Globalization is not a new phenomenon but what is new is both its velocity and how it affects small- and medium-sized entities (SMEs). The impact on SMEs has significant implications for the accounting practices, in particular small- and medium-sized practices (SMPs), that typically serve SMEs. According to the Edinburgh Group (EG)’s recently published report, Growing the Global Economy through SMEs, SMPs may need to carefully critique the services they provide to SMEs seeking to internationalize. As a starting point, the report suggests specific actions for SMPs that include developing more understanding and expertise internally, strengthening relationships with funding institutions, and building international networks of trusted professional and business contacts. SMPs have the potential to become a key agent for the internationalization of small business if they are able to provide SMEs with the advice they need.
Globalization of SMEs
SMEs are a vital and integral part of the global economy. According to the OECD, they account for the majority of private sector employment and GDP as well as a disproportionately large share of new jobs; they are a major source of entrepreneurship and innovation. These SMEs are increasingly becoming part of the global business community. Dramatic changes in communications, transportation, and information technology have accelerated the pace of globalization. SMEs now regularly manufacture products and provide services in many countries and sell to customers and clients around the world—just as large multinational companies have been doing for many years.
The EG report reveals a significant amount of international activity among the SME sector. Almost 75% of the SMPs it surveyed have clients that have some sort of international aspect to their business, even if it is simply buying goods or services from abroad.
Role of SMPs
While globalization presents great opportunities for SMEs—not least new markets for their goods and services—it also poses great challenges. Perhaps the greatest challenge SMEs face is the lack of human capital, including managerial expertise, and financial resources to take advantage of these opportunities. IFAC research indicates that SMEs will likely look to SMPs, their trusted business advisors, to fill the resource gap. The EG report, however, suggests that SMPs themselves must ready themselves to capitalize on the opportunities created by the internationalization of small business.
Recommendations for SMPs from the EG Report
The EG report (page 5) makes the following recommendations for SMPs:
- Provide more proactive support to SMEs in their planning for internationalization, including support in identifying the most attractive, fast-growing international markets.
- Develop knowledge and information resources to guide SMEs through the red tape challenge associated with international activity, and to help them access all appropriate sources of funding.
- Build relationships with banks and other key financiers of international investment and trade, to facilitate introductions between these funding sources and SME clients.
- Identify where SMEs are dealing in foreign currency and seek opportunities to provide value-adding advice in areas such as managing foreign exchange risks and forecasting currency needs.
- Consider whether additional networking opportunities exist to build relationships with other professionals or to help connect SME clients with each other to create mutually supportive environments and information channels.
- Assess how the proactive delivery of services targeted at SMEs with international ambitions could help to grow practice income, as well as strengthening client relationships and the firm’s wider reputation.
- Consider whether developing the international resources available to the practice—for example, by participating in an international network of accountancy firms or building more direct close relationships with firms in other countries—could benefit the firm itself, and its SME clients.
SMEs are increasingly being integrated into the global business community. However, in order for SMEs to maximize the opportunities from internationalizing their business, they need timely advice. SMPs are well placed to provide this counsel.
Resources
IFAC’s website hosts a range of resources and tools to help SMPs implement these recommendations. These resources and tools help SMPs enhance their practice management and build their capacity to offer business advisory services.