Building Future-Ready Local Economies

SMEs are the backbone of the global economy, so how do we ensure they succeed?

How has the Covid-19 pandemic impacted SMEs?

Few in the business world have been hit harder by the Covid-19 pandemic than small and medium-sized enterprises (SMEs). As in other times of crises, SMEs had little option but to batten down their metaphorical hatches with the aim of waiting out the economic uncertainty until the outlook improved. 

During such precarious periods, SMEs invariably focus on the fundamentals of business. Prioritizing the retention of employees and sustainment of supply chains, such companies rarely have surplus capacity or capital for more ambitious ventures to experiment or expand. 

Precarious financial conditions can force SMEs into survival mode, with many jettisoning investments in digital technology and other pursuits that can cost both time and money, but which may ultimately lead to growth in the long term.

Many SMEs managed to weather the economic storm brought about by the pandemic with resilience and agility, often in the face of contracting access to funding and reduced demand. This said, action must be taken to ensure that future shocks to national and international markets do not stifle the immense innovation, cooperation and growth offered by so many SMEs.

Why is SME growth essential?

It is difficult to overestimate the importance of SMEs to the health and future of both local and international economies. The majority of private enterprises around the world are SMEs, meaning that their success can act as a catalyst for increasing employment and rising growth and prosperity. 

Due to their nimble and adaptive nature, SMEs can harness the talent and expertise of their employees through innovation, in ways that well established yet cumbersome larger corporations cannot.

Companies such as Ecoware have successfully identified opportunities when others saw problems, proving that SMEs regularly offer the most efficient vehicles for delivering impact in complex contexts. The pandemic increased demand for single use packaging due to the association with hygiene, and thus without Ecoware’s sustainable solutions plastic products would have proliferated throughout the food and beverage industry.   

When run effectively and bolstered by a drive to make positive change in the world, SMEs can act as a driving force of labor markets and ensure that development is socially mindful as well as fiscally responsible. 

How best to support SMEs?

Given the essential nature of SMEs to local and transnational economies, action must be taken to safeguard the future of small and moderately sized companies.

I. Technology. 

The increasing availability and accessibility of advanced technology has afforded more SMEs the opportunity to compete with larger companies, particularly for those on the smaller end of the SME spectrum. The increasing range of digital services has enabled business leaders to be more judicious in their selection of technological products, sourcing the most appropriate solutions to the specific problems they face. 

Due to the proliferation of technological services, small enterprises can now draw upon financial resources previously unavailable to them, access skilled talent from around the globe, and acquire more nuanced data and insights to inform decision making. By reducing costs and increasing market access, technology boosts competitiveness and levels up the playing field between large- and small-scale industries. 

There remains a lack of awareness from many small and medium sized business owners around the benefits offered by technology, however, and thus work needs to be done to disestablish such barriers to engagement if the enormous upside potential of SMEs is to be realized. 

II. Creative finance

One of the biggest hurdles that SMEs overcame during the pandemic was a lack of funding and liquidity. In uncertain times, lenders tend to tighten their controls over credit, meaning SMEs with high growth potential but restricted access to finance are sometimes unable to capitalize on new opportunities. 

Creative financing methods can help to address this issue. Alternative funding mechanisms, such as having large companies act as an anchor borrower for smaller enterprises, or establishing alternative supply chain finance agreements, can support SMEs to access the capital they need to invest and grow. Whilst the leaders of huge international corporations may raise the occasional doubtful eyebrow at such suggestions, the global economy’s reliance on SME success and growth is reason enough to support such action. 

III. Efficient regulation

Governments and regulators have immense power and influence over the barriers to SME growth and can actively facilitate increased trade and private cooperation. 

The pandemic shone a spotlight on the positive impact local and national governments can have when they are responsive to the needs of business. Through the provision of financial support, and reform to regulatory structures, many governments have increased efficiency by tailoring their approach to the needs and contexts of different geographies, and the specific businesses found within such localities. 

By continuing to offer this level of support and flexibility, and rewarding effective, purpose-driven businesses that can demonstrate impact, governments can have an enormous positive impact upon the health and future of SMEs, and their own economies. 

Small and medium sized enterprises have undergone a tumultuous few years, having to constantly adjust to the economic precarity resulting from the pandemic. Yet, with increased investment in technology, improved access to financial support, and more flexible and supportive regulatory frameworks emerging around the world, and much brighter and promising future is now in sight. 

In emerging economies, sector leaders are waking to the reality that support for SMEs is so integral to growth that it acts as a form of ESG investment in and of itself, leading to a new dawn of progressive, often climate-minded innovation. 

There remain many challenges facing SMEs around the world. Nonetheless, by working with financers to make funding more readily available, creating greater awareness of the power of technology for delivering business solutions, and sharing best practice within peer support networks, business leaders can ensure that the boundless potential of small and medium sized enterprises is realized.