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TMCNet:  Working to find a win-win situation [Gulf, The (Bahrain)]

[December 01, 2012]

Working to find a win-win situation [Gulf, The (Bahrain)]

(Gulf, The (Bahrain) Via Acquire Media NewsEdge) Gulf countries are looking to SMEs – of up to 100 employees – to help generate jobs. GCC leaders are putting programs and policy initiatives in place to enable them compete for government contracts. Too few, however, focus on the role private corporations can play in helping SMEs grow. SMEs represent more than 90 per cent of the GCC private sector, employing 40 to 63 per cent of its labour force. However, they contribute less than 40 per cent of GDP, primarily because they are concentrated in less profitable, less capital-intensive, low-tech sectors paying lower wages and producing less value added per employee. To help GCC SMEs realise their potential, large corporations need to get involved. Major corporations spend billions of dollars annually seeking products and services. A recent study by the Center for an Urban Future of nearly 200 US small businesses found nearly 70 per cent of those surveyed increased in revenue and size within two years of becoming part of the corporate supplier base. When small companies interact with large corporations, SMEs make changes to their organisational structures, management practices, and operations. Technologies are upgraded, efficiency increased, and, most importantly, they stabilise financially. Revenue becomes greater and more consistent, making it possible for SMEs to add new jobs. Having a large corporation as a customer also opens doors to easier credit and other opportunities. The biggest upside is the spillover of new knowledge, innovation, and business models from small companies into the ecosystem, raising the quality of the entire SME sector. In some Gulf countries, large state-owned enterprises such as Saudi Aramco, Saudi Telecom Company and Qatar Telecom already buy services and products from SMEs. This model needs to extend to private corporations.Corporations are beginning to realise that making small businesses part of their supplier base extends beyond mere "corporate social responsibility." It is good business. Smaller companies are more flexible in providing innovative products and services. They are quicker in delivering services locally. Their local market knowledge can be extremely valuable for corporations trying to enter new markets. A diverse supplier base is likely to establish linkages between big and small businesses, facilitating easier access to resources, multiple information sources, and a bigger customer base for corporations. Finally, when corporations restrict themselves to a small network of suppliers to reduce costs, they are vulnerable to supply-chain disruptions. There are four ways corporations can help small GCC businesses:i) Identify and support talent. Not every SME has the capacity to become a supplier. Identify elite performers across the region based on talent and operational readiness. Once identified, large companies can mentor talented entrepreneurs through supplier development programmes. In addition, governments can pitch in to sponsor programmes that boost the management capacity of high-potential SMEs, thus enhancing their growth and competitiveness. Take the example of a cohort of 114 companies that participated in Gallup's Entrepreneurship Program designed to spur SME growth – highly talented entrepreneurs outperformed their less talented peers in year-over-year profit growth by approximately 19 percentage points. And, on average, companies in the programme – sponsored by the state government and a local university – grew 13 per cent in revenue and 57 per cent in profit in one year. This growth led to an average 18 per cent increased headcount, creating more than 500 new jobs in a year.ii) Provide financial help. SMEs need support to gradually scale up to meet large corporations' needs. Automated invoicing or payment processing systems are a burden for small companies to install. A loan from the corporation or a community development financial institution would help small companies with capital to scale up their systems, enabling SMEs to accept their first big contract. iii) Make procurement transparent. Large corporations that provide a simple website with basic information about goods and services needed and the procurement officer's contact information would help small businesses know where to start. iv) Simplify application and selection. Make selection more accessible and straightforward. For instance, IBM-funded website, Supplier-Connection.net, allows small businesses to apply to all participating companies using a single application form, while helping small businesses collaborate to bid on contracts.It is not the quantity, but the quality of SMEs that will ultimately lead to Gulf job creation. The small business sector is ripe for innovation and growth. Linking it to large corporations' supply chains can be a win-win for everyone - SMEs, corporations and GCC governments looking at SMEs as a possible solution to their employment problems.Sangeeta Badal is a senior researcher in entrepreneurship at Gallup (c) 2012 Al Hilal Publishing & Marketing Group Provided by Syndigate.info an Albawaba.com company


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