Contribution of SMEs to Economic Growth

Whether a micro, small, or medium enterprise, SMEs contribute equally to our daily lives. This contribution starts from a simple one, which is ensuring the owner of the business can support their lives to the huge implication that can increase the national GDP. In the business dictionary, GDP is defined as ‘the value of a country’s overall output of goods and services (typically during one fiscal year) at market prices, excluding net income from abroad’ (Dictionary, 2017). Every country uses GDP as a measurement of its economic performance in a particular period. The GDP can be estimated by calculating how much money people spend, how much is earned, and how many goods and services are sold (Bank of England, 2017).

The OECD report in 2000 mentioned that over 95% of firms worldwide are SMEs, and they employ around 60% to 70% of the workforce. As most businesses worldwide are SMEs, it is clear that SMEs have a strong role in economic growth in terms of increasing the national GDP. Moreover, SMEs have proven that these types of businesses are less vulnerable than large ones when either the national or global economy is affected. We can see this example in Indonesia. Where this research was conducted, the SMEs in Indonesia were considered the saviour of the Indonesia economy in the 1999–2000 crisis (Wahyuningsih, 2009).

In addition, Darwanto (2012) concluded that, as part of increasing the GPD, the roles of SMEs for economic growth can be seen from their part in creating and opening employment opportunities and contributing to foreign exchange and local revenue. Furthermore, Smallbone and Welter (2001) stated that SMEs also contributed to the following:

• The development of economic structure through their role as suppliers to big companies;

• The trade balance through export and import activities;

• As an innovation source where a lot of innovative activities are derived from SMEs.

In 1999, General Entrepreneurship Monitor (GEM) set the framework to demonstrate how entrepreneurial processes affect the economic growth of a nation. The figure below shows that the social, cultural, and political contexts create the entrepreneurial framework condition. This condition leads to entrepreneurial opportunities and entrepreneurial capacity, which results in a dynamic condition in business. Finally, all these activities and processes generate national economic growth.

Model of entrepreneurial process affecting economic growth (GEM, 1999).

Lastly, although not directly correlated to economic growth, SMEs drive the empowerment of people by both giving them working opportunity and creating job opportunities for other people. In the end, this activity leads to economic growth.