Working Papers

Strengthening SMEs for International Competitiveness

Publication Number: ECESWP44-E

October, 2000

Author : Sanjay Lall

Type : Working Papers

With increased globalization, accelerated technical change and the growing demand for higher quality modern products, many traditional small and medium sized enterprises (SME) in developing countries face closure or very difficult upgrading. Even modern SMEs in developed countries face very difficult competitive challenges in the emerging setting. This paper's ultimate aim is to lay out some general principles of support to help increasing the competitiveness of SMEs in developing countries. It starts by identifying three sets of competitive problems that SMEs are currently facing. The first set is inherent to being small, the second reflects distortions in markets and institutions and the third are caused by policy intervention. Drawing on the experience of supporting SMEs in the UK and some East Asian countries, the study concludes that while a conducive business environment and private support mechanisms are necessary conditions for SMEs promotion, they are not sufficient. Pro-active policies are needed to promote SMEs competitiveness, and while part could be self-financed, a large component may need to be subsidized. It also stresses that the success of such policies should be based on a thorough understanding of SME strengths and weaknesses, and should also be geared to each country’s conditions and institutions.