MICRO, SMALL & MEDIUM ENTERPRISES

Emerging opportunities in the wider economy

An international perspective

ANDY JEANS

What is a small enterprise?• A process by which products or services

are traded

• An enterprise generates income for its owner and workers by selling to customers

Small Business

Inputs

Product or

Service

IndividualCustomer

Money

Goods or services

Traditional Small Businesses

• Farmers, petty traders, artisans, tailors, etc• Products – small quantities, little value

addition, low / inconsistent quality• Customers – generally poor people from

neighbourhood, some middlemen• Low income, saturated markets, insecure• Available Support? - very little from either

private or public sources

Typical Large Business• Mining, construction, manufacturing,

retailing (private or state owned)• Products: High volumes, quality, value-

added, diverse• Customers – wide range• Available Support? – good access to

inputs and services

Constraints facing Small Businesses

• Supply side – skills, raw materials, tools, capital, information

• Infrastructure – roads, premises, power, water, communications

• Demand side – markets, customers• Policy environment – legal, regulatory

Supply side changes

• Improved access to – basic education– a wider range of material inputs– transport and communication facilities– financial and business services

• Enhanced capacity for collective action

Development Programmes• Most interventions have addressed supply

side constraints:– Credit, skills training (technical and business)

and infrastructure development• Leading to improved:

– Access to technology, tools, working premises– Capacity to produce better quality, alternative

products– Capacity to produce more efficiently

Market problems• Having the capacity to produce does not

mean a small business can sell at a reasonable profit, for the effort

• Nor does it mean that sufficient quantities can be sold to sustain the business

Customers and Trends• Poor individuals• Better-off individuals• Government• (Buyers for) Large firms• Other Small Businesses

IndividualsPoorer

• Limited purchasing power

• Increased access to factory goods, imports

Better off

• Looking for higher quality, new products

• Prefer convenience of supermarkets

Large FirmsGovernment

• Tendering systems

• Trends to privatise and decentralise

• Can import

Private• Need large range of

supplies• Demand high quality,

consistency, timeliness, invoicing

• Trend to outsource• Can import and export

Opportunities for Small businesses

Other Small Businesses

Good opportunities for growth, diversity

• To bridge the gap between the growing markets of large firms

The “missing middle”

Legal, regulatoryFormal / official• Licenses• Import regulations• Taxation• Time consuming

procedures• Policing

Informal• Harassment• Corruption• Access to supplies

Changes / Trends …………….. ?

Most Promising Opportunities• Production and processing for onward sale

to other businesses

• Service businesses – wide range:– Conventional – trading, repair, packaging,

transport, printing, accountancy etc.

– Other - Skills training, information, Q/A, business planning, consultancy (?)

How to promote a thriving network?

Tackle demand-side constraints – forge links through which goods can be sold:

– Facilitate sub-contracts, forward contracts– Assist intermediaries– Build capacity of groups / associations /

clusters – to access markets– Forge commercial links through trade fairs,

catalogues

How to tackle policy constraints?

• Educate / inform policy makers – ‘best practice’?

• Stimulate greater dialogue with SMEs or their representatives

• Increased capacity to identify and articulate needs can also enable negotiations with private firms

CONCLUSIONS• Emerging opportunities for MSEs - better

linked and integrated into wider economy• SED interventions need to adapt:

– Informed by better understanding of market demand and channels

– More emphasis on market (rather than input) constraints

– Strengthen capacity of MSEs to forge and sustain links

Who? - Business, NGOs, Government ?