An Overview of the Global Value Chain for Small and Medium Size Enterprises

Global Value Chain (GVC) has been gradually proving to be a vital factor in the international trade environment. This is considered so because over half of the world imports are developed and made with intermediate inputs which have made it possible for numerous countries to easily integrate and partake in the global market space.

In simple words, GVC can be seen as the overall activities required for bringing a product or service to life and to the final consumer. From a product’s conception, product designing, sourcing of raw materials, all intermediate inputs, distribution and marketing to the final end buyer.

When these activities are coordinated globally and across nations, the term used to best describe all such activities is Global Value Chain. It is almost similar to the Industry Level Value Chain but only with operations at global levels.

Businesses, Organisation and their Role Play

Your business may already contribute to the GVC passively but it is worthy to note the GVC operates under a community of professionals, businesses, policymakers, and civil society organizations. The GVC platforms and objectives are usually realized through workshops, digital interactions, conferences, and many other events to enhance the systems of trade, investments, and evidence-based policies in the market place, tax structures, services offered, competition, and even the movement of human capital through visas and immigration.

Through partnership, the platform brings together the public and private sector to improve the policies and practices which can successfully improve the development impacts of GVC’s and even in a better and sustainable approach.

Multi-National Enterprises (MNEs) are known to take ample advantage with GVC’s at their disposal making it quite difficult for SMEs to venture in the international market place. Due to globalization, MNEs are increasingly re-structuring their operations globally as they undertake outsourcing and offshoring activities.

It is believed through the GVC’s, production process can be easily optimized through operations in different locations, and in recent years, there has been a rapid trend towards the dispersion of value chain activities internationally which may include; production, design, marketing, and distribution.  

GVC’s operations can be very easy for MNE’s but not the case with SME’s. SME’s are known to be important players in every economic setting and keen to policies for growth, productivity, innovation, and the creation of jobs at their own level. But it is seen their operations are trapped basically in low value-added tasks and only depend on their commodity.

The majority of the SME’s still are not taking advantage of globalization in other to move to higher value-added activities, increase profits, and eventually grow. This can be the portion of SME’s who can take the bold step to join the GVCs and squeeze a slice of the pie for themselves and thus disrupt the GVC for their benefit.

Why Some SMEs Face Difficulties in Growing.

The reason why some SMEs face tremendous difficulties in the international market place is due to the fact that they are always stuck in the commodity-based level. At this level the volatile international market prices, turns to determine the value of their product. These SMEs are only able to get just a minor share of the price at which their products are sold in the market. Such SMEs depend largely only on the main commodity of their nations.

Also, some SMEs lack differentiation. In other to succeed in the international market, or any other market, you need to stand out from your competition. You need to identify and develop your unique selling proposition and your unique value proposition. With the inability to differentiate from the “red ocean” of competition, you will face difficulties or even stand a chance of succeeding.

Above all, many SMEs turn to fail due to lack of information. It is very crucial to note information is very important in the international market space. Stepping in the global market blindly will only leave you with bad experiences which could have been avoided by taking the time and resources to source valuable information required to place you on the advantage in the market space.

It is very important to ask yourself if you are ready to export? If you can improve and innovate your products or services, be able to share solutions for transforming, commercializing, and exporting your products, to better understand and serve the distinct market segments and determine a way to connect easily with your buyers. All these can go a long way to guarantee success in the global market

Advantages of Global Value Chains to Small and Medium Size Enterprises

Taking part in GVCs is very important for SMEs as they are able to achieve growth and competitive advantage.

Participating in GVCs turns to promote a high level in specialization which in the long run improves quality, innovation and productivity.

GVCs expose SMEs and give them access to the global market economy which is greatly controlled by MNEs. With this integration in the global economy, there is the possibility of creating brand awareness.

Also, GVCs encourages investment for SMEs and enhance their bargaining power in the global market space.

With the participation of GVCs, SMEs can be exposed to new technological developments and knowledge which can be used greatly at independent and different level of the chain.

Most importantly, engaging in GVCs promotes diversification and limit risks involved in international trade.

Moreover, taking part in GVCs gives SMEs the possibility to create and retain more value for their products which leads to higher value-added.

The GVCs provides a variety of networks for top suppliers with the ability to provide world-class inputs reducing the need of investment at every level of production and distribution.

Lastly, SMEs can enjoy economies of scale as cost of production can be dropped drastically. Since production is been carried out in locations of the GVC offering effective production cost.

Important Considerations for SMEs Scoping the Global Value Chains.

In other for SMEs to take advantage of the Global value chain, it is very important for them to consider the following key considerations which can always lead to high value-added and success in the international market.

Production Innovation;

As we continue to experience the rapid increase in globalization, SMEs need to use the opportunities in the GVC to increase their level of innovation. In other to succeed in the international market, innovation must be continuum. With continuous innovation, improvement in product quality and adaptation to the International markets needs, SMEs can experience high value-added.

However, in other to foster and enhance innovation, SMEs must learn from participating in the GVC. This can be realized through the exposure to new tech, learning by taking action, implementing new management models and using new materials and resources.

Also, adapting to the market’s needs, new tastes and preferences must be undertaken at almost all levels. It is very vital for SMEs to understand the new market and not to compare an international market with their local market obligations.

Lastly, partnering with foreign business association can also encourage innovation. The opportunity of partnering will open doors for new opportunities which can benefit SMEs as they strive to penetrate the market.

Enhancing your brand name and updating your intellectual property rights.

It is crucial for SMEs to recognize the value they bring in the market. By simply understanding the value of your products especially when it is unique in its own way with some intrinsic differentiation like portraying distinctive properties or originality, your products will clearly stand out from the competition. Thereby providing your brand a reputable position in the higher-value market niches and creating new, lasting, and more profitable sales channels. In a situation where a product establishes distinctive characteristics and origin, it will not be an easy task for such a brand to be substituted in the market place. The most valuable thing to do at this point is to “seal” your products with intellectual property rights and own the market.

Building a brand especially in the international market is not as easy as you may think as it takes a lot of time and resources for your brand to be trusted by the market but with the value you bring to the market place, it can be achieved much faster.

To enhance your brand in the global market space, you must associate your products with quality. A reputable brand gives out differentiation and quality which is justified by the price value in the target market. The quality of your product builds your reputation as a brand and takes you further to trademark your products without fear of any competition.

Besides, connecting with the end-users and consumers builds you a trusted platform on which you can stand and demand your customer’s loyalty and to continuously believing in you. With a significant marketing communication strategy, your brand can capitalize on individual stories of success which can be channeled through engaging digital platforms which can easily reach out to your customer base.

By securing the value your business brings through intellectual property (IP) rights, it gives you the monopoly rights over a market or segment. Competition is kept on check, and pirates and business clone artists are relegated which limits your vulnerability to commercial exploitation. Intellectual Property rights always come in the form of trademarks, and copyright protection.

Lastly, for your brand to stand out you must learn to educate rather than carrying out marketing. Through educating you create believers, who will be loyal to your brand and reflect a high life time value for your business.

Production and distribution partnerships, International marketing and sales outlets.

Gearing towards partnership deals with the right channels in the global market turns to take away all the hard work needed in going global with your business. Not to talk of the investment capital to set up your business in a new market as this can be a huge barrier to many SMEs. This might not be the case for MNEs with an outlined network of resources at their disposal. Striking partnership deals all through the GVC of your industry puts your business on the global map, creates direct routes into the market, and gives in to the opportunities enjoyed going global with production, sales, and growth. However, it is very crucial to set up the right partnership and agreements as it will greatly hamper your success if you are not careful in picking the right partners in the GVC.

On the other hand, in other for importers, distributors, and retailers to relate to the ever-changing quest of consumers’ taste, they strive to establish direct relationship with producers for unique inventory to satisfy their customers’ needs. On the other side of the table, SMEs, are forced to keep up with product innovation which is a continuum process and the key to succeeding in the global market.

Securing partnerships in the GVC gives SMEs a huge data of market insight and market-know-how from each level which can be used for continuous innovation. As always, information is very important and plays a vital role for SMEs to succeed and step up their game. Going to “bed” with the right partner will provide you with the right information which is needed to enhance innovation and growth. With open ears, open eyes, and a clear mindset, set aside a reservoir to transform the information you get into money.

Most importantly, partnerships in the GVC increase the likelihood for your products to be featured in pop-up markets which are known to rise every now and then. These pop-markets can open doors for new loyal customers. Only through your partnerships in the global scene can you quickly identify such markets for your products. Then you are now left with the opportunity to further understand and develop the market.

Taking advantage at our disposal the growing e-business platforms can be a stepping stone for SMEs to vitalize their experience in the GVC. The presence of huge B2B sites and other e-commerce platforms has already made an available market ready to be explored right from your desk.

Above all, adopting a multichannel retail strategy is crucial for diversification and limits the risks of losing control in a certain retail outlet or faced with a red ocean of competition.  With all the above opportunities, SMEs stand to benefit from the potentials of GVC without any costly capital investment.

Outsourcing for value addition

Outsourcing is considered one of the most valuable key feature in the GVC especially as you grow in the global market. Almost every huge MNEs are aware of the commercial advantages of outsourcing from every level of the GVC to other countries with competitive advantage to say labor, skills and resources. These, MNEs turn to hire SMEs and engage them in the GVC but the mistake many SMEs make from our experience is to maintain their responsibility until they are later crushed by these same giants through a backward vertical integration and sometimes not even the SMEs but setting up their private offices. This has placed the heads of numerous SMEs on spikes as they can’t compete with huge MNEs.

SMEs with the ability to outsource are able to enjoy the opportunity of specialized and efficient benefits from outsourcing and with more outsourcing lies the opportunity for increased efficiency and low costs. If SMEs can outsource and innovate at the same time, they cannot be easily crushed and will be destined to tremendous growth and open doors for huge MNEs to work with your innovations for more growth.

With joint association and collaboration, SMEs unable to transform their products to higher-value products can come together with other firms to share resources and establish a strong local value chain to propel their activities globally. This can also be known as collaborating on value addition. Cooperation at such levels has given birth to some of the world’s most valuable clusters or associations in almost every industry.  With shared capabilities, firms can become collectively stronger compared to when they stand as individuals.

As with the local endeavors, using international trade networks for value-added can be low cost-oriented and with high quality. Sourcing internationally for the GVC already sets your products to meeting international norms and standards which ensures quality.

The endless opportunities of digital technologies and platforms.

 With globalization, we have been able to experience the improved and spread of digital technology in the past decades. Small businesses can now use the endless possibilities of these new touch  of growing digital technology to enter any market of their choice with the use of valuable information. In other for SMEs to take advantage of the GVC, they must be quick to discover the latest trends and developments which will take their business from one spot to another and in a more easy fashion eliminating any forms of risks or barriers.

With the rise of digitalized technology, SMEs are able to understand new markets use automated platforms to sell and ship their products to their customers overseas and discover the leading trends and possibilities to fairy with them.

Digital platforms like Skype have reduced the cost of phone calls to almost free with the use of internet. Google translate on the other hand has made language barriers irrelevant. Block chains are being developed to revolutionalised the transaction of producers and their products through smart contracts.

As mentioned earlier, E-commerce platforms have made the sale of products from one market to another from a desk with the use of a computer and a phone. The uses of digital social platforms create an opportunity for business to develop a following and brand awareness thereby enhancing a global presence at no cost.

With crucial importance, digital technologies harness valuable data intelligence which can be used to better understand and serve the market accordingly. It is common to see some small businesses striving to go global but still not making use of Google Analytics. Online site surveys can provide you with the market intelligence you need to revolutionize your industry with just a matter of time.  Such intelligence provides the producers with information about what drives demand and how valuable is their product in the market.

Endnote

For small businesses to succeed in the GVC, SMEs must start with an understanding of where and how to succeed within the GVC. This will greatly depend on adding value, continuous innovation, setting partnerships, outsourcing for the best, and make full use of the latest development in the digital tech world to run their business easily and with fun.