AT the risk of stating the obvious, small and medium-size enterprises (SMEs) are vital to the Caribbean economy. Figures from Organisation for Economic Co-operation and Development (OECD) show that 99.5 per cent of the enterprises were SMEs employing fewer than 249 people. And the vast majority of those — 9 out of 10 — are classed as micro enterprises, meaning they employ up to nine people. So if the Caribbean economy is to prosper, it’s worth thinking about nurturing our SME sector.

ACCA has kicked off 2024 by publishing global research, SMEs: Business challenges and strategic innovation opportunities. Three key themes emerged from round tables of 620 people working with SMEs from across the globe. First, the cost challenges facing SMEs has been unprecedented. SMEs are not much different from you and me when it comes to facing price increases — and we all understand the impact of inflation every time we fill up the car or do the weekly shopping.

Secondly, SMEs continue to acquire and retain key talent that is essential for maintaining favourable relationships with customers. Upskilling becomes a critical focus, particularly as new technologies dominate our working lives.

Finally, SMEs are grappling with emerging regulation, mostly in the environmental, social and governance (ESG) arena. This holds true for all businesses — except that SMEs lack the resources of their larger corporate counterparts so they must, therefore, strategically find ways to comply with the increasing demands.

The emphasis on thinking and acting strategically resonated with me in this report.

For SMEs in the Caribbean to thrive, they must place innovation at the core of their operations. As the report suggests, this approach is the gateway to unlocking substantial business value for the large number of SMEs across the region.

Oftentimes I engage with small businesses, conversing with their advisors — from small and medium-size accountancy practices (SMPs) — as well as other stakeholders keen on supporting the sector, including financial services and government bodies. What consistently stands out at the end of these discussions is the energy, enterprise, vision, and innovation within the SME landscape.

Undoubtedly, SMEs face escalating challenges including rising costs, talent shortages, and concerns about ESG and sustainability. However, they have the capacity to address these challenges by embracing innovative solutions to optimise operational efficiency, streamline processes, and cultivate cost-effective alternatives to their current modes of operation.

The survey indicated that SMEs are prepared to tackle the challenges, with potential plans for the next two years encompassing:

• 24 per cent introducing a new business model

• 28 per cent exploring new markets – including exporting

• 31 per cent developing a new product or service

• 31 per cent automating/digitalising business operations

• 63 per cent improving an existing business process.

Consider the substantial impact on the Caribbean economy if SMEs were to turn one or more of those plans into reality in the next 24 months. While it won’t be easy, with concerted effort, determination, and creativity, and by seeking the right assistance, they have the potential to implement changes that enhance their financial resilience and ensure a more secure future.

Consider, for example, the advances in technology that provides tools for automation and enhanced resource management. These tools have the potential to assist businesses in mitigating the challenges posed by escalating costs. For SME owners or employees the pivotal question is likely to be: How can I innovate? How can I translate theory into practical reality, particularly when confronted with myriad pressing issues on the daily to-do list?

Small businesses should view innovation as a key strategy. Innovation can provide businesses with new products and services to address customer demands, particularly in competitive and ever-changing markets. Importantly, innovation does not have to be confined to groundbreaking technological advancements; it can also encompass incremental improvements, process optimisations, or creative marketing strategies.

SMEs typically consider two broad types of innovation: new (breakthrough) processes or enhancements to existing processes, and new (radical) products or services, or improvements to existing products or services.

Measurable results from innovation could include:

• Reduced time to market;

• Increased flexibility in the way goods are produced or services delivered;

• Reduced costs — whether that is using less energy or employees being more productive;

• New marketing methods;

• Improved communication system and quality.

There is one caveat to all this. An inherent aspect of the innovation process is being prepared to accept a degree of risk for the organisation. This doesn’t equate to recklessness, but innovation is a crucial element of the entrepreneurial nature of a small business — it is essential for the company’s growth and is an ongoing process that involves both taking risks and identifying opportunities to mitigate business risks.

Despite the anticipated challenges in 2024 there is ample evidence suggesting that SMEs can persevere and rise to the occasion by discovering innovative methods to achieve sustained success. By fostering a culture of innovation SMEs can not only overcome challenges but also position themselves as agile and resilient players in the ever-evolving business landscape.

Author: Paula Marcelle-Irish is head of, Association of Chartered Certified Accountants, Caribbean.