How small businesses can be nurtured into large firms

Many micros or start-ups need incubation services. FILE PHOTO | NMG 

By SACHEN GUDKA

Summary

• Many micros or start-ups need incubation services.

The increased attention on small and medium enterprise (SME) growth both at a national and global scale, points to a reckoning that the future of business hinges on their success.

In Kenya’s context, it seems that both the
government and private sector are progressively dismantling any one-size-fits-all approaches, and are instead, constantly trying to find more nuanced ways to intervene and uplift micro, small and medium businesses. This is demonstrated in some of the proposed measures in the recently read Budget 2019/20 as well as in new products and services specifically targeting SMEs by various sectors.

The unique and dynamic nature of SMEs in the manufacturing sector calls for an adaptive approach in developing policies and interventions that most importantly centres on their needs and proposed solutions in the process. Any ideas around the growth of SME businesses will only work if SMEs themselves are conspicuously involved in driving the change.

Otherwise, anything else is akin to providing the wrong prescription to the right affliction or vice versa. This is perhaps why in some instances you will find a market that is brimming with financial products and services targeting SMEs but at the same time, these businesses continue to cite access to finance as their constant giant hurdle.

Does the word ‘access’ mean the same thing to all businesses across board? Absolutely not. Have we understood the ways in which different businesses, depending on their levels of growth, from start-up to medium, feel marginalised from taking part in local supply or value chains? Is there a need to interrogate their differentiated requirements at a granular level in order to make a significant difference to their growth, and ultimately the economy? Definitely.

It is quite possible to grow start-ups and micros to small profitable businesses, then to medium-sized companies with capacity to produce and supply for the local market, and ultimately to large firms which play significant roles in the global value chains and international markets. This can only happen if we harness their innovative nature; synergise their objectives with those of industry, government, financiers and academia; and make space for a new way of imagining and shaping future businesses.

If we look at the current situation as pertains to the journey of businesses from micro level to large, it takes the familiar shape of a pyramid. The wider bottom part of the pyramid is saturated with micro businesses, but the number drops as we move up to small, medium and lastly, very few companies make it to the apex as large businesses.

Reversing this trend should be our priority as a country if we are to deal with the problem of high unemployment and widening inequality gap.

There are some initiatives locally, already making headway on this front. The Kenya Association of Manufacturers, for example, has now set up a Manufacturing SME Hub, specifically to uplift micro, small and medium businesses in value addition towards achieving the 15 percent targeted share of the gross domestic product by 2022.

The Hub’s objective is to provide the necessary support through policy advocacy formulation and capacity building to help businesses move from one level to the next.

Many micros or start-ups need incubation services. This is because they are either inundated with so much information on regulations, rules, administrative and compliance issues that they feel quite helpless and burdened from the get-go; or they have no access to information at all, and hence are susceptible to arbitrary inspections, arrests, shutdowns and unconstitutional charges.

The Hub advocates for a conducive business environment for them, taking into account their specialised needs, and aims to work with government agencies and departments to develop frameworks that will nurture and encourage their growth. This is coupled with resources to offer business rescue advice and business diagnostics.

Small industries that feel stuck or are unsure on how to progress to the next level are supported through acceleration services. This means looking at strengthening their existing market linkages and building their capacity to access new markets. Medium-sized businesses will be elevated through scale-up services, enabling them to integrate into regional and international value chains.

The question of sustainability here is also key. Businesses in the medium category need to build strong governance structures that will ensure global best practice to enable them move into the large category and establish global links.

This is how we invert the pyramid. Designing this type of comprehensive capacity building system reduces the barriers that curtail SMEs growth, freeing them up to innovate, provide sustainable jobs and become the engines that catalyse productivity in the manufacturing sector. Hence we will have more businesses growing successfully through the different levels and finally larger businesses at the top.

G20 Action Plan on SME Financing states that in the past five years, SMEs in developed markets have grown by 120 percent. This is definitely achievable for us through a deliberate focused action-plan to drive SME competitiveness and sustainability.

The writer is Chairman, Kenya Association of Manufacturers.