In Which Sectors are Small Businesses Most Productive?

The productivity of micro, small, and medium-sized enterprises (MSMEs) reflects a balance between scale and specialization. Larger companies, regardless of the industry, benefit from economies of scale and, predictably, show higher levels of productivity. However, MSMEs in administrative services are an exception, outperforming their larger counterparts. This unique outlier highlights that smaller businesses can thrive in specific contexts, particularly when agility and close customer relationships are key drivers.

In hospitality, MSMEs are second only to administrative services in productivity, operating at about three-quarters the level of large businesses, and they outperform counterparts in industries such as utilities, manufacturing, and ICT. Flexibility is crucial for smaller accommodations, which must swiftly respond to evolving traveler preferences and a changing competitive environment. Strong ties of independent hotels to local communities allow them to offer personalized experiences that resonate with travelers, who seek authenticity.

On the flip side, smaller players in hospitality are adept at automating and outsource functions, such as HR & payroll, channel management & digital distribution, tech support & IT, security services, etc. Certain aspects of business, such as marketing and distribution require global scale, while other aspects, like guest experience, are most valuable when personalized.

Hospitality MSMEs may be lacking in access to finance or global brand recognition, but they excel in leveraging local labor and minimizing overheads, resulting in efficient operations that make them indispensable to both local and national economies.