Support for SMEs

Promotion of small and medium-sized enterprises

Small and medium-sized enterprises (SMEs) form the backbone of the economy, not only in Germany, but also in many developing countries and emerging economies. They provide the majority of jobs, and their high degree of flexibility enables them to respond extremely swiftly to changes on the market and in their business environment. For these reasons, supporting SMEs is part of many cities' economic development efforts.

Around the world we can see many different forms of support, and a wealth of good practices. The "foodRegio" - a food sector network was founded in the German city of Lübeck in 2006, with a view to expanding the area's traditional food sector by providing existing companies with intensive support services and attracting new food businesses to the area. To promote business cooperation and harness synergies, the network has set up seven working groups on training, logistics, machinery and plants, production optimisation, qualifications, product development and innovation, and procurement. The working groups also have the support of research facilities. "foodRegio" is so successful that in January 2014 it was named one Germany's top five innovative and efficient regions by the German Federal Ministry for Economic Affairs and Energy. A total of 47 companies from throughout northern Germany have now signed up, representing the entire value chain.

As this example demonstrates, it is important to fully understand the concerns of companies and the branch as a whole in order to keep companies in a city and help them grow and create new jobs. It is important to actively seek contact with local businesses and to facilitate the exchange of information and cooperation with and among these businesses. This is the only way to work with the companies to discuss development prospects at the location in question, identify strengths, make the most of synergies, and further develop the advantages offered by the location.

In developing countries, informal urban sectors are generally dominated by micro-enterprises. Closer links between formal and informal economic activities benefit both. Small and medium-sized enterprises, for instance, can farm out work to informal micro-enterprises should they suffer capacity problems, allowing them greater flexibility in their planning. The micro-enterprises benefit not only from the contracts, but also from the know-how transfer that generally accompanies the contract. Support measures in developing countries should therefore also take in the informal sector. Such measures include dismantling legal barriers that prevent access to the formal sector and reducing legal uncertainty. It is also vital to raise productivity and product quality by improving production procedures, transferring appropriate technology, offering training and raising awareness of environmental and social standards. The creation of spaces for informal production and markets can help reduce environmental problems, and can even become an integral part of participatory urban planning.

With the support of the German-Philippine SME Development for Sustainable Employment Programme (SMEDSEP), the cities of Bacolod and Ormoc in Visaya Region have managed to cut the time required to register new businesses from 17 to 2 days, by cutting red tape. These two successful pilot measures have now made it possible to simplify administrative procedures in 124 towns and municipalities in the region, thus encouraging business start-ups and improving the regional business climate as a whole.

To simplify administrative procedures and create a central point of contact, many cities set up a service centre for businesses and investors. This allows them to deal with the concerns of businesses in consultation with the other sectoral offices involved. Central contact officers in business development provide access to all other administrative units. It is not uncommon for cities to contract local economic development associations to provide this service. One example is hannoverimpuls, a joint economic development association founded by the German city of Hannover and the Region of Hannover. Local contact officers provide extensive support to businesses helping them look for a suitable location, initiate cooperation arrangements, recruit skilled staff, and access financial advisory services. They also support business start-ups.

Cities are also a key client for many businesses, so that transparent tendering and contracting procedures, which increasingly incorporate environmental and social standards (corporate social responsibility), are also vitally important in the field of business development. In developing countries and emerging economies in particular, the use of IT systems has led to the development of model projects, which have done much to help stamp out corruption and enhance the transparency and efficiency of the actions of the authorities.

Other instruments that can be used to support SMEs include help in applying for public funding, fostering innovation and advising on business location

Practical example

Customised pandemic stimulus packages for local businesses


Fast, competent and geared to business needs: Eager to assist local businesses during the COVID-19 pandemic, the…