SMEs’ Participation in Global and Regional Value Abonyi - UNESCAP Yangon... · PDF...

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Transcript of SMEs’ Participation in Global and Regional Value Abonyi - UNESCAP Yangon... · PDF...

  • SMEs Participation in Global and Regional

    Value Chains: Greater Mekong Subregion

    Workshop on International Trade Finance, Logistics and Business Development UMFCCI, Yangon, Myanmar 27-29 November 2015

    George Abonyi

    Visiting Professor

    Department of Public Administration and Executive Education Program

    Maxwell School, Syracuse University

    28 November 2015

    1

  • Overview of the story

    Challenge

    Expanding GMS SME exports to regional and global markets

    Overcoming barriers to SME internationalization (supply side)

    Exporting in slow-growth global and regional economy (demand side)

    Opportunity

    Regional and global export markets for long-term growth but with a difference

    Growing Asian emerging markets: for now mostly at lower end of income scale

    Slow developed economies: continuing importance, but more difficult markets

    Response

    Expanding GMS SME exports to regional and global markets on 3 tracks

    Exporting existing (final) products/services

    Innovating for Asian emerging markets and beyond

    Promoting SME suppliers in global (regional) value chains (GVC)

    2

  • CHALLENGE (1)

    Overcoming barriers to SME internationalization

    (supply side perspective)

    3

  • 4

    Benefits of SME

    Internationalization

    Supports growth in revenues, size, and market share

    Exposes firm to international best

    practice

    Facilitates adding value through

    product, process, and business

    model innovation

    Employment generation

    Strengthens productivity

    Improves overall competitiveness

  • Why not: significant barriers to

    SME Internationalizatione.g. SME export share of 5 ASEAN economies around 23%Source: Abonyi (ERIA, 2015)

    Internal barriers: relate to

    firm-level capability and

    resource constraints Seen as most important, e.g. mind

    set, information, finance, skills

    External barriers: relate to

    business environment both

    national and international E.g. general domestic SME-related

    business environment, logistics,

    clustering, trade facilitation

    5

  • CHALLENGE (2)

    Internationalization in slow-growth and

    uncertain global and regional economies

    (demand side perspective)

    6

  • Market challenge where will global demand

    for GVCs come from: New normal and

    greater divergence in the global economySource: IMF WEO, October 2015; October 2008

    Slow-growth global economy esp. developed economies; also slowing but

    relatively faster growth in Asian emerging economies

    Especially ASEAN, China, India (ACI)

    And political uncertainty of economic management (e.g. EU, China)Note: IMF has continually overestimated growth since 2009

    7

  • Developed economies and China markets: slow, uncertain

    . For regional (East Asian) value chains:

    - Developed economies: primary final market

    - China: intermediate market key role in GVCs

    Developed economies (particularly US)

    driving regions growth as final markets Intra-ASEAN trade is less than 25% of its total trade

    Developed markets slow uncertain growth

    Source: Lim and Lim (2012)

    China has imported 50% of all intra-

    regional intermediate exports (parts,

    components); but for final export to

    developed economies economies, e.g.

    iPhones to US and EU (source: ADB, 2011)

    China: rebalancing and extended slow growth

    From high (national) savings and related

    investment- and export-driven model;

    to domestic consumption driven growth

    Challenge of political economy

    8

  • Chinas investment-driven growth:increasing debt, declining efficiency,

    most new debt is to service old debt Chinas increasing debt and composition

    mostly SOEs and local government Nearly 50% related to real estate

    Chinas Debt to GDP ratio

    Source: MGI (2015)

    Growing non-productive overinvestment:

    i.e. declining efficiency of investment

    (Marginal Product of Capital)Source: Ha Jiming, Goldman Sachs China (2015)

    S

    9

  • Key Chinese activity indicators Nearly every industry is at 30% or more overcapacity

    Average accounts receivable for consumer electronics retailers/manufacturers:123 days

    Average days of inventory for clothing companies: 174 days (Bloomberg 2015)

    Source: Haver Analytics, in Financial Times, 19 Aug. 2015

    Chinas import growth (by

    volume) has declined

    significantly

    Source: OECD, 16 Sept. 2015

    10

  • China market challenge

    Chinas rebalancing from investment to consumption-driven growth even if

    smoothly successful, will mean extended slow growth; AND does not

    automatically translate into increased imports of final manufactures

    China as market for final goods is shaped not by size or growth of GDP,

    but capacity to generate net demand for import of final manufactures

    China has been major importer of (South) East Asias exports of parts and components; but for its final exports to developed economies, e.g. iPhones to US and EU

    To become a growth locomotive for manufactures of the region (e.g. GMS)

    China would need to raise not only its domestic consumption as a share of

    GDP, but also its imports of final goods from the region

    11

  • OPPORTUNITY

    Continuing key role of developed markets, but more difficult and uncertain

    Asian emerging markets present great opportunities for long term growthBut in coming years mostly at lower end of the income scale, with local constraints

    12

  • The future of the region is brightSource: Australian Government White Paper (2012)

    Asias rising share of global GDP Asias rising incomes (Bubble area reflects size of GDP; income per person in PPP)

    13

  • Future of ASEAN is brightSource: Euromonitor International (2015)

    Economy

    Market

    Youth

    $

    If ASEAN were a single economy it would be the 7th largest in the world; and could be the 3rd largest by 2030

    With 622 million people, ASEANs potential market size is larger than EU (502 million) and North America (354 million)

    With median age of 28.8 years in 2014, ASEANs population is younger than EUs (42.1), Chinas (40.8) and North America (38)

    Total consumer expenditure is expected to grow by 108% in real terms across ASEAN, 2015 - 2030

    14

  • ASEAN consumer expenditure is

    increasingbut unevenlySource: Euromonitor International (2015)

    ASEANs Real GDP Growth and Total

    Consumer Expenditure: 2000 2014 Averaged 5.4% p.a.; expanded by 117% in real

    terms to reach $1.4 trillion in 2014

    By 2030 ASEAN to be the 3rd largest

    economy, after US and China, worth $3.1

    trillion in constant 2014 dollars

    Consumer Expenditure per

    Household in ASEAN:

    2014 and 2030

    15

  • Asian emerging markets and

    consumers are different But significantly lower disposable incomes in AEC in coming years as compared with developed

    economies, regions traditional final markets (source: Lawrence, ADBI (2013))

    Fragmented markets,

    growing income inequality,

    and high proportion of

    rural population will condition

    consumer spending

    Per Capita Real Annual Gross Income

    in China and USA (19902030)

    Reflects consumers purchasing power

    In 2030: narrower, but US still 4.6 x China

    Source: Euromonitor International (2014)

    16

  • Consumer is at the centre of

    understanding market potential Source: Euromonitor International (2015)

    Household Income Distribution in

    ASEAN: 2014

    Households by Annual

    Disposable Income Band in

    ASEAN: 2014 and 2030

    17

  • Implications

    (1) Continuing dependence on slowing developed markets: Given current

    patterns of domestic demand in the region, developed economies (e.g., US, EU)

    will continue to play a key role as final markets for manufactures over medium

    term, within framework of global value chains and related production networks in

    key industries, e.g. electronics, automotives, garments, agro-industry.

    (2) Expanding opportunities in Asian emerging markets over the longer

    term but with a difference: Expanding Asian emerging markets (e.g. AEC +

    China + India) will present increasing growth/diversification opportunities

    For SME suppliers in GVC/networks increasingly focusing on regional markets

    For SMEs exporting products/services to final consumers in AEC (emerging Asia)

    But for markets with very different characteristics than developed economies

    18

  • RESPONSE

    Promoting more GMS SME internationalization on 3 tracks

    1. Exporting existing (final) products/services

    2. Innovating for Asian emerging markets and beyond*

    3. Suppliers in regional and global value chains (GVC)

    19

  • Integrating GMS SMEs into

    global and regional value chains

    Around 80 percent of world trade is now through GVCs (UNCTAD 2014)

    Participation in GVCs as key means for SMEs to internationalize as suppliers

    (subcontractors) of intermediate inputs (parts, components, services) for

    MNEs from within or outside the region

    Benefits of participation in GVCs, e.g.

    Strengthening the technical and managerial capabilities of firms

    Increasing capacity utilization and production efficiency

    Strengthening the reputation and credibility of t