Small and medium enterprises (SMEs) dominate the world business stage—they are estimated to account for almost 95% of enterprises worldwide and approximately 60% of private sector employment.1
They are key engines of job creation and economic growth, particularly in developing countries.
Generally, SMEs are good at doing what they do, as in manufacturing a product or providing a service, but a lot less good at developing other necessary attributes of the business such as marketing, innovation, and driving efficiencies and economies of scale in the business. In addition, a major challenge for many SMEs is moving from small to medium to large—many lack the capability of completing this business transformation.
In many economies, SMEs fail to see the potential hiding in plain view within their multinational neighbors. Instead, SMEs will often see the pathway to growth and success in gearing up to export to distant markets, where they may find themselves competing with rivals that enjoy considerable advantages in terms of larger scale and lower cost bases. Often, they fail to see the potential hiding in plain view—they could benefit greatly from a path to growth considerably closer to home, offered by their base of multinational neighbors.
A recent report by CPA Ireland, entitled “Charting a Course for Growth – what Irish SMEs can learn from their multinational neighbors,” finds that there is much to be gained through collaboration between SMEs and multinationals. The move to global sourcing by multinationals means that much business is beyond the reach of locally based SMEs, in a direct sense at least. However, the real value those global corporations bring lies in the fact that they are global leaders—not just in their own business sectors, but in how they do business. They strive for world-class standards across every function, including people development, innovation, marketing, customer relations, and basic business processes.
SMEs need to achieve a number of attributes to exploit the potential growth emanating from their multinational neighbors. They need to be of significant scale to satisfy a demanding client base; be efficient in production and priced competitively; be able to comply with multinational procurement systems; have total quality assurance and high-quality financial management; have very strong IT systems and capability; have top quality customer service systems and engage in R&D and be innovative.
All of these attributes are essential if the potential to service a very sophisticated and demanding multinational client is to be realized.
Most SMEs are nowhere close to achieving all or even most of these objectives and they require assistance to help them move up the value chain. Accountants—particularly in SMPs, or small- and medium-sized practices—and professional accountancy organizations can help. Indeed, the IFAC Global SMP Survey: 2014 Results found that the most commonly provided services include corporate advisory and business development, and that business advisory and consultancy services were predicted to increase in 2015.
SMEs, in the main, use SMPs as their trusted advisors. SMPs can help suitable and ambitious SMEs to adopt best business practices to position themselves to compete for multinational business. Professional accountancy organizations can advocate to ensure that mentoring and support resources are available to SMEs; they can also work with Chambers of Commerce or their equivalent to provide opportunities for multinationals and SMEs to network. Multinational companies are very conscious of their roles in the community and are willing to live up to their corporate social responsibilities. Assisting SMEs can be a worthy CSR activity and accountants in CFO or equivalent positions can drive this initiative.
Innovative SMEs that develop a deep understanding of multinationals and their needs can create new lines of business. There are many examples of Irish SMEs—particularly in the IT and engineering space—who have capitalized on the “export” market on their doorstep: successfully winning business from their multinational neighbors and being asked to quote for business overseas as a result. This is a much smarter way for an SME to move to export markets.
SMEs cannot ignore the “export” market on their doorstep. We accountants need to alert our SMEs to the opportunities and then work with suitable SMEs, learning from best practice in the multinationals, to prepare them to exploit potential growth emanating from their multinational neighbors.