Decentralization May be Giving Small Businesses a Fighting Chance
Small and Medium Enterprises (SMEs)…Not So Small After All
SMEs are a major aspect of the economies in developing countries, as they represent upwards of 90 percent of businesses and more than half of employment in the world, while formal SMEs are responsible for 40 percent of the GDP in new nations. There are about 400 million SMEs worldwide, with most created jobs stemming from these businesses. Clearly SMEs are not so small—they are a rather large deal since they make up the backbone of many developing countries’ economies.
Challenges to Growth
Despite comprising a large portion of developing countries’ economies, SMEs face challenges that oppose their growth, such as lack of access to financing, skilled labor, and automation. In fact, SMEs tend to lean more on internal funds and cash than bank loans, which are easier to obtain for large businesses because of the reduced risk for banks. Supply chain issues also combat SME growth, with large businesses and enterprises being more able to navigate these difficulties through affordance of costly air transportation and offering higher wages.
Obtaining protected intellectual rights and maintaining security are among some of the other challenges SMEs face. Phishing attacks are the most common cybersecurity threat SMEs face. These businesses often lack security experts and have little leverage to negotiate personalized security contracts; thus, they are stuck with standard security contracts. And SMEs know the risk por security integrity poses to them, with 85 percent saying cybersecurity issues would be “detrimental” to their business and over half of reported SMEs believing they would go out of business if they faced these issues.
For SMEs that are used to operating in a physical market, blockchain technology can allow transition to a digital market with access to many more customers than a physical market offers. Blockchains facilitate acceptance of digital currencies that are transferred to the SME’s digital wallet, thus enabling larger scale expansion of businesses. These transactions circumvent high foreign exchange fees and thus reduce operational costs and generate more income. Specifically, blockchains can diminish verification and networking costs while eliminating intermediaries via smart contracts.
SMEs can also benefit from blockchain use because of minimized fraud risk. Blockchains store data in a secure manner due to decentralization and the time-stamped transactions that are at minimal risk of tampering.
For SMEs who are facing supply chain difficulties that are opposing their growth, blockchain technology can create transparency between all stakeholders, improve information consistency between stakeholders, and enable real-time tracking through RFID tags, Wireless Sensor Networks, and other tools. These strategies can reduce counterfeiting and improve efficiency for SMEs, resulting in lowered costs and time involvement.
The use cases of blockchain technology are well-established and provide immense opportunity for facilitating transition to a digital market, growing businesses, affording better cybersecurity, and cultivating supply chain management. Moving forward, we will see which countries and business sectors within SMEs plan to adopt blockchain technology, and how this will impact the overall economies of developing countries.
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