After COVID-19, enable small and medium-sized businesses to enter global value chains in order to revitalise economies and foster sustainable growth.
Due to Covid-19 Pandemic, Asia-Pacific GDP is contracting by 1.5% year on year. During the first half of 2020, most APAC countries’ economies were adversely affected by pandemic-related lockdowns and travel bans. Although several Asia-Pacific economies had a strong rebound in economic momentum in the second half of 2020, several countries experienced an economic decline in the latter half of the year. With the strengthening of global export demand, along with the lifting of pandemic-related restrictions in many countries, this upturn was spurred by a recovery in domestic consumer spending.
According to assumptions about the introduction of COVID-19 vaccines, which will make the process of economic recovery in a number of OECD and APAC economies quicker, it is expected that a strong GDP growth will occur in 2021, with APAC GDP growth projected to be 5.7% y/y.
Global Value Chains (GVCs) are central to the economic landscape of the Asia-Pacific. In the case of the iPhone, Apple conceived and developed the phone in California, but many of the technologically advanced parts are sourced from Japan, Korea, Taiwan, Germany, and other countries, and the phone is assembled in China by two Foxconn- and Pegatron-owned Chinese Taipei companies, making it an example of the concept of globalisation.
While it is true that there are numerous other examples, such as clothing modelled in European cities but cut, sewn, and trimmed in China, Bangladesh, Cambodia, and Vietnam, it should be noted that this is typically the case with Asian companies rather than Western ones. Business process outsourcing (BPO) firms in the Philippines play a major role in GVCs in the services sector, especially for call centres.
Asia’s emerging economies, especially China, Malaysia, and Thailand, are driving GVCs thanks to MNEs with facilities and operations in the region that have invested and created capacity. Leveraging these GVCs has helped countries in these economies speed up their development, reduce poverty, and improve stability. They are helping these economies hit the ground running in terms of development.
SMEs account for the majority of businesses and employment in the emerging economies of Asia and the Pacific. Re-igniting the SME growth engine through trade would be critical to advancing sustainable economic recovery and resilience in the face of the coronavirus disease (COVID-19) pandemic.
The high levels of participation in global value chains during the COVID-19 crisis is particularly challenging for small and medium-sized enterprises (SMEs). However, SMEs have numerous opportunities for cross-border manufacturing and supply chain supply, such as being able to assist with the increasing demand for face masks.
In what ways is the economic well-being of the region’s small- and medium-sized enterprises and the participation in international trade still important for the economies of the region?
Small and medium-sized enterprises (SMEs) in Asia and the Pacific drive the economy. They are found in over 90% of businesses, 60% to 70% of jobs, and make up nearly half of all production in numerous countries.
Succeeding in the production of small and medium-sized enterprises (SMEs) has a variety of implications for a country’s economic growth. Small- and medium-sized businesses supply components and materials to larger corporations. SMEs that are innovative play a critical role in economic dynamism.
There are numerous reports about how internationalisation supports SMEs in various ways. Small and medium-sized enterprises (SMEs) can secure both high-tech items and high-quality items from abroad by internationalising their operations. Internationalization also helps small and medium-sized enterprises enter larger international markets.
Global value chains, also known as global supply chains, are common across the world. They help small businesses thrive.
GVCs are also known as global value chains or global value networks. This is a phenomenon where development is carried out in different countries, each with their own activities and tasks. GVCs are easier to understand if you use an example.
When one thinks about the construction of an automobile, one can realise how complicated a machine it is. GVCs manufacture various parts and components around the world in locations where it is most economical to assemble them. Once all parts and components have been received, they are sent to the final assembly location or country. Many cars are manufactured and sold locally, but they may also be exported.
GVCs have been and are being developed and run by multinational corporations (MNCs). The businesses on this list include not only international MNC affiliates, but also smaller businesses in the local community. According to estimates, GVC-related international trade accounts for about 80% of global trade. GVCs reduce the costs and risks associated with participating in international trade for small- and medium-sized businesses. Small and medium-sized enterprises (SMEs) are only required to take part in one facet of the GVC; they are not required to be present throughout the entire manufacturing process.
COVID-19’s impact on SMEs’ ability to participate in GVCs is unknown at this time.
SMEs have recently experienced supply and demand swings due to the recession. When materials and parts are in short supply, this is known as supply shock. When demand for their goods decreases, this is known as demand shock. Import materials and parts are in short supply, while export demand has fallen. Financial support is crucial to their ability to continue participating in GVCs.
However, because of the pandemic, it has made doing business with SMEs difficult for MNCs. However, this has opened up new opportunities for SMEs to get involved in GVCs for various products due to MNCs’ expansion of GVCs. Face masks, such as those for the health, are an excellent illustration. Increasing demand for face masks has prompted multinational corporations to actively seek out smaller firms, like small and medium-sized enterprises (SMEs), which are able to manufacture face masks in response.
The primary roadblocks for SMEs in GVCs are face masks. A problem is mask quality, as they must be safe and healthy. A problem is the limited amount of money available to invest in new machinery and equipment.
The next biggest barriers to increasing GVC participation during the pandemic are:
To attract small and medium-sized enterprises into global value chains, the biggest obstacles are a lack of technological competence and a lack of human and financial capital. In order to procure parts and components, MNCs search for suppliers with a high level of technological capability. Small- and medium-sized enterprises (SMEs) require both human resources and financial resources in order to achieve a high technological capability.
