What does SME do for the economy? Explaining the role of small and medium-sized enterprises

What small and medium-sized enterprises are and why they matter

Small and medium-sized enterprises, commonly called SMEs, are businesses that fall below country-specific size thresholds for employees, turnover or assets; definitions vary by jurisdiction and purpose. According to the OECD SME Outlook and World Bank summaries, SMEs make up roughly 90 percent of firms worldwide, which helps explain why they matter for local economies and employment OECD SME Outlook

The prevalence of SMEs matters because high counts of small firms shape supply chains, local services and where people find work. When most firms are small, policy choices that affect startups and small employers ripple through local labor markets and household incomes World Bank SME finance

How many SMEs are there and how large is their share of national business populations

Global syntheses consistently report that SMEs represent the majority of registered firms in most countries. Multilateral estimates emphasize that the roughly 90 percent figure is an aggregate and that national measurement, thresholds and coverage differ by source OECD SME Outlook (OECD SMEs and entrepreneurship)

Measurement differences matter. Some datasets focus on formal, registered firms and can omit informal businesses that are common in low-income settings, while regional systems such as Eurostat report finer-grained shares for high-income economies Eurostat SME statistics

SMEs and employment: who they hire and where

Across international analyses, SMEs account for about half of formal employment globally, making them a central source of jobs in many countries World Bank SME finance

Jobs in SMEs are often local and tied to nearby demand for services, retail, construction and supplier networks. These positions can be a mix of formal contracts and more flexible arrangements, with variation by sector and country Eurostat SME statistics

Regional labor markets feel SME effects differently; in some places small firms are the main employers in towns and suburbs, while in larger metros SMEs often occupy supplier and niche roles that support bigger employers World Bank SME finance

SMEs contribution to GDP and local economies

SMEs contribute to national output in varied ways; multilateral estimates report that SMEs can account for up to around 40 percent of GDP in many emerging economies, though shares vary by measurement and formalization OECD SME Outlook

At the local level, SMEs feed supply chains and daily services such as repairs, retail and professional services. That role can amplify local income multipliers because spending at a neighborhood business often circulates within the same community UNCTAD SMEs and sustainable development

How SMEs drive innovation and net job creation

SMEs are frequently sources of new ideas and of net job creation, especially when they grow from startups into medium-sized firms; multilateral analyses highlight their importance for dynamism and renewal in many sectors OECD SME Outlook (Unleashing SME Potential)

At the same time, SMEs typically show lower measured productivity and slower technology adoption than larger firms, a pattern that can limit scaling even when firms innovate in niche ways Enterprise Surveys overview

Policy support for innovation therefore aims not only to stimulate inventive activity but to help small firms translate ideas into broader productivity gains through adoption of tools and skills OECD SME Outlook

Key constraints that limit SME scaling and performance

Surveys repeatedly list access to finance as a top constraint for SMEs; limited collateral, short credit histories and high transaction costs can restrict firms’ ability to invest and grow Enterprise Surveys overview

Gaps in digital adoption and in related skills are also commonly reported barriers. When firms are slow to adopt digital tools, their productivity and market reach can lag behind larger competitors World Bank SME finance

Regulatory and administrative burdens compound these problems for many small firms. Complex compliance, time-consuming processes and unclear procedures raise the cost of formalization and can discourage investment in growth OECD SME Outlook

Policy levers that evidence links to better SME outcomes

Multilateral syntheses identify a set of policy levers that are associated with improved SME performance, notably streamlined regulation, targeted credit lines or guarantees, and programs to boost digital skills and adoption OECD SME Outlook

Evidence suggests that combining measures tends to work better than single interventions; for example, credit programs paired with training and digital adoption supports can raise the odds that firms will use funds to improve productivity rather than just cover working capital World Bank SME finance

Design matters: targeted instruments such as guarantee schemes can lower lender risk and expand lending to smaller firms when they are well-scoped and monitored OECD SME Outlook

How to evaluate and compare SME support programs

Good evaluation starts with clear decision criteria: a precise target population, measurable outputs, cost-effectiveness estimates, additionality assessment and a monitoring plan to track implementation World Bank SME finance (see the about page)

Public sources such as OECD program syntheses and World Bank notes, together with enterprise survey results, are useful for comparison because they describe design features, expected outputs and evidence of impact Enterprise Surveys overview

When reading claims about program success, check for attribution, realistic timelines and measurable indicators such as changes in formal employment share, revenue growth or adoption rates of key technologies OECD SME Outlook

Common mistakes and implementation pitfalls to avoid

One common mistake is a one-size-fits-all approach that treats all SMEs as identical. Small firms differ by age, sector, and growth intent, so poorly targeted programs waste resources and reach the wrong beneficiaries OECD SME Outlook

Other pitfalls include insufficient monitoring, weak targeting and underfunded follow-through. Without post-implementation checks, programs can fail to show whether intended outcomes were achieved World Bank SME finance

Another risk is overlooking informal firms in countries where they represent a large share of enterprise activity. Excluding informal firms can leave out businesses that could benefit from simplified formalization and tailored supports UNCTAD SMEs and sustainable development

Measuring SME contributions: data sources and limitations

Comparability is a challenge. Differences in firm definitions, survey sampling and the omission of informal firms in some datasets mean that cross-country comparisons should be read with care and attention to methodology Eurostat SME statistics

For readers evaluating figures, a practical tip is to consult original reports for methodology sections and to triangulate claims across at least two reputable sources before drawing conclusions Enterprise Surveys overview or use the contact page

Practical scenarios: how different policy packages can affect local SMEs

Scenario A, a finance-first package, offers targeted credit lines with partial guarantees plus a short training module on basic financial management. Evidence from program reviews suggests such packages can increase lending access and help firms smooth short-term cash flow, though results depend on the training quality and monitoring World Bank SME finance

Scenario B, a digital-first package, prioritizes subsidized digital tools and skill workshops, paired with regulatory simplification to reduce administrative costs. Digital adoption supports can raise market reach for many SMEs, but without finance and regulatory relief, adoption may not translate into sustained productivity gains OECD SME Outlook

Combined packages that mix finance, digital support and streamlined procedures are most often recommended in syntheses because they address multiple constraints simultaneously and increase the chance that firms will invest in productivity-enhancing changes World Bank SME finance

Regional differences and recovery after the pandemic

Recovery since the pandemic has been uneven. Reports note that low-income countries and informal sectors have had slower recoveries, leaving some SMEs more vulnerable and limiting their capacity to re-staff or reinvest UNCTAD SMEs and sustainable development (see the World Bank Global Economic Prospects)

Regional variation matters because supply-chain linked SMEs in export-oriented regions face different recovery dynamics than local service firms. Policy responses therefore need to be tailored to local economic structures and the specific vulnerabilities of regional SMEs ILO micro and small enterprises

Conclusion: what the evidence means for local economies and policymaking

Overall, the evidence shows that SMEs are the majority of firms and a substantial source of formal employment, which makes them central to local economic resilience and jobs policy OECD SME Outlook (see the news page)

Multilateral analyses point to a set of policy levers with the strongest support: simplified regulation, targeted finance and programs to boost digital skills and adoption. Policymakers are advised to combine these elements and to measure outcomes carefully World Bank SME finance

Open questions include how best to sequence measures across contexts, how to reach informal firms, and how to measure SME contributions more consistently across countries. Readers should consult original reports for methodology and for country notes when available OECD SME Outlook