Small Markets, Global Winners: Pathways to Competitive Industries Beyond Trade Distortions

“Small and medium-sized economies are home to firms and industries that compete and win on the world stage. The question is not whether this can be done, but how.”

Smaller economies don’t need giant budgets to win on the global stage. Industrial policy is back in vogue, with governments implementing twice as many measures today than they did in 2020. Yet, while less than 40% of global foreign direct investment (FDI) goes outside the G20, a new report by the World Economic Forum and IMD proves that small and medium-sized markets can build world-class, competitive export industries without relying on protectionism or lavish subsidies.

Why this report matters

• Move beyond the G20 playbook: Traditional industrial policy favors deep pockets and massive domestic markets. This paper offers a realistic alternative for the other 170+ economies.
• Driven by business agency: Success relies on the deliberate, sequenced decisions of private firms discovering what works in their specific context, rather than top-down government mandates.
• Sustained public-private collaboration: Tariffs and subsidies rarely solve underlying issues. Enduring success requires continuous, mutual understanding between public bodies and business to remove binding constraints.

The 6 guiding principles for decision-makers

The report translates five real-world case studies from emerging markets (Chile, Costa Rica, Indonesia, Peru, and Vietnam) into an alternative framework built on six core pillars:

For governments:

• Look at private-sector development through a business lens.
• Recognize that subsidies and trade-restrictive measures alone do not guarantee success.

For companies:

• Embed private pioneers and disciplined use of capital as key ingredients.
• Shape cluster capabilities beyond their current boundaries using anchors.

For public-private collaboration:

• Align on strategy and execution, not just specific steps.
• Plan and pivot over time, letting bets go when necessary.

Inside the report

• Breaking the constraints: How public policy can effectively target and remove the specific bottlenecks that private firms cannot overcome alone.
• Harnessing STAR FDI: How smaller economies can transition from simply attracting investment to creating conditions that deepen local value chains.
• Navigating fragmentation: Practical strategies for businesses and governments to strengthen competitiveness while remaining deeply connected to global markets.

Contributors

World Economic Forum and IMD
Simon J. Evenett – Professor of Geopolitics and Strategy, IMD Business School; Co-Chair, World Economic Forum Global Future Council on Trade and Investment Policy

Frontera Venture Partners
Leandro J. Urbano – Founding Partner, Frontera Venture Partners, Peru

IMD
Fernando Martín – Head of Analytics, Global Trade Alert, Switzerland

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