Small and medium enterprises: Seizing the potential

Click to enlarge.

“Small is beautiful.” It is not unusual these days to apply this much quoted observation to the needs of small and medium enterprises. Indeed, SMEs are now very much in the public policy limelight, and when you consider that they account for over 95% of enterprises and 60%-70% of employment in OECD countries, it is easy to see why.

Entrepreneurship, research and development, innovation, job creation: the role of smaller firms cannot be underestimated. But nor can the challenges they face, particularly in a world where markets are globalising and large-scale enterprises dominate so much policy time. Yet, if governments focused more on SMEs, so much could be achieved.

The ability of smaller firms to create jobs is clearly a major attraction for governments in the short term, but by encouraging more SMEs to flourish, we can realise other economic and social objectives too, like expanding worker skills or even alleviating pockets of local poverty in inner cities or declining regions. Boosting women’s entrepreneurship, which is undeveloped throughout the OECD area, is another attraction, since this can help raise female participation in the workforce as well as spur productivity. And that means stronger growth for everyone.

The OECD has played a leading role in bringing the importance of SMEs into the public policy spotlight. We launched the Bologna Process in 2000, and are now looking forward to building on this work in Turkey in June 2004 (see article by Ali Coskun, "Motors of Innovation and Development").

We strongly believe that, with the right policies and frameworks, SMEs have a huge role to play. Countless firms enter and exit the market every year. While differences in the birth rates of firms are not very significant from country to country, young firms seem more likely to grow in the United States than in most European countries. The causes of this disparity owe much to the business climate, as well as to institutional and administrative differences, costs, and so on.

What can governments do? Overall, they must work to deliver a general business environment that is conducive to entrepreneurship, firm creation and to the rapid growth of innovative firms. This calls for sound fiscal and monetary policies, and structural reform to allow labour and product markets to function smoothly. That may mean taking action in areas like taxation, competition, financial markets and, of course, bankruptcy rules. It is crucial to ask early on if these policies dampen or enhance enterprise creation and respond to the needs of SMEs.

Regulatory and administrative costs can obviously impinge on entrepreneurial activity, dampen investment and R&D, and stunt firm growth. They can put firms out of business by absorbing too much time and resources. Even difficult exit conditions that make it costly for firms to wind down, such as lengthy creditor claims on assets or heavy redundancy rules, can discourage start-ups at the very outset.

Culture is another important factor for building an entrepreneurial society, influencing career preferences and shaping attitudes to risk-taking and reward. Governments have a role to play, via formal education and training (including lifelong learning), and fostering entrepreneurial attitudes.

With such an array of challenges, it is not surprising that SME participation in international markets lags significantly behind that of larger firms, whose command of resources and global reach can be significant. Some great innovations have come from SMEs, particularly in technological fields, but these often owe much to larger networks. Many entrepreneurs are seizing these opportunities and, indeed, global market access has become a strategic necessity. More could be done to help them, and in more complete ways – not just with marketing, but by providing easy access to information in such areas as tax, regulatory frameworks, trade rules, and other legal and advisory services. Helping them to gain access to finance is also important. Indeed, financing is frequently a major hurdle to overcome on the way to setting up and staying in business, with access to risk capital in particular being especially problematic in many countries.

There may be infrastructure issues governments could address, like expanding broadband and secure servers, since despite some success stories, SMEs in general have been slower than large firms to take to e-business. One reason is vulnerability to absorbing costs if transactions go wrong. Also, assuming there are e-solutions to their problems, SMEs frequently cannot afford or find qualified e-business staff. These major impediments for smaller firms simply lengthen the usual list of problems relating to trust, transaction security and, crucially, concerns about violations of intellectual property rights.

Only when the regulatory infrastructure throughout the entire system is worked out will SMEs be able to take full advantage of e-business. For instance, a low-cost online dispute resolution (ODR) mechanism among firms, and between firms and consumers, may be worth considering, and a concrete SME-related proposal will be presented to ministers for discussion.

The agenda

These are just some of the concrete issues that will be on the agenda for discussion at Istanbul. It will be part of an ongoing dialogue, also involving entrepreneurs themselves. The OECD Bologna Process membership now numbers 57 non-OECD countries, so we have a great opportunity to address these challenges head-on. A broad agenda based on reform and improving regulatory “quality” is needed and the June conference is expected to culminate in the adoption of an Istanbul Ministerial Declaration, in which governments reaffirm their commitment to SMEs and entrepreneurship through a range of policy actions addressing these problems.

Foremost among our goals is how to foster the role of SMEs for development. Indeed we must consider how SMEs might play a more vigorous role within international strategies, like the Doha Development Agenda, the Monterrey Consensus, the OECD Action for a Shared Development Agenda and the G8 Africa Plan of Action. Clearly, SMEs could make a valuable contribution to our efforts to meet the Millennium Development Goals.

These many challenges demand lucid decision-making, and so a key area we need to reinforce is the quality and amount of data we collect. Building databases and indicators is an endless, yet vital, task for understanding SMEs more thoroughly, checking progress and comparing situations between countries.

Expectations are high as we prepare for Istanbul. Apart from the ministerial, there will be a business symposium, and a special women entrepreneurship programme and workshop to exploit to the full. An Action Plan could be forged from this hub of high-level exchanges and activity. In short, we must take advantage of the Istanbul conference, not as a talk shop, but as a golden opportunity to show that small is indeed beautiful and that we are serious about building a more responsible and inclusive globalisation.

References

OECD (2003), OECD Small and Medium Enterprise Outlook, Paris.

OECD (2003), “Smart, as well as beautiful: the Bologna Process”, OECD Observer No 238, July 2003, Paris.

©OECD Observer No 243, May 2004




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

Poll

What issue are you most concerned about in 2016?

Unemployment
Euro crisis
International conflict
Global warming
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016