SMEs in the recession: Thriving or surviving?

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

Comments

[abass]

Small Business owners are largely forgotten. Thats why I only focus on them. I have experience several members of my family file bankruptcy due to small business failures. I also I suffered through 2 destroyed businesses due to failure however, in my failings I have learned some of the secrets to success. (Who can say they know it all?)
What I like about small business owners is that they are not afraid to take huge risks and lay it all on the line. But, I agree they do need a lot of help with their marketing. I think having them go the social media and email route is not only the least expensive but its also the most effective. Thanks for the stats!

small business

[Tracey Michelle Gomez-Sahadat]

I work in the Civil Service (5 years service)and I have a few friends in the private sector, who belong to small and medium businesses.Thye have told me that most of these companies have retained their core staff, and have let go what they considered to be "extra staff".Now I agree with this procedure, what will happen to the "extra staff" when other companies decide to do the same thing? I am of the belief that in these ever changing economic times,employers and employees alike will become more creative in keeping their jobs and even improving their skills and expertise in order to multitask and be eligible for promotions when the recession has died down, but in some cases, the skilled workers are considered to be the "extra staff", simply because they are not experienced enough. Do you have any suggestions for these people?Also, in Trinidad and Tobago, the Government is considering converting all civil servants to contract within the next 5 years or so.I am at ACCA Level 2 and currently doing the ABE Diploma 2 qualification.I am also qualified in Microsoft Office, Project Management and Peachtree Accounting.I have applied to several local Accounting and Tax firms, but they claim that civil service experience is not seen as relevant experience. Thank you for your time, considerationa nd expert advice.