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.


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

GDP growth: +0.6% Q3 2017 year-on-year
Consumer price inflation: 2.3% Sept 2017 annual
Trade: +1.4% exp, +1.7% imp, Q2 2017
Unemployment: 5.7% Sept 2017
Last update: 14 Nov 2017


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

  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • The annual OECD Eurasia Week takes place in Almaty, Kazakhstan 23-25 October. Writing in The Astana Times, OECD Secretary-General Angel Gurría urges Eurasia countries to stay the course on openness and international integration, which has brought prosperity but also disillusionment, notably regarding inequality. The OECD is working with this key region, and Mr Gurría urges Eurasia to focus on human capital and innovation to enhance productivity and people’s well-being. Read more.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • 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.
  • 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 .

Most Popular Articles

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 2017