BANGALORE, India – Investment in value addition activities that multinational companies make around the world should be extended to benefit developing countries Minister of Trade and Industry Calle Schlettwein, said during panel discussion at the Partnership Summit underway here.
“Services should also improve the lives of people living in these countries,” said Schlettwein weighing in on the topic of global value chains. Schlettwein was speaking at the last plenary session during day two of the annual summit, which took place under the theme -“Services as a Critical Component of the Global Value Chain: Challenges for Developing Countries.” In efforts to enhance business efficiency and optimise profits multinational companies set up what is called ‘global value chains’, which are enterprises for component design, research and development, specific services or component design in various countries across the world, all of which contribute to the final product the company sells to the world. Governments all over the world try to attract such investments with various incentives on offer. The panelists, who included Cesar Fragozo of the Mexican Trade Commission and Pramod Bhasin, vice chairman of private company Genpack, agreed that while traditionally global value chains were limited to manufacturing, the phenomenon has since evolved to include services since the dawn of the information technology revolution.
It is estimated that services currently make up about 60 percent of India’s Gross Domestic Product (GDP), compared to about 25 percent in Namibia, according to Schlettwein. The panelists also agreed that services continue to make up more and more of global value chains, a trend that they said continues to increase. “Global value chains are here to stay and it is a development aspect we as developing countries have to strive towards,” said Schlettwein. “We want to partake in a higher position on both ends of the global value chains. One way to do this is to consider the development of regional value chains, which makes sense especially for smaller economies like Namibia,” Schlettwein said. He added that emerging economies like Namibia should focus on facets such as logistics and transportation to take advantage of global value chains.
Meanwhile, Mexico’s Fragozo said global value chains have become a part of daily life in Mexico, which he says has become a manufacturing hub in Central and North America. “Mexico still needs to work hard to provide services to multinationals operating in our country,” noted Fragozo. As the only panelist representing the private sector and representing a company actively involved in the services sector, Genpact’s Bhasin reminded summit participants that companies will still ultimately purchase services from the places that offer the best value for money. “Developing countries need to learn from each other. The developed world doesn’t have a choice, but to come to the developing world for services along the global value chains,” explained Bhasin. “The world will go wherever they find the talent that they need. Talent is the most valuable commodity in the world,” he said. Responding to questions from the audience during a lively debate, Schlettwein said services and manufacturing in the global value chains should be more closely linked. “Products and services are becoming more cost effective when sold as a package deal,” concluded Schlettwein. Interestingly the concept of global value chains is not new, and has been practiced by large multinational companies for years, but what is new is their recognition.
With the gradual liberalization of world trade and the reduction of trade costs, coupled with technological advancement, emerging economies have learned to utilize GVCs to become the largest trading powers in the world in just over a decade’s time. Experts at the summit, which ended yesterday, have advised that the developing world can emulate China’s example by participating in GVCs and building newer ones and in the process become major contributors to global economic growth.
By Edgar Brandt