Making Guyanese Small and Medium Enterprises More Competitive
By Omari Joseph
In Latin America and the Caribbean (LAC), small and medium enterprises (SMEs) make up 99.5% of firms in the region and generate 60% of formal productive employment. The International Monetary Fund (IMF) and Organisation for Economic Co-operation And Development (OECD) define an SME as “an enterprise employing less than 250 persons”. The category is subdivided into micro (1-9 employees), small (10-49 employees), and medium (50-249 employees) enterprises. National definitions may differ in the number of employees and/or the annual turnover of assets constituting the most widely accepted parameters.
SMEs are critical for social stability and long-term economic growth. Unfortunately, LAC SMEs contribute a smaller share of gross domestic product (GDP) when compared to SMEs in other regions like the European Union. This phenomenon is observed despite SMEs making up a similar share of all firms in both regions. In short, SMEs in the LAC region are less productive. Naturally, less productive firms are considered to be less competitive. SMEs in the LAC region must find innovative ways to increase their productivity and competitiveness on the global stage.
There are several factors that contribute to the competitiveness of firms. Mihajlović separated these factors into two main categories. First, there are the individual characteristics of the entrepreneur and the non-individual characteristics that affect SMEs. The non-individual factors are further divided into internal and external influences. Internal non-individual factors refer to the operations within the enterprise, while external non-individual factors are all the influences outside the organisation that affect its performance. These factors include political, economic, technological, environmental, and legal factors (Mihajlović et al 2015).
Organisations cannot directly influence these external factors, hence, most attention should be paid to the internal operations of the firm. This is why value chains are critical for SMEs. Value chains help firms gain a competitive advantage by exposing parts of the business that require optimisation, allowing managers to introduce strategies that improve the efficiency of internal operations. In the global context, value chains provide benefits in the form of new import sources and new export destinations. Participating in global value chains (GVC) allows firms to acquire management expertise and new technology. SMEs that participate in GVCs tend to be more productive. Therefore, the greater participation of SMEs in GVCs could result in more economic growth. If we turn the spotlight to Guyana, the importance of value chains becomes evident.
The external environment is far from ideal in the small South-American nation. The political environment is tense and often racially charged. The technological and legal environments are also deficient. Legal protection is critical for SMEs, particularly in relation to the protection of intellectual property rights. The absence of proper legislation to govern these areas restricts the growth potential of SMEs. Poor logistics performance in Guyana is another hindering factor for SMEs hoping to grow and compete globally. Nevertheless, SMEs must find ways to improve in spite of the unfavourable environment.
This where Guyana’s potential as an economy comes to the fore. Most eyes have turned to the oil and gas sector, with the adjacent industries receiving much of the remaining attention. The enthusiasm attached to the oil and gas sector is beneficial, however, local SMEs and potential investors overseas should consider the opportunities in other industries that may come from the expected economic growth.
Guyana’s economy was forecast to grow 53% this year in spite of the crash in oil prices and the economic slump that came as a result of the coronavirus pandemic. This growth is expected to continue beyond 2020. In an ideal scenario, disposable incomes will increase along with the demand for new goods and services. Consequently, the country will likely see steady growth as an export market. Increased industrialisation and improved logistics are likely to follow economic growth, which would make it more attractive for firms looking for suppliers. Companies like The Meridian 74 Group enable firms to construct and become involved in GVCs by expanding into the Guyana market.
These expansion opportunities lie in several industries beyond oil and gas. Rice is Guyana’s largest agricultural export, followed by fish and seafood products, then sugar. Timber and precious metals, specifically gold, are also among the nation’s biggest export industries. Beverages, especially rum, are another major export. Smaller export industries include fresh and processed fruits and vegetables, textiles, furniture, and wood products.
SMEs in Guyana should seek to utilise GVCs to expand their business opportunities in foreign markets. Local firms can position themselves within the value chains of multinational companies (MNCs). This could most likely be as a supplier of inputs (raw materials or intermediate products), or as a distributor and seller of products.
Another option for local SMEs involves targeting profitable niches in attractive export markets. For example, an SME selling Guyanese products to the local market can expand their markets to Guyanese communities overseas. One such example of a community overseas would be New York City, which is home to the largest population of Guyanese outside of Guyana (over 130,000). Finding the best way to get the product from Guyana to the end-user in New York may seem daunting for SMEs. However, that internationalization process can be made easier by employing the services of Meridian 74 Group.
Overcoming the entry barriers to the foreign markets and competing within the market will force the SME to improve the quality of their products. The local market benefits by receiving a higher quality product. On the other hand, the company is able to increase revenue by selling to a bigger market and increase profits by improving the efficiency of their internal processes. A more competitive SME is more productive making it able to pay better wages to its employees.
Ultimately, focusing on the economic prospects for Guyana and the potential benefits of joining GVCs is an oversimplification of the process for making SMEs more productive. Only the most productive SMEs can successfully integrate into GVCs. This is crucial in Guyana, where the government has much work to do in improving the business environment. SMEs have a steep uphill journey to higher productivity and GVC integration. Those that manage to integrate will profit greatly.
References Mihajlović, I., Nikolić, N., Dhamo, Z., Schulte, P., & Kume, V. (2015). The Reasons for SME's Failure, Comparative Analysis and Research. Proceedings of FIKUSZ ’15Symposium for Young Researchers (pp. 7-22). Obuda University.
Omari Joseph is an intern at M74 from Georgetown, Guyana. He is an undergraduate student of International Tourism Management at the University of the West Indies in Trinidad. Omari has written for the CAF Development Bank of Latin America, the Eric Williams Memorial Collection, and the Explore Guyana Magazine.
The views expressed above are those of the author and do not reflect the official position of the M74 Group, which remains neutral on all matters. Publishers assume no liability for content.