“

PROMOTING SUSTAINABLE

BUSINESS LINKAGES

Unctad’s approach

Fulvia FarinelliUNCTAD, Division on Investment and Enterprise Development

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Types of TNC-SME LinkagesTypes of TNC-SME Linkages

Linkages and

Spillovers between TNCs and

SMEs

Backward linkages with

suppliers

Forward linkages with

customers

Linkages with technology

partners

Other spillover effects

Backward linkages with

suppliers

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Main objectives of backward Main objectives of backward linkage promotion programmeslinkage promotion programmes

1. Generate additional economic activity2. Stimulate improvements in the products and

services of local suppliers (domestic sales to TNCs perform the role of exports in terms of building local competitiveness).

3. Giving local suppliers a foothold in international markets with products meeting international production and quality standards.

4. Attract FDI by offering a local supplier base capable of offering quicker delivery times, reduced transportation and inventory costs.

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According to internal surveys:

A variety of initiatives to promote linkages exists.

From purely donors-driven and government-driven programmes, to public-private sector partnerships.

There are also purely private sector-driven programmes, e.g. totally independent supplier development programmes carried out by TNCs in their own self-interest and within corporate social responsibility programmes.

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Success stories

Successful policies promoting linkages can be found in Ireland, Jordan, Malaysia, Mozambique, Thailand, Singapore and South Africa.

Large TNCs - Toyota, Unilever, FIAT,

AngloAmerican, DymlerChrysler, Volkswagen, INTEL, IBM and Tata implement their own supplier developing programmes.

Many donors and international organization are active in linkages building. Among others, DFID (the Business Challenge Fund), IFC, ITC, UNDP, UNIDO, USAID, the World Bank, GTZ, UNCTAD.

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Main lesson learned from successful cases

1. The establishment of sustainable linkages does not happen automatically, as a direct consequence of the presence of TNCs, but requires the participation and collaboration of all interested stakeholders (i.e. TNCs, local suppliers, government).

2. Only if a conducive policy environment is set up, specific linkages promotion programmes have a chance to be transformed from isolated cases, to sustainable and inclusive mechanisms to build the local productive capacity.

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A systemic policy A systemic policy approach to linkage approach to linkage buildingbuilding

Improving the investment climate

Strategic FDI attraction

Strengthening absorptive

capacity

Specific linkage policies

Providing strategic guidance and policy

coordination

Source: UNCTAD 2010

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Policies for strengthening Policies for strengthening business linkagesbusiness linkages

Interventionist approachFocus on “hard” requirements: market reservation, local content, techno-logy sharing, foreign equity

HorizontalFocus on non-selective policies to compensate for market failures in information, R&D

SelectiveFocus on selective sector-specific and cluster policies, social targeting

Minimalist approachFocus on business-friendly investment climate, equal level playing field

Increasing level of policy intervention

“Encouraging” policy approach

 

Source: UNCTAD 2010

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UNCTAD‘s main mechanisms UNCTAD‘s main mechanisms to deliver resultsto deliver results

Research Intergovernmenta

l discussions Technical

assistance

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Main outputsMain outputs

World Investement Report, 2001

Video titled “Promoting Business Linkages in Malayisia„ 2002

Publication “Roster of Good Practices in the Promotion of Business Linkages„ 2004

Issue note on “Enhancing SMEs through business linkages: from policy formulation to policy implementation„ 2005

Publication “Deepening Development through Business Linkages„ 2006

Publication “Promoting business linkages from a policy perspective: the case of India, Malaysia, Mexico, South Africa and Uganda„ 2009

Publication on “Integrating Developing Countries‘ SMEs into Global Value Chains„ 2010

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Current technical Current technical assistance projectsassistance projects

Brazil Uganda Vietnam Argentina Zambia Mozambique Tanzania Peru

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All are « ENGAGING THE PRIVATE SECTOR »

Business Linkage Programme, Uganda Supported by UNCTAD and its local EMPRETEC

centre, SIDA and the Uganda Investment Authority (UIA)

e.g. linkages partnership with Uganda Breweries, Toyota, MTN

Projecto Vínculos, Brazil Supported by UNCTAD, GTZ, Ethos Institute,

Fundacao Dom Cabral, SEBRAE e.g. linkage partnership with Philips, BASF,

and Petrobas under the National Mobilization Programme for the Oil and Natural Gas Industry

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UNCTAD’s role:UNCTAD’s role:

Sensitization of TNCsSensitization of TNCs Challenge, suggest, innovate for more Challenge, suggest, innovate for more

linkageslinkages Deepening of linkages where successful Deepening of linkages where successful Horizontal, vertical extension of linkagesHorizontal, vertical extension of linkages Global benchmarkingGlobal benchmarking Stimulating a conducive policy Stimulating a conducive policy

environmentenvironment

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UNCTAD Business Linkage UNCTAD Business Linkage programme perspectiveprogramme perspective

Approach:Approach:

From “input driven” (upgrading From “input driven” (upgrading

capacity of SME's in general)capacity of SME's in general)

To “output driven” (meeting needs To “output driven” (meeting needs of TNCs’ affiliates)of TNCs’ affiliates)

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Partnering with TNCs Partnering with TNCs affiliatesaffiliates

Explore linkages opportunities that are Explore linkages opportunities that are beneficial to both TNCs and their beneficial to both TNCs and their potential suppliers potential suppliers

Define potential candidates for linkagesDefine potential candidates for linkages   Agree requirements in quantity, price,Agree requirements in quantity, price, specifications, etc.specifications, etc. Align business processes, information Align business processes, information

flowsflows Joint implementation of suppliers Joint implementation of suppliers

upgrading programmeupgrading programme

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• Sharing a common business culture and languageSharing a common business culture and language• Attitude of linkage partnersAttitude of linkage partners• Sharing information on forward plans & Sharing information on forward plans &

requirementsrequirements• Availability of BDS providersAvailability of BDS providers

• Transfer of know-howTransfer of know-how• Transfer of technologyTransfer of technology• Feedback, coaching, mentoringFeedback, coaching, mentoring• Access to finance Access to finance

Important success determinantsImportant success determinants

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THANK YOU!

fulvia.farinelli@unctad.org