Discuss the Challenge Facing Small Businesses in Australia in the Twenty-First Century - Case Study Example

Name of university or college Name of the department Name of the student Student number Subject THE CHALLENGE FACING SMALL BUSINESSES IN AUSTRALIA IN THE TWENTY FIRST CENTURY DATE OS SUBMISSION SIGNATURE OF STUDENT LECTURER NAME DEPARTMENT SIGNATURE OF LECTURER TABLE OF CONTENTS Discuss the challenge facing small business in Australia in the twenty first century 2 Definition of a small business 2 Economic benefits of small businesses 3 Success factors of small businesses 4 Case studies 9 Conclusion 10 Recommendations 11 Bibliography 11 Discuss the challenge facing small business in Australia in the twenty first century Definition of a small business ABS (1995, 1996) defines small business as a privately owned and managed profit-oriented enterprise that may be a limited company by virtue of partnership or family owned company by virtue of sole proprietorship. ABS (1995) indicates small business employs less than 20 employees. Small business Reports (1993:26) argues a business entity with less than five employees is known as a micro-business and is classified as a small business or a small-micro-enterprise. Scott and Bruce (1987:45-52) and Eichinger and Ulrich (1997:50-61) argue that small business grows in phases. Gibbs and Davies (1992:3-35) have indicated that the phases of growth of a small business are governed by owner’s management skills, owner’s ability to strategize and adopt customer changing product preferences, geographical location of the business, level of income of the customers and degree of applied leadership skills. Shuman and Seeger (1986) argue that the phases of the growth should be planned before they are implemented subject to proportions of training on management skills of the owners. Economic benefits of small businesses Herzberg (1987:38-46) argues that small businesses economically add to gross domestic product (GPP) through internally or externally consumed or produced products and services. Haapanieni (1996:4-18) argues that small businesses assist in generation of government revenue through sales of business permits and taxes. Fowler (1994:34-37) indicates that retired workers are able to setup micro-businesses that help to reduce high dependence ratio among the working class as small businesses provide employment opportunities and are a form of investment. Bakke (1992:74-82) provides that small businesses create employment directly or indirectly. According to Bakke (1992:74-82), small businesses directly employ workers who earn income and therefore alleviate standards of living. Drucker (1955) shows that small manufacturing businesses provide market for raw materials that are provided locally as well as market for imported raw materials. Losey (1998) indicates that small businesses provide market for machines like cash registers that are required for tax registration and are vital tools for financial reporting as they show sales turnover of the firm which is essential in tax calculation of the business. Barney (1991:99-120) shows that small businesses indirectly provides employment opportunities and market to service and tertiary sectors of economy like insurance, transport and contribute towards urbanization and development of amenities like entertainment facilities, schools, health and shopping centers. Haapanieni (1996:4-18) argues that exports of goods and services produced by small businesses earn Australia foreign exchange hence contributing to government revenue. Success factors of small businesses Sibely (1998:8) indicates that although small businesses are easy to start, due to low capital inputs, they face many challenges as they grow and develop into medium and large business entities. McKee (1997:151-156) and Churchill and Lewis (1983:30-50) indicate the biggest challenge as undercapitalization which is brought about by poor forecasting of the business phases of growth and business life cycles, poor planning both financial and human resource as opposed by unfavorable economic conditions outlined by Burke (1997:71-79). Marlow and Patton (1993) and Deshpande and Golhar (1994:49-56) show that small businesses are at risks of being exposed to insolvency conditions due to poor financial planning that may result into managers being declared bankrupt and sued in bankruptcy courts according to the theory of undercapitalization. Rowden (1995:355-373) indicates that small business entrepreneurs should have enough capital to start and run the business for a period that the business will attain a financial position when the business can afford to pay allowances to its owner(s). credit insolvency that is sweeping across the globe has also reduced borrowing potential of small businesses as they cannot be lend money by banks making small businesses to initiate downsizing that is characterized by lack of human resource procedures. According to Small Business Reports (1993:26), small businesses lack standards for recruiting and promotion of their workers. Herzberg (1987:38-46) argues that this leads into poor strategies for downsizing during redundancy sessions because small businesses lack processes and procedures for employee right-sizing, out-sourcing and globalization preparedness. Amba-Rao and Pendse (1985) indicate that small business often lay efficient workers in favor of relatives hence lack modalities for retaining best talent that can help small businesses to grow and relate well with other corporate companies. Ruffino (1994:9-13) summarizes this scenario as subject to lack of anti-discrimination legislations and is predisposed by lack of understanding obligations, roles and responsibilities played the competent employees that are laid off and amounts to lack of competitive advantage of efficient staff who can compel the business entity to greater heights of prosperity. Caudron (1993a:56-58; 1993b:59) outlines that lack of employee task analysis and employee-as-asset analysis leads into transfer of business competitive edge to business competitors and this trend negatively affects future growth of the business entity. Schuler (1992:18-32) argues that small businesses don’t adopt the 5-P model that is abbreviation for Philosophy, Policies, Program, Procedures and Processes and lack of knowledge of how the 5-P model interacts with other elements of business production namely capital, human resource management and labor. Lunthans, Hodgetts and Luthans (1997:73-81) indicates that lack of competence in human resource management affect businesses total quality management and this predisposes financial challenges in terms of sustainable insurance premiums, increasing energy costs and taxes, business liabilities and health insurance for employees. These costs can be effectively managed through formulation of costs control strategies that reduce direct and indirect operating costs and maximize profit margins.according to Heneman, Metzler, Thomas, Donoline and Frantzreb (1998:68-75), small businesses fail to out-source necessary skilled-labor by being lured into small businesses by entrepreneurial myth “an expert in a technical field qualifies to be an expert in a related business setting”. This assumption is taken into considerations without prerequisite managerial and business-leadership skills that are required for day-today running of the business. Scase and Goffee (1980:53-68) and Boswell (1973) agree that deficiency of managerial and supervisory skills backed up by qualitative and quantitative aspect of management affects how management relates with downline employees and nature of communication that affects employee morale and productivity. Barrier (1999:28-30) and Fraza (1998:48-49) agree that the aspect of communication determines if business entity achieves its mission statement, visions and missions. Poor communication instruments of small business determines if the small business will comply with government legislation on employment, tax legislation, insurance legislations and regulations, training and development because security of the employees jobs is not guaranteed and is only achieved through loyalty to procedures and processes that are associated with the small business. Andreichuk (1992:28-38) and Wagar (1998:13-23) argue that employees strive to win favor of their employers by reporting their colleagues who complain of poor working terms and conditions. Brown and Dandsan (1996:29-32) point out that such disputes decrease quality of working environment of small businesses and negatively decrease morale, productivity and overall growth of the business entity. Andreichuk (1992:28-38) argues that small businesses face challenges of penetrating new markets whose customers’ loyalty lies on reputable companies with a good product and service will. Schuler (1992:18-32) and Schuler and Harris (1991:191-207) indicate that market penetration is a very slow process because small business product’s quality spreads through customer referrals who have obtained satisfaction in the product or service. Schuler (1992) argues that building a brand name for small business is costly and is associated with losses in the event the products are perishable. Teasley and Williams (1991:131-138) indicates that other options for market penetrations for small businesses are expensive and include advertising in yellow pages directories, television, radios, daily and weekly newspapers and magazines. Teasley and Williams (1991) argues that the other options for advertising include e-mail marketing and internet marketing which don’t produce expected target sales because of internet scams and internet fraudsters who capitalize on electronic commerce to con unsuspecting people. Thatcher (1996:20-25) suggests that with globalization influence on small businesses, many small businesses are chains of franchise enterprises where entrepreneurs capitalize on economies of scale of the franchisor. Thatcher (1996) and Tung and Miller (1990:5-18) agree that franchising enterprises are characterized by corporate mandates that small businesses should satisfy and don’t give small business entrepreneurs opportunity for independence to diversify goods or services that they offer. Tung and Miller (1990) argue that small businesses face challenges of certification of their products and services in order to assure their customers for high quality of their products and services. Certification processes like ISO 9000 and ISO 14000 standard series on quality management and environmental management systems call for input of qualified personnel that small businesses cannot afford to manage financially. Environment protection agencies requires firms to comply with efforts towards sustainable management of global warming through decreased energy output, reduced emission of greenhouse gases and sustainable human resource strategies towards toxic waste disposal and waste management practices. Fulfillment of these measures calls for extra human resource factors that add to production costs of small businesses and eat into their profits leading into slow rates of development and growth. According to Amba-Rao and Pendse (1985) sole proprietorship business entities suffer from systemic policies that at times results into personnel related problems that affect productivity due to poor management practices of human resource, poor planning and projection and financial constraints that expose small businesses to fail to adopt strategic measures and instruments for improving corporate competitive edge thus predisposing redundancy state. Case studies Company Type of business Type of ownership Performance characteristics Firm 1 Service industry Family Partnership Poor recruitment procedures and processes Low compensation and benefits Lack of employee tailor made training for position preparedness, leadership and management Strong succession planning No health insurance Import tax high Firm 2 Manufacturing industry Sole proprietorship Strong gender discrimination Poor untimely remuneration Lack of pension Long service as casual labour Sacking at mercy of manager and family members Product quality certification is a challenge Firm 3 Manufacturing industry Corporate No criteria for promotion No training need analysis done Lack of mission statement Vision and goals present but don’t contribute or control operations Outsources labor and employees jobs are not secure Lack of motivation of employees to perform duties and responsibilities Focuses more on production processes as opposed to production strategies Firm 4 manufacturing Sole proprietorship Staff turnover high No equal opportunity employment No legislation towards quality management and environmental management systems Human resource management does not exist to align employee interests and organizations interests and goals. Mission statement, goals and visions exists but do not control operations Conclusion Small businesses should develop and work on its growth plan and strategies in order to avoid going into liquidity. Small businesses should have functioning human resource departments that are not under control of the owners if the human resource departments are going to implement strategies towards development and growth and align the business to comply with ISO 9000 and ISO 14000 standards series. Human resource should be outsourced where the small business is not able to maintain salaries of the personnel and this should not bring a threat to the employees. There should be measures and processes for awarding employees through introducing benefits like health insurance and permanent employment to casuals. The business should formulate strategies that are financially friendly to penetrate other markets and prepare for globalization. Small businesses should train and retain best workforce when there is a downsizing strategy without considering family relations as a basis of downsizing. Small businesses should seek consultancy services as principle advisors for providing senior management. The businesses should seek services of administrative support that is qualified to assist in tax evaluation and determination. The personnel should liaise with officials of national cash registers and tax authority for compliance with regulations. Recommendations The management should develop procedures for upgrading vocational education for its employees in order to equip them to tasks and responsibilities. The business should focus its efforts on capitalizing on developing talents of its employees in order to create an environment for diversity else they should employ multi-task employees. 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