International value chains: opportunities and challenges for small and developing countries

While internationalisation can improve firm performance, it is often only the most productive firms that are able to internationalise (Wagner, 2005, 2012; Melitz, 2003). Recent reductions in transportation costs and trade barriers alongside technological advances have fragmented production into intermediate tasks that can be executed in several countries, creating international value chains (IVCs). These IVCs can act as a stepping stone for less productive firms to tap into international markets, and benefit from learning-by-doing, without taking on all the tasks in the value chain, thereby lowering the entry requirements for internationalisation associated with exports (OECD, 2008). This article examines the opportunities and challenges of IVCs for SMEs in small and developing countries and, in a final section, applies some of these lessons to Scotland.