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Enabling SMEs to Enter the International Supply Chain - PDF by elfphabet8


									                                      ENABLING SMES TO ENTER THE
                                      INTERNATIONAL SUPPLY CHAIN
                         June 2005
                                     Enabling small and medium-sized enterprises (SMEs) to enter the international supply
                                     chain relies on the development of a supportive business environment for SMEs and the
                                     build-up of the human, technical, and financial capacity of these SMEs so they can understand
                                     the policies and operations of global supply chains and profitably respond to those require-
 N o t e s

                                     The Role of SMEs in the Global                   By implementing the measures presented
                                     Economy                                          in this note, developing countries can
                                                                                      make significant progress towards achiev-
                                     In an increasingly international market-         ing an environment that nurtures the devel-
                                     place, many companies are finding that           opment of SMEs and fosters their success-
 E x p l a n a t o r y

                                     prosperity is best achieved from speciali-       ful integration into the international supply
                                     zation, as opposed to diversification.           chain.
                                     While the majority of the world’s largest
                                     companies continue to provide multiple           Government Measures
                                     services to numerous markets, they now
                                     purchase many components and goods               Governments are responsible for establish-
                                     from smaller companies that serve one            ing an environment conducive to the de-
                                     particular niche. As the global marketplace      velopment of SME competitiveness. Gov-
                                     continues to develop, SMEs provide an            ernments generate policy that impacts the
                                     effective tool for economic growth through       trading environment. They also play a
                                     participation in global supply chains.           critical role in promoting conformity with
 G F P

                                                                                      global market requirements by building
                                     SMEs drive economic development by               their capacity to supervise the implementa-
                                     creating a valuable source of employment;        tion of international quality standards. Fi-
G r o u p :

                                     SMEs account for 60-70 percent of em-            nally, governments are instrumental in fa-
                                     ployment in OECD countries. In develop-          cilitating access to markets. The following
                                     ing countries, this number is often much         are selected actions governments can take
                                     higher. In Ecuador, for example, 99 per-         to enhance the development of SMEs.
                                     cent of all private companies have no more
                                     than 50 employees.                               Simplify, Harmonize and Implement
                                                                                      Standards and Procedures
B a n k

                                     Unfortunately, SMEs fail much more fre-          A competitive environment requires the
                                     quently in these economies. They repeat-         simplification and harmonization of proc-
                                     edly encounter barriers to internationaliza-     esses, regulations, and standards with do-
                                     tion; however, several of these obstacles        mestic, bilateral, regional, and interna-
W o r l d

                                     could be eliminated through successful           tional practices. Disparate regulations and
                                     integration into the international supply        methods of administration create onerous
                                     chain. The United Nations Industrial De-         burdens on companies that attempt to com-
                                     velopment Organization defines the export        pete internationally. The implementation
                                     promotion agenda as the ability to compete       of proper standards requires a sound legal
T h e

                                     by removing supply-side constraints, con-        and regulatory framework, a harmonized
                                     form to market requirements, and connect         system for accreditation, certification and
                                     to targeted markets.                             inspection, and an advisory capacity for
         Barriers to
                                         companies. This involves active capac-       technologies and efficient operating
Internationalization of SMEs             ity building efforts within government       practices. The Serbian Agency for the
                                         agencies and SMEs. Public-private part-      Development of SMEs and Entrepre-
1. Lack of entrepreneurial, mana-        nerships can support the simplification      neurs provides one such example.
gerial and marketing skills                                                           For more information, visit:
                                         of procedures by identifying particular
                                         requirements that limit market access
2. Bureaucracy and red tape
                                         and by underlining the need for predict-
                                         ability in the business environment.         Private sector associations are another
3. Lack of accessibility to infor-                                                    valuable source of information. Each
mation and knowledge
                                         From a trade facilitation perspective,       year the International Chamber of Com-
                                         standardization can be aided by the          merce specifically recognizes Chambers
4. Difficulties accessing financial
resources/Lack of capital                adoption and implementation of interna-      from around the world that work to de-
                                         tional conventions and agreements such       velop their SMEs.
                                                                                      See these recognized Chambers:
5. Lack of accessibility to invest-      as the World Customs Organization’s
ment (technology equipment and           Revised Kyoto Convention and the Con-        npages/bsbp/all.asp
                                         vention for the Simplification and Har-
                                         monization of Commodity Classification;      Beyond direct access to information,
6. Non-conformity of standardi-
zation, lack of quality awareness        the United Nations’s Geneva Convention       small business administrations and
and lack of mutual recognition           for the Harmonization of the Frontier        chambers of commerce provide educa-
schemes                                  Controls of Goods; or by following best      tional seminars and support for partici-
                                         practices (see UN-CEFACT Recommen-           pation in trade shows. A lack of manage-
7. Product and service range and         dation 18).                                  rial, marketing, or entrepreneurial skills
usage differences                                                                     is commonly cited as a primary cause of
                                         The implementation of these conven-          SME failure, and SMEs often have diffi-
8. Language barriers and cultural
                                         tions and recommendations provides an        culty procuring access to potential cus-
                                         opportunity to eliminate procedures that     tomers.
                                         hinder trade operations and introduce        For example, visit the GFP’s profile of training
9. Risks in selling abroad                                                            materials that was developed by the Koc Univer-
                                         higher levels of informed compliance.        sity under the Trade and Transport Facilitation in
10. Competition of indigenous                                                         Southeast Europe (TTFSE) program.
SMEs in foreign markets                  Facilitate Access to Actionable Infor-
                                         mation                                       Automate Government Systems
11. Inadequate behaviors of mul-         Obtaining information about laws, taxa-      Another important step a government
tinational companies against             tion, customs regulations, business advi-    can take in maximizing transparency and
domestic SMEs/Lack of govern-
ment supply-supporting programs
                                         sory services, training opportunities, and   easing private sector compliance is the
                                         financing sources can be exceedingly         automation of its goods clearance proc-
12. Complexity of trade docu-            expensive and time-consuming. As a           esses once they have been simplified and
mentation including packaging            result, SMEs often lack the resources to     harmonized. Automation ultimately en-
and labeling                             access this information.                     ables various agencies to share informa-
                                                                                      tion with greater ease, which in turn re-
13. Lack of government incen-            Governments play a valuable role in the      duces the number of submissions an im-
tives for internationalization of        integration of SMEs into the interna-        porter or exporter must turn in. When
                                         tional supply chain by creating small        coupled with better coordination among
                                         business administrations that have the       trade and border agencies, this informa-
14. Inadequate intellectual prop-
erty protection                          responsibility of assisting SMEs; busi-      tion-sharing can evolve into a single
The table above highlights the 14
                                         ness associations can be encouraged to       window for trade. While difficult to
greatest obstacles to the internation-   accept some of this responsibility. Two      achieve in practice, a paper-based or
alization of SMEs as identified by       priorities of these administrations in-      electronic single window heightens the
                                         clude the facilitation of access to market   coordination between border and trade
                                         information and the support of shortcuts     agencies, bringing incremental benefits
                                         to the internationalization process. The     to the trading community, the flow of
                                         ability to access information allows         goods, and the security of national bor-
                                         companies to comply with international       ders.
                                         trade regulations and to learn about new     For more information, visit:

2     GFP Explanatory Notes -
Automation also expedites the goods               local SMEs, governments can foster an               Case Study: Tunisia’s EDP
clearance process considerably, because           environment conducive to SME develop-
it allows for faster and more flexible in-        ment in the global marketplace. Link-               In 1999, the Tunisian govern-
                                                                                                      ment, supported by the World
formation exchange. By eliminating the            ages are varied in nature (backward link-           Bank through the Export Devel-
need for an importer or exporter to sub-          age with suppliers, forward linkage with            opment Project (EDP), intro-
mit paper forms, that process can take            customers, technology linkage, spillover            duced measures to facilitate
place through an advance information              effect) and impact.                                 trade, starting with the simplifi-
                                                                                                      cation and automated process-
exchange or a post-entry audit, two con-                                                              ing of trade documents. The
cepts that greatly reduce the time re-            Under the proper circumstances, TNC                 project focused on streamlining
quired at the physical point of entry or          linkages can enable SMEs to integrate               customs and inspection proce-
exit. Further, automated procedures sig-          into international supply chains, provide           dures and using information and
nificantly reduce the resources and asso-         specialized products, develop their oper-           communications technology to
                                                                                                      improve information exchange
ciated costs required of SMEs through-            ating efficiency and productivity, and              associated with cargo clearance.
out the goods clearance process and               foster innovation through technology
therefore enhance their competitiveness.          transfer and demonstration of effects.              There is already evidence that
                                                  Past experience has shown, however,                 Tunisia’s investments in trade
Improve Infrastructure                            that these results are subject to: (1) the          facilitation have dramatically
Many developing countries are plagued             implementation of targeted strategies               reduced import and export proc-
                                                                                                      essing times. Imported goods
by an insufficient business infrastruc-           that encourage long-term relationships              can now be cleared from ports
ture. Telecommunications systems are              with TNCs; (2) high adaptability and                in an average of 3 days, com-
outdated or cost-prohibitive to most              will to transform from the SMEs; (3)                pared with 8 days a few years
SMEs, technologies are antiquated, and            adoption of technology and quality man-             ago. The time needed to pre-
                                                                                                      pare and process customs decla-
access to the Internet is often non-              power training; and (4) building the                rations has dropped to 15 min-
existent. Developing a stronger, mod-             comparative      advantages      of    the          utes, down from as long as 3
ernized infrastructure dramatically im-           TNC/SME. Special programs are re-                   days.
proves the capability of SMEs within              quired to create such an environment;               For more information about
                                                                                                      Tunisia’s EDP, visit:
these countries to trade internationally.         strategies purely based on lower labor
Moreover, specific development of an              cost have not been as effective.                    prem/premnotes/
internet-capable landscape, which offers          To learn more about successful TNC/SME part-        premnote89.pdf
instant access to a global network of             nerships, see UNCTAD’s “Enhancing the Com-          To learn about ASYCUDA, a
                                                  petitiveness of SMEs through Linkages:”             commonly implemented customs
consumers and producers, can demon-        automation system, visit:
stratively enhance SME participation in           ls/recomm/publ/pdf_05.htm                 
international supply chains and the                                                                   aboutas.asp
global marketplace.                               Establishing Clusters
To view a measurement of infrastructure impact,   In order to better develop competitive
visit the GFP website.                            advantages for SMEs, firms can work to
                                                  establish geographic and industry-
Embrace TNCs: Promote FDI                         oriented clusters of SMEs. SMEs oper-
The presence of Transnational Corpora-            ating in a similar industry or geographi-
tions (TNCs) provides a critical means            cal location confront many of the same
through which SMEs can specialize and             issues, and pooling resources creates
carve out a niche in the international            greater opportunities. Clustering allows
supply chain (also known as a backward            SMEs to realize many of the operational
linkage). For this reason, implementing           efficiencies that are characteristic of lar-
programs to attract TNCs in addition to           ger companies, including:
providing assistance to SMEs will help
smaller companies join international              ♦   Proximity to sources of raw inputs;
supply chains.                                    ♦   Availability of suitably customized
                                                  business development services;
Private Sector Measures                           ♦ Abundance of clients attracted by
                                                  the cluster tradition in that industry; and
Linking with TNCs
                                                  ♦ Presence of a skilled labor force.
By attracting investment from TNCs
interested in forging strong linkages with

                                                                  Enabling SMEs to Enter the International Supply Chain               3
Case Study: Malawi Export           The United Nations Industrial Develop-                    Brussels, 14-15 May 2001:
   Promotion Council                ment Organization has initiated a clus-         
                                    ter/network development program to                        ♦ Poul Rind Christensen, Centre for Small
Mrs. Jessica Banda is the sole      assist countries in their efforts to culti-
proprietor of Jessica Creations,                                                              Business Studies, The University of Southern
which started its operations in     vate this concept.                                        Denmark. “Working Paper, No. 1999/4:”
1990 and is situated in Li-         To learn more, visit:                           
longwe, the capital of Malawi.                             Publikationer/Cesfo_working_paper/1999-4.PDF
The Company is involved in the                                                                ♦ George Starcher, Secretary General, Euro-
manufacture of handicrafts us-      Use Available Tools to Improve                            pean Bahá’í Business Forum. “The Role of Large
ing locally produced materials.     Enterprise Performance                                    Companies in SME Creation and Development:”
                                    There are tools available to owners of          
Like other micro, small and         SMEs that enable them to conduct sur-
medium enterprises, raising                                                                   ♦ East and Central Africa Global Competitive-
                                    veys and diagnostics to determine the                     ness Hub:
capital was an uphill task.
Through small personal savings,     competitive ability of their company.           
Mrs. Banda managed to secure        One of the best sources for such tools is                 ♦ “Corporate Social Responsibility and Devel-
start-up capital. Initially, she    the International Trade Centre of the                     oping Country SMEs.” Report 2002:
employed three people. In the       UNCTAD and WTO Enterprise Com-                  
first 3 months of the business,
                                    petitiveness Business Support Group.                      ♦ Ruben Ricupero, SG of UNCTAD,
the company could only pay                                                                    “Business Facilitation and Development.” Ge-
staff salaries and some of its      There are six guides and checkers available for
                                                                                              neva, 12 January 2004:
debts.                              use by SMEs to conduct their own analysis:
                                    US Small Business Administration Office of Inter-
In a bid to broaden her export      national Trade:                                           ♦ WIPO. “Intellectual Property and Small and
knowledge, Mrs. Banda ap-                                            Medium-Sized Enterprises:”
proached the Malawi Export                                                          
Promotion Council (MEPC).                                                                     brochure.pdf.
                                    Additional Resources and Links:
Through regular consultations                                                                 ♦ The World Bank SME Department:
with officials of the Malawi        ♦ Enhancing the Competitiveness of SMEs         
Export Promotion Council, she       Through Linkages:                                         the_case_for_smes.html
was able to understand the ba-
                                                                                              ♦ EC report urges boost for SME finance:
sics of exporting and identify                                                      
markets for her products. With      ♦ UNECE. “Internationalisation of SMEs: The               EUNews.2003-12-04.5846
zeal and determination, the com-    UNECE Approach:”
                                                                                              ♦ Benchmarking for auto-components manu-
pany was able to export to South
Africa and the United States.       ♦ US International Trade Administration. “The    and
                                    Role of Small and Medium-Sized Enterprises in   
In 1995 MEPC helped Jessica         Exports to China: A Statistical Profile, Office of
                                    Trade And Economic Analysis, October 2003:”
                                                                                              ♦ SITPRO:
Creations to participate at the                                                     
Berlin International Trade Fair
                                    China_SMEs2001_Oct03.pdf                                  ♦ Overview of “Doing Business 2005.” World
in Germany. The company’s
                                    ♦ Wattanapruttipaisan, Thitapha. “Promoting               Bank Report:
participation in trade fairs and
other subsequent promotional        SME Development: Some Issues and Suggestions
activities saw it grow from a       For Policy Consideration,” 57-68:
staff of three to a staff of ten.                  ♦ US Small Business Administration Office of
                                    bulletin2002/ch5.pdf                                      International Trade:
                                    ♦ Business Organization Networks in the Digi-   
                                    tal Economy. “The Impact of ICTs on Small and
                                    Medium Enterprises.” 1st Policy Group Meeting,

                                    This GFP Note has been produced with the financial assistance of a grant from TRISP, a partnership be-
                                    tween the UK Department for International Development and the World Bank for learning and sharing of
                                    knowledge in the fields of transport and rural infrastructure services. This Note was prepared by JBC Inter-
                                    national and reviewed by the World Bank Trade Logistics Group and GFP Steering Committee. The prepa-
                                    ration of the GFP Notes was coordinated by Gerald Ollivier, World Bank. The views published are those of
                                    the authors and should not be attributed to the World Bank or any other GFP affiliated organization. Addi-
                                    tionally, the conclusions do not represent official policy of the World Bank, its Executive Directors, or the
                                    countries they represent. For more information, contact Mr. Ollivier at

4    GFP Explanatory Notes -

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