Encouraging the growth of small and medium enterprises (SMEs) is widely seen as being an important plank of industrial policy in developing countries. Concerns that motivate state-backed SME support programmes range from the laudable aims of creating jobs, improving welfare, alleviating poverty, raising incomes, and enhancing technical and entrepreneurial capacities to the often expedient, political considerations of fostering key constituencies in civil society. The decline of the so-called 'golden age of capitalism' set into motion various forms of economic restructuring. In industry this has taken the shape of a move away from Fordist to flexible systems of production, an emphasis on down-sizing and a recognition that SMEs are a key component of the production system. Despite the growing awareness that SMEs are integral to industrial development, strategies aimed at supporting them have tended, more often than not, to fail. Where are the researchers, policy-makers and the development practitioners going wrong? This paper reviews some cases of SME successes from the South. What distinguishes these cases is the collectivity of SMEs. The paper is concerned with small producers that operate within two distinct 'institutional' settings: industrial clusters and industrial networks. This paper explores how clustering and networking can enhance economic growth and spur technical progress in SMEs.