Government learns small can be beautiful

Small business in New Zealand has been called the "Cinderella sector".

The reasoning is that, like Cinderella, it does a lot of the work but nobody pays much attention to it.

But small businesses - or small and medium enterprises (SMEs), as they are often termed - are starting to be noticed. There is no sign yet of a fairy godmother, but information and communications technology, along with creative industries such as design, are receiving special attention in the Government's innovation strategy.

Minister for Small Business Paul Swain says such enterprises make up a major part of the economy.

"According to Inland Revenue figures, self-employed individuals and businesses which employ five or fewer staff contribute around 43 per cent ($3.03 billion) of Government income tax revenue."

Officially, a small enterprise provides the equivalent of five or fewer full-time jobs and a medium-sized enterprise six to 19 jobs. In reality, both fit under the broad banner of small business. Industry New Zealand, the Government agency that oversees small business growth, publishes an annual survey of SMEs.

The most recent, SMEs in New Zealand: Structure and Dynamics, was published in June and confirms the importance of small businesses.

They make up 96.4 per cent of all enterprises and 97.3 per cent of private sector businesses. They provide 49.9 per cent of the full-time equivalent private sector jobs, and 42.4 per cent of the entire jobs market.

Enterprises with up to five full-time employees, or the equivalent, include a battalion of sole-traders working alone, often from home. They make up 84.2 per cent of all enterprises, 86.9 per cent of those in the private sector and provide 23 per cent of all jobs.

In all, there are 274,570 of these small businesses with most - 267,170 - providing five or fewer jobs.

The sector provides 595,230 jobs, says the Industry New Zealand report.

For some young entrepreneurs, a small business is seen as a step to great riches.

For others, small business was not so much a calling as an opportunity that arose from big corporates contracting out work, or a career move thrust upon them when they were made redundant.

They are most predominant in the property and business services sector, where they make up 99 per cent of the operators.

Businesses with fewer than 20 employees make up 98 per cent of the construction, finance, insurance and communication sectors.

Given our size and the fact that New Zealand was built on the labours of small family farm enterprises, it is hardly surprising the country has a high proportion of small businesses.

What is surprising, some say, is that for a long time politicians have not paid proper attention to a sector that accounts for 39 per cent of the economy. Politicians have started to realise that small can be beautiful and that they need to provide help.

Throughout the late 1980s and early to mid-1990s, the common view in the Government was that if small companies were good enough, they would survive without help.

That sort of thinking softened in the late 1980s as evidence grew that new jobs would not come from big corporates but burgeoning small companies.

As a result, a system is now in place to provide information for small businesses.

Alan Cameron, head of Massey University's enterprise development programme, says support for small businesses still lags way behind that of other countries such as Australia and Canada.