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Industrial Linkages

The various linkages that the small and medium enterprises (SMEs) can establish among themselves and with large and State-owned enterprises, are essential factors for their growth and competitiveness. The organization of these linkages is crucial both up-stream with the suppliers and sub-contractors, and down-stream with the distribution and marketing channels.

Industrial subcontracting and out-sourcing are modern and efficient ways to organize industrial production. New forms of industrial subcontracting, called "industrial partnerships", are based on the complementarity between the large contracting and assembling enterprises and the various specialized subcontractors and suppliers, and on the necessity of involving them from the very early stages of the production cycle (design, testing and prototype).

Moreover, SMEs frequently cooperate closely with each other in order to complement their activities within the production cycle, by entering into production associations or clusters and increasingly, through networking arrangements. These new forms tend to become more stable, more lasting with a more equitable distribution of responsibilities (risks and profits) between the various partners. In fact, such subcontracting and partnership linkages enable the SMEs to focus on their field of specialization.

In order to increase the chances of success, these linkages often call for other complementary forms of linkages, such as provision by the main-contractor of special raw materials, specialized equipment, moulds, technical assistance, training, know-how and licence agreements; and even in some cases equity participation or joint investments. Here the traditional subcontracting relationship has become a full-fledged partnership.

While large enterprises are geared by their managerial and marketing strategies and mechanisms towards all forms of industrial collaboration with other enterprises, small and medium enterprises are not equipped to promote such collaboration and thus deserve special attention and assistance in this area. It is evident that SMEs, particularly in the prevailing context of global sourcing, are most in need of support services given their limited expertise in the matter of foreign markets and their generally higher risk-aversion compared to large transnational corporations. Institutional support mechanisms are thus needed that will help them to acquire the necessary information on, and access to, upgraded technology, sources of finance, new markets, foreign licences etc. and to establish long-term industrial cooperation agreements. It is also SMEs which attach particular value to the neutrality of the UNIDO as an impartial adviser and intermediary. By contributing to the development of the SME sector, such assistance will also further the overall industrialization process.