Talking Trade blog
MSMEs: Not just baskets and potatoes
Published 25 September 2019
Why is it that so many officials (especially) assume that small businesses only make handicrafts or grow potatoes? Small companies do, of course, create all sorts of fantastic products including handicrafts. But they also do so much more. Even in developing countries and least developed countries, small firms deliver services and create products that can be incredibly sophisticated and complex.
The idea that micro, small and medium sized enterprises (MSMEs) only operate in handicrafts and basic agricultural products warps policy responses.
Policy that accommodates just two types of outcomes for smaller firms leaves huge swathes of MSMEs outside policy frameworks. Government ends up crafting programs and solutions to problems that may be completely inappropriate or potentially counterproductive for the majority of firms in the marketplace.
Smaller firms do create goods. These can include handicrafts like baskets or scarves or soap. Many of the most innovative products in these categories are created by MSMEs.
However, smaller firms also create a much wider range of items. MSMEs can produce sophisticated parts for inclusion in complex manufacturing products as part of globalized supply chains.
Many smaller firms thrive precisely in the market niches that call for highly specialized, technical knowledge, delivery of smaller batches of products, or items that require fast turn-around that larger firms often cannot match.
As an example, in France, a three person company drew on their own unique skill sets in engineering and marketing to develop an expensive camera device that they marketed to global multinational firms. The overall market for this product was not large, but it was sufficiently lucrative to get the company started. The firm has now expanded to develop other types of inventory.
A company in Thailand does not create products for Apple, but it creates every type of item imaginable to fit Apple products. A case for an iPad, for instance, developed by the firm, is significantly better than those available elsewhere as it holds the Apple pencil easily so it does not get lost without resorting to an annoying elastic strap. The firm innovates continuously, bringing out new inventory within weeks or even days in response to customer feedback.
Firms also are extremely active in services trade, especially across borders, delivering a wide range of services from human resources to graphic design to consulting to complex design and engineering drawings.
Smaller firms can pivot quickly and develop new marketing and outreach plans for companies. They work with other companies to create improved packaging for products to make them more attractive to customers and global brands and buyers. They help other MSMEs prepare to “onboard” to global platforms. They provide logistics solutions tailored to local conditions and markets.
Not every small firm is a startup. Some have been small for generations--either by desire or as a result of regulations that make it more attractive to remain an MSME.
Going forward, with new technology, many jobs that used to require huge teams of people will be increasingly done by smaller and smaller numbers of staff. This will also create opportunities for more MSMEs to deliver a wider and wider array of goods and services that might now be created only by large firms.
Policy settings need to take this vast range of potential outputs from MSMEs into account. When smaller firms are active in more than just handicrafts and growing basic agricultural products, it is important to ensure that companies receive the types of supporting infrastructure they need to grow and thrive.
For example, firms in agriculture trade will need a focus on more than just how to move basic commodity items. Companies often create final products, including complex processed food products. These firms grapple with difficulties in managing testing and standards as well as labeling requirements.
Smaller firms—whether they opt to export or not—need the elimination of barriers on imports. Imported items of all types, including both goods and services, form a critical element of the competitiveness of MSMEs. This includes firms that build cameras, those that design Apple accessories, and even those that operate food stalls along the side of the road. High barriers to imported raw materials, parts and components harms smaller firms the most.
Speed of delivery is key as well, as obstacles at the border for both inbound and outbound trade can kill a small firm.
MSMEs depend on the seamless operation of information flows. They need to connect to wider markets, even if it is just to place orders for supplies from the next township via the mobile phone.
Governments that only recognize certain types of MSMEs tend to create MSME agencies catered only to the needs of these companies—ignoring the legitimate needs of others. Services firms, in particular, typically are ignored entirely.
Assuming that MSMEs can only do certain types of things limits the potential for all small businesses. It is long past time to retire such outdated thinking. Small businesses can be in any and all sectors of the economy. They have most of the same needs and concerns as any other business. Policy should reflect this diversity.
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