Unlocking growth in small and medium-size enterprises (2022)

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Sluggish productivity growth is one of the biggest threats to overall economic growth in developed and developing economies alike, with serious implications for citizens’ well-being such as lower income growth, increased inequality, and challenges with loan repayment. In recent years, productivity growth has stalled in many places; a 2018 McKinsey Global Institute (MGI) study of seven Organisation for Economic Co-operation and Development (OECD) countries found a drop in average productivity growth, from 2.4 percent per year between 2000 and 2004 to 0.5 percent per year between 2010 and 2014.

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Small and medium-size enterprises (SMEs) contribute to the productivity problem. Within the same sector or within countries of similar size, the productivity gap between large companies and SMEs can vary by a factor of two or more. In construction, for example, McKinsey research found that the productivity gap between SMEs and large companies is 26 percent in France, 41 percent in Germany, and 54 percent in Italy. In the food-services and accommodation sector, the gap is smaller for Italy, at 29 percent, compared with 39 percent for France and 41 percent for Germany. These productivity differences reach 60 percent in Turkey and 80 percent in Greece in many sectors. And a large share of the world’s population works for an SME—between 50 percent and 90 percent of the labor force, depending on the country. 1

Improving the productivity of SMEs is therefore a worthwhile endeavor. Indeed, SMEs can spur a country’s growth for two reasons. First, integrating proven practices and technologies is faster and safer than testing new ones, and SMEs have a large adoption gap to close. In the same way that emerging markets can grow faster than high-income markets by adopting tested technologies, SMEs can grow faster than large companies by adopting the proven technologies and practices of larger enterprises. Second, start-ups, which are a critical subsegment of SMEs, have become important sources of innovation. Because they are unhindered by legacy systems and outdated strategies, new market entrants are often able to rethink established practices and cut through traditional industry boundaries.

Halving the global productivity gap between SMEs and large companies would amount to about $15 trillion in corresponding value added, or roughly 7 percent of global GDP. 2 Governments around the world can and are helping close this gap through ten approaches tailored to meet SMEs’ most pressing needs.

The need for a thriving ecosystem of small and medium-size enterprises

When enabled by a business-friendly environment and open markets, large companies can thrive; meanwhile, SMEs have a broad range of unmet needs. The limited size of many SMEs means they have difficulty accessing capabilities and resources that would make them more productive, including talented individuals with the latest knowledge of technology, finance, and managerial practices.

Furthermore, many SMEs are young enterprises, which, when combined with their small scale, makes them a weaker counterpart for many standard market players, not only in terms of funding access but also for customers who might perceive small suppliers as too risky. Nonstandard market players such as crowdfunding platforms and venture-capital funds are still in the early stage of development in many OECD countries and often cannot fulfill the needs of SMEs.

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Given the challenges facing SMEs and the size of the opportunity, most G-20 countries have created a national agency fully or primarily focused on supporting their growth. 3 However, operating these government agencies is challenging for the same reasons that markets have struggled to meet SMEs’ needs: their small scale and diversity of circumstances.

Our research, analysis, and experience working with SMEs and SME-development agencies suggests that governments and nongovernmental organizations (NGOs) seeking to serve SMEs’ unmet needs would benefit from two actions: first, understanding and improving the SME ecosystem and second, pursuing a targeted approach to serving various SME subsegments.

Specifically, they should focus on promoting three characteristics of a healthy and well-performing SME ecosystem: boosting the business confidence of SMEs, enabling the growth of SMEs—in general and for high performers—and increasing the competitiveness of SMEs (Exhibit 1). Establishing these three characteristics requires a segmented execution approach. It is therefore important that government agencies design their menu of services after identifying the subsegments prevalent in their country and the differences in their needs. We have identified ten approaches that are used across the world to help meet these needs.

Unlocking growth in small and medium-size enterprises (1)
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Identifying and prioritizing SME subsegments

In our experience, SMEs typically fall into one of six categories: early-stage innovative start-ups, established successful start-ups, growing medium-size companies, stagnant or struggling medium-size companies, locally focused small businesses, and informal microbusinesses (Exhibit 2).

Unlocking growth in small and medium-size enterprises (2)

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While it is important to consider the totality of all SME subsegment needs, we believe that SME-development agencies should focus their limited resources on those with the highest potential for impact, with programs tailored to their specific situations.

Medium-size companies are often priority subsegments. According to our analysis, even though medium-size enterprises make up only 2 percent of all companies, they account for about 30 percent of GDP and employment in most countries.

This can vary by country, of course. A country such as India, for instance, has a low urbanization rate, with hundreds of millions of people employed in the informal sector or in small businesses in rural areas. It is difficult to neglect these segments in India; however, a highly urbanized country with a lower level of informality could have a more targeted approach and focus only on innovative start-ups and medium-size companies.

A country’s economic-development strategy should therefore guide the prioritization. For example, if export growth is a priority, medium-size companies operating in tradable goods and services could take precedence. While such ranking can be difficult, scattering resources among too many recipients may severely diminish their impact.

Providing the right levels of support to small and medium-size enterprises

Government agencies and NGOs with a good understanding of SME subsegments can better tailor their programs to meet SMEs’ unmet needs. We have researched SME support programs across the world and categorized them into a matrix of ten approaches. Some are tailored to a single subsegment while others address one of the six unmet needs for all or most subsegments (Exhibit 3).

Unlocking growth in small and medium-size enterprises (3)

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For all these categories, the specifics of how they are implemented matter; therefore it is difficult to draw universal best practices from them. However, it can be instructive to consider the following ways these programs are helping to close the productivity gap for SMEs.

Entrepreneurial culture and education

Besides institutions, regulations, and facilities, the attractiveness of an entrepreneurial career and citizens’ entrepreneurial capabilities are also important in increasing the development and survival rates of start-ups. Many ideas are never prototyped or converted into a business plan. Risk aversion, fear of failure, and lack of capabilities can be just as significant barriers as lacking the regulatory and institutional support. Several governments have attempted to develop an entrepreneurial mindset among their citizens.

Inculcating entrepreneurial skills through formal education is often part of the solution. Poland, for example, teaches elements of entrepreneurship in primary-school core subjects, such as history and math, and upper-secondary students are required to take “Introduction to Entrepreneurship.” 4

Entrepreneurial education is also thought to promote equity, and many organizations have focused on developing an entrepreneurial mindset and capabilities in young residents of low-income communities. In the United States, for example, the Network for Teaching Entrepreneurship (founded in 1987) delivers multiple entrepreneurial programs and extracurricular activities through 1,882 partner schools. The programs have reached more than 23,000 students across states and approximately 50,000 more internationally. Additionally, 75 percent of the network’s alumni have enrolled in college and 25 percent have started at least one business. 5

Start-up hubs

Entrepreneurs around the world have chosen major start-up hubs to launch their enterprises, seeking an innovative environment, access to financing, and business support. Many governments have prioritized turning one or more of their cities into a start-up hub, by either branding the city as a start-up hub or supporting start-up campuses. As governments attempt to enable or develop start-up hubs, they can focus on some of the toughest challenges entrepreneurs typically face—navigating the administrative requirements to start and run a company, accessing the competencies needed to run a business, and being able to afford the launch of a start-up as well as the costs of living in a start-up hub.

In the 1960s, federal laboratories settled in Boulder, Colorado, and partnered with the University of Colorado to fund and conduct research on energy, environment, and climate topics. Since then, the city has established numerous important assets, including leading research institutions. Boulder currently boasts 12 active start-up accelerators and incubators.

Moreover, the Colorado Office of Economic Development and International Trade (OEDIT) works closely with the governor of Colorado to offer financial support services—including grants and tax incentives—to selected start-ups. The OEDIT also hosts the Colorado Small Business Development Center Network, which provides technical business support through mentorship, consulting, and training.

Today, Boulder ranks as one of the best 30 start-up ecosystems globally. 6 Companies in the tech sector employ 9.7 percent of Colorado’s total workforce and make up 14 percent of its economy. 7

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Government venture-capital funds (GVCFs)

Government funds for start-ups first appeared in Europe following World War II. Today, governments in high-income countries are paying more attention to the start-up sector, hoping to boost innovation and stimulate economic impact through venture capital (VC). Setting up a GVCF can contribute to this objective while also providing adequate financial returns for the government. Some ecosystem prerequisites can increase the impact of a GVCF, including a well-developed capital market to maximize exit options (for example, secondary stock market, later-round exits, strategic acquisitions, and openness to foreign ownership).

One important component of a successful government-led ecosystem is the ability to attract investors from the private sector. In many cases, public investment in VC crowds out private-sector investors, given that GVCFs often have more leverage and access to funds as well as limited accountability on costs (see sidebar “The Business Development Bank of Canada: Activating the Canadian VC industry and initiating agrowth-driver scale-up program”). A GVCF’s design can also influence its success in important areas such as aligning GVCF objectives with national development goals and aligning the fund governance and operations with its mandate and investment strategy.

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The Business Development Bank of Canada: Activating the Canadian venture-capital industry and initiating a growth-driver scale-up program

The Canadian government established the Business Development Bank of Canada (BDC) in 1944 and repurposed its mandate in 1995 to support the growth of Canadian entrepreneurs and start-ups. It serves as an example of a successful government venture-capital fund and scale-up program.

Venture capital (VC)

The investment arm of BDC, BDC Venture Capital, shows that government VCs can be profitable while spurring economic development. As of December 2017, BDC Venture Capital had invested more than $500 million in their portfolio companies and exited 95 investments; companies BDC invested in had raised about $4 billion by 2017 and created more than 5,800 jobs. 1

BDC Venture Capital employs two approaches: active direct investment and passive investment in various funds through BDC capital fund investments and BDC capital direct investments. The approaches have different investing processes and commitment levels from an investment board that oversees and assures high quality of investments. Beyond typical investment activities, BDC Venture Capital offers investees several support services, including networking with experts, training sessions, and seminars to develop their VC-fund capabilities.

BDC has also succeeded in two important ways. First, it created a healthy deal flow. A relatively broad focus toward healthcare, IT, industry, and energy has allowed for a pool of high-quality deals. The core team of BDC Venture Capital prioritizes investments in start-ups established mostly in Canada, on the condition of having a solid business model, a clear competitive advantage, and management with an entrepreneurial spirit.

Second, BDC Venture Capital has been able to attract talented VC professionals. One of BDC’s latest strategies to attract talent has been the option to spin off internal funds to talented managers. In the 2018 strategy release, BDC announced the spin-off of the Information Technology Fund, letting the two partners comanaging the arm lead the new independent fund, Framework Venture Partners. That fund ultimately raised $100 million, half of which is matched by BDC Capital. The model provides a significant career opportunity for talented investors and bolsters the quality of the Canadian VC ecosystem.

Scale-up program

BDC established its Growth Driver Program in 2016 to help high-potential domestic firms overcome common challenges and barriers to scalability. The program aims to harness BDC’s internal expertise and professional network to place entrepreneurs at the center of a multidisciplinary support system that guides SMEs through each phase of enterprise growth, driving economic growth and supporting job creation. Since the program was founded, it has supported more than 140 businesses with combined revenues of $4.7 billion. 2

Companies must formally apply to the Growth Driver Program, providing information regarding their financial performance and internal skills and team capabilities along with the key growth challenges. If they are selected, they will be offered to invest money in the program to showcase commitment. The money spent kicks off a two- to three-year program during which the business is given professional and developmental support from the BDC core team and dedicated consultants, who work with the companies to optimize their growth strategies, financing structures, and internal controls.

Meanwhile, senior leaders are enrolled in courses at top executive training schools. At its core, the program seeks to accelerate growth trajectories by injecting and transferring BDC’s knowledge of industry best practices, enabling them to avoid the organizational flaws that typically limit SME expansion.

The initiative is industry agnostic and targets medium-size businesses that are deemed potentially high impact. These firms have a minimum of $15 million in revenues, strong management, and feasible growth plans that can be quickly rolled out. BDC deploys public resources only on businesses that are intrinsically robust enough to generate sustainable returns at scale but lack the required experience and executional expertise to do so alone.

The South Korean government, for example, founded the Korea Fund of Funds as part of the Special Measures for the Promotion of Venture Business Act in 2005 with the purpose of providing stable capital for the venture-investment ecosystem. The $2.8 billion fund has a passive investment strategy, focused mainly on seed- and early-stage start-ups. The fund has made approximately 6,000 investments in start-ups and 722 investments in other funds to date, with total fund size growing from 1 trillion won (approximately $840 million) in 2009 to 4 trillion won in 2018.

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Following the development of the Korea Fund of Funds, the government established four more dedicated funds: to invest in growth-stage SMEs with high job-creation potential, to support and coinvest with angel investors and minimize equity gaps for start-ups, to finance technology SMEs, and to create a foreign VC fund to support South Korean start-ups that plan to operate overseas.

The South Korean government created a large database and network of angel investors. All funds are invested only in South Korean companies to ensure local development of the start-up segment and the venture capital industry without focusing on any specific sector and are managed by a third party, the Korea Venture Investment Corporation. The South Korean government witnessed a 178 percent increase in seed deals through coinvesting with private players in early stage start-ups.

By measures such as share of GDP, South Korea’s VC investments are the fourth largest of the OECD countries, behind only Israel, the United States, and Canada. At 0.36 percent, its VC investments more than doubled between 2010 and 2017 while other OECD countries’ VC investments declined significantly. 8 A notable sign of success for the government-led initiative is the 9 percent increase in private-sector VC investments due to participation by crowding in investors, which corresponds with a greater number of VC firms and investment managers. 9

Scale-up programs

Many governments have launched scale-up programs that help medium-size businesses unlock their potential and grow faster. Some programs provide comprehensive support, facilitating SMEs’ access to finance, networking, consulting, and mentorship. Others follow a more targeted approach, focusing on specific sectors or predefined support services (see sidebar “The Business Development Bank of Canada: Activating the Canadian VC industry and initiating a growth-driver scale-up program”).

TURQUALITY, a state-funded scale-up program in Turkey that was launched in 2004, is led jointly by Turkey’s Ministry of Trade and the Turkish Exporters’ Assembly. The program aims to support promising Turkish companies with strong brands, established business capabilities, and high economic potential—to ultimately transform top Turkish businesses into global players that have well-known global brands and generate high value-added exports.

The program is open to all Turkish companies, which must apply online and undergo an on-site inspection of their performance by the ministry and accredited evaluators. At the end of this assessment, each applicant receives a score along with a well-documented report on their current performance and development areas. Companies with mature business processes and capabilities, high brand value, and a certain level of exports are accepted into the program and become eligible for support. Primary areas of support include international brand building activities, overseas store openings, talent acquisition, and large-scale corporate transformation projects.

TURQUALITY initially focused on the textile and ready-to-wear sectors, which have a clear competitive advantage and high branding potential. Ultimately, the program expanded to other manufacturing and service sectors. The program has supported more than 300 companies across about 20 industries that now generate more than 5 percent of Turkey’s exports, make branded exports to more than 150 countries, and have achieved double the export trade value compared with the national average.

Productivity programs

Using a model akin to scale-up programs, governments have also launched support programs that aim to enhance and accelerate the productivity of SMEs. In these programs, expert coaches in operational excellence and capability building help participating medium-size companies gain awareness of best practices and translate them into customized improvement initiatives. Many such programs rely on lean management practices, as well as on model factories, facilities that are optimized with the most efficient operational practices and latest technologies—providing SME employees a hands-on learning environment.

In Morocco, for example, the government launched a model factory in 2011 to help SMEs adopt the latest lean manufacturing principles through experiential training. The initiative, the Moroccan Micro-enterprise Support Institution (INMAA), was established with an investment of 20 million dirhams (approximately $5.5 million) by public institutions, financial institutions, and private-sector players. 10 INMAA aims to enroll 100 SMEs annually for a six-month program in which change agents spend a few days each month at the model factory for theory and practice modules, with the remainder of the month spent implementing the lessons learned.

The program starts with a diagnostic phase in which participants evaluate their current operations. The second phase involves the participants and experts envisioning the ideal future state. The implementation phase takes three months and equips change agents with the essential lean-manufacturing tools while practically implementing them in their own operations. The experts from the model factory continue to advise and guide change agents and conduct field visits to assess and aid the overall transformation, even after the participants graduate.

To date, INMAA has trained 650 change agents from 340 SMEs across seven sectors—achieving a 40 percent increase in productivity of participants on average. The program aims to transform the top 800 SMEs in Morocco, achieving a 25 percent increase in productivity. 11

Digital and artificial intelligence (AI) adoption programs

The MGI has estimated an increase of productivity growth from digital adoption of 1.2 percentage points per year for some countries, representing the main contribution to productivity growth overall. Much of the impact relies on or is enhanced by AI applications. For SMEs, the theoretical opportunity is likely higher, but the corresponding implementation challenges are also more difficult.

Limited awareness of AI, limited access to digital talent, and limited capital to invest in AI applications can significantly hinder the uptake of these technologies by SMEs. Governments have started expanding their productivity programs toward digital adoption or setting up dedicated programs to help SMEs deploy AI technologies in their processes and products. Similar to productivity programs, digital- and AI-adoption programs also rely on centers of excellence and model factories for demonstrations. These programs depend on an ecosystem of different players and professionals to enable SMEs to deploy AI in their companies. The Mittelstand 4.0 centers of excellence in Germany, for example, are the first of 26 AI competence centers, staffed with 20 AI coaches to train 1,000 SMEs each year. 12

In Finland, the Ministry of Economic Affairs and Employment and several technology industries have launched an accelerator dedicated to helping firms deploy AI. The accelerator offers six-month programs for companies that have already piloted an AI application on products or services. About 15 Finnish companies provide funding and technical support to the accelerator. In an initial phase, companies benefitting from similar AI use cases are batched together. Then, these organizations work with service providers, AI start-ups, and academics in short sprints to develop and deploy the AI applications to their processes or deliverables. The first batch of companies from the accelerator, for example, worked together to deploy Finnish speech-recognition technologies. 13

Over the years, Singapore government agency Workforce Singapore has launched a series of productivity-enhancing programs to help medium-size companies adopt lean management practicesas well as digital and Industry 4.0 technologies. One such program uses a field-and-forum approach, which alternates between forum sessions and in-field application. During the forums, SMEs come together to understand the fundamentals behind lean and Industry 4.0 adoption and experience the impact on a model factory at the Digital Capability Center Singapore. They then apply these lessons in the field for a few weeks, supported by lean and digital experts, and exchange observations during the follow-up forum. This process allows companies to identify opportunities for improvement and implementation at their facilities. Moreover, SMEs will learn how to roll out progressive human capital practices and job redesign to augment their transformation.

To date, this Workforce Singapore program has been deployed successfully across multiple sectors, including food and beverage, hospitality, manufacturing, medical technology, and precision engineering. For example, ten precision engineering SMEs have participated in an Industry 4.0 transformation and job redesign program to enhance human capital and productivity. The 20-week program involved approximately 150 change agents and resulted in a 40 to 70 percent increase in machine and manpower productivity as well as an improved workplace environment. 14

Local complementary currencies

Numerous NGOs and private-sector players have attempted to launch a local complementary currency restricted to a certain community (see sidebar “The 85 years of the Swiss WIR franc”). It could be as large as Switzerland (which has the WIR franc) or Sardinia, Italy (Sardex), or as small as the Bangladesh community in Mombasa, Kenya (Bangla-Pesa). Thousands of local currencies—which are typically digital-only and pegged to the legal tender—have emerged in areas where the legal tender and its connected monetary policies cannot provide enough credit to small businesses or enough purchasing power to local consumers.

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The 85 years of the Swiss WIR franc

Started in 1934, the WIR Bank is a complementary currency system in Switzerland that serves mainly hospitality, construction, manufacturing, retail, and professional services SMEs. Its original goal was to stimulate trade within its representative community (which now includes more than 50,000 businesses, almost 20 percent of all enterprises in Switzerland); more than 1 percent of the Swiss GDP is exchanged in WIR francs.

Research by economist James Stodder shows that the WIR creates a countercyclical tendency in the economy: during financial crisis, when the availability of legal tender contracts, trade in the WIR network increases and hence enables SMEs to avoid a severe downturn in profits and annual turnover. Despite the small absolute volume of the WIR franc in comparison to the national Swiss franc economy, this effect proved statistically significant.

The unit of account of the WIR franc is the Swiss franc: one always equals the value of the other. What’s more, no physical WIR francs are printed or minted—WIR credit is purely electronic. And WIR francs enter into circulation when being lent by the bank to an account holder, as with any other legal tender.

All participants sign up for a membership and start with a balance of zero, and all participants can buy from one another. The banks’ software keeps score of everyone’s balance, and the WIR website works as a marketplace for people and companies that want to buy and sell in WIR francs. However, not all suppliers accept 100 percent payment in WIR; combined payments—in which goods and services are paid for in part by cash and partly in complementary currency—are more common. Members agree to accept at least 30 percent of the payment in WIR francs. 1

The organization levies a fee of about 0.1 percent on every transaction and charges interest on overdraft facilities and loans, typically below 2 percent. 2

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Given that producers within the community are also consumers, a local currency can increase both the volume of transactions and the utilization of resources. Users can use this currency to settle payments between SMEs in the community. The community nature of the plan limits the need for credit scoring, which happens before an SME or individual is allowed in the network. The plan charges a one-time fee or small interest on negative balances. Most of these currencies have a proven record of a statistically significant expansion of credit and sales volumes, even though they tend to remain small scale. 15 Governments at all levels could consider complementary currencies as an inexpensive vehicle to stimulate demand and credit for local businesses, helping them increase their sales, investments, and ultimately, productivity and profits.

Formalizing informal businesses

Government intervention can abate the three main barriers to business formalization: high cost of becoming formal, high cost of compliance, and insufficient perceived (or actual) benefits. Many governments have mobilized in this direction along several touchpoints:

  1. Business registration. Facilitating the registration process and lowering associated cost could improve not only formalization levels but also the overall business environment. For instance, Thailand has reduced the time it takes to start a business from 27.5 days to 4.5 days via simplifications such as removing unnecessary requirements and reducing fees. 16 And Estonia’s e-Residency policy allows any entrepreneur around the world to register their business in Estonia—thus gaining access to local banking, payment platforms, and the entire EU market—without having to physically enter or visit Estonia. Since the launch of the policy, more than 60,000 e-residents have created more than 10,000 companies and generated more than €25 million in taxes.
  2. Tax registration and structure. Simplifying tax structure, tax registration, and returns filing has helped formalize SMEs. Again, Estonia introduced a flat tax rate and a platform for e-registration and filing returns; nearly all tax amounts are calculated online by the application. The result was that 98 percent of all taxes (personal, corporate, and value-added) are now filed electronically—among the highest compliance rates in the world.
  3. Examination and audit. With a growing digital footprint and availability of innovative data analytics, governments are using data to identify informal businesses. Turkey has created an extensive e-invoice, e-archive, and e-audit system that resulted in thousands of new taxpayers across sectors. 17
  4. Support to registered businesses. Some governments offer incentives or rewards for formalization. As a part of the Colombia se formaliza program in Colombia, the Fondo Nacional de Garantías facilitates access to formal credit by offering loan guarantees. And Sweden encourages formalization among some categories of self-employed people, such as those who lack a formal contract but are paid by an organization—a common arrangement for services like food delivery, driving, or software development. They do so by requiring a parent company to employ these workers and pay for social-security contributions.
  5. Awareness and education. Among the biggest challenges in the informal sector is ensuring that SMEs have correct and complete information regarding the process, benefits, and penalties. In 2013, The Colombia se formaliza program reached 80,000 entrepreneurs a year, raising awareness and offering personal assistance to formalize their business operations, with 40 percent accepting to formalize. 18

Credit-guarantee schemes

On average, 40 percent of SMEs in the world are unserved or underserved when it comes to banking credit. 19 Some subsegments are too risky for banks’ appetites while other subsegments have access to loans that have higher interest rates than their true risk profile. In reality, SME loans are often more profitable for lenders than large-firm loans.

A widely used program to resolve this is a credit-guarantee scheme (CGS), which aims to reduce the cost of potential defaults by guaranteeing part of the repayment of SME loans. CGSs have significantly increased SME credit access, with existing and running public and private credit-guarantee schemes in nearly 100 countries. The Korea Credit Guarantee Fund, one of the largest CGSs in the world, guaranteed a portfolio of loans of approximately $44 billion in 2018. 20 As of 2015 and since its incorporation, the program has issued 205,361 guarantees—about 12 percent of SME loans in Korean banks. Furthermore, Korean CGSs have indirectly supported the increase of SME lending from 35.7 percent (when the agency was established) to 76.7 percent in 2015. 21

SME digital platforms

Several SME-development agencies have created a platform—usually a website—as a one-stop shop to not only access any government service, program, and data but also fulfill government requirements, such as paying taxes. Some websites have additional functionality, including marketplaces for business opportunities, access to data, and links to financial institutions, advisers, and legal services.

For example, UK charity Be the Business has developed an online self-assessment platform that is open to all SMEs and aimed at helping them improve their performance. On the platform, business owners and managers can undergo a comprehensive evaluation to understand their businesses’ current level of productivity relative to peers and receive systematic and immediately actionable advice and guidance. The platform also points business leaders toward other resources, including training programs and networking events, that can inspire improvements and build SMEs’ confidence in their growth.

The most advanced governments have started to provide services through apps with an SME login that gives users customized insights on government offerings and markets as well as tailored recommendations.

As many of these examples show, governments can help SMEs capitalize on growth and productivity-improvement opportunities. But unlocking SME growth is no easy task. Although we presented many success stories, some ventures have proven less successful and signal a need for caution. Careful assessment of benefits, costs, and risks can help identify the initiatives with the highest potential. Most importantly, the potential of SMEs’ growth and increased productivity is great enough that all governments should be paying attention.

FAQs

What is growth of an SME? ›

The article confirmed that SMEs grow in five stages, and that every stage of business development has its own set of unique characteristics, including challenges and milestones. These growth stages included: 1) Existence, 2) Survival, 3) Success, 4) Take-off, and 5) Maturity.

What are the factors affecting the growth of small and medium enterprises? ›

Factors Affecting the Growth of Small Businesses
  • Behavioural and personal traits. A business leader's characteristics such as behaviour, personality and attitude can certainly have an impact of the growth of the business. ...
  • Business structure and management. ...
  • External factors. ...
  • Location.

What are the strategies for small and medium enterprises? ›

6 strategies for SME survival
  • Invest in technology and tools.
  • Ensure clear oversight of your financial position.
  • Prioritise values over culture.
  • Trust and empower your people. Digitisation drives SME success.
  • Re-evaluate your strategy.
  • The next generation of small businesses.
1 Aug 2020

What are the five stages of small business growth? ›

The 5 stages of small business growth: Where do you fall?
  • Existence.
  • Survival.
  • Success.
  • Take-off (growth)
  • Resource maturity.
4 Nov 2021

What are the 4 growth strategies? ›

The four growth strategies

These are Product, Placement, Promotion and Price. Where the Four Ps focus on audiences, channels & pricing, the Ansoff Matrix is more effective for a broader view of markets and uses the older Four P framework within each of the 4 Ansoff quadrants.

What are the 4 stages of growth? ›

Every business, whether it's big or small, goes through the 4 stages of business growth:
  • Startup.
  • Growth.
  • Maturity.
  • Renewal or decline.

What are the success factors for SME? ›

From a content analysis of the interviews conducted to the owner-managers of these SMEs, the most important success factors identified were: (1) strategic planning, (2) manager/management capacity, (3) entrepreneurship and innovation, (4) human resources, (5) networks/partnerships, and (6) financing.

What are the three factors affecting entrepreneurship growth? ›

According to entrepreneurs, three factors are most important for enabling a company's growth: access to markets, the supply of human capital (i.e. people with the right skills for the job) and access to funding.

What is small industry growth strategies? ›

A growth strategy is a plan of action you create to grow your business. There are five stages of growth that most businesses go through, and knowing which stage you're in can help you figure out the best way to advance.

How SMEs can gain competitive advantage? ›

Strategies for Competitive Advantages in SMEs

According to the literature, certain generic strategies allow firms to gain a competitive advantage in the market based on three different options: cost leadership, differentiation, and focus (Porter, 1985, 1990a, 1990b). The first generic strategy is cost leadership.

How can SME improve? ›

Long-term success depends on creating agile structures or hybrid agile structures for the entire organization. By developing strategic partnerships with big data firms, SMEs can lay the groundwork for progress. The future will require them to generate deep client insight that goes beyond their current base.

What are the 4 types of business growth? ›

4 Types of Business Growth
  • Organic business growth. This type is considered the easiest but most effective way of business growth. ...
  • Strategic business growth. This approach works well for long-term goals and companies that have gone through organic growth. ...
  • Internal business growth. ...
  • Partnership or merge business growth.
28 Oct 2022

What are the 5 stages of growth? ›

Using these ideas, Rostow penned his classic Stages of Economic Growth in 1960, which presented five steps through which all countries must pass to become developed: 1) traditional society, 2) preconditions to take-off, 3) take-off, 4) drive to maturity and 5) age of high mass consumption.

What are types of growth? ›

There are three (3) general types of growth that are considered in biology.
...
They are:
  • Growth in cells.
  • Growth in plants.
  • Growth in animals.
16 Jun 2022

What are the key growth strategies? ›

Some common growth strategies in business include market penetration, market expansion, product expansion, diversification and acquisition.

How do you generate growth? ›

7 Steps to Developing a Growth Strategy That Delivers Results
  1. Start with SMART Growth Goals.
  2. Develop Strategies to Support Those Growth Goals.
  3. Consider Tools That Support Your Goals and Strategies.
  4. Implement Your Growth Strategies.
  5. Analyze Your Results.
  6. Optimize Your Growth Strategy.
  7. Set New SMART Growth Goals.
28 Jan 2020

What are the three levels of growth? ›

There are three phases of growth – meristematic, elongation and maturation.

What are the most important stages of growth? ›

Recent brain research indicates that birth to age three are the most important years in a child's development. Here are some tips to consider during your child's early years: Be warm, loving, and responsive.

What are the 6 stage of development? ›

Our new Thrive philosophy is born from six stages of human development: social-emotional, intellectual, moral, psychological, physical, and spiritual.

Why is SME growth important? ›

SME can reduce the urban migration in the capital and other major cities, increase cash flow in rural areas, and thereby enhance the standard of living of the rural people.

What are the five importance of SMEs? ›

SMEs are essential to the world economy and play a role in economic development [54], provides products and services [34], create value in an economy [66], drive industrialization [63], develop skills of managers [36], create wealth for nations [46], and above all employ citizens of nations [65].

Why do SMEs continue to survive? ›

Diversification of products and markets were seen to be critical elements in helping SMEs to survive under difficult economic conditions. Diversification enables the small business to venture into services or markets that have the least amount of competition and as such they become less vulnerable.

What factors promote the growth of entrepreneurship? ›

Factors Affecting Entrepreneurial Growth
  • Capital. Capital is one of the most important factors of production for the establishment of an enterprise. ...
  • Labor. Easy availability of right type of workers also effect entrepreneurship. ...
  • Raw Materials. ...
  • Market. ...
  • Infrastructure. ...
  • Education. ...
  • Attitude of the Society. ...
  • Cultural Value.
6 May 2017

What are the five 5 factors that develop entrepreneurial activities? ›

Five factors will be key to entrepreneurial success: creativity, tolerance for risk, responsiveness to opportunities, leadership and the ability to take advantage of the rights afforded to you.

What are the 3 C's key factors to successful entrepreneurship? ›

I previously highlighted curiosity, creativity and commitment as individual characteristics, each with its own power to fuel the entrepreneurial mind. Instead, it may be the interaction between these characteristics that captures true entrepreneurial success.

What are the three importance of SMEs? ›

The significance of SMEs to economic growth, innovation and job formation and to the social cohesion are major keys.

How do SMEs contribute to economic growth? ›

The contribution of SMEs to the economy is generally gathered under five main topics: employment creation; fast adaptation to new situations with its flexibility feature; encouraging entrepreneurship; product differentiation through boutique production; working as sub-industry in large enterprises.

Why innovation is important for SMEs? ›

Innovation in small and medium- sized enterprises (SMEs) is at the core of inclusive growth strategies: more innovative SMEs are more productive SMEs that can pay better wages and offer better working conditions to their workers, thus helping reduce inequalities.

What are the two basic growth strategies? ›

Growth strategies fall into two main categories: concentration strategies and diversification strategies.

What are 5 strategies used by entrepreneurs to succeed in their small businesses? ›

Here are nine strategies every entrepreneur can use right away to become more successful at small business management.
  • Make strategic planning a top priority. ...
  • Keep a close eye on your competitors. ...
  • Work to broaden your client base. ...
  • Stay close to your customers. ...
  • Monitor profit margins. ...
  • Develop a cash-flow planner.

Which two methods are important for the growth of industry? ›

The three methods are: Competitive Forces Model (Porter's 5 Forces) Broad Factors Analysis (PEST Analysis) SWOT Analysis.

How the Government encourages the growth of SMEs? ›

The Government currently provides both financial and non-financial support to SMEs in the area of marketing and promotion, with assistance extending to cover areas like direct promotional activities, brand and franchise development efforts as well as linkages between suppliers and customers.

How can SME attract employees? ›

How Can SMEs Attract And Retain Talent?
  • Implementing remote work policies.
  • Promoting the corporate brand.
  • Be upfront about expectations.
  • Insist on balanced work life.
  • Show employees appreciation.
  • Encourage internships.
  • Employee Benefits.
  • Freelancers and the gig economy.
3 Mar 2022

What is the best method of growth in business? ›

A growth strategy allows companies to expand their business. Growth can be achieved by practices like adding new locations, investing in customer acquisition, or expanding a product line. A company's industry and target market influence which growth strategies it will choose.

How do you promote business growth? ›

Although growing your small business will take time and energy, there are 10 strategies you can use to help accelerate business growth.
  1. Do Your Research. ...
  2. Build a Sales Funnel. ...
  3. Increase Customer Retention. ...
  4. Participate in Networking Events. ...
  5. Practice Corporate Social Responsibility. ...
  6. Form Strategic Partnerships.

What are the key drivers for growth in business? ›

Learn more about each of the 7 Drivers:
  • Customer. From the outset, leading businesses make customers their focal point. ...
  • People. Any organization is only ever as good as the people working for it. ...
  • Technology. Technology is transforming every aspect of the business. ...
  • Operations. ...
  • Finance. ...
  • Transactions. ...
  • Risk.

What are the 6 areas of growth? ›

Each child is grown up and born with the capacity for development in these areas.
...
Areas of Development:
  • Communication and language development.
  • Literacy development.
  • Personal, social, and emotional development.
  • Mathematics Concepts.
  • Understanding the world.
  • Expressive arts and design.
30 Jul 2021

What are the five major components of growth and development? ›

5 Main Areas of Child Development
  • cognitive development,
  • social and emotional development,
  • speech and language development,
  • fine motor skill development, and.
  • gross motor skill development.
3 Dec 2020

What are the 7 stages of growth? ›

These stages include infancy, early childhood, middle childhood, adolescence, early adulthood, middle adulthood and old age.

What are the 4 factors that affect growth? ›

Economists generally agree that economic development and growth are influenced by four factors: human resources, physical capital, natural resources and technology.

What are the main growth factors? ›

Examples of protein growth factors are vascular endothelial growth factor (VEGF), epidermal growth factor (EGF), and platelet-derived growth factor (PDGF). Growth factor specificity to particular cell types is achievable by the expression of highly specific cell surface receptors.

What does SME meant? ›

Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ fewer than a given number of employees.

What makes an SME successful? ›

Collaboration, empowerment and adaptability are all words highlighted in the report that aims to pinpoint the key success triggers of small and medium sized businesses.

What does the term SME mean? ›

Small and medium-sized enterprises (SMEs) represent 99% of all businesses in the EU. The definition of an SME is important for access to finance and EU support programmes targeted specifically at these enterprises.

How can SME gain competitive advantage? ›

By generating a lower cost or a higher benefit for the firm, these critical resources can create greater residual value for the same delivered value, thus providing competitive advantage for the firm.

What are the factors which led to the growth of MSMEs? ›

Factors which led to growth of MSMEs

Tie-ups with new-age non-banking finance (FinTech) companies allowed access to timely collateral free finance to MSMEs. Changing employment patterns: Younger generation shifting from agriculture towards entrepreneurial activities creating job prospects for others.

What are the characteristics of SMEs? ›

Features of SMEs
  • Being run by a single individual or small team of people.
  • Having a physical location and/or online operation.
  • Being the sole employment or as part of a hobby/side hustle.
  • Existing in one or more sectors of the economy.

What is an SME role in business? ›

Subject matter experts are definitive sources of knowledge who contribute their expertise to enhance organizational efficiency. They evaluate organizational needs, determine suitable technical solutions, and ensure that defined requirements are met.

What are the 5 categories of small and medium enterprises? ›

For our purposes, we divide them into five categories: technical, hybrid, instructional, functional, and sentinel SMEs. Each of these classifications has specific characteristics and contributes to our work in unique ways. Not all SMEs are created equal, and this is a real advantage for trainers.

What is the biggest challenge that SMEs face? ›

Rising costs and reduced revenue are one of the biggest challenges SMEs are facing. One million businesses agree and for different reasons. Some of these include inflation, cost of raw materials, insurance costs, low demand for products and services, and other general business costs.

What is SME and its importance? ›

Importance of Small and Medium-sized Enterprises

SMEs play a vital role in shaping a country's economy. They can be considered an attractive and huge innovative system. Due to the socially and economically beneficial effects of the SMEs, the sector is considered an area of strategic interest in an economy.

Is SME same as small business? ›

Small and Mid-Size Enterprises (SMEs) Around the World

In the U.S., the Small Business Administration (SBA) classifies small businesses according to its ownership structure, number of employees, earnings and industry. 1 For example, in manufacturing, an SME is a firm with 500 or fewer employees.

What is a SME in Six Sigma? ›

Subject Matter Experts (SME's)

Six Sigma Belts who are wise and understand their challenges will commonly look to key SME's to round out their working project team. SME's are critical to the success of a project.

Videos

1. By The Time You Hear This | Savannah Chrisley’s Emotional Podcast on Todd & Julie Trial Sentencing
(Savannah Chrisley)
2. Unlock growth through Team Mapping: How to find (and fill) gaps on your company's team
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3. Unlock Growth With 80/20 - Presented by Top Chicago Consulting Firm
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4. Unlocking the growth potential of Australia’s medium-sized businesses
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5. Supporting SMB Growth: Unlocking Opportunities through E-commerce
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6. Enigma Panel: How Data is Unlocking Access and Expanding Growth in Small Business Lending
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