Costed Action Plan for SADC Industrialization Strategy and Roadmap Competitiveness is crucial to the success of value chain participation, and may mean where imported inputs are cheaper, better quality or more readily available than those produced locally do, firms that rely on foreign suppliers will produce at lower cost and/or at higher quality than those relying on locally supplied inputs. 2.2 Value Chain Participation in SADC SADC value chain participation takes the following features: (i) Cross-Border Participation: While regional value chains in SADC are, developing – most rapidly in services – participation in GVCs is modest, with the exceptions of apparel and in South Africa’s case, automobiles. SADC value chain participation is mainly upstream – the export of primary commodities, minerals, tobacco, sugar, and beef – with limited local value addition. (ii) The region is involved at the lower segment of value chains while focus should be on enhancing participation at the upper end and diversification into new high-productivity activities. (ii) Hub-and-Spoke Value Chains: Regional value chains are primarily hub-and-spoke in structure with South African corporates as the lead firms with relatively few linkages to GVCs. Growing South African dominance, most notably in services, favours a huband-spokes regional model. (iii) Remoteness Participation in GVCs is constrained by geography – remoteness of major global hubs thereby strengthening the argument for emphasising the need for regional value-chains. Distance and weak connectivity have adverse effects – on costs, on delivery times and network flexibility. SADC economies participation in RVCs and GVCs is generally stunted by weak logistics and inadequate physical and natural capital, as well as serious skills deficiencies. (iv) Scale Small populations – less than two million people in the BLNS, Mauritius and Seychelles – restrict the size of the industrial sector, inhibit both diversification and cluster developments. Scale effects are exacerbated by regional imbalance between South Africa, accounting for over 60 per cent of regional GDP, and the other 14 with much smaller economies in terms of GDP. 24