The
advocates of SME development are often asked why they believe SMEs to be the
vehicle for national social and economic development. The inquisitive mind will
ask the question, “Why SME development when SMEs are only 8 percent of the
total number of enterprises in the country? Why not focus on micro
enterprises?”
The
immediate answer that comes to mind is that this situation shows that most of
our micro-enterprises do not develop to become SMEs. Either they are not
sustainable and their growth peters out, or they remain a micro-enterprise
forever. This is the reason the country does not have many global brands and
businesses in the international market place.
The
situation calls for efforts in incubating micros to become SMEs, and SMEs to
eventually become large enterprises. Clearly, the gap in our development
efforts is bringing micro enterprises to the next level of development which is
becoming an SME. Hence, the need to focus on SME development starting with the
graduating micros.
By their very nature, SMEs have
characteristics that enable them to be catalysts for development. Their growth
will pull people up out of poverty and ultimately uplift standards of living.
So to clarify the unsettled minds of those who still doubt the wisdom of
pursuing the development of an SME sector, we have identified and ascertained,
based on our personal experience and on available literature on the subject of
SMEs, their characteristics and role in nation building.
SMEs are More Stable
Even Even as
we recognize that most businesses start from being micro, it is our best option
that we invest or finance SMEs. First, is that unlike micro-enterprises, SMEs
are at a level that is more stable and resilient having passed through the
start up stage and having paid the “tuition fees” for beginning enterprises.
The entrepreneur running the SME is also more experienced having survived the
early years of the enterprise. So it is theoretically less risky for the lender
to finance SMEs, it being with more permanence and stability than micro
enterprises.
Multiplier Effect
Assisting
SMEs has more impact than smaller enterprises. As SMEs grow so do allied
businesses along its value chain. For example, in a manufacturing enterprise,
from product design to procurement of raw materials, packaging and marketing
will have various businesses either in the form of services or material inputs
that are benefited by an SME’s growth. As the volume of production grow, so
does the levels of contribution of the businesses in the value chain. So in
effect, the development of an SME positively contributes to the growth of other
SMEs as well.
Sustainable and Alive
A typical SME grows at an average of
10 percent per year. And a really good SME may grow at a faster rate.
Regardless of their rate of growth, the fact is SMEs are “alive” and grow. For
lenders this is a good thing because they can grow their loan portfolio as SMEs
grow. The lender’s relationship with SMEs is sustainable as the business with
SMEs grows over the years until they become big enterprises.
Job Creation
Because they grow and have a
multiplier effect, they are good job creators. Yes, SMEs actually provide jobs
for people within the community they are located. As they grow they create jobs
not only within themselves but also in the value chain.
At the macro level, in India for
example, recovery in job losses during the recession was led by SMEs as they
showed steady growth in job creation, creating about one million jobs per year.
Overall, SMEs provides 40 percent of all jobs in India.
In Canada, a developed country, SMEs
create about 100,000 jobs annually. In China, SMEs provide 80 percent of jobs.
In the Philippines, more than 60 percent of jobs are provided by SMEs. Given
that they are major provider of jobs is enough reason to support SME
development.
Contributes to Economic Production.
SMEs also contribute significantly
to the country’s GDP. In the Philippines value added to GDP is about 37
percent. SMEs in our neighboring countries have value added to GDP which are
much higher than those of Philippine SMEs. Japan for instance has more than 50%,
China 45.4 %, South Korea 46.5 %, and
Thailand 40 %. The value added from SMEs in the case of the Philippines can
still be significantly improved.
Germinate New Industries
Big business especially in developed
societies originates from SMEs. And so did precursors of new industries. In
Japan which has a number of top global brands started many of these products in
business incubation centers as SMEs. In the early 20th century, even large corporations such as
Toyota, Honda, and Sony started out as small
backstreet factories.
Historically, manufacturing in its
earliest form was carried out by artisans with assistants. These were small
workshops usually based at home that did work on special projects. Usually,
these artisans form guilds which protected their “industry.” Furthermore before
the industrial revolution most manufacturing were located in the rural areas
which were household-based. These were technically SMEs, but the term was still
unknown then.
The point here is that SMEs have the
potential to germinate and bloom into new industries and the revitalization of SMEs can promote
competition in the marketplace, creating new industries and becoming the motive
force behind economic restructuring.
In more contemporary times, we see
garage-based workshops which later became Microsoft, e-bay, Amazon, and spurred
the dot.com era. There are numerous other examples of success stories of SMEs
becoming big. Here are some of them aside from those already mentioned: Apple,
Disney, HP, Amazon, Dell, Starbucks, Mattel, Harley Davidson, e-Bay, and many
more.
Can stabilize society (inclusive growth)
Given the benefits of a robust and
vibrant economy with a strong SME sector as its backbone, the social and
economic life of people will be at par with those of the more developed
societies of the world.
A strong SME sector will be able to
stabilize developing societies. As providers of jobs, maker of new industries,
contributors to economic growth, stable, growing and having the ability to
spread wealth among the people, SMEs by themselves are able to stabilize
societies.
For example, let’s take a local
economy in the interior towns of Bohol province that were a bastion of
insurgency during bad times (financial crisis of late 90s), were transformed
into peaceful and progressive communities when enterprises came back and a
vibrant SME sector was once again established. Because SMEs are purveyors of
growth and development, the insurgency left the place because people did not
need one to recover economically.
