Influence of SMEs in Economic Development

Most of the recent studies, as well as the policymakers, are trying to determine the effect of SMEs on economic development because it has been noticed that  SME plays a very crucial role in the development of the economy of a country (Kruja, 2013). Along with that, small to medium enterprises are getting the attention of most policymakers, especially in third world countries. Since those countries are being very disappointed with the other strategies and large-scale investments. They have started focusing on small to medium enterprises (Taiwo et al.,2012)

Further Taiwo et al., (2012), stated that the impact of SMEs was felt in these ways:

·       Most usage of domestic raw materials

·       Generating employment opportunities

·       Boosting the rural advancement

·       Advancement in entrepreneurship

·       Using domestic savings

·       Connecting with huge industries and so on.

They further stated that most of the countries are dependent on small to medium enterprises for the growth in their economy. Moreover, SMEs are more productive but they need more support from regulatory bodies for resources required for conducting the business and if SMEs are boosting in a country then the economy of that country is also going to grow (Taiwo et al., 2012).

Growth and globalization

As OECD (2016a) stated, that the economies of many countries are having issues with the low growth in their economy, businesses as well as in investments. Along with that, dissatisfaction is being faced by the citizens of those countries due to their economic conditions. In such circumstances, it is required by businesses to take advantage of the upcoming markets and technological advancements. It could be difficult for established large firms to change their market or their procedures, as well as this, is very risky for them. Hence, only small to medium enterprises can come and start working on this situation.

Small to medium enterprises are major players in the economy and the business environment of a state. They promote industrialization, which makes other entrepreneurs and startups to evolve and join the market. Along with that, it produces innovation and reduces the inequalities in the income. Making them take the initiatives and start working in this rapidly changing environment along with making an informative use of upcoming technologies is very beneficial for growing the economy and also for the globalization of the country. Moreover, the growth of the small to medium enterprises depends on the resources and facilities provided to them (OECD, 2017).

Employment Opportunities are created

They can provide more employment opportunities to the citizens of that country (OECD, 2017). With each upcoming SME new employees are required to work and so they hire new people. They are the major sources of employment in most of the countries. They account for 70 percents of employment on average (Figure 1) (OECD, 2016b). and in developing countries, they provide up to 45 percent of the employment opportunities and has the contribution to GDP of the country up to 33%

Figure 1. The main source of jobs in the business sector is small to medium enterprises.  

Source: OECD (2017)

Innovation

All Small to medium enterprises does not necessarily have to be innovative but most of them usually are innovative and with those innovations come economic growth. Since they are working outside the local established patterns and taking advantage of upcoming technological and economic opportunities. Such opportunities are usually neglected by more larger firms due to the risks involved in it (OECD, 2010a). Moreover, small to medium enterprises account for about 20% of patents, most of them are in the biotechnology field (Eurostat, 2014). They also play a part in value creation by taking innovations being developed elsewhere and making it usable for their business in their context. Along with that, they are contributing towards serving regions, which are not attractive enough for the larger firms (OECD, 2017).

            The innovation of small to medium enterprises is impacted by the knowledge and access of networks or opportunities available to them. Due to globalization integration collaborations have increased in innovation. It has impacted both the inputs which are taken for innovation from abroad, it includes ideas, skills, capital, technologies etc. as well as the outputs which you create through this inputs for foreign and local markets. Moreover, the hurdle which SMEs may face in this is the identification of suitable informative partners and networks at various levels. Along with that, it becomes difficult for small to medium enterprises in connecting with foreign knowledge networks (Figure 2) (OECD, 2013b).

The economy of the Gulf countries, especially Bahrain, needs to be more developed. Since GCI indexes are mostly ranging from 15 to 40 something. GCI is the measure which represents the economic prosperity of the country. It is mostly calculated by World Economic Forum. The GCI rank of UAE is 25, Bahrain is 37, Oman is on 34 but Qatar is on 17^th rank, it is among the leading Gulf countries when it comes to economic prosperity (WEF, 2010).

1.1.1.     Environmental Stability

Impact of individual small to medium enterprises on the environment is very low but when their impact is combined then it can exceed the impact of larger firms. Hence, creating policies and having strict regulations for the SMEs is important, since, they are the one playing a vital role in the stability of the environment (OECD, 2013a).

Most of the SMEs are willing to step into the green transition and work for the betterment of the environment. They are exploiting this opportunity by bringing innovative green products and services for the consumers. For example, around 90 to 70 percent of clean technology businesses are owned by SMEs in UK and Finland, small to medium enterprises represent around 90% and 70% of clean technology business (Carbon Trust, 2013; ETLA, 2015).

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