FACTORS AFFECTING GROWTH AND PERFORMANCE OF SMEs - Building Resilience for Communities and the Economy.

Henry Nickson Ogwal, 30th December 2024

@nicksonogwal Nickson.Ogwal@gmail.com

Introduction:

My last article – Roles of SMEs in Poverty Eradication, Growth and Development – shared with the key stakeholders the strategic importance of the Small and Medium Enterprises (SMEs). The article advocated for an increased level of deliberate initiatives by governments and development agencies to improve on the operational environment and provide supportive initiatives respectively to SMEs. The reason for underpinning the role of governments and development organisations is because of their mandates to poverty eradication, growth, and development. The article also provided direct encouragement to the entrepreneurs or the leadership of the SMEs to focus on solving local problems through innovation of their processes, products and services aligned to good business practices.

This article is an attempt to provide a list and succinct explanations of the key issues which impede growth and performance of SMEs, therefore undercutting the otherwise celebrated important developmental roles of SMEs. Impact from collapse or stagnation of an SME reverberates throughout the entire associated households, communities, and the economy. A couple of preconditions to effectively tackle the issues which affect growth and performance of SMEs are that each of the prime SME-actor fully appreciates the issues, and a deliberately collaborated approach to addressing them.

Strategic roles of government and development organisations

Government plays pivotal roles and responsibilities of a duty bearer in development, poverty eradication and rule of law ecosystem. It has the responsibility of planning, resourcing, and delivering on public goods and services. The constitution mandates government to ensure that every economic agent, from the households to the national and international corporations, operate within the national laws and the UN acceptable business practices. It is also within the same mandate that government coordinates and oversees the work of development organisations – local and foreign – to align with its commitment to an economically stable macroenvironment for investments to thrive as a major basis for tax revenue, employment, and delivery of goods and services which meet the needs and solve the problems of its various communities.

When the government lacks a strong and clear plan for a coherent SMEs sector, it will be unlikely that the development organisations will offer supportive economic initiatives to them. Therefore, government provides the signal that triggers and directs the actions of the development organisations.

Government and development organisations therefore play strategic roles in the life cycle of SMEs. Four of the major strategic roles that governments and development organisations play are:

1.      Laws, policies, and policy actions: Government enacts laws and regulatory framework for investment and particularly by SMEs based on specific national realities and aspirations. From the laws, government develops policies, and frameworks to guide the implementation and reporting on the policies. Relevant policies that government can develop include tax incentives, subsidies, and grants to support the growth and development of SMEs.

2.      Capacity Building: To enable both government and the SMEs attain their aspirations to impact society and the economy, development organisations play a critical role in capacity augmentation of the SMEs right from the start-up stage. Development organizations can provide training, mentoring, and technical assistance to improve SME capabilities. Because SMEs are not homogeneous, their capacity needs and gaps are not the same. Unfortunately, attractive arrays of capacity building activities by development organisations have added little value because of the practice of using the same capacity building plan to address problems of every SME.

3.      Financial Support: Access to finance is a major challenge for SMEs. SMEs require capital for growth, cash flow to fund operations, and resilience. Government and development organisations can facilitate loans, grants, and credit guarantees to support SMEs. Such interventions must be tailored to the stage of development, and the peculiar needs of the SMEs. The implementation of these interventions must deliberately give access to SMEs, and not the large enterprises that already have multiple alternatives to access finance. When large enterprises take advantage of the financing facilities for SMEs, they reduce growth, performance, and the overall impact from SMEs.

4.      Infrastructure Development: The state of infrastructure development directly affects the cost of investment, production and doing business by SMEs. Improving infrastructure such as transportation (good roads, railways, airports, and ports), telecommunication, electricity, water, digital, logistics, banking, industrial parks and zones, real estate, research and development, training and development, healthcare and education, and waste management significantly benefits SMEs. Most SMEs, however, startup and operate in remote areas with inadequate assemblage of infrastructure. By investing in infrastructure, government and development organisations can create an enabling environment for SMEs to thrive.

Why growth and performance of SMEs are important.

It has become an accepted fact that SMEs are a significant player in poverty eradication, growth, and development. The resultant impact from SMEs operations transforms households to the national economy. However, it is a lived common reality that m SMEs close in their infancy. According to Uganda Registration Services Bureau (URSB) as reported by the Independent[1], only about 40% of SMEs in Uganda survive their first birthday, while Tukudane Benson (2021)[2] and estimated that 30% of SMEs survive their third birthday. There is even greater concern that the otherwise surviving SMEs perform sub-optimally due to lack of enabling environment and low capacity.

The summation of the closedown at SME-infancy and the suboptimal performance of the surviving SMEs is a huge waste. The wasted resources include the unique entrepreneurial efforts, innovation, financial resources invested, the lost opportunities and the potentials for poverty eradication, job creation, tax revenue, and goods and services.

The SMEs which account for 70% of global GDP are the surviving ones, operating sub-optimally especially in the developing countries. The case of Uganda, one would estimate that the surviving 30% of the SMEs generate the 70% of GDP. If we doubled the surviving rate of SMEs, the impact on the GDP would be enormous, fully justifying the need for key stakeholders to focus on and address the concerns associated with the growth and performance of SMEs.

The stakeholders may restate these concerns and appreciation of their magnitudes. While these are important, the most important statement of action ought to be putting in place a national mechanism for collecting and maintaining an up-to-date data on SME growth and performance in sectors from the startup stage. The accurate measurements, and timely reporting on SME survival, growth, and performance from the SMEs management information system will make available reliable information for policy and operational decisions. The rationalisation and consolidation of scattered efforts and resources for SME databases for effective management.

The national SME strategy and plan needs to develop capability of monitoring and reporting on the laws, policies frameworks, enabling environment, and supportive initiatives. Without strong governance oversight on the growth, performance and the impact of SMEs, the public investment in the national SME strategy will not be effective. The Industrial Revolution 4.0 and the emerging Industrial Revolution 5.0 become handy in supporting the monitoring and reporting.

The factors affecting growth and performance of SMEs.

Small and Medium Enterprises (SMEs) face a variety of challenges which impact their growth and performance. While the factors and their significance vary by location and stage of development of an SME, the presentation below provides a wholesome picture.

The main objective of this section is to raise critical awareness of the issue to enable the key stakeholders to directly revisit their work right away, and appetite of the general readers to look forward the future articles. However, the interested institutional leaders may request for interactive delivery on the associated content to their strategic teams.

Sets of corroborated evidence are presented below in the section of the article to rationalise the significance of the urgency for drawing attention to each issue. Immediately below each factor, a set of solutions for consideration by the prime SME stakeholders are presented. However, future articles will focus on each issue while making detailed strategies for addressing them at a time.

The factors affecting SMEs and suggested solutions.

Factor 1 - Limited Financial Resources

SMEs face serious challenges resulting from limited financial resources. In 2019, according to the International Finance Corporation (IFC)[3], 40% of formal SMEs had an unmet financing need of approximately $5.2 trillion globally, with $1.5 trillion attributable to women-owned SMEs. The Organisation for Economic Co-operation and Development (OECD)[4] reports that since 2020, SMEs have been disproportionately impacted by tighter lending conditions which have limited their access to finance.

The International Finance Cooperation (IFC)'s Micro, Small and Medium Enterprises (MSME) finance gap analysis indicates that a significant portion of SMEs struggle to secure the necessary funding to sustain and grow their operations. The OECD Scoreboard for 2024 highlights a strong increase in the cost of SME financing in 2022, alongside a significant decline in SME lending. Therefore, the SME financing problem has been worsening yearly.

The combined impact of the ever-increasing financing gap has prevented most SMEs from expanding facilities, staff development, deployment of innovative technology to scaleup, and managing cashflow. In addition to financing gap, SMEs have limited access to other resources available to large companies like skilled labour, market expertise, and advanced technology. Unlike the large companies, SMEs therefore require external financial resources to remain in operations, meet the operational requirements for its production, and grow.

Suggested solutions: To address limited financial resources, SME stakeholders may consider the following actions:

i.            Diversify Funding Sources: Explore various sources such as bank loans, microfinance, venture capital, crowdfunding, Peer-to-Peer (2P2) lending or government grants. An SME need to as much as possible consider capital investment option from patient sources to avoid deepening their financial issues. SMEs with full understanding of their 3Rs and 3Ps that can make these decisions.

ii.            Strengthen Financial Literacy: Provide training for entrepreneurs in financial management to improve their investment decisions. Due to financial illiteracy, SMEs have often taken on wrong financial facilities which worsen their situation. Secondly, financial illiteracy also makes SMEs fail to develop viable plans leading to further financial problems. Such business plans also do not appeal to prospective lenders, investors, or supporters, making the efforts to get financial support by most SMEs futile.

iii.            Improve Cash Management: To reap the benefits from financial literacy, SMEs must improve on their cash management practice to remain liquid. The SMEs must invoice quickly and recover all delayed payments in addition to strengthening their internal control environment.

Factor 2 - Lack of Skilled Talent

Attracting and retaining skilled employees can be difficult due to limited resources available to SMEs as explored above. The lack of skilled labour can hinder the survival, growth potential and overall performance of SMEs.

A significant skill gap exists within the SME sector in Africa as confirmed by 55.06% of SMEs[5] expressing a strong desire to enhance their skills, particularly in technology solutions, digital marketing, and accessing financing. The challenge for SMEs in the continent is further confirmed by a study by Abdul Kanu who identified lack of skilled workers/management skills as one of the major challenges facing African SMEs[6].

The lack of skilled talents is not restricted to Africa but is also affecting SMEs in Europe. The OECD SME and Entrepreneurship Outlook 2023 confirms that 25% of SMEs reported lack of skilled staff or experienced managers as their most important problem. Furthermore, less than one-quarter of European SMEs provided ICT training in 2018, indicating a significant skills gap in digital competencies. To compound the issue, OECD reports that European SMEs typically pay employees around 20% less than large firms, which makes it challenging to attract and retain skilled talent.

While lack of skilled talent is significant problems affecting SMEs, it is still a resounding global economic fact that SMEs have been significant drivers of job growth. Unfortunately, many struggle with developing the skills and technical expertise needed to navigate increasing complexities around technologies and markets. The statistical facts above underscore the critical need for SMEs to invest in training and development to attract and retain skilled employees.

Suggested solutions: To address lack of skilled talents, SME stakeholders may consider the following actions:

i.            Competitive Benefits: It is important for SMEs to build an attractive environment for staff and offer competitive benefits.

ii.            Training and Development: SMEs need to invest in employee training programmes that enhance skills relevant to the business needs.

iii.            Mentorship Programs: Create and run mentorship or internship programmes to develop new talents and encourage knowledge sharing within the industry.

iv.            Attract and Retain Talent: To attract and retain talents, SMEs must develop intentional policies that offer competitive benefits, clear career paths, and invest in staff training and development programmes.

Factor 3 - Market Reach

SMEs often either operate in niche markets, limiting their customer base, or struggle to compete with larger firms due to limited market reach and resources. The limitation in market reach also limits the capacity of SMEs to grow and effectively perform. To further rationalise the reason for addressing the problem, there is significant statistical evidence indicating that lack of market reach is a major challenge for SMEs both globally and in Africa – affecting the developed and the developing countries.

Globally, 67%[7] of SMEs cite expanding to new markets being the primary pressure points. The World Economic Forum acknowledged that the fight for survival by SMEs is a global issue. A systematic review of global challenges for SMEs highlighted that global market competition is one of the leading challenges, making it difficult for SMEs to expand their market reach[8].

In Africa, 44.94% of MSMEs face challenges related to lack of market information[9], which hinders their ability to expand their market reach. GeoPoll further acknowledges that under the African Continental Free Trade Area (AfCFTA), 24.68% of MSMEs are actively pursuing intra-African expansion. However, lack of market information persists.

Suggested solutions:  To address issues of market reach, SME stakeholders may consider the following actions:

i.            Market research and innovation: SMEs are encouraged to invest in market research to identify niche markets and to innovate their offerings to stand out from the existing products and services.

ii.            Leverage digital marketing tools: By utilizing digital marketing tools and strategies, SMEs can effectively reach larger markets, attract new customers, and grow their business. This involves deployment of reinforcing strategies that include websites and Search Engine Optimization (SEO), social media marketing, email marketing, content marketing, Pay-Per-Click (PPC) advertising, influencer marketing, e-commerce and on-line marketplaces, data analytics, and Customer Relationship Management (CRM).

iii.            Build your brand and marketing strategy: Building a strong brand and an effective marketing strategy is essential for SMEs to reach larger markets and achieve sustainable growth, and effective performance. It enables the potential customers to differentiate the SMEs from its competitors.

Brand building elicits important results which include: (a). Eliciting trust and credibility amongst customers, (b). Builds strong recognition of SME to stand out from the competitors, (c). Fosters loyalty and repeated word-of-mouth referrals, (d). Increases perceived value of the products allowing the SME to charge premium prices, and (e). Develops emotional link with the audience by making them connected and invested in the SME.

Marketing Strategy leads to (a). Development of a targeted market based on specific customer segment, (b). Clear customer insights with known behaviour and preferences to the SME, (c). A digital presence making it easier for potential customers to find the SME, (d). Content marketing enables SME to immediately position itself as an industry leader, (e). Paid advertisements running targeted ads that drive traffic to the website and social media pages of the SME and increase its sales, and (f). Use of analytics and measurement to track and analyze the SME’s marketing efforts to help it understand what is working and what needs improvement.

iv.            Partnerships to cross-promote products and services: Partnerships to cross-promote products and services can be highly beneficial to SMEs aiming at reaching larger and premium markets. Below are seven specific outcomes partnerships can deliver:

The SMEs gain increased visibility and market reach resulting from shared audiences and brand association. By partnering with another business, an SME can tap into their partner’s customer base, expanding their reach beyond their existing audience. Associating with a well-known and reputable partner can enhance an SME's brand image and credibility, making it more attractive to premium customers.

The SMEs run cost-effective marketing resulting from shared marketing costs and joint campaigns with partners. Cross-promotions allow partners to share marketing expenses, making it a cost-effective way to reach a larger audience. Similarly, collaborating on marketing campaigns can result in more creative and impactful promotions, leveraging the strengths of both partners.

The SMEs earn enhanced customer experience from complementary products and bundled offers from the partnerships. Offering complementary products or services together can enhance the overall customer experience, making it more convenient and attractive for customers. Equally, creating bundled offers for products and services can provide added value to customers, encouraging them to choose the partnered brands over competitors.

The SMEs gain access to new markets through geographical expansion or industry segment. Partnering with a business in a different region can help SMEs enter new geographical markets without the need for significant investment. Relatedly, collaborations with partners can also open doors to new industry segments that were previously difficult to access by the SMEs in question.

The SMEs benefit from innovation and knowledge sharing resulting from shared expertise, and latest ideas from the partnership engagements, and space. Partnerships allow SMEs to learn from their partners’ expertise and best practices, driving innovation and improvement in their own operations. Working together too, can spark latest ideas and solutions that might not have been possible individually.

The SMEs earn increased sales and revenue from cross-selling opportunities, and referral programmes from the partnerships. Partners can cross-sell each other’s products or services, increasing sales and revenue for both businesses. Implementing referral programs between partners can likewise incentivize customers to try both brands, boosting customer acquisition.

The SMEs benefit from brand loyalty and customer trust from the mutual trust and co-branding with the partners. Customers tend to trust brands that partner with other reputable businesses, leading to increased brand loyalty and repeat business. Co-branded products or services can create a sense of exclusivity and premium quality, attracting higher-end customers.

v.            Focus on niche markets with clear Unique Value Proposition (UVP):

Most prime and general actors take for granted what a niche market is or not. Therefore, understanding what a niche markets is forms the foundation of crafting one for an SME. A niche market is a specific, defined segment of the market that has unique needs and preferences. Focusing on niche markets can be a highly effective strategy for SMEs to increase their market share and revenue.

A Unique Value Proposition (UVP) on the other hand is a statement which explains how the product or service of the SME solves a problem, delivers specific benefits, and what makes it unique compared to competitors. By catering for these specific needs, and clearly sharing their UVP, SMEs can distinguish themselves from larger competitors who may offer more generic products or services with less clarity on what makes the products unique.

SMEs that focus on niche markets benefit from: (a). Reduced competition since niche markets typically have fewer competitors. This therefore allows SMEs to establish themselves more easily, (b). Customer loyalty arising from offering specialized products or services that cater to a specific audience. This therefore enables SMEs to build strong customer loyalty and repeat business, (c). Higher Profit Margins because niche products often allow for premium pricing because they meet specific needs that are not widely available, and (d). Brand authority earned from being known as an expert or leader in a niche market which enhances an SME's reputation and attract more customers.

To develop and make the best out of niche markets, SMEs need to undertake the following specific actions:

a)       Research and Identify Niche: The SME needs to conduct thorough market research to identify unmet needs or underserved segments. The research must focus on understanding the specific preferences, behaviours, and pain points of its target audience.

b)       Tailored Offerings: The SME needs to develop products or services that are uniquely suited to the needs of its niche market. Personalization and customization are key differentiators which the SME must make the best use of for successful tailored offerings.

c)       Focused Marketing: Use targeted marketing strategies to reach your specific audience. This can include social media marketing, content marketing, and SEO optimized for niche-specific keywords, and location as appropriate.

d)       Engage with Community: SMEs need to build relationships within the niche community through their sector fora, social media groups, and events. The SMEs need to engage directly with customers to gather feedback and build brand loyalty.

e)       Leverage influencers: The SMEs need to collaborate with influencers or thought leaders within the niche to increase visibility and credibility. The potential customers in the niche markets have strong following and loyalty to their thought leaders.

f)        High-Quality Customer Service: The SMEs need to provide exceptional customer service to reinforce loyalty and encourage word-of-mouth referrals. The quality satisfaction reinforces the notion of the expert of the niche market which the SMEs must not allow it to slip off their grip through any form of slack in quality assurance measures.

g)       Continuous Innovation: SMEs must stay attuned to the evolving needs of its niche market and continuously innovate to meet those special and specific needs.

Factor 4 - Regulatory environment and compliance

Navigating various complex regulations and bureaucratic hurdles can be overwhelming, costly, and can stifle SMEs’ growth and performance. There is substantial evidence indicating that the regulatory environment and compliance significantly affect SMEs both globally and in Africa. According to the World Bank Enterprise Surveys, excessive business regulations and complicated permit procedures[10] are among the top challenges faced by SMEs globally. Regulatory reforms[11] are therefore crucial for improving the business environment for SMEs. Africa's legal and regulatory environment ranks among the least business-friendly in the world. Challenges include excessive business regulations, complicated permit procedures, and opaque tax assessment rules[12].

Suggested solutions: To address regulatory environment and compliance issues, SME stakeholders may consider the following actions:

i.        SMEs need to invest in understand applicable regulations which comprise of industry specific regulations and the laws. It is critical for an SME to identify the regulations specific to its industry, such as environmental standards, labour laws, and data protection requirements. In addition, the SMEs need to stay informed about local, regional, and national laws that apply to their business operations.

ii.      SMEs need to implement compliance programmes comprising of compliance management software and employee training. SMEs further need to utilize software to automate compliance processes, track regulatory changes, and ensure timely reporting. For this to effectively work, the SMEs require investment in ongoing training for its team to ensure they are knowledgeable about current compliance requirements and best practices.

iii.    SMEs ought to maintain accurate records for financial reporting and corporate document management. Keeping accurate financial records and ensuring timely filing of financial statements and tax returns go hand in hand with maintaining organized records of all compliance-related documents, including permits, licenses, and certifications.

iv.     SMEs need to consider engaging legal and compliance experts as consultants or through the industrial associations to seek advice to navigate complex regulatory issues and interpret ambiguous requirements. In addition, the SMEs ought to join industry associations and professional networks to share knowledge and resources with peers facing similar challenges.

v.      SMEs are strongly encouraged to stay informed and initiative-taking in getting regulatory updates and engaging in continuous learnings on compliance requirements. To do this effectively, SMEs need to subscribe to updates from regulatory bodies and industry associations to stay informed about changes in regulations. SMEs are further encouraged to nurture and develop a culture of continuous learning and improvement within their organization on regulatory environment and salutatory compliance.

vi.     SMEs are persuaded to implement data security measures and comply with data protection laws. SMEs are required to compliance with the applicable data privacy laws such by implementing robust data security measures, including encryption and access controls. In addition, SMEs are encouraged to conduct regular audits to identify and address any compliance gaps.

vii.   SMEs are further encouraged to develop a compliance culture through its leadership commitment and clear institutional policies. SMEs are encouraged to make compliance a priority at all levels of the organisation, with leadership demonstrating a commitment to ethical business practices. SMEs are encouraged to develop clear policies and procedures for compliance and communicate them to all employees, and its partners and associates.

By taking these steps, SMEs can effectively navigate the regulatory environment and ensure compliance with all relevant requirements. Compliance does not only helps avoid legal issues but also builds trust with customers, partners, and stakeholders.

Factor 5 - Technology Adoption

Integrating innovative technologies can be challenging but necessary for staying competitive. Limited access to or knowledge of recent technologies can restrict growth and competitiveness of SMEs. There is substantial evidence indicating that technology adoption significantly impacts SMEs both globally, and specifically in Africa.

Technology adoption, during the COVID-19 pandemic, was a successful persistence strategy for SMEs, with highly digitized SMEs being more likely to adopt Industry 4.0 Technology[13]. Levelling the SME Playing Field Report[14] emphasized that technology adoption has been a game-changer for SMEs in Africa, enhancing growth, efficiency, competitiveness, and customer service.

Suggested solutions: To address technology adoption challenges, SME stakeholders may consider the following actions:

i.            Adopt Technology: SMEs must invest in technology that streamlines operations and improves its efficiency.

ii.            Subsidies and Incentives: SMEs and its industrial association need to regularly advocate for government incentives for SMEs to adopt recent technologies.

iii.            Technical Assistance: Government, development organisations and the industrial association need to provide training and support for technology implementation to help SMEs integrate new systems.

Factor 6 - Competition

SMEs face significant competition, which varies widely in terms of firm size, specialization, and performance[15]. The level of competition has however significantly increased due to globalization and technological changes, further impacting SMEs as confirmed by a study undertaken by Ocloo, Akaba, and Worwui-Brown in Ghana[16]. Daily, SMEs face tough competition from larger companies, making building their capacity to handle competition crucial for their survival, growth, and overall performance.

Suggested solutions: To address challenges around competition, SME stakeholders may consider the following actions:

        i.            SMEs need to undertake effective differentiation of their goods and services by developing Unique Value Proposition (UVP) and innovation.

      ii.            SMEs need to keep a strong customer focus through customer service and customer feedback. SMEs need to provide exceptional customer service to build strong relationships and foster loyalty. Satisfied customers are more likely to return and recommend your business. In addition, SMEs need to actively seek and act on customer feedback to improve their offerings and address any issues promptly.

    iii.            SMEs ought to address quality and reliability by setting standards and maintaining consistency to build trust, and credibility, and meet customer expectations consistently to effectively survive in the competitive environment.

     iv.            SMEs must invest in marketing and branding by developing strong brands and engagement in digital marketing to leverage on technology as explained under Factor 5 – Technology Adoption.

      v.            SMEs ought to join strategic partnerships to run effective collaborations and networking to beat competition by building on the strength of the industry peers and opportunities therein.

     vi.            SMEs must invest in financial management through cost control and diversification of revenue streams. SMEs must entrench in its operations monitoring and control of costs to maintain profitability and ensure financial stability. They need to diversify revenue streams to reduce dependency on a sole source and mitigate risks. Financial buoyance provides a foundation for withstanding competition.

   vii.            SMEs need to develop high adaptability through market research and agility to competition. SMEs must stay informed about market trends, customer preferences, and competitor activities through market research to support adaptation and refining strategies. SMEs must be agile and responsive to changes in the market environment by quickly adapting to new opportunities and challenges.

 viii.            SMEs ought to develop a strong employee engagement, and positive work culture through investment in training and development programs to enhance employee skills and capabilities. They should also foster a positive work culture that encourages collaboration, innovation, and employee satisfaction.

     ix.            SMEs also must make use of the technology advancement to invest in automation to streamline processes, reduce costs, and improve efficiency. The use of data analytics can enable SMEs to gain insights into customer behaviour, market trends, and business performance, enabling informed decision-making to survive in the competitive environment.

By adopting these strategies, SMEs can effectively manage competition, achieve sustainable growth, and perform according to public expectations.

Factor 7 - Operational Efficiency

Operational efficiency is crucial for the survival, growth, and overall productivity of SMEs. Efficient operations help SMEs manage resources better, reduce costs, and improve overall performance[17]. Operational efficiency is a function of the quality of decision an SME makes. Therefore, SMEs with low capacity to access, deploy and use technology-aided decision-making tools struggle.

Predictive analytics, as a technology aided decision-making tool, can significantly improve operational efficiency and revenue growth for SMEs[18]. SMEs using predictive analytics witness better resource management and strategic decision-making.

A study which analyzed over 7,000 SMEs in the Republic of Congo found that internal and external factors such as firm size, age, and geographical location significantly influence operational efficiency of SMEs. Only a small percentage of SMEs were operating efficiently. An SME therefore must know all the factors that affect its operational efficiency to strategically invest in addressing in a systematic manner.

Streamlining operations and managing larger workforces can be difficult as the business grows. Most SMEs are enterprises experiencing fast growth in their life cycle which unfortunately also produces an increasing and complex set of operational efficiency dynamics for its leadership. Therefore, operational efficiency is critical for the survival, managing growth, and meeting the expectations of all stakeholders.

Suggested solutions: To address operational inefficiencies, SME stakeholders may consider the following actions:

i.            SMEs need to streamline their processes through workflow optimization and developing Standard Operating Procedures (SOPs). SMEs can eliminate bottlenecks and reduce redundancies through analysis and optimization of their workflows. The implementation SOPs enables SMEs to ensure consistency and efficiency in their daily operations.

ii.            By embracing technology, SMEs can adopt automation and cloud solutions to enhance their operational efficiency. The automation tools can enable SMEs to manage repetitive tasks such as invoicing, inventory management, and customer support. When SMEs adopt cloud-based tools, it brings operational efficiency through collaboration, data storage, and business management in ways that enhance accessibility and flexibility.

iii.            SMEs can improve their inventory management through inventory tracking and Just-In-Time (JIT) approach. By implementing inventory management systems, SMEs can track stock levels, reduce waste, and prevent overstocking or stockouts. Adopting JIT inventory practices further minimizes holding costs and ensures timely delivery of products of the SMEs.

iv.            SMEs can further improve their operational efficiency by enhancing supply chain management and building supplier relationships. Building strong relationships with by them engaging dependable suppliers to ensure quality and timely delivery of materials to SMEs. The use of data analytics can enable SMEs to forecast demand accurately and optimize supply chain operations.

v.            SMEs need to focus on quality control through quality assurance and continuous improvement processes. When SMEs diligently use quality assurance processes, it ensures their products meet set standards and reduce defects. Furthermore, developing and living by a culture of continuous improvement enables SMEs to identify and address inefficiencies timely and regularly.

vi.            SMEs must practice effective resource allocation through resource planning and capacity utilization. When SMEs use resource planning tools, they allocate resources efficiently which enables them to avoid either overuse or underuse. Optimizing capacity utilization ensures the SMEs effectively use resources.

vii.            SMEs must invest in financial management by monitoring and controlling operating costs to maintain profitability. The development and adherence to budgets enables SMEs to ensure financial stability, planned growth and operational efficiency.

viii.            SMEs must invest employee training and engagement through training programs to enhance employee skills and productivity while fostering a positive work environment that encourages innovation, and employee satisfaction.

ix.            SMEs need to invest in data-drive decision making through implementation of business intelligence and performance matrices. SMEs are encouraged to use business intelligence tools to extract insights from data and make informed decisions therefrom. SMEs are enjoined to track key performance indicators (KPIs) to measure operational efficiency and identify areas for improvement.

x.            SMEs are encouraged to adopt sustainability practices through energy efficiency and sustainability sourcing of inputs. When SMEs adopt energy-efficient practices, it reduces costs and environmental impact. Sourcing materials sustainably also enables SMEs to meet stakeholder expectations and promote long-term viability.

Factor 8 - Economic Resilience

Economic resilience is crucial for the survival, growth, and productivity of SMEs[19]. A study by the EPRC found that most MSMEs in Uganda were far from being resilient, especially following the COVID-19 pandemic. Many MSMEs adopted survival strategies such as laying off workers and minimizing costs, which highlighted their vulnerability. Another study analyzed small businesses in Malaysia and found that higher vulnerability levels and lower resilience related to the size of SMEs significantly impacted their ability to survive the COVID-19 pandemic[20].

The evidence in these studies underscore how essential it to build economic resilience for SMEs to withstand shocks, adapt to changing environments, grow and ensure long-term sustainability.

Suggested solutions: To build economic resilience, SME stakeholders may consider the following actions:

i.                    The SMEs need to develop resilience through effective financial management by ensuring they maintain adequate cash reserves to manage unexpected expenses or downturns. The SMEs ought to avoid excessive debt and manage existing debt wisely to ensure financial stability. In the end, the SMEs need to establish strong relationships with financial institutions to ensure access to credit when needed.

ii.                  Establish a reserve fund to manage cash flow fluctuations and unexpected expenses. This buffer will provide security during challenging economic times.

iii.                Cybersecurity: Invest in robust cybersecurity measures to protect against data breaches and cyber-attacks.

iv.                 SMEs must use risk management frameworks to develop resilience through risk management by conducting regular risk assessments to identify potential threats and develop mitigation strategies. SMEs also need to ensure adequate insurance coverage to protect against various risks, such as natural disasters, theft, or liability.

v.                  SMEs need to undertake strategic scenario planning to prepare for different potential future scenarios and develop strategies to address them. This includes having contingency plans that the SMEs can be quickly activate.

By focusing on these strategies, SMEs can enhance operational efficiency, reduce costs, and improve performance, leading to sustainable growth and meeting stakeholder expectations.

Call to Action and conclusion

This work-based article and action-oriented publication generates content, positive energies, and courage of conviction to cause a rapid transformation in multiple sectors. However, it is strategic to focus on few prime actors with wide spectrum of influence in the SME sector. When the few targeted actors undertake their roles with diligence, their actions, outcomes, and impact will reverberate and transform the entire households, communities, and associated economies. The content herein not being new to the core actors, the documentation is to make the resources available in a small document to make their accelerated actions much earlier. These prime actors are the entrepreneurs, government, and development organizations.

The calls to action are aligned to the strategic expectations projected on each of the three key prime actors as shared below.

Call to Action 1

The leadership of SMEs need to creatively adopt and use multifaceted approach to simultaneously address multiple challenges impacting growth and performance of their enterprises.

Initiative-taking SMEs leadership will not only help in overcoming the challenges facing SMEs but support grand harvest of future opportunities to the benefit of all. The combined actions of these entrepreneurs will positively conspire to building economic resilience for their national economy as well as the global economy.

Call to Action 2

Government and development organisations to improve the operational environment and provide supportive services to SMEs in line with their mandates.

The actions of government and development organisations make perfect economic and social development sense requiring no further elucidation but moral support.

Conclusion

The explanations of issues affecting growth and performance of SMEs herein are appetizers for each of the key prime actors to seek further and deeper appreciation of the issues to provide public and corporate solutions for vibrancy of SMEs. The public servants and the development workforce are therefore enjoined to deepen their understanding of the nature and scope of the prevailing issues in their context to inform the review and development of responsive environment and supportive initiatives to spur growth and performance of SMEs in their different jurisdictions.

Nickson.Ogwal@gmail.com @nicksonogwal #HnO

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