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Urbulence in the Eurozone and the effect on SMEs

By Frank-Jürgen Richter

SMEWeb May 4, 2012

There has never been a better time to run a small business than during this turbulence in European economy.

SMEs are the favourite whipping boys during the periods of economic uncertainty. Traditionally, they face the maximum brunt from all directions.

SMEs often work as vendors to large organisations. These organisations use SMEs as an indirect source for short term financing by delaying payments. Using their larger size often they are able to put pressure to negotiate unfair settlements.

Larger organisations are able to leverage their size, number of employees, market dominance and local strength to negotiate bailouts, tax exemptions and other incentives from the government. Smaller companies do not have the resources to get any special privileges.

SMEs need to be realistic and understand the challenges that they will face in the changing market scenario. They can leverage on their inherent strengths to use the turbulence to their advantage.

While some favour and propagate protectionism to compete against cheaper imports and outsourcing, globalisation is a permanent and irreversible development. The essence of running any business is the entrepreneurial spirit, innovation and an ability to take calculated risks.

There are a host of benefits associated with the nimbleness that comes with a small business. A large business, like a dinosaur, finds it a lot tougher to negotiate with difficult changes.

The inherent business and domain expertise is something that no one can replace. Cheaper imports and outsourcing may seem like a challenge but they open up portals for higher business advantages. Eurozone itself is a place of great opportunities where British SMEs can explore new avenues of doing business. There are also opportunities across the Commonwealth and other countries.

Government has also realised the role and contribution of SMEs in boosting economy. In February 2011, Secretary of State for Business, Innovation and Skills presented a paper entitled “Trade and Investment for Growth” to the parliament that laid out the Government’s plans to encourage exports from the UK, enhance inward investment and to strengthen international trading systems.

Minister for Trade and Investment Lord Green spoke on its 1st anniversary and said, “Encouraging businesses to export more is at the very heart of our approach. We need to ensure business, especially our small businesses, have all the tools they need to flourish, that we strengthen and improve our relationship with trade partners around the world, that we fight protectionism and ensure poor countries can benefit fully from free and fair trade.”

With this strategy for boosting international business, over 20,000 SMEs have broken into new international markets in just one year. It is just an indication of what lies in store if SMEs try to use this turbulence as a source of opportunity.

UK Government’s plan of £20-billion guarantee scheme to back loans to SMEs is likely to provide tremendous boost to the economy. The Cabinet Office also announced that the government business going to SMEs has doubled to 13.7%. The Government is also working on bringing in IT-enabled procurement, prompt payment mechanism and host of other developments to take most of the bottlenecks away. Large organisations are also setting up similar policies as a part of their CSR initiatives.

With more responsibility towards the SMEs from both companies and the government, along with inherent advantages of a small business, there has never been a better time to run a small business than during this turbulence in European economy.

Frank-Jürgen Richter is chairman and founder of Horasis, a global business community