Enterprise Development Strategy
By SDS/MSM (07/95, GN-1885-corr, En, Es) See also Microenterprise
Enterprise Development Strategy: Small and Medium Sized Enterprises
This strategy (GN-1885-corr) was formally considered by the Board of Executive Directors and the Management of the IDB on July 26, 1995
Most countries in the region are undergoing reforms that are opening their economies to greater international competition. However, domestic factor markets are not adequately developed to ensure the successful adaptation of SMEs to this new competitive environment. Unlike larger firms, which can more easily absorb the transaction costs, SMEs are at a disadvantage and require specific compensatory assistance. This report presents the Bank's strategy for supporting the development of small and medium enterprise in Latin America and the Caribbean.
Economic Role of SMEs. The importance of SMEs to longer-term economic stability, derives from their size and structure which, under adequate conditions i.e. well developed factors market, allow them the flexibility and ability to weather adverse economic conditions. SMEs are more labor-intensive than larger firms and, therefore, have lower capital costs associated with the creation of jobs. Consequently, SMEs play an important role in fostering income stability, growth, and employment. Modern economies operate as complex networks of firms in which a firm's competitive position depends, in part, on the efficiency of its suppliers. Therefore SME's competitiveness affects the competitive position of the economy as a whole. In addition, SMEs improve the efficiency of domestic markets and make productive use of scarce resources, such as capital, facilitating long-term economic growth.
Features of SMEs. Their characteristics distinguish SMEs from larger firms. Large firms often have direct access to international and local capital markets, while SMEs are often excluded because of the higher intermediation costs for smaller projects. Additionally, the fixed costs of complying with regulations, a limited capacity to market products abroad, and limited access to policymakers weigh against the SME more than the larger firm. Microenterprises largely operate at a threshold which falls below the regulatory and institutional constraints that inhibit other SMEs and, in some cases, would expand if the barriers to their operations were removed. Because high transactions costs are one of the most important barriers, their reduction will promote the creation and expansion of SMEs and, in particular, encourage microenterprises to expand. For the purposes of Bank strategy, SMEs will be taken to include the smallest business units with growth potential although it is recognized that microenterprises have their own unique characteristics and have a social as well as economic role.
Last updated: 05/08/07
