World Investment Forum 2021 event: Sustainable internationalization of SMEs - Leveraging the development impact

Statement by Isabelle Durant, Deputy Secretary-General of UNCTAD

Distinguished panelists,

Ladies and gentlemen,

Welcome to the high-level session on the sustainable internationalization of small and medium-sized enterprises.

SMEs are the backbone of economies, in both developed and developing economies. SMEs constitute about 90% of all businesses, 60 to 70% of employment and 50% of GDP. In low-income countries, SMEs’ contribution to employment is even higher, between 80 and 90%.

Typically, there is a positive relationship between enterprise size and export participation, meaning that larger firms are involved in international trade to a greater extent than smaller firms.

But the internationalization of SMEs is also important as it comes with opportunities. It contributes to enhancing productivity, higher export earnings and economic growth, and in turn to development aspirations.

We have examined various forms of internationalization of SMEs, notably also foreign direct investment. FDI by SMEs makes up only about 10% of global flows. Yet, international investment activities by SMEs can have important development effects and can positively contribute to job creation and wage improvements, technology and cultural transfer, and supply chain upgrading.

UNCTAD first published a study on FDI by SMEs three decades ago. But much has changed since then:  we have seen a new industrial revolution, the rise of emerging players and countries, and the growing importance of global value chains. And of course, the COVID-19 and climate crisis have further changed the landscape. We thus need to improve our understanding of FDI by and in SMEs.

Let me outline some of the main trends:

• Digitalisation is driving rapid change on an unprecedented global scale, and brings many opportunities for SMEs. Digital technologies enhance productivity, offer opportunities for scaling up, and enable SMEs to be or become global players – a phenomenon of small firms "born global".
• Increasing importance of Regional Value Chains. Technology trends, declining cross-border FDI over the last decade, more protectionist international policies, and the COVID crisis have led to a transformation of international production networks that favours shorter and more regional value chains. This transformation can possibly open up room for SMEs to be more competitive and pivotal in the development process of many emerging economies.
• A shrinking pool of manufacturing investment projects. The decline of efficiency seeking FDI implies a reduction of manufacturing projects from large multinational enterprises. For host countries seeking to attract FDI the implication is that they need to shift their focus towards smaller investors, developing a more structured portfolio, including investment attraction and facilitation programmes.
• COVID 19 hit SMEs particularly hard. In addition to the challenges they face as small scale operators, the crisis further constrained their liquidity.

I hope that the discussions today and in the other segments of the forum will help answer the following important questions on FDI and SMEs:

• What drives FDI by SMEs, and how does it differ from large multinational enterprises?
• What are the main challenges that SME investors face during the pandemic?
• What can FDI by SMEs contribute to the development and international competitiveness of home and host countries?

The discussions in this panel and in the panel that follows will lay the ground for our new research project on SMEs and FDI. The aim of UNCTAD’s new work in this area is to improve our understanding of i) SMEs’ role in the global economy - but in particular in developing economies -; and ii) their contribution to development with a view to strengthening policies and programmes to enhance that potential. 

Ladies and gentlemen,

At a time when the global economy is still underperforming, we need to support and enable SMEs to innovate and scale up. This will boost aggregate productivity and foster more inclusive and sustainable growth.

Before finishing, I would like to express my special gratitude to Ms. Terenzi, President of the World Union of Small and Medium Enterprises, for the valuable collaboration in organizing this session.  

I wish you a fruitful discussion and thank for your attention.