Expert Speak Raisina Debates
Published on Feb 10, 2020
Global value chains in the BIMSTEC: An opportunity untapped

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) is the amalgamation of five South-Asian nations (Bangladesh, Bhutan, India, Nepal and Sri Lanka) and two South-East Asian nations (Myanmar and Thailand). The past few years have witnessed a rise in the relevance of the BIMSTEC countries from the Indian standpoint, owing to the current political impasse between India and Pakistan in the South Asian region which has caused the SAARC initiative to arrive at a standstill. Ergo, there is a need to look at alternative geo-political alliances to ensure holistic socio-economic development of the region. The BRICS-BIMSTEC Outreach Summit held in 2016 is testament to India’s renewed focus towards BIMSTEC under its ‘Act East’ Policy. Furthermore, BIMSTEC is located at the epicenter of one of the world’s busiest trade routes, i.e. the Indian Ocean and is one of the fastest growing economic regions of the world.

Trade and investment have long been one of the foundation pillars of BIMSTEC. With the rising global interconnectedness, no country can exist in isolation, and trade-- be it regional or global-- has become the life and blood of the world economy. The World Development Report 2020 published by the World Bank, points towards a positive association between growth in manufacturing productivity and growth in GVC participation. Thus, in recent times, integration into GVCs is being viewed as a fast track to industrialization and development. Internationally fragmented production, as postulated by the construct of GVCs, allows the developing economies to join in on the existing supply chains. This not only eliminates the need for the development of multi-sectoral specialization but also provides an opportunity for diversification of exports.

Low unit labour cost tends to be a hallmark for any country’s initial integration into the GVCs. However, in spite of meeting this prerequisite, none of the BIMSTEC countries—apart from Thailand-- show any sign of prominent involvement in any major GVC. The BIMSTEC countries need to get engaged in Global Value Chains so as to spur economic growth and help in the creation of jobs. Along with these benefits, the countries can also take advantage of their collective capabilities. According to the OECD-WTO-World Bank Group Report (2014), “Gains from GVC participation are not automatic. Benefits of GVCs can also vary considerably depending on whether a country operates at the high or at the low end of the value chain.” Developing countries involved with GVCs tend to get locked in low end value activities, primarily due to reasons like lack of specialized skills, lack of physical infrastructure as well as efficient coordination, and difficulty in accessing technology, inputs, markets, information, credit, etc. This in turn acts as a barrier in the growth trajectory of any developing nation that finds itself trapped in the mid-level production activities in a GVC.

In this regard, the Asian giant, China, has ever since held its own and has displayed tremendous development when it comes to engagement with the GVCs. From 2005 onwards, China emerged as a key player in GVCs, effectively replacing Japan as one of the top three centres for GVCs and even surpassing the United States in this ranking by 2011. The primary reason behind China’s deep involvement with the GVCs was its abundant labour and low wages. However, recent development statistics point towards the improvement of the Chinese economy and a rise in the quantum of skilled labour which will ultimately lead to higher wages. These factors, in the next decade, will induce a change in China’s GVC profile and the country will exhibit a greater involvement with high value production activities. This in turn will lead to the creation of a gap in the market for low value production activities on either ends of a vast multitude of product life cycles. India and other BIMSTEC countries are very well placed to capture this market and gain entry into a variety of GVCs.

However, ensuring adequate market capture, and enabling enhanced integration and deeper market penetration requires the correction of some inherent flaws in the administration and the overall approach to manufacturing in the BIMSTEC countries. For instance, the countries should work towards realising their comparative advantages in various fields in order to facilitate specialization, which in turn would lead to an enhancement in the efficiency of the production process. The BIMSTEC member countries should ensure that any value chain that emerges within the region ought to be efficient. The countries also need to redirect their focus towards research and developmental activities in order to ascertain the development of cost efficient methods of production and manufacturing. In addition to this, with the establishment of GVCs, each member country will have the opportunity to engage with the production process at different stages in accordance with their respective comparative advantages.

With rising global interconnectedness, arises the need for common global standards, international regulations, comprehensive labour laws, and industrial codes which in turn will help in reducing the non-pecuniary costs associated with international trade. Differences in environmental standards, a plethora of labour laws, a myriad of product codes and regulations simply add to the trade costs and lead to a reduction in the efficiency of the production network. The need of the hour is a renewed strategy directed towards training and skill-based higher education. The countries need to priotitise investment in the development of human capital by the means of vocational training programmes, aimed at the cultivation of a skilled workforce which is integral for a gainful and lasting integration into any global production network or chain.

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Prachi Mittal

Prachi Mittal

Prachi Mittal was an Research Assistant with ORFs Centre for New Economic Diplomacy(CNED). Her research focuses on development economics Indian economy and the Sustainable Development ...

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