Costed Action Plan for SADC Industrialization Strategy and Roadmap 3. Levels and Segments of Participation Value chain impacts are greatest where entry occurs in the middle segment of the chain. Middle segments are defined as exports of intermediate products for downstream processing in other countries (Forward Integration). Middle segment participation is a function of trade openness, of the level of industrial sophistication in an economy, and skills and education levels. 4. Upgrading Potential Upgrading potential is a key consideration because policymakers do not want to be locked into low-technology sweatshop-type operations that are competitive regionally and globally primarily because unskilled labour is cheap or because there is access to low cost natural resources. Upgrading potential will be greater where there are diversification opportunities while the benefits will be greater where firms enjoy knowledge and technology spill-overs. 5. End Markets and Market Access Market entry is driven in part by market considerations. Taiwanese investors in the Lesotho garment industry were motivated by access to the US market through the Africa Growth and Opportunity Act (AGOA). South African investors in the clothing chain were driven by cost competitiveness considerations – lower wages in Lesotho allied with close proximity to the lucrative South African market. Upgrading in Madagascar has been greater than in Lesotho or Swaziland partly because its market shifted from the US (under AGOA) to the EU and South Africa. 6. Competitiveness In a fast-changing global economy, competitiveness is dynamic forcing policymakers to distinguish between current and future competitiveness. Firms are much more likely to be highly competitive in task manufacture within a regional or global value chain than in a vertically-integrated national value chain. 7. Complementarity There are extensive complementarities in both demand and supply in SADC, which will promote increased value chain participation on the basis of participant firms seeking to exploit their competitive advantage at different stages of the value chain. 8. Potential for Embeddedness The evidence underlines the importance of participants committed to embedding their operations in the country where the value chain link is located. Case studies show how the degree of embeddedness varies according to the strategic motivation of the lead firms in the value chain. The impact is more positive where the investor is a long-term player with an interest in upgrading the value chain 31