Small and medium businesses contribute significantly to economies around the world. Prior to the pandemic, small and medium businesses in OECD countries accounted for about 99% of firms and 70% of all jobs[1], and contributed to more than 50% of the GDP in high-income countries worldwide[2]. But between February 2020 and April 2021, 70 to 80% of small and medium businesses across 32 countries were hit with a massive blow – they lost between 30 & 50% of their revenues[3].
Because threats to small and medium businesses are inherently threats to local economies and communities, governments globally (including Australia) have made supporting small and medium businesses a priority throughout the COVID-19 pandemic through programs such as direct financial assistance, public guarantees on loans, and tax relief[4]. While such support is beneficial, it does not necessarily set up firms to scale up in the long term and in combating the many converging challenges they face, including scouting new international markets, keeping up with digitalization and securing the right talent.
An Australian study showed that the most effective way to support small and medium businesses is by pairing financial support with advisory services[5]. One way to provide this dual support is through state business support programs. Such programs typically work to identify small and medium businesses with high growth potential and provide them with the one-on-one support they need to realize this potential over a defined period of time. Support could include building and upskilling capabilities (such as in strategy, technology, marketing, and leadership skills); providing advice from experts on how to navigate the market; guiding transformation efforts; and arranging introductions and networking opportunities.
A number of existing global programs and research studies such as in the USA, UK, Canada, France and Singapore revealed various best practices for federal and state governments looking to support small and medium businesses through the challenges they face. Specifically, these programs suggest that governments can help set up small and medium businesses to scale up well into the future by focusing on midsize businesses; employing a rigorous selection process; targeting specific groups and tailoring solutions to their needs; providing incentives for commitment; and partnering with the private sector.
The difficulties facing small and medium businesses a few years ago have become more pronounced as the world shifts to the new normal. Below are some challenges and opportunities for small and medium businesses navigating the new norm.
Digital transformation
Most of the world is working to digitalize; a trend that has accelerated over the course of the pandemic, and small and medium businesses are at risk of being left behind. A July 2020 survey of executives revealed a rapid shift toward interacting with customers through digital channels, with adoption rates years ahead of where they were in previous surveys. The shift is particularly pronounced in the Asia–Pacific region, where the share of digital consumer interactions has advanced by four years, higher than the global average.
The shift to the digital world persists across countries and categories, as consumers in most parts of the world are engaging less with retailers outside the home. The online customer base across countries for food and household products, for instance, has grown by more than 30%, on average, since before the pandemic.
New international markets
Several assessments reveal that small and medium businesses need to develop international presence to grow[6], but they often struggle to expand outside their home market or to do so strategically. Even prior to the COVID-19 pandemic, high-potential small and medium businesses in many markets found success domestically, but their potential was capped by the size of their local market. Unlike large companies, many small and medium businesses don’t have the resources to conduct extensive market research before expanding into new markets, instead following opportunities and growing only marginally.
Acquiring high skilled talent
Small and medium businesses tend to struggle acquiring digital talent: 40% of respondents to a survey in Singapore stated they lack the digital skills to successfully adopt new technologies. Twenty small and medium businesses also tend to have smaller R&D departments than larger firms and finance functions that focus more on accounting than strategy, potentially making it difficult to grow. Small and medium businesses are big bone in our economies and communities in New South Wales, Australia and globally, and these businesses make unbelievable and positive contributions to our GDP, exports, employment, improving local societies and associations, but they are facing increasing challenges that could pressure their growth and ability to contribute further to our communities. Learning from existing programmes in other countries, governments across the globe have an opportunity to help small and medium businesses continue to thrive—through the pandemic and well into the future.
- Enhancing the contributions of SMEs in a global and digitalised economy, OECD, June 2017.
- “The power of small: Unlocking the potential of SMEs,” International Labour Organization, October 2019.
- One year of SME and entrepreneurship policy responses to COVID-19: Lessons learned to “build back better,” OECD, April 2021.
- IMFBlog, “How countries are helping small businesses survive COVID-19,” blog entry by Esha Chhabra, Yingjie Fan, and Kazuko Shirono, March 9, 2021.
- Business Connect Program Evaluation, Accenture, June 2021.
- Kulondwa Safari, “Contribution of internationalisation to SME growth: Evidence from the Kenyan manufacturing sector,” Economics and Business, December 2020
