Developing economies are faced with a myriad of challenges and small and medium enterprises (SMEs) play a vital role in addressing some of these challenges and contribute significantly in economic growth and development of these economies and in transforming them into competitive and industrializing economies. SMEs offer employment opportunities, play a key role in poverty reduction, production of goods and services, improving competitiveness and boosting technological advancement through innovation.
SMEs contribute considerably to income generation and addressing the problem of income discrepancies since they offer decent jobs through their contribution in the mainstream economy. The incomes generated by SMEs play a significant role in bridging the gap between the haves and the have nots thus supporting equitable distribution of income.
Small and medium enterprises are known to be competitive. Maintaining growth in a highly competitive niche requires innovation. SMEs contribute directly to technological development through innovation. The quest to be efficient and improve profit margins requires innovative ways of producing goods and service that will ensure cost reduction.
SMEs contribute to the formation of flexible economic systems where players are well integrated and in which small and large firms are interlinked. Such integrations and linkages play a significant role in attracting foreign direct investment as large corporations look for sound domestic suppliers for their supply chains. Also, large multinational corporations that exist today started as micro organizations with a handful of employees, they started as SMEs. SMEs play an important role in the economy and contribute to a nation’s aggregate savings and investments. Through these savings and investments, the overall economy’s performance is bolstered leading to economic development lifting thousands out of poverty in the long term.
SMEs also play a key role in the transition of economies from agricultural-led into industrialized economies through supporting processing and value addition. This contribution plays a significant role in integrating economies into the global value chain. Players who operate on a global scale look for strategic partners in countries of interest who can take up some of the responsibilities along the value chain to improve efficiency. SMEs that operate in the spheres under which such responsibilities fall usually support such corporations.
In countries with the right policies, SMEs are also known to make economies more competitive due to ease of entry and exit into the market, removing regional and sector imbalances in the economy. Ease of entry and exits from the various sectors in the economy ensures that there is competition eventually raising the standards of goods and services offered and offering them at competitive prices thereby benefiting end users.
Small and medium enterprises are integral cog of the economy and usually propel economies towards growth and self-sufficiency in the long-run. Policy makers need to come up with policies that encourage growth of SME sector through various incentives that will support existing SMEs and encourage entrepreneurship in general. Private sector businesses are critical to growth and development.