Some investment incentives could also have an adverse effect on backward linkages; this is the case of the “offshore” legal status (“maquila” type of regime) that often isolates the production aimed at export from the rest of the domestic production. Such production in silos is not conducive to the improvement of backward linkages, and it is important that exporting firms are used as potential models for others.

Local sourcing could be rewarded (see above) and by all means it should be facilitated through a proactive adjustment of local supply to the needs of firms participating in GVCs. Among others, policies to enable the local sourcing of inputs include:

- the leveling of local small and medium enterprises (SMEs) to meet the standards required by lead firms;

- the removal of unnecessary NTMs;

- workforce development to match available skills with demand;

- capacity building up- and downstream the GVC entry point; and

- innovation.

# _(2) Increasing within GVC transfers and spillover effects_

Participation in GVCs is potentially a source of important transfers from lead firms to suppliers along the value chain. Such transfers benefit the functioning of a specific value chain, but also have spillover effects. For example, the construction of a road or an electrical plant to services a specific plant also benefits other users of the infrastructure (Kurz and Schmidkonz 2010). Multinational companies sometimes invest in public goods, such as road safety, education or anti-corruption, to improve the overall business environment in the country. Companies involved in such capacity building efforts primarily do it because it serves their core business strategy (61% of the lead firms surveyed) or corporate social responsibility principles (46% of the lead firms surveyed) (OECD-WTO, 2013c). These transfers and spillover effects contribute to reducing the cost of capacity building and development usually borne by the local government and firms. They should therefore be encouraged by the government, whether they are linked to FDI or not.

Looking at the contribution of business to competitiveness and trade capacity building, four types of transfers and spillover effects taking place in GVCs can be distinguished (World Bank, 2011d): • Building human capacity: Training and skills While the movement of key personnel is essential to doing business abroad, the majority of workers in most countries that attract FDI or partnerships with international firms are local or regional. Insofar as the workforce is deficient in specific skills that are needed, foreign companies often establish training programs. While benefiting the company in the short-run, such programs can contribute to sustainable long-term benefits for the recipients who can apply their newly acquired skills in numerous ways, resulting in positive spillover effects for the country (e.g., alumni of multinational firms often count amongst the most successful local entrepreneurs and exporters). The types of programs that are implemented could benefit employees of the company or sub-contractors (and hence potentially benefit other exporting firms).

# • Bolstering productive capacity: Technology, know-how and finance

Foreign companies investing in developing countries frequently confront situations where the condition of existing infrastructure, technology, and the general business environment raise operating costs significantly. A number of case stories revolve around transfers of technology, knowhow, and knowledge, and efforts to improve the business environment. Examples include the development of hard infrastructure such as facilities, the dissemination of technologies and knowledge, and providing access to finance for suppliers. While benefiting the company at the origin of the transfers, the capacity building efforts to improve infrastructure or the business environment can be expected to have positive spillover effects, including to local SMEs.

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