By Carlos M. Parra and Jerry Haar
Multinational corporations (MNCs) and small and medium sized enterprises (SMEs) play distinct roles in the global economy. The past three decades have seen an acceleration of globalization, as measured by international capital, trade and human capital flows.1 International collaboration and trade deals have also significantly benefited Asian and Latin American and Caribbean (LATAM) economies. MNC business models were ideal for spreading innovation globally, tapping into diverse sources of human capital, taking advantage of lower production costs, and accessing various sources of finance.
In the case of SMEs competing in the 21st century’s globalized world, smallness can be a virtue. To begin with, smallness along with technology are the great “equalizers”. It is increasingly accessible and affordable to firms of all sizes and across a spectrum of industries. Technology-based systems and sources are now within the reach of firms for market intelligence, production, management information systems, control, financial management and customer service, thereby helping to level the playing field for SMEs as they compete with MNCs. Furthermore, smallness permits SMEs greater flexibility, latitude and speed in responding to threats or opportunities. Additionally, whether the SMEs are from industrialized nations or emerging markets, market liberalizing and reform measures by governments (e.g., tax, investment, monetary, and regulatory policies) may enable SMEs to be more productive, efficient and profitable, while also attracting greater investment.
As the LATAM business environment becomes increasingly competitive, MNCs and SMEs are faced with both challenges and opportunities to boost profitability, profit growth, market share, and equity value of their firms. Among the key strategies to meet their goals, MNCs and SMEs have come to realize that linkages can produce the desired results.
This white paper explores the issue of MNC-SME linkages as it relates to MNCs operating in LATAM and reports on the experiences of a number of companies who have established linkages with SMEs in the region. In particular, this white paper focuses on synergistic linkages, or those that strive to help both actors grow, become more competitive and innovative. The document is organized as follows, the next section contextualizes MNCs and SMEs in general and in LATAM in order to highlight the importance of MNC-SME linkages in the region. We then present a discussion on the types of linkages that can be established, and the factors that encourage and impede synergistic linkages. We then outline the findings from interviews conducted with six MNCs operating in LATAM before presenting the study’s conclusions. Hopefully, the experiences and lessons learned will be helpful to both MNCs and SMEs as they consider linkages in the future.
For the full white paper, follow the link: MNC-SME Linkages in Latin America
