Today our guest blogger is Rosana Mirkovic. Rosana is a senior policy adviser with the SME Affairs Unit at ACCA. Her interests include access to finance for small businesses, ethics and global trends in SME development.
Rosana is a member of a number of SME stakeholder groups including the European Federation of Accountants and Auditors SME Expert Group, Intellectual Property Awareness Network and she was a member of the United Nations Expert Group on Small Business Development and Corruption.
She has authored numerous policy documents and publications and spoken at numerous SME conferences and policy events dealing with wide ranging subjects relating to SMEs including intangible assets, pension provision, and various aspects of government policy aimed at improving the small business environment.
It appears that one positive outcome that has emerged from the recession has been the high profile acknowledgment of the crucial role that Small and Medium-sized Enterprises (SMEs) play in all the world economies. These sentiments have been echoed by many world leaders as well as backed by affirmative action; Governments in many economies, such as the U.S, the UK and Australia have made efforts to improve the flow of finance to small firms, relaxed some tax requirements and forced public bodies to pay up more quickly. Similarly in Asia, economic ministers have agreed to set up an Asean (Association of Southeast Asian Nations) SME Council aimed at helping small firms in the region cope in the poor economy by lowering costs of raw materials and improve exports and investment opportunities for SMEs.
But how are SMEs really coping during this recession? The usual adage is that small firms are more flexible, able to react quickly to changes in market conditions and therefore more resilient. But has this materialised during the current recession. Another important question is what is happening to the entrepreneurial spirit as a result of the recession? Are we less inclined to start a business having witnessed these turbulent economic conditions.
All of this is in many ways debetable. On the one hand, yes, small firms are flexible and resilient. But they are also extremely vulnerable, often entirely dependent on a small number of customers and exposed to late payment and volatile cash flows. Nevertheless, there is evidence that SMEs have been coping remarkably well under what appear to be almost unprecedented economic conditions. One of the reasons for this is that small firms are extremely good at being able to grow without accessing external capital, a very useful skill when credit it tight. They are also less hasty to shed staff when business suffers. The Secretary General of SME Chamber of India war recently quoted as saying: ‘Many SMEs do not want to retrench people because they believe it would be difficult to hire later’. And this attitude seems to be paying off for small business owners with a recent survey from Australia (1) finding that employees working for small businesses tend to be more loyal than those in big companies.
And while doom and gloom in big businesses continues, small firms are cautiously optimistic. In the UK, Federation of Small Businesses Survey found that 60% of businesses were performing ether better or the same as in the previous year and another survey reported that over 66% are determined to make it through the downturn (2). Surveys in China, the United Arab Emirates and India have also found similarly high confidence levels among SMEs (3).
Finally, what has been the more general effect of recession on entrepreneurship and the rate of new businesses being started? A new study by the Kauffman Foundation found that more businesses are being started in the US since the recession took hold. This pattern is similar to the last downturn earlier in the decade when again according to the same survey entrepreneurship levels rose, demonstrating consistently that the entrepreneurial spirit tends to thrive when economy suffers.
It wouldn’t be too difficult to conclude that existing and prospective entrepreneurs appear to be crucial in helping us cope in the downturn but we have to remind ourselves not to take this for granted. After all, how we support them through this recession will in many ways determine where we are when we eventually come out of it.
Rosana Mirkovic
Senior Policy Adviser
SME Unit
Notes:
(1) Australian Institute of Management’s (AIM) National Salary Survey 2009
(2) O2’s Small Business Confidence Index
(3) HSBC Trade Confidence Index
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