SMEs or small and medium-sized enterprises are an intrinsic component that contributes massively to the economic landscape. While the definition of SMEs differs from country to country, they are generally defined as businesses that comprise a lower number of assets, employees, and revenues in comparison to large-scale firms. As they are less likely to obtain bank loans, SMEs tend to rely on internal funds or cash from friends and family to set up their enterprises and get them up and running. No matter how small they may be at their inception, they account for the majority of businesses worldwide and play key roles in most economies as job creators. Globally, SMEs represent about 90% of businesses and more than 50% of employment. In terms of the EU, SMEs account for 99% of all businesses. In the United Kingdom alone, 99.9% of all businesses are SMEs.
When it comes to the domestic context, the SME industry makes up a considerable part of the Sri Lankan economy with more than one million SMEs accounting for approximately 80% of all businesses. An SME is defined in Sri Lanka as a business that has less than 300 employees. To be considered an SME, the revenue should not exceed 750 million LKR. As the backbone of the Sri Lankan economy, SMEs contribute up to 52% of the GDP with businesses coming from several sectors. For example, in the agri-business sector, SMEs are involved in the cultivation of spices, fruits and vegetables. SMEs in the manufacturing sector are engaged in various industrial activities and they account for about 20% of all industrial establishments. Sri Lankan SMEs coming from such diverse sectors are an important source of employment for the country and it is estimated that they contribute about 35% of employment opportunities.
Challenges Faced By SMEs
No matter how important SMEs are to the global and domestic economies, they are far from realising their full potential. Due to multiple challenges faced by SMEs, their growth has been hindered to a certain extent. Some of the challenges faced by SMEs can be identified as follows.
Difficulties In Accessing Finances
As mentioned before, SMEs often have a hard time financing their start-ups. Most SMEs have to depend on internal funds or cash that come from personal connections as it is likely that they will be turned down by banks and capital markets. Research shows that the difficulty of raising funds faced by SMEs is far greater than that faced by large firms. The main reason behind this is that large firms have a lower risk of default.
Infrastructure plays a vital role in the development of SMEs. However,Sri Lankan SMEs are challenged by the lack of adequate infrastructure. For example, in terms of electricity, Sri Lankan SMEs have to function under frequent power failures and pay high costs for power generation, transmission and distribution. In addition, “Sri Lanka road, railroad, port and air transport conditions and standards are inadequate to meet rapidly growing freight and passenger traffic.” Such infrastructure-related issues hinder the establishment, growth and development of SMEs in Sri Lanka.
Labour Market Efficiency
Another challenge faced by the SMEs functioning in Sri Lanka is the inefficiency of the labour market available. According to the Labour Market Efficiency ranking (World Bank & IFC 2010/2011), Sri Lanka has placed the 104th place whereas Singapore, a developed Asian country with a firmly established and rapidly developing SME industry holds the first place. Research suggests that inefficiencies in the management of the workforce significantly impact the growth of SMEs in Sri Lanka.
Apart from the challenges mentioned above, Sri Lankan SMEs are further confronted with challenges related to information infrastructure and information technology. However, the future of the SME industry looks promising as the government has taken the necessary steps to implement development projects and policy frameworks that will mitigate the challenges faced by SMEs, thereby paving the way toward a brighter future for the industry.
eCommerce - Advantages And Disadvantages
Electronic commerce, or e-commerce, is a term used to refer to economic activity that happens online. From retail and banking to investing and rentals, a wide variety of economic activities that occur online fall under eCommerce. eCommerce has been aptly dubbed the future of business as the traditional brick and mortar business model is slowly and surely fading into the dust while online shopping is emerging stronger than ever with the widely- felt impact of Covid and the subsequent budding of m-commerce.
The popularity of eCommerce is due to many reasons. For instance, the very fact that eCommerce allows the customer to shop from the comfort of their own home accelerates its popularity. Easy price comparison, the opportunity to buy from foreign sellers without getting on a plane, quick deliveries, and the availability of multiple payment options also contribute to the widespread customer acceptance of eCommerce. When it comes to what might make customers reluctant to engage in eCommerce, the automated nature and the lack of humanization on eCommerce platforms can be a reason why certain customers are hesitant to buy online. However, this can be easily remedied by introducing an effective customer service component to the online store. Other disadvantages of going online with your business include the cost incurred by digital technologies, and issues related to security and site maintenance.
How Can Ecommerce Help SMEs?
eCommerce Helps to Attract A Larger Customer Base
Perhaps the most prominent driving factor behind the stark popularity of eCommerce is its ability to reach a customer base that is not restricted by territorial boundaries. Hosted on online platforms, eCommerce has the potential to reach a large clientele that extends beyond the home country of the business, transcending the physical boundaries of space and time. This is particularly beneficial for SMEs as they often do not have the material and human resources necessary to set up physical stores in foreign countries. eCommerce is ideal for such SMEs as it enables them to tap a bigger clientele and expand to often new and distant territories. Thanks to eCommerce, they can reach communities scattered all over the world without having to expand physically to foreign territories.
Affordable Opportunities For Effective Marketing
eCommerce allows SMEs to implement effective marketing campaigns at a relatively lower cost. As eCommerce takes place online, it enables businesses to collect customer information with the help of web analytics and the insights thus collected can be used to devise and implement effective marketing strategies, the plus point being the reduced cost involved. With the information gathered, SMEs can identify their target markets, customer preferences and related insights which will inform the parameters of promotional campaigns. In addition, eCommerce platforms themselves can be used to promote businesses; for example, platforms like Alibaba and eBay act as promotional spaces themselves, attracting customers and increasing revenues.
Greater Customer Satisfaction
eCommerce offers many benefits to customers. From quick and easy order placement, multiple payment options and convenient order tracking to swift deliveries, eCommerce leaves SMEs with satisfied customers. The only element missing in eCommerce is customer service. However, with strategic and effective customer care, SMEs can easily accommodate their customers’ demands on their online platforms. Lured by such features, customers on eCommerce platforms are highly satisfied, and most customers likely become loyal clients who stay with the brand for a long period.
Greater Customer Advocacy
The importance of eCommerce to SMEs is further reinforced by the increased customer advocacy it entails. The online platforms and social media channels allow customers to advocate and promote SMEs to their friends, family and colleagues. The reviews your customers publish online will influence new users and convert them into potential customers. Of course, whether or not the customer promotes the SME depends on the quality of service provided by the SME. Nevertheless, as opposed to physical stores, the potential of an online shop to receive customer advocacy is far greater. And this is partly due to the customer satisfaction that comes with effective eCommerce.
Increased Revenue For Low Operational Costs
As mentioned before as well, eCommerce offers increased revenue for low operational costs. SMEs involved in eCommerce are not burdened with the cost incurred by setting up a physical store. The only cost eCommerce businesses have to bear at the inception is the cost of getting the website up. Once the online platform is up and running, SMEs can reach a larger client base and use the analytical information generated on the online platforms to drive their sales and marketing strategies, thereby increasing their revenue.
Strong Online Presence
In this digital age, it is almost impossible to engage with customers without having a strong online presence. Even the most successful SMEs that function within the confines of the brick and mortar store need an online handle to attract and engage with customers. Research shows that ‘checking out the website (or the relevant online platform)’ is a vital component of the purchase journey of many customers. Be it curbside pick-up, physical shopping or eCommerce, having a well-established online platform is a major factor that drives sales and revenue. Ecommerce in this regard is of crucial importance to SMEs as, by default, it leads to a strategically built and often localised online handle.
How Can ShopOnCloud Help SMEs?
ShopOnCloud (SOC) is a branded eCommerce website that helps SMEs scale up easily and smoothly. The online stores hosted on SOC come with multiple features that aid SMEs reap the benefits of eCommerce. For instance, SOC features a mobile-first responsive design, allowing customers to shop online using any device of their choice. When customers access your online store on SOC, they are greeted with a simple and secure online ordering interface that facilitates a seamless ordering process. Equipped with tools to make the shopping experience more enjoyable and multiple payment options to accommodate customer requirements, SOC helps you to maximise customer satisfaction and thereby increase revenue in no time. Simultaneously, the simple and convenient shopping cart that SOC provides to your customers will prevent your customers from abandoning their carts mid-purchase.
In addition, you can design, implement and manage your marketing campaigns easily with SOC. SOC allows SMEs to add promotions and discounts, seasonal or otherwise, in just a couple of clicks. You will also have access to easy management and storage of customer details that you can use to drive your sales and revenue. SOC also offers up-selling and cross-selling, so that you can expand your horizons and take your SME to new heights.
1.Asian Development Bank. “Major Challenges Facing Small and Medium-sized Enterprises in Asia and Solutions for Mitigating Them.” Asian Development Bank, https://www.adb.org/sites/default/files/publication/182532/adbi-wp564.pdf. Accessed 25 May 2022.
2.European Commission. “SME definition.” European Commission, https://ec.europa.eu/growth/smes/sme-definition_en. Accessed 25 May 2022.
3.Secretariat of Senior Ministers. “Small and Medium Enterprises (SME).” the National Human Resources and Employment Policy, http://www.nhrep.gov.lk/index.php?option=com_content&view=article&id=81&Itemid=59&lang=en. Accessed 25 May 2022.
4.World Bank. “World Bank SME Finance: Development news, research, data | World Bank.” World Bank Group, https://www.worldbank.org/en/topic/smefinance. Accessed 25 May 2022.
5.Pretheeba, P., 2014. Creating a conducive environment for SMEs in Sri Lanka. Wayamba Journal of Management, 3(2), pp.44–59. DOI: http://doi.org/10.4038/wjm.v3i2.7443