Key Takeaways
- SMEs by numbers are the most popular of all business categories
- They often get little respect
- However, they suffer from many vulnerabilities
- SMEs need special attention from policymakers
Supporting the SME sector is as old as discussing economic diversification locally. But talk can be cheap in both instances, as the challenge seems insurmountable. Though essential for national development, why has the sector not contributed as much as other countries?
The acronym SME, which stands for small and medium-sized enterprises, creates the perception that it is a homogeneous grouping. Similar to the word Caribbean, which to the outsider means a chain of islands with a common history, cultural and political backgrounds, Barbados differs from Trinidad and Tobago, and Jamaica differs from Grenada. Even Trinidad is different from Tobago. SMEs are a mixed bag, and when you add the micro ventures, the SME (now MSME) become even more diverse.
The SME sector can be defined by demographics (number of employees, age, sales and assets levels). However, they are heterogeneous as a startup differs from a mature venture. With all that in mind, the term SME should be adequately defined and studied. The absence of local data makes intervention very challenging. It is akin to all Caribbean nations being treated with the same economic prescription, which could have disastrous results.
SME importance
SMEs consist of most, in terms of numbers, of all businesses. In the United States, Canada, Japan, the European Union, and Australia, it is estimated that they account for over 95% of all firms. The UN recognises the importance of the contribution of these firms not only from an economic but also from a social perspective. According to the UN, "MSMEs account for 90% of businesses, 60 to 70% of employment and 50% of GDP worldwide. As the backbone of societies everywhere, they contribute to local and national economies and sustaining livelihoods, particularly among the working poor, women, youth, and groups in vulnerable situations."
What is an SME?
The European Union (EU) defines an SME as an enterprise with fewer than 250 employees, less than €50 million in sales, and a balance sheet total of less than €43 million. Singapore classifies SMEs as enterprises with fewer than 200 employees or an annual sales turnover of less than US$100 million. However, these definitions are designed for larger, more developed economies.
However, not everyone is happy with categorising the sector. One of the leading regional institutions for MSME development is the Caribbean Export Development Agency (CEDA). Damie Sinanan, PhD, CEO at CEDA, explained in an email interview why the organisation does not categorise the sector. "At Caribbean Export, we do not utilise a standard definition for SMEs as it would depend on the country they are based in as well as the sector they operate (in), for instance, a small enterprise in the Dominican Republic may differ significantly regarding the number of employees, revenue etc., than that of a small firm in St Vincent and the Grenadines."
SME Challenges
In July 2020, McKinsey surveyed SME executives and found they faced some key challenges. The consulting firm found small and medium-sized firms less digitised than larger ones. One of the reasons is that software solutions are often developed for larger firms, which makes it more difficult for smaller organisations to adopt them.
The World Economic Forum (WEF), in collaboration with the National University of Singapore (2022), completed a report titled 'Future Readiness of SMEs and Mid-Sized Companies: A Year On', which pointed to the lack of digital adoption. Some 25% of respondents to the WEF survey said they lacked the digital infrastructure and are playing catch up and failing to meet environmental and social concerns. Since digital talent is scarce, they have to settle for second-rate professionals.
The WEF revealed that 48% of SMEs thought talent management was critical. "Attracting the right kind of talent and getting talent with the right skill set to stay in the company still proves difficult." Smaller firms are at a disadvantage to their larger counterparts in attracting and keeping key personnel, and their informal culture may not appeal to some professional workers.
SME policies
The most raised issue that SMEs face is the lack of access to financing. However, if we look at how some of the world's famous entrepreneurs started, we will see that they often used their own money and resources or what they had access to. Think: Michael Dell in his dorm room, Henry Ford in his garage, Bertie's (pepper sauce) started in their home—all used most of their seed capital or from family or friends—myth #1 busted.
As the McKinsey report showed, the digital divide is one of the biggest challenges. Closing this expanse can put SMEs on an equal footing with their larger counterparts. Today, there is no need to build your e-commerce site or hire a digital marketing expert. You can purchase a domain name and software on a subscription, and videos are available to show you how to use it. Additionally, many social media sites, such as Facebook and LinkedIn, are free.
What we need to boost the sector is research to establish their needs and the support they require. Policymakers need to look at successful models in countries like India and Singapore to learn from them. We can start with forming a national SME advisory committee from the business chambers, as they have intimate knowledge of the sector.
The SME sector has the potential to drive the local economy through job creation and innovative products. The resourceful entrepreneur often uses their creative problem-solving skills to create a new market or transform an industry. As many larger firms frequently begin as small ventures, we must consider the SME sector a national incubator/accelerator where firms can be nurtured and scaled. Hopefully, many will become global corporations and transform the economy.
Sajjad Hamid is an entrepreneurship educator who supports entrepreneurs in scaling their ventures. In his spare time in Trinidad and Tobago, he endeavours to cultivate organic tropical fruits and vegetables, practising sustainable farming in his home garden.
He is the author of "Build Your Legacy Business: Solopreneur To Family Business Hero."
Sajjad is a Fellow of the Family Firm Institute.
You can contact him at [email protected] or visit www.entrepreneurtnt.com for a complimentary mentorship session.
Responses