How to take over the world: The power of SMEs
Here at B2BeeMatch, we strongly believe in the value of small and medium businesses. But this isn’t just about how we feel. The numbers back us up! In fact, small and medium enterprises (SMEs) are the backbone of most local economies, and contribute hugely to the world’s economy.
Let’s take a closer look at the data!
SMEs make a significant contribution to the GDPs of many countries.
While an SME is defined differently depending on the country, the definition generally includes businesses with fewer than five employees, called micro-businesses, up to 50 employees for small businesses and up to 250 employees for medium enterprises.
With these definitions in mind, a recent study looking at the role of SMEs in developing countries concluded that SMEs create jobs, generate wealth, alleviate poverty and generate income. Other data show that SMEs contribute significantly to their country’s Gross Domestic Product (GDP) through job creation and they account for the majority of businesses worldwide.
As well, small and medium businesses make a significant contribution to many countries’ GDPs. For instance, in Malaysia, SMEs account for 36.6% of the GDP, and in Dubai, 40%. In Singapore, South Korea and the United States, SMEs contribute half the GDP, and in Morocco the number is a whopping 85%.
According to Investopedia, “the importance of small and mid-size enterprises (SMEs) is not limited to emerging nations. Between 2002 and 2012, small and mid-size enterprises created 77% of new jobs in Canada, nearly the same percentage as in most emerging economies. These companies are vastly important to the country’s well-being, both in terms of creating jobs and generating tax revenues.”
As well, the World Bank says 600 million jobs will be needed by 2030 and it concludes SMEs will be the best option to meet that need.
In short, SMEs bring lots of advantages to economic development.
Why are SMEs such strong contributors to economic growth?
SMEs contribute so much because by their very nature, they’re well suited to thrive in today’s markets.
Often, SMEs take a lean approach that’s sustainable, scalable and nimble. They build teams with employees who can be cross-trained, allowing companies to be adaptable. Or they cultivate external sources of expertise to fill gaps until they can grow to support an internal role with that expertise or strength.
SMEs also can focus on being innovative, as they can be more creative with their resources, both financial and human, than larger companies, which may be less able to pivot swiftly when economic forces demand it.
SMEs are closer to the ground compared to their larger brethren. They have greater control over their product and customer service, thus reducing their risk. The fact is, smaller doesn’t mean weaker in terms of execution and production.
For SMEs, being nimble and lean means greater freedom in the face of market volatility to adapt and to make decisions quickly.
The Organisation for Economic Co-operation and Development (OECD) says SMEs “can contribute to economic diversification and resilience. This is especially relevant for resource-rich countries that are particularly vulnerable to commodity price fluctuations.”
SMEs are also key to a greener business world.
Given the global focus on reducing environmental impacts through the use of green energy and clean strategies, SMEs frequently offer positive alternatives while still committing to growth and profitability.
The OECD says SMEs are central to achieving environmental sustainability through the supply of green goods and services, the use of clean technology, and the greening of supply chains, while also pioneering green business practices.
In a time of escalating climate change and the very real threat it poses to the world at large, we can’t afford to waste any more time on outdated approaches and slow change. The nimble, innovative, forward-thinking nature of SMEs, and their human scale, makes them perfectly suited to leading the adoption of green practices.
Given the value SMEs bring to the economic table, how can governments do more to support the growth of SMEs?
Lack of access to money is one of the top obstacles facing SMEs; their founders often have to rely on their own resources, or the investment and confidence of their families and friends, to launch their business or growth strategy. Even though SMEs create seven out of 10 jobs, SMEs are less likely to gain financing through bank loans compared to larger companies. Other obstacles include lack of business skills and lack of operating space.
In its 2017 report looking at how countries can enhance the growth of SMEs, the OECD identified several important aspects of SME development. These are:
SMEs are the main source of jobs in the business sector.
SMEs are less connected than large firms to international knowledge networks.
There are large differences in the SME contribution to employment and value added across countries, particularly in manufacturing.
SMEs account for a larger share of value added in international trade when indirect linkages are taken into account.
SMEs lag behind in the adoption of more sophisticated digital technologies.
The gap in credit costs between SMEs and large enterprises has widened.
Financial support through small loan programs, business incentives, tax benefits and other similar system-based approaches is a good place to start helping supporting SMEs.
Building knowledge and skills is also critical. While SMEs can take chances on lower-skilled employees compared to larger, more established enterprises, they need support for knowledge transfer and to develop their capacity for internal expertise if they want to be sustainable.
Improving access to digital technology can also contribute to the success and continued growth of SMEs. Lack of knowledge in this area can lead to fewer innovations, lower rates of adoption for green practices, and more missed opportunities for growth.
Governments, take note: supporting SMEs is a wise investment!
In the face of the well-documented contribution of SMEs to global economic growth and success, governments globally would be wise to respect the value SMEs bring to local economies. And by “respect,” we mean fund and support. As we’ve seen here, bigger is not always better when it comes to leaping on opportunities!