What strategies have proven successful in the growth of Small and Medium Enterprises (SMEs) into larger firms and which have been shown to fail?
Various strategies have been developed and deployed with a sole purpose of achieving success for small and medium enterprises commonly referred to as SMEs in most economies.
This is so because SMEs are generally known for developing into larger firms later on which in the end have got various impacts on an economy which are both positive and negative (Aldrich and Zimmer, 1986). This therefore form mean that for any SME to be successful strategies must come and they should incorporate increase in competitiveness of SMEs and realisation of the goals defined.
Further, these strategies must define the roles of a government and specifically the local governments since majority of small and medium enterprises operate locally. Governments are greatly involved in the success of SMEs, because they are directly involved in stimulating SMEs by providing favorable environment for businesses and the legal framework that SMEs adhere to. Therefore, government assistance to SMEs is of great interest.
Some of the strategies that have proven to be successful for SMEs are:
- Improving the business climate through assessment of new rules so as to evaluate impacts, and majorly reduce administrative barriers for their existence;
- Strengthening and improving financial support through easy access to loans and grants; this strategy aims at tackling the expensive bank product such as interest rates and how the products can be easily accessed without difficulties;
- Promoting entrepreneurship and SME competitiveness. This can be achieved through development of necessary institutions to offer support needed. It can also be done through providing consulting services which aim at issuing out of the necessary information to entrepreneurs;
- Supporting business starters is another strategy which promotes success. This can be through strengthening of the infrastructure of SMEs, improving financial access and offering quality non-financial support (Bort, 2012).
SMEs are important to any economy. This is because they play a major role in poverty alleviation. In Thailand, for example, SMEs make up to 98% of all establishments of the Thai Economy with small enterprises making up to 76% and the remaining percentage contributed by the medium enterprises (Chuthamas, et al, 2011). In addition, the percentage of those employed by these enterprises stand at 39.8%. This therefore makes the sense that small and medium enterprises are important when it comes to poverty eradication.
Enterprises success are also based on certain factors which are entrenched in the four strategic outline, these are financial support strategy and the innovations it puts on the markets. Specifically, if an enterprise can support itself without depending on other sources of finance the better, this is because the debt load will be lowered.
Enterprises that have successfully grown because of this are Adobe Systems Incorporated and Motorola which are both ICT firms. Motorola, for instance, with its market capital value at $14billion and with its new product waiting for launch the Windows 8 tablet and other Android devices.
This shows how financially the firm is self-reliant and implementing the innovation strategy of launching new products. The same applies to Adobe Systems Inc., which is investing so much in innovation and planning to launch a new product the Photoshop Touch application for handheld devices, and with its market value at $16billion the firm is well off to face the markets.
SMEs are affected directly by tough economic times in their entire lifetime; this means that the output is seriously affected and in most cases negative results are incurred. Access to finance is believed to be the major cause of their failures accompanied by poor management. Constraint access to finances and poor management may prove that financial support to SMEs is way below the par. An example to illustrate this is well put by two firms which are Global Manufacturing Company (GMC) and Opes Prime.
GMC a company dealing with manufacturing suffered a drastic drop in its sale and experts believe that this was a result of poor management and failure to apply damage control measures and strategies. Further, the company’s debt load had risen and access to finances was severely diminished. These eventually set barriers that became difficult to overcome hence the collapse which meant that restructuring the whole company and resurrecting it was close to impossibility (Thomson, 2009).
Opes Prime, a financial services firm, became a victim of poor management which haunts majority of small and medium enterprises. Because of poor management, client debts were not tackled amicably thus resulting in a collapse of the firm. This ended up affecting about one thousand clients. This therefore means that promoting financial support and management of finances is of great interest, thus stimulation of SMEs by use of grants also helps in avoiding collapse.
In summary, small and medium enterprises are of great importance to an economy, and for them to be successful, appropriate strategies must be put in place and applied well so as to ensure success of SMEs and avoid failure.
References
Bort, J. (2012). The 20 Most Valuable Enterprise Tech Companies in the World. Web.
Thomson, J. (2009). 25 corporate collapses – and the lessons learnt. Web.
Aldrich, H., & Zimmer, C. (1986). Entrepreneurship through social network. In D. L. Sexton & R. W. Smilor. (Eds.). The Art and Science of Entrepreneurship. Cambridge: Ballinger Publishing, pp. 3-25.
Chuthamas, C., Aminul, I., Thiyada, K., & Dayang, H. (2011). Factors Affecting Business Success of Small & Medium Enterprises (SMEs) in Thailand, Asian social science, 7(5).