7 Benefits of Micro, Small and Medium Enterprises for Economic Development
Micro, small and medium enterprises (MSMEs) are defined as businesses that have fewer than 250 employees and a turnover or balance sheet total of less than 50 million euros. MSMEs are the backbone of many economies, especially in developing countries, where they account for more than 90% of all firms and employ more than 60% of the workforce. MSMEs play a vital role in promoting economic development, social inclusion, and environmental sustainability. Here are some of the benefits of MSMEs for economic development:
1. MSMEs create jobs and income opportunities for millions of people, especially women, youth, and vulnerable groups. MSMEs are often more flexible and adaptable to changing market conditions and customer preferences than larger firms. They can also provide more personalized and customized services and products to their customers. MSMEs can help reduce poverty, inequality, and social exclusion by providing decent work and livelihoods for low-income and marginalized populations.
2. MSMEs foster innovation and entrepreneurship in various sectors of the economy. MSMEs are often the source of new ideas, technologies, products, and services that can improve the quality of life and solve social and environmental problems. MSMEs can also stimulate competition and productivity in the market by challenging established firms and offering alternative solutions to consumers. MSMEs can contribute to the diversification and modernization of the economy by entering new markets and niches.
3. MSMEs support local and regional development by enhancing the linkages between urban and rural areas, as well as between different regions of a country. MSMEs can help create a more balanced and inclusive territorial development by generating economic activity, employment, income, and public services in remote and underdeveloped areas. MSMEs can also promote social cohesion and cultural diversity by preserving local traditions, values, and identities.
4. MSMEs facilitate international trade and integration by participating in global value chains (GVCs) and exporting their goods and services to foreign markets. MSMEs can benefit from accessing new customers, suppliers, partners, technologies, knowledge, and financing opportunities through GVCs. MSMEs can also enhance their competitiveness and resilience by learning from best practices, standards, and regulations in the global market.
5. MSMEs contribute to environmental sustainability by adopting green practices and technologies that reduce their environmental impact and resource use. MSMEs can also offer green products and services that address environmental challenges such as climate change, pollution, waste management, biodiversity loss, etc. MSMEs can play a key role in the transition to a low-carbon and circular economy by exploiting their potential for innovation, creativity, and resource efficiency.
6. MSMEs support social development by providing essential goods and services that improve the well-being of their customers and communities. MSMEs can also engage in corporate social responsibility (CSR) activities that demonstrate their commitment to ethical values and principles such as human rights, labor standards, consumer protection, anti-corruption, etc. MSMEs can also participate in public-private partnerships (PPPs) that leverage their resources and expertise to address common social goals.
7. MSMEs empower women and youth by providing them with opportunities to start and grow their own businesses, as well as to access education, training, mentoring, networking, financing, etc. MSMEs can also help women and youth overcome barriers such as discrimination, violence, lack of skills, confidence, etc., that hinder their economic participation and empowerment. MSMEs can also support women’s leadership and representation in decision-making processes at all levels.
These are some of the benefits of micro, small and medium enterprises for economic development. However, MSMEs also face many challenges such as lack of access to finance, markets, technology,
infrastructure, skills, information, etc., that limit their growth potential and performance. Therefore,
it is important to create an enabling environment that supports the development of MSMEs through
appropriate policies, regulations, institutions, programs,
and initiatives.
What are Micro, Small and Medium Enterprises (MSMEs)?
Micro, small and medium enterprises (MSMEs) are businesses that have a certain number of employees, turnover or balance sheet total. The definition of MSMEs varies from country to country, but generally they are considered as enterprises that employ fewer than 250 people and have an annual turnover not exceeding 50 million euros or an annual balance sheet total not exceeding 43 million euros.
MSMEs play a vital role in the global economy, as they contribute to job creation, innovation, poverty reduction, gender equality and sustainable development. According to the World Bank, MSMEs account for about 90% of all firms and generate 50% to 60% of employment worldwide. In developing countries, MSMEs are often the main source of income and livelihood for millions of people, especially women and youth.
How is the global demand for MSMEs changing?
The global demand for MSMEs is influenced by various factors, such as market trends, consumer preferences, technological developments, environmental challenges and policy frameworks. Some of these factors may create opportunities for MSMEs to grow and expand their market share, while others may pose threats and challenges for their survival and competitiveness.
One of the opportunities for MSMEs is the increasing digitalization of the economy, which enables them to access new markets, customers and suppliers, reduce costs and improve efficiency. According to a report by McKinsey Global Institute, digital technologies could unlock $3.7 trillion to $11 trillion of value for small businesses in emerging economies by 2025. However, digitalization also requires MSMEs to invest in skills, infrastructure and innovation, as well as to cope with cyber risks and regulatory barriers.
Another opportunity for MSMEs is the growing demand for sustainable products and services, which reflects the consumers’ awareness and concern for social and environmental issues. MSMEs can benefit from this demand by offering solutions that address the needs and expectations of their customers, such as green products, circular economy practices, social responsibility initiatives and inclusive business models. According to a survey by Nielsen, 66% of global consumers are willing to pay more for sustainable goods. However, sustainability also implies higher standards and requirements for MSMEs in terms of quality, safety, transparency and accountability.
A third opportunity for MSMEs is the emergence of new markets and regions, especially in developing countries, where there is a large and growing population of middle-class consumers with increasing purchasing power and aspirations. MSMEs can tap into these markets by adapting their products and services to the local needs, preferences and cultures of their potential customers. According to a report by OECD, the global middle class is expected to reach 4.9 billion people by 2030, with 85% of them living in Asia. However, entering new markets also involves challenges such as competition, regulation, logistics and cultural differences.
In conclusion, MSMEs face both opportunities and challenges in the changing global demand for their products and services. To succeed in this dynamic environment, MSMEs need to be agile, innovative and resilient. They also need support from governments, international organizations, private sector partners and civil society actors to overcome the barriers and constraints that limit their potential.
References:
http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf
http://www.iwim.uni-bremen.de/publikationen/pdf/b101.pdf
https://europeanlaw.lawlegal.eu/definition-of-micro-small-and-medium-sized-enterprises/
https://sdgs.un.org/topics/capacity-development/msmes
https://www.worldbank.org/en/topic/smefinance
https://www.un.org/development/desa/dpad/publication/un-desa-policy-brief-81-micro-small-and-medium-sized-enterprises-msmes-and-the-covid-19-crisis/
https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Middle%20East%20and%20Africa/Lions%20go%20digital%20The%20Internets%20transformative%20potential%20in%20Africa/MGI_Lions_go_digital_Full_report_Nov2013.pdf
https://www.nielsen.com/us/en/insights/report/2015/the-sustainability-imperative/
https://www.oecd.org/dev/44457738.pdf
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