Describe the role of small business and entrepreneurship in todays multicultural global economy
Christopher Arnold | June 26, 2019 | Show Most organizations worldwide are small by size, but their importance to both developed and developing economies and societies is indisputable. According to the World Trade Organization, small-and medium-sized enterprises (SMEs) represent over 90 per cent of the business population, 60-70% of employment and 55% of GDP in developed economies. SMEs therefore do not just significantly contribute to the economy – they ARE the economy. The diversity and importance of SMEs is celebrated by the United Nations, the International Council for Small Business and IFAC as part of the UN Micro-, Small and Medium-sized Enterprises Day (#MSMEDay19) on June 27. SMEs are an important part of achieving the UN Sustainable Development Goals, for example to ‘promote inclusive and sustainable economic growth, employment and decent work for all’ (goal 8) and to ‘build resilient infrastructure, promote sustainable industrialization and foster innovation’ (goal 9). SMEs are critical to achieving the SDGs. This article examines how SMEs contribute to the global economy by exploring SME public policy, the importance of engaging professional expertise to SME success and establishing a robust evidence base. Examining SME Public Policy The importance of “think small first” is essential in developing public policy and regulation. The European Commission emphasized this principle in its 2008 Small Business Act, which called on policy-makers to take into account the needs and interests of SMEs from the earliest moment in policy formulation. This includes an SME Test, which involves consultation with SMEs and SME representative organizations, measurement of the impact on SMEs (cost-benefit analysis) and an assessment of alternative mechanisms and mitigating measures, if appropriate. In 2018 IFAC was privileged to be a member of the B20 Argentina SME Development Task Force and had the opportunity to provide input on the policy position paper, including specific practical recommendations to the G20 covering:
One of the ten recommendations in IFAC’s Call to Action ahead of the 2019 G20 Summit includes creating an environment for SME growth and inclusiveness by:
SME policy is complex and covers a wide range of areas. It is widely accepted that a public policy framework that fosters a culture of entrepreneurship and innovation is beneficial. A number of actions may be taken to support entrepreneurship, including establishing education programs (e.g. business schools helping students get started on campus with incubator facilities) and promoting entrepreneurs as role models. However, questions arise on where interventions should be targeted and how countries can help create the right support environment and develop an ecosystem where SMEs can thrive. While the overall problems faced by the SMEs are similar in different jurisdictions, there are significant differences in their priorities and needs in different countries. The reality is that small businesses are extremely heterogeneous in their size, age, sector, ownership, business models and aspirations and not easily addressed by any one-size-fits-all approach. The segmentation of the SME market is therefore vital for informed policy interventions, as well as establishing a robust evidence base. It is important for all stakeholders to work together to improve the knowledge-base for policy making and for sharing best practice information. The 2018 OCED Ministerial Conference on SMEs resulted in 55 countries adopting a declaration on strengthening SMEs and entrepreneurship for productivity and inclusive growth that included agreement to continue the development, implementation and evaluation of effective policies for SMEs. Key to SME Success: Engaging Professional Expertise Research reveals that over 50% of new businesses fail during their first five years. Although SMEs can close shop for various reasons, and not all non-surviving SMEs represent “failures”, the importance of professional advice and expertise to help guide the business through the myriad of business issues is vitally important. Poor financial management is one of the leading reasons why businesses fail. Research indicates that professional business advice provided to SMEs is associated with better performance as measured by improved rates of survival, growth, improved decision-making procedures and superior financial performance. The services of a professional accountant can be invaluable in operating a successful business and the importance of accurate and timely financial information is essential. In addition, research findings continue to show that, irrespective of jurisdiction, accountants, and especially small and medium-sized practitioners (SMPs), continue to be the preferred advisors to SMEs. SMPs have an in-depth knowledge and understanding of their SME clients and are therefore well-positioned to provide a range of services. These services include support on business development (strategy, marketing etc.), human resources and employment regulations as well as on management accounting and corporate advisory. Practitioners in some jurisdictions have specialized in becoming virtual CFOs, utilizing the cloud to service a number of businesses and provide appropriate, relevant advice, around the clock. Because of the level of trust between accountants and their clients, they are also in the ideal position to direct businesses to other reliable sources of advice. An example of the way in which professional accountants have a key role in supporting the small business sector is succession planning and business transfers – see Encouraging Successful Exit Strategies – Passing the Baton. An Evolving Evidence Base There has been an overall increase in the level of data, research and knowledge available in recent years on SMEs globally. This includes:
What is the role of small business and entrepreneurship in the economy?WASHINGTON, D.C. – Small businesses are the lifeblood of the U.S. economy: they create two-thirds of net new jobs and drive U.S. innovation and competitiveness. A new report shows that they account for 44 percent of U.S. economic activity.
What is the role of business in global economy?Global businesses have become a conduit for cultural understanding, the exchange of new ideas, enhanced communication between governments, and improved products and services. Multi-national companies have an impact on the quality of life for billions of people worldwide.
What are the advantages of a small business in a global economy?Small businesses have the flexibility to quickly adapt to the dynamic environment of the global economy. They can also leverage technology and utilize outsourcing firms that permit small businesses to engage in the same activities of larger companies without the capital investment.
What is the role of entrepreneurship in international business?The importance of entrepreneurship lies in the fact that it helps in identifying and developing the managerial capabilities of entrepreneurs. The chapter argues that fostering entrepreneurship has the potential to enhance organizational performance and reach strategic goals in global business.
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