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The New Configuration and Management Techniques of Value Chains of Global Enterprises and the Resulting Consequences for Small and Medium-Sized Enterprises in North and South

Annual Call for Projects 2004

Keywords

Enterprises - Globalisation - Intellectual Property

Summary

This project, approved by the Geneva International Academic Network (RUIG-GIAN) in 2004, attempts to investigate the new configurations and management techniques used by global large enterprises to organise and run their global value chains. A "value chain" can be defined as the contribution of each component of the business-model to the ultimate value of end products or services. The focal point of the study is to consider the meaning and tools of the interaction between Small and Medium Entrerprises (SMEs), dependent and independent in both the North and the South, in the light of present business practices especially in the field of value chain organisation and management by very large enterprises. In consequence, this project will shed more light on the patterns of cooperation around the world between SMEs and very large firms especially along their supply and distribution chains.

Converging pieces of evidence suggest that an important proportion of economic activity currently attributed to autonomous SMEs is, in fact, carried out by entities entangled in complex interdependence relations with other participants in value chains of global and large firms. The received picture of SMEs (autonomous and independent) clearly falls short of capturing the essence of these situations. This in turn prevents an adequate policy response to the potential needs and weaknesses of SMEs hooked into global supply and distribution chains.

The fact that many SMEs without being full affiliates, are de facto - but non necessarily de jure - in arms' length relations with large enterprises suggests that legally independent SMEs more often cooperate in value chains of very large firms rather than compete with them on final product/service markets. In other words, there seems to be, between these two types of enterprises, an implicit "division of labour" along the value chain. The ambition of the project is to scrutinise the patterns of cooperation/competition between SMEs (dependent and independent) and large enterprises with special reference to five very different global industries in the North and in the South, two manufacturing and three service industries:

• Automotive industry: the "industry of industries" as it has been nicknamed, has changed dramatically during the last 20 years both in its relation to the suppliers and to the distribution networks. In general terms, the cooperation of the large enterprises with the SMEs seems to have increased, but the patterns are not clear;

• Hotel industry: this industry has globalised by seeing its major players extending their cooperation to reach small or medium-sized local players (franchising, management contracts, global reservation systems, branding);

• Precision instruments industry: medium-sized enterprises in this industry still play a rather important role. However the markets are becoming more and more global, while the industry moves towards the provision of "service-and-product" packages and the strategic role of large global players seems to increase;

• Music and cinema industry: in this industry the complementarity between the content providers and the distribution channels is crucial. The methods of collaboration of these two sets of enterprises, their relative size and strategic strengths have changed dramatically with the generalisation of digital and telecommunications technologies in the 1990s;

• Software industry: this new knowledge-based industry depends on marketing and support tools but also needs a constant inflow of independent ideas and concepts. In this industry corporate venture capital seems to play an important role.

By focusing on differences in strengths, opportunities, vulnerabilities and threats of non-affiliate SMEs that are part of value chains or cooperate with larger firms, the research will allow policies in the field of SME globalisation, financing and research and development to be more clearly focused on the needs of independent SMEs in the North and also in the South. The policy recommendations may well go in the following directions:

• Management techniques: what tools and management support do SMEs that are part of value chains - especially in the South - need in order to maintain and develop their competitive edge?

• Research and development: public programmes may well pay more attention to the dependency status of the recipient enterprises;

• Internationalisation: independent SMEs may well be more internationalised by supplying to large global firms, than by their own direct exports. Thus assistance in developing contacts between independent SMEs and large firms may be needed especially in developing countries;

• Access to financing: the constraint on access to finance is probably much heavier on independent that on dependent SMEs. It may well be that public policies should filter recipients according to their dependency status;

• Corporate governance: the issue of supply and distribution chain management and organisation may deserve more attention in the discussions about corporate governance and corporate social responsibility as it is currently acknowledged;

• Competition policy: the question is to know whether cooperation in supply and distribution chains of large firms does not put independent SMEs in a position where their bargaining power is close to zero because of the strategic advantage of the larger partners.

The grant provided by the GIAN for this project totals SFr 300,015

> See shorter summary

Project Team

Related Conferences

Enhancing the Role of Small and Medium-Sized Enterprises in Global Value Chains – OECD Global Conference, Tokyo 31 May – 1 June 2007
This high-level conference is organised by the Organisation for Economic Co-operation and Development (OECD) and the...
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Expert Meeting on "Enhancing the Participation of Small and Medium-Sized Enterprise in Global Value Chains" – Palais des Nations, Geneva, 18-19 October 2007, 10:00 am to 6:00 pm
A two-day expert meeting on the topic of a GIAN-funded research project "Enhancing the Participation of Small and...
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Research Output

Enhancing the Role of SMEs in Global Value Chains (available in English only) > more

Copyright © RUIG-GIAN 2005