Research teams in Asia are using data drawn from firms to produce lessons for policymakers. The aim is to help middle-income countries support SMEs as a pathway to higher incomes and inclusive growth.

Yogyakarta, Indonesia. Image: Nugroho Nurdikiawan Sunjoyo/World Bank

In South Asia, small and medium enterprises (SMEs) account for more than 90% of all businesses and employ more than half the workforce. By providing opportunities for women, youth and the poor, SMEs can play a vital role in generating inclusive growth. But what can countries do to nourish thriving enterprises that help generate more equitable growth?

Some lessons can be taken from successful middle-income economies. For example, small and medium enterprises in Korea, Japan and Taiwan gained technology and skills as subcontractors for larger export-focused firms. In these three countries, many people benefited from the resulting rise in incomes, which spurred a domestic market for manufactured goods. With smart government investments, these small and medium enterprises became a “golden middle,” playing a crucial role in boosting employment and value-added production and export.

In 2012, the Asian Institute of Management launched a research competition with support from Canada’s International Development Research Centre. Through case studies, research teams are using data drawn from firms to produce lessons for policy makers. The aim is to help middle-income countries in Asia support SMEs as a pathway to higher incomes and inclusive growth.

In November 2013, researchers from across the region gathered to explore key issues for small business development. Already, a number of policy-relevant messages are emerging. For example:

• Corruption risks: Analysis from 13 Asian countries shows some of the factors that expose firms to government corruption include higher levels of private ownership, orientation to domestic markets, and dependence on government contracts.

• Benefits of international integration: A study of Malaysia’s high-technology sector shows that foreign direct investment produces significant technology spillovers that benefit local firms. Such spillovers tend to involve many more firms in a country’s industrialization process.

• Crisis resilience: Evidence shows that some firms thrive during financial and environmental crises. During the 2008-2009 global economic crisis, Indonesian firms with more resources and intimate knowledge of local consumer demands benefited by increasing their domestic market share. By offering better-quality domestic products, local SMEs took market share from imported goods that became more expensive.

 

 
For further information contact:

Isabelle Bourgeault-Tassé
International Development Research Centre, Canada
Email: ibourgeault-tasse@idrc.ca