ASEAN promotes the strategy of participating in the global value chain of small and medium enterprises (SMEs)

The role of small and medium-sized enterprises in promoting economic development, creating employment opportunities and narrowing the gender gap in the workforce cannot be underestimated. There are currently more than 70 million small and medium enterprises in ASEAN. Among them, 65,5 million businesses are in Indonesia, most of the rest are in Thailand (3,2 million businesses), Malaysia (1,2 million businesses), Philippines (1,1 million businesses) and Vietnam. South with 700.000 businesses.

Engaging in international trade is a complex process for many small and medium-sized businesses. SMEs may find it difficult to independently source end-buyers in foreign markets, comply with national export requirements, and effectively manage complex or limited logistics networks. have skilled human resources to do it. Engaging in trade through established global value chains (GVCs) through relationships with locally based actors in global trade networks can provide them with a to participate in international trade activities.

OECD research on Southeast Asia found that 23% of ASEAN SMEs import (directly or indirectly) and less than 12% export (directly or indirectly). This highlights that SMEs are underrepresented in GVCs compared to larger companies, with 58% importing and 54% exporting. Furthermore, many of these large companies are foreign enterprises (30% are large importers and 23% are large exporters), showing the disparity. In terms of importing and exporting SMEs, only 4% and 2% of them are foreign enterprises, which may explain their lower participation in GVCs.

Therefore, establishing linkages between SMEs and transnational corporations (TNCs) is crucial to integrating SMEs into GVCs. It is essential to promote a supportive environment for foreign direct investment (FDI), as FDI plays an important role in creating strong links between small and medium enterprises (SMEs) and TNCs. Research shows that FDI-facilitated relationships with foreign firms can significantly enhance SMEs' participation in GVCs through access to global networks and technology . This can be achieved through a variety of collaborative efforts, including strategic partnerships, contractual agreements, and technology licensing, among others.

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Challenges of SMEs in global value chains

Internal factors such as competitiveness, human resources and finance are important for small and medium enterprises to participate in GVCs. OECD research shows that high-productivity companies with long-term growth potential tend to participate in GVCs. Improving the competitiveness of small and medium-sized enterprises requires targeted support such as technology upgrades and specialized training. Access to advanced technology helps SMEs streamline operations and meet international standards, while supply chain management training and other programs enhance export readiness. Exporting helps them equip themselves with solutions to the challenges of global trade. Additionally, partnerships with larger companies can provide more learning opportunities through shared expertise and resources.

External factors pose significant challenges to the participation of SMEs in GVCs. Domestically, SMEs face obstacles such as limited access to finance, poor infrastructure, inadequate logistics systems, and unreliable broadband internet connections. , especially in rural areas and lacking digital skills. These challenges can limit their operational capacity and growth potential. Public policy initiatives will promote inclusive development and take into account the challenges faced by SMEs.

Financial constraints remain a major obstacle to the development of small and medium-sized enterprises, especially for startups. Traditional banks, through loans and credit programs, remain the dominant source of finance in the region. However, the emergence of financial technology (FinTech) has begun to improve access to finance for SMEs. It is important to continuously review policies to create a favorable environment for FinTech and explore alternative financing options such as venture capital, angel funding, public equity , peer-to-peer (P2P) lending and equity crowdfunding. These measures can support the diverse financing needs of SMEs, enhancing their access to finance and thus laying the foundation for greater sustainability of their businesses. .

Digitalization also plays an important role in improving the competitiveness of small and medium-sized enterprises and facilitating their integration into global value chains. The 2018 SME Policy Index shows that exporting companies are often more advanced in adopting digital technology, helping them manage logistics and comply with international standards more effectively. In contrast, non-exporting SMEs often use digital technology primarily to increase their visibility in the market. There is an urgent need to expand the understanding and use of advanced digital technologies among SMEs to help level the playing field for participation in global value chains.

In addition, lack of access to information about international markets continues to hinder the participation of small and medium-sized enterprises in global value chains. While there are national policies and strategies to support SME exports – a key component of participation in global value chains – awareness of these programs in small and medium enterprises is still low. Raising awareness and facilitating access to these support mechanisms is essential to ensure that SMEs can effectively take advantage of the opportunities.

ASEAN supports and guides small and medium enterprises

ASEAN as a regional organization continues to address the challenges of integrating SMEs into global value chains, with a key initiative being the ASEAN Strategic Action Plan on the development of small and medium enterprises 2016-2025, establishing a platform to discuss the challenges and opportunities of small and medium enterprises, providing small and medium enterprises with market access information better market through connecting businesses, promoting partnerships with multinational companies and applying international quality standards.

In 2018, the ASEAN Policy Index for SMEs was established to monitor and evaluate the effectiveness of policies supporting SMEs. Preparations are underway for the ASEAN Policy Index for SMEs 2024, which aims to reflect recent changes and emerging trends in the SME sector. This index will serve as an important tool for policymakers to better design and implement relevant policies to meet the changing needs of small and medium enterprises.

Going forward, it will be essential to have a comprehensive understanding of the challenges that SMEs face when participating in global value chains. One way to facilitate this is to collect reliable data. Currently, most research on SME participation is based on a combination of enterprise surveys, case studies and administrative data, which often suffers from limitations such as limited national coverage. comprehensive, inconsistent time series analysis and varying definitions of SME within and between regions. With better data, more targeted, evidence-based policies can be deployed to focus on improving access to finance, streamlining export procedures, supporting upgrading technology and raise SME awareness of import and export support programs.

At the regional level, ASEAN plays an important role in facilitating the exchange of best practices and regulatory updates, as well as discussions on trends or challenges facing SMEs that can provide information for regional initiatives. ASEAN is also an important contributor to the collection of SME-related data. Additionally, regional initiatives to enhance SME competitiveness include facilitating business networking events and thematic capacity building programs, which necessary to increase opportunities for SMEs to participate in GVCs.

Continuous monitoring, evaluation and adjustment of SME policies at the national level remains essential, as does strengthening regional cooperation. Adjusting domestic policies to suit regional developments will help ASEAN small and medium-sized enterprises take full advantage of the opportunities brought by regional and global economic integration, thereby promoting economic growth. sustainable growth and greater regional resilience in the face of global challenges.