SMEs: the world’s missing link to inclusive and sustainable economic growth and development
First edition of ITC’s SME Competitiveness Outlook says boosting competitiveness of small and medium-sized enterprises critical for inclusive economic growth; offers analysis on how to close productivity gap.
(Geneva) – Small and medium-sized enterprises (SMEs) are the missing link to sustainable economic growth and are fundamental to ensuring greater inclusiveness, according to the SME Competitiveness Outlook 2015: connect, compete and change for inclusive growth, which was presented in Geneva today.
In a cooling global economy, the SME Competitiveness Outlook suggests that improving SME productivity will translate into more and better paid jobs, distributed across less fortunate sections of the economy. Allowing SMEs to ‘internationalize' – trade and invest – leads to higher productivity, wage, and employment gains. And boosting the competitiveness of SMEs, in turn leads to better and more inclusive growth.
The Outlook offers policymakers insights into how to bridge the ‘productivity gap’ between small and large enterprises. The productivity gap between small and large firms observed in developing countries is at least double the size of the gap observed in developed countries. In some developing countries the gap is significantly larger, with the productivity of large firms up to ten times that of small firms.
‘Large companies everywhere tend to be more productive than small ones. But the productivity gap varies considerably: the less developed the country, the wider the gap,’ said ITC Executive Director Arancha González. ‘Low productivity means lower wages and worse working conditions. However, this productivity gap has a silver lining: there is a lot of room to improve.’
The SME Competitiveness Outlook sets out country-specific constraints most relevant to business success by breaking them down into three key pillars: the ability of SMEs to connect, compete and change. It systematically analyses these determinants of SME competitiveness at the level of company, its immediate business environment, and the wider national context.
For SMEs to succeed in international markets, the report suggests, greater focus is needed on connectivity and internet and electronic connectivity in particular. It finds that the biggest gap between SMEs and large firms is in e-connectivity, with three regions – East Asia and the Pacific, sub-Saharan Africa and South Asia – performing worst.
For landlocked developing countries (LLDCs), which have no direct access to ports, the world’s lowest e-connectivity rates add another challenge to businesses’ efforts to reach foreign markets. Least-developed countries (LDCs) also lag behind in connectivity: small firms attain only 22% of the connectivity score of their large local counterparts, compared to 64% in developed countries.
Access to finance appears as the largest impediment to SMEs’ capacity to compete and change in LDCs. The report also finds that SMEs from developing countries score the best in the ‘compete’ pillar. In the SME Competitiveness Grid, the ‘compete’ gap between medium-sized and large-sized firms is only 11% in developed countries, compared to 18% for developing countries (excluding LDCs).
In LDCs, however, small and medium firms attain only 57% and 77% respectively of the ‘compete’ score attained by large firms, compared to 74% and 89% in developed countries. Dragging LDCs’ scores down are the low rates of firms with bank accounts (25% and 40% for small and medium companies, respectively). The lower score of small firms in South and East Asia, and the Pacific, is due to poor quality certification.
Among the findings of the SME Competitiveness Outlook is the performance of Latin American and Caribbean SMEs. They come out as strong entrepreneurial performers, outpacing average performance in other regions as assessed in the report, including in Asia and the Pacific. In fact, medium-sized firms in the Latin America/Caribbean region outperform the ‘median global firm’, whereas small firms perform stronger than their peers in most other regions. However, their overall position in global markets is often undermined by a relatively weaker business environment at the immediate and national level. The report contains detailed analysis on 25 countries.
‘There are no easy answers for achieving growth that is both sustained and sustainable. The SME Competitiveness Outlook gives us some practical insights into improvements that would make growth more inclusive,’ Ms. González said.
A digital copy of SME Competitiveness Outlook 2015: connect, compete and change for inclusive growth can be downloaded here.
The following countries are included profiled in the pilot competitiveness index: Bangladesh; Burkina Faso; Cambodia; Colombia; Côte d’Ivoire, Egypt; Guinea; Indonesia; Jamaica; Kazakhstan; Kenya; Madagascar; Malawi; Mauritius; Morocco; Paraguay; Peru; Rwanda; Senegal; Sri Lanka; United Republic of Tanzania; Thailand; Trinidad and Tobago; Tunisia; and Uruguay.
About the International Trade Centre
ITC is the joint agency of the World Trade Organization and the United Nations. ITC assists small and medium-sized enterprises in developing and transition economies to become more competitive in global markets, thereby contributing to sustainable economic development within the frameworks of the Aid-for-Trade agenda and the Global Goals for Sustainable Development.
For further information
Mr. Jarle Hetland
P: +41 22 730 0145
M: +41 789 277 406
E: hetland [at] intracen.org