February 7, 2024

Policy Recommendations for Promoting International Investment by Small and Medium-Sized Enterprises

A report by the United Nations Conference on Trade and Development (UNCTAD), the trade and development body of the United Nations, correctly notes that "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."

Having supported initiatives aimed to promote international investment by SME's, I support the report's assertion that "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, importantly, an international investment environment in which facilitation and investment promotion institutions are often geared towards attracting large-scale investment projects." The report points out "Foreign direct investment (FDI) by SMEs has been in decline in recent years: the number of outward greenfield investment projects in 2022 was only about a quarter of that in 2015."

With financial support of the Kingdom of the Netherlands, UNCTAD's report says that "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." What is more, "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." These policy options include:
  • 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 program and events to help small businesses connect and to foster sustained and successful partnerships.
  • 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 development.
  • 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.

I agree with the UNCTAD that "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."

What are your recommendation for promoting international investment by small and medium-sized enterprises?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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