THE INTERNATIONALIZATION OF SMALL AND MEDIUM-SIZED ENTERPRISES - A POLICY PERSPECTIVE

Small and medium sized firms play an important role in the process of creative destruction. The focus of the paper is on the international d iffusion of small and medium sized firms innovations. Small and medium sized firms face two challenges in globalization: property rights pro tection and barriers to entry. We suggest that these barriers can freq uently be circumvented by using existing multinationals as internation al conduits for small and medium size firms' innovations. However, suc h intermediated modes of expansion is adversely affected by transactio n difficulties and intermediator's rent extraction. We raise two categ ories of questions: (i) is the private sector systematically making th e wrong choice between the direct and intermediated mode of internatio nal expansion? and (ii) What should be the policy guidelines to improv e the overall rate of international diffusion of innovation by small a nd medium sized enterprises.