Productivity and The Role of Small and Medium Enterprises in Local Economic Development

(Illustrative Only)
Ying and Yang as
a philosophical concept
large and small,
product and service,
two businesses, etc.
sharing what 
they do best to help 
each other and developing
economic balance.

It is possible to create
synergy through connecting ideas, 
fostering a business community,
and expanding the wealth
of two+ partnering businesses
which encourages 
other growth in the area.

A few semi-related
ideas. 
Org. Collaborate
Start-UP
Attracting MNC
Cluster Formation
Supply Chain Int.
Transac Sub
Rebuild Downtown
Social Cognition
Economic Platforms
Sustain Systems

Small and medium-sized businesses play a major role in the economy and in the development of local communities. As large corporations grow, they tend to pull resources and profits toward investors and centralized operations. Some local wealth is created but could be maximized if they worked more closely with small area businesses they could create broader wealth as well as economic cushion. Small businesses usually circulate more of their revenue within the local area (i.e. downtown, industrial park, etc.). Maximizing the development, efficiency, and productivity of MSMEs leads to drawing resources more locally and that can have a long tail impact on broader transactions throughout the community both economically and socially (In theory called broad based capitalism)

Small and medium enterprises (MSMEs) make up a significant share of the economy, but they are typically less productive than large firms. They often have limited resources and rely on the tools and abilities of those who manage them. When new businesses form and begin to grow, there is often room to improve efficiency, strengthen financial footing, and refine or scale their products. Supporting this process benefits both the businesses and the communities around them.

Some localities have stronger connections to global supply chains, which can create opportunities for local firms. Economic clusters—groups of related businesses in the same area—often form around a few anchor companies that are tied into larger supply chains or financial networks. Smaller businesses grow around these anchors, providing support services and complementary products. Other firms, such as those in tourism, may also benefit from anchor businesses while diversifying the local economy. This diversification helps communities become more resilient to economic shocks and more attractive for future investment, talent, and growth.

The study referenced below discusses the challenges SMEs face and the importance of connecting them to supply chains. However, it’s also valuable for businesses to diversify their revenue streams when possible rather than relying on a single industry. This is one reason micro-manufacturing, start-ups  and medium businesses are appealing: they can produce exportable goods, support additional industries like tourism, help revitalize downtowns, improve local wages, increase the tax base, and can tie into supply chains when an export market opportunities are available (The reason why we have discussed not only start ups but also export conduits and marketing). These businesses can scale while still keeping most of their revenue within the local community, supporting broad-based economic development. It also can create additional investment capital and attract new investment capital.

An interesting article, 

A microscope on small businesses: Spotting opportunities to boost productivity

• Micro, small, and medium enterprises (MSMEs) are a major part of the global economy, accounting for about half of value added and a large share of employment in many countries.

• MSMEs are generally much less productive than large companies. On average their productivity is about half that of larger firms.

• Closing the productivity gap could be worth an estimated 5 % of GDP in advanced economies and 10 % in emerging economies.

• Productivity differences vary widely by country, sector, and subsector; some subsectors offer much bigger opportunities to improve than others.

• MSMEs often benefit when they are closely connected with larger firms (for example in supply chains), and business-to-business MSMEs tend to be more productive than those selling mainly to consumers.

• Productivity improvements don’t just help small firms — when MSME and large firm productivity both rise together, the broader economy benefits more.

• Policy makers, larger companies, and MSMEs themselves all have roles to play in improving productivity, such as by improving access to markets, technology, finance, and better infrastructure. 

Madgavkar, A., Piccitto, M., White, O., Ramírez, M. J., Mischke, J., & Chockalingam, K. (2024, May 2). A microscope on small businesses: Spotting opportunities to boost productivity. McKinsey Global Institute. https://www.mckinsey.com/mgi/our-research/a-microscope-on-small-businesses-spotting-opportunities-to-boost-productivity?