Problems of Small Scale Industries

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Small-scale industries, also referred to as small-to-medium enterprises (SMEs), experience problems very different from those of larger corporations. These differences are largely due to the difference inherent in the volume and quality of resources available to each.

Economic Impact

SMEs are an integral part of any economy. As a group, SMEs account for significantly more new jobs than large corporations. They also serve to stimulate growth in the overall economy, providing stakeholders with numerous benefits. However, in spite of the their benefits, most SMEs fail in less than two years.

With their significant impact, it is crucial that tools are developed to help policymakers and small business owners achieve sustainability; yet, there is currently no operational framework that serves this purpose. It is difficult to determine such a framework when the problems facing SMEs are so poorly defined.

Differences Between SMEs and Large Corporations

In an effort to better describe the problems unique to SMEs, they are frequently contrasted to large corporations. USAID identifies the following differences between SMEs and larger corporations.

Also, larger companies are able to adapt more quickly to changing market conditions, and thus are able to maximize strategic opportunities, whereas smaller companies may lack the resources to respond as adroitly. This is largely due to the fact that SMEs inherently are more limited by financial variables.

Financing

The ability to obtain capital is of increasing importance as the world becomes more technologically integrated, particularly as regards communication. Information and communications technology (ICT), defined by the United Nations Development Programme (UNDP) as the ability “to receive, process, and send out information,” can be cost-prohibitive for many SMEs. While an SME may not have the same need of ICT that another does, ICT enables companies to take advantage of “opportunities to integrate into the global supply chain, bid for outsourcing businesses, and increase their internal productivity and efficiency.”

Resources

The lack of resources resultant from this lack of financial support impacts SMEs in a variety of operational areas, ranging from efficiency to productivity to competitiveness. A lack of capital limits the quality and quantity of staff, new technology, research and development and marketing. Thus, a scenario develops where it is difficult for the SME to attract top talent, to have access to new ICT and the benefits thereof, to have the free capital necessary for innovation and to have the ability to effectively promote business.

Sustainability

While certain methods of quality management may increase efficiency enough that a lack of resources is not as detrimental as it may be otherwise, the adoption of efficient practices requires, if nothing else, knowledge of those practices. This learning curve is one of the primary reasons that governments and aid organizations around the world promote programs that support small business counseling. As the economy grows leaner, this focus on efficiency is paramount to SMEs, and may indicate chances of business sustainability.

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