The majority of enterprises around the world are small and medium-sized enterprises (SMEs). According to the European Union, a small enterprise has a headcount of less than 50, and less than $12.5 million in turnover. A medium- sized enterprise has 50 to 249 employees, and a turnover below $62 million. There is a lot of attention given by international organizations, government agencies and donor institutions to the development of SMEs. SMEs are the backbone of economies, especially since they easily constitute more than 90 percent of the businesses in a given country. In fact, small businesses alone tend to make up more than 90 percent of all businesses and they typically come to mind when SMEs are mentioned. SME development ends up being the main component of economic development. SME development programs should typically focus on:
Better business environment: Policy makers should take the interests and input of SMEs into account when changing existing policies, rules, and regulations, or when setting new ones. Cutting red tape and streamlining processes are crucial to helping all companies grow. Starting a business, closing a business, hiring employees, letting them go, and enforcing contracts are just some aspects of the business environment that need to be evaluated and improved.
Improved access to finance: Capital is the lifeblood of a company. Small businesses are usually at a disadvantage when it comes to accessing finance to operate and grow. Creating and strengthening a variety of financing mechanisms (e.g. loan guarantees) are important to providing SMEs with required capital. Governments can make much longer-term investments than private investors, and can reap rewards in different forms, from higher employment and taxes to capital returns and productivity.
Greater access to services: SMEs typically need services and resources that they cannot afford or cannot pursue on their own. Providing business skills and entrepreneurship training, improving access to new markets, encouraging import substitution and enhancing coordination between companies in one economic sector are a few examples of SME assistance that can be offered.
Those who are planning, funding, and running SME development programs, and other types of programs too, should realize that many factors affect the success of their efforts. They include:
Commitment to success: The various players who are in charge of the SME development programs need to be committed to these programs, their stated goals, and their success. While this seems self- evident and intuitive, many programs do not really succeed because the people in charge do not care enough about the results.
Backing for the right time: Institutions need to back or support programs for the necessary length of time. So, if a program needs six years to achieve its goals and become sustainable, funding should not be cut after four years.
Knowledge and expertise: The people managing SME programs must know how development works. Consultants and employees should also have experience working with SMEs in a region, and expertise in the sectors targeted for assistance, as well as the functional help being offered.
Market-driven approach: It is important to listen to SMEs and understand what they need rather than come with a predetermined view of what they require. A short survey can shed light on what SMEs want. If SMEs are not willing to even partially pay for certain services, even when they can afford them, then those services are probably not needed.
Tailored programs: While “what” should be included in a SME development program at a very high level can be similar between two countries, “how” to proceed and “who” should drive can certainly vary from one country to the next. A tailored program will yield better results than one that is pre- packaged and imported from another country.
Overall coordination: Typically, there are many programs running at the same time in a country or a region. To avoid overlap, it is important to understand what other programs are doing to properly coordinate between them. That way, the SME program can have maximum effectiveness.
Flexibility: Finally, the programs need to be flexible and respond to changing needs as they arise. The implementation phase can reveal issues that were not apparent at program inception. The ability to respond to new data or changing conditions is important to the overall success of these programs.
Setting policies with SMEs in mind and having programs targeting their development and growth is good for the entire economy, and can benefit larger and more capable companies. Large companies benefit from a vibrant SME sector that can provide them with needed products and services. At the end of the day, SME development is critical to overall economic development.
ZIAD FERZLY is managing director at Cedarwood Advisors, which provides strategic, financial, and investment management services to companies, investment firms, institutions and governments around the globe.
