JEDDAH, 19 January 2004 — Small and medium enterprises (SMEs) play an important role in the economies of advanced and developing countries. Here in the Kingdom, small enterprises alone represent almost 93 percent of the total enterprises, and account for about 24.7 percent of total employment. These statistics show the important role of such businesses in the Saudi economy.
Given that importance, the question is what the effects of globalization and accession to the World Trade Organization on SMEs will be.
The answer is that their effects will be both positive and negative. Opinions are divided, but in my judgment the positive effects of WTO accession will outweigh the drawbacks.
Some worry about the competition which will face the Kingdom’s SMEs from the foreign enterprises. But that is not likely to be as fierce as some expect since competition will mostly come from large and giant companies. The level of competition may even give some much-needed impetus to the Kingdom’s SMEs to raise their standards and quality to remain in the market.
On the other hand the Kingdom’s SMEs will benefit from the access of large companies to the Kingdom’s market: They will be able to provide the local components and expertise which the foreign companies lack. Also, the influx of financial institutions will provide more financial resources to the Kingdom’s SMEs. That will remove one of the main constraints they face at present.
The most important factor is the technology transfer that globalization and WTO will bring. Easy technology transfer to the Kingdom will initially have a negative effect on local SMEs. They have been able to get by with a low level of technology, and they will have to shape up. But in the long run the SMEs will find it much easier to adopt technology and production methods.
Another factor is the expansion of markets that WTO membership will provide, opening up extra markets both locally and abroad. New marketing strategies are bound to follow.
The good, then, may well outweigh the bad when the Kingdom joins the WTO. But local SMEs must work hard to keep up with the rapid changes in the business environment. The most important challenge for them is to build up their self-reliance when the protection they enjoy at present is gone.
