SMEs are often the main driver for a country’s economic growth. However, as the number of SMEs increases, competition increases, which then results in a decrease in prices, customer base, or both. This in turn will erode existing profits, creating less incentive for people to start SMEs. This dynamic is captured by balancing feedback loops where the greater the number of SMEs, the greater the competition, resulting in a slower rate of growth for SMEs . To counter the increasing competition, firms can lower prices, increase promotion of their product, improve their product, add new distribution channels, and/or improve their internal processes The challenge is to counter competition when the firm still has the financial resources to do so. Otherwise, once the pressure of competition sufficiently erodes the SME’s profits, it will no longer have resources to counter the competition and will have to exit the market.

Foreign firms in both the import and export markets further add to competitive pressures, especially if they react faster to improve their product, process, promotion, or distribution channels. This is the problem of the Digital Divide. When firms in developed countries adopt ICT, firms in here lose out on the competition. This in turn can slow the growth rate of SMEs and hurt the economy as a whole.

ICT can thus play a very important role because it can help SMEs both create business opportunities and combat pressures from competition. Appropriate ICT can help SMEs cut costs by improving their internal processes, improving their product through faster communication with their customers, and better promoting and distributing their products through online presence. In fact, ICT has the potential to improve the core business of SMEs in every step of the business process uses Porter’s value chain to summarize various ways that ICT can benefit a firm.

In regions where SMEs are only starting to adopt basic ICT, obtaining a fixed or mobile phone line can help their business. It can replace the time and costs necessary for face-to-face communication. In regions where SMEs already have basic ICT, adopting more advanced ICT still brings enormous benefits. Advanced communication technologies such as email can help firms communicate faster and cheaper with both its suppliers and clients. Advanced ITs such as ERP software can capture cost savings. Beyond cost savings, SCM software can also help increase productivity, efficiency of inventory controls, and increase sales through closer relationships and faster delivery times.