Networking small- and medium-sized enterprises

Representing small- and medium-sized businesses
Promoting interests of small- and medium sized companies
Networking can take place at two levels, that of the firm and that of institutions such as SME support agencies or SME associations. In the current context, inter-firm linkages -- through joint ventures, subcontracting, franchising, establishment of alliances or of cooperative arrangements, both at home and abroad -- are an essential part of the process of modernization of SMEs. They enable SMEs to acquire knowledge of consumer preferences in their export markets, of the workings of the international market place and of the nature of international production and competition. The experience and knowledge gained allow them to adjust, for example by achieving flexible specialization, by improving design and quality, by upgrading technology and by sharing assets or undertaking joint activities in order to achieve economies of scale so as to maintain niche markets or to remain competitive.
The role of inter-firm cooperation in industrial districts as, for example, in Brazil, Indonesia and Italy, is also of significant importance in contributing to the achievement of flexible specialization and the modernization of SMEs, as well as to export development. Some donor programmes help to promote inter-firm linkages between domestic firms and firms in developing countries. One example is the Indo-German Export Promotion Project supported by GTZ, the German technical cooperation agency, which helps to build up closer cooperation and supplier relationships between Indian and German firms, not only in traditional sectors like shoes, silk garments, leather goods and gold jewellery, but also in technology-intensive products such as computer software, automobile and bicycle components and castings. Such linkages help Indian firms to establish themselves in German markets and, by exposing them to competitors, export marketing requirements and techniques and new market conditions, including latest information about designs and trends provided by their German partners, also encourage them to embark on new processes and activities, as well as to improve their performance and competitiveness. Further, by maintaining an economic policy dialogue with official policy-makers, the project can contribute to improving the policy and regulatory environment for Indian exporters. By working directly with firms which provide feedback to governmental institutions and private-sector business organizations, and by indicating what types of export promotion activities are appropriate or possible, the project can contribute towards a bottom-up approach to institution building.

However, much more can be done in order to encourage SMEs to link up with other firms, either domestically or abroad. There is also a need to encourage SMEs to develop export markets or to branch out abroad. In this regard, the lack of information in a number of areas would seem to be a major factor in inhibiting the development of export markets by SMEs and the growth of their linkages with foreign firms. The areas where information is often lacking for SMEs include: sources and conditions of finance, including export finance; export market conditions, including information on design, quality, packaging and labelling requirements; marketing requirements and distribution networks; patents, trademarks and franchising regulations; subcontracting possibilities; training programmed modern management techniques; sources and conditions of consultancy services; and calendar of future national and international events, such as trade fairs and exhibitions. SMEs have a particular need for such information, especially about export markets. Unlike large enterprises, they do no have the means to collect information by organizing their own market intelligence networks in foreign countries.

The availability of support in the way of timely and relevant information on export market conditions in individual countries, as well as credit facilities, including credit guarantees, training programmes and export advisory and technical services, can make a critical difference in overcoming constraints or in creating confidence, particularly for those new to the business of exporting or of branching out abroad. Examples of various services provided to help exporting SMEs include: in Japan, an Export Financing Loan Guarantee scheme for SMEs to ensure that they have access to export financing services and export insurance; in Canada, the First Time Exporter's Programme designed to help first-time exporters to set up an export business, a Crossborder Export Training Programme and a database service listing companies and products; in Norway, the Export Manager for Hire Programme under which a consultant is provided to a company to help it set up its export business, the Commercial Network Programme, designed to create alliances or networks among SMEs in such areas as export activities, purchasing and R and D, and a programme designed to provide loans to partially meet the cost of establishing SME sales subsidiaries abroad; and in the UK, the Business Link Network designed to establish a national network of one-stop centres to provide an integrated package of services to SMEs, including exporters. Various other countries, including China, France, Germany and Mauritius, have also established export information and advisory services to SMEs. The organization of trade fairs, often in cooperation with private-sector organizations, provides a highly-valued service to SME exporters, allowing them to come into contact with potential customers and business partners.

In the developed countries, various types of institutions have been established, aimed at promoting the internationalization of their SMEs, particularly to developing countries. The types of institutions involved and the different services provided by them are described briefly in an earlier document on the role of SMEs in export development submitted to the first session of the Ad Hoc Working Group. Likewise, the activities of the International Trade Centre UNCTAD/GATT in contributing to export development of SMEs are briefly described in that document.

Where firms succeed in establishing linkages with other firms, whether domestic or foreign, the channels provided by such linkages can often become the most important source of information and assistance to SME exporters. In Japan, a number of large trading companies, which have established their own market intelligence networks abroad, have played an important role in fostering the development of SME exporters.

In addition, networking can be established at the level of institutions such as SME support agencies or SME associations. This kind of networking can help to promote the development of inter-firm linkages and thus contribute to the development and modernization of SMEs, including exporting SMEs. An example of networking of institutions is TECHNONET Asia, which groups together 14 participating organizations -- principally SME support agencies -- from 12 countries in Asia and the Pacific. Its programmes are primarily supported by international and bilateral donors and focus on four main areas: dissemination of industrial information; provision of industrial extension services; facilitation of technology transfer or sharing; and development of indigenous entrepreneurs and enterprises. It may be noted that SEBRAE, a private SME support agency in Brazil, is building up links in the MERCOSUR region, which allow the support agency to provide its various services to SME exporters and importers, as well as to bring them together, within the region.

The EMPRETEC programme, a United Nations programme managed by UNCTAD in cooperation with DDSMS in New York, which is designed to detect entrepreneurial talent and foster its development, has evolved to a stage where a process of networking and business links between the African and Latin American regions is emerging. Furthermore, UNCTAD's Global Trade Point Network allows SMEs to benefit from direct access to trade-related information (on products, markets, prices, but also on regulations and statistics for example) and to expand their activities in international markets.

The establishment of a network of SME agencies in ASEAN countries is, in fact, an important feature of the ASEAN Programme of Action on SME Development. Such a network will provide a mechanism to exchange information and to pool resources and expertise for SME development in the region. A number of areas for cooperation are envisaged, including policy analysis, including of SME policies and practices in order to draw lessons learned from SME support programmes and to identify "best practices"; finance, such as the possibility of establishing new financing mechanisms, including on a regional basis, for SME development; human resources development, including joint training programmes to upgrade the capabilities of entrepreneurs, managers and technical workers; technology, including sharing of information on technology and experience in the transfer of technology, as well as joint technological development in particular industries; and marketing, including cooperation in marketing and in collective promotion efforts in the form of joint trade exhibitions for particular products. The objective of such cooperation is to contribute to the modernization and rationalization of the SME sector and the strengthening of inter-firm linkages, including between SMEs and large enterprises, as part of the process of industrial deepening and of increasing the manufacturing value added in the region.

Likewise, proposals are under consideration for cooperation on SME development in APEC that will address a number of issues, including human resources development (APEC Centre for Technology Exchange and Training for SMEs, networking of SME-related HRD initiatives); access to information (private/business sector networking, EDI and electronic commerce); technology and technology sharing (APEC Technomart, networking among SME promotion organizations related to technology); and finance (APEC Venture Capital Workshop, investment scheme to facilitate the globalization of SMEs in the region). In the light of the above, the areas of policy development where technical cooperation may be strengthened may include promotion of inter-firm linkages and the modernization of SMEs.

Type Classification:
G: Very Specific strategies
Related UN Sustainable Development Goals:
GOAL 12: Responsible Consumption and Production