The economic performance of any given country is boosted by growth of industries in the country. In any industry, there are large and small scale business enterprises. All these enterprises play a major role in boosting the economy of a country leading to economic development. Some countries focus on large business enterprises while the importance of small-scale businesses is ignored (Griffin, 2012, 267).
However, other countries have recognized the importance of the small business enterprises and incorporated them in the mainstream economy. This is an aspect that has been supported by various global financial bodies such as the International Monetary Fund and the World Bank. In deed, small business enterprises make voluminous contribution to growth and sustainability of economies in many countries. Most jobs in a given country are found in small and medium business enterprises.
These businesses often have a direct contribution to societal development because they directly benefit the society. Small businesses remain important economic factors in determining economic success of a country (Longenecker, et al, 2010, 32-34). However, small businesses often face many constraints that prevent them from sustaining the economic environment of countries in which they exist (Griffin, 2007, 112). This paper presents an assessment report on the contribution of small businesses to the economic environment of two countries: Brazil and Canada.
Overview of small businesses in Canada and Brazil
Brazil is an emerging economy whereas Canada has enjoyed economic stability for quite a long time. The countries have many small businesses in their economies, which make a significant contribution to economic growth and development. The countries have many factors that contribute to the survival of small businesses. The rate of economic development of a country has an influence on the contribution of small businesses to the economy (Papadaki and Chami, 2002, para. 2-4).
It is evident that small businesses in Canada have larger contribution to the economy than the contribution of small businesses in Brazil. Small businesses form strong backgrounds for the economies of these countries. Canada has approximately 1.2 million registered small businesses.
About 50 per cent of registered employees in Canada are employed in the small business sector. Small businesses have witnessed unprecedented growth with the adoption of e-commerce services in enhancing businesses (CBC News, 2011, para 2). An approximated 130,000 new businesses are created in the small business sector of Canada each year. This means that the rate of self employment in the country is high. This makes the economy active and productive (Canadian Association of Business Information, 2012, para. 1).
Similarly, Brazil has many registered small businesses that make significant impacts on the economy of the country. Majority of the working Brazilians are employed in the private sector especially the small business sector. The number of small businesses registered in the country has been rising as the economy grows. Small businesses are key factors of economic growth and development in the developed and emerging economies (AL-Mahrouq, 2010, 1-16).
The contribution of small business to the economic environment of Canada and Brazil
Griffin (2007, p. 112) observes that the contribution made to economies by small businesses can only be measured by identifying the impacts on the major aspects of economic systems. The economic aspects include: the creation of job opportunities, innovation, and the impact on big business. According to the Federal Economic Development Agency for Southern Ontario (2011, para. 2), small business in Canada contribute to approximately 99 per cent of the total employers in the country.
Small businesses in the country account for almost half of the jobs that are created in the private sector of the country. Small businesses are the backbone of Canada’s economy. According to CBC News (2011), small businesses have been making significant contributions to the export package of the country. In the year 2009, small businesses contributed 86 per cent of the total exports of the country. In the same year, 28 per cent of the total gross domestic product of the country came from small business enterprises (RBC 2008, para. 1-5).
In Brazil, 96 per cent of the total jobs in the economy are found in the small and medium enterprises sector. This indicates that small businesses are the main source of employment in most economies. This is a similar case for Brazil and Canada (Ortmans, 2012, 2). With a dynamic approach in investment by both countries, entrepreneurs are venturing and creating employment in diverse sectors of the economy. Small businesses will undoubtedly continue to be in the limelight for creating jobs in the economy. Small businesses continue to account for over 60 per cent of the GDP of Brazil.
Small businesses serve the specialized small markets that cannot be easily served by the large business enterprises. Small business enterprises in Canada are flexible in the production processes. This enables the businesses to offer personalized goods that cannot be effectively offered by large businesses. Apart from being the chief job creators in the economy, small businesses are the greatest supplementary of products and services that are produced by large businesses enterprises. They activate business in local markets by being the main producers and supplier of products in these markets (Millierdickinsonblais, 2012, para. 1-5).
Economic development of any country is backed by many factors such as social stability (Bates, et al. 2005, 81). The most influential factor in an economy is social stability because it supports the business climate of a country. Social stability is often a product of economic stability. Economic stability that is brought about by small businesses is experienced in Brazil. From the ancient times, Brazil has been characterized with high level of economic inequality coupled with a high rate of criminal activities.
The cultivation of the small business environment has forced many people to venture into small businesses to help reduce social inequality in the country. Small businesses have promoted entrepreneurship in the country, and this has set a stable base for economic performance. The stable business environment that has been enjoyed for a long time in Canada is due to the encouragement of small business growth in the country (Arasti, Zandi and Talebi. 2012, 2-11).
Local economies in Brazil and Canada are dominated by entrepreneurs who are doing business on a small scale (Susman, 2007, 1). Booming local economies due to thriving small businesses are ladders for the large business enterprises in the economy. They act as regular and sustainable markets for the large business enterprises. In other words, the profitability of the big business enterprises is determined by how active the small businesses are in the economy (Edmiston, 2010, 1-10).
Challenges facing small businesses
Morrison and Teixeria (2004, 169) observe that small businesses are majorly hindered by financial and human resource poverty. Lack of finance and proper management are the key inhibitors of the performance of small business in almost all economies. These inhibiting factors are also called under-capitalization and managerial inefficiency. Burmajster (2010, para. 1-12) notes that small businesses experience many challenges that can be categorized as external and internal.
The external problems that face small business operations include the general state of the economy as depicted by the economic cycle and competition for the enterprises operating on the middle and large-scale. Other factors are high costs of taxes and other levies, lack of adequate financing and gaps in skills of managers and employees of these businesses (Cisco Systems, 2006, para. 1-5). Among these problems are politics. Policies that govern the operation of these enterprises are formulated through political processes. In addition, the natural and physical factors such as disasters affect the performance of small businesses (Soni, 2005, 2-10).
There are also internal problems that constrain the operation of small businesses. These problems are not visible but have impacts on the performance of these enterprises. They include problems of acquiring and managing cash, lack of proper business planning that worsens other constraining factors and ineffective leadership (Oriaku, 2011 para 3-5). Other factors are lack of effectiveness in sales and marketing of products and services from the businesses and lack of proper strategies and poor implementation of strategies.
Most of the internal factors are caused by poor management of small businesses. When poor management is combined with factors form the external environment, they make the survival and reliable performance outcomes a nightmare for small businesses. Therefore, any efforts of raising the performance of small businesses in economies have to begin with fixing the problem of management of the enterprises.
For economically advanced countries like Canada, management is not a critical problem because there is high level of business elitism in the country. Major problems lie in the external factors. For emerging economies like Brazil, management is still a serious problem. When combined with the external factors, this worsens the climate of small business in the country. Among the internal problems, there is the inability of small businesses to adopt information technologies in enhancing performance (Pollard and Stephen, n. d., 1).
A research conducted in Brazil produced findings that pointed to a number of hindrances to the performance and sustainability of small businesses in the country. The problems include: corruption, unfavorable legislation framework, high income inequality, dominance by large industrial enterprises, and inadequate financing. Some of the hindrances have been highly cushioned and are no longer considered as impediments to business in Brazil.
For example, the finance problem that was dominant in 1980s has been solved. Some of the factors affecting Brazil, like corruption and insecurity, are not highly existent in Canada. Very few such cases are reported in Canada and cannot be cited as key impediments to small businesses in the country (Ronald and Natalya, 2008, para. 5-15).
Many small businesses operate without considering the concept of business continuity, yet it is one of the most fundamental concepts in the present business environment. Business continuity enables business enterprises to prepare for the dangers that are inherent in the business environment. Business continuity is rarely given priority in the strategic plans of the small businesses, yet the businesses are exposed to the risks prevailing in the business environment.
Statistics show that about 70 per cent of people who own small businesses in Canada have not familiarized with the concept of business continuity. These businesses rarely operate using business continuity plans. Only a few try to put it the plans into business practice. This means that small businesses remain exposed to external and internal conditions affecting the business cycle. They cannot cushion themselves against business shocks. Most of businesses collapse as a result of business disruptions (Sugiharto, Hermana, Suhendra, 2010, 1).
Remedies for small businesses
Bradshaw (2002, 362) notes that small business in Brazil has been receiving a lot of support from the government. This support is channeled through public and private sponsored institutions of finance. The channels of raising capital for small business entrepreneurs have been opened and diversified. This has sustained the micro-business environment of Brazil, leading to the high performance of the economy of Brazil. The financing of the micro and medium business activities in Brazil is a long time activity that is overseen by the Brazilian Development Bank.
Business credit is availed to small business entrepreneurs at interest rates that are favorable and easily payable by the businessmen. Therefore, small businesses are key factors to the growth and development of the Brazilian economy. This has improved the economy of the country in the last 50 years (Ronald and Natalya, 2008, para. 5-15).
Small businesses in Canada have also been receiving a lot of support from the Canadian government with the aim of making them considerably innovative and raising their impact to the economy. The Canadian government has reduced tax rates on small businesses to support the small business environment. It has also been working on amending business regulatory policies so that they can be favorable to establish many small business enterprises in the country (Federal Economic Development Agency for Southern Ontario, 2011, para. 2).
Entrepreneurial innovation has been one of the best means through which small business enterprises can be enhanced (OECD, 2002, 1). This is derived from the argument that almost all successful large business enterprises have grown from small businesses to what they have become now (OECD, 2001, 115). Entrepreneurial innovation enables these businesses to beat the challenges that are generated from within and without the business.
This is encouraged in many countries including Canada and Brazil (Morrison and Teixeria, 2004, 170). Business and entrepreneurship education training and seminars are hosted with the aim of teaching small business entrepreneurs on how to manage their businesses effectively (Yigitcanlar, 2012, 233). Basic management skills for entrepreneurship are given full attention by governments. The small business entrepreneurs get a full knowledge on how to manage small businesses (Walters, 2002, 246).
The knowledge cuts across the entire business spectrum including the strategies of launching businesses, advertising and marketing products, and measuring of business success (Stokes and Wilson, 2010, 152). The entrepreneurs are also taught on how to source for and secure finances for their business and how to sustain the capital base and profitability in the businesses (Gill, et al, 2010, 1-10).
It can be noted that small businesses are important economic pillars of both developing and developed countries. Most developed countries provide an environment that is favorable for the flourishing of small businesses. This is meant to enhance the creation of employment opportunities for a considerable number of individuals. In addition, small businesses are critical since they contribute to the gross domestic product of the given economies.
However, small business entrepreneurs have encountered difficulties in establishing small businesses within the developing economies. This is because of the turbulent political, social and economic environment that is prevalent in developing countries. Small businesses work well where there is a good regulatory framework that governs the establishment and sustainability of small business. Politico-economic leadership will play a substantive role in the coining of better and informed regulatory framework for small business development.
The various governments should facilitate the development and functioning of the small businesses entrepreneurship. This can be done through the creation and implementation of sound policies that can boost the flourishing of the small business. Small businesses have generated a lot of interest in economies because of the significant benefits that they bring to the economy. They are the leading sources of employment, supplements of the local economies and act as markets for the larger business enterprises.
They have stimulated the stability and growth of the Canadian and Brazilian economies. Problems that inhibit the performance of local economies include lack of finance, inadequacy of managerial skills, and lack of supportive policies. However, both governments have been widening their scope of enhancing the performance of small businesses by offering financial services and improving on supportive policies. The future of the small business looks bright because of the various positive attributes that they can bring to an economy. This is the case for both the developed and developing countries.
AL-Mahrouq, Maher. 2010. Success Factors of Small and Medium-Sized Enterprises (SMEs): The Case of Jordan. Anadolu University. Journal of Social Sciences. 10(1): 1–16. Web.
Arasti, Zahra, Fahimeh Zandi and Kambeiz Talebi. 2012. Exploring the Effect of Individual Factors on Business Failure in Iranian New Established Small Businesses. International Business Research 5(4): 2-11. Web.
Bates, Bronwynne, et al. 2005. Business Management: Fresh Perspectives. Cape Town, South Africa: Pearson Education.
Bradshaw, Ted K. 2002. The Contribution of Small Business Loan Guarantees to Economic Development, Economic Development Quarterly. 16(4): 360-369. Web.
Burmajster, Anna. 2010. The biggest problems facing small businesses today. Web.
Canadian Association of Business Information. 2012. The Big Impact of Small Business. Web.
CBC News. 2011. 10 surprising stats about small business in Canada. CBC News. Web.
Cisco Systems. 2006. Top Five Security Issues for Small and Medium-Sized Businesses. Web.
Edmiston, Kelly. 2010. The Role of Small and Large Businesses in Economic Development. Economic Review 1: 1-93. Web.
Federal Economic Development Agency for Southern Ontario. 2011. The Government of Canada Highlights the Contributions of Small Businesses and Entrepreneurs to the Economy. Web.
Gill, Amarjit, Nahum Biger, Neil Mathur, Charul Shah1 and Ishaan Bhutani. 2010. Factors That Affect Canadian Propensity to Grow and Expand Small Business. Business and Economics Journal. 17: 1-10. Web.
Griffin, Ricky W. 2007. Principles of Management. Boston, MA: Houghton Mifflin Co.
Griffin, Ricky W. 2012. Management. Mason, OH: CENGAGE Learning Custom Publishing.
Longenecker, Justin G, Staines G. Meza, Rosales L. Peralta, and Loeza M. E. Tena. 2010 Administración De Pequeñas Empresas: Lanzamiento Y Crecimiento De Iniciativas Emprendedoras. México, D. F: Cengage Learning.
Millierdickinsonblais, Alison. 2012. The Importance of Small Business to Our Economy. Web.
Morrison, Alison and Rivada Teixeria 2004. Small business performance: A tourism sector focus. Journal of Small Business and Enterprise Development. 11(2): 166-173. Web.
OECD. 2001. Second Oecd Conference on Women Entrepreneurs in Smes: Realising the Benefits of Globalisation and the Knowledge-Based Economy. Paris. Print.
OECD. 2002. Oecd Territorial Reviews: Canada. Web.
Oriaku, Ngozi. 2011. Current Challenges Facing Small Businesses: Case of Brazil and United States. Web.
Ortmans, Jonathan. 2012. Brazil’s entrepreneurship boom. Web.
Papadaki, Evangelia and Bassima Chami. 2002. Growth Determinants of Micro-Businesses in Canada. Web.
Pollard, E. Carol and Hayne Stephen C. n. d. Information system issues facing Canadian small business. Web.
RBC. 2008. Small businesses and industries in Canada — recent trends: Current Analysis. Web.
Ronald, Volpe P and Schenck, Natalya A. 2008. Small business lending environment in emerging economies: a comparison of Brazil and Russia. Journal of International Business Research. 7(2): 13-30. Web.
Soni, Sanjay. 2005. The Challenges Facing Small Businesses: A Global Perspective. The Dorrian Consulting Group. Web.
Stokes, David, and Nicholas Wilson. 2010. Small Business Management and Entrepreneurship. Andover: Cengage Learning.
Sugiharto,Toto, Budi Hermana, Susy Suhendra, 2010. Effects of information technology on firm performance: do small business owners believe it? Global Management Conference – Bali, Indonesia. Web.
Susman, Gerald I. 2007. Small and Medium-Sized Enterprises and the Global Economy. Cheltenham. Elgar.
Walters, Jamie S. 2002. Big Vision, Small Business: Four Keys to Success Without Growing Big. San Francisco, CA: Berrett-Koehler.
Yigitcanlar, Tan. 2012. Building Prosporous Knowledge Cities: Policies, Plans and Metrics. Northampton, Mass: Edward Elgar.