24/06/2019 – News / Business / SMEs / Employment / OECD / Global

OECD report:  SMEs are driving job growth, but a “rethinking of entrepreneurship policies” could help boost wages and productivity

Small and medium-sized enterprises (SMEs) have proved to be a significant driver of employment growth in recent years, mainly via the creation of new firms, including in high-growth sectors such as ICT. However, a new study issued by the OECD – ‘SME and Entrepreneurship Outlook’, which encompasses 36 country profiles – highlights how most SME job creation has been in sectors with below average productivity levels, and that SMEs typically paid employees around 20 per cent less than large firms.

While SMEs are more engaged in new organisational or marketing practices than large firms, and are oftentimes more innovative in developing new products and processes, many continue to struggle disproportionately to navigate the increasing complexity in technologies and markets, the new report found.

 

“We need a fundamental rethinking of SME and entrepreneurship policies to improve business conditions and access to resources. This will enable workers to have higher wages and greater productivity, as smaller employers harness major trends like digitalisation,” said OECD Secretary-General Angel Gurría, launching the report at the annual OECD Forum last month in Paris. “We need a renewed policy and measurement agenda to understand how countries, regions and cities can capitalise on their many diverse small businesses as drivers for inclusive and sustainable growth.”

 

Key challenges impacting SME performance

 

Bringing together unique data and evidence on SME performance and policies, this first edition of the report illustrates that SMEs are more dependent on the business ecosystem and the policy environment than large companies, and identifies a number of key challenges.

 

One key challenge is that, while the wage gap is smaller for exporting SMEs, trade barriers are disproportionately large, and recent trade tensions may further hamper their ability to benefit from globalisation.

 

Another issue raised in the report is that SMEs struggle to combine different types of innovation, and continue to face size-related barriers in accessing strategic resources, such as skills, finance and knowledge. Around one-quarter of SMEs in the EU reported a lack of skilled staff or experienced managers as their most important problem and, in most OECD countries, less than one-quarter of small firms provided ICT training in 2018.

 

One major stumbling block relates to digitalisation. The digital transformation provides scope for productivity growth but large adoption gaps exist compared to larger firms, with half as many small firms in the OECD investing in cloud computing services in 2016, for example.

 

Government efforts to support SMEs

 

Governments have been proactive in their efforts to improve framework conditions and address size-related barriers for SMEs, according to the new study. The 36 country profiles in the OECD’s new Outlook report show that, in the OECD area, governments are focused on accelerating innovation diffusion to SMEs; ensuring SMEs keep pace with the digital transformation; engaging SMEs in upskilling; scaling-up innovation networks and MNE-SME linkages; and levelling the playing field in product markets, public procurement and ‘lead’ innovative markets. Small businesses are also benefiting from the strengthening of e-government services and from reforms undertaken in OECD countries aiming to lower administrative and tax burdens and enforce smart regulation.

 

Despite such efforts, the complexity of regulatory procedures remains a major obstacle for SMEs and entrepreneurs. Furthermore, the pace of structural reform has slowed in recent years and progress remains uneven in areas that are key for business creation and SME investment, such as insolvency regimes, civil justice and enforcement of competition laws.

The report argues for more efficient governance and more coherent arrangements across national and subnational levels, regions and cities. It also calls for fostering international peer learning and enhanced monitoring and evaluation capacity.

 

Read the report here: http://www.oecd.org/industry/oecd-sme-and-entrepreneurship-outlook-2019-34907e9c-en.htm

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