Global Value Chains of MNCs and Indian SMEs

The rapidly expanding global value chains of multinational corporations are increasingly dominating international trade, which emerging economies like India can hardly afford to ignore. The limited presence of Indian small and medium enterprises in the GVCs of MNCs can be traced back to a negligible share of internationalised SMEs, which is primarily due to a weak innovation base, owing to weak networks of SMEs, particularly weak inter-firm linkages. These issues can be overcome by building and strengthening regional innovation systems and by establishing a multipurpose science and technology commission in the clusters of SMEs.

In recent decades, international trade is increasingly dominated by global value chains (GVCs) of multinational corporations (MNCs). More than two-thirds of international trade now takes place within such GVCs, up from 60% in 2001 (Dollar 2019), but another estimate puts it at 80% of global trade (West 2018).¹ In the process of the steadily growing clout of MNC-led GVCs, developed countries have further strengthened their dominance and control over global trade (Dollar 2019). However, newly industrialised countries, such as Taiwan, South Korea, and Singapore, and emerging economies like China, Malaysia, Thailand, and even Indonesia and Vietnam—which have become well-entrenched in the GVCs of MNCs—have also been experiencing dramatic advances in living standards and economic growth (Dollar 2019). Thus, internationalisation led by the steadily expanding GVCs has been rapidly reshaping the competitive environment of business in the global economy. It has opened national markets to new competitors, resulting in threats as well as opportunities for both large and small firms. Needless to say, these developments have implications in the form of challenges as well as opportunities to the Indian economy, particularly its small and medium enterprises (SMEs).

SMEs in India are highly diversified in terms of products, size/scale, nature of entrepreneurship, location and technological sophistication (Ministry of MSMEs 2019). They account for a substantial proportion of India’s exports, with respect to many individual products as well as at the aggregate. And, in the globalisation era, their exports as a proportion of their production has seen a steady and moderate growth (Bala Subrahmanya 2011). In 2018–19, nearly half of India’s exports came from SMEs (Soni 2019). Therefore, it would not be inappropriate to contend that SMEs are at the forefront of internationalisation in India and therefore deserve attention.