SMEs (Small and Medium Enterprises) contribution to the GDP (gross domestic product) of economies in developed and developing countries account for about three-fourths of the national treasury. However, their contribution in developing countries is significantly higher. One of the major factors is that they aim to fill the gap created by unemployment. SMEs play an elemental role in leveling the income equality regarding Lorenz Curve or GINI Coefficient in macroeconomic terms. The income gap between the rich and the poor reduces with emerging SMEs or entrepreneurship in simplest terms.
Looking closely at history, all large-tier and renowned organizations started their journey as SMEs. With time they grew organically, not only in the same country but also in other continents. Therefore, it would not be wrong to assume that SMEs are stepping-stones for the formulation of large corporations. Economic indicators, such as GDP, savings, trade, current account, and investments, are primarily rooted through dispersed SMEs in each country.
It is an inherent fact that SMEs play a role of paramount importance in the developmental growth of a country. This statement stems from the fact that they help the economy by providing a leveled distribution of income flux. For example, if one of the large-tier corporations goes into liquidation or faces bankruptcy, the economy might be hit by a mighty jolt. On the contrary, even if one or more than one SME cannot continue their operations, there is hardly any effect on the country’s overall economy, thus giving a diversified distribution at any tier of a nation’s progress. SMEs minimize the probability of balancing the economies of scale in developing countries as opposed to developed economies. It could be the arena of international trade (import and export), domestic trade, and especially the services sector. If one were to compartmentalize the economy into manufacturing, services, and trade sectors, a large proportion of SMEs would be housed in the services sector. In developed countries, the services sector contributed to almost half of the country’s GDP and employment.
Rhetorically speaking, SMEs are labor-intensive units as opposed to the capital-intensive sector and controlled by large corporations. It can also be deduced that SMEs or Emerging Businesses are handling the outsourcing activities of large organizations. Vendors or suppliers are usually micro-enterprises or SMEs. Import of commodities and specialized provisions are catered to mostly by SMEs. The main reason is that SMEs are involved in the centralized decision-making process. The cost of intermediation is less, which implies that the profit margins are much better than large organizations.
Looking at the role of SMEs in the economy, the responsibility falls upon the government to formulate policies that are friendly and less cumbersome to ease the operational activities of such small firms. However, SMEs face some problems that are major concerns, including a lack of capital, poor access to finance, and inadequate collateral. In some countries, subsidies and rebates are provided to SMEs to relax tax returns, lower interest rates, and easy access to finance from financial institutions. Strict measures are taken by central banks to control a customized regulatory framework and policies for SMEs.
If you become an entrepreneur and form an SME, it is not packed with red-tape processes. You would need to do your research regarding a feasibility analysis of how you want to deploy your resources within the capital at hand. While speaking of the importance of SMEs, certain drawbacks are minor; transparency and integrity of financial statements may be questionable. However, this risk can be easily mitigated by outsourcing the function of bookkeeping to professionals or by purchasing proficient accounting and bookkeeping software that empowers you to make quick decisions and be able to furnish financial statements when required.
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