domestic onshore rules with best international practices and minimizes the positive externalities of participation to GVCs by cutting backward linkages.

# _(4) Fostering innovation and building capacity_

GVCs ease capacity constraints, since a country does not need to develop a fully integrated industry to participate in international trade. Nonetheless, capacities and productivity (as much as cost) remain tipping points for decisions by foreign investors and lead firms considering various locations for outsourcing and/or offshoring around the world. Given the predominance of flows, as opposed to stocks, in the new trade paradigm, adaptability to the lead firms’ requests, responsiveness, and capacity to innovate are also key factors (World Bank, 2010).

Table 6 provides an example of lead firms’ priorities to develop sustainable GVCs in the agri-food sector, with a focus on capacity building and innovation, and the articulation of public and private initiatives. It is not up to the developing countries alone to build capacity, but in cooperation with the international community and business (WEF, 2011).

# **Box 1. Top recommendations to the G20, WEF Food Security Working Group, 2011**

|**1. A 50% increase of investments in food value chains, totaling USD 80 billion from both public and private sectors, is critical to**<br>**achieve by 2015.**This can be achieved by incentivizing private investment through improved risk management and policy solutions; and<br>fulfilling public-sector funding commitments.<br>|
|---|
|_Proposed public-private actions:_|
|·<br>**Initiate and strengthen national and regional partnerships to accelerate public-private investment in sustainable agriculture:**|
|Vietnam, Indonesia, Mexico, Tanzania, and pan- African partnerships are being facilitated by the new Vision for Agriculture initiative.<br>·<br>**Scale up effective risk management tools to accelerate responsible investment:**A public- private working group should|
|immediately start work to expand and apply risk management solutions (including innovative finance and affordable index-based insurance) in|
|target countries.|
|**2. Improving the functioning of agricultural markets**is a vital and immediate priority. This requires extensive improvement to policy and<br>infrastructure, as well as increased transparency through improved data collection, sharing and monitoring.|
|**3. Technology innovation and distribution should be accelerated**through partnerships and policy reforms, to address local needs for<br>improved productivity, sustainability and nutrition.|
|**4. Environmental sustainability must be integrated as a core objective into all agricultural activity,**addressing climate, water, land and<br>waste issues through policy incentives, technology innovation, partnerships and best practices.|
|_Proposed public-private actions:_|
|·<br>**Strengthen public-private collaboration for improved water resource management:**the Water Resource Group is working in|
|India, Jordan, Mexico, Mongolia and South Africa to meet economic, social and environmental needs sustainably.<br>·<br>**Launch an ambitious expansion of sustainable sourcing practices**by leveraging public- private capacities to scale up best practices|
|for sourcing agricultural products from smallholder farmers.|
|**5. A major shift to improve nutrition should be undertaken**, engaging private-sector technology, communications and distribution capacities<br>also inpartnershipwith other stakeholders.|

Source: WEF, 2011 The potential of a country for GVC participation could be assessed against a number of determinants, including:

- capacity for scale production;

- availability of services necessary to support production and market integration;

- education and skills of the workforce matching the needs of global producers and buyers ( Figure 24 shows the skills needed for different types of outsourced activities) ; and

- capacity for innovation in its multiple dimensions (e.g., of product or process), including environment sustainability.

With the shift in demand to emerging markets, lead firms have to define strategies where innovation centers are decentralized. According to the concept of “reverse innovation”, lead firms need to innovate in developing countries, and solve their specific needs. Eventually, they can bring the results back home, thereby contributing to boosting the developing countries’ exports (Govindarajan and Trimble, 2012). This requires the host developing country to be able to develop innovation capacities, which rely on education and skills. Similarly, the trend toward the consolidation of GVCs suggests that a country cannot offer a single task, but a bundle of tasks to join and maintain participation in GVCs.

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