Economic and Social Development need Micro, Small and Medium Enterprises. SMEs need Effective and Efficient Support Services.
by magessa,b.m.
The SME community has, in recent years, witnessed with satisfaction a worldwide growing awareness of the importance of SMEs to both the national and the global economy. We have reached the point when Governments recognize that SMEs are engines of growth and of jobs creation, that they are vibrant and innovative, that they are flexible and can adapt to changing circumstances. It is quite clear to day, that as a result of all those virtues, SMEs have become a central force in the economy and the society.
Main Problems of SMEs
Yet, notwithstanding this recognition and the numerous SME support programs available today, we are well aware that small businesses still face many, and varied, obstacles and constraints. Some of the problems are inherent in the very characteristics of small business and of start-ups, and others are a direct outcome of economic changes, which may affect SMEs in a more crucial manner than they affect big businesses. Proper analysis and identification are pre-conditions for affording adequate measures to overcome these problems.
SME support organizations, today more than ever before, need to build support frameworks based on an ongoing process of diagnosing the problems and constantly adapting their services to the changing conditions of the national and global economy. Only thus will they be able to supply SMEs with the proper tools to exploit their full potential and to play a really significant role in promoting economic development in the new millenium.
Following are some of the main problems and constraints affecting SMEs, which have been identified in most countries, industrialized and developing ones alike:
1. Lack of Managerial Skills - Most small enterprises and start ups are experts in their own product or service, but more than often they lack wider managerial skills which are essential for sustainability and success. Marketing, innovation, quality control and financial planning – are only some critical examples of proficiencies required to meet the changing needs of the local economy, and the challenges of the ever-growing globalization of the markets.
2. Difficulties in Raising Finance - Banks still feel that SMEs represent a high credit
Risk, as SMEs are often unable to provide the various forms of collateral required by
banks. As a consequence, SMEs find it difficult to raise credits (especially for working
capital), or, when they do get it – they usually pay a higher rate of interest than larger enterprises.
Though most small business people, if asked, will name this as problem number one, we know from surveys and research all over the world, that this is not the case. The main reason for failure of small businesses, is (between 60% and 80% of the cases studied) mismanagement, resulting from lack of managerial skills.
3. Lack of Accessibility to Information - The ability of small businesses to survive and succeed in a competitive environment depends largely on the existence of the relevant information they require for decision-making. This information is currently only partially available (even taking into account the possibilities of the Internet), furthermore, accessibility to much of the existing information is complicated, time-consuming and costly.
4. Bureaucracy - SMEs suffer most from red tape (big business many times find their way out) and need maximum freedom from unnecessary regulatory and bureaucratic burdens if they are to innovate and flourish.
5. Lack of Export Incentives – The more open and integrated “global Village” of our time has brought an era of new opportunities for SMEs. The growing and irreversible trend towards globalization, which has marked the nineties, has blurred the borders between domestic and international trading. The gradual lowering of protective tariff as well as non-tariff walls, accompanied by other liberalization measures, has brought international competition at the door of every domestic operator, challenging SMEs to be internationally active.
6. Lack of Specific Programs for Women Entrepreneurs - more and more women have penetrated the SMME field in the last decade, encountering specific problems hindering their expansion and success.
Comprehensive and Integrative Approach
If we take a second look at the above problems, we will find that, although dealing with seemingly different fields, they are nonetheless closely inter-connected. This is why any effort to deal with the problems on behalf of small business, should also adopt an integrative and comprehensive approach.
This approach implies inter alia keeping close coordination with all the government, public and private institutions concerned with small business in order to offer the SMEs comprehensive support systems. Only central SME support authorities adopting such a comprehensive approach can (and should) combine general means aimed at resolving the most basic problems of SMMEs, with more specific measures focused on social and structural changes of the local economy.
A thorough program of action, aimed at basically changing the conditions in which SMEs are functioning, should be a many-dimensional one, attacking the problems from all possible angles.
The support framework should offer on the one hand, a set of “on-the-shelf” assistance measures for a variety of problems, and on the other hand, the means of ensuring that these measures are available to the individual entrepreneurs at the right time and relevant to his / hers particular needs.
The Main Support Measures
Taking into consideration the main problems of SMEs, in their order of importance,
four main groups of support tools may be defined:
1. Training and education;
2. Consulting, tutoring and coaching;
3. Financial support; and
4. Information services.
l. Managerial Training - in order to help the small businessperson to acquire at least some of the many and complex managerial skills necessary for success, a highly professional training scheme is crucial. A good way to arrive at this aim is to set up a Training Center in the field of small business management. This Center should coordinate and guide training activities by formulating theories, devising training and study programs, developing training aids, issuing of written materials and software, and training of the trainers. The programs developed at the Training Center can then be transmitted to the training institutions, to instructors and teachers who in turn will use them in their work with the SME target population.
An effort should also be made to introduce education for entrepreneurship into the
early school stages.
2. Counseling Services - A great variety of services should be implemented to suit the needs of different parts of the target population. A lot of successful experience has been accumulated with various public as well as private consultation methods. Some of the services should be subsidized in order to get the expected results. Some of the services can be general, while others should be specifically adapted according to different target populations, the actual problems or the economic branches in question. Highly skilled consultants, tutors and coaches must be constantly trained and enriched with new developments.
3. Financial Assistance - Micro credit schemes, various guarantee schemes, group lending, collateral linked credits, are only some of the schemes devised in order to facilitate credit for SMEs. Some of the schemes relate to investments only, some to working capital, and some to both.
Each country and support organization should introduce that variety of schemes, which is expected to answer best that country’s specific conditions and problems. One of he determining factors for choosing the suitable credit schemes, should be cost efficiency, i.e. producing the highest number of sustainable jobs per a given amount of public funds
Devising further financing options for SMEs is also part of the duties of a support system. These can be in the form of matching partners, finding investors, promoting venture capital firms, Leasing, Factoring and other forms of credits and equity investments.
Specific sectors such as immigrants, entrepreneurs in rural, peripheral and development
regions, small and starting exporters, and others, may require specific schemes.
4. Information Services – one of the possible answers to the crucial need of SMEs for business information is to establish a Small Business Information Center, which compiles the necessary information and provides it to small businesses and entrepreneurs at a low cost, easy access and using a simple to operate interface. The database should include all types of relevant information. Some of this information is today available, partially or wholly, in different, existing databases, but additional essential information is still non-existent. The provision of such information will improve the performance of small businesses and increase their chances to succeed.
This Information center will also serve central and regional governments as well as local authorities which require the information for the purpose of planning and making decisions concerning future directions and developments.
It will not be out of place to emphasize again, that these four major groups of tools for supporting SMEs, should be approached as elements of one holistic treatment, and not as stand alone medicines
The Central Support System
The need to act with an integrative and comprehensive approach dictates the vital role of a Central Support System for SMEs. It should not only perform the “central” roles, rather it is the means to strengthen the field services by giving them a professional and organizational backing. The establishment of an efficient professional central support body will prove not only as highly improving the effectiveness of the field services, but also as a way to maximize the cost efficiency of the whole system.
The main roles of a central SME support system can be defined as follows:
- Recommending government policies for promoting entrepreneurship and SMEs.
Serving as the coordinating body for all organizations offering aid to SMEs.
Serving as the central organ for implementing the policies for encouraging SMEs.
Ensuring that entrepreneurs and small investors receive assistance in overcoming
market failures and bureaucratic obstacles impeding their activity.
- Establishing local, regional and specialized centers for supporting entrepreneurs and
SMEs (SBDCs), providing them with proper support tools, as well as assisting,
guiding and monitoring their activities.
Lobbying for primary and secondary legislation to facilitate the establishment and
the development of SMEs.
Working with Ministries, local government, and other government agencies to
facilitate the establishment and development of SMEs.
Initiating and organizing training and educational activities on entrepreneurship, and
on subjects relating to starting and managing SMEs.
Devising proper means of counseling, tutoring and coaching for new entrepreneurs,
start-ups and SMEs.
Working with specific population groups with potential for entrepreneurship, such as
new immigrants, discharged soldiers, women, minorities, etc. Establishing special
tools for encouraging entrepreneurship among them, in cooperation with the agencies
working with these groups.
Initiating the establishment of credit lines for small businesses; ensuring
their proper management; and operating funds for loans to SMEs.
Encouraging the establishment of private, public, or joint financial institutions
which will specialize in investing capital in SMEs, and encouraging
capital investment in SMEs by the business sector.
- Initiate the establishment of a variety of other financial instruments for micro and
small businesses.
Taking action so that small businesses can win a suitable share of public tenders.
Initiating research to form a statistic and information basis for its activities.
- Establish low cost and simple to use information facilities and databases for
start-ups and SMEs.
- Create supportive public opinion and sympathetic atmosphere for entrepreneurship and
SMEs .
Maintaining contacts with similar organizations in other countries in order to
exchange experience.
Small Business Development Centers (SBDCs)
We should return now to the field agencies and briefly define their roles. The main services to be offered by SBDCs will usually include :
A. General Information and Guidance: such as preliminary appraisal of the business concepts; information on permits and licenses required for establishing a business; help in finding business partners and investors, assistance in making the necessary contacts, and referral to additional information sources.
B. Professional Counseling: the nature and duration of counseling should be personally adapted to each entrepreneur or business owner. The counseling process may therefore consist of any of the following as well as other stages: first basic counseling meeting, a referral to extensive professional consultation, assistance in the process of locating financing, or long-term tutoring.
Counseling is provided on diverse subjects, such as preparing business plans, financial management, pricing, marketing, streamlining production, export and more.
C. Referrals to Sources of Funding: the centers can assist with the application process required by banks, special funds set up for small businesses, or other financing programs. They may also support in preparing the necessary documentation, including business plan.
D. Training: the SBDCs offer courses and workshops specifically suited to small business owners or new entrepreneurs. The centers also provide written training material. Being close to the relevant / local small business community, positions them best in identifying its specific training needs.
E. Information: the centers may guide the SMEs and the entrepreneurs seeking to start a new business in finding the relevant business information, as well as in using the SME Information Center.
F. Overcoming Red Tape: because of their being connected with the local and regional authorities, the centers are in a position to give entrepreneurs and SMEs a hand in overcoming bureaucratic obstacles.
In order to maintain an adequate standard of services, SBDCs are expected to employ highly skilled professionals. Their staff must be trained periodically to keep up with markets trends, financial, economic and technological developments, government regulations, taxes, and all other elements necessary in rendering effective and updated counseling services.
An enterpreneurial central support agency and a net of professional SBDCs, are preconditions for an effective support system for SMEs. Combined with a comprehensive approach and an integral mode of action, they are the road to success.
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