Green SMEs in Developing Countries: Challenges and Opportunities

With ‘green’ being the buzzword across all industries, greening of the business sector and development of green skills has assumed greater importance in the developing world. Around the world, SMEs, startups and entrepreneurs are playing a vital role in the transition to a low-carbon economy by developing new green business models for different industrial sectors. Infact, young and small firms are emerging as main drivers of radical eco-innovation in the industrial and services sectors.

What are Green SMEs

A judicious exploitation of techno-commercial opportunities and redevelopment of business models, often neglected by established companies, have been the major hallmarks of green SMEs. For example, SMEs operating in eco-design, green architecture, renewable energy, energy efficiency and sustainability are spearheading the transition to green economy across a wide range of industries. The path to green economy is achieved by making use of production, technology and management practices of green SMEs.

Categories of Green Industries

Environmental protection	Resource Management
Protection of ambient air	Water management
Protection of climate	Management of forest resources
Wastewater management	Management of flora and fauna
Waste management	Energy management
Noise and vibration abatement	Management of minerals
Protection of biodiversity and landscape	Eco-construction
Protection against radiation	Natural resource management activities
Protection of soil, groundwater and surface water	Eco-tourism
Environmental Monitoring and Instrumentation	Organic agriculture
Research and Development	Research and Development

Key Drivers

The key motivations for a green entrepreneur are to exploit the market opportunity and to promote environmental sustainability. A green business help in the implementation of innovative solutions, competes with established markets and creates new market niches. Green entrepreneurs are a role model for one and all as they combine environmental performance with market targets and profit outcomes, thus contributing to the expansion of green markets.

Some of the popular areas in which small businesses have been historically successful are renewable energy production (solar, wind and biomass), smart metering, building retrofitting, hybrid cars and waste collection & recycling.

As far as established green industries (such as waste management and wastewater treatment) are concerned, large companies tend to dominate, however SMEs and start-ups can make a mark if they can introduce innovative processes and systems. Eco-friendly transformation of existing practices is another attractive pathway for SMEs to participate in the green economy.

Major Challenges

Green SMEs in developing countries has been growing steadily, albeit at a slower pace than anticipated. One of the major obstacles has been poorly-designed regulation. Lack of clear policy direction and enablers are hindering growth and competitiveness of green SMEs. Product market regulations which stifle competition pose a big hurdle to SMEs operating in renewables, energy, environment and sustainability sectors.

For example, state-owned companies in the Middle East have almost complete monopoly in network industries which have large environmental impacts (electricity/energy sector) or control strategic environmental services (water and waste management sector).

Restructuring of the SME sector in developing countries is essential to allow small businesses to grow and prosper, thus catalyzing a steady transition to a green economy. SMEs account for vast majority of production units and employment across the developing world. Needless to say, participation of SMEs is essential in the transition to a low-carbon economy, thus paving the way for greening the business sector and development of green skills across all industrial segments.

Green SMEs require strong government support for growth, which is unfortunately lacking in many developing nations. The most pressing challenges are

1. Increasing disconnect between education and market needs and
2. Disorientation of research and development from industry priorities and trends.

Government agencies, business associations and NGOs need to play a bigger role in advocating more streamlined priorities for green growth across all industrial sectors. Green SMEs face significant barriers to entry despite their key role in developing locally appropriate technologies and eco-friendly business models.

Conclusion

Policy interventions for supporting green SMEs in developing nations are urgently required to overcome major barriers, including knowledge-sharing, raising environmental awareness, enhancing financial support, supporting skill development and skill formation, improving market access and implementing green taxation.

In recent decades, entrepreneurship in developing world has been increasing at a rapid pace which should be channeled towards addressing water, energy, environment and waste management challenges, thereby converting environmental constraints into business opportunities.