May 2007

Networking to develop the economies

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Introduction

In developing nations, mobilising SME viability has attained significant positions among many strategies of economic development. In the scenario of global, knowledge-based economy, these nations are now looking to make use of Information and Communications Technologies (ICTs) to support and facilitate SME development.

ICTs have proven to be vital  tools in improving the efficiency and expanding the out reach of SMEs  to global market  in a more innovative way. There is no universal definition of SMEs since the sector is diverse and flexible that resists any narrow categorisation. SMEs are generally defined on the basis of annual turnover, number of employees, investment in plants and machineries, assets etc.

SMEs in Asia

The contributions of SMEs to employment and the countries' gross domestic product (GDP) are by no means trivial. As of July 2006, close to 140 million SMEs in 130 countries employed 65 percent of the total labour force. SMEs already contribute bulk of growth, and SMEs could make a much bigger contribution to the Asian regional economy if efforts were made to address impediments to SME internationalisation. This could add as much as $1.18 trillion in trade over a 5 year period. It is without a doubt that ICT has enabled the Micro, Small and Medium Enterprises (MSME) networks to become more integrated, and more effective across longer distances, operating with more efficiency and conducting transactions in greater volume.

However, it must be noted that in reality the small businesses that constitute the bulk of developing economies have yet to reap these benefits evenly as obtaining such opportunities rest largely upon the ability of its SMEs to engage in the regional and global economic business networks which, in turn, demands provision of a pre-requisite level of access to and use of ICT.

China is regarded by all SME leaders as having the most competitive SMEs. This is followed by North Asian markets including Japan, Hong Kong, Korea and Singapore. There is a lot of scope in other regions to enhance the competitiveness of the SMEs. East Asian SMEs for example provide about 70 percent of employment in the region.

However, it can be noticed that the average number of people employed per SME is more in developing countries when compared to the developed economies. This means there are fewer start-ups, and the pool of SMEs from which high grown SMEs can emerge is much smaller. This makes a strong case for a major thrust on micro-enterprises to push up employment rates.

On a broader scale, within and among countries in the Asia Pacific region there are growing rural-urban disparities in terms of policy support, access, affordability, and absence and relevance of practical content. The rural-urban digital divide is widening because of geographic locations, lower literacy, and lack of knowledge and awareness. Urban populations seem to be benefiting more than the rural areas from new infrastructure, applications, and services. Supporting MSME as a vehicle of self-empowerment, capable of working in both the urban and rural environment, can effectively act to connect the two environments together, facilitate knowledge transfer and encourage collaboration.

The top 10 barriers

(i) Shortage of working capital to finance exports; (ii) identifying foreign business opportunities; (iii) limited information to locate/analyse markets; (iv), inability to contact potential overseas customers; (v) obtaining reliable foreign representation; (vi) lack of managerial time to deal with internationalisation; (vii) inadequate quantity of and/or untrained personnel for internationalisation; (viii) difficulty in matching competitors' prices; (ix) lack of home government assistance/incentives; (x) excessive transportation/insurance costs.

SMEs in Africa

SMEs comprise over 90 percent of African business operations and contribute to over 50 percent of African employment and GDP. SMEs sector has shown positive signs in South Africa, Mauritius and North Africa. In South Africa, SMEs constitute 55 percent of all jobs and 22 percent of gross domestic product (GDP) in the year 2003. SMEs constitute 95 percent of formal manu-facturing activity in Nigeria. Senegal and Kenya have provided conducive environment for SMEs. Subcontracting is uncommon in Africa, but has grown in South Africa since the year 1998.

Clusters of SMEs are little developed in Africa and are concentrated mainly in South Africa, Kenya Nigeria, Tanzania and Zimbabwe. In Angola, Novobanco provides loans free of bank charges, without a minimum deposit and informal guarantees (property assets and a guarantor), as well as permanent contact with loan managers. During 2005, the UN Year of Microfinance, the international spotlight was firmly on SME development in Africa. Some of the initiatives for the SMEs sector in Africa are:

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