01 importance of sme

Role of SMEs in wealth creation
and wealth distribution;
problems and prospects
By
Mr. Lansana Sakho / March 2012

http//www.experts-visions.com
Lansana.sakho@experts-visions.com
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IMPORTANCE OF SME’s
SME’

n Impact in Labor, Job creation and Specialization of
labor force
n Social Capital improvement, Strategic bridge between
micro and large enterprises
n Importance in productive value chains by creating
networks or clusters
n Potential of innovation and entrepreneurial creativity
n Facilitate technology dissemination
n Facilitate transition and adjustment processes
n Helps to reduce poverty
n Regional integrator
n Improves Wealth Distribution in a Country

Role of SMEs in wealth creation Lansana Sakho
2
and wealth distribution March 2013

WHAT IS A SMEs
n Definitions
¨ Almost every country has its own definition based
on: mixing: assets, sales, number of employees,
paid capital and sector.
¨ There are several definitions some of them are
clearly made to help (or not) SMEs development in
accordance to the country policies.
n What is important in SMEs´ classification is to
determine their common characteristics and needs
to improve their competitiveness
n This classification must help in the definition of
policies having the SMEs as the central focus

3

PROBLEMS FACED BY SMEs
n Small participation in GDP
n Lack of access to knowledge
n Scale and terms of trade when to markets
n Low productivity (Use of resources effectively and
efficiently and capabilities)
n Number of SMEs in a country
n Contact with market to define needs from demand
n Lack of selectivity programs
n Lack of access to financing

4

FOUR LEVELS TO IMPROVE COMPETITIVENESS
OF SMES WITH IMPACT IN THE ECONOMY

5

COMPETITIVENESS HAVING SMES AS THE CENTER OF
THE MODEL (SYSTEMIC AND MEASURABLE APPROACH)

6

META LEVEL : FINDINGS & APPROACHES

n Literature and research works are mostly
(exclusively) oriented to: Governance and
Corruption.
n Studies and results in general are based on
qualitative data
n Some common methods to measure governance
have been developed by the World Bank.
n Empirical results show a positive relation between
Governance and Competitiveness

7

MACRO LEVEL : FINDINGS & APPROACHES

n Most of the multilateral organizations have financed
studies of sectors’ competitiveness, value chains and
their relation with training programs.
n We have not found evidence of studies linking all
macroeconomic policies and their impact in
competitiveness policy.
n Neither the macroeconomic nor the competitiveness
studies have targeted SMEs and their development in
number and growth.
n SMEs are looked at this level only as bumpers for
economic shocks to absorb unemployment effect.
8

MACRO LEVEL : FINDINGS & APPROACHES

n To measure competitiveness as a whole it
is important for SMEs to have the resources
Ø Human

Ø Information and K-H
Ø Physical assets and infrastructure
Ø Financial

Ø Network and strategic alliances

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The challenge with those resources is to
“Jump” to superior stages of development
Jump”

10

MEZO LEVEL : DIFFUSION & METHODOLOGY

u Almost all authors agree that SMEs have a
major role in diffusion of technology as:
¨ Technology introducers and diffusers.
¨ SMEs are more flexible in adapting and adopting
new technologies than bigger companies

u In spite of SMEs technology adoption, their
effort in R&D are not important.
u Ifthe integration of the economy and the links
among SMEs is strong, the diffusion of the
technology is faster in the economy

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MEZO LEVEL : DIFFUSION OF TECHNOLOGY

n Technology diffusion and training:
¨ Manager’s business education is important to
improve technology diffusion
¨ The informal learning paths in SMEs are important
to transfer technology to them
¨ Implementing and learning a technology must be
treated as a socio-technical practice
¨ Responsiveness to training is a function of
organizational absorptive capacity
¨ Technology adoption by SMEs depends on
professional training policies

12

MEZO LEVEL : TRAINING

n HR and organizational knowledge are the main sources
of sustainable competitive advantage (for enterprises)
n Training helps to:
¨ Develop Innovation
¨ Develop sustainable competitive advantage
¨ Training transferred in job-related skills improves rapidly
business results.
n Cost vs. investment vision
¨ In SMEs the investment in training is important but still
low.
¨ In developing countries training is cost oriented.
¨ The level of investment in training is low because of the
difficulty to determine a ROI and their impact in goals
achievements.
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MEZO LEVEL : TRAINING

u To
have an expected result of training in
SMEs is important to:
¨ Develop capabilities in external knowledge
¨ Disseminate Intrafirm Knowledge

uManagement advice is more impor-
tant than technical skill to improve the
growth of SMEs

14

MICRO LEVEL: NETWORKING AND VALUE CHAINS

n SMEs Characteristics:
¨ Family Business origin and control
¨ Individual interests and Personal relations are
shown as the entrepreneurial objectives.
¨ Social capital and inter-firms relations determines
the forms of the economic exchanges
¨ Exchanges are highly dependant of the socio-
cultural context.
¨ Empirical evidence shows that in industrial districts
trust inter-firms is developed (Could create clusters)
n All the factors must converge into a level of
trust to organize Clusters and/or Networks
15

MICRO LEVEL: NETWORKING AND VALUE CHAINS

n Some of the Economic results of clusters are:
¨ Clusters generate external economies
¨ Clusters present an exchange of knowledge.
¨ Clusters create the collective efficiency concept that enhances
SMEs upgrading

n Clusters and networks behaviors
¨ Upgrading are mostly supported by the leaders of a global
value chain that dominates the cluster
¨ Clusters take time to develop due to the need of cooperative
attitudes.
¨ While developing, the linkages with the outside world are
important
¨ Information and information systems help the consolidation of
exchanges

16

MICRO LEVEL: INSIDE THE ENTERPRISE

n Management
¨ Is the main level studied
¨ Several models are presented in the literature
¨ The basic results and evolution of those models are
to see the enterprises as a system in which their
needs are analyzed with all enterprise subsystems.
¨ The literature found is developed in almost all the
important aspects of the BMS model

n Other topics related
¨ Succession and Performance of SMEs.
¨ Innovation, Environmental results.

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CONCLUSIONS

n SMEs are important for the improvement of the entrepreneurial
environment of a country
n In our literature review we found number of papers that
¨ Studied some aspects of our four level
¨ No evidence was found of studies of the Meta, Macro and Mezzo
levels oriented to lower levels
n For SMEs
¨ Most of the works stay at the micro level defining problems
related to good managerial practices
¨ “Poor assisted units”
¨ Growth and upgrading is not the rule but only an isolated case
¨ Policies are oriented to Donors or Financiers goals
¨ Job creators without a relation with wealth creation and
competitiveness enhancement
¨ Bumpers for shocks in the Meta, Macro and Mezzo levels

18

CHALLENGES & PERSPECTIVES
n Perspectives
¨ To enhance competitiveness all policies (in the 4 levels)
must have SMEs as their central actor.
¨ Generate Policies with a model that integrates the four
levels.
n Measure of impact and effects of current policies in
each of the four levels
n Determination of linkages among four levels and
effects on SMEs
n Select value chains and SMEs in those chains to work
with
n Policies must work in Value Adding, Job creation,
Education Enhancement and Trade Competitiveness

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COMPETITIVENESS INDEX

n The competitiveness index and ranking
measures:
¨ Institutions
¨ Infrastructure
¨ Macroeconomics
¨ Health and Primary education
¨ Higher education and training
¨ Market efficiency
¨ Technological readiness
¨ Business sophistication
¨ Innovation

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IMPORTANCE OF SMES

n Distribution is not an issue for a Country
n A Country can not distribute wealth without
creating it
n Wealth creation can be done in a country by
international competitive enterprises
n SMEs is the major percentage of enterprises and
the major labor generator
n International competitive SMEs will contribute to a
sustainable wealth distribution in a Country

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