Role of SMEs in the United Kingdom Economy - Assignment Example

? Report: Small and Medium Enterprises 15 December Table of Contents Introduction 2. Role of SME’s in the United Kingdom Economy 3. Effect of SMEs on the London Economy 4. Recommendations 5. Conclusion Executive Summary 1. Many individuals invest in small and medium enterprises. 2. In 2008, the European Union implemented the Small Business Act for Europe 3. The same act contributed to the improvement of European Union small and medium enterprises. 4. The act increased innovative and creative competitiveness in the small and medium enterprise market. 5. The act focused on increasing the enterprises’ production outputs, increasing revenues and profits. 6. Small and medium enterprises reduce London’s Unemployment rate. 7. Small and medium enterprises are either sole proprietorships or partnerships. 8. Small and medium enterprises have less than 250 employees. 9. Small and medium enterprises are profitable business ventures. 10. U.K.’s laissez Faire (free) economy encourages entry into the lucrative small and medium enterprise market. 11. With lower capital investments than corporations, small and medium enterprises are preferred choices. 12. The United Kingdom government must implement the provisions of the 2008 Small Business Act for Europe. 13. The United Kingdom government must help lessen small and medium enterprises loan requirements. 14. The United Kingdom government must ensure small and medium enterprises comply with tax, labour, and environmental protection statutes. 15. Small and medium enterprises significantly contribute to the improvement of the United Kingdom economy. Introduction Many individuals boldly join the risky small and medium enterprise market segment. The market segment is grounded on low capital investments. The market segment reduces the United Kingdom unemployment rate. With the ease in establishing small and medium enterprises, more people can easily find work within the small and medium enterprises segment. Small and medium enterprises significantly contribute to the improvement of the United Kingdom economy. Role of SME’s in the United Kingdom Economy According to Elisabeth Pederzini, some European Policies were established to improve the small and medium enterprises’ acquiring of finance sources. Pederzini insists that the European Union exerted extra efforts to help the small and medium European Union member nations’ business money. With the small capital investments, the small and medium size business entities need additional borrowed funds (Warren, 2008). The borrowed funds will help increase the company’s revenues. With more revenues, the small and medium size companies will generate higher net profits. In addition, the additional loan amounts will help the companies pay for the salaries of additional employees. With more employees hired, the service and product quality and speed will consequently increase. After the successful launch of the 2000 European Charter for Small Enterprises, the European Union leaders launched the equally successful Lisbon Growth and Jobs Strategy in 2005. Next, the European Union leadership focused their attention to helping the small and medium enterprises improve their European Union business prospects (Dallago, 2012). In 2008, the European Union launched the timely Small Business Act for Europe. The act contains three favorable aims. First, the government leaders set the guidelines for the improvement economic environment of the small and medium enterprise players. The improvements will trigger higher revenues. With higher revenues, the enterprises can hire more workers. With more workers, the European Union’s unfavorably high unemployment rate will significantly drop to permissible levels (Dallago, 2012). Second, the act focused on increasing competitiveness among the European Union’s small and medium enterprise players. Increasing competitiveness significantly persuades the competitors to improve the quality of their products and services (Cant, 2009). Improvement of their products and services entails the infusion of new technologies. The new technologies include selling innovative products. Innovative products fill the customers’ need for better product uses. Better product uses includes boosting the enterprises’ productivity. By increasing the productivity, more revenues are generated (Dallago, 2012). With more revenues, the European Union member governments will receive higher tax revenues. With the higher tax revenues, the government can use the revenues to introduce further improvements to the small and medium enterprises’ economic environment. Third, the act focuses on reducing any hindrances to increasing the enterprises’ revenues. The hindrances include structural scarcity of the enterprises’ resources. With lower resources, the enterprises’ sales outputs are unfavorably lower than what the enterprise owners prefer. The shortage of resources is a normal occurrence in many European Union players in the small and medium enterprise market segment (Dallago, 2012). Specifically, the small and medium enterprises are popular business entities in the United Kingdom. An entity qualifies as small and medium enterprise when its staff does not exceed the 250 employee benchmark. The small enterprises can also be classified as micro enterprises (Nickson, 2008). Further, seven out of ten entities in the United Kingdom market segment are either sole proprietorships or partnerships (Lim, 2010). In a sole proprietorship, there is only one owner (Black, 2009). As owner, the individual has to hurdle the risk of losing everything invested in the business. The second type of entity is the partnership enterprise. The partnership is formed by two or individuals. The partners invest time, money, and effort to generate revenues. When the revenues are generated, the partners divide the business profits among themselves. Furthermore, the distribution of the partnership profits depends on the partners’ agreements. The agreed investment amounts are in according with the partners’ agreed figures. In other partnerships, one partner does not contribute money into the partnership. Instead, the partner is classified as the industrial partner. As industrial partner, the individual contributes his time and energy to the business (Epstein, 2012). Time and energy investments include selling the company’s products and services. Time and energy investments include managing the business affairs. Effect of SMEs on the London Economy The above discussion clearly shows the small and medium enterprises play a significant role in increasing the speed of London’s economic wheel (Wall, 2011). With more store sales, the economic wheel runs favorably faster (Hilton, 2011). With more customers buying the products, the economic wheel increases its current speed. When London’s small and medium enterprises pay the salaries of the employees, the employees buy goods from the London small and medium enterprises. The sales of these enterprises increase. This activity makes the economic wheel go into the faster zoom speed. The increase in the small and medium enterprises’ revenues leads to hiring more employees. The hiring of more employees increases the small and medium enterprises’ delivery of high quality goods and services to the customers. The delivery skyrockets the economic wheel into high small and medium enterprises revenue status, increasing wealth creation outputs (Sloman, 2010). Moreover, the United Kingdom small and medium enterprise companies have distinct characteristics. One of the characteristics is that the enterprises do not involve any subsidiaries. Another characteristic is the enterprises’ hiring a small number of employees. The enterprises are less in number than the United Kingdom corporations. The United Kingdom government’s Department of Business Innovation and Skills present the statistical data indicating there were an estimated 9 million private sector small and medium enterprises in the United Kingdom at the start of 2008. The 2008 figure was 100,000 higher than the prior year’s figure. During 2008, the enterprises employed the services of an estimated 23 million individuals. Lastly, the enterprise generated average yearly revenues amounting to ? 3,000 billion. Of the total enterprise registered in the United Kingdom, more than 99 percent were classified as small and medium enterprises. In a majority of the United Kingdom sectors, the small and medium enterprises used innovative strategies (Lim, 2010). Further, the above discussion clearly shows that the small and medium enterprises are viable business ventures (Barrows, 2009). The bandwagon statistic is vivid evidence that an activity is profitable. People are normally attracted to popularity. When one entity generates high customer demand for its products and services, people are eager to learn the secrets of the new enterprise. After generating enough knowledge about the business enterprises’ successful operational strategies, the curious individuals set up their own businesses. The new businesses seek to duplicate the original company’s successful revenue operations. When the new set of business enterprises similarly generate high revenues and net profits, other new entrants invade the same market segment. This is the very essence of laissez faire economic theory (Arnon, 2009). Likewise, the United Kingdom government sets up the laissez faire economy in order to give everyone and every entity equal profit opportunities (Carbaugh, 2010). The government creates an environment that is conducive to both the small and medium enterprises and the customers. The United Kingdom entities free compete with one another. The competitors sell products at competitive prices. Competitive prices may include selling at a lower price. Selling at a lower price complies with the demand theory of economics. Under the theory, as the prices of the products and services increase, the current and future customers’ demand for the products and services decline. Further, the small and medium enterprises competitors in United Kingdom laissez faire economy can offer their products at the highest store prices. Some current and future customers prefer products that are sold at the higher prices. To these customers, the higher prices logically equates to higher quality products and services (Barrows, 2009). Furthermore, the small and medium enterprises target certain market segments. Some enterprises target the low income current and future customers. To generate revenues from this market segment, the enterprises sell low priced products. People who belong to the poverty level sectors of society prioritize the prices of the products when purchasing the small and medium enterprises’ products and services (Bhimani, 2009). Moreover, targeting the low income sectors of United Kingdom society is a viable marketing strategy. There are more poor people in our society than those belonging to the rich sector. With more low income prospects, the small and medium enterprises are expected to generate more revenues than selling their products to the few rich families. However, the small and medium enterprises generate low profits from the high volume sales outputs (Ferrell, 2010). After the popularity of the corporation business form flourished during the 1970s, the current time period’s most popular business form is the small and medium enterprise. The United Kingdom small and medium enterprises significantly contributed to the employment landscape. A Eurostat report mentioned that more than 65 percent of the European Union employees were employed by small and medium enterprises (Bhaird, 2010) . Further, the United Kingdom employment statics shows that the low capital investment triggered to the small and medium enterprise bandwagon concept. With low investments, any individual can set up one’s own business. The business owner hires employees. The employees ensure the companies’ work policies are strictly implemented. The employees are instrumental in generating revenues. Consequently, hiring more employees usually results to higher revenues. The small and medium enterprises were first experimented in two first world countries. The two countries are United States and United Kingdom. After the success of the small and medium enterprises within the two countries, the small and medium enterprise business alternative spread to other countries. Recommendations Our United Kingdom government must impose policies that will ensure the survival of the small and medium enterprises within London and the nearby cities. The policies include implementing the provisions of the Small Business Act for Europe. The government must impose laissez faire policies. The policies ensure the free entry of all players in the small and medium enterprise market segment. Further, the government must ensure the peace and order situation is conducive to business. The presence of gangs within the small and medium enterprises’ neighborhood will drive away potential customers. The current and future customers will fear being robbed by the criminal elements. The same customers will fear being raped by the lustful gang members. By stationing the peace officers along the busy business districts of London, the criminals and those with criminal minds will stop their planned criminal activities. Furthermore, the government must ensure the environment laws are firmly implemented. The environmental laws ensure pollution is eliminated. Pollution comes from the vehicles’ exhaust fumes. Pollution is emitted by the factories’ smoke stacks. Pollution occurs when the companies throw their waste products into the nearby crystal clear rivers and lakes. Moreover, the government offers tax incentives to some small and medium enterprise entrants. By offering tax holidays, the government will give the new entrants enough time to generate high cash inflows. The high cash inflows will be used to expand the small and medium enterprises’ business operations (Baumol, 2011). The government’s department of trade and industry agency must lend an ear to the investment requests of the new entrants into the London small and medium enterprise market segment. Likewise, the government must ensure the small and medium enterprises firmly implement the labour laws. By implementing the labour laws, the employees are persuaded to apply for a job in the small and medium enterprises. With the implementation of the labour laws, the business owners are assured the employees will continue to loyally exert enough efforts to contribute to the attainment of the small and medium enterprises’ prescribed goals and objectives. (Barrows, 2009) Further, the United Kingdom government must ensure free competition prevails in the small and medium enterprise environment. Free competition includes law violations are penalized. Free competition brings out the innovative strategies of the small and medium enterprise competitors. The innovative strategies are enough to sway the current and future customers to patronize one competitor’s products and services (Daft, 2011). Furthermore, the United Kingdom government must reduce any hindrances to the small and medium enterprises’ generating their forecasted high revenues and net profits (Nutt, 2010). The government must keep the flow of traffic fast and smooth. The fast and smooth traffic hastens London’s economic wheel. With fast transportation, more goods are delivered. Delivery includes the suppliers’ delivery of the goods and raw materials to the small and medium enterprises’ facilities. Delivery also includes bringing the purchased products and services from the small and medium enterprises’ stores and offices to the current and future customers’ doorsteps. Also, the United Kingdom government must grant loan privileges to the fledgling small and medium enterprises (Fabozzi, 2011). With the owner’s low capital investment, the government can institute low interest rate loan policies. The government must grant the new small and medium enterprises owners some loan advantages. By doing so, many individuals will boldly and bravely venture into the profitable but risky small and medium enterprise market segment. In exchange for the low interest loan privileges, the government will greatly benefit. The government will receive higher tax collections (Melicher, 2011). The government significantly contributed to the reduction of the United Kingdom unemployment rate. By reducing the unemployment rate, the United Kingdom reduces the number of criminals. Some jobless individuals may resort to robbery and theft to feed their hungry stomachs. Reducing the number of criminals, more current and future customers will confidently visit the London small and medium enterprises. By implementing the above recommendations, the London economic will be go into overdrive (Carbaugh, 2010). The small and medium enterprises will go the extra mile to sell more products and services. Likewise, the current and future customer base will increase. With more revenues, more cash travels from the customers to the small and medium enterprises. The enterprises’ payment of the employees’ salaries will give the employees their own purchasing power. The employees buy the products and services from the different businesses in the busy London market. The customers will patronize the products and services of London’s small and medium enterprises. Moreover, the government must ensure the small and medium enterprises delivery quality products and services (Weihrich, 2009). Laws must be in place to protect the defenseless customers. The laws include imposing penalties on small and medium enterprises that sell spoiled products or substandard products. The laws protect both the customers and the small and medium enterprises. The customers will learn which companies sell high quality products and services. Customers will return to stores that continually sell quality items and services. The victimized customers will shy away from the stores and shift their purchasing to the other competing small and medium enterprises. Conclusions Summarizing, some persons confidently enter the small and medium enterprise business. The low capital investment increases the preference for small and medium enterprise choice. With more small and medium enterprises sprouting in the United Kingdom economic atmosphere, countless individuals are able to find jobs. Overwhelmingly, small and medium enterprises influentially supply to needed variables leading to the enhancement of the United Kingdom economy. References: Arnon, A. , 2009. Perspectives on Keynesian Economics. London: Springer Press. [Accessed: 14 December 2013]. Barrows, D. , 2009. Fundamentals of Economics for Business. London: World Scientific. 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