SME Internationalization through Value Chains: What Role for Finance?

Over 70 per cent of GDP in Latin America is produced by large firms, while in developed OECD economies the share of large firms in GDP is just 40 per cent. In terms of internationalization of Latin-American SMEs the situation is even less favourable. SMEs in Latin America have very little direct or indirect links to external markets through exports. These weak connections of Latin American SMEs to global and domestic value chains are an important explanatory factor for their low levels of labour productivity. In addition, when SMEs do not access international markets, they are subject to the conditions of domestic markets. This paper focuses on two important aspects of the environment in which SMEs operate today. First, we put an emphasis on global value chains and how SMEs can profit from them in the region. Integration of Latin American SMEs to Global Value Chains is an objective for inducing productivity gains and eventually economic upgrading. GVCs provide a fertile ground for knowledge transfer among its members, with positive externalities to its participants. Second, we discuss the type of financial instruments that can help SMEs to increase productivity through innovation and internationalization. Some of these initiatives have integrated the internationalization dimension in their approach: developing financial tools at the value chain and enhancing coaching between large and small firms for innovation programmes are some examples.