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country studies on bangladesh, nepal and sri lanka - Escap

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STUDIES IN TRADE AND INVESTMENT 70<br />

<strong>and</strong> vertically linked enterprises. 4 Although many Asian <strong>and</strong> Pacific enterprises have<br />

participated in various global value chains, <strong>on</strong>ly a small number of them, mainly in East<br />

<strong>and</strong> North-East Asia, actually c<strong>on</strong>trol the value chains as leading enterprises; the majority<br />

of participating enterprises, typically SMEs, are minor members within the value chains<br />

(ESCAP 2009a). As previously menti<strong>on</strong>ed, a transnati<strong>on</strong>al corporati<strong>on</strong> usually assumes<br />

the role of the lead firm in the global value chain. This lead firm is supported by<br />

numerous smaller enterprises, which are categorized as higher <strong>and</strong> lower tier suppliers<br />

of inputs. The higher the tier, the more value is added by the supplying enterprise <strong>and</strong><br />

thus, the SMEs in the lower tier category c<strong>on</strong>tribute rather simple outputs <strong>and</strong> add less<br />

value (ESCAP 2007).<br />

Figure 2: How do SMEs fit into global value chains<br />

Original equipment<br />

manufacturer<br />

(large firm,<br />

perhaps TNC)<br />

First tier<br />

supplier<br />

(large firm,<br />

perhaps TNC)<br />

First tier<br />

supplier<br />

(large firm)<br />

Sec<strong>on</strong>d tier<br />

supplier<br />

(large firm)<br />

Sec<strong>on</strong>d tier<br />

supplier<br />

(SME)<br />

Third tier<br />

supplier<br />

(SME)<br />

Third tier<br />

supplier<br />

(SME)<br />

Third tier<br />

supplier<br />

(large firm)<br />

10<br />

Fourth tier<br />

supplier<br />

(SME)<br />

Fourth tier<br />

supplier<br />

(SME)<br />

Source: United Nati<strong>on</strong>s Industrial Development Organizati<strong>on</strong>, Integrating SMEs in Global Value Chains.<br />

Towards Partnership for Development, 2001, p. 60.<br />

4<br />

See also World Bank,<strong>and</strong> IFC. Doing Business 2011: Making a Difference for Entrepreneurs.<br />

Washingt<strong>on</strong>, D.C.: IBRD, 2010.

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