SMEs play a critical role in boosting economic activity in Asia Pacific, where they account for more than 90 percent of businesses, up to 70 percent of employment, and more than 50 percent of gross domestic product (GDP) in several nations. In the face of the Covid-19 pandemic, stimulating the region’s SME growth through trade will be critical to fostering recovery and resilience through, for instance, enhancing their participation in global value chains (GVCs). GVCs is a methodology in which production is divided into activities and tasks that are carried out in different nations. Firms in both developed and developing countries have benefited from the fragmentation of industrial processes across national borders.
GVCs have played a key part in Southeast Asia’s economic development, allowing the area to achieve spectacular export-led growth and establish itself as a top investment destination for global corporations.
Despite the fact that SMEs account for the majority of businesses in Southeast Asia and employ the majority of the workers, their contribution to GDP and exports is minor. Low productivity and worldwide competitiveness are often linked to SMEs’ small size and lack of expertise, which limit their access to scale, international markets, fresh investment financing, information, skills, and technology.
GVCs enables SMEs to overcome these constraints, offering new opportunities to integrate into the global economy, says Waseda University professor emeritus and Asian Development Bank Institute (ADBI) visiting fellow, Shujiro Urata. For instance, access to more sophisticated or cheaper inputs from abroad can help SMEs increase their competitiveness while the production fragmentation can allow SMEs to specialize in the production of intermediates rather than having to master all the tasks required to produce final goods.
COVID-19 IMPACTING PARTICIPATION IN GVCS
Because of the crisis, SMEs have been experiencing supply and demand shocks. The shortage of materials and parts causes supply shock, whereas the drop in demand for their goods causes demand shock.
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