Analysis of the Role of Small and Medium Enterprises in Economy

This report delves into the crucial role that Small and Medium Enterprises (SMEs) play in fostering economic growth, particularly within the context of the United Kingdom. It highlights the significant contributions of SMEs, including job creation, increased competitiveness, and GDP growth. The report identifies key challenges faced by SMEs, such as legal compliance, financial constraints, environmental issues, and competition. Furthermore, it underscores the importance of government support through legal and financial assistance, tax benefits, and streamlined registration processes to promote SME development. The conclusion emphasizes the vital role of SMEs in economic development and proposes recommendations to mitigate challenges and maximize their positive impact. The report uses UK as a case study and refers to various sources and figures to support its arguments.

The role small enterprises
play in the economy of a
country

Table of Contents
Introduction ..........................................................................................................................................3
Critical issue in the enterprise development ........................................................................................3
Role of SME in the economic development ..........................................................................................5
Recommendation for the minimise issue .............................................................................................7
Conclusion ............................................................................................................................................7
References ............................................................................................................................................8

Introduction
Small and medium enterprises are plays vital role in the growth of economy. It
generate new jobs, create demand, increase trade activities between nation and this directly
support the development of economy in countryeconomic development of country . For
instance, there are various nations specially developing country like India, China, Indonesia
etc. where SMEs contribute to a large scale in different aspects. Country like, UK which is
one of the 7th largest economy in the world in terms of GDP. For instance, at present time UK
nomination GDP total value is more than $2.5 trillion which is very significant. SMEs having
a large influence ofon the national economy of UK. But, in the recent time there is evidenced
of a slowdown in the economic growth which is one of the major fear for the government of
UK (Khan and Khalique, 2014). Therefore, they are planning to spend a large amount of
capital on the SMEs and for their its development. Because, it supports national economy in
at wider context which is very crucial for a country's growth and development.
Critical issue in the enterprise development
There are is various issues which are faced by the entrepreneurs and these are related
with the legal, environmental, technological, economic aspects etc. Therefore, it is the
responsibility of government bodies to understand such these issues responsibly and
overcome such aspects which can help in providing a consistent growth toin businesses in
the long run. These issues can be:
Legal compliances: This is one of the major challenge for SMEs and its development.
Each and every country follows different legislation in nation and create a key issue for them
(Nkosi, 2013). It will take time and money which is not good for a start-up businesses
business and its future growth. As, UK is a part of EU which is also have its own governing
policies regarding the legislative issues. The This is role of state government is to provide
different facilities, where entrepreneurs can register their business at one place and also get
the certificate. Additionally, there are various start-ups which are related with the innovation
and technology, they need to get the copy right or any other legal right which can produce the
commercial interest for the company growth. But it is also a time consuming process which
may leads to lose their businessslow down the growth rate of business.
Financial issues: This is another major issue where they need to arrange required
financial resources from various source. For instance, a start-up need a large amount of

capital to start their business and running out for the longer run. Government provide
instruction to the various financial and banking institutions to provide loan at the minimum
interest raterate of interest . On the other hand, these organizations failed to support such
assistance and reject more than 65 percent credit applications which are having adverse
impact on SMEs growth and development. Therefore, entrepreneur is needs to identify other
sources from where which they can arrange its resources or fund so that they can meet their
short and long term targets and contribute in the growth of national economy.
Environmental issue: This is another major issue for the SMEs and its development.
There are various environmental issues andwhich create a major barrier for them. Today,
customerrs is are more aware towards natural environment and need of a sustainable
development. This will require a large amount of investment to use innovative approach
(Obiwuru and et. al., 2011).
Threat from competition: After globalization, the level of competition has been
increased in last few years to large extent which leads to have an adverse impact on the
growth of SMEs. In the context of UK, there are large number of business in variety of
sectors such as a retail, marketing, finance, information technology and so on. A start up is
not able to compete with this situation confidently which create a major problem for its
growth (Bunyasi, Bwisa and Namusonge, 2014). For instance, a giant firm can build price
war situation which leads to increase in the competition level and having a large influence on
the growth and development of business which is very significant.
Other issue: There are various issues which should be understandconsidered while
starting-up a new business firm for their future growth and development. The large firm can
acquire a small business which can stop their future opportunities. Further, there are various
technological aspects and having large influence on business and its future. Various
innovation and technology which are quietly expensive to use and not possible to manage
such business.

Figure 1: Issues in SME development
Source: (Issues in SME development, 2017)
Role of SME in the economic development
As in the previous report, it has is already been mentioned that SMEs are having a
large influence on the economic development. In the context of UK, where it contributes and
share a large portion profit of their business profit . Therefore, they are required to make them
self-reliable on the various aspects. According to the higher authorities, the overall
contribution in of SMEs sector is approx. £217 billion which is a quite higher amount as
compared to other Western countries. In the market there are more than 95 percent belonging
to the private sector and required to implement in an effective manner.
Competitiveness: According to the data, there are 33 percent turnover iswhich is
related to the SMEs sectors which is a quite higher amount as compared to other countries. It
shows that there are large number of businesses and create a healthy competitive environment
in the economy. It also helps to reduce thehelps to reduction in the price of a product which
leads to decrease in the inflation rate (Irefin, Abdul-Azeez and Tijani, 2012). In UK, various
SMEs businesses supports the local and national society and provide a competitive advantage
forto the country in the longer run.
GDP growth: In the last few years, the growth rate of UK economy is going down
due to global and regional factors. Recently, people decided to leave EU which having a
negative influence on its economy and demand of products and services. In the current year
the growth rate of UK evidenced is about 2.5 percent and itwhich is quite lower as compared
to observed in last few years. Therefore, government has decided to increase its investment

on the SMEs due to its higher potential to grow with good rate in the upcoming years and
provide a consistency in the development of their economy.
Employment generation: This is one of the major factor of economic development
which related with economic growth. As per the government data, SMEs sector is providing
approx. 88 percent job in the different types of businessesorganisations. There are 17 percent
self-employed, 24 percent micro businesses, 27 percent small and 20 percent medium size
companies. Its role of creation ofis to create new jobs in the UK iswhich plays a vital role
and helps to generate the demand of goods and services for a longer period of time.
Figure 2: SME and Employment
Source: (Mountain. J., 2017)
Adaptability: Each and every developed country wants to be adaptable for every
situation so that they can face various issues without impacting economy in the negative
manner. For example, during financial crisis in the year of 2007-08, there are large number of
job cutting by multinational corporations. As per this situation, people are focusing on self-
employment which helps to provide stability in their economic growth so that they can meet
their desired goals in an effective manner.

Recommendation for the minimise issue
From the above report, it is required to understand that the overall issue provides an
effective and suitable recommendation to overcome these sited problems so that they can
support the economy at the to the great extent. The major role of development of SMEs in
the country is related with the government activities (Bhavani, 2011). Because, they are
having a wide range of resources in order to create a start-up environment in the economy. In
the recent years, UK government has decided to increase its spending about $120 billion.
They also provide a different types of support which helps them to make themselves self-
employed in the longer run.
Provide legal support: UK government is required to provide legal support to the
SMEs though overcoming registration process. It helps to reduce the time frame and legal
compliances which is very significant for a SMEs and its future development. For instance,
they can install an online registration window system in order to reduce issues and make
them more effective and more efficient for the future challenges.
Tax benefits: This is one of another aspect where UK government is required to
provide tax holiday for to SMEs for a period of time. This is very significant for start-ups to
reduce its operational expenses and make them more effective for longer period of time
(Forsman and Rantanen, 2011).
Financial support: The most critical issues in the SMEs and its growth is to arrange
financial resources for a longer period of time. For this, they are required to announce a
package and also reduction in the interest rate on loans which is provided to the SMEs in the
longer run.
Conclusion
From the above mentioned report it has been concluded that SMEs contribute largely
in the economic development of nation. Therefore, every country tries to support their
economic system for the SMEs and its future development. This report talks about the major
issues in the growth of enterprise creation. Further, this report also disusesdiscusses about its
role in the economic growth and also provide the recommendation which helps to minimise
the various issues in the longer run. s

References
Books and Journal
Khan, M. W. J and Khalique, M., 2014. An overview of small and medium enterprises in
Malaysia and Pakistan: Past, present and future scenario. Business and Management
Horizons. 2(2). p.38.
Nkosi, E., 2013. Skills required for the management of Black-owned small enterprises in
Soweto. Acta Commercii. 13(1). pp.1-10.
Obiwuru, T. C., and et. al., 2011. Effects of leadership style on organizational performance:
A survey of selected small scale enterprises in Ikosi-Ketu council development area
of Lagos State, Nigeria. Australian Journal of Business and Management Research.
1(7). p.100.
Bunyasi, G. N. W., Bwisa, H. and Namusonge, G., 2014. Effect of access to business
information on the growth of small and medium enterprises in Kenya. International
Journal of Business and Social Science. 5(10).
Irefin, I. A., Abdul-Azeez, I. A. and Tijani, A. A., 2012. An investigative study of the factors
affecting the adoption of information and communication technology in small and
medium scale enterprises in Nigeria. Australian Journal of Business and
Management Research. 2(2). p.1.
Bhavani, T. A., 2011. Dynamic business environments: what these mean for Indian small
enterprises. Micro and Small Enterprises in India: Era of Reforms: Keshab Das
(Ed). pp.27-45.
Forsman, H. and Rantanen, H., 2011. Small manufacturing and service enterprises as
innovators: a comparison by size. European Journal of Innovation Management.
14(1). pp.27-50.
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