Ease of Doing Business for MSMEs: SMEs are a global phenomenon as they emerge and grow spontaneously due to various reasons in a wide variety of markets across nations. Their emergence and numerical growth bestow on an economy multiple advantages. First and foremost, they generate employment for skilled, semi-skilled, and unskilled labor forces, apart from S&T personnel. Generating employment to the large and growing workforce has been a daunting challenge faced by policymakers in all developing/emerging economies. Generating and sustaining jobs for the crew has been a challenge even for developed economies, though some have been experiencing a contraction in their workforce in recent decades.
SMEs are capital-light (more minor investment requirements), and therefore, setting up an enterprise is less challenging, absolutely as well as relative to a large enterprise. Even a household with meager savings can set up an enterprise, employing local resources and local skills to meet local needs. Similarly, young tech/non-tech graduates with their innovative/repetitive ideas can find SMEs. Therefore, SMEs emerge even in hinterlands, rather effortlessly, in almost every economy across the world. If the availability of external finance is made easier and smoother to them through institutions locally, their growth will receive a further fillip.
Their ability to emerge dispersed in rural and semi-urban areas can facilitate decentralized economic growth and balanced regional development. This, in turn, can contribute considerably to the reduction of rural-urban migration. In times of unprecedented financial crisis (such as the present one), it will virtually lessen unsettlement and re-migration of labor from urban to rural areas.
SMEs have a short gestation period, and therefore, they can be started in a short time (as they require less investment and absorb local labor). Consequently, they emerge from the ex-employees of large firms, who have either quit their jobs (in times of economic boom) or lost their jobs (in times of financial crisis).
SMEs are a vital source of entrepreneurship. Many experienced employees of large firms, as much as SMEs, irrespective of economic situations, who gain expertise/talent, ideas, confidence, with/without the much-needed resources, plunge into the world of entrepreneurship to start their own new ventures. Therefore, SME growth cumulatively generates more and more entrepreneurship for regional/national economic growth.
SMEs are the sources of innovations and, often, the outcomes of innovations. This implies that they constantly generate new/improved products/processes and new ventures through their creations. They are considered ideal for undertaking technological innovations due to their small size, simple organizational structure, effective internal communication, and flexibility of operations. Their innovation contributions to national economies are periodically captured in developed economies, whereas it is hardly captured in developing economies. Of late, their innovations resulting in new ventures (tech start-ups) are recognized by policymakers, both in the developed world and in emerging economies. They are considered the “seedbed” or “cradle” of innovations.
SMEs are the seedbeds of large firms, including multinational corporations (MNCs). Many Fortune 500 companies of the present-day world had their humble beginnings in new small ventures decades/centuries back. Even many Indian MNCs started their business on a small scale but grew steadily and gradually to become global enterprises of today.
SMEs, particularly in metros/cities, are the trained/skilled labor force sources for large firms, including MNCs. Many unskilled workers, who join SMEs as unskilled labor, get trained over time, and the more efficient ones quit their jobs to join large firms, including MNCs, for their career growth. Large firms gain at the cost of SMEs.
Thus the growth of SMEs has multi-faceted (direct and indirect) economic/strategic benefits for a nation. Their healthy growth will contribute immensely to the healthy economic development of countries. Therefore, the world over, policymakers today have exclusive policies for the promotion of SMEs. But, in times of unprecedented crisis, a declining SME sector will cost an economy heavily. Given this, it is equally prudent to provide them the much-needed succor to pull on, as that would help mitigate the national crisis.
M H Bala Subrahmanya is the Professor, Department of Management Studies at Indian Institute of Science, Bangalore. Views expressed are the author’s own.