SME Cluster and Network Development in Developing Countries: The Experience of UNIDO

This paper reflects upon the United Nations Industrial Development Organization (UNIDO's) experience in promoting business development services focused on networking as a strategy to develop small-scale enterprises.

The paper provides the rationale for the approach, explaining:

• The need for an external agent to set up successful clusters of small and medium enterprises (SMEs);
• UNIDO's Technical Assistance Program for SMEs.

Further, the paper presents:

• Cases of networking development projects from some of the countries where the approach is currently being implemented. These include: Honduras, Nicaragua, Mexico and Jamaica;
• The following four key phases of an effective methodology in project implementation:
  • Promotion of networks;
  • Restructuring at the firm level;
  • Improvement of the institutional environment;
  • Improvement of the dialogue between the private and the public sector.

It concludes by describing the following lessons learned in the creation of networks for SMEs:

• Project strategies need to be demand-oriented, business-oriented, production grounded and targeted at SMEs;
• Project actors must:
  • Own the project;
  • Be empowered and have the skills to act;
  • Have the motivation and incentives to act;
  • Be given the right training about best practices.
• Finance should be a mix of public and private investment;
• There should be carefully designed evaluation criteria;
• The enterprise should not become dependent on the service provider;
• A bottom-up approach, fostering on entrepreneurial vision and local actors is best.