Tuesday, January 3, 2012

Innovating, Gaining Market Share and Fostering Social Inclusion Success Stories in the SME Development

Micro- and small and medium-sized enterprises (MSMEs) play a key role in the economy, accounting for more than 90% of the number of companies in the region. Depending on the area of the economy, their contribution varies widely —from significant in terms of employment, to far less so in production and very small in terms of exports. The fact that they contribute more to employment than to output is indicative of relatively low levels of productivity. Their limited contribution to exports shows their marked orientation toward the domestic market and their dependence on the dynamics of domestic demand. Their output is therefore determined to a large extent by employment and wage levels in the economy as a whole.

Within the industrial structure, small and medium-size  enterprises (SMEs) account for a relatively larger proportion of production and sales in the larger countries of the region because the indivisibility of some productive activities increases the minimum efficient plant size. In smaller economies, then, large enterprises usually produce a significant proportion of the consumer goods that carry the most weight in the industrial structure.

The countries can be divided into three groups, based on the  relationship between the size of their economies and the sectors in which most SMEs operate. In the larger countries with the most highly developed industrial structure (Argentina, Brazil and Mexico), SMEs are concentrated in the food, textile and garment-making, chemicals and plastics and metallurgical industries. In medium-sized economies (Bolivarian Republic of Venezuela, Chile, Colombia, Ecuador and Peru) SMEs operate principally in the food and chemical industries.  Unlike the first group, they have only a scant presence in  the metallurgical sector. In the smaller countries (Costa  Rica, Nicaragua and Uruguay), SMEs tend to be clustered  in the food industry.

The large proportion of SMEs operating in the food industry  reflects their tendency to specialize in labour-intensive sectors  with natural competitive advantages and small economies of scale. Because these activities are chiefly oriented toward domestic markets, direct exports are small.

Adding microenterprises as a policy focus has expanded the  universe of small players and made it more complex and diverse, encompassing both subsistence microenterprises and dynamic medium-sized enterprises that sometimes venture into the export markets. This diversity can be seen in the low relative productivity of smaller enterprises compared with large ones. While microenterprise productivity in the countries of Latin America is barely 3% of the level posted by larger enterprises, in advanced countries such as France smaller enterprises are 70% as productive as large companies (ECLAC, 2010, table III.7).

The productive environment in which SMEs operate  has also been made more complex as economies have become more open and international competition has  increased, alongside high prices for primary goods and heavy demand for imported products. In 2002-2008 the region’s exports rose at an annual rate of 1.5%, while the annual rise in imports was 15.5%, outpacing the rate for any other region and exceeding GDP growth as well.  These shifts in trade flows are closely linked to trade liberalization which has advanced with the signing of free trade agreements and the deepening of subregional 
trade integration schemes.

Such diverseness has made it very difficult to fashion relatively homogenous policies and apply them to such a varied group of agents. There is therefore a need for programmes, instruments and intervention modalities that take these differences into account.

This document was prepared by officers of the Division of Production, Productivity and Management, the Economic Development Division, the Social Development Division and the Special Studies Unit of the Economic Commission for Latin America and the Caribbean (ECLAC) and the ECLAC office in Washington, D.C.; staff members of the Department of Economic Development, Trade and Tourism, the Department of Sustainable Development, the Department of Social Development and the Trust for the Americas of the Organization of American States (OAS); and officers of the Integration and Trade Sector, the Inter-American Investment Corporation, the Multilateral Investment Fund and the Science and Technology Division, the Financial Markets Division, and the Meso-America Project of the Inter-American Development Bank (IDB). Work on the document was coordinated by the Division of Production, Productivity and Management of ECLAC with assistance from the ECLAC office in Washington, D.C.