Small and Mid-Size Enterprises, also known as SMEs, are known to have significant importance in the growth of global economic development. SMEs are businesses with a certain number of assets, revenue, and employees. SMEs have created jobs all around the world over the years and continue to do so. They have even outnumbered large firms. According to the World Bank, “They represent about 90% of businesses and more than 50% of employment worldwide…According to our estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world.” The significance of SMEs cannot be stressed enough, especially after the statement above. However, even though SMEs are responsible for business growth as well as increased employment rate, they face certain challenges, for example, access to finance – a widely reported challenge, especially in developing countries.
Access to Finance is essential for the growth and development of a business, especially SMEs. One way of receiving finance is getting investors or other companies to invest in businesses, but the question is why would investors or anyone else want to invest in any business? Well, investors usually invest where they see the value and potential success by observing how a business operates and what are their priorities or how they execute their plans – every investor may have their perspective which they deem trivial.
One of the ways of making any SME much more valuable is by prioritizing ESG or Environmental, Social, and Governance – a collection of methods that are used to measure an organization’s impact on the environment or society itself. For small businesses, adopting ESG can be extremely beneficial as it not only attracts investors or customers but also allows the business to have a good reputation as well as reduce risks and lower costs – hence, making room for potential growth. In addition, businesses incorporating ESG practices allow them to have a sustainable and efficient financial system – for the long term. By 2021, more than 70 countries from about 500 organizations are known to have adopted ESG reporting.
Contrarily, as beneficial as incorporating ESG practices can be, there can be some challenges along. These challenges can be at variance among different enterprises, however, the challenges we will be discussing in this article are some of the frequent ones.
When small businesses begin to grow, they firsthand experience difficulties or challenges in developing different aspects of their business. One of these challenges is improving organizational structures, which give clarity over the business’s purpose: managing the strategies used in an organization, controlling or monitoring the activities, and further ensuring that they are directed towards achieving the organization’s goals. If these structures do not develop then it can significantly impact other areas such as decision-making processes and coordination. In addition to this, a familiar challenge comes across: communication and coordination. It is necessary to verify that everyone in a company is updated and is fond of the roles they must carry or why they must carry them. Also, there seems to be a lack of understanding of ESG practices and their importance, which is also a result of poor communication. When everyone is aligned, they work effectively, contributing to the organization as much as they can. They do not feel neglected, and a sense of belonging is achieved. On the other hand, some firms report that as they are growing, they encounter barriers when it comes to their ability to create, develop, and convey their firms’ strategies or define their goals and purpose.
Sometimes, the problem isn’t within a company. The company may be operating well but it may need to recruit employees – with proficiency in the same industry as the company. Recently, hiring or recruiting employees has been a major obstacle. In the case of employees with good talent being found, the employees demand much more flexibility than ever before. The increase in demand has augmented pressure on companies to align their values and ESG policies with employees’ values. This situation has mounted up, especially after the pandemic. This, however, remains true that employees with the approach of developing individual contingencies or having great aptitude are limited or unreachable.
On the contrary, every difficult situation has a loophole or a pathway that leads to the loophole. Also, identifying challenges is the first and foremost step to improving a situation. Few businesses out there are taking measures to limit the potential consequences – that may arise when issues are not dealt with. They are studying their strategies and updating them, especially at a time when their business is growing. Also, they are keeping up with ESG policies and making sure they move towards sustainable business models. Businesses recognize the growing utilization of data and technology and are effectively using it for their purposes. For example, profiting from the use of ESG software which transforms data into valuable insights – thereby reducing their dependency on a group of individuals for ESG reporting. They even outsource via the internet to get their work done by professionals – this is helpful especially when they face difficulties recruiting.
Lastly, there are many more ways through which SMEs can overcome obstacles (mentioned above): taking initiatives such as educational or consultation activities which can help educate or guide employees to ensure everyone is updated and aligned with their and the company’s goals, prioritizing communication by communicating aims and strategies that they (the business) plans to use – in the case of having difficulty delivering ideas, then one can work with a few very trusted members and seek their help or guidance in doing so – as this paves way for integration which is essential for advancement. In the case of owners or seniors in a company not being able to formulate goals and aims for their business, leadership training and workshops for certain managerial skills are always available so why not benefit from those? For employees, individual development plans, feedback meetings, and pieces of training might aid them in developing their skills and provide value to the business overall. Apart from this, the step towards sustainable business models assists companies to become much more innovative and help reduce high costs of production and waste management.
All businesses face challenges – these involve SMEs as well – and these challenges could be ESG-related or not but in the end, what is required is that each business must analyze its plan (which includes strategies, framework, and more), identify areas that need improvement (these include obstacles or challenges) and further re-evaluate or make alterations if needed. Businesses tend to keep their priorities fixed and move on but sometimes change in priorities is necessary for growth and development.
References:
- https://www.worldbank.org/en/topic/smefinance
- https://www.investopedia.com/terms/s/smallandmidsizeenterprises.asp
- https://www.dogoodpeople.com/csr-trends/esg-criteria/the-challenges-for-adopting-an-esg-culture/
- https://www.ey.com/en_us/tax/realizing-the-value-of-your-tax-and-finance
- https://www.tandfonline.com/doi/full/10.1080/00472778.2022.2082456
