By Joselyn Biira Mwine
Around the world, the small and medium-sized enterprise (SME) sector is a vital engine of innovation and job creation. Understanding the real challenges and opportunities shaping the future of SMEs, then, is a matter of the highest importance. Small business is – quite frankly – big business. It is estimated that more than 90% of the Uganda’s businesses are small and medium-sized enterprises (SMEs). Surprised? Don’t be. SMEs are, on average, the businesses that are generating growth, creating jobs, growing faster and innovating more. But most of all, they are a good deal less complicated (structurally) and more efficient and flexible than are large firms. It’s not all a bed of roses though. While SMEs make a huge impact on income, employment and wider economic output, their fortunes have been disproportionately affected by the pandemic. Moreover, the turmoil that comes with the political season is not any easier on them. SMEs are both an engine of job creation and a significant factor in job destruction, making them the embodiment of Joseph Schumpeter’s “creative destruction”, i.e. the incessant dismantling of established processes in order to make way for improved methods of production. Confirming these observations, studies have alluded to the fact that as few as 50% of firms that started trading in 2001 survived beyond five years.
The question of how to serve SMEs is not new. Many researchers, academics and economists have searched for a winning formula over the years, with mixed results. So the question remains: what can be done to bolster SMEs? There is no magic formula for ensuring there is a thriving global SME community – if so it would have probably been implemented long ago – but the expanded use of Standards can foster entrepreneurship and help small businesses compete on an equal footing. There is no global agreement on the definition of SMEs, but one thing virtually everyone does agree on is that they are essential for economic prosperity. Small companies make up the vast majority of businesses in Uganda and employ a significant percentage of the local workforce.
According to the United Nations Industrial Development Organization (UNIDO), to keep up with the rapidly evolving global manufacturing landscape, SMEs in developing economies need to embrace a focused approach to improving and sustaining competitive manufacturing capabilities, proving conformity with market requirements and connecting to external markets.
Important to this process is the development of an animated private sector in which SMEs can play a central role. SMEs are essential in poverty reduction programmes because of their potential contribution to economic growth. By facilitating their access to information on technical regulations and standards, assisting them with meeting the requirements of Standards and paving the way to competent conformity assessment services, we can help these small-scale firms to thrive in an increasingly competitive local and international market, so that they can play their part in alleviating poverty. Standards are the solution. Standards have a definite role to play in the removal of technical barriers to trade and in assisting enterprises in developing economies that are connected to global value chains. Implementing Standards can help provide that confidence. But most importantly, for the man on the street, this means that Standards can contribute to improving exports, which would have an impact on job creation and poverty alleviation in developing economies.
There’s both good news, and bad news. The good news is that Standards provide as many benefits for small businesses as they do for larger enterprises. The strategic use of Standards can make a significant difference to the annual turnover of an SME, sometimes the difference between success and failure. For smaller firms, some of the benefits of using Standards include:
- The opening up of export markets as products become compatible on a global scale
- Heightened operational efficiency
- Increased confidence in products and systems as customers recognize Standards
Be that as it may, for many small businesses, making the decision to participate in a standards development process remains difficult, as managers are typically reluctant to allocate resources to a long-term process that promises, at best, intangible benefits. However, if the company is committed and participates actively in the process, the return on investment can be substantial. The principal benefits of participation include visibility, in-depth understanding, innovation, competitive advantage, networking possibilities, and opportunities to access potential customers. In other words, non-participation in standardization hands decision making over to the competition.
So what’s the bad news? A number of obstacles have been linked to the low representation of SMEs in standardization, such as time, personnel or financial resources. Small firms are hampered by financial constraints that prevent many of them from taking an active part in standards development.
There is one exception, however: while the larger companies have the resources to develop and implement standards, smaller companies with fewer resources rely more heavily on the availability of approved UNBS Standards. It is still a challenge to convince small companies to participate in standardization and send people to the committees. Most SMEs, lack the necessary resources to commit to long-term strategies and investments, which are only paying back in the future. Their management is largely involved in daily operational practice, and there is no time or money available for activities not directly related to the daily business. They are forced, therefore, to have a short-term view of their business and are limited in reacting to anticipated changes such as future regulations or the development of new standards.
However, a number of small businesses are already reaping the profits of standards use. The list of certified products and systems available on the UNBS website (www.unbs.go.ug) has been used as a reference point by Government, local and international NGOs, development partners and other firms that require products and services that meet standards.
It is therefore important that SMEs are not just receivers of finished standards but also contribute to the process so that their voice is heard in the room where decisions are made.
The writer is the Public Relations Officer at Uganda National Bureau of Standards