Abstract: The ability of SMEs to compete in the global market place depends on their access to certain critical resources the most important of which are finance, technology and managerial skills. TNCs have been an important means for SMEs to gain access to new technologies and management know-how. The shift in corporate production strategies from simple Integration to more complex integration has widened the opportunities for SMEs while at the same time raised the requirements for entering TNC networks. The current challenge for developing countries is first to adopt policies to deepen the developmental effects of FDI by attracting TNCs willing to forge such linkages and then to undertake measures to promote such linkages between TNCs and SMEs. This paper reviews various types of linkages and spillovers along with their opportunities and risks, considers the underlying determinants of such linkages, and summarizes lessons learned from the recent workshop on building such linkages. It is commonly believed that the type and strength of linkages established depends to a large extent on the technological and other resource capabilities of local firms. Special support measures and programmes are necessary to nurture these capabilities. Such interventions have little chance of success if they do not respect the principle of subsidiarity (allowing each entity to undertake what it can do best) and are not embedded in a coherent policy framework to foster investment, competition, technology transfer, and SME development. Recommendations are made for measures to improve local SME performance, and upgrade the SMEs with in the context of TNC linkages
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International Institute for Trade and Developement : UNCTAD Collection
