2.7. The importance roles
of SMEs in the economy
The importance and potential contribution of the SME sector
are supported by both theoretical and empirical arguments and evidence. We turn
first to the former. Part of the contribution of the SME sector both to the
overall total factor productivity (efficiency, as usually defined) of an
economy and to employment generation and distributional equality comes by
virtue of its pattern of technology choice.
SME technology tends to be intermediate between the highly
labor intensive technologies of micro enterprise, which as a result achieve
only low average labor productivity, and the highly capital intensive
technologies of large firms which thereby achieve high labor productivity, but
use more capital per worker than is available for the economy as a whole.
Given this correlation between size and capital intensity, it
becomes a foregone conclusion that an economy that applies a high share of its
capital to a small group of workers must necessarily have, as the other side of
the coin, a large informal or microenterprise sector that uses very little
capital (the bit not used by the large-scale sector) with the
large amount of labor not employed by the large firms.
Its intermediate technology characteristic is what gives the
SME sector a special role (together with small-scale agriculture) in the
generation of adequate or decent employment. When most jobs are in the micro
enterprise sector, too many of them are destined to be low productivity and
hence low income in character. SME firms can be substantially more productive,
so in terms of the potential to generate «decent» jobs this sector
competes with large private firms and the government, but it has the advantage
of being able to generate many more such jobs for a modest input of capital.
The key mechanism in generating decent employment in most developing countries
involves the expansion of this sector fast enough to absorb people previously
unemployed (a few) or engaged in low productivity informal sector jobs.
In a globalizing world it is naturally important that as many
major categories of firms as possible have the capacity to compete in world
markets. The importance of an efficient collaboration between large firms and
SMEs through subcontracting is at its peak in outward oriented countries
especially those competing in international markets in products involving a
good deal of labor. Being able to rely of efficient low-cost subcontractors can
substantially increase the competitiveness of the large exporters, and has been
an important factor underpinning the successes of Japan, Taiwan and Korea(
Palma and Gabriel, January 2005).
On the empirical side, some features are common to nearly all
SME sectors. The most important positive features have, naturally, gone with
those cases where SMEs have made the biggest positive contribution. Broad
empirical evidence highlighting the importance of SMEs includes the facts
that:
Broad empirical evidence highlighting the importance of SMEs
includes the facts that:
· The most successful developing country over the last 50
years, Taiwan, is built on a dynamic SME sector. This has produced both (for
its time) record breaking growth and a quite low level of inequality, by
comparative standards.
The experience of Korea, Taiwan's partner among the Asian
Tigers and a more or less equally fast grower, has provided the laboratory to
illustrate another point-inequality can fall significantly when the weight of
the SME sector rises quickly, as it did for a period after the mid-1970s in
Korea.
Colombia's golden age of growth, from the late 1960s through
the 1970s, coincided with very fast expansion of the manufacturing SME sector
and with an apparent decline in urban inequality.
· SMEs tend to use medium-sophistication technology,
which is approximately consistent with the factor endowment ratios in most
developing countries.
· Many firms «grow into» or «grow out
of» the SME size range, with both of these transitions having something
positive to be said for them.
· The SME size range is where many important
entrepreneurs and firms of the future get their start.
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