China s Repressed SMEs

SMEs face greater challenges in internationalizing.

Internationalization benefits larger firms as well as SMEs.

The programme has been highly successful and significant funds have been made available for the development of small and medium sized enterprises.

In this context, the key to success lies in support for small and medium sized companies.

Some SMEs follow TNCs as their supplier firms in going abroad.

African SMEs also point the way to dynamic, sustainable, and fair growth.

In other words, SMEs from Singapore remain interested in regional markets rather than global markets.

Why then, can t China s SMEs rely on the formal financial sector to finance their daily operations? To be sure, it is not easy for SMEs in other countries to get formal financing.

It was suggested that complementary government policies and programmes could play an important role in supporting firms in developing countries, and particularly SMEs, as they face the many challenges in the distribution market.

In Italy, the difficulties arise from banks continued lending to domestic companies, especially small and medium size enterprises (SMEs), while GDP has stagnated.

In contrast to the internationalization by larger companies, Singapore SMEs tend to invest in the neighbouring economies.

The Singapore Government and Singaporean companies, both large and SMEs, have a keen interest investing abroad.

Linkages between TNCs and SMEs would be important for quick rehabilitation.

BEIJING Even in the best of times, it is difficult for China s small and medium size enterprises to get bank loans.

Indeed, Africa s SMEs are often unable to secure long term financing.

But, for everyone else, particularly small and medium size firms, the credit environment continues to be very challenging.

In developing countries and transition economies, it is the local firms small and medium enterprises (SMEs) which are responsible for most economic activity. On the one hand, there are modern SMEs in the developing countries that need to be nurtured into efficient and competitive enterprises.

These SMEs tend not to pursue the M A route to internationalization.

SMEs to continue to support their main customers overseas. It has allowed some Singapore SMEs to develop new markets in the host countries. As SMEs find it increasingly difficult to expand their market in Singapore, they begin to look for more business opportunities in the Asian region.

The OFDI motivations for SMEs are in general similar to those for larger firms.

During this period, there was rapid expansion among small and medium sized firms and a gradual retrenchment among the large firms which had hitherto characterised the region's industrial base.

High information and transaction costs contribute to the perception that investing in SMEs is complicated and expensive.

But, in recent years, many African governments have worked to reduce administrative and legal obstacles for SMEs.

While some of France s largest companies like Michelin, LVMH, and Air Liquide remain successful, they cannot offset the economy s lack of a solid base of small and medium size enterprises.

The steady increase in production costs, partly attributable to high borrowing costs, is squeezing enterprises profit margins of small and medium sized enterprises in particular.

The preference for joint ventures and greenfield investment has a great deal to do with the lack of firm specific advantages among these SMEs from Singapore.

SMEs and households with net savings stand to gain the most from interest rate liberalization.

Reinforcing social safety nets, broadening and deepening financial markets, and supporting small and medium size enterprises would also strengthen domestic demand.

There are many A B testing case studies which show that the practice of testing is increasingly becoming popular with small and medium sized businesses as well.

C. Financing SMEs

In the wake of numerous corporate scandals between 2001 and 2004 (affecting large corporations like Enron, WorldCom and Tyco), even small and medium sized companies have begun to appoint ethics officers.

While Europe has succeeded in stabilizing its sovereign bond markets, financial intermediation for small and medium size enterprises remains highly disrupted.

Key constituencies for political and economic reform in Central and Eastern Europe have been private small and medium size firms and younger age cohorts.

In fact, SMEs already play a crucial role in African economies, involved as they are in all sectors of rural and urban economies.

These different government programmes would contribute to bridging the gaps between SMEs and large firms, as well as between local and foreign firms.

Establishing an SME internationalization club could foster policy development and an environment that address the needs of SMEs.

Second wave firms include both SMEs and large companies, and both can take advantage of the plethora of interfirm arrangements found in the global economy (UNCTAD 2000 xv).

Opportunities for, and challenges of, internationalization for SMEs

The main impediment in China is local governments, which compete with SMEs for bank loans and inevitably crowd them out from the formal banking sector.

New firms must be created, and modern financial markets are better at speculation and exploitation than they are at providing funds for new enterprises, especially small and medium size companies.

For the year 2004 only, the Government has provided tax incentives to encourage more small and medium sized companies to contribute towards their employees' childcare costs.

African governments know that SMEs help to create new production channels for domestic markets, thereby generating significant added value.

This includes such strategies as global value chains and TNC SME linkages, as well as outward foreign direct investment (OFDI).

(1) Training on Development of Small and Medium Enterprises