SMEs should embrace strategic innovation at the earliest: ACCA

SMEs face a perilous existence and remain among the weakest equipped to face an increasingly uncertain future

• Rising costs amidst global economic shifts a top concern for 58% of SMEs, an ACCA study reveals
• Renewed focus on talent acquisition, skill development, and retention strategies needed

As the recent back-to-back crises have left numerous SMEs in Sri Lanka fighting for their existence, with many having to close their doors permanently, the Association of Chartered Certified Accountants (ACCA) urged this segment to embrace strategic innovation at the earliest. 

By addressing these challenges head-on, SMEs can unlock new growth avenues and strengthen their market position, the ACCA said in the findings of its new study.
The study ‘SMEs: Business challenges and strategic innovation opportunities’ revealed three main challenges: escalating costs, workforce and talent management, and the evolving ESG (Environmental, Social, and Governance) reporting agenda.

The report emphasises the need for tailored strategies that can help SMEs navigate the evolving business landscape successfully, including embracing innovation, optimising resource management, and staying ahead of regulatory changes.

“These businesses have long been a source of aspiration for many Sri Lankans. However, they now face daunting challenges and are among the least prepared for a future filled with uncertainties,” ACCA Head of South Asia Nilusha Ranasinghe said.

The report pointed out that SMEs face significant increases in utility prices and supplies, with 58 percent of businesses highlighting higher costs as their top concern. A quarter of respondents said utility prices had surged by over 20 percent.  This significant challenge underscores the need for effective cost management and innovative financial strategies.

The study reveals a notable rise in job vacancies and challenges in filling specific roles. Increased job vacancies for professional workers were reported by 31 percent of businesses and 14 percent were unable to find suitable candidates for clerical workers, technicians, and service and sales workers. This calls for a renewed focus on talent acquisition, skill development, and retention strategies.Further, nearly 50 percent of SMEs are now required to provide ESG information, highlighting the growing importance of sustainable practices. However, the report identifies a gap in the ability to generate and manage this data, presenting both a challenge and an opportunity for SMEs.

The roadmap recommends the adoption of digital technologies, enabling SMEs to streamline operations, reduce costs, and enhance productivity. It also emphasises the importance of embracing sustainable practices, not only as a regulatory compliance measure but also as a strategic move to attract new business and customers. 
It also encourages SMEs to develop and retain top talent through continuous learning and development opportunities. SMEs form the backbone of Sri Lanka’s economy, accounting for 75 percent of all businesses, contributing to 20 percent of exports, 45 percent of employment, and generating over half of the Gross Domestic Product (52 percent).