Executive Summary
Small and medium scale enterprises (SMEs) have become play an integral determinant in the growth and development of the economies of many nations. In this paper, the impact that SMEs have on individuals, nations and the world at large have been discussed. The paper has also focused on the theory and research that is available to SMEs. It has also focused on the models that have been advanced to support the operations SMEs.
A critique of the available literature was also conducted. From this analysis, it was found that the government plays a critical role in the incorporation and sustainability of SMEs in the short run and in the long run by providing financial, technical and technological assistance. Thus, with its findings, this paper clearly highlights the importance of SMEs in the process of economic development and the role played by the government in achieving this goal.
Introduction
The goal of any business entity, organization or government is to ensure that its operations are sustainable in the short run and in the long run. To achieve this, scholars have come up with different strategies and plans. China for example, is a nation that has been exhibiting positive economic growth for the last several decades (Kameyama and Kobayashi, 2010).
The country is renowned by the key role that it plays in technological development. However, to ensure that its economy is sustainable in the long run, the Chinese government has put a lot of emphasis from the beginning of the 21st century with the establishment of small and medium enterprises (SMEs) by its citizens and foreign investors as well (Kameyama and Kobayashi, 2010).
The Chinese government views SMEs as economic investments that not only enable their economies to grow and become sustainable but as means through which their nations can increase the rate of employment as well as productivity. It is as a result of this that several studies have been undertaken to determine the effectiveness of SMEs in economic development.
This paper will therefore focus on literature that surrounds SMEs. It will expound on the theories, models and research that surround the incorporation and management of SMEs. The paper will take a further step and critically analyse several articles that expound on the theories and models that it presented. This will create a deeper understanding of operation and management of SMEs in China and the world at large.
Theories and Research on SME Development
According to Berry, (2009), the main aim of SMEs is to achieve a given objective in the economy of a given nation. It is due to this fact that the burden of developing and sustaining SMEs lies in the hands of the government. The modern world is experiencing many challenges.
Unemployment, increased in demand for goods and services, increased production costs and the fluctuation in the world economy are but some of the challenges that the world is facing. To overcome these challenges, scholars have come up with different strategies, SMEs being one of them.
The Chinese regards SMEs as a basis in which an industry can be developed from (Kameyama and Kobayashi, 2010). However, it is essential to note that most of the governments that use or have used SMEs as avenues of developing industries are based developing nations.
China is a nation that has highly benefited from this concept. In terms of industrial development, China can be regarded as a latecomer. However, the progress that it has made is highly tremendous. The nation has become one of the leading manufacturers and exporters in the world.
However, these industries have developed from humble backgrounds as SMEs. However, due to the effective reforms that the nation had on public policies and development, these SMEs actually grew to become leading industries in the nation, Asia and the world at large (Haan, 2004). As a leading industrial nation, most of the manufacturing firms and industry in China were state owned several decades ago (Haan, 2004).
However, with the emergence and application of the SME concept, private industries slowly started to grow. Currently, the level of privatization in the Chinese industrial sector is quite high. This has highly attracted foreign investment in the nation. Privatization is an essential step towards achieving economic sustainability. Thus, in China, SMEs have played critical role in the industrial success that the nation is currently enjoying.
Through privatization, SMEs have always been regarded as avenues through which the industrialization reformation process can be based upon. This process has been essential, as it has increased the level of innovation and efficiency in the Chinese economy and industrial sector (Kameyama and Kobayashi, 2010).
As a result of privatization, the level of production in almost all segments of the economy has highly increased. Consequently, the private owned firms have increased the level of employment as well as the living standards of its employees. These factors play a critical role in the growth of the GDP of China and any other nation that uses this strategy.
SME Development Model
However, most of the private owned firms have grown into large-scale firms. As a result, these firms require highly skilled and qualified personnel to run their organizations. Therefore, the staff retention rates in such firms are quite high. This phenomenon has resulted in an increase in unemployment especially for the unskilled individuals as well as the members of the upcoming generations. Thus, to solve this problem, most government use SMEs to absorb the unemployment pressure that they might be facing.
However, to achieve these goals and to ensure that SMEs are sustainable in the short run and in the long run, it is of the essence that the Chinese government supports these projects with effective tools (Kameyama and Kobayashi, 2010). As Kameyama and Kobayashi (2010) asserted, these tools are essential for the growth and development of SMEs in any economy. These tools are always regarded as incentives that enable SMEs to achieve their set goals and objectives as well as the economic goals of a given nation.
For instance, the economy of Japan is driven by SMEs as they account for 99% of the registered companies in the nation and employ over 78% of the labour force. However, to ensure that the operations of SMEs are sustainable in the short run and in the long run, the government through its Ministry of Economy and Industry has been developing incentive plans that will ensure the sustainability of SMEs in the nation in the short run and in the long run (Kameyama and Kobayashi, 2010).
Most SMEs require financial support to start up. However, the individuals who start up these ventures usually do not have access to the capital that is required to start up such businesses. To overcome this challenge, the Japanese government has proved entrepreneurs with funds in the form of direct investments as well as indirect investments (Kameyama and Kobayashi, 2010).
The Chinese government prefers to provide indirect forms of investments to prospective entrepreneurs. The government has lending scheme that are supported by local as well as international banks and financial trusts. These schemes provide investors with the funds they might require to start up their businesses.
However, the access to these funds has not always been guaranteed. This is due to the tight qualifications and measures that have to be achieved for an individual to qualify for such a loan. Consequently, there has been a lot of biasness in determining the individuals who access these loans. Although many laws and legislations have been passed to ensure that there is equity in the disbursement of loans and capitals to commence businesses, these non-discriminatory policies have failed to be implemented fully in China.
Therefore, women find it difficult to source for funds to commence businesses unlike men. As a result, Chinese women use approximately one third of the capital that men use to commence their businesses (Nelson, 2006). However, women have ended being more successful in these businesses as compared to men.
Having capital to start up a business is a critical step in the process of developing a new venture into becoming successful. However, for such a venture to achieve maximum efficiency, it needs to be operated and managed in an effective and efficient manner (Nelson, 2006). A lot of studies have been conducted on managerial techniques that can be used to ensure that the operations of companies are effective, efficient and sustainable.
However, these practices have not been fruitful in the management of SMEs. Most of the individuals who manage large companies are highly skilled and qualified while the ones who run SMEs are not. Therefore, if such individuals apply rudimentary management techniques, the chances of such an investment being sustainable and profitable are minimal. Due to this fact, the Chinese government has come up with measures and techniques of overcoming these challenges.
In China for instance, the government assists the entrepreneurs in the SME industry by providing them with technical and financial assistance (Kameyama and Kobayashi, 2010). This is essential in setting up the business venture. At the same time, the government offers them with business creation assistance.
This scheme provides the entrepreneurs with the information and skills that they require to effectively run their businesses in regards to the industry in which they are operating in. Finally, the government offers the entrepreneurs with technological assistance. Currently, technology is effective in the running and management of any business entity. Therefore, with this information, entrepreneurs not only become successful in their businesses but also increase their expertise and skills are managers.
Other models have been developed by scholars to ensure that SMEs operate in an effective and efficient manner hence enabling them to achieve their set goals and objectives. In their paper (Kameyama and Kobayashi, 2010) advocated for the SD model. The aim of this model is to ensure that SMEs operate effectively regardless of the political, economic and social challenges that it might encounter. To achieve, the model is divided into two sub-models; the micro model and the macro model.
The micro model focuses on improving the overall management of an organization. Given the fact that most SMEs obtain their capital either from direct investments or indirect investments, this model focused on effective cash management. To achieve this, the model put a lot of consideration on cash flow and the effects it has in recruitment and training, manufacturing, marketing, financing and technological development.
The macro model on the other hand focused on the impact that SMEs have on the socioeconomic status of a given nation (Kameyama and Kobayashi, 2010). To achieve this, the model expounded on the effects that a given SME has on the industry in which it is operating in and the overall impacts that SMEs have in capital accumulation and on the GDP.
Critical Analysis
The literature that has been presented in this paper has laid a lot of emphasis on the importance of technology in the running and management of SMEs. For instance, most SMEs in China use e-commerce as their main method of marketing the goods and services that they produce. As Berry (2009) asserts, e-commerce is a term that is used to refer to the process of selling and purchasing goods and services over a variety of electronic systems (p. 237).
Examples of these electronic systems include the internet, computer networks and any other telecommunication network. This technological advancement has come about as a result of the massive advancements that are being experienced in the field of Information Communication and Technology (ICT). These advancements have made the manner in which individuals, organizations, societies, nations and the world at large operate.
Many firms all around the world use the e-commerce strategy to gain a competitive edge over their rivals in the respective industries that they operate in. It is due to this fact that firms should adopt and implement this change and innovation. This will not only enable them to gain a competitive advantage over their rivals but it will ensure that the organization is run in an effective and efficient manner (Boone and Kurtz, 2011).
In general, several barriers that have hindered the total application of e-commerce in SMEs. Some of these factors include resistance to change, the high costs that are required to adopt, set, and maintain the service, unavailability of relevant resources to support this system and the unsuitability of the concept in small businesses.
Due to the above factors, owners and managers of SMEs have always developed negative attitudes and perceptions towards the adoption of e-commerce in their businesses. This has greatly led to bigger business entities enjoying much of the benefits that accrue from e-commerce. Thus, more women are found in SMEs than in large business entities. Therefore, it is the men who benefit much more from e-commerce than their female counterparts.
Financial acquisition has also been an issue that was covered in the literature. Due to the fact that sourcing for funds to supporting SMEs has always been an issue, the Chinese government has come up with models that have played a critical role in the development and sustainability of SMEs.
These models have acted as incentives that motivate entrepreneurs to invest more in the economies of respective nations. However, the provision of financial support has always been met with several challenges. For instance, it has always been argued that it is always much easier for men to get access to financial assistance facilities as compared to their female counterparts. This is mainly due to the discrimination, especially on the lines of gender that is present in the world.
As it has been argued, men always have the preference of operating in large enterprises. Consequently, they have higher chances of securing financial support while operating SMEs. As a result of the gender discrimination that is present in the society, women have always viewed SMEs as one of the ways in which they can earn a living and gain social recognition.
A lot of studies have been conducted on the reasons that influence women to participate in the running and management of small businesses. In Australia, for instance, many women are involved in small businesses as a means of circumnavigating the glass ceiling that has always acted as a barrier in the growth and development of their careers (MacGregor and Vrazalic, 2008).
In the Asia, most women are involved in trading activities as a means of after working either public or private sector before incorporating their own businesses (Haan, 2004). Most of these women posses basic business, entrepreneurship and management skills from local and international colleges and universities.
Given the strong background of knowledge and skills that they posses, women enterprises have been relatively successful as compared to those that are managed by their male counterparts in the UAE. In Australia, the same trends have also been reported. In their paper, MacGregor and Vrazalic (2008) went on further to state that the proportion of women who have been successful in operating small businesses in Australia is four times that of the men.
Therefore, to overcome these challenges, the Chinese government needs to improve the accessibility of loans and other forms of financial assistance (International Finance Corporation, 2011). It has been identified that the lack of financial backing has led to the development of the perception that individuals, especially female entrepreneurs cannot adopt and implement IT and ICT in the running and operations of their businesses.
Financing is an essential component in ensuring the growth and development of any business entity. Many women in China, for example, have been unable to implement e-commerce due to this fact. The government should therefore formulate new legislations and amend the existing ones to ensure that Chinese women can easily access loans from banks and other financial institutions such as women groups, societies and cooperative organizations.
For convenience, these loans should have low interest rates, require simple formalities and most importantly, they should be eligible to all the women. This will guarantee that entrepreneurs are able to pursue the economic opportunities that are available. This will create a more a favourable environment where individuals and the government can benefit a lot from SMEs.
Cumulative Findings
Considering the literature that has been presented in this paper, it is evident that for an individual to start a foreign SME in China, several considerations need to be put in place. First, one needs to have a clear understanding of the business that he/she i setting up in china.
This knowledge is essential as it determines the vision, mission, goals and objectives of the business. It is also important for the business to adhere to the rules and regulations of the state. For instance, setting up an SME in china requires an investor to follow several rules and regulations such as registering the entity, licensing and so on.
In some industries, pre-approval of a business entity is necessary. Finally, one needs to understand the market trends and commercial considerations in China. To achieve this, it is essential to have a business plan that will be used to determine the financing of the entity, plan its capital investments and cash repatriation schemes. Thus, such an entity will be able to react to the changing market situation, regulatory requirements and the overall operating environment.
References
Berry, L 2009, ‘Relationship marketing of services, growing interest and emerging perspectives’, Journal of the Academy of Marketing Science, vol. 23 no. 2, pp. 236–245.
Boone, L. and Kurtz, D 2011, Contemporary marketing, Cengage Learning, New York.
Haan, H 2004, ‘Small enterprises: Women entrepreneurs’, Labour Market Study vol. 1 no. 19, pp. 1-52.
Kameyama, S. and Kobayashi, H 2010, Model for SME development. Web.
MacGregor, R. and Vrazalic, L. 2008, ‘The role of gender in the perception of barriers to e-commerce adoption in SMEs’, IBIMA, vol. 4 no. 2, pp. 121-147.
Nelson, C 2006, UAE national women at work in the private sector: conditions and constraints, Trident Communications, Dubai International Finance Corporation 2011, Strengthening Access to Finance for Women-Owned SMEs in Developing Countries. Web.