Saturday 18 March 2023

Small business vs Large business - Who is more important.

Small businesses are the backbone of any economy, and the same holds true for the New Zealand economy. Small businesses play a crucial role in driving economic growth, creating jobs, and providing essential goods and services to local communities. Despite their importance, small businesses often face several challenges, including limited resources and intense competition. In this article, i will discuss why small businesses are more critical to the New Zealand economy than larger businesses.

Size of Small Businesses in New Zealand

In New Zealand, small businesses are defined as those with fewer than 20 employees. According to recent statistics, small businesses account for 97% of all businesses in the country. This figure highlights the significance of small businesses in the New Zealand economy. Small businesses employ around 30% of the total workforce in New Zealand, making them a critical source of employment.

Small businesses play a significant role in driving economic growth in New Zealand. The country's economy has traditionally been dominated by primary industries, such as agriculture and forestry. However, in recent years, the service sector has emerged as a key contributor to economic growth. Small businesses are at the forefront of this transformation, with many providing services such as retail, hospitality, and tourism.

The Importance of Small Business to Employment

Small businesses are critical to job creation in New Zealand. In 2020, small businesses accounted for approximately 65% of all new jobs created in the country. This figure highlights the role small businesses play in providing employment opportunities to New Zealanders.

Small businesses provide significant employment opportunities to people living in rural areas of New Zealand. Many small businesses operate in smaller towns and villages, providing vital goods and services to local communities. These businesses often provide opportunities for people to work close to their homes, reducing the need for long commutes to larger cities.

In addition to providing employment opportunities, small businesses are also critical in developing the skills of the New Zealand workforce. Many small businesses provide training and development opportunities to their employees, helping them gain valuable skills and experience that they can use in future roles. This aspect of small businesses' contribution to the New Zealand economy is essential, as it ensures that the country's workforce remains competitive in a rapidly changing global economy.

The Role of Small Business in Innovation

Small businesses are often at the forefront of innovation, developing new products and services that meet changing consumer needs. This aspect of small businesses' contribution to the New Zealand economy is critical, as it ensures that the country remains competitive in a rapidly changing global marketplace.

Small businesses are nimble and can respond quickly to changing market conditions, allowing them to develop innovative products and services that larger businesses may overlook. Many small businesses in New Zealand operate in niche markets, providing unique goods and services to customers. These businesses often rely on innovation to stay ahead of the competition and remain profitable.

Small businesses are also critical in developing new technologies that drive economic growth. Many small businesses in New Zealand are involved in developing new software and other technologies that have the potential to revolutionize industries. These businesses often collaborate with larger businesses and academic institutions to develop new technologies that can be used in a variety of applications.

The Importance of Small Business to Local Communities

Small businesses are essential in creating vibrant local communities in New Zealand. Many small businesses operate in smaller towns and villages, providing vital goods and services to local residents. These businesses help to create a sense of community, providing a gathering place for people to socialize and connect with each other.

Small businesses also play a critical role in promoting local economic development. Many small businesses source their goods and services locally, supporting other local businesses and contributing to the local economy. This aspect of small businesses' contribution to the New Zealand economy is essential, as it ensures that the benefits of economic growth are distributed more evenly across the country.

The Challenges Faced by Small Businesses in New Zealand Despite their importance, small businesses in New Zealand often face several challenges. One of the most significant challenges facing small businesses is access to finance. Many small businesses struggle to access the funding they need to grow and expand their operations. This lack of access to finance can limit the ability of small businesses to innovate and compete with larger businesses.

Another challenge facing small businesses in New Zealand is the competitive environment. Small businesses often compete with larger businesses that have more significant resources and economies of scale. This competitive environment can make it challenging for small businesses to survive, let alone grow and expand.

In addition to these challenges, small businesses in New Zealand also face regulatory burdens. The government has implemented several regulations aimed at protecting consumers and promoting fair competition. While these regulations are essential, they can create additional administrative burdens for small businesses, which can limit their ability to grow and expand.

The COVID-19 pandemic has also presented significant challenges for small businesses in New Zealand. Many small businesses have been forced to close their doors, while others have struggled to adapt to changing market conditions. The pandemic has highlighted the importance of supporting small businesses and ensuring they have the resources they need to survive and thrive.

How the New Zealand Government Supports Small Businesses

The New Zealand government recognizes the critical role that small businesses play in the country's economy. To support small businesses, the government has implemented several programs and initiatives aimed at providing financial assistance, reducing regulatory burdens, and promoting innovation.

Often small businesses are forgotten in New Zealand, You very rarely see politicians having meetings with a local plumber or lawn mowing contractor, but you do see them meeting with CEO's of large companies and their boards of directors. 

While small businesses are undoubtedly important to the New Zealand economy, it's also important to recognize the critical role that larger businesses play in the country's economic landscape. Here are some rebuttals as to why larger businesses are also essential:

  1. Job Creation: Large businesses often have the resources and scale to create a significant number of jobs in New Zealand. These jobs can provide stable and well-paying employment opportunities for many New Zealanders, particularly in sectors such as manufacturing and technology.
  2. Innovation: Large businesses often have the resources to invest in research and development, which can drive innovation and help to create new products and services that can benefit the entire economy. By developing new technologies and processes, large businesses can help to make New Zealand more competitive in a global marketplace.
  3. Scale Economies: Large businesses can achieve economies of scale that can help to reduce costs and increase efficiency. These cost savings can be passed on to consumers, helping to drive down prices and improve the standard of living for many New Zealanders.
  4. Investment: Large businesses can attract significant investment to New Zealand, which can help to support economic growth and create new opportunities. For example, many foreign investors are attracted to New Zealand because of its stable political environment, skilled workforce, and favorable business climate.
  5. Export Markets: Large businesses often have the resources and scale to access international markets, which can help to increase exports and drive economic growth. By exporting goods and services, large businesses can bring valuable foreign exchange into the country and support the growth of other industries.

Small businesses and large businesses both make significant contributions to the New Zealand economy, but it's difficult to make a direct comparison between the two since they operate in different sectors and industries. However, according to the New Zealand Productivity Commission's report on using land for housing, small and medium-sized enterprises (SMEs) accounted for 97% of all businesses in New Zealand in 2017, and they provided 29% of the country's GDP. On the other hand, larger firms (those with more than 100 employees) accounted for 0.3% of all businesses but provided 40% of New Zealand's GDP.

This suggests that while small businesses make up the majority of businesses in New Zealand, larger businesses contribute significantly more to the country's GDP. However, it's important to note that both small and large businesses are important to the country's economic growth, and policies that support both sectors are necessary to create a balanced and prosperous economy.

Ref sources for this article can be found at. 

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