Around the world, the small and medium-sized enterprise (SME)
sector is a vital engine of innovation and job creation. Understanding the real
challenges and opportunities shaping the future of SMEs, then, is a matter of
the highest importance.
Small business is – quite frankly – big business. It is
estimated that more than 90 % of the world’s businesses are small and
medium-sized enterprises (SMEs). Surprised? Don’t be. SMEs are, on average, the
businesses that are generating growth, creating jobs, growing faster and
innovating more. But most of all, they are a good deal less complicated
(structurally) and more efficient and flexible than are large firms.
It’s not all a bed of roses though. While SMEs make a huge
impact on income, employment and wider economic output, their fortunes have
been disproportionately affected by the financial crisis. SMEs are both an
engine of job creation and a significant factor in job destruction, making them
the embodiment of Schumpeter’s “creative destruction”, i.e. the disruptive
process of transformation that goes hand in hand with innovation. Confirming
these observations, an EU estimate alluded to the shocking fact that as few as
50 % of firms that started trading in 2001 survived beyond five years.
The question of how to serve SMEs is not new. Many researchers,
academics and economists have searched for a winning formula over the years,
with mixed results. So the question remains: what can be done to bolster SMEs?
There is no magic formula for ensuring there is a thriving global SME
community – if so it would have probably been implemented long ago – but
the expanded use of International Standards can foster entrepreneurship and
help small businesses compete on an equal footing.
Why small businesses
matter
There is no global agreement on the definition of SMEs, but one
thing virtually every country does agree on is that they are essential for
economic prosperity. Small companies make up the vast majority of businesses in
most countries and employ a significant percentage of the global workforce.
Although precise data is unavailable, World Bank research across the world’s
economies has estimated that SMEs consistently form around 95 % of existing
businesses and employ approximately 60 % of private-sector workers. They are
also believed to contribute about 50 % to world gross value add (GVA).
In the USA, for example, the Small Business Administration
identified more than 28.2 million businesses operating in the country as
of March 2014, with about 63 % of new jobs being created from small business
between 1993 and mid-2013. Of these 28.2 million enterprises, most have
“self-employed” status, making up roughly three-quarters of the US’s total
business pool.
Path out of poverty
According to the United Nations Industrial Development
Organization, which sees to the economic welfare of developing countries,
integration into the global economy through economic liberalization,
deregulation and democratization is seen as the paramount way to triumph over
poverty and inequality. Important to this process is the development of an
animated private sector in which SMEs can play a central role.
Export specialist Khemraj Ramful, Senior Adviser, Export Quality
Management, International Trade Centre, explains how SMEs are essential in
poverty reduction programmes because of their potential contribution to
economic growth. By facilitating their access to information on technical
regulations and standards, assisting them with meeting the requirements of
International Standards and paving the way to competent conformity assessment
services, we can help these small-scale firms to thrive in an increasingly
competitive global market, so that they can play their part in alleviating
poverty.
Ramful firmly believes that standards are the solution. “ISO
International Standards have a definite role to play in the removal of
technical barriers to trade and in assisting enterprises in developing
economies that are connected to global value chains. Implementing International
Standards can help provide that confidence.” But most importantly, he asserts,
“For the man on the street, this means that International Standards like the
ISO standards can contribute to improving exports, which would have an impact
on job creation and poverty alleviation in developing economies.”
As good as it gets
There’s both good news, and bad news. The good news is that
International Standards provide as many benefits for small businesses as they
do for global enterprises. The strategic use of International Standards can
make a significant difference to the annual turnover of an SME, sometimes the
difference between success and failure.
For smaller firms, some of the benefits of using International
Standards include:
·
The opening up of export markets as products become
compatible on a global scale
·
Heightened operational efficiency
·
Increased confidence as customers from all over the
world recognize ISO International Standards
Be that as it may, for many small businesses, making the
decision to participate in a standards development process remains difficult,
as managers are typically reluctant to allocate resources to a long-term
process that promises, at best, intangible benefits. However, if the company is
committed and participates actively in the process, the return on investment
can be substantial.
The principal benefits of participation include visibility,
in-depth understanding, innovation, competitive advantage, networking
possibilities, and opportunities to access potential customers. In other words,
non-participation in standardization hands decision making over to the
competition.
Small business is big business.
So what’s the bad news? A number of recent surveys have linked
the low representation of SMEs in standardization to such obstacles as time,
personnel or financial resources. According to the 2014 German Standardization
Panel, a report on how companies conduct their standardization activities and
implement standards, small firms are hampered by financial constraints that
prevent many of them from taking an active part in standards development.
According to Knut Blind, Europe’s most prominent academician
working in the field of standardization, “formal” standards, such as ISO
standards, are used in almost equal measure by all of the thousand or so
companies involved in this annual survey, regardless of size. There is one
exception, however: while the larger companies of this world have the resources
to develop and implement complementary company internal standards, smaller
companies with fewer resources rely more heavily on the availability of formal
International Standards.
For Blind, it is still a challenge to convince small companies
to participate in standardization and send people to the committees. “Most
SMEs, particularly the smaller ones, lack the necessary resources to commit to
long-term strategies and investments, which are only paying back in the future.
Their management is largely involved in daily operational practice, and there
is no time or money available for activities not directly related to the daily
business. They are forced, therefore, to have a short-term view of their
business and are limited in reacting to anticipated changes such as future regulations
or the development of new standards.”
Not all benefits are
equal
Where Blind sees fundamental challenges for small companies,
which must be addressed by awareness-raising activities, a number of small
businesses are already reaping the profits of standards use. In a recent
interview, Isabelle Jacobi Pilowsky of Rentes Genevoises, the oldest
contingency-fund company in Switzerland, extolled the virtues of standards. The
small company has long been committed to managing its real estate portfolio responsibly
using ISO standards, in particular ISO 50001 to control the energy expenditure
of its buildings.
The first results are very positive, enthuses Jacobi Pilowsky.
“Our target was to cut our CO2 emissions by 3 % and in 2012, we achieved a
4.7 % reduction.” An excellent initiative for the 30-person company. ISO 50001
allows the institution to set itself targets – and keep to them – such as
improving the energy efficiency of their 60-strong building stock and reducing
the cost of energy consumption while improving comfort for its tenants.
When asked about advice for other SMEs, Jacobi Pilowsky clasps
her hands and exhales. “There’s plenty!” she says, listing a score of useful
tips which include the need for measurement tools and scorecards to track
performance, the constant monitoring of objectives, and training of all
stakeholders. For more tips, see “Secrets to energy success” below.
While Rentes Genevoises succeeded on its own terms, the role of
trade associations in improving the situation for SMEs should not be forgotten.
Quite simply, trade associations are “strength in numbers”. A top priority
would be therefore to establish or improve relationships with these industry
groups, discuss their respective roles, and provide them with knowledge and
materials.
In Brazil, the non-profit Sebrae helps small businesses compete
on an equal footing and get a toehold in the market. It aims to strengthen the
national economy, where smaller companies make up an astounding 99 % of all
Brazilian enterprises and contribute to 25 % of the country’s GDP. The
organization provides support on many levels, such as information technology
and finances as well as on ways to access innovation and technology through
standards.
Take, for example, the beauty parlours business. There are about
500 000 legally formalized beauty parlours in Brazil, which, until
recently, were operating without parameters or formal standards. This is why, a
few years ago, Sebrae (in collaboration with ISO’s Brazilian member ABNT) set
up a project to help the beauty sector with their standardization needs. In
2014, the first national standard for the beauty sector – was published by
ABNT. To help the sector’s SMEs get to grips with standards, two supporting
documents are also being made available: Good practices for beauty establishments andCompetencies of people working
in beauty stores.
“The wave of professionalization initiated by the
standardization process was divided into two law bills which regulate the
beauty services business in the country (law bills are still in the National
Congress),” explains Heloisa Menezes, Sebrae’s Technical Director. “Sebrae, as
the coordinator of the process, now has the challenge of disseminating these
new technical standards in Brazil, to promote competitiveness and complement
systemic improvements already underway with entrepreneurs.”
Doomed to fail?
Are all small businesses doomed to fail? The answer is of course
“no”. Interestingly enough, a small number of high-growth businesses do go on to
reach a significant size and employ many workers. Furthermore, within the cycle
of business births and deaths, SMEs expose incumbents to competition and
innovation that force them to change and become more productive. That
innovative stimulus helps economies grow.
SMEs are responsible for introducing most of today’s products
and services on the markets and are typically much better at identifying and
adopting new trends than larger, established corporations. They promote
diversification of economic activities, support sustainable development,
stimulate innovation, develop entrepreneurial skills, not to mention the
significant contribution they make to exports and trade. More importantly, they
are structurally a good deal less complicated and more efficient and flexible
than larger firms.
With small businesses accounting for approximately half of a
country’s business and workforce, we need standard solutions that help small
businesses leverage their competitive advantage more effectively. While
standards will not shelter small companies from failure, nor will they increase
their survival rate, they will level the playing field, allowing them to
compete on fair and equal terms. And when they do, we can look forward to a new
economic map emerging, where smaller businesses play a big role in shaping the
world – at last.
Citation from ISO : http://goo.gl/eYYiM6
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