Reforming the business environment is high on the agenda of the international donor community. The Doing Business reports suggest that excessive regulation is a key obstacle to private sector development. Simplification of the regulatory business environment is thus recommended as the most important reform for private sector development. Countries achieve the highest score on seven out of ten Doing Business Indicators if they do not regulate at all. Furthermore, it is alleged that reforms can be achieved with the stroke of a minister's pen. This ignores important benefits of regulation and underestimates the difficulties of institutional change. This article argues that the real challenge is to define appropriate levels of regulation, which differ across countries, regions and sectors, and to make governments accountable for services – rather than abolishing them altogether.
In industrialized countries, the organization of production is based on complex relationships between large manufacturers and small-scale suppliers. In developing countries, by contrast, large firms prefer to import or to produce in-house rather than to source from domestic firms. Because of increasing competitive pressure, however, the industrial structure in developing countries will have to shift towards similar patterns of inter-firm division of labour. SME policies should therefore place more emphasis on the promotion of linkages with large firms, mainly those involving some kind of technology transfer. This article provides a survey and discussion of the international policy experiences in this field.