Putting Small Businesses at the Heart of the Economic RecoveryAmit Jain |
The economies of China, the United States and Germany couldn’t be more different – but there’s one thing they have in common: small and medium-sized enterprises (SMEs) are, in each of these markets, key engines for growth through innovation. Consider this: In the U.S., among high-patenting technology firms, SMEs produce 16 times more patents per employee than large enterprises. The German “Mittelstand” companies, or SME segment, are some of the most innovative in Europe, with 54 percent of them launching an innovation into the market between 2008 and 2010. In China, SMEs accounted for 66 percent of patents and more than 80 percent of research and development in 2011.
As the world seeks post-crisis growth, unleashing SMEs could be the answer. In a new paper, MasterCard Advisors illustrates how two main obstacles facing SMEs globally – lack of access to low-cost financing and significant inefficiencies in the financial supply chain – can be overcome.
Germany sustains its “Mittelstand” growth through a strong local banking model that offers access to capital financing at market-driven interest rates. However, economies are well served when they have the right mix of global banks, large national banks and smaller regional and local banks to create efficiency in financing.
In the U.S., it is the efforts of the large banks that have partly made up for the smaller local bank footprint. For example, JPMorgan Chase enhanced its local banking capabilities by increasing its small-business banker headcount by 17 percent at the peak of the crisis in 2009. Bank of America increased its 2012 small-business lending in the U.S. by 28 percent over 2011. Citigroup has more than doubled its small-business lending since 2009 and is committed to helping to support their growth.
The other key challenge for SMEs is the significant inefficiencies in their financial supply chain, specifically their procure-to-pay processes. SMEs that have access to electronic payment innovations are able to improve efficiency and margins. A recent study of 50 U.S. suppliers that included many SMEs showed that commercial card acceptance enabled an order-to-cash cycle 10 times or 34 days shorter than that of checks, ACH, and wire transfer, resulting in significant improvements in working capital requirements for the suppliers.
Another example of SMEs benefiting from global payments networks’ infrastructure takes place in the e-commerce space. Chinese SMEs that sell through AliExpress.com can now easily accept international credit card payments from overseas buyers, often SMEs themselves, providing an alternative to traditional trade finance products like letters of credit that can be expensive and slow for the small quantities of goods sold through AliExpress.com.
Topics: Economic Outlook