Small business in Australia finds itself in a perplexing situation.
On the one hand – thanks to technological developments such as the cloud – start up costs are low and the potential for small players to disrupt established markets has never been higher.
But on the other – thanks to labour market regulation and a high dollar – operating costs are very high, making it incredibly difficult to scale up.
Indeed, a recent KPMG study has found that, after Japan, Australia is the world's most expensive place to do business. The highest electricity prices of any major economy (40 per cent higher than Japan's) coupled with high wages are biting, and a strong dollar is keeping costs on the up.
For SMEs especially, the effects are hard felt. For one, they can't take advantage of economies of scale in the same way that big business can. For another, they have less ability to pass high costs onto consumers, with price hikes a harrowing move for SMEs at the best of times.
Many SMEs are, in short, precariously poised – and the problems posed by a two-speed economy don't help.
Long term light
Thankfully, the long term outlook is bright.
Firstly, Australian SMEs are superbly placed to take advantage of the new Asian economies. ‘Going global' is not as difficult as many imagine, with today's cloud and virtual office technologies putting multinational-type resources in the hands of SMEs. And if your business is profitable in Australia where costs are high, it's likely to be even more profitable overseas.
Secondly, the next decade will be one for SMEs, with changes in the business landscape increasingly playing to their strengths and ability to adapt. Indeed in some respects, it's never been easier for SMEs to compete with bigger players. A lack of legacy investments in infrastructures and ‘bricks and mortar' business approaches, for example, mean that SMEs can more flexibly respond to changing conditions.
What SMEs need
But to relieve short-term pain and ensure long-term success, certain things must change.
Government policies must begin to recognise the value of a sector that comprises around 2 million people and employs about 5 million others.
While the recent inclusion of a Small Business Minister in federal Cabinet is welcome news, it will be a token gesture unless policies that are currently delivering artificially high labour costs and high taxation are changed.
The fact is that under Fair Work Australia, labour costs have become divorced from economic reality. When combined with rising operating expenses, these costs are preventing many SMEs from expanding while sending others to the wall.
These effects are being felt far and wide and, to overcome them, small business desperately needs a more market-oriented mechanism for wage setting.
Just how interested the government is in supporting growth and employment through such reforms will go a long way to determining how competitive Australian small business can be in the next decade – a time when they'll be facing increased opposition from global competitors able to operate with lower costs.
For the sake of the future economy, we must continue to advocate for change.