Author: Michael Sippitt
14 Jul 2017
In economic terms, much of the world hardly understands what is happening to it. Political uncertainties, slowing global trade, protectionism and technological disruption are all increasing risk and undermining confidence.
The ‘new world order’ is still under development and evolving. There may be less order and more disorder for a long while to come, in the absence of genuine global leadership and co-operation on many of the world’s biggest issues.
This is probably one of the best times to be a small business and one of the worst times to be a large one. Adapting to rapid change in a disruptive market is far easier for SMEs, and successful ones often have specialist niches and low fixed overheads. Readiness to adapt is at the heart of business survival. SMEs are at advantage by generally having less corporate baggage which may hamper or destroy bigger enterprises, but suffer from less resource to manage complexity.
[A]ll circumstances produce winners and losers
However, in the UK context, with ongoing Brexit negotiations and no idea of the outcome, SMEs are challenged by uncertainty, but all circumstances produce winners and losers. While nothing about SMEs allows generalisation, currently the biggest Brexit-related problems can be grouped into four main categories. These are: the difficulties in finding and keeping skilled workers, deciding whether to start operations in another EU country to hedge bets, access to finance as investors are more cautious, and broader economic decline impacting business in general.
SME experience in world markets indicates that those significantly active in international trade have the highest rates of growth. Despite protectionism increasing, the markets available to SMEs with the right products and services are there to be developed.
Brexit of course threatens UK SMEs that depend heavily on EU trade, or on easy access to EU skilled workers, but bearing in mind 93 percent of the world population is not in Europe, it is a matter of looking further afield for opportunities. The Commonwealth is an excellent start point, though certainly not the whole picture. The Commonwealth Environmental Investment Platform (CEIP) sees increasing interest from UK SMEs about how they might enter the Commonwealth markets of 2.3 billion people and make informed choices of target countries. This is, of course, of similar interest to EU SMEs generally, and many have excellent opportunities in the Commonwealth.
SMEs looking to build export capability do well to consider collaborations that enable growth in new markets, and while collaboration needs thought and structure it is a way to generate growth on a low cost and risk sharing basis. Technology now enables global collaboration that would have been impossible a few years ago, so this is perhaps the most positive outcome of rapid technology development. The dark side of technology is the inevitable displacement of human labour by automation leaving a huge void of low skilled work, particularly in developing countries. In these countries SME development is increasingly seen as a priority. Across the world most jobs are created by SMEs, and while many trade purely in local markets and are not by any means disruptive or innovative, there are SMEs everywhere who want the chance to trade beyond their own country.
Taking South East Asia as a comparison, there is a strong entrepreneurial culture and a lot of support to SME development. SME Corporation Malaysia, for example, has a highly structured programme of help and encouragement to Malaysian SMEs from which much can be learned. Yet the pattern is that SMEs there still focus mostly on Malaysia itself and need more relationships in other countries to get business growth opportunities.
Similarly, the Singapore Business Federation National Business Survey 2016/17 showed that many businesses there would like to expand overseas but feel limited by lack of understanding of opportunities, relevant requirements, and contacts to work with. Only one in five businesses claimed to have benefited from Singapore’s free trade agreements, even though Singapore engages well in the ASEAN Economic Community. This is a reminder that SMEs do not necessarily gain from trade agreements and they need more proactive support for export. Talk about trade agreements is empty unless businesses understand and use the opportunities, and that needs a different dynamic.
Barriers to trade for SMEs are much the same across world markets, and their interests are often not adequately taken into account. Globalisation has been self-defeating in terms of adding too much complexity, and as most countries are anxious to see their SMEs creating wealth and jobs for national benefit it would be timely to apply more effort to simplifying and harmonising trade, reducing trade costs, and incentivising investment.
While SMEs are not the solution to everything, they can play a bigger role in helping sustainable development and creating job opportunities for the young, many of whom face a workless future as automation threatens to make humans redundant. At every level there is a need for major effort to make life easier for the SMEs who will in diverse, imaginative ways contribute to global needs. Indeed, the main limit to our achievements in the new and technological world order is our own imagination. Those who show imagination need maximum help for all our sakes.
Michael Sippitt is the Chairman at Clarkslegal LLP and the Commonwealth Environmental Investment Platform