Friday, June 12, 2009

Small and Medium-sized Businesses Gain New Attention as Pillars of Emerging Market Economies

China's state-owned banks are showing unprecedented increases in their lending to small and medium-sized businesses (SMBs). This expansion is part of a trend in which emerging-market governments are increasingly active in supporting the SMBs within their economy. Jamaica and Russia are also making a concerted effort to recognize and support SMBs and to help them grow, especially as millions of laid-off workers look for ways to rejoin the formal economy.

Giant multinational corporations (MNCs) such as Huawei in China and Wipro in India often get the lion's share of attention in discussions about emerging-market business. Yet, SMBs form the backbone of most of these countries' economies. Data from the World Bank indicates that SMBs employ about three quarters of all workers in countries as diverse as Turkey, Mexico, Egypt, China and Bangladesh. During economic downturns, the role of SMBs comes into sharper focus. They are often particularly hard hit due to their precarious financial position and reduced access to sources of credit.

SMBs in emerging markets are often underserved and overlooked by MNCs because it can be difficult to identify, size and characterize this target market. Additionally, MNCs are often unsure of how to reach developing-country SMBs or provide purchase financing, especially in nations with weak or non-existent credit systems ( notes the "missing middle" between microfinance and traditional commercial finance). MNCs would do well to investigate local partners who could provide SMBs with innovative payment methods. Industry associations or specialized businesses can also be an effective avenue for targeting these often diffuse businesses. Such focused efforts may provide both MNCs and their SMB customers with the edge they need during these challenging economic times.


Anonymous said...

You're making an erroneous connection with Chinese bank lending and other countries. Chinese banks are state owned and the government is forcing them to lend as part of their domestic stimulus efforts.

Vital Wave Consulting said...

You are correct that the Chinese government is behind the lending to SMBs, and that is exactly the trend we intended to point out in the article. Governments are increasingly recognizing that SMBs are an engine of economic growth and therefore are considering different ways to mobilize credit towards the sector.