This is a segment which employs 87 million workers – two thirds of the total workforce – and generates €3.4 trillion in value added to the economy, approximately 58 per cent of total gross value added within the non-financial business economy.
It is evident that throughout Europe, very few SMEs grow beyond the micro stage. In fact, across the EU, approximately 92 per cent of companies have fewer than 10 employees. This is a universal story across individual countries.
International auditing firm Mazars recently published the findings of a study entitled 'How To Be A Stand-Out SME'.
The study, which was conducted in eight European countries, aims at providing analysis, insights, recommendations and guidance to SMEs. It explores what it takes to achieve levels of superior performance, to compete in the marketplace and effectively ‘stand out from the crowd’.
There is no doubt that SMEs are, and will always be, the backbone of every economy in Europe, including Malta’s. The study was spurred by the fact that the European SME sector has, over the past years, experienced the most severe economic crisis in living memory. Some SMEs have emerged from this downturn more resilient and stronger than ever before. Others, however, were forced to downsize or close down as a result of the downturn.
The resilient state of the local economy, particularly fuelled by healthy touristic, financial services and remote-gaming sectors, spared our SMEs the fate of many of their counterparts in Europe. However, it is also a fact that local SMEs, many of which are in effect micro-enterprises, continue to be affected by a number of constraints, including insufficient capitalisation, problematic access to financing, issues related to the long-term sustainability of operations and opportunities for market consolidation, a lack of internationalisation, as well as an insufficient capacity to innovate.
And talking about innovation, the Mazars study strongly suggests that innovation has become critical, if not the most important factor, for business sustainability and growth. Competition is increasing through greater globalisation and the growing application of smart strategies by leading SMEs. On the other hand, there is a much more discerning and demanding consumer base to consider, both across the B2B and B2C segments. More SMEs need to focus on these smart strategies which will increasingly become the minimum performance benchmark.
This will require innovation in products, business models, process for speed and cost efficiencies, as well as innovation through technology – placing technology at the heart of the business, to ensure a competitive advantage. Among the other recommendations made in the study are the need to maintain a sharp focus on the market and positioning oneself accordingly, the importance of adding value to one’s offer, as well as the creation of financial safety buffers against future business fluctuations.
It also advises keeping an open mind on the advantages of mergers, alliances and joint ventures, while regularly assessing the potential of sourcing new geographical markets.
Significantly, the Mazars study comes to the conclusion that “the quality of the management team is the most important determinant of the success or failure of business in the SME segment".
This article first appeared in The Times of Malta on 11th November 2014.