Supply chains connect resources to production, link manufacturers to markets, and integrate developing economies into regional and global value networks. When functioning well, they support industrial upgrading, employment and growth - core objectives of SDG 9. Yet today, supply chains are undergoing structural shifts that risks marginalizing small developing economies.

Structural shifts reshaping supply chains

Two major forces are reshaping international production networks. First, geopolitical tensions are pushing multinational corporations to move beyond purely cost-?driven optimization.  Second, the global shift toward low-carbon economies is introducing stricter obligations and requiring sustained investment in green and digital technologies.

These pressures are especially challenging for small developing economies.  Many lack the domestic market size to attract investment and have historically relied on low-cost labour as their main advantage. Now that cost alone is insufficient. These structural constraints at the country level are mirrored at the firm level. SMEs face persistent financing barriers that limit their ability to upgrade, adopt green technologies, and meet partner requirements. 

Growing gaps and risks for latecomers

The increasingly stringent standards and partners’ requirements are widening gaps between countries. Latecomers, especially Least Developed Countries (LDCs), Landlocked Developing Countries (LLDCs), and Small Island Developing States (SIDS), face particularly high risks. Although they represent 60% of ESCAP member States, they remain marginal in regional production networks and are not sufficiently equipped to meet new requirements. 

Bangladesh illustrates this vulnerability. Despite ambitions to move into higher-value manufacturing, data from ESCAP's Regional Integration and Value Chain Analyzer (RIVA) show that its integration into global supply chains remains limited. In 2024, Bangladesh's backward global value chain (GVC) participation stood at 17.7%, compared to Thailand's 29.4%.  Its forward linkages reached only 10.4%, indicating a very small role in upstream segments of GVCs (see the figure below). Similar structural constraints are likely to affect other latecomers in the region. Without targeted support and investment, these latecomers risk becoming further excluded.

Drawing lessons from the automotive sector

The automotive industry offers a case study for understanding these pressures. As one of the most globally integrated and technologically demanding sectors, it magnifies both the opportunities and risks facing latecomers. The Asia-Pacific automotive manufacturing industry generated total revenues of US$ 990.6 billion in 2022, with over 100 million units produced annually, and accounts for 51.5% of global sales. Seeing potential backward linkages to steel, rubber, plastics, electronics and skilled services, several LDCs & LLDCs have developed policies to nurture local assembly and component production (see the table below).

However, the effectiveness of these efforts will depend on how well they adapt to the changes underway in the global automotive industry: demands shift toward electric vehicles, tightening standards on emissions and safety, increasing digitalization, and shifting sourcing strategies. 

Policies to nurture the automotive sector (in selected LDCs/LLDCs) 

Source: Compiled from (a) The Daily Star, (b) Nepal News, (c) Royal government of Cambodia, (d) The Laotian Times, (e) Daryo Global. 
Note: *1) Includes automotive brands manufactured or assembled locally.

Readiness for rapid industry shifts will shape their ability to join automotive GVCs.  Learning from other countries, engaging with the private sector and strengthening regional collaboration can help policymakers identify realistic entry points, design incentives and support local firms in meeting new requirements. At the 13th Asia-Pacific Forum on Sustainable Development, ESCAP hosted a side event on building resilient and inclusive supply chains attended by over 250 participants, using the automotive industry as a case study. Key takeaways included that, despite geopolitical shifts, automotive firms continue to see opportunities in untapped, growing markets, including early-stage developing countries. Thailand’s experience showed that developing local suppliers, sustainable finance products and public-private partnerships contribute to building resilience.  Experts and policymakers at the event emphasized the need for regional programmes linking global automotive firms with local SMEs through targeted skills training, supplier upgrading and technology transfers. 

Photo credit: Adobe Stock Photo/Jeson