Small and medium-sized enterprises (SMEs) have been the keystone of world economic growth for a long time. It has been reaffirmed that in emerging markets like Nigeria and developed economies such as the US, the UK, China and others, SMEs have continued to provide employment, drive innovation and stabilize nations.
It is estimated that SMEs account for about 96% of businesses, and about 48% of national GDP, according to Small and Medium Enterprises Development Agency in Nigeria (SMEDAN).
SMEs make up over 99% of the private sector businesses in the UK, while it accounts for two thirds of net new job creation every year in the US, and Chinese SMEs represent nearly 60% of Chinese GDP and 80% of urban employment.
These figures show the vital role SMEs play in the make-up of a strong economy. But just as vital small businesses are, they are becoming increasingly beleaguered in today’s competitive and digital-first economy.
SMEs Under Pressure: Global Challenges
The experiences for SMEs vary from one region to another, but a common theme is that it is very difficult to be competitive in turbulent and uncertain business worlds.
Nigeria SMEs face inconsistent electricity supply, high- interest rates, and lack of access to credit. Only 5% of SMEs are able to receive bank finance, according to the DFC whilst it also identifies finance as a barrier to growth.
Post-Brexit changes in the United Kingdom have upended supply chains, and inflation has pushed up the cost of doing business for small retailers and manufacturers. And the labor shortages aren’t just demoralizing, they’re disruptive to productivity in certain sectors, like hospitality and health care.
In United States, SMEs are under threats of inflation, increase in wages, and rapidly changing consumer taste. Small retail and service businesses in particular are struggling to keep up with a digital commerce industry that is moving a bit too fast.
In contrast, SMEs in China increasingly compete in their own country, where higher labor costs and more corporate regulation have put additional pressure on companies – something that particularly affects industry in the future.
When SMEs flounder, entire economies flounder, job loss spikes, innovation is stifled, and national productivity takes a hit. Hence, new tools and systems that can enhance SME resilience need to be explored.
The AI AdvantageArtificial Intelligence (AI) and Machine Learning (ML) has become an answer to a lot of SME challenges. Formerly seen as bleeding-edge technologies that only big companies could afford to invest in, today, AI tools are more accessible, affordable, adaptable and user-friendly for small businesses.
At the World Economic Forum 2024 in Davos, experts had this to say about the transformational power of AI: “AI is no longer the future of business — it is the present, and organizations that fail to implement effective AI risk being left behind.”
AI use cases for small-medium business are spread across industries:
• Retail: Small and medium businesses can deploy analytics based on artificial intelligence to follow consumer behavior, estimate demand, and optimize pricing. Netflix-style, recommendation engines – you know, what Amazon does as well, now available to small e-commerce players.
• Agriculture: Tools that use AI to track soil, forecast rain and identify crop diseases in real time enable farmers to increase yields and reduce losses.
• Finance: AI-driven credit scoring models are enabling digital lenders to provide credit to SMEs with thin credit files, opening up new sources of capital.
• Customer Service – Companies can harness AI to offer 24/7 customer support options, which results in happier customers and at a significantly lower cost than large call centres.
AI also enables government initiatives in digital transformation. Nigeria’s National Digital Economy Policy and Strategy (2020–2030) identifies AI as an enabler of inclusion and growth.
The UK government’s National AI Strategy aims to establish the UK as an AI global center and will have SMEs at its core. The US is considering using projects like the National AI Research Resource (NAIRR) to democratize AI infrastructure and make its resources available to startups and SMEs.
Unlocking New Opportunities
AI enables SMEs to unleash new potential that can influence their competitive positioning through:
1. Market Reach: By using AI analytics, SMEs are able to uncover new customer segments and new international markets, to make the world flat and go global without too many expenses.
2. Operational Efficiency: Automation of routine, manual tasks such as payroll, accounting and inventory management to trim costs and to ease the work burden on employees so that they can place greater emphasis on innovation and growth.
3. Customer Engagement: By sending out hyper personal community marketing campaigns, SMEs can foster relationships and increase brand loyalty. For instance, AI tools which analyses sentiment on social media let small businesses know what customers really want.
4. Finance Access: Fintech platforms that use AI to analyze alternative data, cash and mobile money transactions are one way of increasing SME access to affordable credit.
5. Innovation: AI helps SMEs develop new products and services. Health-tech startups including ones that utilize diagnostics powered by AI are being used to bring the lowest-cost healthcare to the bottom of the pyramid.
At the African Fintech Summit 2023, one of the speakers summed up this optimism when he said: “AI is your equalizer, now small business can start playing in the big leagues.”
Balancing Benefits with Risks
Balancing Benefits with Risks There are a lot of AI opportunities, but AI is not entirely a free lunch, and SMEs must think ahead in order to manage the trade-offs. The most anticipated fear is digital fraud, along with breaches of data privacy, algorithmic bias and misuse of AI tools.
• Cybersecurity Risks: The increasing menace from deepfakes, fishing and ransomware is among the most significant risks facing companies that rely on digital channels.
• Algorithmic Bias: AI systems can make discriminating or unfair decisions if they’re not well supervised, and that has potential impacts in hiring, lending or customer service.
• Over-Automation: Humans can be relegated to the sidelines and the operation exposed to an attack by overusing the AI.
To safeguard themselves, SMEs must:
• Purchase cyber security technology such as firewall, encryption and double factor authentication.
• Advocate for ethical-AI principles that introduce transparency, fairness and accountability into the systems of AI they are utilizing.
• Join forces with reliable AI vendors while also teaching employees digital literacy.
• Follow government regulations which include the EU’s AI Act and Nigeria’s developing data protection systems.
Case Studies: SMEs Leading the WayJust a few small business applications are already affected by AI:
• In Nigeria, fintech start-ups are reshaping the country’s financial sector by tackling one of its deepest-rooted challenges, which is the large number of unbanked and underbanked citizens, which account for about 36% of Nigerian adults, and according to EFInA, they remain financially excluded.
• Small British retailers are starting to apply AI to inventory management, so that they can waste less and have tiny shelves that restock in real time.
• In America, small and medium-sized health-care businesses are applying AI to everything from patient scheduling to digital diagnostics, and their staff are just thrilled with this time- and money-saver.
• Small logistics companies in China use artificial intelligence route optimization to get a leg up on delivering goods faster and more efficiently. Such success stories serve as a testament that adopting AI isn’t merely theoretical, but that it is already producing results.
My Experience Leading an SME Tech Team
Though many roughly conclude that tech startups are exempted from many of the challenges faced by SMEs, I got a clear understanding through my experiences working in tech organizations and serving as the CTO in one of the companies, where I was saddled with the responsibilities of leading the technical department of the organization.
The company’s vision is clear; to create digital solutions across all sectors. So, at some point, I came up with the idea of having artificial intelligence (AI) and machine learning (ML) run some features in both our existing and the newly developing software.
Painfully, my idea and the processes I’d already outlined faced difficulty in scaling through, but in the end, I was able to convince my team and progress to the management team.
The cost implications were the bone of contention for both the management team and the board of directors, and it took lots of sleepless nights, reaching out to key members of the management team and board for detailed explanations, highlighting the long-term financial benefits to the company and how the success of the implementation will greatly impact our brand and also serve as our unique selling point (USP).
Eventually, we got approval, and funds were released for execution and success was achieved at the end.
Our customers were happy leveraging on the new technologies of AI and ML through our software, the sales team was happy because the new upgrade provided our software with a grounded selling point to market our products and the management team were equally happy because the whole progress means more financial benefits to the company.
So, while SMEs in other sectors face financial, team resistance, rejection and other challenges, startup fintech too are not exempted from similar challenges, despite been the innovator and promoter of the innovations.
The Road Ahead to Untapping AI Potential for SMEs Being AI-ready will require ecosystem approach, which involves that:
• Governments will have to establish proper policies, infrastructure and financial incentives.• Private sector actors should establish inexpensive, adaptable AI offerings for SMEs.
• The next generation of entrepreneurs and workers need to be AI-literate, and school systems should plan for that in their curricula.
• SMEs do need to be “smart” and flexible to reinvent themselves and transform in a manner that harnesses AI not as a risk but as the key to growth.
If these efforts connect, entrepreneurs and economies – small and large alike will not just survive, but prosper, with inclusive prosperity for all.
The winners among SMEs in an evolving world economy are those who responsibly apply AI to survive the volatility in business and become the torchbearers for the future of business themselves.
The lesson here is simple: in the age of digital disruption, AI isn’t a survival tool, it’s the bridge from tools to enrichment.
Conclusion
In the current constant disruption economy, SMEs cannot afford to be left behind in the digital adoption.
Artificial intelligence will be a force multiplier for small businesses, changing the way that they do business, competing and creating value within their nations’ economies.
The stark message from global business leaders and politicians is: AI is not just a tool for survival – it’s the means through which small businesses can thrive in a global marketplace.If adopted in a responsible way, AI can help SMEs unlock opportunities, present themselves as insurers of risk as well as drivers of economic resilience and innovation for decades ahead.
