firm
Supplier
Supplier
Supplier
Firm
Where are the linkages???
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Backward linkages
Firm supplier
Supplier
Firm
Firm
Firm Supplier
Forward linkages
Global buyers
Final Markets
Raw Material Suppliers
Equipment suppliers
Firm
Larger Firm
Firm
Firm
Firm
Firm
Firm
Public Private Partnership
(Public & Private) Support Institution
Export consortium
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Policy for cluster development
Facilitating policies: improving the investment climate, regulatory framework, attract FDI, Industrial parks, SEZ, infrastructure, PPPs
Engaging stakeholders: awareness creation, cluster identification, support to networking organisations, coordination bodies (CDG)
Collective services: market intelligence, technical standards, quality standards, training, global value chain development
Finance: dedicated funds and banks
Innovation: R&D system, sector institutes for product development, IT park, twinning arrangements
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Why industrial parks ?
UNIDO has developed a comprehensive perspective and understanding of the role of industrial and eco parks.
Tools to overcome diverse market and institutional imperfections
Encouraging economic diversification and sustainable industrial development
Testing ground for new reforms, policies, and approaches to improve the business environment
Solving business infrastructure problems in particular geographical areas
Attracting FDI
Fostering skilled manpower
Facilitate the growth of local SME clusters
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Clusters
FDI IPs
How can SMEs benefit from clusters, industrial parks and FDIs interaction ?
SMEs
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II. SMEs and FDI
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Foreign direct investment (FDI) can strongly enhance local SME
development
backward, forward or horizontal linkages
Backward linkages exist when foreign affiliates acquire goods or
services from domestic firms.
Forward linkages when foreign affiliates sell goods or services to
domestic firms.
Horizontal linkages involve interactions between foreign affiliates and
domestic firms engaged in competing or complementary activities.
FDI – SME linkages
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Benefits from linkages
For local SMEs
increased local market opportunities
upgraded management skills
new technology
access to capital
increased possibility of internationalizing their business
For the host economy as a whole
stimulate economic activity
For transnational corporations
lowering transaction costs
greater flexibility
spurring local adaptations
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(Pre) Conditions to fully benefit from linkage-related spillovers Linkage-related benefits to domestic firms and the local economy are
not automatic.
Attractive environment for FDI
TNC willingness to participate and increase local sourcing of supplies and/or services;
SME capability to work with TNCs and meet their required standard of quality and reliability;
A mutual interest/gain in establishing a lasting business relationship.
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The role of government policies on preconditions for building linkages
Firstly, the creation of beneficial FDI-SME linkages depends on the capacity to attract a substantial quantity and quality of FDI for the host country.
→ open stance towards FDI
→ investment climate
→ Target FDI in sectors and industries
with significant growth potential coherent with industrial plans
Secondly, strengthening the absorptive capacity of domestic firms is vital to establish linkages and to assimilate efficiently the technology and knowledge that these linkages may provide.
→ improving doing business
→ SME promotion
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III. Lessons on SMEs-FDI linkages from Singapore and Malaysia
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Singapore: from a modest trading post to a developed nation
GDP growth at more than 7% for many decades
FDI growth model
Successful promotion of local SMEs
Active government involvement in facilitating linkages SMEs-FDIs
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Singapore: SMEs promotion
Strategies, master plans, broad-based, sector-level, and enterprise-level initiatives to create vibrant and resilient SMEs.
Implementation trough government involvement and PPPs.
Financial assistance programmes (start-ups, growth and internationalization)
SMEs capabilities upgrading (Enterprise Association Development Programme, managerial and technical skills, innovative and technology-intensive SMEs, subsidizes for engaging consultants to upgrade and modernize business operations, as well as product and process innovations.)
SME market expansion (financing, tax incentives and grants)
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Singapore Local Industry Upgrading Programme (LIUP)
Support the transfer of technology, marketing, and business process knowledge from TNCs to domestic SMEs.
Under the programme, TNCs are encouraged to “adopt” SMEs in their value-chain, and government support is provided to both parties through three progressive stages of SME development.
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Singapore LIUP: how it works
Phase 1: improvement of overall operational efficiency of local SMEs, such as production planning and inventory control, plant lay out, financial and management control techniques
Phase 2: introduction and transfer of new products or processes to local enterprises
Phase 3: joint product, process research and development with foreign affiliates’ partners
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Singapore LIUP: incentives and results
The LIUP’s activities include a variety of organizational and financial support measures for upgrading vendor relationships (e.g. contributions to salary of foreign affiliate representatives seconded to local suppliers)
Under the LIUP, local suppliers have been encouraged to follow their TNC customers to other affiliate locations Results examples: AT&T’s local partner, San Teh, expanded enough to claim 14 per cent of the global
market for rubber conductive key pads.
Next Technology meet the US Food and Drug Administration’s good manufacturing criteria.
Advanced Systems Automation, and Manufacturing Integrated Technology, have also evolved into first-tier internationalized suppliers.
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Malaysia
Although Malaysia's specific development model has changed over time, FDI has always played a central role.
For a while limited independent attention to specific SME challenges. SME initiatives in the 1980s and early 1990s, for example, focused narrowly on linking local suppliers to foreign affiliates within broader industrial policies.
It was not until the late 1990s that broad-based SME promotion started to become one of the government’s top priorities: provision of infrastructure facilities, financial assistance, advisory services, market access and other support programmes.
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Malaysia: SMEs – FDIs linkages
Early attempts (80’ and 90’) failed due to lack of SME support and no merit based selection (automotive).
Better results starting from the mid 90s: Industrial Linkage Programme (ILP) (manufacturing and food processing, Tesco) and the Global Supplier Program (GSP) (skills in electronics and access to foreign markets), have helped contribute to several examples of successful SME development (Penang Skills Development Centre, Intel and Globetronics).
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Recommendations on government policies to foster TNCs – SMEs linkages
Although foreign affiliates may have an interest in creating and strengthening local linkages, their willingness to do so is influenced and reinforced by government policies.
Provide information and incentives to encourage TNCs to use local suppliers
Facilitate inside “seeding”
Ensure that linkage programmes address SME capabilities
Value the many forms of knowledge transfer from foreign affiliates to SMEs
Expand markets through TNC networks
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IV. UNIDO experience in Myanmar
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UNIDO response to selected Myanmar challenges and problems
Challenges/problems
Structural change
Regulatory environment
SMEs
competitiveness &
Market Integration
UNIDO response
Industrial strategy and policy
Policy dialogue ( SME R&R and policies, IZ law, industrial law)
Cluster and global value chain development, partnership building, PPP
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Fostering pro-poor and inclusive MSME development (preparatory phase) Effective institutional and working relationships with counterparts
and donors (DPs) established.
Cluster development awareness created.
Training sessions and discussions on cluster and MSME development for government officers (800), entrepreneurs (300) including 12 industrial zones management committees.
Technical reports drafted and discussed with stakeholders: Snapshot Cluster Mapping; Myanmar Business Survey; Industrial Zones needs assessment,
Policy recommendations on industrialization, MSME and cluster development provided to MoI, SME Center, and CDG.
Pilot project on laquer-ware and weaving clusters development
Funded by the Italian Cooperation US$500k + US$1 ml
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SME policy, law, rules and regulations currently being drafted with UNIDO technical assistance.
Industrial Zones Law and industrial law currently being drafted with UNIDO technical assistance.
Diagnostic study of Bagan lacquer ware cluster, and Mekthila and Wundwin weaving clusters currently being finalized.
Lacquer ware association trained and encouraged to restart their activities.
Foreign entrepreneurs briefed on business opportunities in Myanmar.
Participation of Myanmar entrepreneurs and senior officials of Ministry of Mines in market access activities.
IT platform to link Myanmar SMEs to foreign investors
Fostering pro-poor and inclusive MSME development (preparatory phase)
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Continue support to Micro and SME Development through advisory services and Human and institutional capacity building (policy, law, rules, Industrial Zones Law and industrial law…)
Support cluster development and SME upgrading (lacquer ware, textile, food…)
Foster decent and productive jobs through Youth and Women Entrepreneurship development
Promote business and Knowledge partnerships and responsible and sustainable investment between Myanmar and other countries
Fostering pro-poor and inclusive MSME development (phase I – 2015-16)
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V. UNIDO’s Industrial Upgrading and Enterprise Competitiveness Initiative
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UNIDO’s Industrial Upgrading and Enterprise Competitiveness Initiative
Global objective
To enhance the contribution of private sector manufacturing enterprises to the sustainable economic growth and reduction of socio-economic disparities through industrial upgrading and improvement of enterprise competitiveness
Employment creation Exports generation Investment & technology promotion
Economic Growth and Poverty Reduction through
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IMPACT Sustainable economic growth and poverty reduction
OUTCOME Income
generation Employment
creation Export growth and market expansion
Investment growth
OUTPUTS
Policy framework & business environment favour SME upgrading/
development
SMEs upgraded and modernized
Technical support institutions established and/or strengthened
Financing schemes for SME development
and upgrading in place
Intervention logic of the Upgrading Initiative
UPGRADING MODEL
• Analysis of sectoral, sub-sectoral, value chain and cluster dimensions
• Composed of diverse development services and tools
• Multi-disciplinary design & implementation
• Comprehensive and holistic approach at policy, institutional and enterprise levels INPUTS
ACTIVITIES
TOOLS
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IMPACT Sustainable economic growth and poverty reduction
OUTCOME Income
generation Employment
creation Export growth and market expansion
Investment growth
OUTPUTS
Policy framework & business environment favour SME upgrading/
development
MSMEs upgraded and modernized
Technical support institutions established and/or strengthened
Financing schemes for SME development
and upgrading in place
Intervention logic of the Upgrading Initiative
INPUTS
ACTIVITIES
TOOLS
TOOLS & ACTIVITIES
Anal
Coms
.
C l
Streamlining business
environment
Strengthening support
infrastructure
Promoting investment,
technology and innovation
Introducing resource efficiency practices
Building value chains and networking
Policy advice
Managerial skills
upgrading
Entrepre-neurship
development
Market access and consortia
SPX , CSR, and other
tools
Quality and certification
Clustering, business linkages,
PPPs
Technical & technology upgrading
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Methodologies and information tools
METHODOLOGICAL GUIDE: Restructuring, Upgrading and Industrial Competitiveness
(currently being updated, available in English and French, soon – in Russian)
PRMN UEMOA-ONUDI: Approche méthodologique pour la réalisation d’un diagnostic de restructuration et de mise à niveau,
Methodological Guide (adapted to the regional IUMP)
UPGRADING PLAN:
Methodological Guide (adapted to the country IUMP)
OPERATIONS MANUAL on restructuring and upgrading
(adapted to the regional IUMP)
ELECTRONIC DATABASE of national experts on modernization, CD format
ELECTRONIC DATABASE of financial and technical support institutions for modernization , CD format
…as well as many other technical papers, thematic publications, manuals and software
Selected tools of an ‘Upgrading Kit’
