**Table 6. Fostering innovation and building capacity: Policy objectives and performance indicators**

||**Policy objectives**|**Performance indicators**|
|---|---|---|
|**Bols**<br>**incl**|**tering productivity, production and innovation capacities,**<br>**uding human capital and other resources**|•<br>Computer, communications and other services, ICT goods and<br>services imports/exports (WDI)<br>•<br>Investment in telecoms with private participation (WDI)|
|•|Innovation policies and incentives (e.g., R&D, innovation<br>centers) and adaptation/diffusion of technologies in trade-<br>oriented sectors|•<br>Firms offering formal training (WDI)<br>•<br>Number of patent applications filed by residents and non-<br>residents, domestically and abroad (WDI, WIPO)|
|•|Education and training to match domestic skills with<br>international standards and demand in trade-oriented sectors /<br>|•<br>Education statistics – secondary and tertiary education,<br>specialties, male/female, etc. (UNESCO, ILO, WDI)|
||upgrading of available skills<br>|•<br>Global competitiveness index – business sophistication (WEF|
|•|Development of production hard (e.g., storage, conditioning,<br>cooling chains, etc.) and soft (e.g., value-chain management)<br>capacities in trade-oriented sectors<br>|GCI 11.01-11.09);<br>– innovation (WEF GCI 12.01-12.07)<br>•<br>Extent of staff training (WEF GCI 5.08)|
|•<br>•|Creation of clusters and other task bundling efforts<br>Changes in production (methods and equipment) towards more<br>efficient and sustainable use of natural resources (e.g. water)<br>and energy|•<br>Labor statistics – activity rates, unemployment, male/female,<br>etc. (ILO, WDI)<br>•<br>Innovation indicators and surveys – public and private R&D<br>expenditure, high and medium-high technology manufacturing,<br>knowledge intensive services (OECD)<br>•<br>Production capacities – sector output – andproductivity statistics<br>(national statistics,WIOD)|

Source: OECD, 2012a

# **_Preserving participation in GVCs_**

It is not enough to join GVCs: business strategies are very flexible and tend to adjust quickly to changes in demand (consumers’ tastes and spending) and supply (competition among input providers). Participation in GVCs thus contains a number of risks and raises sustainability issues that should be addressed by trade and competitiveness policies.

# _(1) Identifying the threats and opportunities_

SWOT (strengths, weaknesses, opportunities, threats) analyses are common in business literature. They allow the assessment of a country’s endogenous (strengths and weaknesses) and exogenous (opportunities and threats) competitiveness factors, and in the context of a value chain analysis, the ability of a country to join and remain part of GVCs.

Exogenous factors of particular relevance to GVCs include:

- Variations in the length of GVCs (e.g., the consolidation of a GVC that reduces the number of participants and the geographical spread of the production);

- Shift in end markets (e.g., the emergence of a large regional market that justifies an increased presence and production of lead firms in the region);

- Increased competition on certain segments of production due to a competitor’s economic catch-up or loss of competitiveness (e.g., rising labor costs);

- Exchange rate fluctuations that might affect a country’s competitiveness; and

- Protectionist measures (both for imports and exports) that affect trade costs and flows (e.g., quotas and antidumping measures on steel that affect the import of steel products, which are essential inputs for many industries).

The analysis of changes in business trends and strategies is largely sector specific, and sometimes even firm specific. A good knowledge of the markets and business trends (e.g. so-called “fly to lowcost” in times of crisis, “reverse innovation” strategy development of a major global producer like GE – Immelt, Govindarajan and Trimble, 2010) is therefore necessary to seize the opportunities and anticipate the threats of GVC participation.

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