America's small businesses showcase remarkable diversity in productivity across various sectors. Although U.S. MSMEs hold their own in comparison to those in the United Kingdom, Japan, Germany, and Italy in numerous aspects, they notably lag behind in mining, transportation and storage, and administrative services. The productivity ratio of MSMEs in relation to large companies also fluctuates by sector, with the mining sector presenting the most significant gap, followed by information and communications technology and manufacturing. On the contrary, MSMEs in administrative services are almost as productive as their larger counterparts.

The Case for Collaboration

To stimulate more substantial growth, both large and small businesses should delve into mutually advantageous partnerships. Crafting the appropriate economic circumstances can facilitate the prosperity of both, especially considering that all large companies once started as small enterprises. Large companies can aid smaller ones in obtaining essential competencies, while small companies can serve as customers, suppliers, and fountains of innovation for larger firms. This symbiotic connection has the potential to enhance overall productivity across most sectors.

Supply Chain Partnerships

Collaborative supply chain relationships bring forth benefits for both parties. Large companies acquire resilience and flexibility, while MSMEs build expertise, human capital, and market access. Take Toyota, for instance. It has collaborated with its suppliers for over 30 years, imparting knowledge in areas such as demand planning, cost reduction, and management. IBM's Supplier Connection initiative connects small suppliers with large businesses, enabling them to seize new opportunities. Studies indicate that 70% of small businesses in New York witnessed an increase in their revenue within two years of joining a corporate supplier base. Large companies can also advocate on behalf of small suppliers to secure more favorable financial terms, as demonstrated by DuPont's efforts in Colombia.

Vibrant Business Clusters

Regional networks composed of large and small companies, similar to those in Silicon Valley, California or Grand Rapids, Michigan, foster mutual growth. Small companies benefit from the concentration of capital and talent, while large companies gain from the innovation and entrepreneurial spirit of smaller firms. The Sacramento agricultural technology cluster serves as an excellent example, building upon the area's strengths in both agriculture and technology. Start-ups like Scout thrive in the local ecosystem of research labs and expertise. AgStart, a nonprofit organization, provides lab equipment and incubation services, assisting more than 20 start-ups. Small businesses also gain better financial access through acquisitions, venture capital, and public grants.

Sector-Wide Infrastructure

Enhancing digital data and financial infrastructure can have a substantial impact on productivity. An open data framework enables financial institutions to utilize nontraditional data sources for credit underwriting, benefiting underfinanced MSMEs. For instance, incorporating utility data led to a 20% increase in loan approval rates for customers with limited credit history. Policymakers can promote technology adoption, as seen in Singapore's GoBusiness initiative, which offers financial support to businesses adopting tech solutions. Establishing a training ecosystem, like the U.S. Manufacturing Extension Partnership (MEP), can assist MSMEs in accessing technical and strategic expertise. MEP has interacted with over 36,000 small manufacturers, creating or retaining more than 100,000 jobs and generating significant economic returns.Greater collaboration among MSMEs can elevate productivity through the sharing of knowledge, mentoring, and collective investments. By nurturing these relationships, businesses can forge a more resilient and innovative economy. For example, small businesses in the construction sector can reap the benefits of shared resources and expertise to enhance productivity, especially in the face of labor shortages and the escalating demand for construction services due to the growing need for infrastructure and renewable energy projects.Closing the productivity gap between small and large businesses in the U.S. is of utmost importance for bolstering the nation's economic competitiveness. By fortifying networks and interactions, both large and small businesses can flourish. Strong local ecosystems and network effects play a crucial role, especially for minority-owned businesses, as evidenced by my colleagues' research on Latino-owned small businesses. Large companies can offer vital support in technology, human capital, market access, and finance, while small businesses can contribute to innovation and flexibility. Successful models of collaboration offer valuable lessons and avenues for mutual growth.