By Stephen O’Donnell
It has long been recognized that small and medium enterprises (SMEs) are the single most significant engine of economic growth in both developed and developing economies.
SMEs account for between 60 and 70 percent of jobs in the 34 countries who are members of the Organization of Economic Co-operation & Development (OECD). In developing countries in particular, programs that encourage entrepreneurship and the development and expansion of business help create political stability and a thriving middle class. An economically successful middle class drives local demand, enabling the entry of larger enterprises that mature the economy and drive the development cycle.
But entrepreneurial SMEs are not the only drivers of local economies. We also see big companies placing more importance on being entrepreneurial.
Today, large companies conduct entrepreneurship initiatives because they, too, need fuel for innovation, desire top talent and the need to sustain a competitive advantage. Smart companies are catering to entrepreneurs, allowing employees to pitch new ideas, even funding them. In the war for talent and innovation, companies have to think entrepreneurially in order to thrive.
And increasingly, large and small businesses are partnering to access the research, innovations and services they need to be successful. Large firms are joining with small firms to benefit from their leanness, nimbleness, and creativity. Small companies can also benefit by tapping into the larger distribution networks, financing opportunities and mentoring programs that large businesses can supply.
Generally, this need to grow and innovate can be difficult to implement, often constrained by risk-averse elements within a company, adequate financing as well as the availability of specialist technical skills and systems.
All businesses, large and small in all industries, especially in the current credit-tight environment, depend on loans to fund growth. In addition, tight budgets, understaffed IT departments and complex IT infrastructures are harsh realities for many corporations. Additional financing is required to remain competitive, innovate and grow.
In addition to all of this, many governments are dedicating significant resources to develop the SMEs in their countries with more than a quarter of all public financial support programs primarily focusing on the SME segment. In the developing world, micro-finance initiatives are helpful, if somewhat constrained by relatively large fees and interest rates.
What’s needed to propel SMEs even further? Tech skills.
Dispersing the right technical skills and capabilities is the other critical factor significantly impacting SME growth, longevity and job creation. Increasing technical skills is an area of significant focus but, so far, government-backed technical skill programs have achieved only limited success.
Research shows that SMEs who partner with large enterprises who go to market and serve customers together have been shown to be more successful than those who don’t adopt this strategy.
The development of a strong ecosystem of partnering SMEs with large enterprises should be a key focus, with particular emphasis placed on service creation, technological skills development, quality control and automation.
SMEs tend to be market focused and particularly strong in reacting to changing or developing market conditions. But the influence of partnering with larger companies to build stronger management capability, with an emphasis on turning market focus into product and service innovation, has driven the longevity of SMEs, resulting in stronger and more reliable employment growth.
Driving business growth must be a major and global political imperative in order to drive job creation and support a widening middle class to create political stability. SMEs should focus on partnering with larger companies to combine innovation with stability, while remaining market focused and agile in serving customers.
Governments and financial institutions must innovate in the creation of appropriate financial mechanisms that are aligned to the needs of an individual business, while large enterprises should assist in the development of a strong and successful SME eco-system.
These partnerships are an essential prerequisite to the growth and success of both large and small companies.