Taking on the big boys: small businesses can power economies
SMEs will go from strength to strength if they collaborate, leverage digital solutions and lobby for less restricted trade
If you are a manager of a small or medium-sized company you are probably focused on your immediate business challenges. But did you know that SMEs generate half of gross domestic product in the G20 economies, account for three-quarters of formal employment and create 80 per cent of net job growth?
Research by Accenture and Alibaba Group - which owns the South China Morning Post - shows that the value of cross-border business-to-consumer e-commerce is set to grow from US$230 billion in 2014 to US$994 billion in 2020 and account for almost 30 per cent of all B2C online retail. Much of this is driven by SMEs.
One reason why SMEs have become an important part of our global economy is that they have addressed many traditional challenges – such as logistics and the cost of scaling up – through digital solutions. Leveraging analytics, Big Data, apps and social media, SMEs are reducing the costs of identifying new customers, striking new partnerships and establishing brands.
Smaller companies also have a size advantage – they are often nimbler than their behemoth competitors. Our advice to all businesses is to lead industry disruption – don’t be the disrupted. One way to lead is to work with partners. We have found that many of the companies most prepared to disrupt are more engaged in growing and broadening their ecosystem partnerships and are willing to collaborate to support innovation, research, development and the launch of new products.
That means developing a network of alliances to build operating models that are greater than the individual business. Think of it as a school of fish swimming together to ward off bigger predators. But this approach is even better than that: it’s not just a defence mechanism, it’s a growth strategy.
We call these businesses “platform companies”, and the ones that are successful are the ones that capitalise on the entire ecosystem rather than simply leveraging resources from within their own company.
But let’s face it, SME managers still have many unique challenges. The cost of borrowing from financial institutions, when it is possible, is often prohibitively high for SMEs in Asia-Pacific. Indeed, unmet demand for micro credit and SME credit is between US$3 trillion and US$4 trillion, according to the International Finance Corp. Many SMEs also lack access to overseas markets due to the costs and complexities involved; the cost of regulatory compliance for SMEs can be 10 to 30 times greater than for larger businesses.
It doesn’t have to be so expensive. Last week, as part of the G20 summit, business leaders gathered under the auspices of the Business 20. And as part of our work for the B20’s SME Development Taskforce, we support its recommendations to the G20. One of them is to introduce the Electronic World Trading Platform, which is a private sector-led initiative focused specifically on eradicating barriers to online trade. This could help small traders who have been enabled by e-commerce to buy and sell across borders. By creating common norms for customs and compliance as well as the harmonisation of standards and taxation, the cost of doing business – particularly for SMEs – would drop.
Time will tell if the Electronic World Trading Platform comes to fruition. It could level the playing field for businesses of all sizes to compete globally. Meanwhile, it’s imperative for SME managers to use digital solutions to optimise their business capabilities and build platform businesses to offer more services that customers expect.
Gianfranco Casati is group chief executive for emerging markets at Accenture