Entrepreneurship and Small Businesses

SMEs contribute greatly to employment levels. In Europe alone over 100 million people are employed by SMEs, SMEs are also thought to account for 80% of new jobs within an economy. Firms have needed to be more FLEXIBLE and governments have encouraged an ENTERPRISE CULTURE where SMEs dominate. In over 2000 areas in the USA it was found that the smaller the average size of companies, usually resulted in faster growth in employment. SMEs also exhibit an anti-cyclic pattern whereby they cope with external shocks caused by the business cycle and play a role in employing workers made redundant by larger firms. The World Bank also supports the development of the SME sector and this is a core part of it's strategy to reduce poverty in developing countries. Research the bank has carried out found 80% of employment in Chile, Greece and Thailand is in companies with less than 250 employees.
It is important to remember however that SMEs may pay less and many jobs may only be part time, job security may also be reduced. Large firms can also create jobs even when they contract or close as it creates opportunities for new firms to enter the market, rival firms may also expand. Another factor to analyze is what effect newly created jobs will have on creating a POSITIVE MULTIPLIER EFFECT in generating more new jobs within the economy.
It is unwise to group all SMEs together, as even companies that operate within the same market may be affected differently by changes in the microeconomic environment. This means some firms will be expanding while simultaneously others contract. SMEs may also have an unfair advantage over large firms due to government intervention, as they can receive advice, tax breaks and investment.

SMEs can contribute to the economy in a variety of ways.
GROWTH- SMEs are believed to contribute to growth due to their flexibility and their capability to explore new markets. The Global Entrepreneurship Measure shows a positive correlation between entrepreneurship in an economy and growth of GDP. SMEs tend to have higher productivity as they improve levels of efficiency.
COMPETITION- SMEs are thought to increase competition, they restrict the formation of monopolies and give consumers a wider choice of products. SMEs may offer a better quality more personalized service, they also operate in segmented markets providing niche products that larger firms may find uneconomic. Entrepreneurs are often more prepared to take risks and enter new markets or niches, if they are successful other firms may enter the market to compete.
INNOVATION- SMEs may be more creative than their larger counter parts, they may create new products, techniques or even a whole new market. SMEs create more innovations per employee and are therefore considered more intensive in their innovation production. Innovations may also be more extreme again because of their higher tolerance of risk. However SMEs may have limited finance to invest in research and development.

The contribution of SMEs to employment and the economy depends on many variables. While they do create a large proportion of new jobs and can positively influence growth and innovation in many economies this cannot be applied as an absolute rule. The effects of SMEs and entrepreneurs should not be confused. SMEs can help lower unemployment and in industries where SMEs are prevalent the business environment is often more competitive.
Large firms do have many benefits, though. They do contribute to GDP and their capacity to invest in research and development has led to many great products. they also tend to create jobs with higher pay and more long term security.
in different economic environments there is a different optimal mix of small, medium and large firms. For firms to be viable it is sometimes necessary to have economies of scale at other times SMEs are the only firms able to take advantage of niche markets.