Aug 2018: ​​​​​​​How can ‘Small businesses’ be part of the Global Value Chain (India-LatAm)?

Two-thirds of the world’s production exists in global value chains. Integrating with these supply chains will bring welfare gains and will increase efficiency and drive growth. Exports make up over 42% of South Korea’s GDP. Similarly, in 2006, when China was growing at nearly 13%, the share of exports in GDP was more than 37%.

India is expected to emerge as one of the leading economies in the world over the next decade in the light of a positive political and economic scenario. On the other hand, the quest for regional integration has been a centerpiece of the development strategy of Latin American and Caribbean (LAC) countries.

In LAC, intra-regional exports represent 65% of total export revenue for the segment within the region. How can these exports grow beyond regional and to international borders?

Small & Medium Enterprises (SMEs) are a crucial segment for both India and the Latin American economy and present a great opportunity for domestic growth. The challenges faced by an SME firm are plenty such as Limited access to ‘Capital/Infrastructure/People, & Technology’. However, still, a huge opportunity lies for both Indian and Latin American SMEs to be part of the global value chain.

So how do we ensure that the SME’s are part of this global value chain?

  • Reducing International barriers through adhering to compliance and International standards and reduce border and port turnaround times and lower the cost of trading through several measures. In the case of food and food processing industry, conformity with sanitary and phytosanitary measures will help products become globally acceptable.
  • Increased market access: Even today, most small businesses in India and LatAm are set up by first generation entrepreneurs. They often have a product or service idea and some dedication to work hard. However, the limited market access, brand promotion solutions, marketing support, logistics and sales support, and information and communication technology (ICT) support stalls the passion to take the enterprise to next level.
  • Contrarian Point of View: Whilst the Global Trade war is heating up, both India and Latin America need to take a contrarian point of view, they need to boost exports through promoting size and scale, ease the business environment, favorable trade agreements, and adjust to global standards.

Exports from Latin America to India have increased to USD 22 billion in 2017 from USD 18.5 billion in 2015, an increase of 20% approximately. In addition, India’s exports to LatAm markets have increased by 10% from USD 11 billion in 2015 to USD 12 billion (approx) in 2017.

The trade between the two countries has increased, however, is still small when we compare it to LatAM exports to China, which are close to USD 120 billion and to the USA are USD 430 billion. Alternatively, India’s exports to the USA are close to USD 46 billion, and to Middle-East were USD 56 billion in 2017.

While firms from Latin America and the Caribbean should no doubt continue to diversify their markets, reduce dependence on China and the US, the Indian small businesses should revisit its strategy at high potential markets such as Latin America.

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