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 re-organize 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.