SMEs in regional trade and investment development
Small and medium-sized enterprises (SMEs) can and have played a key role in economic growth and equitable development in developing countries. Their contribution to employment generation, output, exports, poverty alleviation, economic empowerment, and wider distribution of wealth and economic opportunities provide a number of potential benefits to developing countries. This potential, however, is often not realized due to a number of factors relating to the size of SMEs. Individual SMEs often have difficulties in achieving economies of scale in the purchase of inputs such as equipment, raw materials, finance and consulting services and are often unable to take advantage of market opportunities that require large production quantities, homogenous standards and regular supply. Small size is also a constraint on the internalization of functions such as training, market intelligence, logistics, technology innovation and quality accreditation, while preventing the achievement of a specialized and effective internal division of labour. To preserve their narrow profit margins, small-scale entrepreneurs in developing countries are often unable to introduce innovative improvements to products and processes and this limits their scope to take advantage of new market opportunities arising from the process of regional integration itself, that could specifically include: attempts to gain access to the supply chains of trans-national corporations (TNCs), take advantage of the process of regional product fragmentation, and the engagement in direct exporting and FDI opportunities. Many of the difficulties facing SMEs in developing countries are not related purely to size but their isolation of operation, locationally (regionally) and in terms of interaction with other similar sized enterprises. Hence, closer cooperation between SMEs and the development of relevant supportive institutions could be the key to overcoming such obstacles.
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