Abstract

This article examines the transformative role of Foreign Direct Investment (FDI) in enhancing the competitiveness of Small and Medium Enterprises (SMEs) in Bangladesh, integrating global insights with a focused analysis of the local landscape. SMEs, a vital pillar of Bangladesh’s economy, struggle to scale and compete internationally. FDI acts as a catalyst by driving productivity gains, facilitating technology transfer, and expanding market access, particularly in export-driven sectors such as textiles and IT, where absorptive capacities and SME-MNC linkages are relatively strong. However, persistent challenges, including infrastructure deficits, skill gaps, and weak SME-MNC collaborations, continue to constrain FDI’s full potential in sectors such as agriculture and traditional manufacturing. Drawing on the Resource-Based View (RBV) and Absorptive Capacity Theory, this study synthesizes theoretical and empirical evidence to propose targeted policy interventions including capacity-building initiatives, sector-specific incentives, and enhanced SME-MNC partnerships, to maximize FDI-driven benefits. Findings reveal that while FDI spillovers in Bangladesh largely align with global trends in high-growth sectors, regional disparities and weak absorptive capacity contribute to sectoral divergence, limiting broader economic integration. Furthermore, this study highlights the evolving nature of vertical and horizontal FDI, with multinational corporations shifting their investment strategies towards emerging markets that offer competitive labour costs and improved regulatory environments. In this context, Bangladesh must leverage its strategic position by fostering digital transformation, infrastructure development, and sustainability-driven FDI policies to unlock long-term growth. The study underscores the need for FDI strategies that align with sustainability goals, regional equity, and digital transformation to ensure inclusive growth, offering actionable recommendations for policymakers to integrate SMEs into global value chains and foster long-term economic development.

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