Why Small Business is Important to a Country’s Economy – Small businesses plays a great role to the economies of a nation. They are indispensable part of economic policy especially those relating to industrial development. In most countries, small scale businesses are more in number when compared to medium and large scale businesses and they employ a greater number of the workforce thereby helping in alleviating poverty in a country. The small scale businesses have various forms of sizes. The contribution or role of a small business to a nation’s economy depends on their level of growth and development.
Small businesses are corporations, partnerships or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. Small businesses included a wide variety of firms such as small machine shops, restaurants, handicrafts makers, computer firms and business centers. They operate in various social environment and may be owned by both the poor and the rich.
Why Small Business is Important to a country’s economy
1. Provision of Employment
It is of no doubt that small businesses plays a great role in Employment generation. In developing country like Nigeria, unemployment has been a major challenge. The teaming population of youths needs to be employed. The needs of job creation in such countries is mainly catered for by small business firms. Small Businesses requires small amount for start up and can be established by anyone. With the rising graduate unemployment in developing countries, more micro and small businesses are established as a survival strategy. Infact, it is being estimated that micro and small business Enterprises employs 65% of these country’s labour Force. The economic recession in developing countries also promotes the emergence of small business to curb poverty and unemployment.
2. Harnessing of Local Resources
The greatest utilizers of local resources is the small business enterprises. They make use of available local raw materials which do not require high Technology. For instance, In Nigeria, small scale businesses are concentrated in enterprises such as food processing, textiles, weaving, wood works, leather products, soap production and detergent production. All these business areas requires simple technology and the raw materials can be found in abundance. They equally make use of by-products from larger firm in their own production processes.
3. Contributes to the Industrial Output of a Country
The small scale businesses accounts for a substantial part of the national output in many middle income countries. Their output no matter the amount adds to that of medium and large scale Enterprises. They also makes those outputs available to some areas of the country that wouldn’t have had access to it.
4. Production of Intermediate Goods
Some large enterprises relies on the intermediate goods produced by Small Scale businesses for their own production activities. The major products of such small firms includes raw materials, machinery and equipments, spare parts and household goods. At other times, the deliveries to the large corporations is done through sub-contracting, which enables smaller Enterprises to supply their needs rather than compete with them in the production of such goods. By so doing, the backward and Forward linkages needed for self-reliance and sustenance by an economy is developed.
5. Promotion of proper dispersion and diversification of economic activities
Small businesses promotes even development and reduction of income disparities in a country. This is because small business requires relatively small capital for start operations. Also the raw materials needed for such ventures can easily be gotten from most of the parts of the country. In addition, the simple nature of their processing technologies and management Styles makes investment in the sector relatively cheaper and affordable to many investors.
6. Transformation from small to large scale business
Many giant corporation of today began as very small businesses. Thus, small business Enterprises plays a great role in all economies as they transit from household artisan industries over time to the modern industrial set-ups. They later upgrade in skill, machinery and equipment and management practices. Examples of such small firms that later uograded to Large corporations are Guinness of Dublin and Philips International of the Netherlands, Sony and Honda of Japan. The developing countries should create a conducive environment for small business enterprises to thrive. This includes the modernization of their production processes, their adaptation to imported technologies and graduate to large corporations.
7. Contribution to the Revenue Base of Government
The small scale businesses contributes to government’s revenue through taxes and levies such as through corporate and personal income taxes, excise duties, Value added tax (VAT) and other levies by the government.
8. It reduces dependency to Government to focus on other developmental goals
With the emergence of small businesses, most of governmental projects will be channelled to other aspects of the government’s developmental projects. This is most especially when those small businesses are doing well.
9. Improves the standard of living of the growing populace
When a greater population of the nation is employed, the standard of living will improve. Small businesses helps in the eradication of poverty in a nation.
I believe we have answered your question on “Why Small Business is Important to a country’s economy.” Every nation that really wants to achieve a great economy growth should try as much as it can to help small business to thrive because small business importance to a country cannot be over emphasized.