Impact of Global Value Chain on the Performance of SMEs

Abstract

Small and medium- sized enterprises (SMEs) play an important role in each and every economy. SMEs are significant contributors to economic factors such as multidimensional and output growth, employment generation, poverty alleviation, economic empowerment, and export growth can be considered among them (Harvie 2002; Asasen, Asasen, and Chuangcham 2003). According to Abe et al. (2012), SMEs account for more than 95% of private enterprises in Asia and have generated more than 50% of employment. The classification of SMEs differ from country to country. In the United States, SMEs are defined as SMEs in the manufacturing sector having 500 or fewer employees, while those in the trade and wholesale sectors have 100 or fewer employees while Sri Lanka define SME’s as enterprises that must employ fewer than 300 people and generate an annual turnover of less than $4.41 million. The global value chains (GVCs) is defined as the structure of world production consists of highly integrated global and complex networks of firms involved in the production of intermediate parts and components, assembly, and distribution of the final outputs to consumers worldwide. (De Backer, De Lombaerde, and Iapadre 2018). As a results of GVCs the exchange of goods and services leads to a global production network. In the past decade, global supply chain trade has accounted for over 50% of goods trade and almost 70% of service trade (Gurria 2015). The participation in GVCs in SMEs offer many opportunities through creating a new platform to connect to foreign partners. This benefit SMEs in terms of capabilities and competitiveness enhancement, product quality improvement, financial stability, and market expansion. By being involved in GVCs, SMEs can be exposed to new business partners, especially leading global firms. Through this interaction, SMEs can increase their productivity by meeting international standards and requirements while continuously improving product quality through knowledge and technology transfer. But the SMEs involvement in GVCs can be hindered by requirements including the ability to meet international standards, greater managerial and financial resources, and the protection of in-house intellectual property (UNCTAD 2010). G