Importance of SMEs and Entrepreneurship in Economic Growth: A Report

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IMPORANCE OF SME AND ENTREPRENUERSHIP
Name of the student
Name of the university:
Author’s note:
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Table of Contents
Introduction......................................................................................................................................3
Task 1 (LO1 and LO2)....................................................................................................................3
Introduction..................................................................................................................................3
a) Scope, development and growth of entrepreneurial ventures..................................................4
Similarities...................................................................................................................................4
Differences...................................................................................................................................6
b) Importance of SME’s in the economy.........................................................................................6
Conclusion.................................................................................................................................11
Task 2 (LO3 and LO 4).............................................................................................................11
Conclusion.....................................................................................................................................11
Reference.......................................................................................................................................12
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Introduction
The research is going to focus on the various aspects of Entrepreneurship and the importance of
SME in the economy. It will be accompanied by a critical analysis of both the fat or and its
contribution towards making the economy a better place to live in.
Task 1 (LO1 and LO2)
Introduction
Entrepreneurship may be defined as the process of designing, launching and running a new
business which might be small in nature. Hence, the people who are creating this type of
business is often regarded as entrepreneurs (Kirzner, 2015). These entrepreneurs with their own
willingness organize and develop a business venture along with the risk to make certain profits.
It can be noted that the scope of entrepreneurship is very much high as it helps in reducing the
amount of unemployment in some countries where potential job seekers are finding hard to get
any jobs of their desires. The different types of Entrepreneurship can vary from private, public
and social enterprise (Cooper and Folta, 2017). For instance, the stock brokerage is
Entrepreneurship business where the stock broker acts as an entrepreneur and conducts business
which mainly deals with buying and selling of shares. This shades light on the difference of
entrepreneurs from intrapreneurs where intrapreneurs may work on a special project where the
risk is limited, and they are always associated with an organization. On the other hand,
entrepreneurs may work under huge pressure as they have already undertaken a business which
runs by them only. So all the risks and rewards that the business gains have to be borne by the
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entrepreneurs only and lead their own ventures by launching new projects with their own set of
skills.
a) Scope, development and growth of entrepreneurial ventures
Similarities
It can be noted that the scope of entrepreneurship business is rising in many countries where the
unemployment rate is very high. This is mainly because of the changing lifestyle as the youths
are getting highly educated and achieving special skills. However, there is a lack of development
in good jobs which could attract this huge number of educated people. Thus, it is increasing the
development of entrepreneurship business among these youths which could easily reduce the
unemployment rate. For this, the scope of entrepreneurship is rising where people are getting
very much ambitious so that they could control their future and earn more profits. For the
government, entrepreneurship is the remedy to forfeit unemployment level. It helps them to offer
a different career option for the youths through which they can prosper in their respective fields.
This is mainly done through self channelizing. For this, the government can offer certain benefits
and motivate the youths in doing entrepreneurship type of business on a large level.
Based on the above discussion, it was opined by Kirzner, (2015) that entrepreneurship might be
classified into a private, public and social enterprise. Therefore, the similarity between the
private and public sector entrepreneurship business will be discussed. These are:
Customer oriented
Both the entrepreneurship type of business is very much customer oriented so that the
requirements are fulfilled in an effective manner (Burns, 2016). Customers of the public sector
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are its citizens whereas in private sector customers are the ones who have agreed to pay for the
services they are receiving. In both cases, the values of the customers are restored so that efforts
can be evaluated and ensure that the values of the potential customers are restored.
Open to changes
With the changing technology, both the entrepreneurship type of business is open to making
changes for the benefit of the business (Hitt and Duane Ireland, 2017). It helps in changing the
way of doing business. The owners listen to the new ideas that are popping up and explore
possibilities for improving the operations of the business. This helps both the entrepreneurship
type business to foster growth through which they can serve the community.
Employee growth
The environment of both the entrepreneurship type business changes when new ideas and
technology is implemented (Storey, 2016). For this, the business environment is made flexible
enough for the employees so that they can foster growth in their career. Particularly, in the
private sector, the entrepreneurs are assigning the employees with special assignments so that
they can learn and gather experience. This is done with the help of expertise training programs
which helps them to learn something new.
Mentoring
It can be observed that entrepreneurs belonging to both the private and public sector are willing
to act as a mentor to others (Kuratko, 2016). This is of great help for new entrepreneurs as they
could easily gather vital information which will guide them to do their best in the field of
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entrepreneurship type of business. This is the most vital thing which leads to executive support
from the top entrepreneurs of both the sectors.
Differences
It can be observed that despite having several similarities, there are certain differences in
entrepreneurship type of business. It can be observed that in public entrepreneurship business are
used in big societies for the development of a significant level of competition. This type of
entrepreneurship business requires a huge amount of cash to start the business and does not
attract investors to invest in the business (Kirzner, 2015). This happens as the business fails to
provide a good return of incentives. Further, the competition level is a bit low which restricts its
growth in terms of making innovations for increasing the potentiality of the business.
On the other hand, private entrepreneurship is driven in a free market where intense competition
prevails, and the entrepreneurs always look for innovation to cater to the growth level. This
innovation helps in driving the efficiency level through which they can earn great profits.
Further, huge profit margins would allow them to attract more investors towards them and help
the youths to free themselves from the jaws of unemployment pressure. Thus, private
entrepreneurship business would encourage more entrepreneurs to start business and help in
community development (Cooper and Folta, 2017).
b) Importance of SME’s in the economy
According to the research conducted by Radzi and Ariffin, (2018) which states that in the UK
more than 2000 small business have come up in recent time and is boosting the confidence level
of the owners are also increasing. This data was supported by Nagy, (2016) which states that
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employment-population ratio was increased by 60.5% in July 2018. This figure is highest since
June 2009. In the words of Moen, Heggeseth and Lome, (2016) small business has a major
contribution to every nation. It helps the citizens to achieve financial independence and
encourage innovations so that they can generate employment opportunities. It acts as an engine
of job created which helps in reducing the unemployment level to a significant level. This has a
huge impact on the economy which leads to an increase in the standards of living. For instance,
in the UK, more than 25 million jobs were created by the SME's, and it accounted for more than
80% of the residents who did not have any jobs in their hands. Further research conducted by
Doherty et al., (2015) shows that SME's have produced 12 times more job opportunities for the
job seekers and the patents were more than the large firms. In the region of the UK, there was a
record of 5.5 million jobs were created in private sectors during the year 2016 which is showing
an increase of 97000 jobs since 2015. This made a staggering increase of employing businesses
increased by 14,000 (+1%) since 2015, and the number of non-employing businesses by 84,000
(+2%). It accounted that 99.3% were SME’s which contributed to 47% of all private sector
turnover in the UK.
Image 1: Contribution of different sized UK businesses to total population, employment and
turnover, at the start of 2016
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Source: (Taschner, 2016)
According to Moen, Heggeseth and Lome, (2016) which states that governments tend to support
the programs and support programs that help in the improvement of SME's. They provide the
much-needed help to the SME's so that they can easily gain the tools and the required help to
sustain in the economy with a good amount of profit. The ultimate goals are to provide the
economic education of doing business so that the SME’ in return can offer greater help to the
economy to prosper and support the standard of living. Further, when the economy is infused
with money, the diversity level increases among the society which increases the infusion of
modern technology and offers better standard of living. It was opined by Moen, Heggeseth and
Lome, (2016) that SME’s tend to provide a prosperous neighborhood. So for this, the
government should undertake several initiatives to create jobs in the SME's sector. They should
act as a mentor in doing this and provide the much-needed capital to SME's and boosting the
local market operators with the leading communities so that they help in the development of
SME’s. It can be observed in the initiative of the UK government who has made a significant
contribution for registration of VAT and PAYE. They have classified 2.5 million private sector
businesses have registered VAT or PAYE that accounts for 45% of the estimated population. It
also led to registration of 14% of sole proprietorship business and 53% of the partnership were
registered and also classified 3 million business as non- registered. Thus, it helped the
government collect the taxes from them and spend that money in the development of the
economy. This has led to the increase of business population by 2 million with an average annual
growth rate of 2 million (+3%). Therefore, it increases the need of government to look after the
well being of the SME’s so that they can give higher returns to the economy.
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Image 2: Business population growth
Source: (Nagy, 2016)
Importance of SME
It was stated by Radzi and Ariffin, (2018) apart from contributing to the economy in general
good beingness; it also contributes to the growth and vitality in some specific areas of the
economy. Through this, new jobs are created; an innovation is sparked among the SME business
and provides an opportunity for many women and minority people to achieve financial
independence. Further, they help big firms with many components they needed for survival. In
addition to this, several other services are also being offered by them which includes outsourcing
of jobs and acting as a sales agent. Therefore the importance is discussed below:
Job creation
It was found that many UK workers have entered the business world by working in small
business firms. This created a scenario where many workers in today's world are either self-
employed or working with business units (Surin et al., 2017). The difference in workers who are
working in big companies and small companies is even now a bit. This is the reflection of SME’s
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scenario where the businesses have expanded to a greater extent and is creating jobs. Therefore,
a strong reduction in unemployment level can be observed.
Table 1: Job gains and losses in the UK
Source: (Ribau, Moreira and Raposo, 2018)
Innovation
It was found in the research work of Flynn and Davis, (2016) that SME’s tend to generate more
innovative ideas among the employees than the big firms. This is mainly because of the fact that
SME owners tend to adopt new ideas for doing old things which in turn helps them to make
innovation at the workplace (Love and Roper, 2015.). For instance, Amazon recorded a huge
amount of profit in the UK region when they started to sell books over the internet. Thus, SME’s
always provides the employees to nurture their talents and bring innovation.
Opportunities for woman and minorities
Small business provides opportunities to many women and minority people to conduct business.
This happens as the business requires a small amount of capital to start with and requires very
fewer skills to operate.
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Image 3: Growth of SME’s among woman and minorities
Source: (Moen, Heggeseth and Lome, 2016)
Conclusion
This section of the research is focusing on the development of entrepreneurship business which
is a remedy for reducing the unemployment rate. It highlights the various scopes and
development which entrepreneurship could bring into society. Thus, it concludes that
entrepreneurship is the upcoming solution for various countries where unemployment is rising.
Task 2 (LO3 and LO 4)
Please see the power point presentation.
Conclusion
The research concludes on the fact that it is essential for the economy to cater to growth with the
help of SME and entrepreneurship business. The government should provide them with the
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much-needed opportunity so that they could grow and help in the sustainable development of the
economy.
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