The fragmentation of production processes is an enormous opportunity for countries and companies wishing to put themselves on the global manufacturing and export map
What might a vehicle part, a jacket with motion sensors for gaming, a quinoa harvest, or software for managing dairy cattle have in common? All these goods and services are “Made in the Americas,” a marketing concept that seeks to boost the involvement of firms of all sizes from throughout the continent in regional and global value chains.
Analyzing the role of these value chains will be one of the main topics of discussion at the 3rd CEO Summit of the Americas, which will take place in Lima, Peru, on April 12 and 13, 2018. The summit will be attended by heads of state and high-profile CEOs from across the region. The event will promote economic growth, public–private investment, and trade facilitation to drive sustainable, transparent, and inclusive investment in Latin America and the Caribbean.
Today’s production processes are extremely fragmented. Ever more products are made in separate phases in different parts of the world. This means that many countries now take part in production processes and access knowledge and technology that were once beyond their reach. However, Latin America and the Caribbean generally have not been able to take full advantage of this opportunity: it isn’t easy for small and medium-sized enterprises to work their way into these production chains.
Latin American countries tend to play a smaller role in global value chains than their European or Asian counterparts.
Countries’ involvement in these can be measured by the average imported content of their exports, which stands at 33% in Europe, 29% in the Asia-Pacific, and 18% in Latin America.
These levels vary from country to country. Mexico and some countries in Central America, for example, play a greater part in production networks, especially ones involving North America, and tend to do so during the final phases of manufacturing. South American countries, however, are usually involved in the earlier stages, providing raw materials from their abundance of natural resources.
Firms that break down their production processes across different countries need to minimize the risks associated with uncertainty and delays in the delivery of any given component so as not to affect the manufacturing chain for final goods. This requires them to simplify, standardize, and centralize the administrative formalities needed to move goods across borders.
This is the purpose of single windows for foreign trade (VUCEs), a successful trade facilitation mechanism that helps cut administrative costs and import and export times by up to half.
Together, these factors represent between 3.5% and 15% of total product value.
Companies that play a part in global value chains look for suppliers with appropriate logistics and transportation infrastructure. However, improving the quality of domestic transportation networks is not only up to the public sector—in fact, public–private partnerships are essential to ensuring that the movement of goods is increasingly streamlined and efficient.
Likewise, the quality of transportation and logistics does not depend solely on physical infrastructure, but also on a wide set of services where there are many business opportunities for the private sector: secondary airports and ports, warehousing, supplies, repairs, or fuelling, all of which could be substantially improved through the involvement of the private sector.
Another of the barriers to exporting products that are part of an international supply chain is the lack of information. Close collaboration between public and private sectors is essential to designing education programs for potential exporters, clinics and training at which information gaps can be filled in by international buyers, or traditional business rounds and trade tours to foster networking and partnerships.
The IDB has helped provide training for SMEs through face-to-face business forums such as LAC Flavors and Outsource2LAC and has also launched the online business network ConnectAmericas.com, so that Latin American SMEs can gain access to the contacts, buyers, and knowledge that they need to do business.
The quality, environmental, and gender equality certifications that these firms and their products obtain also increase their possibilities of competing on the global market. These certifications are distinguishing factors that have proved to be key for opening up opportunities abroad for many companies.
Helped along by international value chains, trade in intermediate goods now represents 60% of total global foreign trade. This is a trend that the countries of Latin America and the Caribbean must not overlook. If the public and private sectors act together, the region will be able to play an ever-larger role in global markets, consolidating its economic growth and improving its citizens’ quality of life.