Internet gap hinders small firms in poor countries, study shows

A study of small and medium-sized businesses around the world has found that one of the main reasons they underperform – especially in poorer countries – is that they make too little use of the Internet.

Small and medium-sized enterprises (SMEs) in Brazil are three times less productive than big firms there while those in India are 10 times less productive. The report published on Wednesday by the International Trade Centre, a joint venture of the World Trade Organization and the United Nations, aimed to find out why.

It examined 38 indicators to gauge the national and business environment and firms’ capacity to “compete, connect and change”. They include such measures as managerial experience, level of training, and existence of bank accounts and audited financial statements. In Indonesia, only 9.4% of small firms were using email, and only 4.2% had their own website. In Bangladesh, the figures were 12.0% and 6.0% respectively.

“Indonesia is surprising, it’s one of the few countries where even large firms underperform in the use of email,” said Marion Jansen, the ITC’s chief economist.

She said Bangladesh was trying to establish an export position in the IT business, but its small firms were far behind in the use of websites and emails.

“That’s a country that may ask itself whether it’s sustainable to have an export position where the domestic market doesn’t seem to be well developed.”

As well as a lack of connectivity, many small firms in the poorest countries were held back by their access to finance, and in south Asia they scored poorly on international quality certification as well as on low use of email.

SMEs account for nearly 70% of employment. They employ disproportionate numbers of women and young people and at lower wages than their larger rivals, so improving their productivity is seen as a route to economic development. Latin America emerged as the most entrepreneurial region, with more than 10% of young people starting up their own businesses in many countries, but their ambitions were hampered by weak national business environments.

ITC executive director Arancha Gonzalez said the study – which will be published annually – was intended as practical tool for governments and companies to improve their performance.

“The analysis suggests there is considerable potential for SMEs to catch up,” the report said.