Is small finally becoming beautiful? eWork in SMEs

Because of the critical importance of Small and Medium-sized Enterprises (SMEs) in the economic development process and in the diffusion of ICTs, EMERGENCE has devoted special attention to identifying the specific threats posed to SMEs by the rapid diffusion of various forms of eWork, and the new opportunities opened up to them by these developments. Is small finally becoming beautiful? Small and medium-sized enterprises in the new economy, is a new report produced by the EMERGENCE team at HIVA, University of Leuven (Belgium). It draws on the results of the EMERGENCE 18-country employer survey and combines them with data from additional micro-firm surveys (in Denmark and Ireland) and information from the case studies, as well as an extended literature survey, to develop an overview of the role of small firms in the eEconomy. The full report can be ordered here.		Johan Dejonckheere, HIVA; main author of the report

The report concludes that in general, the results of the EMERGENCE survey support the idea of the knowledge sector as an important cornerstone of the new economy, characterised by a very dynamic use of eWork (cf. Figure 1) and trade in telemediated business services.

Small knowledge-based establishments and micro-firms appear to be increasingly important, especially at the supply side of eWork (cf. Figure 2). SMEs have succeeded in capturing very important segments of the market in remote business services, especially software development and support, and creative functions: a category that includes design, editorial work, multimedia content generation and other creative activities such as R & D.

The crucial role knowledge-intensive SMEs play in the new economy has not taken us by surprise. We expected a significant part of eServices to be delivered by SMEs, mainly because:

1. increased outsourcing of information activities is resulting in new business opportunities for SMEs specialising in these fields

2. the low degree of capital intensity of many eBusinesses results in relative low start-up and exploitation costs: in this way, a traditional weakness of SMEs is becoming less important in the new economy

3. flexibility, adaptability, speed of decision-making and innovativeness (traditional strengths of SMEs) appear to be all the more important for the supply of knowledge intensive business services

4. electronic networking and clustering allow SMEs to combine the advantages of small scale with various of the benefits of large scale. 

In essence, typical weaknesses of SMEs are becoming less important in the new economy, or they can be mitigated (eg by means of networking) whereas typical strengths can increasingly be exploited. On the basis of our literature survey as well as the empirical results from EMERGENCE, we can therefore conclude that ‘small is finally becoming beautiful’.

Nevertheless, it might be better to conclude that ‘small can become beautiful’. The companies commonly classified together as SMEs are extremely heterogeneous. Whereas a minority of SMEs indeed specialise in the supply of knowledge-intensive business services, the majority still operate in a medium to low technology environment. Many SMEs find it difficult to cope with the technological revolution and the challenges of globalisation. Overall, the take-up of various forms of eWork is lower in smaller as opposed to larger firms; this is all the more the case when looking at establishments not belonging to the knowledge sector (cf. Figure 1). It is therefore crucially important to gain a better insight into the barriers many SMEs face in entering the increasingly spatially-independent market for eServices. If these barriers are not adequately mapped and counteracted by policy, there is a risk of further economic polarisation in which the available government incentives benefit only a small number of economic actors.

Is small finally becoming beautiful? Small and medium-sized enterprises in the new economy, J Dejonnckheere, Ramioul M, Van Hootegem G. IES Report 391.