7 Reasons Why SMEs Are Vital for Business Success
SME stands for small and medium-sized enterprise, which is a business that has fewer than 250 employees and a turnover of less than €50 million or a balance sheet total of less than €43 million, according to the EU definition. SMEs are the backbone of the European economy, accounting for 99% of all businesses and employing two-thirds of the workforce. In this article, we will explore what makes SMEs so important for business success and how they contribute to innovation, growth, and social cohesion.
Key Takeaways
SMEs are vital for business success because they are agile, customer-oriented, innovative, inclusive, sustainable, resilient, and growth-oriented.
SMEs contribute to innovation, growth, and social cohesion by generating new knowledge, ideas, and solutions that create value for society.
SMEs face various challenges such as access to finance, markets, skills, technology, regulation, taxation, competition, innovation, digitalization, sustainability, and resilience.
SMEs can benefit from digitalization by improving their efficiency, productivity, quality, customer satisfaction, innovation, competitiveness, and profitability.
SMEs can support the green transition by adopting more environmentally friendly practices and developing and offering green products and services.
1. SMEs are more agile and adaptable than large corporations.
They can respond quickly to changing customer needs, market trends, and technological developments. They can also experiment with new ideas, products, and services without risking too much capital or reputation. This gives them a competitive edge in dynamic and uncertain environments.
2. SMEs are more customer-oriented and personalized than large corporations.
They can build close relationships with their customers and offer tailored solutions that meet their specific needs and preferences. They can also leverage their local knowledge and networks to reach niche markets and segments that are underserved by larger players.
3. SMEs are more innovative and creative than large corporations.
They can generate new knowledge, ideas, and solutions that challenge the status quo and create value for society. They can also collaborate with other SMEs, universities, research institutes, and public authorities to access diverse sources of expertise, funding, and support. According to the European Commission, SMEs account for 57% of the total value-added by innovation in Europe.
4. SMEs are more inclusive and diverse than large corporations.
They can offer more opportunities for employment, entrepreneurship, and social mobility to people from different backgrounds, genders, ages, and abilities. They can also foster a culture of trust, cooperation, and empowerment among their employees, customers, and partners. According to the OECD, SMEs are more likely to hire women, young people, immigrants, and low-skilled workers than large firms.
5. SMEs are more sustainable and responsible than large corporations.
They can adopt more environmentally friendly practices, such as reducing waste, energy consumption, and emissions, using renewable resources, and promoting circular economy models. They can also engage more actively with their communities, supporting local causes, charities, and initiatives that improve the quality of life and well-being of their stakeholders.
6. SMEs are more resilient and robust than large corporations.
They can cope better with shocks, crises, and disruptions that affect the economy, society, or environment. They can also recover faster from downturns, leveraging their flexibility, creativity, and solidarity to overcome challenges and seize opportunities. According to the World Bank, SMEs are more likely to survive recessions than large firms.
7. SMEs are more growth-oriented and ambitious than large corporations.
They can exploit new markets, technologies, and business models to expand their activities, revenues, and profits. They can also invest in their human capital, infrastructure, and innovation capabilities to enhance their productivity, quality, and competitiveness. According to the European Investment Bank (EIB), SMEs account for 85% of net job creation in Europe.
Tips
- Define your unique value proposition and communicate it clearly to your target audience.
- Seek feedback from your customers and stakeholders and use it to improve your products and services.
- Collaborate with other SMEs, universities, research institutes, and public authorities to access diverse sources of expertise, funding, and support.
- Invest in your human capital, infrastructure, and innovation capabilities to enhance your productivity, quality, and competitiveness.
- Embrace digitalization, sustainability, and social responsibility as drivers of growth and differentiation.
What are SMEs and why are they important?
SMEs, or small and medium-sized enterprises, are businesses that have revenues, assets, or a number of employees below a certain threshold. Each country has its own definition of what constitutes an SME, and sometimes different criteria are applied across industries or sectors. For example, in the EU, an SME is a firm with fewer than 250 employees and either an annual turnover of €50 million or less, or a balance sheet total of €43 million or less. In the US, the Small Business Administration (SBA) classifies a small business according to its ownership structure, number of employees, earnings, and industry.
SMEs play an important role in the economy, as they account for 99% of all businesses in the EU and employ vast numbers of people. They are also generally entrepreneurial and innovative, helping to shape new markets and technologies. SMEs face many challenges, such as access to finance, regulation, taxation, and competition from larger firms. To support SMEs, governments and international organizations offer various incentives, such as favorable tax treatment, better access to loans, grants, subsidies, and training programs.
How is the global demand for SMEs changing?
The global demand for SMEs is influenced by many factors, such as economic growth, consumer preferences, technological change, environmental issues, and trade policies. Some of these factors may create opportunities for SMEs to expand their markets, while others may pose threats or barriers. The COVID-19 pandemic has also had a significant impact on the demand for SMEs, as it has disrupted supply chains, reduced consumer spending, and increased uncertainty.
According to a report by the World Bank, the global demand for SMEs is expected to increase in the long term, as the world economy recovers from the pandemic and transitions to a more sustainable and digital future. The report identifies four key drivers of demand for SMEs:
- The rise of emerging markets and middle-class consumers, which will create new markets and increase the demand for more diverse and customized products and services.
- The adoption of digital technologies and e-commerce platforms, which will enable SMEs to reach more customers, reduce costs, improve efficiency, and enhance innovation.
- The shift to a low-carbon economy and circular production models, which will require SMEs to adopt more environmentally friendly practices and offer more sustainable solutions.
- The increase in regional integration and trade agreements, which will facilitate cross-border trade and investment for SMEs.
However, the report also warns that these drivers of demand are not evenly distributed across regions and sectors, and that SMEs will face many challenges to seize these opportunities. Therefore, it recommends that policymakers implement policies that support SMEs in accessing finance, skills, technology, markets, and networks.
What are some examples of successful SMEs?
There are many examples of successful SMEs around the world that have managed to grow their businesses and compete in global markets. Here are some of them:
- Spotify: A Swedish music streaming service that started as a small start-up in 2006 and now has over 365 million monthly active users and operates in 178 countries.
- Natura: A Brazilian cosmetics company that focuses on natural and organic products and social responsibility. It has over 6.6 million consultants who sell its products through direct sales channels in Latin America and Europe.
- Zappos: An American online shoe retailer that was founded in 1999 and acquired by Amazon in 2009. It is known for its exceptional customer service and company culture.
- Xiaomi: A Chinese electronics company that produces smartphones, laptops, smart TVs, and other devices. It was founded in 2010 and became the world’s second-largest smartphone vendor in 2021.
Frequently Asked Questions
Q: What is the difference between an SME and a startup?
A: A startup is a newly established business that aims to develop an innovative product or service that has high growth potential. An SME is a small or medium-sized business that operates in an established market with a stable or moderate growth rate.
Q: How can SMEs access finance for their activities?
A: SMEs can access finance from various sources such as banks loans, venture capital, angel investors, crowdfunding, grants, subsidies, guarantees, or microfinance.
Q: What are the main challenges faced by SMEs?
A: Some of the main challenges faced by SMEs are access to finance, access to markets, access to skills, access to technology, regulation, taxation, competition, innovation, digitalization, sustainability, and resilience.
Q: How can SMEs benefit from digitalization?
A: Digitalization can offer many benefits for SMEs such as improving their efficiency, productivity, quality, customer satisfaction, innovation, competitiveness, and profitability. Digitalization can also enable SMEs to access new markets, customers, and opportunities, as well as to collaborate with other actors in their ecosystems.
Q: How can SMEs support the green transition?
A: SMEs can support the green transition by adopting more environmentally friendly practices, such as reducing waste, energy consumption, and emissions, using renewable resources, and promoting circular economy models. SMEs can also develop and offer green products and services that address environmental and social challenges and create value for their customers and society.
References:
http://seaf.com/wp-content/uploads/2014/10/Defining-SMEs-September-20081.pdf
https://single-market-economy.ec.europa.eu/smes/sme-definition_en
https://www.oecd.org/cfe/smes/ministerial/documents/2018-SME-Ministerial-Conference-Plenary-Session-2.pdf
https://www.worldbank.org/en/topic/smefinance
https://www.eib.org/en/publications/the-eib-group-and-smes-in-2019
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