SMBs worldwide stymied by uncertain economy

SMBs are fighting to remain viable in an uncertain economy, according to a study by AMI-Partners.

An uncertain economy and shrinking capital are hobbling small and medium-sized businesses (SMBs) and forcing many to readjust their business strategies.

The SMBs are looking to hedge their risks by trying to reduce their operational costs.
Spencer Richardson
For the smallest SMBs, the tough economic climate is prompting layoffs. Midmarket organisations plan to cut costs by optimising business operations and integrating their IT infrastructure.

The findings are from a study by AMI-Partners, a New York firm specialising in global IT, Internet, telecommunications and business services strategy. The "high level" snapshot gives SMBs insight into how other companies are attacking the problem, said AMI analyst Spencer Richardson, author of the study. But the barriers to growth should raise concerns beyond the SMB community.

"Enterprise firms need to be aware of what is facing both their clients and future competition," Richardson said.

Innovation on a shoestring

SMBs in the U.S., the U.K. and other mature markets told AMI the two top obstacles to business growth are a lack of access to capital markets and the perception that the economy is relatively unstable.

To remain competitive, SMBs need to pump money into developing new and better products or services, Richardson said. But given the insufficient capital at hand, something has to change.

SMBs with fewer than 100 employees told AMI they expect to contain costs this year through layoffs and outsourcing. Organisations with 100 to 999 employees are partnering with other businesses to find economies of scale, improving business processes and outsourcing.

"The SMBs are looking to hedge their risks by trying to reduce their operational costs, as well as attempt to secure their future positioning via more investments in boosting products and services," Richardson said.

Stephen Minton, vice president of worldwide IT markets at Framingham, Mass.-based research firm IDC, noted in a 2006 report that an on-again, off-again economy has forced U.S. firms to take a more strategic approach to IT. He said companies are focusing more on how to use technology to enhance business operations, better serve customers and stave off the competition.

"What we see is that it's the business managers, from the CEO down to the line-of-department manager, who are really helping to drive spending by understanding the possibilities of what can be changed by something like business intelligence," Minton said.

Money hungry; infrastructure poor

While mature-market SMBs are worried about meeting their revenue projections for the year, SMBs in hot emerging markets, in particular India, say lack of capital is hindering their ability to grow and diversify. "This leads to the delays in the launch of new products and services, since cost control often takes the form of curtailed development efforts," Richardson said.

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India is also facing stiffer competition for capital, as foreign investors divert increasing amounts of their capital into Chinese firms.

The current lack of capital for SMBs worldwide is widening the global divide between the haves of the industrialised world and have-nots of newly industrialised economies such as Southeast Asia, which comprises more than 7% of the SMB marketplace.

While mature and emerging companies are perfecting business operations or outsourcing or scrambling for capital to grow, SMBs in newly industrialised markets (NIM) still struggle to communicate with the outside world, the AMI survey found.

Poor IT infrastructures prevent these SMBs from tapping into market intelligence and information, creating a "potentially hazardous cycle," Richardson said: "SMBs in mature markets are taking giant strides in business operations, while SMBs in the NIM regions are struggling just to catch up."

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

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