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25 June 2024

McKinsey on the small business market. Are you helping?

In its recent webinar underpinned by the firm’s own extensive research, renowned consultancy firm McKinsey addressed prevailing issues in the global small- and medium-sized enterprise (In their terms, MSME – Micro / Small-Medium Enterprise) market.

Its findings are worth paying attention to - not least because, as we’ll see in due course, they almost certainly hold significant value in the form of revenue-generating opportunities for telcos.

But let’s not get ahead of ourselves. In this first of two blogs, we’ll confine things to the big picture and focus on understanding McKinsey’s view of the present “state of the MSME nation”. In part 2, we’ll consider what the firm’s findings might mean for telcos.

Small can be beautiful

MSME’s (companies with roughly 1 to 50 employees), McKinsey states, form the backbone of almost all global economies[1]. In the 16 countries the firm analysed, they account for around two-thirds of employment in advanced economies and as much as 80% in emerging economies.

Others give different estimates – for example, the EU reckons 99% of all businesses in the EU region fall into the SME category. Either way, there are a lot of them – and they are the majority of companies in the B2B sector in terms of sheer numbers.

Importantly, these businesses are by nature dynamic which means that in the present age of shifting global production, the role they play in preserving the competitiveness of economies is likely to be critical to their long-term development.

Despite their prevalence, MSMEs face a fundamental problem: relative to their large company counterparts, they don’t yield equivalent value. Small business productivity is only half that of large companies, even less in emerging economies.

McKinsey suggests that if that was to change, the value accrued could be worth as much as 5% of GDP in advanced economies and double that in emerging economies. The trick – or the challenge – is how to do it: how to capture the missing value.

This, according to the firm, won’t be straightforward (the extent of the challenge tends to differ from sector-to-sector, for one thing) but it suggests that an improved economic fabric would be a win-win for both MSMEs and large companies alike if productivity could be improved.

So, what can be done?

Easy to say, but how can that be done even though creating a new “economic fabric” is critical. Based on the conclusion that the global business landscape (big and small firms, all of it) is deeply interconnected, the success or failure of large companies has ripple effects that impacts smaller ones.

In McKinsey’s view not just companies themselves but stakeholders such as policy makers, associations, and regulatory bodies have a vested interest and must take a hand in establishing the right enabling conditions for smaller companies to thrive, if necessary, by moving beyond conventional policy approaches.

One example cited of an area this may be required is investment in digital infrastructure, enabling MSMEs to have transparent and fair access. Another might be allocating greater resources towards innovation, particularly where a given country’s MSMEs may have a reputational or competitive advantage in a given domain. In the webinar, McKinsey highlighted three specific challenges that, collectively, MSMEs face. These are:

  1. Time
  2. Access to capital
  3. Complexity

Collectively, they suggest a common theme: finding an answer to the question “how do I run my business?” In simple terms, McKinsey points out that MSMEs know how to do what they do (manufacture things, sell things, etc.) but where many struggle is in the basics of simply running the enterprise.

While it sounds simple, questions like “what accounting software do I need” or “what communications system would improve my productivity and performance?” are often where things break down, ultimately limiting productivity.

MSMEs, in other words, know how to be productive in their domains of expertise, but they’re often unaware of where they’re less productive than they might be in their more administrative domains. Put another way, they know what they do know, but they don’t know what they don’t know! This translates to an obvious conclusion that the webinar also underlined: MSMEs need smarter tools, and they need to know how to use them effectively.

They also need help in finding them. One very simple example; few MSMEs are fully leveraging the potential of their smartphones, not least as information sources. This is one among many things that needs to change.

For telcos, the importance of McKinsey’s findings (and their potential ramifications, which we’ll consider in the next blog) should be obvious. The global MSME market is enormous (which means there’s a captive customer base in there); it’s rich in revenue generating opportunities (because MSMEs need services that they aren’t getting now); and it needs help accessing the right, new technologies, communications among them. Presently, it’s a market that for the most part is being seriously underserved.

This must change. In part two, we’ll look at ways that telcos can help make that happen, to their own benefit as well as that of MSMEs.

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Gintel helps operators succeed in highly competitive markets, achieving differentiation for their business service portfolio. Our telecommunications heritage, know-how and experience are backed by a track record of delivering successful solutions to Tier 1 operators, MVNOs, ISPs and Systems Integrators.

We enable our customers to stay at the forefront of service innovation in a rapidly moving market, offering agility and flexibility and delivering profit for their business.

 

[1] Different organisations define SMEs (or SMBs) in different ways. The EU definition is here: https://single-market-economy.ec.europa.eu/smes/sme-definition_en In this case, we’re talking about ‘micro’ SMEs.

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