Article
MSEs Ecosystems
Victor AyacheThe Imperative of a Flourishing MSEs Ecosystem?
Given the myriad challenges faced by Micro and Small Enterprises (MSEs) and the vast opportunities they present, most G-20 countries have established national agencies dedicated to fostering their growth. However, the operation of these governmental entities encounters hurdles similar to those faced by markets and large enterprises in meeting the diverse needs of MSEs. What's essential is a two-pronged approach: firstly, a comprehensive understanding and enhancement of the MSE ecosystem, and secondly, the adoption of a targeted strategy to cater to various MSEs subsegments.
The Challenges of Accessing Vital Success Factors
Many MSEs struggle to access the resources and capabilities necessary to enhance their productivity, such as skilled individuals proficient in the latest technologies, financial expertise, and managerial best practices. Moreover, their small scale often renders them less appealing to standard market players, with customers sometimes perceiving smaller suppliers as inherently riskier.
The Role of Government as a Standard and Non-Standard Partner
Non-standard market players like crowdfunding platforms and venture-capital funds are still in nascent stages of development in many countries, frequently unable to adequately address the needs of MSEs. Governments could play a pivotal role in supporting small and medium-sized enterprises by focusing on three key characteristics:
01/ Cultivating an entrepreneurial culture and education to bolster confidence.
02/ Establishing start-up hubs, accelerators, incubators, consulting groups, and training centers to enhance competitiveness.
03/Creating venture-capital funds to stimulate growth and provide access to credit lines.
Entrepreneurial Culture and Education
Many potentially transformative ideas fail to materialize due to factors such as risk aversion, fear of failure, and lack of requisite capabilities. Introducing entrepreneurial skills through formal education can be instrumental in addressing these barriers. For instance, Poland incorporates elements of entrepreneurship into primary school core subjects and mandates upper-secondary students to undertake courses like "Introduction to Entrepreneurship."
Establishing Start-up Hubs
Entrepreneurs worldwide gravitate towards major start-up hubs, drawn by the promise of an innovative environment, access to financing, and comprehensive business support. Governments have increasingly prioritized the development of such hubs, either by branding cities as start-up hotspots or by providing support to start-up campuses. For example, in the US, federal laboratories collaborated with the University of Colorado in Boulder, resulting in the establishment of 12 active start-up accelerators and incubators.
Productivity Enhancement Programs
These initiatives involve expert coaching in operational excellence and capability-building to help MSEs incorporate best practices into their operations. For instance, Morocco launched a model factory in 2011 to assist MSEs in adopting lean manufacturing principles through hands-on training sessions.
Digital and Artificial Intelligence (AI) Adoption Programs
Similar to productivity enhancement programs, these initiatives leverage centers of excellence and model factories to demonstrate the benefits of digital and AI technologies. In Germany, Mittelstand centers of excellence employ AI coaches to train thousands of MSEs annually.
Scaling-Up Programs
These comprehensive support programs facilitate MSEs' transition to the next level by providing access to finance, networking opportunities, consulting services, and mentorship. While primarily targeted at medium-sized enterprises, programs like TURQUALITY in Turkey offer support across various domains such as international brand building, talent acquisition, and corporate transformation projects.
Credit-Guarantee Schemes
MSEs subsegments are too risky for banks’ appetites while other subsegments have access to loans that have higher interest rates than their true risk profile. In reality, MSE loans are often more profitable for lenders than large-firm loans. A widely used program to resolve this is a credit-guarantee scheme (CGS), which aims to reduce the cost of potential defaults by guaranteeing part of the repayment of MSE loans.
Government Venture-Capital Funds (GVCFs)
In high-income countries, governments are increasingly focusing on fostering innovation and economic growth through venture capital. Establishing GVCFs not only furthers these objectives but also ensures adequate financial returns for the government. For instance, Korea's Korea Fund of Funds targets small enterprises and facilitates co-investment with angel investors, as well as supporting startups planning to expand overseas.