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SMEs and their critical role:
As we celebrate Micro-, Small, and Medium-Sized Enterprises Day on June 27 every year, let’s shine a spotlight on these hidden collective giants, which play a vital role in national, regional, and global economies. For example, in the European Union alone, there are approximately 23.1 million SMEs, accounting for 99% of companies and contributing over 50% to the EU's GDP. They are integral to our industrial and commercial ecosystems, and they generate more than half of the total added value by businesses. Hence, ensuring the growth and success of SMEs is critical.
SMEs have been under extreme pressure in recent times, due to factors such as soaring energy prices, inflation, and Brexit – in addition to recovering from the pandemic's impact. Looking ahead, SMEs face a new set of challenges and opportunities such as rapid technological advancement (automation and AI, e-commerce /online marketplaces), skills shortages & talent acquisition challenges, and changing workforce dynamics, which require them to adapt and innovate continuously. As SMEs often lack the necessary resources, expertise, and capabilities, what should they do to overcome these challenges, while seizing the opportunities to stay relevant and thrive over the long term?
Also on the Forum Network: Shaping Global Policy for SMEs: Provide an SME-friendly environment and they will deliver! by Véronique Willems, Secretary General, SMEunited
On today’s International Micro, Small and Medium-size Day we call on decision-makers to “think small first” and act accordingly!
Potential Solution: Supply Chain Collaboration
Ensuring effective supply chain management is one of the best steps that SMEs can take to overcome challenges and seize opportunities. To better understand effective supply chain management, imagine a well-oiled machine, where every cog and gear work in perfect harmony. That's what an effectively managed supply chain does for any business by emphasising collaboration among various stakeholders including suppliers, customers, and other business network players. Effective collaboration with the right players would enable SMEs to tap into the knowledge, expertise, and resources of their partners in their supply chain processes, leading to potential revenue enhancement (growth) and cost reduction opportunities.
For example, within the context of the New Product Development (NPD) process, collaboration with customers domestically and internationally would help SMEs acquire better knowledge about the (new) market and to better understand customer needs, potentially leading to the creation of new innovative products. The NPD Process also requires better engineering knowledge, which can be gained through collaboration with suppliers. In addition to this, collaboration with suppliers would help SMEs to gain tested knowledge related to raw materials available domestically and internationally which can be integrated into existing production processes to create new products. Thus, collaboration in the NPD process has the potential to enhance SMEs’ product innovation capability, process innovation capability, and market development capability.
Similar arguments hold true for collaboration within the context of other processes such as sourcing, production, distribution, and return processes. Business literature shows evidence of how effective supply chain management helped companies -including startups and SMEs - grow exponentially. For example, Apple Inc., which began in a garage, owes its success not only to groundbreaking products but also to meticulous supply chain management. Similarly, Zara which started as a small store in La Coruña, Spain in 1974, revolutionised the fashion industry by building agile (sense-and-respond) capability through semi-vertical integration (a strategy in which a company owns specific parts of its supply chain to have more control, while still maintaining relationships with the stakeholders who perform the activities of the other parts of its supply chain), the close proximity of key supply chain entities, just-in-time manufacturing, and a responsive distribution system.
SMEs can also explore horizontal collaboration (between other SMEs within the same industry) and lateral collaboration (with stakeholders across other industries – e.g., universities and business schools)
Besides exploring opportunities to collaborate vertically within their supply chains, SMEs can also explore horizontal collaboration (between other SMEs within the same industry) and lateral collaboration (with stakeholders across other industries – e.g., universities and business schools), to share information, knowledge, and resources to induce and accelerate innovation.
Having said that, we do not see many SME collaborations in practice since motivation, capability, opportunity, and support for collaboration are lacking. This is where large enterprises, the government at different levels, universities, and business schools can act as a trigger and support for accelerating the various types of collaboration among SMEs.
Making it happen- Support Systems Needed
Large enterprises, the Government, Universities, and business schools together should jointly support SMEs to make collaboration happen.
By partnering with SMEs, large enterprises can access sustainable and ethically sourced materials, services, or products, reducing their environmental impact and promoting responsible supply chain practices.
Large enterprises could start by incorporating more SMEs into their supply chains. Traditionally, large enterprises may consider SMEs as a risky alternative source given a more established base of large suppliers. But there is growing recognition that collaborating with SMEs aligns with principles of responsible and sustainable business practices. By partnering with SMEs, large enterprises can access sustainable and ethically sourced materials, services, or products, reducing their environmental impact and promoting responsible supply chain practices. Collaboration with SMEs not only accelerates large enterprises' progress toward their sustainability goals but also promotes a culture of sustainability and responsible business practices and can enhance the reputation and brand image of large enterprises.
Collaboration with SMEs also supports large enterprises in achieving resilience capabilities by diversifying suppliers and resources, enhancing flexibility and agility by leveraging localised capabilities, enabling them to navigate disruptions, adapt to changing market conditions, and ensure business continuity.
Across the globe, governments at local, regional and country-level already play a vital role in supporting SMEs financially with grants, subsidies, tax incentives, loans, and different schemes to help overcome barriers, innovate and survive. Government may have to enhance and accelerate different forms of support such as providing advisory services, accelerating the adoption of digital technology, and digital capability building & training support, either directly or through a consortium of universities and business schools.
Similarly, universities and business schools play a crucial role in supporting SMEs by creating knowledge exchange platforms, organising networking events, facilitating educating & training, performing research, as well as providing advisory services & practical guidance by leveraging their faculty expertise, student/alumni talent pool, government support, and industry support. Supporting SMEs as part of responsible business principles and responsible research & education aligns with the universities’ broader goals of enhancing economic development, knowledge transfer, skill development, innovation, and social impact.
By leveraging collaboration within supply chains and ecosystems, SMEs can overcome challenges and seize opportunities for long-term success. However, it is important to note that the future outlook for SMEs will also depend on external factors such as economic conditions, government policies, industry type, SMEs’ business strategies, and market dynamics. With the right support mechanisms as discussed and proactive adaptation to emerging trends, SMEs can continue to thrive and contribute significantly to economic growth across the globe.
Learn more about the OECD work on SMEs and entrepreneurship
We provide data and analysis to develop policies that foster SMEs and entrepreneurship and facilitate sustainable growth, competitiveness and the creation of skilled jobs.