Disruptive, digital and local: the new reality for SMBs

photo of a grocer looking at a ledger while talking on a phone

The economic impact caused by the lack of access to physical markets during the COVID-19 crisis -also known as “The Big Confinement” – is unique and it is the last consequence of a big chain of structural commercial breakdowns; such as the contraction of global demand and a reduction in global trade. 

In Latin America, almost 99% of companies are micro, small or medium businesses (SMBs), representing 61% of jobs and contributing to almost 30% of the region’s GDP (ECLAC). The impact of the pandemic in this sector may end up increasing poverty rates, inequalities, and tearing the economic and social fabric even further, all of this while deteriorating productive capabilities and human capital; problems that, even before 2020, were alarming enough. 

So far, Latin American SMB sector recovery forecasts remain pessimistic, mostly considering the structural barriers they face such as informality, lack of access to markets and inclusive value chains, as well as low financial and digital inclusion rates. Consequently, some international projections suggest that more than 25 million people will enter poverty levels after the crisis. Do we know what that means economically and ethically for humanity? 

Even though current levels of uncertainty are at their peak, from the most remote community to the most advanced city, there are indicators that allow us to foresee a few “undeniable” facts: that the future of the economy is to travel towards a digital world, and that globalization took an unexpected turn, giving back the pulse to local markets, which until now had been easy prey for the dominant economies. Could it be possible that Capitalism and the global division of labor (so often argued in favor by Ricardo) are suffering an unexpected low blow? 

Despite the fact that local trade has become even more relevant, products and services of the typical Latin American economy are amongst the most affected sectors today. Traditional businesses like small producers and distributors, hardware stores and neighborhood stores, trades such as construction and carpentry, service enterprises such as restaurants and beauty salons, among others, lack certain basic skills to help them move towards recovery. 

In this sense, FUNDES has identified three specific gaps that affect the development of SMBs in the traditional economy: 

  1. Creative Gap – The biggest difference between a Start-up and an SMB from the traditional economy, is its capacity to be creative, innovative, and to adapt to the changing and uncertain environment of the globalized world. 
  2. Digital Gap – While most micro and small entrepreneurs in Latin America have a smartphone, less than 20% have an online sales platform. Most of them suffer from a lack of basic digital skills to properly take advantage of the benefits of the internet. 
  3. Market Access Gap – The COVID-19 pandemic, border closures and social distancing are weakening global value chains and strengthening the already existing trend towards local consumption. The lack of circuits among SMBs prevents them from fully taking advantage of this opportunity. 

In conclusion, despite recent studies talking about the potential of tools such as E-commerce to alleviate poverty and inequalities (some of which have shown positive results), it is important to note that in underdeveloped countries, there is a lot more work required than simply giving people internet access. Infrastructure, digital inclusion, logistics, business capacities and skills, as well as a healthy environment to develop them, are crucial to be able to speak of a new and equitable commercial reality. 

As FUNDES, we have worked for more than 35 years with SMBs in the region, and we have learned that what these entrepreneurs need in order to have access to new markets and to jump into the digital world is: education, support, access to tropicalized tools and avant-garde solutions, infrastructure, linkages, and collaboration networks.  


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