Thursday, 11 May 2017

SME INTEGRATION - Need for specialisation to join global value chain


One of the important talk points from recent economic tides is the integration of small and medium enterprises (SMEs) into the Global Value Chain (GVC).
Traditionally, participation into the global economy was based on supply chain models, i.e. as a business entity, specialising in specific products and services and offering them to the global markets.
Supply Chain models often require overall ownership of processes, from product development, logistics, operations and even marketing. This means that companies aiming to compete globally requires them to master all the above, despite not having the comparative advantage to do so.
On the other hand, value chain thinking focuses on value addition to the sub processes within the entire supply chain. This allows companies to develop specialisation to a specific process that adds value to the entire product development and delivery cycle.
For example, a steering wheel module requires numerous specialisation to complete its supply, including plastic injection, steel forming, air bag module assembly, and leather stitching.
Within these sub processes, specialisations are required on each level, including research and development on both product function and materials selection, marketing knowledge, process expertise, logistics, and perhaps even prototyping capabilities.
This need to develop a wide range of specialisation has, for quite some time, deterred SMEs from entering the global market, handicapped by massive capital risk and talent needs.
Trends show that this thinking will change, most likely resulting in a migration of supply chain models to a global value chain model.
This opens opportunities for SMEs to start penetrating the global markets through the specialisation of specific processes, reducing capital expenditure and focussing on processes they are best at.
If the region has learned anything from the 2011 Tohuku earthquake and floods in Thailand, it should be that supply chain models often result in single sourcing, which is extremely vulnerable to disruptions such as the natural disasters.
Original equipment manufacturings (OEMs) around the world are now realising there can never be sustainable without sustainable value chains.
Therefore, it is high time that Malaysian businesses start looking into new business models.
Firstly, we must start recognising that cheap labour, which used to be our competitive advantage some decades ago, has been replaced with many over qualified graduates seeking challenges in a high income economy.
This means that we have reached the point where we cannot be consumers of technology, but technology based innovators - possessing the abilities and capacities to bridge technology readily available around the globe and utilising them to breed and create new value-adding activities.
OEMs around the world are sourcing their parts and services from around the globe. At the same time, the fourth industrial revolution has allowed a level of communication and process digitalisation that has paved the way for more SMEs to be part of the global value chain.
If there is such a time for our domestic industry to breach its glass ceiling, that time is now.
madani@mai.org.my
The writer is the chief executive officer of Malaysia Automotive Institute.

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