Some of the contents of this article are excerpts of an address delivered at the ESCAP Commission Meeting in Bangkok, Thailand.

“Innovation is the specific instrument of entrepreneurship, the act that endows resources with a new capacity to create wealth”

– Peter Drucker, globally renowned Management Guru

i) SME/MSME Sector & Global Economy

Be it a developed or advanced, developing or least developed economy, MSMEs (micro SMEs) and SMEs, are considered as the backbone of a given economy. In G-7 nations, similar to South Asia, the SME sector contributes approximately 60% of the GDP and employment, thus manifesting the seminal and pivotal nature. The Governments’ of developed and rapidly emerging economies, consistently and vehemently foster, nurture and facilitate their MSMEs/SMEs to become mid-size corporates, large corporates, regional players to global players. This is simply because that they are convinced and have patently demonstrated the fact, along with entrepreneurial ecosystem and innovations, some of them could be “Fortune 500” of tomorrow.

When one examines two of the major regional blocs that Sri Lanka is an active member i.e. SAARC and BIMSTEC, it is discouraging to note both these mega blocs consisting 8 and 7 members respectively, still lag behind most of the other regional blocs and nations. Of course, India plays an instrumental and influential role in both these blocs, thus being the largest by far as well as the most dependable and endowed anchor. The members of both these regional blocs have an average GDP per capita of less than USD 3,000 despite having a total population of two billion in SAARC and 1.8 billion in BIMSTEC. This population of each bloc is close to 25% of global population yet it contributes less than 5% of global GDP of USD 117 trillion in 2025. The average global GDP per capita is around USD 14,300 (global GDP/total population), whereas all these members are much lesser than the global GDP per capita.

The closest is actually Thailand, a founding member of BIMSTEC, having a GDP per capita of USD 7,900. The total trade of each of these two blocs is less than USD 2 trillion annually, whilst global trade is around USD 36 trillion, thus contributing only around 5% with a population of nearly 25%. Sri Lanka is no exception to this calibration and to bridge this lacuna or gap, these nations need to move up or ascend the value chain. In other words, need to create a dynamic robust entrepreneurial culture and eco system leading to innovations including digitalization to elevate these SMEs to become mid to large corporates.

This course of action could markedly enhance, including high valued exports of Sri Lanka, on medium term, to over USD 45 billion annually. Imagine the total exports of Sri Lanka in 1980 was around USD 1 billion and it increased only 18 folds over the last 45 years. It is indeed heartening and reassuring to note that the Government, today, is extending generous benefits, facilitation, assistance and privileges to MSMEs/SMEs, which has been dolefully neglected during the past several decades. What is most needed for MSMEs/SMEs, including in Sri Lanka, apart from the Governments assistance is to have an entrepreneurial culture not entrenched necessarily on “safety nets” but “trampolines”. These were the words echoed by the current President of Singapore, meaning a milieu to bounce back when fallen or when confronted with insolvency.

ii) Embryonic Potential and Dividend of SME/MSMEs

It may be apposite and prudent to place on record that not many nations in the recent history have developed without developing and fostering the SME sector. This is particularly stated in the context that the largest corporates in the world known as “Magnificent – 7” or now as “Mag – 10 ” including Broadcom, AMD and Palantire began as MSMEs (employing less than 9 employees). Today, these 10 corporates, surprisingly, directly or indirectly engaged in IT, digitalization, AI and state-of-the-art technology are having a combined market capitalization in excess of USD 24 trillion with an average age of around 35 years. Since all these 10 corporates are based in the US, its market c is much larger than the GDP of China or EU or 80% of the US, thus projecting its technological, financial and economic as well as political prowess on global stage.

Similar nations in the region of South-East Asia and East-Asia were much behind that of Sri Lanka in 1980s vis-à-vis exports but they succeeded in ascending the value chain over time, thus increasing their exports meteriocally. These nations focused intensely on high-end services and manufactured products, which in turn, wooed and attracted global players to those countries. This was mostly by committing FDIs and FIIs. One telling and potent narration was since Vietnam opened up the economy in late 1980s and joined the ASEAN in 1995, then some of the largest corporates, seriously, considered FDI as Samsung has invested well over USD 23 billion and exported products approximately USD 60 billion from Vietnam in 2025. This course of transformation did create significant employment and advent of state-of-the-art technology, in all spheres, to the country.

iii) Digitalization

This region of South-Asia, including Sri Lanka, it is critical not to miss out to embrace and espouse the 4^th Industrial Revolution (4^th IR) and now called 4^th IR plus, if not would, literally and metaphorically, “miss out” the future. Since Sri Lanka now has an exclusive Ministry of Digital Economy, it is indispensible to extend judicious attention when transcending from non-digital to digital economy be it an SME, corporate or nation. As George Westerman, a highly respected pioneer on Digitalization from MIT stated, quote “When digital transformation is done right, it is like a caterpillar turning or metamorphosing to a butterfly, but when done wrong, all you have is a really fast caterpillar” unquote. Recent Government participation at the “AI Impact Summit 2026″ at the highest level of Government in New Delhi was a patent reflection of the significance placed by the country.

iv) Significance of Trade

With regard to Sri Lanka, it is most opportune and providential to synergize and leverage the SMEs, entrepreneurship and innovation including digitalization to markedly and appreciably boost trade (exports), thus leading to creation of employment and the standard of the economy and living, amongst others. As Benjamin Franklin, one of the Founding Fathers of the US, stated 250 years ago, quote “No country was ever ruined by engaging in trade” unquote. Today, this sagacious and politic statement is even more true than then.

Writer is a former career Ambassador, Visiting Professor & Examiner on International Economics, Board Member and Strategic Advisor. He earned the MBA from San Francisco State/University of California and PhD from Indian Institute of Technology (IIT) Delhi and is a Senior Fellow at Harvard. He could be contacted on mendissaj24@gmail.com

By Prof. A. Saj U. Mendis, PhD