Industry Minister Says Junior Stock Market Right for Small Enterprises

The Junior Stock Market in Jamaica presents a tremendous opportunity for small enterprises to raise capital, in order to expand their businesses and make an even greater impact on employment and economic development.

This was stated by Minister of Industry, Investment and Commerce, Hon. Anthony Hylton, when he addressed the Women Business Owners/University of the West Indies Seminar, at the Guardian Life Auditorium, New Kingston on May 30.

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Under the theme: 'Going Public – learn how to raise capital on the Jamaica Stock Exchange', the seminar brought together over 50 female business owners from a wide spectrum of enterprises, mostly micro and small businesses.

Listing on the stock exchange, referred to as an ‘initial public offering’ (IPO), has many advantages as well as disadvantages.

"An IPO represents a significant stage in the growth of many small businesses, as it provides them with access to the public capital market and also increases their credibility and exposure. Becoming a public entity involves significant changes for a small business, including a loss of flexibility and control for management.  In many cases, however, an IPO may be the only means available to finance the growth and expansion of the business,” the Minister argued.

He posited that the primary advantage a small business stands to gain through an initial public stock offering,is access to capital, which “does not have to be repaid and does not involve an interest charge."

“The only reward that IPO investors seek is an appreciation of their investment and possibly dividends. Besides the immediate infusion of capital provided by an IPO, a small business that goes public may also find it easier to obtain capital for future needs through new stock offerings or public debt offerings,” explained Mr. Hylton.

A related advantage of an IPO is that it provides the small business founders and venture capitalists with an opportunity to cash out on their early investment. “Those shares of equity can be sold as part of the IPO, in a special offering, or on the open market some time after the IPO. However, it is important to avoid the perception that the owners are seeking to bail out of a sinking ship, or the IPO is unlikely to be a success,” the Minister cautioned.

“Yet another advantage of going public involves the ability to use stock in creative incentive packages for management and employees. Offering shares of stock and stock options as part of compensation may enable a small business to attract better management talent, and to provide them with an incentive to perform well,” he advised.

The Minister observed that in this regard, employees who become part-owners through a stock plan may be motivated by sharing in the company's success.

He also noted that an initial public offering provides a public valuation of a small business, which means that it will be “easier for the company to enter into mergers and acquisitions, because it can offer stock rather than cash."

With respect to operating a small business, the Minister observed that starting and running a small business was not without many challenges.  "The small business owner must cope with the normal operational challenges of running a business, but in addition he or she must address the host of impediments that are particular to the small business setting,” he explained.

The Industry Minister observed that in many ways, small business management requires “an entirely different kind of skill-set and experience, compared with the skill-set and experience that are needed in the medium and large-scale business environment."

"The ever present challenge of sustaining capacity in operations, cash flow and marketing assumes dramatic proportion in the small business setting. Managerial success in the small business operations require diverse capabilities spread across the fairly narrow staffing complement that exists in a small business,” he pointed out.

Observing that innovation is crucial to building and maintaining a competitive platform, the Minister said that the current business environment is characterised by short product life-cycles and changing markets, due to rapid obsolescence resulting from technological change. In this context, innovation is indispensable for the effective management of the resources of the small business and building and maintaining a competitive platform, he added. 

"Innovation is the lifeblood of a capitalist economy; it drives productivity, creates new consumer needs and pushes the general industry standards forward. The small business must therefore adapt to the changing world, or it will not survive,” he declared.

By Allan Brooks, JIS Senior Reporter