《联合国贸发会议:2024中小企业国际投资报告(英文版)(55页).pdf》由会员分享,可在线阅读,更多相关《联合国贸发会议:2024中小企业国际投资报告(英文版)(55页).pdf(55页珍藏版)》请在三个皮匠报告上搜索。
1、Promoting International Investment by Small and Medium-sized EnterprisesGeneva 2024Promoting International Investment by Small and Medium-sized EnterprisesPromoting International Investment by Small and Medium-sized Enterprisesii 2024,United NationsAll rights reserved worldwideRequests to reproduce
2、excerpts or to photocopy should be addressed to the Copyright Clearance Center at .All other queries on rights and licences,including subsidiary rights,should be addressed to:United Nations Publications405 East 42nd StreetNew York,New York 10017United States of AmericaEmail:publicationsun.orgWebsite
3、:https:/shop.un.org/The designations employed and the presentation of material on any map in this work do not imply the expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country,territory,city or area or of its authorities,or concerning the del
4、imitation of its frontiers or boundaries.This publication has not been formally edited.United Nations publication issued by the United Nations Conference on Trade and Development UNCTAD/DIAE/2023/7ISBN:978-92-1-003005-2eISBN:978-92-1-358699-0Sales No.:E.23.II.D.39Promoting International Investment b
5、y Small and Medium-sized Enterprises iiiACKNOWLEDGEMENTSThis report was prepared by a team at the Division of Investment and Enterprise of UNCTAD,led by Amelia Santos Paulino,under the overall supervision of Richard Bolwijn,and with background research and inputs from Claudia Trentini.Dafina Atanaso
6、va,Hamed El Kady,Kumi Endo,Massimo Meloni and Mathilde Closet provided inputs and comments.Elisa Navarra provided valuable research assistance.UNCTAD gratefully acknowledges the background research and inputs contributed by Hamidreza Bakhtiarizadeh,Helena Barnard,Nguyen Viet Cuong,Berna Dogan,Martin
7、 Kaspar,Seda Koymen,Theunis Mans,Chikondi Ngombe,Sang Hyun Park and Christian Volpe.The report also benefited from extensive feedback and advice from experts and organizations that participated in a round table titled“Promoting SMEs Internationalization:FDI by SMEs”,held at the eighth UNCTAD World I
8、nvestment Forum in October 2023 in Abu Dhabi.Special thanks are due to Mona Ataya,Chief Executive Officer,Mumzworld,United Arab Emirates;Sofia Boza,Ambassador and Permanent Representative of Chile to the World Trade Organization;Vinod Kumar,Board Member,World Union of Small and Medium Enterprises an
9、d President,India SME Forum;Natalia Rialucky Marsudi,Chief Executive Officer,Fairatmos,Indonesia;Marcial Smester,Director of Investment,ProDominicana;and Giovanni Zazzerini,Secretary-General,International Network for SMEs.The manuscript was edited by Lise Lingo.At UNCTAD,Gilles Maury undertook the d
10、esign of figures and infographics and the layout of the report.Production of the report was supported by Katia Vieu and Elisabeth Anodeau.The financial support of the Kingdom of the Netherlands for the development of this publication is gratefully acknowledged.Promoting International Investment by S
11、mall and Medium-sized EnterprisesivCONTENTSACKNOWLEDGEMENTS.iiiKEY MESSAGES.v1 OVERSEAS INVESTMENT BY SMEs.11.1.Introduction and background.21.2.Why is SME FDI a relevant topic today?.41.3.Why is SME FDI important for development?.72 INTERNATIONALIZATION:DIFFERENCES BETWEEN SMES AND LARGE MNES.132.1
12、.SME internationalization in theory and practice.142.2.Characteristics of SME investment.182.3.SME internationalization by FDI:Challenges and facilitating factors .233 ASSESSING INVESTMENT POLICIES FROM THE PERSPECTIVE OF SMES:A POLICY FRAMEWORK .313.1.Inward investment policies.323.2.Outward invest
13、ment policies.353.3.International trade and investment agreements.354 PRIORITY AREAS FOR INTERVENTION:IMPROVING ACCESS AND MAXIMIZING BENEFITS.374.1.Investment policy priorities.384.2.General SME support policies that affect foreign investment by SMEs 39REFERENCES.42Promoting International Investmen
14、t by Small and Medium-sized Enterprises vKEY MESSAGESSmall 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 interna
15、tional markets enables them to tap into new customer bases,gain exposure to diverse business practices and foster innovation through cross-cultural collaboration.However,SMEs encounter significant challenges that hinder their investment overseas.SME investors,relative to large Multinational Enterpri
16、ses(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-sc
17、ale investment projects.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.There are good reasons for governments and investment promotion institutions to pay more attention t
18、o 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 shr
19、inking pool of large-scale projects;a general trend towards regionalization and international tax reforms that will reduce the effectiveness of incentives for large MNEs.Based on original empirical studies in different developing regions and selected developed economies,this report discusses how to
20、reduce the common investment policy bias in home and host countries towards large MNEs,the role of SMEs in SouthSouth 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
21、policies for the promotion of SME investment and presents policy options to facilitate overseas investment by SMEs and reduce the existing policy bias,including these six:Adjusting investment promotion and facilitation services towards addressing the needs and challenges that SMEs face,so that size
22、does not hinder their access to financial incentives and facilitation mechanisms.Establishing comprehensive support networks and designing accessible matchmaking programmes and events to help small businesses connect and to foster sustained and successful partnerships.Improving SMEs competitiveness
23、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 t
24、o information by using digital platforms.Promoting SMEs participation in trade to increase their international exposure and knowledge of foreign markets.By implementing a combination of these policies,governments can create an environment that supports SMEs in their efforts to invest and thrive in i
25、nternational markets and to harness the related development benefits.Promoting International Investment by Small and Medium-sized Enterprises 11OVERSEAS INVESTMENT BY SMEsPromoting International Investment by Small and Medium-sized Enterprises21.1.INTRODUCTION AND BACKGROUNDIn an interconnected and
26、rapidly evolving global economy,small and medium-sized enterprises(SMEs)can have a pivotal role in achieving sustainable development.Often regarded as the backbone of economies worldwide,SMEs can significantly contribute to cross-border economic growth,innovation and job creation(the definitions of
27、SMEs,including the designations used in the empirical studies of this report appear in box 1).Yet,their participation in overseas investment has historically been limited by various challenges,including financial constraints,information gaps and regulatory complexities.For this reason,SMEs potential
28、 as investors is typically neglected.The assessment of foreign direct investment(FDI)both inward and outward,usually takes headline numbers without specifying whether the actors are large or small firms.By contrast,this study focuses on SMEs as actors of FDI themselves,thereby complementing the rese
29、arch focus of the established literature.UNCTADs experience in working with investment authorities,investment promotion agencies(IPAs)and special economic zones(SEZs)has shown that institutions,policies and infrastructure aimed at attracting and promoting investment are mostly geared towards large-s
30、cale industrial projects by large Multinational Enterprises(MNEs).While inward FDI by SMEs is important,the promotion of outward FDI in developing countries can also bring development benefits,helping them grow,improve productivity and strengthen their resilience to external shocks.For knowledge-int
31、ensive enterprises,FDI can bring significant learning benefits,accelerating the technological catch-up of developing countries.This contributes to developing a dynamic and competitive private sector,key to economic growth.Facilitating inward FDI by SMEs has positive effects on the recipient economy,
32、including increasing local employment because SMEs are less footloose,rely more on local suppliers and partners,and are less likely to crowd out local firms.This report examines through original empirical research and policy analysis the internationalization process of SMEs,shedding light on the key
33、 factors,challenges and strategies essential for harnessing the potential of smaller enterprises.UNCTAD first published a study on FDI by SMEs three decades ago,focusing on the motives and drivers for SMEs to invest,followed by a study of Asian SMEs(UNCTAD,1993 and 1998).Since then,the international
34、 trade and investment landscape has changed markedly,calling for a fresh look at the issue.The objective of this report is to assess the common investment policy bias in home and host countries towards large MNEs.It presents a policy framework that policymakers can use to promote and facilitate inwa
35、rd and outward investment by SMEs.It aims to identify ways and means both to attract FDI by foreign SMEs and to support the internationalization of domestic SMEs,to maximize their development benefits.The report presents new insights and real-world examples of SMEs that have successfully navigated i
36、nternational markets,emphasizing lessons learned and best practices,and illustrating the impact of supportive government policies and initiatives on SMEs global ventures.The case studies at the basis of this report,which cover major developing regions,provide innovative empirical evidence on the cha
37、racteristics of multinational SMEs from home countries such as Brazil,Colombia,Ghana,Morocco,Peru,South Africa,the Republic of Korea,Thailand and Trkiye.The studies shed light on the different policies and policy instruments that are most effective in promoting and facilitating FDI by SMEs.Three com
38、missioned background studies on Trkiye,the Republic of Korea,and a research note on the growth performance of SMEs,which contribute to underresearched streams of literature on SME internationalization,were published in various issues of Transnational Corporations,UNCTADs peer-reviewed academic journ
39、al.For example,the study on Trkiye(Koyden et al.,2022)investigates the relative innovation performance and international presence of SMEs,looking at government incentives that promote innovation and hence internationalization.The research on the Republic of Korea(Park et al.,2022)analyses how the ad
40、option of Fourth Industrial Revolution(4IR)technologies can affect SMEs decisions to invest abroad;it addresses the impact of the 4IR on international production across different technologies,and how the probability of investing abroad and the intensity of the investment relates to the adoption of 4
41、IR technologies.Also,an innovative empirical analysis of the growth performance of SMEs when they internationalize through Promoting International Investment by Small and Medium-sized Enterprises 3outward investment(Santos-Paulino et al.,2023)is part of the assessment of SMEs internationalization mo
42、des in this report.The report analyses countries investment policy toolkits and presents a new policy framework that provides policy recommendations for home and host economies based on the empirical evidence.The framework for assessing investment policy from the perspective of SMEs and the proposed
43、 recommendations were discussed with major stakeholders and practitioners in a dedicated session at the 8th World Investment Forum,held by UNCTAD in October 2023.The framework provides guidance for refocusing investment promotion policies and facilitation measures,with particular attention to smalle
44、r firms and their needs,and suggests policies to enhance institutions,infrastructure and the general business environment for SMEs.Other policy areas not directly linked to investment promotion and facilitation but found to support SMEs in their growth and internationalization strategies notably inc
45、lude promotion of technological upgrading and Industry 4.0,innovation,and trade participation and regionalization.The rest of this chapter provides an overview of major FDI trends and explains the importance of supporting SMEs on their internationalization path.Chapter 2 analyses the internationaliz
46、ation of SMEs through the lenses of different theories and SME characteristics and evaluates the challenges and factors that facilitate SMEs internationalization by FDI.Chapter 3 presents the policy framework to facilitate and support investment by and in SMEs and to leverage their development impac
47、t.Chapter 4 presents priority areas for intervention and concludes.Box 1.Definition of SMEsThe definition of what constitutes an SME varies significantly across national and international sources.Some definitions are exclusively based on the number of employees of a firm or its annual turnover,its c
48、apital or fixed assets,or all these characteristics.The number of employees is the most common criterion,yet the thresholds vary across countries and regions,and in some cases also across industries within the same country.The Organisation for Economic Co-operation and Development(OECD)uses a thresh
49、old of 250 employees.The International Finance Corporation and the Multilateral Investment Guarantee Agency(MIGA)use a threshold of 300 employees.The World Bank recognizes that a unique definition does not exist;depending on the context,it either conflates SMEs with microenterprises(fewer than 10 em
50、ployees)or uses criteria that are consistent with the IFC and MIGA thresholds or adopts country-specific definitions(World Bank,IEG,2019).In the World Bank Enterprise Surveys,SMEs are defined as enterprises with fewer than 100 employees.The European Union and the United Kingdom define an SME as an e
51、nterprise that employs fewer than 250 people and has an annual turnover not exceeding 50 million,and/or a balance sheet total not exceeding 43 million(European Commission,2003).In the United States,the threshold is 500 employees and$1 billion in revenues(USITC,2010).In China,the threshold ranges bet
52、ween 300 and 3,000 employees,depending on the industry(SME Promotion Law of China,2002)for example,an SME in the industrial sector can employ a maximum of 2,000 people.In the countries of the Association of Southeast Asian Nations(ASEAN),the turnover threshold varies from lows of less than$5 million
53、 in Indonesia and the Lao Peoples Democratic Republic to highs of more than$70 million in Singapore.Most ASEAN countries define SMEs as firms that employ fewer than 200 people,except Cambodia and the Lao Peoples Democratic Republic,both with a threshold of fewer than 100(Asian Development Bank,2015)
54、.These variations in definition and conceptualization mostly relate to the size of the economy.For example,a United States firm with$900 million in revenue or a Chinese firm with 1,500 employees will be considered midsized in their respective countries but viewed as large in smaller economies.In add
55、ition,these variations lead to significant differences in the regulatory environment and the relative support available to firms of different sizes within specific markets.For the global trend analysis,this report follows the International Finance Corporations(IFC)definition:SMEs are enterprises wit
56、h revenues of less than$15 million and fewer than 300 employees.This implies a discrepancy between global statistics reported here and those reported by the national statistical offices of developed economies.In the case studies developed for this report,by contrast,the definition relies on threshol
57、ds set in the data used and in the country of analysis.In the various databases considered,microenterprises(fewer than 10 employees)are typically not included.Source:UNCTAD.Promoting International Investment by Small and Medium-sized Enterprises41.2.WHY IS SME FDI A RELEVANT TOPIC TODAY?In developed
58、 economies,notably in Japan and the Republic of Korea and in Europe,SMEs have been active international investors,especially in the period ranging from the 1990s until the financial crisis of 2008(box 2).During that period,the decreasing costs of transportation,trade and communication and the introd
59、uction of technological innovations facilitated SMEs access to international markets through both exports and international investment.For example,over the period 20032015,European SMEs accounted for 30 per cent of all FDI projects(greenfield investment as well as mergers and acquisitions(M&As)by Eu
60、ropean investors(ESPON,2018).More than half of these projects(55 per cent)were intra-European.Similarly,according to the Korean Statistical Office,SME investments accounted for 89 per cent of Korean outward FDI in 20122014,growing to about 25 per cent in 20192021(Park et al.,2022).In the United Stat
61、es during the period 19892016,almost all foreign affiliates(94 per cent)had a small-business parent and an additional 2 per cent graduated to larger enterprises either through growth or by M&As(SelectUSA,2020 and 2021).In contrast,estimates based on the payments of foreign affiliates to parents in J
62、apan indicate a lower level of FDI by SMEs about 5 per cent(METI,2022).More recently this trend has reversed,with SME investment activity down.The number of outward greenfield investment projects by SMEs reported by fDi Markets in 2022 was only about a quarter of that in 2015(UNCTAD,2022).Their shar
63、e in all FDI projects fell from almost 6 per cent to just above 1 per cent(figure 1).The decline in 2020 can be explained by the economic fallout from the COVID-19 pandemic,which hit small businesses disproportionally.The decline before the pandemic indicates that longer-term factors hinder SME inte
64、rnationalization.These factors include unequal access to finance,the growing digital gap between SMEs and larger companies,continued concentration in international business and,from a policy perspective,a lack of investment promotion and facilitation measures targeted to SMEs.The deteriorating inter
65、national policy environment for trade and investment,especially the trade tensions after 2017,are also likely to have affected SMEs more than large MNEs(UNCTAD 2020,2022).Figure 1Cross-border greenfield projects by SMEs,20152022(Index and per cent)012345620152016201720182019202020212022Indexed proje
66、ct numbers Share(%)020406080100120Indexed number of projects(base year 2015=100)Share of projects by SMEsSource:UNCTAD based on information from The Financial Times,fDi Markets().Note:The figure shows only trends,as the turnover threshold defining SMEs in this report is lower than that of most devel
67、oped economies,resulting in a significantly lower share of projects than reported in national statistics.Promoting International Investment by Small and Medium-sized Enterprises 5A similar downward trend can be observed in international M&As by SMEs,portraying even lower numbers of projects.Such dea
68、ls fell from about 30 in 2015 to only 3 in 2022(figure 2).International equity acquisitions by SMEs are rare.In addition to the difficulties in raising the necessary capital and having sufficient insight into foreign host markets and local procedural know-how,M&As require another layer of knowledge
69、and management skills including finding the right foreign company to acquire and/or merge with and entering equity markets that deters most SMEs.The few deals that were recorded are concentrated in specific industries of the digital economy software publishers and developers,and web portals and know
70、ledge-intensive health companies such as biotechnology or pharmaceutical testing companies.These two industries were behind an increase in SME mergers during the pandemic in 2020.Figure 2Cross-border acquisitions by SMEs,20152022(Index and per cent)012345620152016201720182019202020212022Indexed proj
71、ect numbers Share(%)020406080100120Indexed number of projects(base year 2015=100)Share of projects by SMEsSource:UNCTAD based on information from Refinitiv SA.The declining trend in SME participation in FDI activity is worrying because FDI is an important growth strategy for SMEs(Lu and Beamish,2001
72、).Both in home countries and at the global level,FDI by SMEs can contribute to a continuous renewal in the universe of MNEs.Moreover,in UNCTADs experience working with investment authorities,IPAs and SEZs,it appears that institutions,policies and infrastructure aimed at attracting investment are mos
73、tly geared towards large-scale industrial projects by large MNEs.Most incentives used to attract FDI are linked to employment creation and thus often focus on large,labour-intensive projects.The original concept of SEZs was developed for large,industrial,export-oriented projects,again targeting larg
74、er investors(UNCTAD,2021 and 2023b).Promoting International Investment by Small and Medium-sized Enterprises6Box 2.FDI by SMEs:How is today different from 30 years ago?UNCTAD first published a study on FDI by SMEs in 1993(UNCTAD,1993),followed by a study on Asian SMEs in 1998(UNCTAD,1998).The report
75、s address the motives for SMEs to invest abroad globally and in Asia,respectively.Market opportunities and access to technology were identified among the main drivers of FDI.Since 1993,the new industrial revolution(and the associated rise in wages and employment),the continued rise of emerging playe
76、rs,and the growing importance of global and regional value chains have changed that landscape,making it imperative to take a fresh look at FDI and other forms of internationalization of SMEs.The pandemic-induced crises had a significantly negative effect on SMEs.The major disruption in global supply
77、 chains during the pandemic and growing geopolitical tensions brought additional challenges for SMEs seeking to internationalize.These new challenges as well as opportunities for SMEs suggest that there may be room today for SMEs to emerge as important players on the international front,thereby enha
78、ncing their development potential in home and host economies.Table box 2.1:FDI by SMEs:UNCTADs 1993 and 1998 Reports versus TodayKey issues Main findings1993 and 1998 UNCTAD ReportsTodayFDIFDI by SMEs was more concentrated in developed countries.FDI SMEs from emerging economies is increasing,albeit
79、at a low rate;and since 2015 SME investment activity has shown a downward trend globally.Challenges Limited financial and managerial resources,low international exposure,high informational constraints,heavy regulatory burden.Most of the challenges remain;digitalization has reduced information costs
80、while making skills and technology constraints more stringent.Some of the regulatory burden has been simpli-fied by the adoption of e-procedures and the spread of one-stop shops while transparency requests increased the reporting burden.Drivers Efficiency-seeking,need to strength-en the competitive
81、capacity,and use low-cost labour in developing coun-tries.But market seeking investment it is still limited.Efficiency-seeking drivers are still present especially for man-ufacturing SMEs from advanced economies,but increasingly SME FDI is market-seeking,in the services sector in particular.Technolo
82、gy acquisition also seems to drive SMEs from emerging economies.Source:UNCTAD.New developments in international production make it increasingly important for SMEs to invest abroad,in particular with respect to the following major transformational shifts:Industrial revolution and digitalization are d
83、riving rapid change on an unprecedented global scale.This technology revolution brings great opportunities for SMEs;at little or no cost,the smallest business has access to communications and computing innovations that were not available 15 years ago.Digital technologies lower information costs,faci
84、litate small firms entry into foreign markets and offer new opportunities for established SMEs to scale up,enhance productivity and become global players.Innovation is key to address the current economic,environmental and geopolitical challenges.SMEs have a prominent role in addressing these challen
85、ges;SME flexibility can be an advantage in accelerating innovation and new technology adoption.Growing importance of regional value chains.Technology trends,together with a decade-long declining trend in FDI,more protectionist international policies and continued geopolitical tensions,have produced
86、a transformation of international production networks to favour shorter and more regional value chains(UNCTAD,2020).This may make room for SMEs to be more competitive and pivotal in the development process of many developing economies.As their investment is mostly in Promoting International Investme
87、nt by Small and Medium-sized Enterprises 7neighbouring countries,they can reinforce regional integration processes and regional value chainsthrough forward and backward linkages.FDI by SMEs from a neighbouring economy facing similar challenges,using similar technologies or more adapted to the local
88、context,might bring valuable contributions to the development of the local SME sector.Tax reforms affecting the investment promotion toolbox for large MNEs.The introduction of a minimum tax of 15 per cent on the foreign profits of the largest MNEs(those with revenues above 750 million),proposed in t
89、he context of the G20/OECD Base Erosion and Profit Shifting project,has important implications for international investment and investment policies(UNCTAD,2022).1 The implementation of the new tax rules will affect the way in which countries,in particular developing economies,have traditionally prom
90、oted and often competed for international investment through low tax rates,fiscal incentives and SEZs(UNCTAD,2023d).Tax is an important determinant of FDI by large MNEs;tax rates enter into their calculations in making investment decisions,and differences between countries affect their locational ch
91、oices.In a world of smaller tax rate differentials,countries stand to gain more from improvements in other investment determinants including those related to infrastructure and the regulatory and institutional environment that are those most of relevance for SMEs wanting to invest abroad.A shrinking
92、 pool of manufacturing investment projects.Trends in FDI since 2010 show a decline in the number of large-scale industrial projects,usually invested by large MNEs(UNCTAD,2020).This long-term trend will make it harder to attract international investment in productive assets,especially in global value
93、 chain-intensive manufacturing sectors.In addition to the promotion of larger investment,the implications for host countries seeking to attract FDI is that they need to increase their focus on smaller investors,developing a more structured portfolio of programmes to attract them and facilitating and
94、 simplifying their foreign establishments.1.3.WHY IS SME FDI IMPORTANT FOR DEVELOPMENT?1.3.1.BENEFITS OF INWARD FDI BY SMEsInward FDI in general not only by SMEs can have important implications for development.It is well established that FDI can support the economic development of the host economy b
95、y bringing new capital(box 3)and contributing to job creation,knowledge and technology transfer and the integration of domestic firms in global or regional value chains(UNCTAD,1999).This section will first review the relevant literature on the impact of FDI on the host economy and specifically on lo
96、cal SMEs and then explain the differential impact of investment by foreign SMEs.MNEs can also facilitate the transfer of technical and business know-how,resulting in productivity gains and competitiveness in local SMEs(Javorcik,2004).These spillover effects develop through the demonstration and diff
97、usion of best practices,the creation of linkages with foreign and domestic firms becoming either suppliers or customers,and the movement of experienced workers from foreign to local firms.For example,in Ireland most Irish software entrepreneurs had previously worked in foreign firms(OMalley and OGor
98、man,2001).The entry of foreign firms can generate new entrepreneurial opportunities that were not present before as they introduce new goods to the market and raise customer awareness of these goods.Local entrepreneurs can imitate foreign products(saving on development costs),tailor them to local ta
99、stes and offer complementary ones.1Today,approximately 140 jurisdictions participating in the OECD/G20 Inclusive Framework agree to tax the profits of large multinationals at a minimum effective rate of 15 per cent.To implement this agreement,the Global Anti-Base Erosion(GloBE)Rules(OECD,2023)have b
100、een developed.The GloBE Rules are likely to exert some effect on all countries,even those deciding not to adopt the minimum tax or selected aspects of the agreement.Promoting International Investment by Small and Medium-sized Enterprises8Box 3.The impact of FDI on acquired SMEsA firm receiving FDI(i
101、n the form of an acquisition or foreign venture capital)can gain access to strategic assets,such as modern management practices and technological know-how,enabling domestic firms to develop competitive competencies(Li et al.,2017).Inward FDI can weaken some of the resource constraints faced by SMEs;
102、it allows domestic firms to gain access to capital,capacity or critical scale,and channels or networks that accelerate their entry into and growth in international markets(Hernndez and Nieto,2016;Scott-Kennel,2013).a A firms involvement in inward FDI through partnering with foreign investing MNEs al
103、so represents a route to the local firms internationalization.In this case,learning and development of strategic assets facilitate eventual internationalization through exporting and/or investment(Li et al.,2012;Gu and Lu,2011;Kang et al.,2021).For instance,in the case of Viet Nam,companies acquired
104、 by foreign investors improve their export participation and increase their size immediately after acquisition.This adjustment is more pronounced for SMEs,suggesting that foreign ownership lowers trade participation costs and eases SMEs resources constraints that hamper their growth(box figure 3.1).
105、Upon acquisition,the export participation and volume per company more than triples,and the average workforce of SMEs doubles from about 30 to more than 60 employees.The related wage per worker also doubles.Changes for larger companies are less significant.For other indicators of performance,the path
106、 is less clear-cut and there is no significant difference across sizes.Box figure 3.1.Number of employees,wage per employee,export participation,and export volume of Vietnamese companies acquired by foreign MNEs,before and after the acquisition,2013-2019(Index)Export participationYear since foreign
107、acquisition6005004003002001000-3-2-10123SMEsLarge enterprisesExport volumeYear since foreign acquisition9008007006005004003002001000-3-2-10123SMEsLarge enterprisesNumber of employeesYear since foreign acquisition300250200150100500-3-2-10123SMEsLarge enterprisesWage per employeesYear since foreign ac
108、quisition250200150100500-3-2-10123SMEsLarge enterprisesSource:UNCTAD based on Nguyen et al.(forthcoming).Note:year 0=100 denotes the year in which the company was acquired.By matching the identity of the acquired companies with information on the foreign investors,the case study sheds light on the v
109、arying consequences of such acquisitions depending on the investors size,geography and sector.aIn developed countries,companies acquired by foreign MNEs gain access to their network and are shown to increase exports to the countries where the MNEs have a presence,suggesting that foreign ownership al
110、so significantly lowers trade participation costs(Conconi et al.,2023).Promoting International Investment by Small and Medium-sized Enterprises 9The entry of an MNE may also increase competition and force domestic firms to imitate and innovate.Yet,competition from foreign affiliates for customers an
111、d inputs may“crowd out”or weaken the existing SME sector.For example,foreign firms can offer higher wages and attract skilled workers,driving local SMEs out of the most innovative industries.To limit these potential negative effects of FDI on the local economy while fully leveraging their developmen
112、t impact,the SME sector needs to have adequate absorptive capacity.2 The stronger the absorptive and innovative capacity of the local SME sector,the higher its chances to benefit from FDI,while the larger the technological gap with the foreign investor,the more difficult the transfer of knowledge an
113、d productivity will be(Girma and Wakelin,2000).Inward FDI by SMEs has a significantly different impact on the host economy than large MNEs.Though small businesses tend to invest less capital per FDI project than do large MNEs,their aggregate impact can be considerable.A study by the United States IP
114、A SelectUSA found that foreign-owned small businesses generate significant benefits for the surrounding economy,supporting(directly and indirectly)more than five million jobs(about 4 per cent of all United States jobs),over$1 trillion in output and$350 billion in employee compensation in 2016(about
115、5 per cent of total payroll)(SelectUSA,2020).Few studies have analysed FDI impacts by investor size.Overall,both empirical research and policy evidence show that foreign investment by SMEs has characteristics that benefit the host economy.The most prominent include the following four:FDI by SMEs has
116、 high potential to produce long-term knowledge spillovers for various reasons:(i)SMEs prefer entering foreign markets by partnering with local firms rather than establishing fully owned subsidiaries,potentially increasing productivity in the local economy presumably because the partners firms are mo
117、re likely to share technology and have links with local suppliers(Farole and Winkler,2012);(ii)given the relative importance of each foreign project with respect to the size of the company,SME investments are less footloose;(iii)the similarity in technologies adopted(i.e.a smaller technological gap)
118、makes such technologies more accessible to local firms(UNCTAD,1993 and 1998)and the transfer of knowledge and increase in productivity more likely(Girma and Wakelin,2000);iv)SMEs are less able to source inputs on a global scale,thus relying more on local suppliers.Often FDI by SMEs is in neighbourin
119、g countries,facilitating the integration of regional marketsand the establishment of regional value chains(see,for companies in the Association of Southeast Asian Nations(ASEAN),Yeung(2017);in the European Union,ESPON(2020);in Africa,Ngombe et al.(2023).Also,the geographical proximity and agglomerat
120、ion effects of foreign investment positively influence the transfer of knowledge(Girma and Wakelin,2000).SMEs are less likely to crowd out local firms,to significantly raise wages or to skim skilled workers.In contrast,they can embed in and strengthen local clusters(UNCTAD,2020).SMEs are less likely
121、 than large MNEs to have a sophisticated network of offshore locations in their corporate structures and are thus less likely to engage in tax avoidance schemes.1.3.2.BENEFITS OF OUTWARD FDI BY SMEsOutward FDI by SMEs can also bring economic benefits to home countries.It helps SMEs,grow improve prod
122、uctivity and strengthen their resilience to external shocks.For knowledge-intensive enterprises,FDI can bring significant learning benefits,accelerating the technological catch-up of developing countries.This contributes to developing a dynamic and competitive private sector,key to economic growth.I
123、n addition,outward FDI has positive effects on the home economy,including increasing local employment,especially in high-tech manufacturing and service industries that employ skilled domestic workers(Crescenzi et al.,2021).The benefits for the economy of promoting outward FDI by SMEs are not automat
124、ic.In fact,in the short term,engaging in FDI can temporarily slow a companys sales growth rate.The short-term negative effects 2Absorptive capacity refers to a firms financial,human and knowledge-based capital and its efficiency in creating value from it(OECD,2021).Promoting International Investment
125、 by Small and Medium-sized Enterprises10on sales show that policy measures supporting firms through the initial stages of internationalization can be important to maximize the benefits for firms and the wider economy.It is well documented that firms that are more involved in international markets wi
126、ll exhibit higher productivity.In particular,exporters have higher productivity than non-exporters and multinational firms have the highest productivity(Helpamn et al.,2004).Figure 3Average productivity levels by internationalization type,2004(Index)100147171020406080100120140160180Domestic frmsNon-
127、multinationalexportersOverseas investorsSource:UNCTAD,adapted from Helpman et al.(2004).The index is defined by setting the value of total factor productivity for domestic companies=100.The reasons are twofold:(i)a self-selection mechanism(as explained by Melitz(2003)for exports and Helpman et al.(2
128、004)for FDI),as only the most productive firms can afford the sunk costs related to internationalization,and(ii)learning effects arising from being present in foreign markets.While the self-selection mechanism explains the productivity differentials before companies become multinational(figure 3),th
129、e learning effects explain why multinationals are growing faster.In competitive markets,firms find additional stimuli to improve their efficiency,making better use of slack resources,applying the best available technologies and managerial techniques.Similarly,expanding the array of stakeholders(supp
130、liers,customers,partners)can become a source of spillovers through the embodied knowledge and experience that these relations may incorporate.So,firms with productive locations in different countries can benefit not only from cost advantages,but also from those spillovers that the foreign environmen
131、t may generate.The subsidiary presence of the internationalizing firm in the foreign market,without any trade intermediaries,can minimize transaction-related risks and increase the value of proprietary assets(Roberts and Muralidharan,2022;Li et al.,2018).In addition,serving foreign markets allows fi
132、rms to grow in size(Merino,2012).Research on the internationalization of SMEs has mostly focused on exporting,which has been extensively employed by firms as a core growth strategy.Exporting allows a firm to broaden its consumer base and potentially achieve a higher sales volume.In turn,a higher sal
133、es volume results in a higher production volume,new investments in technologies and a resulting improvement in productivity.In comparison with exports,FDI implies higher sunk costs and risks,potentially adding to the challenges that SMEs already face.Thus,although there is general agreement in the l
134、iterature discussed above that internationalization by exports benefits the performance of SMEs,the relationship is less clear-cut for FDI.This is mainly because of the additional strains that FDI can put on the internal resources of SMEs.Promoting International Investment by Small and Medium-sized
135、Enterprises 11When SMEs engage in international investment,they introduce additional complexity to both their internal and their external processes,primarily owing to the unfamiliarity of foreign markets(Cho and Lee,2018;Lee et al.,2012;Rhee,2008).Fulfilling the additional demand for resources to in
136、vest abroad for instance logistics,labour or information processing may hurt SME performance(Schwens et al.,2018).An overseas investment that does not quickly increase returns can disrupt the vulnerable business balance of an SME and potentially lead to failure.Although the empirical evidence on the
137、 impact of FDI by SMEs on their performance is limited,a few studies found a positive relationship between FDI and firm growth(Lu and Beamish,2006;Li et al.,2018).However,the growth path is not linear;SME performance starts to improve only after an initial deterioration at the beginning of the inter
138、nationalization effort.The initial decline could be due to the shock of foreignness and resource constraints.Shin et al.(2017)confirmed the same type of U-shaped relationship between FDI and performance for SMEs in capital-intensive services,whereas they find an inverted U-shaped relationship for th
139、ose in knowledge-intensive services.This is related to the special characteristics of knowledge-and technology-intensive firms that are often global at their inception,i.e.“born global”(Singh,2017).A background study for this report(Santos-Paulino et al.,2023)looks at the growth performance of FDI a
140、fter outward investment.The findings suggest that the declining trend of the post-investment growth rate persists for three years after the investment.In the fourth year post-investment,the annual sales growth rate does not differ significantly from that of the investment year,which could be a sign
141、of bouncing back to the previous growing path(figure 4).The negative shock in the growth rate of SMEs is largely found in small manufacturing enterprises,for which establishing a foreign subsidiary requires a sizeable and long-lasting commitment of resources.Figure 4Average annual revenue growth bef
142、ore and after investment(Per cent)-12-10-8-6-4-20246-4-3-2-1012345Normalized year(Investment year=0)Source:Santos-Paulino et al.(2023).Note:Error bars represent the 95 percent confidence interval.This could be explained by two factors:First,manufacturing plants take time to set up and may engage in
143、activities that contribute less to sales growth,such as supply chain activities or adaptation to local legal frameworks and standards.Second,for very small businesses,a foreign investment may divert key resources in terms of organizational and managerial capacity from the home market,temporarily slo
144、wing their growth rate.In contrast,services affiliates,almost by definition market-seeking,tend to make an immediate contribution to sales and sales growth(figure 5).In addition,as shown in Santos-Paulino et al.(2023),the majority of them operate in knowledge-intensive industries such as software an
145、d Promoting International Investment by Small and Medium-sized Enterprises12information technology(IT)services.For this group of companies,learning and knowledge effects from FDI can be especially important,so that not only is the negative shock of foreign investment almost null,but they also gain t
146、he most from the investment.Figure 5Annual revenue growth after the investment,by firm size and sector(Percentage point change)Investing company categoryChange in annual revenue growth after investment-14-12-10-8-6-4-2024Services SMEsManufacturing SMEsServices large MNEsManufacturing large MNEsSourc
147、e:Santos-Paulino et al.(2023).Note:Error bars represent the 90 percent confidence interval.Based on this evidence,promoting FDI by SMEs can bring benefits to the home country economy.In addition,as shown in the previous section,outward FDI by developed countries SMEs has the double benefit of suppor
148、ting the host economy and the development in the poorer countries of the world.Promoting International Investment by Small and Medium-sized Enterprises 132INTERNATIONALIZATION:DIFFERENCES BETWEEN SMEsAND LARGE MNEsPromoting International Investment by Small and Medium-sized Enterprises142.1.SME INTE
149、RNATIONALIZATION IN THEORY AND PRACTICEInternationalization strategies include many modes for entering foreign markets,ranging from exports to establishing and operating(physical)subsidiaries and international offices in multiple markets.SMEs can opt to internationalize through a range of activities
150、 before they fully commit to a foreign market,including through non-FDI modes of entry such as exports,research and development(R&D),strategic alliances,partnerships,and joint ventures.The entry mode choice determines the level of resource commitment,risk and control a firm undertakes in its foreign
151、 market activities.Although FDI requires a large commitment of resources to the host country and imposes a high risk,it also offers greater control of the overseas operations.For example,a firm that undertakes a costly greenfield investment in a host country has a greater risk of losing significant
152、resources than does a firm that establishes a licensing agreement with a partner in the same host country.Yet,a high-commitment mode(such as establishing a wholly owned subsidiary)can reduce the risk of unintended knowledge diffusion(for example,of a firm-specific technology).The propensity of such
153、diffusion is much more likely when a partner is involved(e.g.in a franchising agreement or joint venture)and the product is intangible(Laufs and Schwens,2014).The existence of resource constraints,which is typical for SMEs,often indicates that there may be specific factors leading to FDI as an entry
154、 mode choice and that internationalization theories developed for large MNEs may not fully explain SMEs internationalization process.In particular,SMEs level of commitment to a foreign market and how they deal with risks in a host country differ significantly from those of larger MNEs.The“traditiona
155、l”theories are nevertheless useful starting points for analysis,highlighting the specificities of SMEs.2.1.1.CLASSIC INTERNATIONALIZATION THEORIESInternational stage models posit that firms internationalize following a series of hypothetical development stages.The Uppsala model(Johanson and Vahlne,1
156、977)suggests that firm internationalization occurs incrementally and gradually because in the initial stages,firms have to acquire the necessary knowledge and experience,especially experiential knowledge,amid uncertainty.The process of internationalization is divided into four stages:no regular expo
157、rt activities,export through independent representatives,establishment of a sales subsidiary,and overseas production or manufacturing.In each stage the firm learns and acquires knowledge on foreign procedures,business opportunities and networks,enabling it to move to the next stage.The innovation th
158、eory assumes that firms are active learners and can constructively obtain and use intelligence on foreign markets to innovate.In this theory the internationalization process is a learning sequence that occurs within the innovation adoption process.In other words,firm innovation is two way and relate
159、d to the different stages of internationalization.Yet,SME internationalization does not necessarily follow a set pattern of stages.For example,Latin American multinational SMEs tend to engage less in exporting than their larger counterparts(figure 6).The analysis shows that many did not start their
160、internationalization by exporting first and then opening a subsidiary in foreign markets when they attained a certain level of international experience and size,but instead started right away by investing abroad(Graziano et al.,forthcoming).In Brazil,among the multinational SMEs,only 19 per cent exp
161、ort goods.In contrast,almost two thirds of all multinationals in Brazil that are considered large firms do sell goods abroad.Similarly in Peru only 25 per cent of multinational SMEs exported goods over the period studied,but more than two thirds of their large counterparts did so.In Colombia the sha
162、re of exporting multinational SMEs was significantly higher than in Brazil or Peru but still lower than for larger enterprises.This is partly related to the sectoral distribution of SMEs:most small investors are services companies active in high-tech or professional services,industries where compani
163、es prefer direct contact with their clients.Promoting International Investment by Small and Medium-sized Enterprises 15Contextual factors such as foreign trade regulations,entrepreneurs skills and networks,the presence of niche markets and the development of information technologies have been shown
164、to affect SMEs internationalization mode(Laufs and Schwens,2014),pushing them to leap-frog into higher-commitment modes from the start of their operations(see for example the discussions of“born global”firms or international ventures).Figure 6Exporting multinational enterprises from selected Latin A
165、merican countries,by firm size(Per cent)195825737268BrazilColombiaPeruSMEsLarge MNEsSource:Graziano et al(forthcoming).The resource-based model is very much related to the stage model in that it is based on the idea that the speed,scope and intensity of internationalization are linked to the firms e
166、ndowment.SMEs lack of resources would imply that their only mode of internationalization would be by exports and that only when they become larger firms could they engage in FDI.According to transaction cost economics,the choice of entry mode relates to the nature of transactions,the risks of foreig
167、n operations,and the related controlling and monitoring costs.Companies choose high-control entry modes such as FDI to protect their foreign operations in circumstances in which the uncertainty of opportunities(and thus of losing their assets)and the specificity of their investment(niche technology,
168、intangibles)are higher,whereas they choose to export when such risks are low.This theory would predict that SMEs would prefer foreign markets similar to their home country(Erramilli and Rao,1993).Importantly,for many SMEs it is difficult to separate production from consumption;thus in general firms
169、other than those in consumer or commercial and professional services(insurance,telecommunication services)are much more likely to choose a high-control entry mode over a low-control entry mode.Institutional theory posits that a countrys institutional environment affects a firms scope of action becau
170、se the environment reflects the“rules of the game”(Brouthers and Hennart,2007,p.405)according to which firms must behave.The host country institutional environment consists of several dimensions,including regulatory,cognitive and normative rules,that affect the firms choice of entry.In particular,as
171、 SMEs tend to be less able to adapt to very different and/or risky contexts,they tend to choose FDI more often when challenged by the institutional environment in the host country,so as to have better control of overseas operations.The ownership,location and internalization theory combines insights
172、from the resource-based,institutional and transaction cost theories.Ownership advantages are firm-specific competitive advantages(as in the resource-based view),which must be unique and sustainable(e.g.a firms international experience,its ability to differentiate a product or service).Location advan
173、tages are country-specific advantages Promoting International Investment by Small and Medium-sized Enterprises16(as in the institutional theory)of the international market.Internalization advantages are the benefits(reduced transaction costs)that a firm obtains by choosing a high-commitment entry mo
174、de rather than internationalizing through partnership arrangements(Laufs and Schwens,2014).Even if conceived for larger companies,this framework offers a structured way to explain entry mode decisions(commitment),including smaller investors choices.For SMEs,internationalization means considering not
175、 only ownership advantages,location factors and internalization strategies but also the level of commitment required at each stage of the internationalization process.This includes commitment to building capabilities,understanding local markets,complying with regulations and forming enduring relatio
176、nships with stakeholders.2.1.2.INTERNATIONALIZATION THEORIES FOR SMESThe social capability-network theory argues that firms choose their entry mode on the basis of their network relationships(e.g.with customers,suppliers,competitors),rather than solely their firm-specific advantages.The network mode
177、l of internationalization suggests that interorganizational networks may help alleviate the challenges that SMEs face when operating in foreign markets.This approach underlines two options available to SMEs to foster their networks:firms can either establish strategic alliances through internal reso
178、urces(such as technical,economic and legal relationships)or they can join an existing network or value chain by,for example,accessing an investment opportunity through overseas suppliers.By integrating into existing networks,firms gradually expand their network linkages and capabilities.Such collabo
179、rative linkages help SMEs overcome their resource limitations(Coviello,2006),establish legitimacy and credibility,and develop capabilities for international entry at lower risks(Zhou et al.,2007).In other words,collaborative internationalization may represent a major source of competitive advantage
180、for internationalizing SMEs.According to the international entrepreneurship theory,SMEs internationalization mostly depends on the entrepreneurs international vision and international experience.A combination of innovativeness,proactiveness and the risk attitude of the firm in the marketplace is cri
181、tical to the pursuit and exploitation of opportunities abroad.Often the international entrepreneurship theory is combined with the international new ventures theory to explain the internationalization behaviours of younger and smaller companies such as born globals(Pu and Zheng,2015).Studies illustr
182、ate how internationalization may be rapid and disruptive,and does not necessarily follow a slow,gradual path linked to the firms accumulation of resources.The skills,international experience and global mindset of a firms founder play a decisive role in a firms internationalization.2.1.3.FDI DRIVERST
183、he traditional drivers of FDI also apply,with some particularities,to SMEs:Resource-seeking investment is a type of FDI strategy in which firms set up operations in international locations close to natural resources.This type of FDI is particularly prevalent in the energy,mining and agrifood industr
184、ies.Because of the high costs of extracting oil,gas and minerals,it is mostly pursued by large MNEs that want to secure some priority in exploiting the resource.Yet,small independent miners may decide to buy or open a new mine overseas or integrate vertically,in pursuing their growth path.Strategic-
185、asset seeking investment is a type of FDI strategy whereby a company looks to set up operations in international locations close to specific strategic resources,such as skilled employees,partners,investors or key customers,that are critical to the firms growth but not available in their home countri
186、es.This type of FDI is particularly relevant for flexible SMEs,often in services,that seek locations that can provide access to the best talent,key customers or cutting-edge technology(Vanninen et al.,2022).Efficiency-seeking investment aims to achieve efficiency gains thanks to lower costs and bett
187、er production processes in the host country.This strategy typically underlies large manufacturing projects Promoting International Investment by Small and Medium-sized Enterprises 17in low-cost locations but can also be adopted by manufacturing SMEs from advanced economies to maintain competitivenes
188、s.For example,the study in the Republic of Korea commissioned for this report showed that manufacturing SMEs were generally investing in less advanced neighbouring economies to lower their production costs(Park et al.,2022).3 In contrast,larger MNEs invested more in developed economies,motivated by
189、network and market-seeking purposes(figure 7).Figure 7Share of FDI stock held by Korean multinational enterprises by region(Per cent)East AsiaNorth AmericaEuropeSouth AsiaOtherSouth-East Asiaa.SMEsb.Large MNEs02040608010020062010201520190204060801002006201020152019Source:Park et al(2022).Market-seek
190、ing investment aims to expand in new markets and gain in distribution channels by investing abroad.For example,in Argentina,approximately 40 per cent of SMEs have an investment in Brazil,in large part operating subsidiaries in services(information and communication,and business services and wholesal
191、e).Brazils large market and geographical proximity represent strong pull factors for SMEs in Argentina.In fact,although the Mercosur agreement eliminates any import-tax incentives to relocate production,SMEs in Argentina can still gain better market access when investing in Brazil by improving their
192、 efficiency in logistics.Often for SMEs FDI is a necessity to protect their brand and facilitate international sales while delivering for customers who require physical support and interaction or services in their own languages and time zones.Knowledge content tends to explain the need to be physica
193、lly close to key clients.Especially for innovative SMEs,direct contact with the customer can be crucial to avoid intellectual property issues.Many born globals“multinationalize”by establishing a presence in so-called strategic markets in order to provide customers with superior service and to work o
194、n products or develop new ones in close cooperation with them(Vanninen et al.,2017).Moreover,as geographic distance increases,so do the travel time costs and the adverse effects that frequent long-distance travel has on managers ability to assimilate knowledge from a new market,pushing SMEs to open
195、a foreign subsidiary.Other drivers that are particularly relevant for SMEs include hub-searching strategies,short-term opportunities and reactive strategies,and better financing opportunities:Hub-searching strategy.Firms look to establish an international presence near cluster areas or key industry
196、locations that are dense constellations of potential customers,investors,partners and talented employees.Accessing industry hubs allows multinationalizing firms to reach several important stakeholders in one location and learn from emerging customer needs and industry standards that 3This finding is
197、 confirmed also for Taiwanese SMEs in Lin and Ho(2019).Promoting International Investment by Small and Medium-sized Enterprises18would reach peripheral markets much later(Vanninen et al.,2022).4 For example,almost a third of Ghanian SMEs investments are in the United Kingdom.Apart from the historica
198、l legacy,these SMEs are likely to seek access to the London financial hub as most are active in business and financial services.For example,Zeepay is a mobile financial services company founded in 2016 that also has offices in London.The United Kingdom continues to be an attractive location for fint
199、ech companies because of its early adoption of a favourable legislative framework that allowed the development a vibrant ecosystem.5Important venture capitalists are based there,as are incubators,start-up accelerators(such as the United States VISA Innovation programme)and other potential partners s
200、uch as Clear Junction(a United Kingdom fintech firm),with which Zeepay signed an agreement in 2020 to set up a remittance service for Ghanaians living in Europe.Short-term opportunities and reactive strategies.In general,opportunistic behaviour is more common among SMEs than among large MNEs,because
201、 they are often guided by a single entrepreneur or an entrepreneurial family.Financing opportunities.In emerging economies,where institutional quality and international experience are lower,firms may have specific motivations for investing abroad,most notably the desire to acquire technology,know-ho
202、w and managerial skills,and to access highly qualified labour(the resource-seeking strategy)and eventually become globally competitive.Moreover,FDI,especially in developed countries,could provide access to better financing opportunities than in emerging economies.A study on African SMEs commissioned
203、 for this report found that numerous business owners from Malawi mentioned the challenges of getting foreign exchange into or out of the country and subsequent decisions to open an office in Botswana or Ghana.For the same reason,a Zambian SME chose to open a subsidiary in the United States even thou
204、gh almost all its revenues were generated across Africa(Ngombe et al.,2023).2.2.CHARACTERISTICS OF SME INVESTMENTSMEs resource constraints shape the decisions on whether and where to invest.Evidence on the characteristics of SME investment is drawn from the case studies prepared for this report on t
205、he basis of national firm-level data,analysis of foreign investment projects for selected developing countries and further evidence from data drawn from a microeconomic survey(box 4).The analysis suggests that the main features determining FDI by multinational SMEs are proximity,industry,network and
206、 clusters,innovation and digitalization technologies.2.2.1.PROXIMITYSMEs tend to invest in closer(physically,culturally or institutionally)locations where information costs are lower(figure 8).This characteristic suggests that SMEs could benefit more from regional integration efforts.SMEs in Europe
207、target investment projects in neighbouring economies,reflecting the very integrated economic region.Similarly,South African companies invest mostly in African countries.Turkish SMEs which represent an important share of investors from developing Asia invest almost exclusively in Europe,a geographica
208、lly close region.Yet SMEs in the rest of developing Asia constitute an exception,with Chinese SMEs investing mostly in Africa.4Multinationalization refers toa process by which a firm becomes a multinational enterprise(MNE)through the establishment of foreign subsidiaries,often during the early years
209、 of its organizational existence(Vanninen et al.,2017).5TheOpen Bankinginitiative was launched in 2018 in the United Kingdom with the intention of increasing competition and innovation in the provision of retail banking services.The United Kingdom then pioneered the adoption of Open Banking globally
210、.Open Banking enables consumers and SMEs to share their bank and credit card transaction data securely with trusted third parties,which are then able to provide them with applications and services that save time and money.It also enables consumers and SMEs to initiate payments directly from their pa
211、yment accounts to the bank account of their payee,without the use of cards.The Financial Conduct Authority is very supportive of fintech.Promoting International Investment by Small and Medium-sized Enterprises 19Figure 8Regional projects by home economyregion,share by firm size(Per cent)010203040506
212、070AfricaDeveloping AsiaEuropeLatin Americaand CaribbeanNorth AmericaSMEsLarge MNEsSource:UNCTAD based on of fDi Markets(www.fD),Financial Times Ltd.In Latin America and the Caribbean multinational SMEs tend to have foreign affiliates in host countries that are large or geographically close,or with
213、which home countries have trade agreements or(shared)historical ties(see also Graziano et al.,forthcoming).The cases of Brazil,Colombia and Peru show that the location patterns of these affiliates follow the standard trade driving forces large market size,short distance,common language and lower tar
214、iffs(figure 9).Figure 9Foreign affiliates location by firm size,selected Latin American countries(Per cent)Outside the regionIn the USIn the regionSMEsLarge MNEsSMEsLarge MNEsSMEsLarge MNEsBrazilColombiaPeru80706050403020100Source:Graziano et al.(forthcoming).Brazilian multinational firms have a sig
215、nificant presence outside of Latin America and the Caribbean through foreign affiliates(excluding offshore locations),particularly in the United States and Portugal.In contrast,almost two thirds of Colombian multinational firms foreign affiliates in 2018 were located in the region,and one third of t
216、hese affiliates were SMEs.The share of SME affiliates reached 45 per cent in neighbouring Ecuador.As in Colombia,almost two thirds of Peruvian multinational firms foreign affiliates active in 2017 were located in the region and slightly more than one third were associated with SMEs.Furthermore,Peruv
217、ian multinational SMEs made up more than 70 per cent of all foreign affiliates operating in countries such as Colombia and Ecuador.Promoting International Investment by Small and Medium-sized Enterprises20Box 4:FDI by SMEs:data providing firm-level evidenceThe characteristics of FDI by SMEs presente
218、d in this report are derived from firm-level data for 2021 from the Bureau van Dijk business database(Orbis).Information on the number of employees and turnover is used to specify the size of an enterprise.For revenue data,the latest available year is used,which varies by firm;usually the period sta
219、rts in 2018.SMEs are defined as enterprises with fewer than 250 employees and a turnover of less than$15 million.If one of these variables was missing(owing to limited availability of employment and financial data in Orbis),only one criterion was considered.For some countries,employment and financia
220、l data are still scarce,preventing the identification of SMEs.Of 38 countries in East and Central Asia,Africa and Latin America,in only 3 countries are data on either number of employees or turnover available for more than 70 per cent of the firms.In Argentina,Ghana and Thailand,company size can be
221、defined for 76,73,and 74 per cent of all enterprises,respectively.Box table 4.1 summarizes key statistics in the countries.In the case of Morocco,the Orbis database did not contain any financial information,making it impossible to identify SMEs.Instead,Orbis data on 214 enterprises with foreign subs
222、idiaries were matched with information on the number of employees and revenues drawn from the Moroccan Observatory for Small and Medium Enterprises at Bank Al-Maghrib.By the Moroccan definition,SMEs have a turnover of less than 175 million dirhams and fewer than 500 employees.Box table 4.1.SMEs in d
223、eveloping countries:firm-level evidenceNumber of firmsPercentage of firms with valid size indicatorsPercentage of SMEsNumber of SMEs with foreign subsidiariesPercentage of SMEs with foreign subsidiariesThailand92189274843390.01Argentina319497276992040.01Ghana12449047399570.08Source:UNCTAD based on O
224、RBIS data.Data on multinationals from Brazil,Colombia and Peru come from a study from the Inter-American Development Bank(IDB),using data from WorldBase matched with data from the the Relao Anual de Informaes Sociais,the National Registry of Legal Entities and Brasil Comex for Brazil;from Confecmara
225、s,the Superintendencia de Sociedades,the Directorate of National Taxes and Customs,and the IPA PROCOLOMBIA for Colombia;and from the National Superintendent of Customs and Tax Administration and the IPA PROMPERU for Peru.In the study,SMEs are defined as firms with up to 100 employees.Box table 4.2 s
226、hows the resulting samples.Box table 4.2.Sample structureCountryNumber of MNEsPercentage of SMEs Brazil45050Colombia13035Peru8050Source:Graziano et al.(forthcoming).Promoting International Investment by Small and Medium-sized Enterprises 212.2.2.INDUSTRYInvestment by SMEs tends to concentrate in ind
227、ustries that do not require high set-up(or fixed)costs,mainly in software and IT services and in business services,which together account for more than half of all foreign investment projects by SMEs(figure 10).The high share of investment in software and IT services also highlights the importance o
228、f the digital economy for developing a dynamic SME sector.Across manufacturing industries,SMEs concentrate in high-tech industries such as electronics and electrical equipment,industrial machinery,and pharmaceuticals and medical devices,whereas they are underrepresented in most other manufacturing s
229、ectors.The disparity is largest in textiles and in transport equipment(including automotives),where economies of scale play a big role in driving profitability.Figure 10 Top industries of multinationals investing abroad,20152022,by firm size(Per cent)051015202530354045Information and communicationPr
230、ofessional servicesElectronics and electrical equipmentIndustrial equipmentPharmaceuticals and medical devicesTextilesTransport equipmentOther manufacturingOtherSMEsLargeMNEsSource:UNCTAD based on fDi Markets(www.fD),Financial Times Ltd.This is confirmed by sectoral information on multinational SMEs
231、 in Latin America.These SMEs are primarily active in the services sector,including especially wholesale trade and professional,scientific,and technical services,and to a lesser extent manufacturing(figure 11).This sectoral distribution could reflect cross-border horizontal integration across the int
232、ermediation(and logistic supply)chain to exploit scale economies and solve coordination problems in the case of wholesale trade,and horizontal and market-seeking FDI in the case of professional,scientific,and technical services.An in-depth examination of the mechanisms behind multinational SMEs loca
233、tion decisions is an important avenue for future research.Promoting International Investment by Small and Medium-sized Enterprises22Figure 11 Top industries of multinationals investing abroad,selected Latin American countries,by firm size(Per cent)a.SMEs05101520253035400510 15 20 25 30 35 40 45Brazi
234、lColombiaPeruBrazilColombiaPerub.Large MNEsWholesaletradeProfessional servicesManufacturingRetailtradeFinancialservicesInformationandcommunicationTransportation servicesRealestateand constructionWholesaletradeProfessional servicesManufacturingRetailtradeFinancialservicesInformationandcommunicationTr
235、ansportation servicesRealestateand constructionSource:Graziano et al.(forthcoming).Note:Percentages do not sum to 100 since not all industries are reported.For SMEs,investing abroad is an important growth strategy,as it provides access to a combination of new resources,knowledge,customers and networ
236、ks that are not attainable in single domestic markets.Given their resource constraints,SMEs might differ from large MNEs in the FDI strategies they pursue.For example,analysing greenfield investment shows that in comparison with larger investors,SMEs are more likely to open sales,marketing and suppo
237、rt offices and significantly less likely to establish manufacturing plants(figure 12).This is partly explained by the sectors in which SMEs are most active,which in many cases is services in particular IT and communication,and professional services where direct relationships with the client are very
238、 important.Figure 12 Business function of greenfield subsidiaries,20152022,by size of parent firm(Per cent)54228661338185167610Sales,marketing and supportBusiness servicesHeadquartersManufacturingResearch and developmentLogistics,distribution and transportationOtherSMEsLargeMNEsSource:UNCTAD based o
239、n fDi Markets(www.fD),Financial Times Ltd.Promoting International Investment by Small and Medium-sized Enterprises 232.3.SME INTERNATIONALIZATION BY FDI:CHALLENGES AND FACILITATING FACTORS The internationalization of SMEs through FDI can be a complex process.Success requires a strategic approach tha
240、t takes into account both the challenges and the facilitating factors(table 1).Governments,industry associations and support organizations play crucial roles in creating an enabling environment for SMEs to invest overseas.Table 1.SME internationalization:challenges and facilitating factors.Challenge
241、sFacilitating factorsAccess to financeNetworks and cultural tiesSkills and technology constraints Innovation and capacity buildingInformation constraints Digitalization and technology adoptionRegulatory burden and protectionismTrade participationInternational competition Source:UNCTAD.2.3.1.CHALLENG
242、ES TO INTERNATIONALIZATION BY SMEsOwing to SMEs smaller size,they have limited financial,human and technological resources,and less international experience.Based on the review of policy toolkits and measures,and on the background studies of the report,the most prominent barriers identified for SMEs
243、 growth and internationalization especially through FDI are limited access to finance,skills and technology constraints,low international exposure,regulatory burden and protectionism,and international competition.While most of these barriers are relevant for all SMEs some particularly hamper those t
244、hat have overseas activities.In table 1 some corresponding facilitating factors are suggested based on the evidence collected in the case studies.2.3.1.1.Access to financeThe more limited financial resources of SMEs compared with large MNEs are typically cited as the most important constraint.SMEs a
245、re often family owned or privately held,with no or limited access to capital markets,and are typically too small to rely on internal financial sources for their operations and growth.They have more limited collateral than large MNEs and are thus considered higher-risk borrowers.Consequently,finance
246、institutions either are less willing to lend to them or impose high interest rates when they do lend.In addition,some credit institutions may not include SMEs in their client portfolio because of the high cost of screening and administering small loans spread over large areas.SMEs may face difficult
247、ies in preparing applications that meet bank requirements.6 Consequently,they often rely substantially on informal institutions,internal funds or cash from friends and family to launch and initially run their enterprises.The implications of limited access to finance are multiple:SMEs often lack the
248、working capital that enables longer payments and cash-conversion cycles,and insufficient investment capital hinders their internationalization and,most notably,foreign investment,which has high initial costs.Financial barriers can be particularly binding when SMEs have a shortage of funds for resear
249、ching 6For a detailed review of the literature on SME finance,see Kersten et al.(2017).Promoting International Investment by Small and Medium-sized Enterprises24new markets and adapting marketing strategies to international markets.Financial constraints can also have implications on time frames,infl
250、uencing SMEs ability to develop long-term planning.As a result,opportunities that would be available if firms can plan for a more distant time horizon may not be available to small enterprises(De Maeseneire and Claeys,2012).2.3.1.2.Skills and technology constraints Because of their small size,SMEs m
251、ay have difficulty acquiring management skills and know-how for their enterprises.This constraint is particularly relevant given a lack of managerial skills to plan an internationalization project,insufficiently trained personnel(e.g.language and technical skills),cultural disconnects(e.g.lack of in
252、tercultural skills),and insufficient technical know-how for doing business internationally(e.g.taxes,customs,reporting,technical standards,regulations and certification requirements).Technological constraints also pose a challenge to internationalization that affects SMEs disproportionally.Technolog
253、ical intensity,along with productivity and capital intensity,has long been identified as one of the drivers of internationalization and,specifically,FDI(Bernard and Jensen,2004).By lacking technological capacity,SMEs often face more severe difficulties in investing abroad than larger MNEs do.For exa
254、mple,a study commissioned for this report on SMEs in the Republic of Korea found a growing gap between SMEs and large firms in terms of adoption of 4IR technology.Not only are large firms more likely to adopt 4IR technologies,but they also are more likely to advance technological innovations at a fa
255、ster pace.This is often a consequence of a historical gap in R&D spending and contributes to the growing imbalance in productivity between large MNEs and SMEs in recent years.At the same time,SMEs that adopt 4IR are more likely to also invest abroad as shown in the background study of the Republic o
256、f Korea(Park et al.,2022).2.3.1.3.Information constraints Related to the lack of skills and know-how,information barriers represent a further constraint to internationalization.Informational barriers can be defined as challenges in identifying,selecting,and contacting international markets due to in
257、formation inefficiencies.7 When investing abroad,information is generally collected in several iterative rounds,looking for increasingly more detailed and specific information over time.The initial information-gathering seeks to assess the general viability of the project and shortlist possible loca
258、tions.In this process,informational barriers may also arise from the lack of reliable data about the international market owing to problems associated with the source,quality and comparability of available information.The later rounds of information-gathering are instead intended to collect specific
259、 pieces of information to enable project implementation.These include information on market characteristics and potential customers and suppliers,tax levels,trade and investment agreements,regulatory frameworks(e.g.product standards,required certifications),documentation and information on general p
260、rocedures,and information regarding the company registration process for social security and tax purposes.Another set of country-specific features that SMEs must consider before investing abroad is the availability and costs of domestic infrastructure(e.g.electricity,access to the grid,power stabili
261、ty),as well as logistical and financial infrastructure(e.g.wiring money into the host country,managing payment processing domestically and internationally).While host country-specific information is key for SMEs and larger firms to export and invest abroad,and to adapt to local customs and resources
262、,SMEs face an additional layer of constraints.Information constraints often derive from little international exposure.For example,a small international network of investors,suppliers and customers can imply marketing barriers that hinder SMEs product pricing,distribution,logistics and promotion acti
263、vities abroad.Investors can lack the knowledge on how to organize FDI and foresee potential obstacles,as well as face difficulties 7Glossary for Barriers to SME Access to International Markets:https:/www.oecd.org/cfe/smes/glossaryforbarrierstosmeaccesstointernationalmarkets.htm#Informational_Barrier
264、s.Promoting International Investment by Small and Medium-sized Enterprises 25arising during the establishment of the project or enterprise.8 For this reason,international exposure through supply chain linkages with large MNEs,international partnerships and exporting experience is an important facili
265、tating factor.92.3.1.4.Regulatory burden and protectionismA heavy regulatory burden and protectionist measures disproportionally affect SMEs.The regulatory burden on SMEs stems not only from the need to engage with both home and host country regulations but also in comparison with larger enterprises
266、 as SMEs have relatively fewer resources and skills available for screening the regulatory environment and dealing with these demands.10 Protectionist measures related to international operations(e.g.general tariffs,non-tariff barriers,capital transfer restrictions,restrictions on exporting and regu
267、latory requirements for entering an industry)could particularly affect SMEs owing to the additional administrative procedures required and SMEs fewer resources.Although regulations and trade barriers,in principle,do not primarily target SMEs,these enterprises can be particularly vulnerable given tha
268、t they generally lack adequate and specialist departments and managers,and tend not to have dedicated internationalization or corporate development departments.2.3.1.5.International competition International competition from both domestic players and large MNEs may discourage SMEs foreign investment
269、.To successfully compete in international markets,SMEs,like large MNEs,need to develop their own competitive strategy,which could involve focusing on specific and well-defined market niches in which they hold a competitive advantage(Onkelinx and Sleuwaegen,2008).FDI can help SMEs to navigate and thr
270、ive in the competitive global landscape,allowing them to access resources,markets and capabilities that contribute to their long-term growth.2.3.2.FACTORS THAT CAN FACILITATE INTERNATIONALIZATION BY FDI2.3.2.1.Networks and cultural tiesAccording to the network theory,close cooperation and social cap
271、ital are both main drivers and key factors allowing SMEs to establish foreign operations.Some studies show that early and rapid multinationalization is often based on networking and social capital as they provide very important ways for SMEs to abate information costs in foreign markets(Dimitratos e
272、t al.,2016;Dimitratos et al.,2014).SMEs tend to invest in bordering countries and countries where there is some cultural tie deriving from a common language,a diaspora or a colonial past(figure 13),which is consistent with the empirical regularity that FDI follows gravity forces i.e.distance and cul
273、tural proximity(e.g.Antrs and Yeaple,2014;Conconi et al.,2023).Almost 70 per cent of Argentine SMEs,for example,choose to open a subsidiary in neighbouring economies(mostly Brazil),and 10 per cent invest in Italy or Spain,historical sources of immigration.8Informational constraints are often behind
274、the“liability of foreignness“,a term coined by Zaheer(1995)to express the competitive disadvantage of foreign firms compared with local firms that have better access to relevant information regarding markets,culture and institutional environment.9“Challenges and concerns for small and medium-sized e
275、nterprises(SMEs)doing business in third countries”,European Parliament,March 2021.10These could include increased reporting and transparency demands related to financial and non-financial company performance,money-laundering prevention or double-taxation issues.Promoting International Investment by
276、Small and Medium-sized Enterprises26Figure 13 I nvestment abroad by link and firm size,selected developing countries(Per cent)Bordering economyCultural tiesIn the regionDistant01020304050607080ArgentinaGhanaMoroccoSMEsLarge MNEsSMEsLarge MNEsSMEsLarge MNEsSource:UNCTAD,based on Orbis,BvD data.Note:c
277、ultural ties countries for Argentina are Spain and Italy,for Morocco are Arab speaking countries,France and Portugal(Spain is bordering),for Ghana is the United Kingdom.SMEs in Morocco are more likely to invest in France,Spain,Portugal and Italy.France and Spain,which host most of the investment by
278、Moroccan SMEs,also host the largest number of Moroccan emigrants.Investment by these small companies is driven by market-seeking strategies,to provide services to the Moroccan diaspora in these European countries.Moreover,Moroccan migrants can help facilitate investment by SMEs.For instance,Mastoura
279、,which produces and sells hijab clothing for women,has subsidiaries in Spain.In contrast,cultural ties and regionalization do not seem to explain investment by large MNEs from Morocco.They invest mostly in France and Switzerland and in African countries such as Cte dIvoire,Senegal and Tunisia.Import
280、antly,the average distance of SMEs in Morocco to their foreign subsidiaries is significantly shorter than that of large MNEs(figure 14).Finally,looking at the sectors in which Moroccan firms invest abroad shows that foreign subsidiaries operate largely in trade,construction or IT.Construction invest
281、ment is mostly in Italy,and investment in the IT sector is limited to France.Promoting International Investment by Small and Medium-sized Enterprises 27Figure 14 Distance of the subsidiary from the parent firm in Morocco,by firm size0500100015002000250030003500SMEsLarge MNEsWeighted distance(Km)Sour
282、ce:UNCTAD,based on data from ORBIS and the Moroccan Observatory of Very Small,Small and Medium Enterprises.Evidence from low-income countries in Africa(Ngombe et al.,2023)highlights that SMEs in Malawi,Zambia and Zimbabwe often work synergistically with developed-economy MNEs,acting as their“deliver
283、y arm”in the small markets in their immediate region.MNEs that had identified a competent SME provider either directly or indirectly(by way of an“anchor”contract)supported the internationalization of that SME into other,similar countries in the region.This was of benefit to the MNEs,because they cou
284、ld externalize the risk of operating in the region and still derive some sales from it.This opens a new way of understanding MNE-led development.2.3.2.2.Innovation and capacity-buildingSMEs innovation is a key determinant of their productivity and long-term growth,and helps enhance the capacity of f
285、irms to grow and adapt to market challenges.Innovation activities can play an important role in the internationalization of a firm,as SMEs that innovate are more likely to engage in global markets than non-innovative firms.The case study on SMEs in Trkiye provides evidence in support of the role of
286、innovation in the internationalization process of SMEs(Koymen et al.,2023).SME policies in Trkiye are defined as part of a multi-year action plan.The Organization for the Development of Small and Medium Enterprises(KOSGEB)developed the KOSGEB Strategic Action Plan 20192023 to contribute to a coordin
287、ated delivery of SME policy(box 5).The main objectives of the plan include promoting innovation,technology and R&D;fostering entrepreneurship;and strengthening the skills,internationalization and productivity of SMEs.It also has specific provisions for monitoring and evaluation.The proactive and up-
288、to-date policy support makes Trkiye a particularly relevant case for studying the role of innovation policies in promoting FDI by SMEs.Promoting International Investment by Small and Medium-sized Enterprises28Box 5:SME innovation support policies in TrkiyeA background study by Koymen et al.(2023)det
289、ails the support programmes provided to SMEs in Trkiye.The country supports innovative activities by SMEs through two main entities:the Organization for the Development of Small and Medium Enterprises(KOSGEB)and the Scientific and Technological Research Council of Trkiye(TUBITAK).KOSGEB is the main
290、body executing SME policies in the country.It was established in 1990 to provide services and to support SMEs in the manufacturing sector.In 2009,with increasing value production and employment by SMEs in other sectors,the coverage of KOSGEB was expanded.Today,it offers a wide range of incentives to
291、 SMEs,including low-interest loans,technical and managerial support,and training programmes.In 2018,its support programmes were updated with a vision to prioritize SMEs that produce innovative,technological and high value added products,that aim to carry these products to international markets and t
292、hat are export oriented(KOSGEB,2018).The major programmes operated by KOSGEB and its Enterprise Development Centres(IGEM)and Technology Development Centres(TEKMER),are structured like the ones prevailing in more developed countries.The laboratories operated by KOSGEB provide SMEs with access to test
293、ing and analysis equipment and methodologies that would otherwise not be available to most small firms.The technological and managerial assistance provided to SMEs enrolled in the programmes helps these firms to cope successfully with their business problems.TUBITAK specifically focuses on scientifi
294、c and technological research and supports R&D activities of SMEs,providing grants and support programmes(box table 5.1).Box table 5.1 Type of innovation support programmes in TrkiyeKOSGEB incentivesTUBITAK incentivesR&D and innovation support programmeIndustrial R&D projects grant programmeProduct d
295、evelopment and innovation support programmeUniversity-Industry collaboration support programmeSMEs technological product investment support programmeSME R&D start-up support programmeIndustrial application support programmeInternational industrial R&D grant programmeStrategic product support program
296、meResearch,technology development,and innovation projects in priority areas grant programme General SME support programmeTechnology transfer office support programmeSME development support programmeVenture capital funding programme(Tech-InvesTR)Foreign market operations support programmeFrontier R&D
297、 laboratory support programmeCapacity building for R&D grant programmeSource:Koymen et al.(2023).2.3.2.3.Digitalization and technology adoptionDigitalization and technology adoption are creating new prospects for SME internationalization by facilitating the emergence of small bornglobal firms and of
298、fering new opportunities for established SMEs to scale up,enhance productivity and become global players.Information and communication technologies reduce costs related to distance,entry and more generally information,thereby lessening SMEs networking disadvantage and facilitating their internationa
299、l investment.By reducing governance and transaction costs,the application of digital technologies also improves bottom-up access to global value chains for SMEs(UNCTAD,2020).In addition,digitalization enables firms,most notably the smaller ones,to use new and innovative digital tools to overcome bar
300、riers to growth,helping facilitate payments,enabling Promoting International Investment by Small and Medium-sized Enterprises 29collaboration,avoiding investment in fixed assets with cloud-based services and using alternative funding mechanisms such as crowdfunding(OECD,2021).In a background study f
301、or this report,Park et al.(2022)find that Fourth Industrial Revolution technologies facilitated FDI by SMEs but had a dampening effect on the growth of international production networks of larger firms(figure 15).Smaller companies quickly adopted digitalization technologies and leveraged this techno
302、logical advantage in laggard economies to gain market presence,in particular in the services sector.At the same time,their smaller size slowed their adoption of automation technologies.As a consequence,their growth strategy has been to search for neighbouring economies with low production costs.Figu
303、re 15 4IR technology adoption and FDI stock in the Republic of Korea,by firm size(Index)Year since 4IR adoption050100150200-3-2-1012SMEslarge MNEsSource:Park et al.(2022).Note:The vertical dashed line represents the period when firms started the utilisation of the Fourth Industrial Revolution techno
304、logies(Internet of Things,Cloud,Big Data,5G,Artificial Intelligence,Block Chain,3D Printing,Robotics,Virtual/Augmented Reality).Total stock of FDI is normalized to year 0 level(i.e.year 0=100).2.3.2.4.Trade participationAccording to the stage model of internationalization,a firm starts by exporting
305、to a country,then sets up a selling subsidiary and finally builds a production subsidiary.Experience in a country tends to have an influence on a firms investment there rather than in other countries.Even if multinational SMEs do not engage in exports,the location patterns of their affiliates follow
306、 the main drivers of trade large market size,short distance,common language,lower tariffs.As the empirical assessment undertaken in this report shows,two thirds of foreign affiliates of Thai SMEs are in other ASEAN countries,and a further 13 per cent are in countries with which the ASEAN regional gr
307、ouping has a bilateral trade agreement(ASEAN+)(figure 16).The remaining 20 per cent are often joint ventures with developed companies.This compares to less than half of the foreign affiliates of larger MNEs in ASEAN countries and higher percentages both in ASEAN+and in other countries.Promoting Inte
308、rnational Investment by Small and Medium-sized Enterprises30Figure 16 Location of foreign affiliates of Thai multinationals,by firm size(Per cent)671320442334ASEANASEAN+OtherSMEsLargeMNEsSource:UNCTAD based on Orbis,BvD data.Note:ASEAN+include Australia,China,Hong Kong,India,Japan,New Zealand,and Re
309、public of Korea.Promoting International Investment by Small and Medium-sized Enterprises 313ASSESSING INVESTMENT POLICIES FROM THE PERSPECTIVE OF SMEs:A POLICY FRAMEWORK Promoting International Investment by Small and Medium-sized Enterprises32This chapter reviews existing policies that promote inwa
310、rd and outward FDI,and their effectiveness with respect to smaller investors.It aims to identify policy gaps and challenges and evaluate the extent to which current policies align with the determinants and success of SMEs inward and outward FDI.Existing policies often focus on large MNEs;that is,imp
311、licitly or explicitly,SMEs are often overlooked in policy design.From an SME perspective,FDI is often a make-or-break decision,whereas for an MNE it is one of many decisions hence the importance of focusing on the investment promotion and facilitation mechanism for smaller companies.This chapter pro
312、poses a framework for the analysis of investment policies and their relevance for SMEs,as well as some practical policy recommendations to support SMEs internationalization efforts,notably through FDI.On the basis of this analysis,the subsequent chapter highlights key priority areas for policy actio
313、n and examples of successful implementations thereof.The policy framework analyses(1)the general policies i.e.inward and outward policy measures as well as international investment agreements that affect FDI by SMEs;(2)the differential impact on SMEs compared with large MNEs and(3)the priority areas
314、 for intervention.In particular,for each measure,the framework indicates whether,in comparison with large MNEs(indicated with pluses or minuses with respect to the impact or challenge for large MNEs):SMEs face more or less difficulty in meeting or accessing the requirements or regulations.The measur
315、e is more or less relevant to SMEs(for example because of the benefits associated with it or the applicability to SMEs).Whenever the challenges to access and the benefits are comparatively larger for SMEs,the framework identifies priority areas where policymakers should intervene to support SMEs int
316、ernationalization process.3.1.INWARD INVESTMENT POLICIESInward investment policies and measures fall into three broad categories:(1)regulatory measures,(2)restrictions and(3)promotion and facilitation measures.Regulatory measures include local content requirements,technology-sharing requirements,reg
317、ulation of foreign personnel entry and other sector-specific regulations(including for example minimum capital requirements or mandatory licensing)(table 2).Compared with large MNEs,it is harder for SMEs to fulfil or to comply with these requirements.For example,local content requirements may be mor
318、e difficult to meet whenever there are information asymmetries and foreign companies do not have good knowledge of potential local suppliers and partners.Thus,successfully integrating into the host economy is crucial for SMEs as they cannot import most of their inputs as large MNEs sometimes do.Rest
319、rictions on ownership are typically meant to protect the domestic industry.SMEs rarely represent competition for local businesses.Investment restrictions include total foreign ownership restrictions,partial ownership restrictions or joint-venture requirements,and screening procedures.Total investmen
320、t restrictions are typically formulated in terms of negative lists of industries closed to FDI.In this case there is no differential impact by investor size.More common are requirements to set up joint ventures with local companies.In this case,SMEs can be at disadvantage with respect to large MNEs
321、as they have less knowledge of local companies.Also,being small,they may have less bargaining power when setting up a partnership.However,finding the right local partner might be a springboard for SME expansion in a new market.Thanks to their size,SMEs are less likely to undergo screening procedures
322、,unless they are active in an industry with national security concerns.Also,most screening procedures apply to foreign acquisitions of domestic companies;as shown in chapter 1,SMEs are less likely to enter foreign markets through acquisitions.Promoting International Investment by Small and Medium-si
323、zed Enterprises 33Investment facilitation and promotion measures represent more than half of the policies implemented to attract and support inward FDI(UNCTAD,2023b).The main facilitators of these measures are IPAs,and in specific instances SEZs.Investment promotion policies include financial incent
324、ives in the form,for example,of tax incentives,loans and grants that can be(i)discretionary or subject to negotiation by firms with governments,(ii)conditional on certain criteria or(iii)not conditional(for example,for a specific industry or underdeveloped region).In most cases,gaining access to the
325、se incentives tends to be much harder for SMEs than for large MNEs.This is because requirements to benefit from these incentives include performance indicators(exports,employment creation,output and R&D investment)that are tilted towards large MNEs.Even non-conditional incentives can aim to attract
326、FDI in industries or regions that do not offer easy access to partners,investors,infrastructure and knowledge.Investment facilitation tools range from expanding information provided to investors,facilitating and streamlining administrative procedures and requirements,and providing matchmaking servic
327、es and aftercare services(such as providing support to local subsidiaries in public procurement,creating new leads for expansion projects and establishing technical committees to resolve implementation problems for major projects).These services are especially relevant to SMEs,as they target specifi
328、c challenges that are disproportionally larger for SMEs.For example,help in conducting a market analysis,and assistance with administrative procedures,legal issues(including expatriate entry and visa support),and business and tax registration are crucial given SMEs lack of specialized internal resou
329、rces.However,in the provision of these services SMEs are often overlooked.IPAs are mostly evaluated on the amount of capital or jobs,exports or innovative activities that they bring to the host economy;consequently they tend to focus their efforts on larger companies and larger investment projects.T
330、he most important investment promotion tools,as highlighted in the 2022 annual IPA survey conducted by UNCTAD,are support for information and search(mostly for real estate),help to access direct tax incentives and support for value chain activities.Measures related to the regulatory framework,access
331、 to financing,support in interaction with governments and MNEs,ease of doing business,support in marketing campaigns and high-tech investment were highlighted by only a handful of respondents(UNCTAD,2022).Promoting International Investment by Small and Medium-sized Enterprises34Table 2.Inward invest
332、ment policies and SMEs Policy/measureDifferential impact on SMEs(compared with large MNEs)DescriptionPriority area for interventionRelevanceChallengeRegulatoryLocal content require-ments-+SMEs may have a smaller network of suppliers and thus be more inclined to source locally.SME often face greater
333、difficulties in finding the right supplier or network.Technology-sharing requirements+Manufacturing SMEs installing new production facilities abroad are typically sharing their technology.For SMEs operating highly innovative technologies in niche markets,sharing would undermine their competitive edge.Regulation of foreign personnel entry+SMEs are less likely to be constrained by limits on foreign