Friday, February 03, 2012

Small and medium size enterprises(SMZE): The road to more jobs (I)

SMZEs have been considered in many countries ,to be the core for economic dynamism and growth. When these firms get its market target and become well positioned to compete, it creates not only additional jobs, but also are a source of innovation .
Global economy characteristics have important implications for SMZEs: It increase connectivity, it increase markets size ,it develops new market segments because of fragmentation, it foster innovation and value added.
On average , 98,5% of total enterprises in Latin America, are SMZEs. The remaining 1,5% are in the upper size category .It is well known the impact SMZE have on employment: 75%(roughly) of employment in Latin America economies arise from SMZEs. Leaving aside Costa Rica which has the highest level of employment arising from big enterprises (45%),,the percentage goes even higher (almost 80%).These data are not accurate enough to draw a definitive assessment , but it make clear the relevance for the social outcome , the SMZE have for the economy. Even though they do not have a strong performance in the exporting sector (15% in Argentina,2% in Brazil,4,8% in Chile, less than 20% in Mexico ,and 2,2% in Peru, Source: Center for the promotion of SMZES ,R Servat. Peru, 2005), the main positive externalities of these firms, are jobs. In 2011, unemployment in Latin America was 6,8%,probably because of SMZEs employment gains due to economic growth.
In fact, the road to employment is within the SMZEs area, no matter whether they are from the services or productive sectors. However, it is not a wise approach to take them for granted , because SMZEs also have weakness ,which can be decisive in times of economic crisis to fulfill its expected job creation capacity. Let review some of them :
a.-Limited access to financial sources, which is an important constraint when the economy is in recession. The Chilean experience on this issue (1997 ,2009),shows that SMZEs access to stable credit for cash flow ,does matter.
b.- The quality of management is behind the best practices .Most of Latin America SMZEs, do not have a standardized procedures and quality standards .They survive with informality , which it turns out to be a constraint for the capital accumulation process.
c.- Low level of networking support for its operations .In Chile , only 35% of SMZEs(roughly) ,have internet connection,(the area of services instead (commerce )with 44%).Thus, without the internet support, productivity is lower than otherwise, market information is available with delays and lags which means loses of business opportunities.
All of these weakness, do not mean that SMZEs lack of strengths. They do have the ability to get innovation flow, they do have flexibility to adapt itself to new market conditions as well. More than 60% of global business come from SMZEs. In fact, because of theses strengths, these kind of business is the one which have benefit most, from global economy growth.