The undeniable influence of SMEs on both local and global economies
By Arjun Shroff ’27
Small and medium enterprises, also known as SMEs, are often overlooked as major contributors to the global economy, but the truth is that they are incredibly influential. From the local corner store to an international manufacturer, SMEs have a major impact on both local and global economies. The contributions of SMEs should not be overlooked.
Local economies are greatly affected by SMEs, especially when it comes to creating new jobs. In fact, 62% of new job opportunities created between 1995 and 2020 were made by small businesses. This percentage is significantly higher than the percentage generated by large businesses. When people are employed, those people will be able to spend more money on goods and services, which will improve businesses and create further jobs. This concept is called the Keynesian Multiplier Theory. This theory represents the direct link between job openings and a thriving economy, to which SMEs are a great contributor. Small businesses help local economies grow and flourish. As Barack Obama said, “small businesses are the backbone of our economy and the cornerstones of our communities.”
SMEs benefit the global economy just as much as they do local economies. Small businesses tend to have sets of extremely loyal local customers. When economic conditions are shifting, the loyalty of customers to these SMEs remains constant. The environment is also positively impacted by small businesses. Since SMEs do not have the same funding and resources as larger businesses, they tend to exist in pre-existing buildings. Construction of new buildings is minimized, and there is no need to dig up land. One of the biggest global challenges is environmental sustainability, and small businesses all around the world consistently conserve our environment.
While SMEs are greatly beneficial to our economies, they face some major drawbacks. The largest and most well known challenge that SMEs face is a lack of funds. Fifty percent of small businesses fail within 5 years of starting, because they do not have the proper funding to deal with setbacks, many of which would not have affected large businesses. Despite small businesses’ creation of employment opportunities, there is a lack of workers. SMEs tend to require employees who can tackle multiple tasks, and have multiple abilities. Larger businesses can have more specific roles and jobs because they have the magnitude and enough employees. Marketing is another very important issue that SMEs face, especially since online marketing is now more prominent than ever. Small businesses are not always recognized online, and advertising is expensive.
Despite the many challenges that SMEs encounter, there are a myriad of initiatives and government support programs that recognize these problems. The government offers loan guarantee programs, funding for infrastructure, training programs for employees. These programs tackle many problems that are faced by SMEs, and each day conditions for SMEs are improved. Small businesses play an essential role in both our local economies, and in the global economy. They display resistance to economically challenging times, specifically due to their loyal customers. 17.3 million jobs have been created by small businesses in the past 26 years, and the more job opportunities translate into a thriving economy. It is essential for governments and society as a whole to recognize and support SMEs for a sustainable and prosperous future.