Determinants, challenges, and policy overview for improving SME participation in global value chains

Abstract

This research article aims to explore how small and medium enterprises (SMEs) can enhance their participation in the global value chain (GVC) by addressing the challenges they face, proposing policy recommendations, and identifying key determinants of success. The global value chain is vital to modern trade, as it enables businesses to source products and services internationally, yet SMEs often struggle to integrate due to significant barriers. The landscape of GVC participation has been reshaped since the COVID-19 pandemic, which exposed vulnerabilities in traditional supply chains and pushed multinational corporations (MNCs) to explore alternative suppliers, offering new opportunities for SMEs. However, Indian SMEs face substantial challenges in capitalizing on these opportunities. One of the primary hurdles is limited access to finance, which restricts their ability to invest in the necessary technology, infrastructure, and skilled labor required to meet GVC standards. Furthermore, SMEs often face difficulty navigating the complex regulatory environments of international markets, including trade tariffs, customs procedures, and product compliance, which larger corporations can manage more easily due to their resources. Recognizing these challenges, the Indian government has taken several steps to support SME integration into GVCs. Initiatives like the "Make in India" campaign aim to promote industrialization and innovation, with particular focus on sectors such as electronics, textiles, and automotive components, where Indian SMEs have the potential to become significant players in GVCs. Additionally, financial support programs, including credit guarantees, subsidized loans, and tax incentives, have been introduced to ease the financial burden on SMEs, encouraging them to invest in infrastructure upgrades and advanced technologies. These technological advancements, such as digitalization, automation, and artificial intelligence, are critical to improving the competitiveness of SMEs in the global market, yet many firms still struggle to adopt these technologies due to high costs and a lack of skilled workforce. Besides technological adoption, establishing strong international partnerships is crucial for SMEs to access new markets, resources, and expertise, enhancing their ability to compete in GVCs. Building relationships with global buyers, suppliers, and partners can provide SMEs with critical market access and credibility, which is essential for their growth. While the Indian government has made notable progress in implementing policies and reforms to support SMEs, challenges remain in terms of limited access to finance, regulatory burdens, and technology adoption. Addressing these issues is vital to ensuring that Indian SMEs can fully leverage GVC opportunities, increase their global competitiveness, and contribute more significantly to India’s economic growth. In conclusion, fostering SME participation in GVCs will require continued government support, investment in infrastructure and technology, and a focus on building international partnerships that allow SMEs to thrive in the post-pandemic global economy.