New digital technologies, such as robotics and big data, are reshaping global value chains (GVCs) and creating new opportunities for small and medium-sized enterprises (SMEs) to participate, according to a new report co-published by the World Trade Organization (WTO) and five other institutions.
The Global Value Chain Development Report 2019 examines the impact of technological progress on GVCs, finding that digital technologies can help developing countries to integrate into the global economy and SMEs to increase their participation in GVCs by bridging distances and reducing trade costs.
“New research finds that when a manufacturing SME has a website, this facilitates its participation in GVCs and trade,” said the report.
“In particular, such SMEs are more likely to use foreign inputs for production and export their output. Further, information and communication technology (ICT) connectivity is found to be more important for small firms than for large ones in whether or not a firm participates in trade.”
As for the length of supply chains, the report notes that the impact of new technologies remains uncertain as innovations could either encourage reshoring of manufacturing production closer to consumers or strengthen the diffusion of production lines by continuing to reduce assembly costs.
“GVCs provide new opportunities for countries, sectors and firms to participate in global trade, while also being a potentially disruptive force. Designing domestic policies to enhance the substantial benefits of GVC participation while addressing potential adjustment costs will help ensure trade and GVCs generate inclusive growth that benefits all ” Robert Koopman, WTO chief economist, said.
“Global value chains are critical to poverty reduction because they influence where jobs go, who gets them, and what types of jobs they are. To take full advantage of opportunities emerging from GVCs, governments need to enhance connectivity by investing in infrastructure and digital technologies and opening to trade and investment,” Caroline Freund, World Bank group director of trade, regional integration and investment climate, said.
“The on-going digital transformation provides significant scope to boost global growth, and indeed trade, especially for SMEs, but there are risks, especially when coupled with automation, that this may work to reduce the ability for other developing economies to benefit from integration in GVCs,” said Nadim Ahmad, head of the OECD’s Trade and Competitiveness Statistics Division.
Governments would do well to develop a comprehensive digital strategy to maximize the gains from GVCs, the report stated, recommending a holistic approach of investing in information and communication technology and in training along with undertaking measures to improve trade openness, the business environment and innovation.
The “Global Value Chain Development Report 2019” was co-published by the WTO, World Bank Group, OECD, Institute of Developing Economies, Research Center of Global Value Chains of the University of International Business and Economics, and China Development Research Foundation.
Photo: Jason Goh