The big challenges facing SMEs and the keys to improving competitiveness

Luis Vives

Due to their limited size and resources, small and medium-sized enterprises (SMEs) have traditionally been associated with a limited capacity to compete and to innovate. But SMEs also have a number of advantages over large companies: less bureaucracy, more communication, higher levels of employee commitment and more flexible structures.

In today's world, agility and the ability to do things unconventionally can be a source of competitive advantage. 

Innovation and digitalisation have opened up new opportunities for SMEs to become more competitive, increase in size and generate business growth.

The 4 big challenges facing SMEs

SMEs must overcome four limitations to improve their competitiveness and positioning:

1. Access to talent

Many SMEs have trouble when it comes to professionalising their management and creating high-level executive teams. Their limited financial resources and capacity for talent growth make it difficult to attract the highly qualified professionals they need to compete in the market.

2. Access to financing

SMEs tend to be very dependent on banks because it is difficult for them to access sources of financing in other markets. Although some SMEs have recently developed business models that allow access to new funding sources, generally speaking these companies remain at a disadvantage.

SMEs often have trouble investing the necessary resources to create a recognised brand

3. Investment capacity for branding

In today's increasingly global world, a recognised brand can make a company more competitive. SMEs often have trouble investing the necessary resources to create a recognised brand, which would allow them to differentiate themselves by reaching new customers and markets.

4. Investment capacity in innovation

Innovation is the key to generating new products and value propositions that meet customer needs and, in turn, make the company more competitive. Many SMEs find it difficult to invest time and resources in these activities, so they end up competing in price – an unsustainable strategy in the medium and long term.

SMEs should work with schemes that help them become more competitive to achieve better results and growth

How to make SMEs more competitive

SMEs should work with schemes that help them become more competitive to achieve better results and growth. They should also look for formulas that generate opportunities and create value. Innovation and digitalisation play a key role in this endeavour.

When it comes to innovation, most attention has traditionally focused on the launch of new products or services. SMEs face a twofold challenge in this regard, since they must invest resources not only to innovate – an uphill battle for this type of companies – but also to support differentiation.

In the context of SMEs, innovation in processes and innovation in business models are two modes of innovation that are essential to ensuring success in the medium and long term.

Innovation in processes involves changing how added value is created. It is normally associated with achieving greater operational efficiency by developing new production processes (to achieve greater efficiency or excellence) or new management processes. To achieve innovation in processes and reach the necessary scale to be competitive, SMEs must be creative and think differently.

Improving the customer experience is another relevant source of innovation that can make companies more competitive

SMEs also have the opportunity to explore innovation in business models: changing the rules of a particular industry or sector. Innovation in business models changes how customer value is generated and creates new ways of capturing value.

One area often neglected by SMEs is searching for new ways of capturing value and alternative income sources. Finding new ways for customers to pay for services (for example, shifting from paying for a product to paying for a service or creating leasing options) can also be a source of competitive advantage that generates loyalty and improves competitiveness.

Improving the customer experience is another relevant source of innovation that can make companies more competitive. Once again, SMEs can leverage their smaller scale to deliver quick, personalised customer service – a perennial challenge for larger companies.

By understanding and responding to customers' needs, many successful SMEs have managed to evolve from a product model to a combination of product and services.

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