Developing countries today face a new manufacturing context. Progressive globalisation, widely acknowledged to be the defining feature of the late twentieth century world economy, seems set to continue into the early twenty-first century. 1 The process of world economic integration has involved a broadening and deepening of the inter-relationships between international trade and foreign direct investment (FDI) flows. World trade growth consistently outpaced world G DP growth during the last two decades and world foreign investment growth far exceeded both of them. Accordingly, international trade and foreign investment flows reached historically unprecedented levels in the late 1990s. The onset of a global recession in 2001-2002 is likely to bring a temporary slowdown in these flows but the integration of the world economy will carry on, albeit at a reduced pace during this period. The outcome is the creation of an international market place for goods and services that seems indifferent to national borders and state regulation. A combination of factors-falling trade barriers (through the implementation of the Uruguay Round Agreements and economic liberalisation), increasing technological progress (especially the information communication and telecommunications (ICT) revolution), declining communications and transport costs and highly mobile multinational enterprises seeking out new investments-have driven world economic integration. This complex process is irreversible and has revolutionary implications for industrial development.
Knowledge and technological progress have become more important to the realisation of economic prosperity within an integrated world economy. These forces are exerting a profound influence on the behaviour of firms as well as the environment around them by altering production processes, new product introduction, supply-chain relationships between firms, demand conditions and regulations (see Box 1.1). This new manufacturing context, based on knowledge and technological progress, provides unparalleled new opportunities and poses new risks for industrialisation in developing countries. It has the potential to offer developing countries (and enterprises within them) with access to new technologies, skills, capital, markets and hence faster industrial growth and greater economic prosperity than ever before. A lack of resources (including skills and technologies) and small markets at national level will pose less of