Enhancing competitiveness and securing equitable development: Can small, micro, and medium-sized enterprises (SMEs) do the trick?

Abstract

Many governments and aid agencies believe that small businesses can contribute to promoting more equitable development, as well as enhancing the competitiveness of local industries within a global economy. While small, micro, and medium-sized enterprises (SMEs) may have a role to play in creating jobs, and generating and redistributing wealth, they need to overcome many obstacles. This article stresses the importance of understanding the specific context, establishing priorities among competing policy goals, and distinguishing between the actual and potential roles of different kinds of enterprises (by sector, size, and geographical location). Only on such a basis is it possible to identify the resources and policies most appropriate for each goal and each type of enterprise. These arguments are illustrated with reference to South Africa, whose government has sought simultaneously to promote SME development, Black Economic Empowerment, and global competitiveness.

Notes

1. There is no standard definition of SMEs (UNEP 2003:4). For instance, the EU defines these as having fewer than 250 employees and the USA sets the bar at under 500 employees, while the South African definition is a company with under 100 employees (in the primary and tertiary sectors) and fewer than 200 employees (in the manufacturing/secondary sectors). See also Ntsika (1999).

2. There are many examples of the important roles that SMEs play in the global economy, ranging from country studies like Denmark (Karnoe et al. 1999) and Taiwan, to regional studies (e.g. of Baden-Württemberg in Germany and ‘Third Italy’ in Italy), studies of local geographical areas and ‘clusters of firms’ (Schmitz 1995), of industry (Rabelotti 1994), and of innovation by single firms (Tidd et al. 2001).

3. The relative importance of SMEs within a national economy shows large variations, however. In the Danish economy, for instance, more than 99.8 per cent of all firms fall within the SME category. But larger companies predominate in the French, German, and US economies, providing at least 70 per cent output and employment. While some authors, such as Acs (1999), are highly positive about the role of SMEs, others are sceptical. I believe that SMEs do play a role, but that the magnitude and the area of their impact differ from country to country, region to region, and industry to industry, meaning that each context requires close examination.

4. The South African government's goal of equitable development is related strongly to the concept of ‘Black (Economic) Empowerment’, which seeks to enhance the social, political, and economic situation of the African population, as well as increasing the contribution of black ownership in the South African private sector, both in terms of acquiring shares in large firms and through establishing SMEs. The Employment Equity Act (part of an affirmative action programme) instructs organisations to ensure that the composition of the workforce at all levels reflects the distribution of ethnic groups among the population. Moreover, the 1998 National Empowerment Fund and 1999 Skills Development Act were enacted to improve tertiary education and tackle skills shortages, while labour laws have also been amended (Jeppesen 2004:101).

5. While the export-oriented model drew its inspiration from strategies pursued by the newly industrialised countries (NICs), it was implemented in a rather different global economic climate from that of the 1970s and 1980s. This makes it difficult to predict, for example, whether FDI will be channelled into South Africa and whether its manufacturing industry will be able to transform and compete in an open (global) economy (Altenburg 2002).

Additional information

Notes on contributors

Soeren Jeppesen

Soeren Jeppesen is an Assistant Professor in the Department of Intercultural Communication and Management at the Copenhagen Business School.