Namibian small and medium enterprises (SMEs) face significant roadblocks in accessing lucrative international value chains, including innovation gaps, financial constraints, and global market barriers, according to a new report.
According to the United Nations Economic Commission for Africa (UNECA), SMEs are hindered by limited access to technology and financial constraints and struggle to navigate complex global markets.
The UNECA noted that stakeholders must unite to foster an environment conducive to SME development and resilience.
The report on ‘Building linkages between micro, small and medium-sized enterprises and multinational companies from the global south’ indicates that established SMEs are preferred suppliers for multinational enterprise affiliates.
“These enterprises benefit from backward linkages in terms of employment, wages, environmental sustainability, foreign buyers, and innovation. They receive more support from multinational enterprises and their relevant experience is a key factor in supplier selection,” the report reads.
However, UNECA adds that established SMEs are less likely to form technological partnerships abroad and capitalise on innovation opportunities through direct market competition with foreign companies compared to younger enterprises.
The report highlighted that export-oriented SMEs are more likely to supply multinational enterprise affiliates and receive support from them.
“They benefit from backward linkages in terms of employment, wages, investments, sustainability, and innovation,” said UNECA.
However, the report noted that foreign companies tend to prefer local buyers focused on domestic markets for establishing forward linkages.
“Strongly domestic-oriented SMEs play a crucial role for multinational enterprises in establishing forward linkages,” said the report.
The survey emphasised that innovative SMEs are more likely to establish linkages with foreign-owned companies, although they receive less support from foreign buyers and suppliers.
UNECA said the willingness of local SMEs to update production processes is a crucial factor in supplier selection.
“Innovative SMEs reap benefits in terms of employment, wages, investments, sustainability, buyers, and innovation. They are also more responsive to foreign competition and likely to establish technological partnerships with multinational enterprise subsidiaries.”
The report also revealed that larger local companies are preferred suppliers for foreign multinational enterprise affiliates and receive more support benefiting from backward linkages in various aspects and are more likely to establish forward linkages with foreign companies.
“Small size is a key obstacle for SMEs in accessing international value chains. Smaller companies, however, are more responsive to foreign competition and demonstrate greater flexibility in adapting to market changes,” the study unveiled.
Similarly, access to external funding provides a competitive advantage for SMEs in receiving support from foreign buyers and reacting to market competition.
External funding facilitates investment and innovation. Informality poses a challenge for accessing external funds.
However, mobilising personal funding combined with external resources doesn’t provide an advantage in supplier selection by multinational enterprise subsidiaries.
Another point highlighted was that the level of education of the local labour force does not significantly correlate with the establishment of linkages or partnerships with foreign companies.
“Lack of vocational training is highlighted as a weakness by Namibian stakeholders. Multinational enterprise affiliates provide support to local suppliers, including training opportunities,” the report noted.
