What's The Most Profitable Small Business

What's The Most Profitable Small Business – With the right support, SMEs can significantly increase economic growth. Governments can help take advantage of this opportunity.

Slow productivity growth is one of the biggest threats to overall economic growth in both developed and developing countries, with serious consequences for citizens’ well-being, such as falling incomes, rising inequality and credit repayment problems. In recent years, productivity growth has stalled in many places; A 2018 Global Institute (MGI) study of seven OECD countries found that average productivity growth fell from 2.4 percent per year in 2000-2004 to 0.5 percent per year in 2010-2014.

What's The Most Profitable Small Business

Small and medium-sized enterprises (SMEs) contribute to the productivity problem. Within the same sector or in countries of similar size, the productivity gap between large firms and small and medium-sized firms can vary by a factor of two or more. In the construction sector, for example, studies have shown that the productivity gap between SMEs and large companies is 26 percent in France, 41 percent in Germany and 54 percent in Italy. In food service and accommodation, the difference is smaller in Italy, 29 percent, France 39 percent and Germany 41 percent. These productivity differences reach 60% in Turkey and 80% in Greece in many sectors. And a large portion of the world’s population works in small and medium-sized enterprises—from 50 percent to 90 percent of the workforce, depending on the country.1 For example, Canada, Korea, and China employ more than 80 percent of private sector workers. According to OECD business statistics, small and medium-sized enterprises.

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Therefore, it is desirable to increase the efficiency of small and medium-sized enterprises. In fact, SMEs can drive the growth of a country for two reasons. First, integrating proven practices and technologies is faster and safer than trying new ones, and a large gap in SME adoption should be closed. Just as emerging markets can grow faster than high-income markets by adopting proven technologies, SMEs can grow faster than large companies by adopting the proven technologies and practices of large companies. Second, start-ups, which are an important link in small and medium-sized enterprises, have become important sources of innovation. Because they are not hindered by legacy systems and outdated strategies, new market entrants are often able to rethink established practices and cross traditional industry boundaries.

A doubling of the global productivity gap between SMEs and large firms would account for about USD 15 trillion of relevant value added, or about 7 percent of global GDP.2 For countries with available OECD data, SMEs and large firms based on the weighted average of yield difference between. there is. The weight used was the number of employees in SMEs in each country. As large companies set up regional headquarters in Ireland and shift profits for tax purposes, Ireland is excluded because it shows an artificially high productivity gap of more than 70 percent between SMEs and large companies. Governments around the world can and are helping to close this gap through ten approaches designed to address the most pressing needs of small and medium-sized businesses.

Big business can thrive if a business-friendly environment and open markets are maintained; However, SMEs have a large number of unmet needs. The limited size of many SMEs means that they have difficulty accessing opportunities and resources to improve their performance, including talent with the latest knowledge of technology, finance and management practices.

In addition, many SMEs are young enterprises, which, together with their small scale, makes them vulnerable not only to the financing opportunities of many standard market participants, but also to customers who consider small suppliers risky partners. In many OECD countries, non-standard market players such as crowdfunding platforms and venture capital funds are still at an early stage of development and often unable to meet the needs of SMEs.

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Given the scale of the challenges and opportunities facing SMEs, most G-20 countries have established a national agency that focuses exclusively or primarily on supporting their growth.3 SME support in India, Indonesia and South Korea, special ministries were created for support. Other countries have created entities and agencies for similar purposes: Saudi Arabia has established the Authority for Small and Medium-Sized Enterprises, the United States has a long-standing Small Business Administration, and countries such as Canada and France have development banks. . SME ecosystems. However, managing these government bodies is difficult for the same reasons that markets have struggled to meet the needs of SMEs: their small scale and diverse circumstances.

Our research, analysis and experience working with SMEs and SME development agencies shows that governments and non-governmental organizations (NGOs) seeking to serve the unmet needs of SMEs can benefit from two actions: To the first SME’s ‘B ecosystem understanding and improvement, and second a targeted approach to serve various small and medium segments.

In particular, they should focus on promoting three characteristics of a healthy and well-functioning SME ecosystem: increasing SME confidence in business, enabling SME growth – overall and higher for indicators – and increasing SME competitiveness (Figure 1). Installing these three features requires a segmented execution approach. It is therefore important for public authorities to develop their service menu after identifying the departments that are common in their country and the differences in their needs. We have identified ten approaches used around the world to address these needs.

In our experience, SMEs typically fall into one of six categories: early-stage innovative startups, established startups, growing medium-sized enterprises, stagnant or struggling medium-sized enterprises, locally focused small enterprises, and informal microenterprises (Appendix 2).

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While it is important to consider the overall needs of the SME sector, we believe that SME development agencies should focus their limited resources on those with the greatest potential for impact, themselves. We believe they should be directed to programs tailored to their needs. special circumstances.

Medium-sized companies are often the prioritized sub-segments. According to our analysis, medium-sized enterprises make up only 2 percent of all enterprises, but in most countries they account for about 30 percent of GDP and employment.

This can of course vary from country to country. For example, in a country like India with a low level of urbanization, hundreds of millions of people are employed in the informal sector or small businesses in rural areas. These segments are hard to ignore in India; however, a highly urbanized country with lower levels of informality may take a more targeted approach and focus only on innovative start-ups and medium-sized enterprises.

Therefore, the country’s economic development strategy should guide the prioritization. For example, if export growth is a priority, medium-sized enterprises operating in the tradable goods and services sector may be a priority. Although such sorting can be difficult, dispersing resources among a large number of recipients can significantly reduce their impact.

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Government agencies and NGOs that better understand the SME sector can better tailor their programs to meet the unmet needs of SMEs. We have researched SME support programs around the world and broken them down into a matrix of ten approaches. Some are tailored to one sub-segment, while others address one of the six unmet needs of all or most segments (Figure 3).

For all of these categories, the details of how they are implemented are important; therefore, it is difficult to derive universal best practices from them. However, it may be useful to consider the following ways in which these programs can help close the productivity gap for SMEs.

In addition to institutions, regulations and opportunities, the attractiveness of entrepreneurial careers and the entrepreneurial capacity of citizens are also important to increase the growth and survival of start-ups. Most ideas are never prototyped or turned into a business plan. Risk aversion, fear of failure and lack of skills can be significant barriers, as can regulatory and institutional support. A number of governments have tried to develop an entrepreneurial mindset in their citizens.

Learning entrepreneurial skills through formal education is often part of the solution. For example, in Poland, elements of entrepreneurship are taught in basic subjects such as history and mathematics in elementary school, and high school students must take a course “Introduction to Entrepreneurship” 4 Entrepreneurship Education in Poland, School Education Gateway. August 2015, schooleducationgateway.eu.

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Entrepreneurship education also serves to promote equity, and many organizations have focused on developing entrepreneurial mindsets and skills in young residents of disadvantaged communities. For example, in the United States, the Entrepreneurship Education Network (founded in 1987) operates numerous entrepreneurship programs and extracurricular activities through 1,882 partner schools. Programs have reached over 23,000 students across the states and over 50,000 students internationally. Additionally, 75 percent of network graduates have gone on to college, and 25 percent have started at least one business.5 Annual Report 2018: Preparing the Next Generation—Youth Entrepreneurship and the Future of Work, Entrepreneurship Education Network, January 2019, nfte. com.

Entrepreneurs all over the world have chosen large startup hubs to launch their companies to get an innovative environment, funding and business support. Many governments have prioritized making one or more of their cities a startup hub by branding the city as a startup hub or supporting startup campuses. When governments try to launch or develop startup hubs, they can focus on the most difficult challenges entrepreneurs face – navigating the administrative requirements to start and run a business and accessing the powers that be.