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Businesses today take years and sometimes decades to emerge and operate. The giant business tycoons all around the globe have toiled hard and sustained through careful business strategies. However, not everyone can afford to initiate a business with enough working capital and investment, and so a concrete business idea devoid of a massive investment can usually start with small locality, limited workforce and lesser working capital. These are called Small and Medium Enterprises or SMEs, which surprisingly comprise over 50% of total businesses of the world. The contribution of SMEs in overall GDP is above 40% today, and that is because more than 25% of overall international trade between countries is attributed to SME production and manufacturing. This is interesting, because developing countries have a colossal share in global economic growth, thanks to their SMEs working intricately, with limited resources that they have.
The main contributions of SMEs in overall economic growth are explained below:
1. Employment Opportunities:
The greatest advantage of small businesses around the world is employment and jobs for the common man. Currently, according to statistics, over 60% of middle class and lower middle class strata are employed in small enterprises, which is indeed a huge chunk of population. Almost two thirds of all formal and white collar jobs in countries of Asia and Africa are created by SMEs. These include tailoring, construction, agricultural and small levels of infrastructure jobs. It is interesting that such jobs might not seem to contribute enough on national levels but they contribute 35% to overall job creation around the globe. In developing countries, due to lack of formal policies and procedures, and insufficient business strategies, SMEs still have a long way to go, and so the exact amount of jobs created is difficult to calculate. The census data, nevertheless, shows that SMEs have proven to be blessings for the jobless, especially in third world countries.
2. Wealth Creation and Poverty Elimination:
Economies survive on Gross National Products and Gross domestic products. In turn, GDPs are driven through wealth creation on a grass root level i.e. in households and domestic setups. Once money is generated, it contributes to social, economic and physical well-being of citizens, creating a plethora of income generation and overall healthier society. It is pertinent that imports contribute massively to wealth creation, and any economy can get boosts only if imports are sufficient. Imports in turn are to a large extent, dependent upon SMEs and their low cost productions. Today, microfinance institutes, fashion industry and healthcare departments have many SMEs, which make up a huge part of imports, be it clothing, shoe manufacturing, availability of cheap vaccinations to underdeveloped economies etc.
3. Promoting Innovation:
SMEs are the most encouraging platforms for innovation. Entrepreneurs who lack sufficient initial capital and resources can start from small and medium enterprises, mostly in limited work settings or even online. With a restricted startup of activities, resources might be scarce but with proper asset management, SMEs can reduce costs and maintenance expenses, generating proficient revenues in the long run. To inculcate IT tools in SMEs is indeed a revolution, which would help not only beginners but also the workforce in keeping track of assets the business possesses. This curtails wastage of resources and disposing off redundant raw materials. Today, asset tracking software is a key in not only easing the tasks of workforces but also cutting down maintenance costs and avoiding stealing, mismanagement and misusing of equipment on the workplace. Also, SMEs increase the knack for competition in the market, enabling entrepreneurs to think out of the box and establish businesses with unique ideas and strategies. This not only increases wealth and profits but also aids the government by increasing the tax base.
4. Adaptation to Constant Change:
The only constant phenomenon is change. Since pandemic, wars, global warming, earthquakes and other natural and even man made calamities, the global economic marketplace is in a consistent phase of change. Every new day brings forth new challenges, which render the old business practices obsolete. To adapt to these ever changing economic circumstances, SMEs are the key component, as they bring forth less costly and more economical alternatives to already existing expensive products and services. Cheap replacements are needed for outburst of population worldwide giving rise to hunger, thirst and overall scarcity of renewable and nonrenewable resources. Economies like China, Korea, Japan and Hong Kong are one of the giants in industrialization today because they took challenges of changing economic conditions and adapted accordingly through SMEs. Today 97% of businesses in China are SMEs, importing products and services from as minute as needles to as massive as cars and container homes. Also, e-commerce platforms are now widely used by SMEs, creating cost effective alternatives for buying and selling through online stores and retails.
5. Equal Employment Opportunities for Women:
Today, women are equally contributing in economic growth and stability as were only men some decades ago. This is especially true in the underprivileged countries where mostly a single man was the breadwinner for the whole family. Thanks to SMEs women are now employed in industries like fashion, clothing, agriculture and even drugs and healthcare businesses. SMEs are also providing training and coaching to women in developing countries, so as to empower them and engage their talents within the economic ecosystem to the full extent.
Although SMEs face challenges and threats in a certain economy, their advantages and contributions weigh far more than the pitfalls. Economies cannot only thrive but also stand out if governments focus on equal resource allocation for small businesses, arrangement of employee training and coaching sessions for such enterprises and subsidies for better product and service promotions.
