Trans-Latin value chains in Asia: the role of small and medium-sized enterprises

ANDRÉS LÓPEZ; DANIELA RAMOS

Rising concentration in Asia-Latin American value chains: Can small firms turn the tide?

CEPAL

Año: 2015; p. 123 - 156

Although the internationalization of Argentine trans-Latins has lost steam in the last decade, the four largest firms (namely, Arcor, Techint, IMPSA and BiogénesisBagó) have consolidated their presence in the Asian region. All four have implemented supplier development policies for many years (in some cases, these initiatives involve the cooperation of other private and public organizations) and have standards and procedures for evaluating the performance of their suppliers not only in terms of cost, efficiency and quality, but also in the environmental and social areas. Some of them have even launched programmes aimed at incorporating suppliers belonging to poor or vulnerable groups (so-called inclusive-purchase programmes). Moreover, the bulk of trans-Latins? suppliers are SMEs.Evidence shows that these firms are able to find competent suppliers of inputs, raw materials and services in Argentina (and in Latin America more generally), although in some cases they had to ?create? suppliers, especially when host governments imposed minimum local integration standards in exchange for having access to the local market and/or to preferential loans. The firms would then establish long-term relations with these suppliers, keeping turnover ratios generally low. The presence of foreign suppliers is higher in the area of capital goods since local provision is not always available, especially when complex technical equipment is required.As they deepen their internationalization processes, the trans-Latins have had to adapt to the different legal and business requirements of each market where they compete. Meeting these requirements often requires technological and productive changes, which have to be implemented by their suppliers. Trans-Latins often help their suppliers undertake these adaptations, as has been the case of operations in Asian markets.However, when Argentine trans-Latins have plants in Asia, the bulk of inputs and services are supplied by local firms in the host countries. All sources interviewed for this research agreed that Argentine suppliers are not competitive with their Asian counterparts, and that it is almost impossible for Latin American SMEs to engage in independent business operations in that region (except when they sell commodities, and even in that case, they need local partners in the countries in which they want to sell).Some firms stated that they are actively looking for suppliers in Asia, which could threaten the position of their domestic suppliers in Argentina. The latter still have the advantages of geography and long-term relations with their trans-Latin clients. Eventually, however, these advantages could be eroded as trans-Latins identify capable Asian suppliers and begin to establish business relations with them.The policy implication for dealing with this scenario is related to the more general agenda for developing SMEs in Latin America. This includes the need to foster the microeconomic competitiveness of these firms and to improve the mesoeconomic and macroeconomic environment in which they operate. Specific initiatives could also be undertaken with individual trans-Latins to expand their supplier development programmes with an eye to exporting to Asian markets, although prospects are not promising in this area.