If you’ve ever planned a holiday to Tokyo, you’d be in for a most memorable travel experience. The Japanese capital is a bustling metropolis, laden with gorgeous hotels, fashionable shopping districts, mesmerizing art galleries and museums, chic local shops, and a delightful food scene.
The shopping malls house some of the most stylish local fashion boutiques, reminiscent of those sophisticated characters in anime films. Then you come across Itoya, a 100-year old stationery store spanning 12 floors, enough to spark your crafty creative mind. The Aoyama Flower Market Tea House is a botanical paradise, with ravishing flower stalls and arrangements, but also serves a variety of luscious teas and desserts.
A stroll in one of Tokyo’s massive underground food halls, depachika, is enough to tempt you with its wafts of culinary delights. Tea shops, chocolatiers, high-end French bakeries, deli sandwiches, mochi, and bento boxes are among the average 30,000 items that are usually stocked in a depachika.
Built around SMEs
Small and medium enterprises form the backbone of the Japanese economy. Last year, the Ministry of Economy, Trade and Industry published a report on the SME sector stating that 99.7 per cent of all businesses in the country are small or medium enterprises. They also employ 70 per cent of the working population (32.2 million employees) and contribute 53 per cent of its total added value, amounting to 135.1 trillion yen ($1.2 trillion).
When we look at other countries’ data, we find a similar pattern of SMEs playing a vital role in most economies. According to the World Bank, SMEs make up 90 per cent of businesses worldwide, employing more than 50 per cent of the working population. It is projected that by 2030, more than 600 million jobs would need to be created by the growing workforce worldwide.
This makes the SME sector a potentially lucrative - and significant contributor - to employment and income generation in the future.
Dedicated support systems
Some governments have already acknowledged the valuable contribution of SMEs in their local economies and have dedicated agencies that are responsible for supporting them. In the US, the Small Business Administration is responsible for providing all kinds of support to small businesses, ranging from providing financial assistance, providing loans to victims of natural disasters, facilitating federal contract procurement, facilitating access to international trade, and offering management counseling and low-cost training to entrepreneurs.
It also publishes reports on the sector, enabling decision-makers and public policy professionals to respond and anticipate the sector’s needs with effective policies and regulations.
One of the most important challenges facing SMEs is micro-financing and would, therefore, need assistance from government funding programmes, angel investors, or venture capitalists. In this regard, the SBA collaborates with partnering lenders, community development organizations, and micro-lending institutions who can provide loans to small enterprises, through specific guidelines and reduced risk measures.
It is also noteworthy to adopt digital lending tools to reduce the “time to cash” for SMEs. In Latin America, this technology proved quite a success, by boosting lending in 2017 to $663 million, more than six times higher than in 2015, according to a report by the International Trade Centre.
This makes the SME sector a potentially lucrative - and significant contributor - to employment and income generation in the future
Step up on digital
SMEs would benefit greatly through expanded business opportunities through the form of public procurement contracts and global trade. The SBA works with several federal government departments in the US to award 23 per cent of its contract dollars to small businesses. Another example is the Netherlands, where the Dutch Trade and Investment Fund gives entrepreneurs who are interested in investing abroad, importing, or exporting access to financing.
Big data is essential for SMEs to manage and grow their businesses by having up-to-date information about their industry and customers. Governments, such as the Singapore Department of Statistics and the US Census Bureau, publish free and regular data to support market research analysis.
Online commerce and digitization will be the next big step for businesses to thrive in the global economy. Yet, at the moment, only 20 per cent of SMEs in OECD countries are engaged in e-commerce sales.
A report by McKinsey projects that equipping SMEs with digital automation and artificial intelligence has the potential to boost the GDP in nine European countries by 550 billion euros (or 1.2 per cent per year) from 2016 to 2030.
SMEs play a vital role in every economy and thus need a suite of effective interventions and support programmes for them to thrive.
- Sara Al Mulla is an Emirati advisor on public policy focusing on human development.