Why SMEs Form The Backbone Of Advanced Economies

SMEs are the backbone of advanced economies all over the world, yet their importance tends to be overlooked by politicians and other power brokers. Here’s why SMEs form the backbone of advanced economies and should play a more central role in government thinking.

The role of Small and Medium Enterprises (SMEs) in today’s economy

SMEs are businesses that employ between 1 and 249 people. In developed economies, SMEs make up a huge percent of all businesses and account for 60-70% of employment. In addition to providing jobs, SMEs are important for innovation and competition. They help to diversify economies and make them more resilient to shocks. SMEs are also a key source of financing for other businesses, particularly in developing economies. 

How small companies can make an impact

SMEs are more nimble than large businesses and can adapt to change more quickly. What's more, SMEs are often started by entrepreneurs who are passionate about their product or service. This passion drives them to succeed, which in turn creates jobs and boosts economies. 

Global economy

Countries with a high density of SMEs have higher levels of productivity and per capita income. A key challenge to their sustained contribution is access to capital and business skills. This is why it’s important to support small businesses with an SME working capital loan that can help them sustain the business and why governments are always trying to find new ways to provide grants to small businesses.

Banks in many developing economies provide less than 10% of SME financing needs; the lack of financing creates an obstacle for scaling up businesses, which hampers competitiveness in global markets.

A shortage of skilled workers and managers can also stifle their potential to grow into big businesses and create jobs. To boost entrepreneurship, policies are needed that spur greater investment in skills development for employees as well as greater digitalization of business processes.

Namibia has been successful at encouraging entrepreneurship by setting up public-private partnerships that include training opportunities at various stages. For example, once a company reaches its first break-even point it may be eligible for government funding to help train new staff or develop new products.

The government has also worked closely with financial institutions to encourage them to offer more credit lines to entrepreneurs through innovative instruments such as equity participation loans.

Ways small businesses are growing

The global economy has changed dramatically in recent years. With the rise of technology more small businesses are able to reach a wider range of people. This way they are growing dramatically in ways it simply was not possible before the digital revolution.

Truly, thanks to the internet, small businesses have the opportunity to compete with large MNCs and international corporations. Moreover, it allows them to reduce their capital needs, as today, you can run a business purely online without investing in a big office space.

The key to long-term success for businesses is being adaptable

For a long time, large enterprises have been at the forefront of globalisation and the development of advanced economies. However, recent years have seen small and medium-sized enterprises (SMEs) take on an increasingly important role.

In fact, SMEs are actually responsible for nearly half of global GDP growth; according to Goldman Sachs, for every ten jobs created by large companies in emerging markets, twenty are created by SMEs; research from MIT's Entrepreneurship Center showed that established companies with five or more employees account for only 3% of U.S. startups but generate nearly two-thirds of new jobs. Overall, SMEs are greatly beneficial to economic development.

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