By Henry Kyambalesa
1. Introductory Notes
Small and medium-sized enterprises (SMEs) are operated in environments in which local and national governments have a significant influence on the nature and scope of market, political, and social freedom. As such, no amount of ingenuity or business acumen among entrepreneurs can yield any better than marginal results unless the objectives, policies and activities of both national and local governments provide an enabling environment in which the entrepreneurs can deliver social and economic values to society at reasonable costs and prices.
Failure by municipal and national governments in any given country to provide adequately for the needs of both small, medium and large business enterprises can significantly reduce the potential of economic units to contribute meaningfully to the socioeconomic development process in the country.
Let us now proceed to examine important elements of a government-fostered program designed to facilitate the creation of a competitive business system for successful entrepreneurship. The article is organized in several sections as follows: (a) definitions of important terms used in the article; (b) the role of small business entities in society; and (c) the creation of an enabling business environment by local and national governments—an environment in which small and medium-sized enterprises can be guaranteed to thrive.
2. Definitions of Important Terms
In this section, let us consider the definitions of the following terms as they are used in the article: (a) entrepreneurship; and (b) the ‘small business’ entity.
The term “entrepreneurship” is used in this article to refer to any of the following aspects relating to small and medium-sized business enterprises: (a) the process of starting and/or operating a business entity by an individual or group of individuals; or (b) the state or spirit of readiness, as may be exhibited by an individual or group of individuals to engage in new and risky business undertakings, and which is usually expressed through such personal characteristics as creativity and innovation, readiness to take risks, self-confidence, and perseverance.
With respect to what constitutes a “small business” entity, there is apparently no established, widely accepted definition—official or otherwise—of the small business enterprise, according to J. Curran and R. A. Blackburn (2001:9).
There is, nevertheless, a need for a delineation of what constitutes a “small business” entity. The delineation is necessary if we are to clearly visualize the kind of economic unit whose success and survival in the 21st century is the primary concern of this article.
In general, the delineation is helpful to readers who have an interest in generating a universally acceptable definition of a small business undertaking that is essential for the following important reasons, among others: (a) for research purposes; (b) for tax purposes; (c) for legislative purposes; and/or (d) for appropriately directing the efforts of government agencies and other institutions created to serve the financial and other needs of small and medium-sized business enterprises.
This, of course, is not to claim that the definition that is tendered hereafter will adequately serve all the purposes cited in the foregoing paragraph. Admittedly, the derivation of a definition that is of universal application is an insurmountable task, particularly due to the non-availability of a distinct or clear-cut measure or criterion for delineating business size.
Let us, for example, consider the following factors: (a) the size of a business enterprise’s work force; (b) independent ownership and management of a business entity; (c) a business undertaking’s total value of capital assets; (d) the size of a business entity’s market; and (e) a business entity’s sales volume.
Clearly, none of these factors can function as an adequate measure of the sizes of business entities in any given country all by itself.
In the United Kingdom, business entities, as J. Curran and R. A. Blackburn (2001:1&8–19) have noted, are classified in terms of only one measure—that is, the number of people employed in business entities—as follows: (a) micro firms: less than 10 employees; (b) small firms: 10-49 employees; (c) medium-sized firms: 50-249 employees; and (d) large firms: 250 or more employees.
Sometimes, micro, small and medium-sized enterprises are combined and conveniently designated as small and medium-sized entities, or SMEs.
In the United States, the Small Business Administration Act of 1953 defined a small business in qualitative terms as “one which is independently owned and operated and not dominant in its field of operation.”
In this article, a combination of different qualitative criteria is used in deriving a general definition that will hopefully provoke fewer objections, if any. In consonance with definitions adopted by the U.S. Committee for Economic Development (1947), the U.S. Small Business Administration (1953) and the Committee for Economic Development (1947), a business undertaking is, thus, conceived of as being “small” if it meets all the following three conditions:
(a) Ownership: If it is independently owned and managed by an individual entrepreneur, or a small group of entrepreneurs or family members;
(b) Dominance: If it is relatively small in its field of operation when compared to other business undertakings in the same field or line of business; and
(c) Area of operation: If it is operated in a definite location or local community, but with no restriction regarding the extent of its potential or existing market.
3. The Role of Small Business in Society
According to the United Nations Economic Commission for Europe (1997), a growing body of empirical evidence supports the widely held view that small business entities are instrumental to socioeconomic development and can, therefore, play an enormous role in improving the socioeconomic welfare of a lot of people in a country.
The following are specific examples of ways in which small and medium-sized business undertakings make a positive contribution to the improvement of the socioeconomic well-being of citizens and communities in countries where they are started and operated:
(a) Economic empowerment: They collectively function as a vehicle through which a country’s government can economically empower its people by enabling them to participate actively and directly in their country’s commercial and industrial activities.
(b) Creation of employment: They create employment opportunities in host communities, as well as provide incomes to entrepreneurs and their families.
(c) Economic backbone: They function as the backbone of any given country’s economy if they are operated by citizens because they would be both “indigenous and permanent,” as Andrew Sardanis (2003) has noted.
(d) Income distribution: They facilitate the generation of wealth for all sectors of a country’s economy and thereby reduce any existing income disparities. And
(e) Goods and services: They participate in elevating their host communities’ social and economic welfare through the provision of various kinds of goods and services.
4. The Creation of an Enabling Environment
In this section, let us consider the need for the following in any given country’s quest to create an enabling environment for successful entrepreneurship: (a) adequate essential public services and facilities; (b) investment freedom; (c) investment incentives; (d) a sustained in-flow of foreign capital; (e) consumer protection; and (f) the need for pieces of legislation designed to protect employees from the potential for wanton practices by employer-organizations.
4.1 Services and Facilities:
There are a host of essential public services and facilities which national and municipal governments need to provide in order to facilitate the emergence of a vibrant and competitive business system in which entrepreneurs can start and operate business entities. They include the following:
(a) Material and financial assistance by local and national governments designed to nurture entrepreneurial, innovative and managerial skills;
(b) A well-developed transportation infrastructure and adequate transportation services to industrial, commercial, and residential areas to ease or facilitate the distribution of production inputs and finished products;
(c) Adequate public services and facilities—including police protection, fire protection, utilities, and housing, as well educational, vocational, healthcare, recreational, and posts and telecommunications facilities;
(d) Equitable sales, corporate, and other taxes, as well as tax concessions and inducements that are more attractive than those provided for in alternative countries or regions which investors are likely to consider for investment;
(e) Stable economic policies (including a formal assurance against nationalization and/or expropriation of privately owned business undertakings by the national government), as well as political and civic leaders who are fair and honest in their dealings with private business institutions;
(f) Less bureaucratic procedures relating to such issues as the granting of business licenses, registration of companies, importation of goods, and exportation of goods; and
(g) Adequate information about investment, marketing, and other business-related problems and opportunities in the various sectors of a country’s economy.
These essential public services and facilities, if they are bolstered by a supportive socio-political environment, can enable economic units to operate more efficiently and ultimately deliver economic and social outputs to society at reasonable costs and prices.
4.2 Investment Freedom:
Business institutions cannot play a meaningful role in socioeconomic development in a country where there are government-induced restrictions on market entry and other forms of market hurdles. This is the principal reason why economic units in socialist countries where restrictions on private investments are the norm are relatively not competitive enough and, as a result, cannot fully meet the expressed and potential needs and expectations of consumers in such countries.
To put it more succinctly, business entities cannot play a positive role in either a socialist or communist economy—an economy where the market forces of supply and demand are suppressed by monopolistic state policies and other hurdles to the proper operation and functioning of economic units.
And since price is a function of the interaction of the market forces of supply and demand, not even the revocation of price controls in an economic setting that is captained by monopolistic state and/or ‘parastatal’ companies can result in any meaningful improvements in the supply of needed goods and services.
If anything, the monopolistic suppliers are likely to resort to charging exorbitant prices in order to make a profit without having to make any improvements in product quality, varieties of products, outputs of products, or customer service.
4.3 Investment Incentives:
There is a need for local and national governments to provide for attractive incentives designed to stimulate commercial and industrial activities. Such incentives may consist of tax relief, low-interest loans, and any other forms of incentives which may be deemed necessary to induce certain types of local and foreign investment in a country’s economy.
More than ever before, government leaders—particularly in less-industrialized countries—need to provide overly attractive incentives to commercial and industrial undertakings if they expect such undertakings to gain the level of competence they need to be able to participate prominently in the highly competitive global marketplace of the 21st century.
In this endeavor, a country has to decide whether the provision of the various kinds of incentives should be activity-based, organization-based, industry-based, sector-based, region-based, and/or general in nature. The various forms of incentives a country may decide to extend to investors may, therefore, be defined in terms of the basis on which they may be given as follows:
(a) Activity-based incentives, intended to encourage a particular project or activity, such as research and development (R&D), use of local inputs, employee training, contributions to the needy, or creation of jobs for disadvantaged citizens;
(b) Organization-based incentives, targeted at selected institutions which provide certain essential goods and/or services;
(c) Industry-based incentives, intended to facilitate the success and survival of, say, the publishing industry, the iron and steel industry, and/or any other industries which are critical to the overall performance of a country’s economy;
(d) Sector-based incentives, aimed at revamping a particular sector of a country’s economy, such as the primary sector, the secondary sector, or the tertiary sector;
(e) Region-based incentives, designed to promote investments in a particular region or province of a country that may be relatively under-developed; and
(f) General incentives, provided indiscriminately to all business and non-business institutions in a country, such as incentives intended to enhance productivity, stimulate innovation, or promote economic diversification and avoid what is referred to as the “Dutch disease”—that is, a dislocation in a country’s economy caused by a sudden or gradual shift of labor, capital and other resources to one booming sector of the country’s economy.
4.4 Foreign Direct Investment:
A sustained in-flow of foreign direct investment (FDI) is an important element in a country’s quest to create a vibrant business system. Proponents of this form of investment particularly cite the potential benefits of the multinational enterprise (MNE) to a host nation in discerning the necessity of such investment, since the MNE is generally regarded as the vector of FDI. They claim that MNEs:
(a) Promote local business entities that would supply the inputs and/or render the services such cross-border business entities need to support their operations;
(b) Contribute to the development of managerial and entrepreneurial talent in host countries;
(c) Make it possible for countries to gain access to investment capital and advanced technology;
(d) Contribute to the creation of employment opportunities;
(e) Introduce a diversity of new products in host countries, thereby affording consumers greater choice;
(f) Contribute to the tax revenues of local and national governments;
(g) Promote exports, thereby contributing to the generation of foreign exchange; and
(h) Boost competition in host countries and, thus, prompt local businesses to seek greater efficiency in their operations.
For these reasons, the inducement and promotion of foreign direct investment have become one of the major components of the economic policy regimes of apparently all countries of the world today. In fact, even countries which already have strong economies (such as Sweden, Australia, and G-7 nations) and have historically relied mainly on local investment have generated ambitious policies designed to attract foreign private investment in recent years.
A country’s ability to attract foreign capital is, therefore, one of the most important measures of how well its government is striving to create a strong national economy.
F. Vrazo (1997:9A), commenting on the landslide victory by Britain’s Labor Party (led by Tony Blair) in May 1997, illustrated this when he cited the fact that the country was “attracting a bigger share of outside investment than any of the 15 other European Union nations” as one of the significant accomplishments of the defeated Conservative Party during John Major’s leadership.
It is, therefore, important for less-developed nations which are generally in greater need of such investment to be aware that they are competing for the investment not only with their likes but with both industrialized nations and newly industrialized countries (NICs) as well.
The operations of multinational companies are, of course, not without costs or disadvantages to host countries; critics of such companies often claim that they, among other things:
(a) Contribute to the self-perpetuating dependence of host countries on foreign technology;
(b) Cause dislocations in a host country’s balance of payments, such as when they import raw materials, repatriate profits, and/or engage in transfer pricing;
(c) Subject local businesses which do not have the necessary material and financial resources to compete effectively with MNEs get subjected to unfair competition in industrial, consumer and labor markets;
(d) Contribute to the degradation of the natural environment through air, water, solid-waste, noise, and aesthetic pollution; and
(e) Introduce foreign social values and/or consumption patterns that are likely to disrupt locally cherished cultural, ethical and customary practices.
For countries that are striving to break the bondage of their people to misery, want and destitution, the potential benefits of foreign investment certainly outweigh the potential costs and disadvantages of such investment. In fact, the costs often associated with FDI and the MNE are normal effects of a live economy which a host government should be in a position to reduce to acceptable levels through regulatory and administrative mechanisms.
However, countries and regions which have a quest for FDI should not expect such investment to flow into their economies like manna from heaven; a great deal of governmental effort is needed to lure foreign investors. It is, therefore, important for governments which need foreign participants in their national or regional economies to create a conducive investment environment if they are to succeed in their quest for foreign investment.
Such an environment needs to provide for attractive tax incentives, adequate skilled labor, a network of business support services and institutions, well-developed infrastructure, and, among a host of other things, sound labor-management relations to spawn protracted industrial harmony.
4.5 Protection of Consumers:
In a liberalized and competitive economic setting, marginal and unscrupulous businesses are likely to resort to deceptive promotional activities (such as exaggerated product claims, misleading statements, and/or half-truths in promotional messages) in order to lure customers from competitors. To curb this possibility, a government needs to ensure that the following basic rights of consumers are guaranteed by law:
(a) The right to safety from product-related hazards.
(b) The right to make choices from a variety of products in a market that is free from domination by monopolistic producers or sellers. Logically, this should include the right to decide to buy, or not to buy, available goods and/or services without government coercion—such as mandatory auto-mobile insurance—or any other form of compulsion.
(c) The right to be heard in governmental decision making that affects consumers.
(d) The right to information about the nature and composition of products.
(e) The right to redress, and to reject unsatisfactory product offerings.
(f) The right to education regarding product usage.
(g) The right to the satisfaction of basic needs through access to essential goods and services, including food, clothing, healthcare, education, and sanitation. And
(h) The right to a healthy environment—that is, an environment in which one can live and/or work without sacrificing one’s wellbeing, or the wellbeing of future generations.
Moreover, it is essential for local and national governments to enact strict product liability laws designed to place a legal obligation on suppliers of products to compensate buyers of their products who may suffer damages and/or injuries occasioned by such factors as poor design and inadequate or misleading information about the operation or uses of the products involved.
Besides, there is an urgent need for governments worldwide—particularly in the developing world—to pass legislation designed to prevent teenage smoking, beer-drinking, and the like. Such legislation should include prohibition of violence and immorality—as well as advertisements of beer, cigarettes, and other related products—in the mass media and places which are easily accessible to minors.
This may, of course, sound overzealous, but as developed nations like the United States have found out, such legislation is essential in the initial stages of a country’s socioeconomic development to circumvent the excessive cost of rehabilitating a society besieged by unprecedented moral decay, as well as ailments associated with alcoholism, drug abuse, and tobacco addiction.
With respect to tobacco products, for example, the following stringent measures taken in the late 1990s by the United States government to stem teenage smoking, among other health hazards, underscore the need for the kind of legislation being advocated in this regard (L. Gay, 1996:2A):
(a) Those who are under 27 years of age need to prove their age with a photo ID when buying tobacco products. It is illegal in all states to sell cigarettes to people who are under 18 years of age.
(b) Vending-machine sales and self-service displays of cigarettes are permitted only in adult facilities where children are not allowed.
(c) Ban on free samples and the sale of single cigarettes and packages with fewer than 20 cigarettes.
(d) Prohibition of billboards within a radius of 1,000 feet of schools and play-grounds. Other advertising restricted to black-and-white text only, including billboards, signboards, and in-store advertising. Advertising inside adult-only facilities may include color and imagery.
(e) Black-and-white, text-only advertising permitted in publications read by 2 million teens or whose readership is 15% youth.
(f) Prohibition of sale and give-aways of products such as caps and gym bags that carry brand names or logos of cigarettes or smokeless tobacco products. And
(g) Prohibition of sponsorship of sporting or entertainment events by tobacco companies unless such sponsorships are under corporate names.
In the United Kingdom, government authorities, as A. Woods (1997:28A) has noted, pledged to ban cigarette advertising and bar the sponsorship of sporting activities by tobacco companies. Prime Minister Tony Blair’s Labor government (which was ushered into office in May 1997) has found it necessary to protect citizens from the potential harmful effects of tobacco products and is, therefore, committed to the repression of tobacco companies’ marketing efforts designed to promote the sales of their products.
The problem currently facing China in this regard should provide the impetus for similar kinds of governmental effort in developing nations—and all countries worldwide as a matter of fact—to forestall the devastating effects of smoking on the health of their citizens (E. Rosenthal and L. K. Altman, 1998:1A):
“Scientists have calculated the devastating toll of cigarette smoking in China and declared the country to be on the verge of a calamitous epidemic of smoking-related deaths that may kill one in three Chinese men. In a country where 70 percent of men smoke, there are now 2,000 smoking-related deaths a day … [and the] number will increase to 8,000 a day by the middle of the next century unless public-health measures are taken.”
At this juncture, it is perhaps also important to highlight the unique dangers of cigarette-smoking on women. A report by the former United States Surgeon General, Mr. David Satcher, in March 2001 has revealed startling statistics concerning death rates for lung cancer (in comparison to death rates for breast cancer) among women who smoke cigarettes in the United States (L. Neergaard, 2001:2A & 44A):
“One woman dies from smoking every 3½ minutes. Yet women may not fully realize the threat: lung cancer caused by smoking is now the top female cancer killer, claiming 27,000 more women’s lives each year than breast cancer.”
According to the report, women who smoke face many other unusual health risks, which include the following: menstrual irregularities, early menopause, infertility, bone-thinning osteoporosis, arthritis, cervical cancer, and dangerous blood clots if they use birth control pills. For pregnant women, additional smoking-related dangers include low birth weight, stillbirths, miscarriages, and sudden infant death syndrome.
In the United Kingdom, researchers at St. John’s Institute of Dermatology in London have apparently established “why smokers’ faces are prematurely lined.” In a report published in The Lancet medical journal, the researchers have found evidence suggesting that smoking switches on a gene involved in destroying collagen—the structural protein that gives the skin its elasticity.
According to the Associated Press (2001:6A) the link between smoking and wrinkles had been known for years, but scientists had initially not established exactly how cigarettes aged the skin.
In passing, let us consider the appearance of what are referred to as e-cigarettes in the marketplace. The emergence of such products on the Chinese market in 2004 brought with it a new set of challenges for governments worldwide. In the United States, for example, Federal and State health authorities were prompted to start an investigation of the effects of the new forms or versions of smoking in September 2019 after an outbreak of a severe lung disease suspected to have been associated with such products.
To date, the safety and long-term effects of e-cigarettes and/or other vaping products on the health of consumers are still unknown. E-cigarettes—alternately referred to as “electronic cigarettes,” “e-cigs,” “vaporizer cigarettes,” “vape pens,” or “electronic nicotine delivery systems”—are battery-operated devices that emit doses of either vaporized nicotine or non-nicotine vapors or aerosols for users to inhale, the purpose of which is to provide a sensation similar to inhaling tobacco smoke but without the smoke, and which do not burn like regular cigarettes.
4.6 Protection of Employees:
Employees, too, need keen and sustained protection by local and national governments. This calls for stringent pieces of legislation designed to compel employer-organizations to create a work environment that is free from unfair discrimination, avoidable occupational hazards, and, among other things, unnecessary intrusion into the personal lives of employees.
In other words, the protection of employees from the vagaries of the work place should include prohibition of unfair employment policies and practices, such as those which may be based on such factors as race, color, gender, religious affiliation, and ethnic extraction.
And, among other things, protection of employees also needs to include occupational safety and health regulations requiring employers to tend to the following issues, among others:
(a) Furnish employees with information regarding potential health hazards in the work place;
(b) Provide employees with safety procedures for handling and storing hazardous materials and/or equipment;
(c) Provide protective clothing and/or equipment to employees whose jobs expose them to potentially hazardous situations; and
(d) Provide training to employees regarding their obligations, the obligations of the employer, and any other important matters and guidelines concerning occupational safety and health.
Besides, it is important to safeguard each and every employee’s right to privacy, particularly with respect to medical records, income, and any other sensitive and personal matters which individuals would naturally expect employer-organizations to keep with strict confidentiality.
5. Concluding Notes
To reiterate, small and medium-sized business entities, like their large business counterparts, are operated in environments in which governments have a significant influence on the nature and scope of market, political, and social freedom. As such, no amount of ingenuity or business acumen among business operators can yield any better than marginal results unless the objectives, policies and activities of both national and local governments provide an enabling environment in which entrepreneurs can deliver social and economic values to society at reasonable costs and prices.
Failure by any given country’s municipal and national governments to provide adequately for the conspicuous and potential needs of business enterprises can significantly undermine the ability of economic units to contribute meaningfully to the process of socioeconomic development in the country.
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Disclaimer: Much of the content of this article is excerpted and adapted from Kyambalesa, Henry, Entrepreneurship and Small Business Management in the 21st Century (LAP Lambert Academic Publishing, 2020), Sections 1.1, 1.3 and 1.7.
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