Small and Medium Enterprises in the USA - Dissertation Example

 Small and Medium Enterprises in the USA Why isn’t there a definition for small firms? Small and Medium Enterprises ( SME) refers to those companies who have a headcount that falls below a certain level. Often, this level is disputable amongst nations. However, in order to standardize the concept, the European Union has set a limit of 50 employees for small firms and 250 employees for medium firms (Gegax, Tom). Since the scale of firms and scope of firms varies from industry to industry and country to country, it is difficult to categorize a firm as being small, medium or none. Firms that deal with hand embroidery, rare paintings and stones etc usually involve a few people for workforce hence they are indisputably categorized as small. However, discrepancies arise with firms such as those which manufacture and assemble cars and firms which make cutlery; since these firms are large according to the scale of some countries and some countries keep them under the umbrella of SME. The proper definition of a small firm hasn’t been provided up to date. Some define it according to the headcount of the workforce while some define it according to the output that is generated by the firm (Collier, Bill). The two viewpoints are totally distinct from each other. For example, the airplane manufacturing industry is one of the largest industries that the world has today but the output is not that astoundingly large. Therefore, some countries strictly follow the headcount to categorize a firm as small. On the other hand, not many people work in the handicrafts industry but their output is large so some put it under large firms and some under small firms. This dispute does not have any defined solution since both concepts have reasonable backing to them. Also, some discrepancies arise because the world that we see today has millions of firms providing billions of different types of goods. There is so much of diversity in the marketplace that it is hard for economists to categorize all the goods with the same standard. Also, the benefits reaped by small firms as those of exclusive customers, alluring deals and government support and are now generally available to a lot of firms making the distinction even more difficult (Fenn, Donna). Thus, the best possible way to define a small firm would be to use the European Union standard of less than 100 workers in the firm. Why has the number of small firms grown in UK? Since the last decade, United Kingdom has seen a large increase in the number of small firms that exist. There are a lot of factors contributing to this for example; small businesses are the seed corn of future large businesses. Most firms in UK believe that the starting point of all firms should be on a small scale so that they are able to gain enough revenues and profits that would give them an idea of their future standing. The scale of the firm can then be expanded afterwards (Kennedy, Joe). In UK, this is a rising trend since it saves costs and enables only those firms that have bright future prospects to invest at a bigger scale. Smaller firms are also now more in demand since these firms are more flexible and they can adjust to consumer needs more quickly and aptly. Larger firms have difficulty in changing product design, quality, or way of manufacturing according to changes in consumer demand. They take time adapting to changes while smaller firms easily manage to swap between products and ways of manufacturing to satisfy consumer needs (Burlingham, Bo). Hence, smaller firms in UK serve to be more consumer-friendly. Small firms in UK also serve another important purpose; they help in providing various specialized products and personalized services that cannot be provided at an economical cost by firms that operate on a large scale. For example, in UK there is a rising trend of opening up bakeries inside houses. Specialized women work on such products to give wonderful cakes at very economical rates. Had it been on a large scale, the costs would have been soaring high since on a small scale they do not require large refrigerating facilities, a farm for fresh cream etc. These become necessary when the firm operates on a large scale since all its raw materials need to be in large quantities too. Another very important reason why these small firms have become so prominent in UK in recent times is because of the global recession that the world has been occupied in for more than five years now. All prices and stocks have fallen and these small firms serve as a means of capital formation especially in areas where investment opportunities are limited. Due to the recession, there hasn’t been a lot of foreign investment in UK lately, so these firms serve to provide a source for capital formation instead (Strauss, Steven). Most private investment in UK has lately been in the establishment of small firms since it is regarded as a safe and paying venture as opposed to the investment in large scale firms where the investment is risky and doubtful. Small firms in UK are essential for the survival of the larger firms. They form the back bone of the larger firms in UK since they provide them with spare parts and other services. It is not as if these small firms have taken over the larger firms, in fact one helps in the development of the other. For example companies like Pierre Cardin, Marks and Spenser, DKNY, Next etc would not be able to survive if they are not provided with essentials like buttons, zips and other embellishments. Of course, if these firms begin to make them too, it will cost them a lot and so they rely on smaller firms to provide them the essentials which can be used by them later on to make the finished good. Also, it has been observed that the small scale firms in UK serve to deliver much better quality products and the restaurants on a smaller scale have almost totally taken the business of the larger eateries. This means that the smaller firms are providing better quality and the consumers realize that too. Thus, this is the best time for all entrepreneurs venturing into business to invest in smaller firms than larger projects since this saves costs, provides better quality and holds brighter future prospects. Problems faced by the Small Firms Sector Despite the alluring future prospects and enchanting current gains that the small firms receive, small firms have long been surrounded by economic and political problems. There have been issues in UK regarding the small firms facing very high fixed costs. This problem roots from the fact that on a small scale, the firms do not benefit from economies of scale and so larger firms find it cheaper to produce the same goods. This is discouraging for people who work for these firms as instead of their quality and service being rewarded; the small firms are burdened by soaring costs. In Saudi Arabia, there are lots of other problems too. For example, the SMEs in Saudi Arabia lack the primary tools and features that would help them grow and prosper. SMEs lack funds and credit options since such enterprises are usually ventures of budding entrepreneurs who are trying their luck in the global market (Berry, Denise). These entrepreneurs have limited funds and so they cannot invest exuberantly in such projects. There is always a shortage of funds and these small firms then need the support of higher authorities such as the government for financial assistance. Strict government policies and regulations in Saudi Arabia are a big problem for the small firms. Small firms face fierce competition from the larger firms but sadly, the government does not do much to protect these firms and they find it hard to thrive (Griffiths, A). Small firms usually have lesser profit margins and so unless they are partially sponsored by the governments for necessities like electricity and raw materials, small firms die out in the race of competing with the larger firms. However, UK has a very different take on the subject. A large proportion of economists in UK believe that small firms despite their gains are bound to fail in the long run unless they develop themselves into larger firms over time. It is believed by the English men that the basic structure of small firms cannot stand on its own pillars since these small firms function without any statistics or data that is needed for sound business decisions. Since the small firms operate on a small scale, they do not have sufficient funding for carrying out surveys or getting feedback from the customers. Thus small firms have little idea of what is demanded of them. They may be producing the most splendid ice cream sundaes when the customers want coffee instead. Therefore large scale firms here have a benefit since they can carry out surveys and get to know what is required of them. Also, at a small scale, entrepreneurs do not get much recognition for their brilliance which is much needed by all entrepreneurs. Many talented entrepreneurs do not risk their career by plunging into small scale projects. Same is the case with all the employees. The crème la crème of the working class opts for larger projects. That is justified too since smaller projects have little scope for improvement and advancement. On the other hand, in large scale projects the employees have a greater scope for progress. The employees get promoted over time, they become more skilled and they add value to their degrees. In large scale firms, employees get better with experience and they get promoted which means better salaries, more perks and thus a better living style. However, in small scale firms, the employees have little scope to progress (Gerber, Michael).Since there are not many people running the firm, there is less scope for promotions. Generally, the employees are paid less and suffer from lack of scope of improvement in small scale firms since the budget and the scale of the firm is limited. This leads to rising discontentment in the employees. The best ones never come and the better ones also leave since every employee, at the end of the day, works for material gains and not merely sincerity to the firm. In UK, the union of workers is very strong and so the workers cannot be underpaid, over worked or ill treated since all these will result in legal abashments. Therefore, smaller firms face problems hiring skilled workers because they are expensive. Thus in UK, the firms suffer. On the other hand, in Saudi Arabia, where the unions are not very strong, the workers are under paid and over worked resulting in depression amongst the working force and an increase in unemployment likewise. This problem is a vicious cycle and has no solutions to date. Government policies that have been designed to overcome the problems faced by the small firms in UK and Saudi Arabia Despite the astounding number of intricate problems that the small firms face, the government can ameliorate the deplorable condition of these firms by laws, regulations and funding directed in the favor of small firms. Recently, according to CNN news, Saudi Arabia has been ranked the 16th best country in the world for startup businesses. This indeed is a great achievement for Saudi Arabia since it has jumped up by seven places since the last year (Fenn, Donna). Saudi Arabian Government has done a lot to promote budding small firms by reducing the starting fee for businesses by 80%. Also, a computerized system of registering property title deeds has been incorporated. That has reduced the time it takes for entitling property from four to two days only. This speeds up the whole process of making a firm. Also, Saudi Arabia’s port fee was halved so that has made importing and exporting much cheaper. This is very useful from small firms since they have a smaller budget and larger targets to meet. The small firms can now take advantage of shipping raw materials in and shipping out their final products thereby leading to probable expansions in the long run. Sadly, UK has been providing no such leverages to budding firms and so the number of small firms is not that large considering the UK population and economic standards. What is needed in both the countries is a public private partnership to encourage small firms. Small firms are currently solely dependent on private funding but if they are backed by the government, small firms can be made to last forever without having to change their scale of production. NGOs have been working really hard in maintaining the small firms and now it’s time that the government takes charge. Of course, the government has ample funds and ideas for the growth and prosperity of small firms. The government should underline a practical framework that tells the roles and responsibilities of all the key executives managing the firm. The government must speculate and analyze the firm’s progress and dedication over time so that the small firm improves rather than being caught in the vicious trap of corruption and bankruptcy which is common for small firms. The UK government has a funding and credit facility for SMEs. It convinces banks to increase their lending power to small firms in order to encourage more small firms into the industries. Not just that, the government in UK also facilitates loans and other credit facilities to SMEs. This encourages entrepreneurs with great minds but less capital to dive in to the market and find out their standing in the practical world. The Saudi government, sadly, does not have any such facility for providing loans and credits. The Saudi government on the other hand, has recently established authorities to over look the progress and development of small firms. Saudi Arabian General Investment Authority (SAGIA) and Saudi Arabian SME Development Authority (SAMSMEDA) serve to analyze the development of small firms over time. This prevents small firms from falling into the pit of corruption which is the cause of all other vices and problems for firms. Both countries, UK and Saudi Arabia thankfully have services of legal counseling, financial assistance, information gathering services and training workshops to encourage small firms in their participation (Sloman, J.). It is predicted that 50% of the Saudi Arabian economy would soon be run by small and medium firms. That would surely be an achievement since it will enable more personalized goods and services in Saudi Arabia and since it is a religious hub for Muslims from around the world, this will encourage foreign investment and funding in Saudi Arabia which would be very positive for the Saudi economy. Firms in UK also have protection policies for local firms. This helps the small firms from being crushed by large, foreign firms. This policy needs also be applied in Saudi Arabia where foreign companies push the local companies from establishing their own market. The foreign companies are established since years and the new, small firms are not able to thrive with them without any restriction or protection measures. References: Gegax, T. and Bolsta, P. (2007). The Big Book of Small Businesses. Harper Business. Collier, B. (2006). How to succeed as a Small Business Owner… And still have a life. Porchester Press. Fenn, D. (2007). Alpha Dogs: How your small business can become the leader of the pack. Harper Paperback. Kennedy, J. (2005). The Small Business Owner’s manual. Career Press. Burlingham, B. (2007). Small giants: companies that choose to be great instead of big. Portfolio Trade. Fenn, D. (2009).Upstarts!: How GenY Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit from Their Success. Mc-Graw Hill. Strauss, S. (2008).The Small Business Bible: Everything You Need to Know to Succeed in Your Small Business. Wiley. Gerber, M. (2010).The Most Successful Small Business in The World: The Ten Principles. Wiley. Berry, D. (2006).Small Business Cash Flow: Strategies for Making Your Business a Financial Success. Wiley. Jordan, C. (2007).Stop the Cash Flow Roller Coaster, I Want to Get Off!: What Every Small Business Owner Should Know About Cash Flow...But Most Don't. iUniverse. Griffiths, A. and Wall, S. (2007), Applied Economics, 11th edition, Pearson Education Limited. Sloman, J. and Sutcliffe, M. (2004), Economics for Business, 3rd edition, Pearson Education Limited, Harlow. Read More