Empowering CMSMEs in Global Value Chains

In today's interconnected world, the concept of Global Value Chains (GVCs) has become a defining feature of the global economy. GVCs represent the intricate web of relationships among economies, industries, and businesses involved in global production networks. These chains transcend national borders, seamlessly linking manufacturers, suppliers, and service providers, creating a highly efficient and dynamic global marketplace.

Bangladesh, a country steeped in a rich cultural heritage, stands on the precipice of a significant economic transformation. While strides have been made in various sectors, Cottage, Micro, Small, and Medium Enterprises (CMSMEs) face substantial hurdles when it comes to active participation in Global Value Chains (GVCs). This article delves into these challenges and offers a comprehensive policy framework to bolster CMSMEs, driving their integration into GVCs and, in turn, unlocking Bangladesh's immense economic potential.

To understand the urgency of CMSME participation in GVCs, we must first grasp the global context. GVCs represent the intricate interplay among economies, industries, and businesses engaged in global production networks. Bangladesh has been a notable presence in these value chains, with its nominal and real GVC-related trade shares averaging 45.2 per cent and 45 per cent, respectively, since 2007. However, Bangladesh's role has predominantly been downstream in these chains, underscoring the need to ascend the value-added ladder.

A pressing issue confronting Bangladesh is its low productivity levels. In 2016, the country's productivity was a mere 33 per cent of the average productivity of the 20 Asia Pacific Economies (APO20). Alarmingly, Bangladesh ranked third lowest in this productivity comparison, surpassing only Cambodia and Nepal. This productivity deficit is acutely felt within CMSMEs, a substantial segment of the nation's economic landscape. To surmount this challenge, CMSMEs must leverage their involvement in GVCs to access technologies and best practices that enhance productivity.

Empowering CMSMEs and fostering their active participation in GVCs necessitates a multifaceted policy approach. Here are the key policy recommendations to address the productivity gap and stimulate economic growth: To attract game-changing GVC investments, Bangladesh must prioritize openness, investor protection, policy stability, and a business-friendly climate. Investment promotion agencies (IPAs) can play a pivotal role in this effort. Exemplary models in countries like Costa Rica, Malaysia, and Morocco have demonstrated the efficacy of targeted IPA strategies, such as offering fiscal incentives and tailored services, in attracting FDI. Such investments have the potential to significantly enhance the productivity and capabilities of local firms, including CMSMEs, ultimately driving broader economic development.

Ensuring equitable access to bank loans is imperative for CMSMEs. Policies should be designed to encourage financial institutions to extend loans to these enterprises. Access to capital is a lifeline for CMSMEs seeking to upgrade technology, expand operations, and integrate into GVCs.

Investment in human capital development is equally vital. Leveraging existing SME clusters to develop industry-specific skills and management capacity, as demonstrated by Malaysia's Penang Skills Development Centre (PSDC), can significantly upgrade the skillset of the workforce. This approach not only addresses the issue of skilled manpower but also aligns workforce capabilities with technological advancements, enhancing the competitiveness of CMSMEs.

Lowering tariffs and harmonizing non-tariff measures (NTMs) can significantly enhance CMSMEs' competitiveness. Reducing trade barriers simplifies cross-border transactions and reduces the cost of inputs and materials, thereby enhancing the profitability of CMSMEs' involvement in GVCs. Additionally, investment in trade infrastructure, particularly transportation and logistics, can streamline the movement of goods and products within GVCs, making the participation of CMSMEs more efficient and cost-effective.

The liberalization of information and communication technology (ICT) services can empower CMSMEs with access to digital tools and platforms, fostering innovation and global connectivity. Developing advanced logistics services can streamline the movement of goods within GVCs, reducing lead times and costs for CMSMEs. Moreover, ensuring political and policy stability creates an environment conducive to business growth and investment.

Implementation of quality certification programs can substantially enhance product quality, boosting the competitiveness of CMSMEs in global markets. Also, strong enforcement of Intellectual Property Rights (IPRs) safeguards the innovations and intellectual assets of CMSMEs, providing them with a competitive edge.

Last but not the least, implementing these policy recommendations will require a coordinated effort involving government bodies, regulatory agencies, financial institutions, and CMSMEs themselves. A strategic roadmap that identifies clear objectives, timelines, and key performance indicators will be instrumental in driving the successful execution of these policies.

As the sun sets on this write-up of our economic narrative, Bangladesh stands at the crossroads of opportunity and transformation. By embracing these policy recommendations and drawing inspiration from successful programs worldwide, Bangladesh embarks on a journey that promises to unlock its economic potential. It is a journey that holds the promise of driving economic growth, fostering innovation, and creating job opportunities—a saga that propels the nation toward a brighter and more prosperous economic future. The story of Bangladesh, like the CMSMEs it seeks to empower, continues to unfold, with each chapter bringing new hope and promise.

The writer is a Research Associate, Centre on Budget and Policy, University of Dhaka