Foreword

International investment and trade in global value chains (GVCs) have experienced major disruptions from the COVID-19 crisis and Russia’s war of aggression against Ukraine, impacting on growth, productivity and well-being across the globe. Added to these challenges are growing geopolitical tensions, environmental challenges and inequalities within and across countries, as well as other megatrends, such as the digital transition and demographic changes, which are all, collectively, strengthening the spotlight on the need for more resilient, sustainable and inclusive growth pathways.

Boosting productivity, which has slowed across the OECD in recent decades, and innovation will be essential, not least for small and medium-sized enterprises (SMEs), who account for around two-thirds of jobs in OECD countries but typically have significant technology and knowledge gaps relative to their larger peers, in particular foreign-owned firms. Yet, foreign direct investment (FDI) can serve as a source of knowledge and capital for domestic SMEs, and for the places where investment is made if well embedded into local economy. Partnerships with a strong base of domestic firms can reinforce productivity and innovation of foreign-owned firms too.

Fully harnessing the potential of FDI-SME linkages requires conducive policy and institutional frameworks that can leverage existing, and attract new, quality FDI, while also improving SME performance and capabilities, and strengthening spillover channels. The OECD with support of the European Commission (EC) is conducting a multi-year project to advise national and subnational governments on developing and strengthening FDI-SME ecosystems that can drive resilient, sustainable and more inclusive growth. This policy toolkit is the main output of the first phase of that project and includes two parts.

Part I provides a conceptual framework and a set of diagnostic tools to assess the enabling conditions and diffusion channels through which FDI impacts SME productivity and innovation (Chapter 1). It further provides a framework for the assessment of policy, regulatory and institutional settings to help governments identify priority reforms that strengthen FDI and SME linkages and their contribution to productivity and innovation (Chapter 2). The tools and principles presented in Part I build on the lessons learnt from the in-depth pilot country assessments conducted for Portugal and the Slovak Republic, as well as on the analytical work developed in Part II.

Part II provides a mapping of the institutional environment that governs FDI-SME policies across the 27 EU Member States, including the organisational structure, role and responsibilities of the various public institutions involved (Chapter 4). It presents a typology of governance frameworks and sheds light on inter-institutional coordination mechanisms and policy evaluation practices, which are essential elements of a conducive institutional environment. Chapter 5 reviews the mix of policy measures that is currently in place to foster FDI-SME linkages across the 27 EU Member States.

This Toolkit complements the OECD FDI Qualities Policy Toolkit but provides more attention on the role of SME ecosystems and policies to enable FDI-SME linkages, attract investment and increase productivity and innovation. It further contributes to OECD’s effort to support SMEs’ integration in GVCs and scaling up. The Toolkit was jointly developed and approved by the OECD Committee on SMEs and Entrepreneurship and the OECD Investment Committee and contributes to their respective Programmes of Work.