Talk about our small and medium enterprises (SMEs) and almost automatically we refer to them as the backbone of our economy and the engine of fiscal growth. This is quite understandable considering that SMEs represent a huge 99.6 percent of the total number of business ventures across the country!

Okay fine they are all over the place so they must have provided a lot of jobs. That may be true.

According to published reports, SMEs employ 70 percent of our total labor force!

So far so good but the next question is: If they are the majority employment providers, what is their real contribution to our economy? The answer may not be encouraging. The SMEs’ share to GDP is only 30 percent! (No wonder we still have this nagging unemployment and pervasive poverty?).

With the above as the backdrop, it may be interesting to know how the counterparts of our own SMEs are doing in developed countries like the US and Japan. Do you think our small entrepreneurs have a fighting chance? Draw your own conclusions if you may.

SMEs in the US

Surprisingly, businesses in the US, the world’s largest economy, are by no means mostly dominated by large corporations. According to the Small Business Administration (SBA), 85 percent of all companies in 2006 were small firms (those employing fewer than 500 people). SMEs employed half of the US workers and their value-added, also impressive at 50 percent of GDP! In contrast, large firms accounted for only 15 percent of the total while employing the remaining 50 percent of the labor force.

Because of globalization and customers now being more demanding and sophisticated as ever, companies large and small alike, must be highly competitive in order to survive. SMEs in the US are more fortunate in this area. For one, small firms have all the technology and knowledge resources easily available to them. They also have their strong passion for constant innovation in tandem with their ability to adjust quickly to changing economic environment. One study has shown that small firms in the US tend to produce 24 times more innovation per R&D dollar than do large companies.

Another plus factor is the institutionalized technical and financial support extended by the government to their SMEs. In 1953, SBA was created to provide professional expertise and assistance to small entrepreneurs. For instance, 35 percent of federal dollar awards for contracts are set aside for small firms. Also, this agency has directly and indirectly helped almost 20 million companies and currently holds a portfolio of about 219,000 loans worth more than $45 billion making it “the largest single finance backer of businesses in the United States”. For their vital contribution to the economy, small firms are also being given various exemptions from many federal regulations, such as health and safety rules.

Japanese-based SMEs

Closer to home, you may also want to be curious what SMEs are like in a highly industrialized country like Japan internationally known for its popular brand names such as Toyota, Honda, Sony, Nikon, Mitsubishi, etc. Contrary to what one might expect, large companies with more than 300 employees represented only .5 percent of all existing Japanese businesses in 2006, according to some published studies. Small firms below 20 employees represented the bulk of total business entities (87.0 percent), while the medium enterprises (employing between 20 and 300) constituted 12.5 percent.

Medium-sized companies alone employed 44.5 percent of the total labor force in Japan. However, if we include the 25.3 percent share of the small-sized sector, SMEs as a whole provided over two-thirds of the total labor force (70.2 percent) vs. only 29.8 percent by large corporations.

In analyzing Japan’s GDP, the value-added contributions of SMEs accounted for an impressive 56.8 percent (the total of 11.2 percent and 45.6 percent for small and medium, respectively)! Large corporations contributed the remaining balance of 43.2 percent. Interestingly, the medium-sized firms alone did contribute a bit higher to the economy at 45.6 percent vs. the 43.2 percent share of large corporations. This highlights the strategic role of the medium-sector in the Japanese economy.

In the wholesaling business, both small and medium firms almost evenly split the aggregate share of 64.3 percent, with the balance of 35.7 percent going to large businesses. In retailing business, small enterprises alone dominated this sub-sector with their unbelievably huge market share of 54.2 percent!

Perhaps it would be remiss on my part if I don’t mention one very laudable SME program the Japanese did initiate in 1979. They called it “One-Village-One-Product-Movement” (we’ve our own adaptation called “One-Town-One-Product” or OTOP). To help the villagers, they constructed in 2006 a countrywide network of 845 road stations factors in 44 out of a total 47 prefectures in Japan. (A prefecture is a government body larger than cities, towns and villages).

Why is Japan so successful in promoting small businesses? Firstly, their SME development program is well funded (through JICA they even extend their SME assistance overseas). They have an extensive road infrastructure allowing them to focus on the inter-linking of the so-called growth SMEs located both in rural and urban areas especially affected by economic difficulties. Technical training is readily available with a wide national network of some 15,000 senior technicians and management experts organized to answer the needs of Japanese SMEs. (From time to time, some of our LGUs are being sponsored to attend training at their JICA International Training Center in Osaka). Various projects focusing on community development and poverty reduction at the local level are also being prioritized.

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