The value of SMBs in the global economic recovery

By Hans Leijten, Regus | Jul 5, 2011

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The common picture of SMBs is of a sector battered by recession, overlooked by governments, and starved of credit by banks. Many small business organisations propagate this image – after all, they exist to generate more support for their members. 

Much of that portrayal is true, of course: the sector has gone through tough times.  But it’s also at the forefront of recovery.

In a storm, some small trees fall down because their root systems are too shallow to anchor them. But others survive – their trunks are supple, they bend and adapt. Our experience of working and talking with hundreds of thousands of SMBs worldwide shows that plenty of SMBs are thriving, their growth unchecked by the storms of recent years.

In early 2011 research commissioned by Regus into over 17,000 companies worldwide found that 46% of small companies had increased their revenues over the previous twelve months.  Over three quarters (77%) expected revenues to rise in the next 12 months. Their level of optimism was similar to that of large companies, but they showed greater ambition in their future sales and marketing plans. For example, 39% of small companies planned to increase marketing expenditure, compared to 23% of large companies.1

Humble but nimble

There’s no doubt that recession hit SMBs hard. They had fewer assets to take them through tough times. With a narrower customer base, and fewer product lines and markets, they were more vulnerable than their multinational counterparts.

However, that does not paint a full picture. The Economist talks of SMBs as being ‘humble but nimble’. Ludo Van der Heyden, a professor at French business school INSEAD, told the magazine that SMBs are often better at managing through downturns than big firms, because they’re more flexible and efficient. They’re closer to their customers, there is often more trust between managers and workers, and greater labour flexibility.

Regus’s own experience of working with SMBs worldwide backs the thesis about their agility.  For example, we found that 76% of small companies offer their staff flexibility about where they work, compared with 66% of all business.

SMBs can be flexible about where staff work because they have no legacy of fixed real estate. Instead of having to populate existing city-centre offices, they can let staff work on the move, at business centres, at home - wherever they are most productive. Instead of paying fixed rents on fixed space, they can use polycentric, flexible workspace arrangements that grow, move or contract with the company.

Some entrepreneurs eschew physical premises, preferring virtual office services. Instead of office or desk space, they get a business address to use on stationery, phone number and receptionist, and call and post management.

Virtual offices and flexible spaces are not just for start-ups: they’re also used by established companies to expand their global footprint. For example, a Beijing-based Regus customer wanted to run a global operation, so it took a Regus office based in the city’s Sanlitun district and uses Regus’s businessworld programme to help expand its business operations into Hong Kong, New York City and Sydney. It has created a strong global presence, without the millstone of fixed offices overseas.

This ability to explore new markets, whilst travelling light, is pivotal for SMBs. According to the US Department of Commerce, SMBs that export are more productive and generate more revenues than SMBs that don’t. An International Trade Commission survey found that exporting small and medium-sized manufacturers had more than twice the total revenue of their non-exporting counterparts. The former experienced revenue growth of 37% between 2005 and 2009, while total revenue declined by 7% for non-exporting SEM manufacturers over the same period.

This trend will strengthen. To grow revenues SMBs need to explore new territories, but opening offices in new geographies eats up capital and management time that SMBs don’t have. With bank credit and financing hard to come by, SMBs need to concentrate resources on talent, sales and marketing and innovation, and not on upfront capital investment in infrastructure. Today’s new breed of SMBs understand that a flexible approach to real estate allows them to do that.

The ability of SMBs to thrive matters to us all because there’s near universal agreement about their importance as the world seeks to restore financial stability and growth. 
 
Global importance

The APEC SMBs ministerial meeting in Gifu, Japan in October 2010 recognised that SMBs are a “significant source of prosperity and employment, and a major contributor to innovation”, and called them “a growth engine within the Asia-Pacific region”.

In Europe, the Hungarian EU Presidency referred to the “direct links between SMBs and overall economic growth … The SMB sector contributes to innovation, is a source of competition, provides flexibility in the labour market, and most crucially is a source of job creation.” 

At the Fourth Annual Americas Competitiveness Forum, the vice presidents and ministers of 15 Western Hemisphere countries stated, “SMBs are a significant source of job creation and sustainable economic growth, while promoting equity and social inclusion, as they represent more than 95% of firms and up to 70% of employment in the Americas.”

Businesses themselves, of course, would like a little less conversation, a little more action please.  Three-quarters of entrepreneurs told Regus that the interests of SMBs are typically overlooked by governments. Almost the same proportion (74%) said banks should be forced to lend more to small businesses.

Easing access to finance and cutting red tape are crucial because they let entrepreneurial SMBs pursue their core goals of innovation and growth. But other support is also helping today’s new breed of agile companies to focus on core aims: access to a ready-to-roll infrastructure that frees up managers and staff to be productive. 

The Googles and Facebooks of tomorrow may have a handful of staff but they already have an idea, a vision. What they need is the agility to pursue that vision. Some of this is basic stuff. If their sales director has access to business-ready workspace, wherever she wants to be, then she can work more effectively. If the company has on-demand access to the right workspace and the right communications technology wherever it wants to expand, then competing and growing is easier. 

Agile, fleet-footed, free from the accumulated baggage of office leases, legacy property and the day-to-day search for a wifi connection that actually works, today’s entrepreneurial SMBs can potentially steer themselves – and the global economy – away from the storms behind them. If governments and banks give them more of the support they’re asking for, they’ll do so even quicker.

Hans Leijten is Regional Vice President, East Asia for Regus, the world’s leading provider of workplace solutions. Regus supports thousands of SMBs in China.