Small enterprises constitute a large and growing share of employment in the developing world, and are generally more labour intensive than larger firms.In many countries, a business with more than ten workers is already quite large, while in others an enterprise with fewer than 50 employees is considered small. In Latin America, small businesses with fewer than 20 employees accounted for 51 per cent of total urban employment in 1998, up from 48 per cent in 1990.In Thailand, 90 per cent of all private establishments employ under 20 persons. Informal enterprises provide work for seven out of ten people in non-agricultural employment in India.
Furthermore, between 60 and 70 per cent of workers in the nonagricultural parts of the informal economies of the developing world are selfemployed, in effect one-person businesses. Home-based workers and street vendors make up the largest groups in urban areas, but many workers are employed in small workshops, often in or adjoining dwellings, making garments, processing food and engaging in other forms of small-scale manufacturing and assembly work. Categorization of the women and men involved in such businesses is an invidious task. Some work for somebody else, others on their own account, while still others employ people as well as working themselves. Many may pass to and fro through these categories during their working life. Often the business unit is the family, with perhaps three generations working together and pooling earnings.
Not all workers or employers in the informal economy are poor; but many are, or live with the constant risk that some event may push them into poverty. ILO research in Latin America suggests that most of the selfemployed workers in the informal sector are essentially unemployed, and venture into any business activity just to survive. Many of these selfemployed persons operate at a very low level of productivity. Only about 15 to 20 per cent are active in micro-enterprises which, for one reason or another, are not part of the formal economy, but offer employment to the working poor and have the potential to grow.
The size of the small business sector depends, amongst other things, on the “birth” and “death” rates of enterprises. Both statistics are high, varying according to the rate of economic growth and the availability of other employment opportunities. If the conditions for small businesses to escape from the struggle to survive and start to grow were improved, their employment1creating potential could become a key component of a pro-poor growth strategy.
Since most women and men earn their living in micro and small enterprises, in self-employment and as homeworkers, improved policies, regulations, business training, market development and organization building can have a major impact on poverty reduction.By improving job quality in small enterprises, increasing economic opportunities for women, promoting association building of employers and workers in the sector and upgrading employment for workers in the informal economy, the goal is to unlock the potential for creating more and better jobs in the small enterprise sector.
For micro and small businesses, acquiring the management skills to survive and grow is vital. The ILO assists partners in building national and local capacity in cost-effective and sustainable business development services, such as management training, access to finance, information on technologies, export and domestic market access, and inter-firm linkages. The ILO “Start and improve your business” (SIYB) methodology is used in more than 80 countries. By following an institution-building strategy, working with existing local and national organizations to train trainers from partner organizations, who in turn train the micro and small-scale entrepreneurs, the programme reaches large numbers of people and is sustainable.
The marginalization of small enterprises is often the result of insufficient institutional support and limited interaction with other economic actors and labour market institutions. In working with individual small enterprise and worker associations, federations and support organizations, the ILO has developed an approach that is based on the following principles:
● building on existing networks and self-help initiatives; ● identifying associations through partners that have local roots and enjoy trust; ● resource sharing right from the start; ● allowing group-building processes the time they need; ● making provision for addressing gender issues; ● seeking long-term commitments from partners and support agencies.
The SIYB programme thus reaches large numbers of entrepreneurs and, when donor funding stops and pilot projects are phased out, local and national institutions continue delivering the support small businesses need.
A module on improving job quality has proved that increasing productivity helps businesses survive and grow and offer better conditions of employment.
To help overcome urban poverty, a special programme supports the development of local public-private partnerships between municipal governments and the private sector through a participatory planning process.
In most developing regions of the world, about two-thirds of workers in the non-agricultural informal economy are women, mostly self-employed street vendors or home-based workers. Women face many of the same problems as male entrepreneurs, but even more acutely. For example, women have difficulty in obtaining access to finance, and when they do, they receive smaller loans than men. In addition, many women wanting to start or improve their business are overburdened with looking after their families, earning an income and overcoming the many social and cultural obstacles to successful entrepreneurship.
Networks and associations of self-employed women and femaleheaded small businesses can provide much-needed support for new and emerging women entrepreneurs, that takes account of women’s reproductive and household responsibilities, as well as existing gender relations and roles between women and men. Better relations with such networks provide a great opportunity for representative associations such as employers’ organizations to increase their women’s membership. Women’s mobility is restricted in that they often have to work close to home, have limited access to transport and need to take personal safety considerations into account. Initial experience with programmes in several countries shows that support services specifically designed to help women can have an important impact, especially where they tie in to women’s small business associations or women’s sections of associations open to both sexes.
Support to micro and small business is most effective where the legal and regulatory environment provides both security and opportunity. ILO research in Chile, Guinea, Pakistan, Peru, South Africa, the United Republic of Tanzania and Viet Nam is aimed at informing a policy action programme to create a new, more effective balance of incentives and disincentives for small businesses. A policy and legal environment that lowers the costs of establishing and operating a business, including simplified registration and licensing procedures, appropriate rules and regulations, and reasonable and fair taxation, will help new entrepreneurs to start in the formal economy and existing informal businesses to enter it. Furthermore, the security that formality provides will facilitate access to commercial buyers, more favourable credit terms, legal protection, contract enforcement, appropriate technology, subsidies, foreign exchange and local and international markets. A coherent legal, judicial and financial framework for securing property rights, especially for women, to enable “hidden” assets to be turned into productive capital through sale, lease or use as collateral is a high priority in many countries.
To learn more about this author, visit International Labour Organization's Website.
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