Small Enterprises, Big Business

Author: EIC | Economic Intelligence Center
Published in Bangkok Post/Asia In Depth: Asia Focus section, 18 September 2017

Everyone is talking about small and medium businesses, or SMEs. SMEs are increasingly recognised as the backbone of society in terms of their contribution to the economy and employment, responsible for over 90% of employment in Asia. However, the role of SMEs as customers receives scant attention. That is, SMEs are primarily perceived as producers or providers of goods and services. In truth, they are also clients to others. This edition of Asia Focus will explore an emerging trend, in which SMEs are increasingly becoming target customers of large firms, with key implications for both manufacturing and service industries.

To compete in a fierce and competitive marketplace, SMEs must remain on the cutting-edge in catering to the needs of their customers. They must search for new ways to improve their performance, and we have witnessed conforming responds from large companies. Hence, understanding SMEs and delivering products and services they require are important elements to benefit from the rise of SMEs.

As an example, global industrial conglomerate Siemens recently opened a factory in Mumbai offering high-tech machinery and accompanying software at affordable prices to Indian SME manufacturers. SMEs are going through a transformative phase in this digital era, with technologies helping them improve the productivity, flexibility, and efficiency of their operations. In this vein, large enterprises can act as enablers by reaching SMEs through their targeted offerings.

In addition to manufacturing excellence, SMEs are also interested in acquiring business solutions to strengthen their operations. Web service giant GoDaddy Inc. recently unveiled a suite of tools for SMEs in the Philippines. GoDaddy’s new website builder aims to help SMEs create mobile-optimized websites that help them reach larger pools of customers in the fast-growing online world. Key features include a smart learning system that provides SMEs with necessary data to develop customer engagement and other activities such as sales and marketing.

Dealing with regulatory change is an unavoidable obstacle for SMEs. To illustrate, the Goods and Services Tax (GST) in India requires businesses to file taxes multiple times, creating huge compliance requirements. The Intuit QuickBooks has, therefore, introduced a GST ready version of online accounting software to help SMEs operating in the Indian market to comply with tax requirements. This software enables SMEs to track expenses and income, create invoices, file taxes, and retrieve data at any point in time from both desk and mobile devices.

SMEs are recognising the need to expand their businesses beyond domestic markets into the international domain. Subsequently, business travellers are on the increase and are becoming a potential market for travel businesses. Capturing this trend are Singapore Airlines and AirAsia, with both launching new loyalty programs designed with SME travellers in mind, offering flexible options and service terms depending on requirements and budget.

Being able to penetrate overseas markets is an important strategy for growing a business. However, SMEs are still struggling with limited resources, including a lack of market intelligence and language skills. Here is an opportunity for larger firms to help SMEs bridge the capability gap. For instance, Alibaba Group Holding has ramped up the effort to encourage placement of foreign products on its Tmall platform to serve the growing demands of the Chinese middle class. Not only providing more choices for Chinese consumers, this action also enables foreign producers and traders, especially SMEs, to enter the Chinese market while overcoming market-specific obstacles.

Catering to SMEs presents a number of business opportunities. However, larger enterprises must approach these opportunities with caution. First, SMEs are price-sensitive due to a lack of financial resources.  Secondly, the heterogeneous character of SMEs leads to varying requirements and expectations. Third, while SMEs are early adopters, they may lack the skills and expertise that would enable them to make the most of their purchases. Therefore, larger businesses must ensure that offers are flexible in their pricing and applications. Furthermore, offerings for SMEs should be bundled with training and consultancy packages. As a consequence, large firms should opt for the simplest possible implementation while also preparing staff to handle queries in the form of 24/7 call centres, real-time chat platform, and on-site visits.

As a final point, large companies’ targeting strategies also need to consider different business characters at each stage of the SME life cycle. Convincing SMEs with growth inspirations may not be the same as those operating in a stable and mature stage. At the same time, business expansion tools geared toward rapid growth may not be fully applicable to new-born SMEs at the introductory stage. Meanwhile, international solutions may not be relevant to domestic-orientated SMEs. To successfully target SMEs, large companies need to make sure that they are offering the right products and services to their target markets.

In sum, the growing demand by SMEs for operation and expansion offerings represents an important opportunity for large businesses to expand their own operations. Nevertheless, there are certain risks involved that may deter a company’s motivation to target SME clients. Considering the opportunities and challenges, is it time for your business to make a move?