Small Business Economics

Reviewing the Benefits of Small Enterprises to the Economy

Written by Samuel Muriithi for Gaebler Ventures

Thanks to their unique organizational and economic traits, small enterprises are well placed to bring about positive gradual changes to any economy. It is for this reason that small enterprises must be promoted as a matter of necessity in the implementation of national development plans.

Regardless of whether a country has a market type of economy or one that is centrally planned, the promotion of small enterprises has long been identified as an apt and practical means to augment economic development.

The benefits of small enterprises to the economy are evident in each country regardless of the level of industrialization. This translates into a statement to the effect that small enterprises form the business pillar of any given society.

The benefits of small enterprises to the economy begin to be felt at the lowest of levels - the individual. Everyone has individual and personal needs to satisfy. These needs are subject to constant differentiation thanks to our ever-changing tastes and demands. With this in mind it is untenable to think that a large enterprise's mass production approach will have the flexibility to keep up pace with the constant changes; only a small enterprise can do so.

One of the most important benefits of small enterprises to the economy has to do with provision of jobs. This mostly applies in developing countries where there are marked scarcities of skilled labor, managerial resources and capital. Small enterprises are actually the largest employers in many of these countries. The fact that SEs employ the largest proportion of a country's population means that two allied benefits accrue directly. First, it becomes easier for economic activities to be spread across the width and breadth of a country, and secondly, individuals are provided with productive outlets where they are allowed to express their entrepreneurial talents.

Thanks to their innate characteristics of being labor-intensive and able to make the most use of available capital, more benefits of small enterprises to the economy can be appreciated. It is well known that compared to large enterprises small enterprises have higher levels of value addition to fixed assets. Small enterprises are better positioned to use capital more productively and their capital costs per worker are much less than in large enterprises.

A most practical benefit of small enterprises to the economy is seen when the use of non-conventional resources is considered. It is only small enterprises that will hire unskilled labor and have them trained on the job. It is only small enterprises that make use of unorthodox raw materials, as diverse as human and animal waste, garbage, etc, which would otherwise not be used at all.

Small enterprises have the capacity and flexibility to provide subcontracting services to larger establishments. They enter into agreements to do complete smaller batches of work and indeed provide other products and services that are complementary to the core activities of large enterprises.

Samuel Muriithi is a business owner in Nairobi, Kenya. He has extensive international business experience in the United States and India.

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