When Jack Ma started his humble business in 1999, out of his shabby Hangzhou apartment, not one of his 18 team members ever imagined it would become a global e-commerce giant 15 years later. When Alibaba went public on the New York Stock Exchange in 2014, with a market valuation of more than $200 billion, it broke a historical record on Wall Street. Alibaba is but one of many cases of successful growth among Chinese small and medium-sized enterprises (SMEs). Xiaomi, for example, a 2010 start-up, has already achieved annual sales of more than ¥30 billion. In only three years, it has become the third-largest mobile phone maker in the world, trailing only Apple and Samsung.
 
Engines of growth
Economic growth is a ubiquitous challenge for all countries throughout the world, and it is also a prioritised item on Turkey’s G20 agenda. The challenge, however, is not stimulating ‘growth’ per se, but rather in the ways that growth can be sustained. Even in the fastest-growing countries, such as China, this challenge is tremendous. Overconsumption of non-renewable energies, growth at the expense of pollution and competition based only on inexpensive labour costs may work in the short term, but the price will be paid by future generations. Therefore, the ability of SMEs to generate ‘creative destruction’, as Joseph Schumpeter suggested decades ago, may be the key to breaking this cycle.
 
The participation of SMEs in innovation and sustainable growth is certainly important to improving economic inclusiveness. However, the impact of SME innovation can go beyond that. SMEs not only make up the majority of the total number of firms in the world, and conduct innovations in many areas that larger corporations cannot cover; they also have a stronger motivation to innovate in the first place. By nature, innovations – especially the fundamental ones – are changes in existing product and market structure. Because large firms typically benefit more from current market dynamics, they tend to be less motivated to change the status quo. Kodak, for example, was a classic case of a large corporation in a monopolistic position that resisted innovative digital technology due to a conflict of interest with its traditional film business. It eventually went bankrupt.
 
Innovative financing
However, the success of SMEs in innovation and economic growth, also requires financial innovation, especially in emerging and developing countries. While the limited number of traditional commercial banks are typically the dominant funding source in these countries, the high-return-but-high-risk nature of SME innovations demand more diversified financing sources, such as national and regional equity and bond markets, angel and venture capital, private equity funds and internet financing, including peer-to-peer online lending and equity crowdfunding. For some traditional commercial bank loans, government guarantees may also need to be in place, given the higher risks that usually surpass the acceptance level for financial institutions.
 
By auspicious coincidence, in 2016, the G20 summit will be hosted by China, and likely held in Hangzhou, the birthplace of Alibaba. Just as the e-commerce giant has been an aspirational motivator convincing Chinese start-ups of their potential in the global market, the 2016 summit will assure SMEs worldwide that their tremendous innovative activities and strategic contributions to the sustainable growth of the global economy are well recognised by the world leaders, and future growth is high on the G20 agenda.