Abstract
This chapter presents initiatives and programmes aimed at encouraging international activities in developing countries by small and medium-sized enterprises (SMEs) from developed countries. The main focus of the chapter is on governmental institutions in developed countries that deal directly and explicitly with this activity, though the experiences of some developing countries are also examined. Initiatives promoted by the private sector or those that are only marginally advanced by public entities are not taken into consideration. Furthermore, all initiatives by international organizations are essentially related to the advancement of developing-country SMEs and are thus not relevant in the present context.
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Notes
In every developed country there is an investment-guarantee institute. In Japan, for example, there is the Credit Guarantee Association for FDI by Japanese firms.
OPIC also provides loan guarantees, though they are primarily used by large firms.
SBI, however, has an explicit mandate from the State Secretariat for Development Cooperation to fulfil the role of an agency for public cooperation with developing countries.
There is another bank for SMEs in Japan: the People’s Finance Corporation. However, as this bank specializes in micro-firms, it is considered to have a small impact on FDI even though it has a special fund for FDI, as do the other two banks.
JODC allows a maximum of 20 years, but normally 10 years.
KFW loans for its Subsidiary Companies and Technology Programme of the Federal Ministry of Economic Cooperation, for instance, are currently charged at 2.5 per cent interest for the credits provided for projects in low-income developing countries, and 3.5 per cent for those in other developing countries. KFW provides loans to establish or expand foreign affiliates and technology transfer in developing countries of up to 50 per cent of the costs of investment projects and 75 per cent of investment-project studies, up to a maximum of DM 2.5 million. The eligible companies should be SMEs whose turnover is less than DM 300 million. Larger loans are also available under the KFW Programme for Small and Medium-sized Businesses outside Germany, which provides up to DM 10 million to SMEs whose turnover does not exceed DM 1 billion, but at a higher interest rate and a shorter payback period of 10 years. The banks for SMEs affiliated with the Government of Japan, the Shoko Chukin Bank and SBFC, have a special fund for FDI by SMEs. Both of them finance up to ¥250 million for a period of 15 years with an interest rate of 6 to 7 per cent. JODC, another government-affiliated institute, provides financing of Small Business Overseas Investment Cooperation Funds up to two thirds of investment by SMEs with an interest rate of 2 per cent for projects in least developed countries, 3.5 per cent for export-oriented projects in developing countries and 4 per cent for other projects in developing countries. The amount of financing ranges between ¥10 million and ¥300 million.
In the case of JODC again, a seven-year grace period is given to the investment projects with a 20-year payback period.
In the case of Japanese affiliates, the equity ratio should be less than 25 per cent and for SMEs’ affiliates less than 50 per cent.
Based on the assumption that SMEs account for 15 per cent of FDI flows. The same assumption is applied to other countries, except Denmark, where SMEs play a more important role in FDI. For this country, it is assumed that SMEs account for 30 per cent of FDI.
See Ozawa, 1979. The low wages of certain Asian developing countries have attracted Japanese SMEs. High tariff barriers and the size of the market have been among the most important factors determining SMEs’ investments into such developing countries as Brazil in the 1970s (Fleury, forthcoming). The specific regulations on ceiling on foreign investors’ share in countries such as India have also determined the nature of the projects advanced by SMEs in that country (Desai, forthcoming).
The programme was initially piloted in Morocco (1982–1984).
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© 1998 Springer Science+Business Media Dordrecht
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Fujita, M. (1998). Measures to Promote Foreign Direct Investment by Small and Medium-Sized Enterprises. In: The Transnational Activities of Small and Medium-Sized Enterprises. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-5663-3_10
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DOI: https://doi.org/10.1007/978-1-4615-5663-3_10
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