Businesses today operate in a globalized, competitive environment, where they
have to deal with constant change and endless pressures to adapt. Government policies
have to respond to these new business realities. How?
New scientific discoveries, constant restructuring of whole industries, volatility
in financial markets, the emergence of the stakeholder society with its demands for more
transparent corporate governance, and the advent of electronic commerce are just some of
the varied challenges facing business and governments.
Globalization is one of the main drivers of change and, at the same time, one of its
principal results. Declining costs for computing, communications and transport
undoubtedly underlie globalization’s development, and market liberalization and public
sector reform have also been crucial. Central to globalization is firm-level innovation and
the search for productivity improvements and international competitiveness. It is reflected
in more cross-border operations, higher volumes of trade and foreign investment,
increased collaboration and joint ventures, and ever more sophisticated patterns of
production and marketing.
To survive and prosper in this new environment, many firms have had to reorganize and become more responsive to change. They have had to build trust and
responsibility. This has been achieved internally on the one hand, by flattening
hierarchical structures and delegating responsibility in order to mobilize skills more
effectively, and externally on the other, by building durable networks as a fundamental
part of maximizing value-added output. The benefits of these networks are evident in the
automotive industry, particularly in component manufacturing and sub-assembly.
Flexibility has become the key word. Smaller units have always predominated in services,
and in manufacturing the average number of employees in work places has been declining
in the majority of Organization for Economic Co-operation and Development (OECD)
countries.
One reason for the success of smaller businesses is their ability to adapt rapidly to
new circumstances. Though individually they may experience more turbulence in their
life cycles than larger firms, collectively they are important generators of new jobs. They
are also an important conduit of ideas and innovations in the knowledge economy.
The growth of small businesses has led to the emergence of a new market in
knowledge-intensive services including consulting, information technology and research
and development for manufacturing, as firms seek new ways of managing and extending
their strategic resources. Their increasing importance has underlined the fact that
intellectual capital—whether in research and development, technological innovation,
managerial and worker training, work-place organization and market knowledge—can
make the difference between success and failure.