Derek Newberry

Citigroup / Economist Report: SMEs are Too Important To Be Ignored

citi pic 2Sustainable enterprises in emerging economies take another step forward this month, this time in Brazil. On December 14, New Ventures Brazil will host its 3rd annual Investor Forum. The new 2006 selection of New Ventures enterprises, including companies from seven states working in clean technology, new materials, organic agriculture and other sectors will be presented at Funda??o Getulio Vargas in S?o Paulo. This was preceded by a separate Investment Forum on December 6-7 hosted by FINEP, Brazil’s Agency for Innovation and Entrepreneurship, which featured New Ventures enterprises among other small businesses presenting their business models to potential investors – check out Linax’s great presentation as an example of some of the great material we saw (in portuguese).?

Some may ask what significance this flurry of activity holds. Think-tanks and development organizations seem to constantly be convening forums and conferences around specialized issues, so what is important about small and medium size enterprises (SMEs), and why support them?A new report by Citigroup and the Economist Intelligence Unit highlights the growing importance of small and medium enterprises, showing that small businesses are honing their business acumen, getting more competitive and are becoming increasingly crucial for economic growth. The briefing, called ?Tapping the entrepreneur: What powers Asia’s small businesses and professionals? is based on a survey of 670 small businesses and professionals in the region–the results of which have global implications on policies and attitudes toward these small and medium sized enterprises (SMEs).

The survey finds that far from the old stereotypes of SMEs being heavily traditional and not oriented for the global marketplace, a full 42.5 percent of the entrepreneurs running these businesses intend to grow them until they are ready for professional management. Small entrepreneurs see their businesses as having a number of competitive advantages over large corporations including a close relationship with customers, and an ability to make fast decisions and innovate constantly. It comes as little surprise then, that SMEs in China, for example are responsible for 70 percent of the country’s foreign trade.

These statistics are all impressive, but the challenges are numerous. The ratio of SMEs among total businesses is six times higher in developed countries than emerging markets. The same Citigroup survey cites finance and resources as some of the most important hindrances to small business development.

While this report focuses on Asia, the issues it raises are relevant to SMEs everywhere. This crucial sector needs support from government agencies and business incubators; the New Ventures Investor Forums are gatherings of leaders in the financial, governmental and business communities that are not merely about discussion but tangible action. Participating entrepreneurs receive business plan mentoring, managerial training and access to a broad network of global investors. The result is entrepreneurs with business models that are sound and scalable receiving crucial financing, and eventually, a thriving SME sector driving national economic growth.