5 PROBLEMS FACED BY SMES THROUGHOUT THE WORLD

SMEs are the backbone of many European and American economies. In some countries, such as Canada, they contribute more than 50% to the GDP. Small and medium enterprises also employ a significant share of the unemployed labor force. Despite all that good it does to an economy and its people; SMEs still struggle to find their way to success.

5 Problems Faced by SMEs Throughout the World

Here are 5 problems faced by SMEs throughout the world that hinder their growth.

• Inadequate funds

  Finance is the backbone of any business. The scarcity of financial resources for an SME is nothing new. The capital structure of the small business comprises credits. The credit is obtained after lots of struggle, either through formal institutions or informal organizations. While formal institutes comprise banks and cooperatives, the informal sector comprises moneylenders, family, and friends. The SME usually relies on informal sources of credit due to a lack of mortgaged assets and paperwork. The capital raised by informal credit sources with a high interest rate creates a vicious debt trap cycle for small business owners.

  
  

• Inadequate supply of Raw materials

  Small businesses often rely heavily on procuring goods in smaller quantities and often on credit. In such scenarios, the unavailability of raw materials, low-quality inputs, lack of packaging facilities, and unavailability of power affect their performance. These factors often entangle business owners in the trap of middlemen. 

  
  

• Technological obsolescence

  The techniques that SMEs use are usually obsolete, which leads to the application of an increased labour force, resulting in higher production costs. Obsolete technology also degrades the quality of the products produced by SMEs. There is an urgent need for small and medium enterprises to apply new technologies in their production processes in order to be effective and efficient. 

  
  

• Infrastructural inefficiency

  Each problem faced by SMEs is a subsidiary of the unavailability of funds. Many Small industries located in villages are deprived of infrastructural requirements like building, power, transport, communication, etc. These inefficiencies have led to a drastic decline in the market for traditional goods, thus affecting the livelihood as well as the culture of the economies. 

  
  

• Imperfect knowledge of the market

  Small industries lack the marketing function that a big organization performs. The lack of advertising and promotional activities disadvantages them in competitive markets. Developing effective marketing channels is crucial for these small industries to reach and sell to potential customers. 

Despite the contributions made by small and medium enterprises, they face a lot of challenges that retard their growth potential. While several factors contribute to the same, the one factor majorly responsible for the challenges is the “Unavailability of Funds”. The need of the hour is for the government to step forward to formulate policies supporting the development of SMEs.