Promoting International Investment by Small and Medium-sized Enterprises
Introduction
Small and medium-size enterprises (SMEs) are important contributors to economic development, representing a substantial portion of businesses globally. Global markets offer SMEs opportunities for growth, diversification, and resilience. Access to international markets enables them to tap into new customer bases, gain exposure to diverse business practices, and foster innovation through cross-cultural collaboration.
Challenges Faced by SMEs
SMEs encounter significant challenges that hinder their investment overseas. SME investors, relative to large Multinational Enterprises (MNEs), face distinctive bottlenecks including financial and information constraints, difficulties in dealing with regulatory complexities, and an international investment environment that often favors large-scale investment projects. Foreign direct investment (FDI) by SMEs has been declining in recent years, with the number of outward greenfield investment projects in 2022 being only about a quarter of that in 2015.
Importance of Supporting SME Investment
There are good reasons for governments and investment promotion institutions to pay more attention to supporting SME investment. SME investment can be most beneficial for development because it is less footloose, relies more on local suppliers and partners, and is less likely to crowd out local firms. SMEs can become real game changers in a global context characterized by greater competition for a shrinking pool of large-scale projects, a general trend towards regionalization, and international tax reforms that will reduce the effectiveness of incentives for large MNEs.
Policy Options to Facilitate SME Investment
Based on original empirical studies in different developing regions and selected developed economies, this report discusses how to reduce the common investment policy bias in home and host countries towards large MNEs, the role of SMEs in South–South and intraregional FDI, and ways and means to maximize the development impact of SME FDI. It introduces a new framework to assess the relevance and effectiveness of existing investment policies for the promotion of SME investment and presents policy options to facilitate overseas investment by SMEs and reduce the existing policy bias, including the following:
- Adjusting investment promotion and facilitation services towards addressing the needs and challenges that SMEs face, so that size does not hinder their access to financial incentives and facilitation mechanisms.
- Establishing comprehensive support networks and designing accessible matchmaking programs and events to help small businesses connect and foster sustained success.
- Improving SMEs’ competitiveness by supporting their innovation capacity, including through digitalization, technology adoption, and capacity-building.
- Facilitating SMEs’ access to capital, including by improving digital services and infrastructure.
- Simplifying the regulatory and administrative framework and improving access to information by using digital platforms.
- Promoting SMEs’ participation in trade to increase their international exposure and knowledge of foreign markets.
Conclusion
By implementing a combination of these policies, governments can create an environment that supports SMEs in their efforts to invest and thrive in international markets and to harness the related development benefits.
Publication Details
Date: 06 Feb 2024
Publication: Promoting International Investment by Small and Medium-sized Enterprises
Language: English
URL: https://unctad.org/system/files/official-document/diae2023d7_en.pdf
SDGs, Targets, and Indicators
1. Which SDGs are addressed or connected to the issues highlighted in the article?
- SDG 8: Decent Work and Economic Growth
- SDG 9: Industry, Innovation, and Infrastructure
- SDG 17: Partnerships for the Goals
The article discusses the challenges faced by small and medium-sized enterprises (SMEs) in accessing international markets for growth and development. This aligns with SDG 8, which aims to promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. It also relates to SDG 9, which focuses on building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation. Additionally, SDG 17 emphasizes the importance of partnerships and cooperation to achieve the goals of the sustainable development agenda.
2. What specific targets under those SDGs can be identified based on the article’s content?
- SDG 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation.
- SDG 9.3: Increase the access of small-scale industrial and other enterprises to financial services, including affordable credit.
- SDG 17.16: Enhance the global partnership for sustainable development by promoting effective public, public-private, and civil society partnerships.
The article highlights the need for policies that support SME investment and entrepreneurship (SDG 8.3). It also emphasizes the importance of improving SMEs’ access to capital and financial services (SDG 9.3). Furthermore, it suggests the promotion of partnerships and collaboration between governments, investment promotion institutions, and SMEs to facilitate overseas investment (SDG 17.16).
3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?
Yes, the article mentions several indicators that can be used to measure progress towards the identified targets:
- Number of investment promotion and facilitation services tailored to address the needs and challenges faced by SMEs.
- Number of comprehensive support networks, matchmaking programs, and events designed to connect small businesses.
- Level of support for SMEs’ innovation capacity, including digitalization, technology adoption, and capacity-building.
- Improvement in SMEs’ access to capital through digital services and infrastructure.
- Simplification of regulatory and administrative frameworks for SMEs, measured by the reduction in bureaucratic processes and improved access to information through digital platforms.
- Increased participation of SMEs in trade, measured by the number of SMEs engaged in international markets and their knowledge of foreign markets.
These indicators can be used to assess the effectiveness of policies and initiatives aimed at promoting SME investment and internationalization.
SDGs, Targets, and Indicators
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 8: Decent Work and Economic Growth | Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation (SDG 8.3) |
|
| SDG 9: Industry, Innovation, and Infrastructure | Increase the access of small-scale industrial and other enterprises to financial services, including affordable credit (SDG 9.3) |
|
| SDG 17: Partnerships for the Goals | Enhance the global partnership for sustainable development by promoting effective public, public-private, and civil society partnerships (SDG 17.16) |
|
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Source: unctad.org
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