Globalization and the Small Firm: An Industry Value Chain Approach to Economic Growth and Poverty Reduction

This position paper articulates the overall USAID AMAP BDS Knowledge and Practice strategy. It argues that linking the poor to growth opportunities is the key to generating sustainable economic growth with poverty reduction.The paper discusses an economic growth strategy that includes the poor, and:

• Identifies competitive advantages of micro and small enterprise (MSE) dominated industries;
• Discusses how competitive advantage of the MSEs be utilized for economic growth and poverty reduction;
• Presents a program design process which integrates competitiveness, economic growth and poverty reduction objectives.

It concludes that:

• Small firms do not always benefit from globalization, and there may be many cases where market globalization will force small firms out of those industries;
• There are both static and dynamic factors that favor small-firm participation in a number of industries as part of an overall competitiveness strategy;
• Large numbers of small firms in a wide range of product and service industries can both contribute to, and benefit from, overall industry competitiveness;
• A challenge for agencies engaged in project implementation is identifying creative strategies for moving from win-lose to win-win relationships and from a skewed distribution of benefits to one that creates incentives for small-firm upgrading and risk-taking.