International Best Practice SME Promotion Agencies
Introduction
The small size of SMEs, the challenge of real exchange rate, limited access to finance, bureaucratic procedures in setup, poor infrastructures, poor skilled manpower, globalization, and trade liberalization between countries put more challenges before SMEs. Removing these obstacles would increase SME development, which in turn would grow economic capacity and help decrease unemployment.
SME development requires the ability of governments to endorse cross-cutting strategies for macroeconomic policies. This can be done through simplified legal and regulatory framework, good governance, accessible finance, suitable infrastructures, supportive education, sufficiently healthy and flexible skilled labor, enhanced partnership between stakeholders in the private and governmental sectors, directing SMEs to new areas of investment, opening markets for producing products and services locally and regionally, increasing financial support, and so on.
SMEs are a major source of job creation. Their capability to support economic strategies that would realize quick and sustainable growth leads us to study how to promote and support SMEs through promotion agencies.
Strengthening SME Competitiveness in Transition and Developing Countries
Introducing new products with product combinations and innovation is a driving force for growth and expansion of SMEs that continuously give them competitive advantage to sustain and grow in health and wealth conditions. Emphasis has changed to the importance of achieving international competitiveness, to programs that encourage business growth, and to support for technology based businesses. The creation of an enterprise culture within society has started to gain in importance. Peace and stability are a key requirement for the development of SMEs and for attracting foreign investment. Studies show that war and crime are main deterrents of private investment, in particular for foreign investors. Stability in legislation and laws are also key points to secure and attract foreign investment to start-up SMEs. The ability of governments to implement sound macroeconomic policies and the capability of stakeholders to develop conducive microeconomic business environments are also major factors that have significant impact on the sustainability of SMEs. Dialogue and partnerships between stakeholders (in the public and private sectors and civil society) are essential. Enhancing women’s ability to participate in SME development should be taken into account at every stage and level.
SMEs Cut Across Sectors
Improving SME competitiveness requires policies that act on the economic, political, and social institutions within the country. An SME development strategy has to bring to the forefront the challenges that SMEs face due to size effects and should address the deficiencies. There is a need for a cross-cutting SME strategy embedded in the national development framework in institutional and organizational structures with a view to enhancing SME competitiveness.
Development of Human and Natural Resources
Empirical studies show that human capital is a significant determinant of growth. The ability of SMEs to adjust to the competitive pressures that come with trade liberalization and globalization very much depends on the level of skills that are available within transition and developing economies. Particularly, the least developing countries are investing significantly in their education (mainly basic) and training systems. Education and training systems have the opportunity to influence the level of entrepreneurial activity in transition and developing economies where new and innovative enterprise creation is a priority.
Supporting Infrastructure
Infrastructure investments, such as those in transport, telecommunications, energy, water and sanitation, can enhance SME/private sector activity and ability to access local, regional, and global markets. Furthermore, the quality of available infrastructure has a significant influence on SME competitiveness. It is important that infrastructure services reach all segments of society such as the poorest and rural areas in order to enable SMEs of different sizes, and from all areas, to participate in economic activity. Infrastructure affects all sizes of business: power cuts, roads swept away by floods, and so on. Absence of port and railway facilities affect SMEs as well as large-scale businesses. However, incomplete or under-maintained infrastructure particularly affects the livelihoods of the rural poor in developing and transition countries since large proportions of rural poor regions are involved in agriculture and agro-processing, including fisheries. Low-quality infrastructure prevents the commercialization of production based on rural resources. Additionally, poor infrastructure results in low levels of entrepreneurial activity in rural areas and large-scale rural to urban migration, thereby putting pressure on urban infrastructure, employment in urban areas, and so on. Starting around 1970s, industrial estates for SMEs have been employed as an instrument for the development of depressed regions in a large number of developing countries.
Supporting SME Export Development
Globalization has created new opportunities for SMEs. Progressive globalization over the last two decades or so has created a new international environment for SME exports from developing countries. The process of world economic integration has involved broadening and deepening of inter-relationships between international trade and foreign investment flows. Several influences at the macroeconomic level, sound government policies, and the ability to stabilize a competitive real exchange rate are cornerstones of promoting exports. A competitive real exchange rate provides an incentive for exports. Moreover, an outward-oriented, market-friendly trade regime, which emphasizes the dismantling of import controls and tariffs (permitting access to inputs at world prices) and streamlined bureaucratic procedures (i.e., export and import procedures, modern customs administration, and efficient value added tax administration), will facilitate exports, including from SMEs. Developing capacity-building programs that include supply chain and cluster initiatives, which recognize the potential for developing tiers of suppliers to maximize trickle down effects, including micro enterprises as lower-tier supplies, is essential.
Improving Aid Effectiveness
SME development has a long history of evolution in almost all donor countries. Implementation of an SME development strategy needs the participation and collaboration of numerous stakeholders. Getting the fundamentals right in the legal, regulatory, and administrative frameworks has the greatest impact on SME development in most contexts. The SME field is wide and experiences are many. These considerations have the potential to introduce confusion on the part of partners—with different donors giving noncomplementary, at times, conflicting advice—and can result in disconnected interventions. Donor coordination is crucial to improve the efficiency and effectiveness of resources both on partner and donor sides. Such coordination should be based on joint analytical work toward assessing and prioritizing needs. Without proper administrative capacities, especially at local levels where entrepreneurs have their contact with improved frameworks, it would be difficult to achieve the intended results.
Conclusion
SME development cuts across sectors, involves multiple stakeholders, and necessitates concerted actions by the public and private sector with a view to removing supply-side constraints to trade and investment. It requires firms to build up their competitive advantages. Improving the investment climate for SMEs and strengthening their capacities to respond to trade and investment opportunities do strengthen the economic performance of SMEs, and this, in turn, has a positive impact on growth and poverty reduction.