The role of standards in adding value in global value chains

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Ando International, a Vietnamese garment firm with 900 workers in Ho Chi Minh City, has improved a lot in labour standards since joining Better Work Vietnam. Source - ILO/Aaron SantosConsumers around the world increasingly demand products and services that are simultaneously good for the economy, for the environment, and for society—the triple bottom line of sustainable growth. This rising demand is creating new pathways for businesses and governments to drive change for global good.
 
Global value chains represent one of the key ways the World Bank Group approaches these new opportunities. By better understanding GVCs, low-income countries can become participants in increasingly fragmented international production processes. GVCs thus offer tremendous potential to better connect the poor to the global economy and its benefits—more and better jobs, higher wages, improved labor conditions, and lower environmental impact.
 
That’s why we have been developing a new approach that brings the best of the Bank Group together to help low income countries connect to and upgrade within GVCs. Helping firms in developing countries meet the standards of global buyers and lead firms is a part of this effort, because in today’s sophisticated and highly mobile economy, meeting global standards is no longer optional—it’s a necessary condition for being competitive.


At the same time, the Bank Group is mindful of the difficulties that adopting higher standards involves. While we strive for better environmental, health, and labor standards everywhere, we also recognize the challenges of compliance in the developing world—for a poor farmer, or a young entrepreneur, or a regional supplier.
 
Through a combination of advisory, lending, and investment support, we help client countries tackle the challenges of GVC participation comprehensively. This may be based on developing long-term strategies for deep structural reform, but it also includes targeted policy interventions that meet short-term challenges within specific segments of value chains. Standards are an integral part in all of this.  
 
The Bank Group understands that improving standards requires much more than simply adopting and enforcing new rules. It requires long-term commitment, and the incentives and mechanisms tailored to the particular needs of specific countries and specific value chains. Being a global organization with a global reach, the World Bank Group is uniquely positioned to trigger a “race to the top” by developing a common approach for upward graduation through standards implementation across all countries.
 
HOW PARTNERSHIPS CAN HELP
 
The Bank Group is working to strengthen our global partnerships with governments, businesses, consumer and labor groups, and other international organizations. An inclusive partnership approach opens the door to the best insights and most successful models from those with experience raising standards, improving productivity, developing skills, and spreading prosperity through participation in GVCs. 
 
The Better Work program—a partnership between the World Bank Group’s International Finance Corporation and the International Labour Organization—exemplifies how partnerships can make an impact.
 
Better Work began in 2007 in response to demand from consumers and multinational firms for better standards in garment factories. Today, the program has helped improve the lives of more than one million garment workers in eight countries by helping management and labor work together to provide safe, clean, and equitable working environments.
 
Recent research strengthens the business case behind this model, showing how profitability of garment factories and productivity among workers increases as working conditions and wages improve. Building on this success, the Bank Group is working with global partners to scale up the Better Work program and increase its reach.
 
WHAT DEVELOPED COUNTRIES ARE DOING
 
Developed countries are showing increasing interest in helping producers in poor countries meet high international standards for goods and services. But it is their knowledge, as much as their financial assistance, that can make the difference.
 
In many cases, these governments have experience to share on how to establish regulatory measures and policies that support higher standards and foster productivity and shared value in GVCs. Being home to many of the world’s lead firms, enhancing the capacity to comply throughout global production chains helps all parties.
 
Developed countries are also home to sophisticated consumers whose choices drive business decisions worldwide. Transparency legislation and awareness campaigns can help to ensure these consumers are knowledgeable about how and where products are made.
 
WHAT DEVELOPING COUNTRIES ARE DOING
 
Developing countries are increasingly aware of the triple bottom line of sustainable growth. Many are working to strengthen legal frameworks, improve the professionalism and capacity of regulators, and provide an enabling environment for firms and individual producers seeking to meet higher standards.
 
Many countries have also adopted legislation to protect workers and the environment, and this is an important first step. But enforcement offices generally have limited resources; they need the know-how, the skills, and the capacity to phase in adherence to internationally recognized standards. This process can be self-perpetuating, as our work has shown that the likelihood of countries to comply with standards increases with greater revenues. 
 
WHAT THE PRIVATE SECTOR AND CIVIL SOCIETY ARE DOING
 
Lead firms’ emphasis on quality and standards represents an important area for potential spillovers in the domestic market. Many of these firms are already providing technical assistance to local suppliers and producers to improve activities along production chains—the business case is strong.  
 
Low labor and production costs are often insufficient motivation for lead firms to invest and source from poor countries. The ability to adhere to standards matters greatly. Plenty of countries that offer low-cost labor are failing to attract investment because lead firms see risk rather than opportunity. This can stem from a range of factors including conflict, instability, weak governance, and, importantly, inability to meet standards.
 
For small- and medium-sized enterprises in developing countries, failure to meet international standards may bar participation in GVCs. These SMEs typically face more difficulty meeting standards than large firms. That’s why the Bank Group is working to help client countries put in place the mechanisms to empower them.
 
We’re also working to empower civil society organizations. Their advocacy campaigns and technical assistance help to mainstream sustainable practices and adherence to international standards. These organizations are also helping to provide innovative solutions to difficult problems, especially in monitoring and evaluating progress.
 
Enhancing developing countries capacity to comply with standards helps to encourage investment and improvement in existing and new activities in agriculture, industry, and the service sector. Working together, we can spearhead a virtuous cycle of reform, further GVC participation, and greater economic and social development.

Authors

Anabel Gonzalez

Formerly Senior Director, World Bank Group Global Practice on Trade and Competitiveness

Daria Taglioni

Lead Economist, Trade & Competitiveness

Join the Conversation

Chola Mwitwa
May 29, 2015

Partnerships and multi-sectoral collaboration in solving the bulk of our problems is the way to go. I have recognised that the challenges facing us ( poor communities) are too great and too systemic for any one person or sector to solve alone.