The nature of industry is changing, partly because of globalisation. Such changes manifest themselves in an increasing specialisation in the manufacturing process, thereby affecting the conditions for industrial development. Defining UNIDO's role within this new industrial paradigm is important not only in itself, but also to identify which public goods could effectively strengthen industrial development. Developing countries, especially the least developed and marginalised, are faced with widespread market failures and in some areas markets are virtually absent. Hence, the provision of national as wells as international public goods is particularly needed in these countries. Overcoming marginalisation requires provision of public goods like information, skills, knowledge and technology as they are central to efforts to integrate into the global economy. A coherent government policy towards provision of public goods is necessary but not sufficient. The provision of such services often involves many actors, including the private sector, and might lead to different kinds of partnerships. International development organisations have an obligation, and by their very nature, also have the opportunity to assist developing countries in providing public goods and to supply public goods of an international nature. In order for UNIDO to better respond to this challenge, the need for provision of public goods as a precondition for environment-friendly and pro-poor industrial development needs closer examination. Research in this area is in line with the DFID Institutional Strategy Paper on UNIDO, which recommends that UNIDO should undertake a careful analysis of inter alia the specific market failures that hinder diffusion of technology and the appropriate sector-wide and national solutions, and the areas which a United Nations organisation is best placed to tackle. The objectives of the research project are: To examine the ongoing development of increased specialisation in the manufacturing process and according identify a new, workable concept delineating UNIDO field of operations. To examine the nature and extent of market failures in the context of sustainable industrial development, focusing in particular on how the provision of national and international public goods can overcome some of these market failures, and to analyse how best international development organisations like UNIDO can address the problems of market failure. To identify the dividing line and division of labour between UNIDO and the private sector ensuring fair competition with regard to the provision of services, thereby guiding UNIDO activities.