MSME can enhance competitiveness, productivity by pursuing SDGs—report

Measures should be taken to help micro, small and medium enterprises (MSMEs) achieve all the UN Sustainable Development Goals (SDGs) because meeting these goals can improve their growth, competitiveness, and productivity, according to an international report.

The paper titled “SME Transformation for Meeting the SDGs” emphasized that SMEs should not be coerced to comply with the SDGs but rather be encouraged to participate actively because the SDGs are “intrinsic” to their development.

The study said pursuing SDGs has two key benefits for MSMEs. By accomplishing the SDGs, MSMEs can contribute to a sustainable future and can continuously update their survival and growth strategies to remain competitive. Moreover, they can stay abreast of changing business practices and technologies to remain commercially successful.

MSMEs have a pivotal role to play in achieving SDGs and therefore must be aided to achieve all 17 of them, said the paper published recently by the Asian Productivity Organization.

For instance, SMEs play a crucial role in providing job opportunities and supporting economic growth in marginalized communities, which is in line with the SDG of eradicating poverty.

“Poverty alleviation efforts are driven through the creation of small and medium enterprises,” said Amit Kapoor, honorary chairman of the Institute for Competitiveness in India, in a video presentation of the findings of the study.

Aside from eliminating poverty, MSMEs also have key roles to play in the accomplishment of the other SDGs. For example, by using newer technologies to enhance small-scale farming, they can contribute to the goal of food security. They can also help in the SDG of ensuring quality education by providing vocational training to local communities. And by engaging in continuous innovation and product development, MSMEs can realize greater market size.

Additionally, by shifting to clean energy options, MSMEs can contribute to the reduction of the carbon footprint as part of the SDG goal of affordable and clean energy, said Kapoor.

Unfortunately, most SMEs cannot fully participate in the SDGs, which would have helped to ensure their competitiveness, productivity, and success, because they face intricate and myriad challenges.

These hurdles hinder their transformation from conventional MSMEs focused on the mere production and sale of goods and services to full-fledged entrepreneurs engaged in continuous innovation and the rollout of new products and services.

Some of these challenges include difficulties in accessing accurate and timely market information, paucity of appropriate and regular financial resources, a shortage of high-quality human capital, and a prevalence of large-scale informality that impedes their growth trajectory.

The paper went on to mention that one of the most common challenges faced by nearly all MSMEs across countries is the lack of finance and R&D support.

“The SME sector identifies high collateral requirements, information asymmetries in the credit market, complicated procedures, and high upfront costs as key bottlenecks in meeting their financial and R&D needs,” it said. “If MSMEs struggle to manage their cash flows or cannot allocate resources to vital R&D efforts essential for product development, their potential for increasing productivity diminishes,” it said.

The report added: “The continuous growth of MSMEs is an essential component, and failure to achieve factors like cost-efficiency not only leads to their eventual exit but also hinders the process of achieving the SDGs, including gender equality, decent working conditions, workforce skilling, and poverty alleviation, among other important goals.”

The study called on governments to address these challenges by, among others, giving more long-term support to SMEs and not just providing one-time financial assistance in the form of tax exemptions and subsidies.

“In this context, the role of the government becomes crucial in creating an enabling ecosystem beyond a mere one-time boost to the industries. While it has been observed that regular government intervention is not desirable for the long-term growth of MSMEs the government can create an enabling ecosystem through measures such as streamlining the registration process, simplifying IPR filing, investing in overall R&D of the country, and promoting digital services,” said the document.

Other recommendations include launching training programs to skill workers, formalizing both the enterprises and the workforce in the country by making the business registration process friendly for SMEs, and increasing the digital footprint of MSMEs to enhance their visibility and transparency.

At the same time, policymakers are advised not to overly prioritize the first stage of the MSME lifecycle, which is market entry, but rather give equal attention to the three other stages (survival, prosperity and exit) as well.

While removing entry barriers is important, providing an enabling environment for R&D is also critical for policymakers to look into so that “enterprises can emerge as significant drivers of economic growth and wealth creation for an economy,” explained the study.

Moreover, it continued, the overarching goal should be to enhance the competitiveness of enterprises rather than just increase their number. “A mere increase in the number of enterprises may not yield significant gain in terms of value-added or employment, as it could lead to disguised employment, or would eventually turn redundant. Therefore, enterprises must stay competitive,” the paper said.

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