Aussie Textile Company as a Small and Medium Enterprise - Case Study Example

Major Report Name Institution Course Instructor Date I. Executive summary This study endeavored to establish the advantages and disadvantages of establishing a small and medium enterprise (SME) such as Aussie Textile Company (ATC-a medium textile manufacturing company) in Thailand. The aim was to insist on the significance of understanding all the factors that determine the success of an SME in Thailand to minimize the risks of business failure and capitalize on the success of the business. The study focused on the eight major elements that define the success or failure of an SME in Thailand. They include characteristics of the SME, finances and resources, extrinsic environment, marketing strategy, market and customer, knowledge and management, services and products, and cooperation and transaction techniques. The theoretical approach was used coupled the practical collection of data via the questionnaires. Eight hypothetical factors were tested in the study using analytical methodology. Five factors were positive while three were negative. In this regard, the study revealed that five advantageous factors determined the success of ATC in Thailand. They included characteristics of the SME, extrinsic environment, finances and resources, market and customer, and transaction techniques. Key words: Aussie success, SME, advantages, disadvantages, Thailand. Major Report 1. Chapter 1 1.1. Introduction As an SME, Aussie Textile Company (ATC) plays an important part in the economy of Australia. Research shows that the performance of ATC depends on the economic performance of Australia at large. Therefore, due to the rising importation of cheap textile products, the company’s performance has dropped drastically (Phong & Van Thong, 2008, p. 331). This means that there is an increase in the cost of production and decrease in demand of the Aussie products. To prevent business failure, the company needs to transfer its productivity to Thailand. It is because; Thailand presents all the suitable factors that favor the success of ATC. For instance, the country is characterized by a highest percentage of SMEs in various sectors which practically indicates that the country favors proliferations of SMEs. Statistically, the SMEs represent 93.8% of the total establishments in the manufacturing sector. The SMEs employ more than 868,000 workers in Thailand. Previous research studies concentrated on the success-determinant factors of large companies in Thailand prompting to less information on the success of SME counterparts (Miltenburg, 2009, p. 6176). It is important to note that economic, social and environmental changes in Thailand affects the larger companies in a different way compared to the SMEs. Therefore, this paper presents a report study on the factors that influence the success of ATC in Thailand accompanied with the advantages and disadvantages of the company’s investment in Thailand. 1.2. Literature review 1.2.1. Background As an enterprise, ATC represents a controlled system in similarity with a typical SME. In this context, a controlled system comprises of the detector, the selector and the effector. The detector represents the model in which a system obtains environmental information, followed by the use of the obtained information by the selector in determining the appropriate course of action (behavioral response). The effector finally executes the course of action. This means that the assessment system of the SME is charged with collection of information on the performance and environmental changes (Miltenburg, 2009, p. 6180). The information is used in the strategic planning of the business to determine the right course of action that promotes performance and productivity, and conforms to the business goals. Performance represents the success of the business in the market while success literally refers to the accomplishment of set goals in any given sector of business. Failure is the direct opposite outcome of success. Both success and failure are used as measures of competency in the management of the SME (Phong & Van Thong, 2008, p. 335). 1.2.2. SME definition There is no absolute definition of an SME. It is due to the diversity observed in the SMEs where every approach of definition is prone to scrutiny (Leelakulthanit & Hongcharu, 2011, p. 72). The Institute for Small and Medium Enterprises Development in Thailand defines the SMEs based on three major categories. They include mining, processing and manufacturing in the production industry, wholesale and retail in trading industry and services industry. Therefore, the definition of SMEs relies on, first, the asset value of the given type of business enterprise. For instance, in production industry the small enterprise is below 50 million baths while medium enterprise is above 50 million baths and below 200million baths. Second, on the total tally of full-time workers employed in a given type of business enterprise, for instance; in the production industry, the small enterprise consists of 50 employees or less while the medium enterprise consists of 50 up to a margin of 200 workers (Leelakulthanit & Hongcharu, 2011, p. 75). 1.2.3. SME success determinant factors There are varied proposition on factors that determine business success. Researchers empirically classify these factors into two major categories (Thai & Chong, 2008, p. 88). These categories focus on whether the enterprise focuses on a narrow scope of variables or a wider scope of variables. Other studies focus on the inception, development and collapse of various business enterprises as a source of information on the factors of business success or failure. Thailand scholars identified that success of SMEs in Bangladesh are dictated by services and products, business transactions, extrinsic environment and management competency. In addition, other factors such as characteristics of SMEs and entrepreneurs and development of SMEs played a role in determining the achievements of the business. As a result, the success of SMEs Thailand was compiled into eight major factors which include characteristics of the SME, finances and resources, extrinsic environment, marketing strategy, market and customer, knowledge and management, services and products, and cooperation and transaction techniques (Yamnill & McLean, 2010, p. 542). The study of such factors is important in determining the advantages and disadvantages of establishing ATC in Thailand. 2. Chapter two 2.1. Objectives The main objective of the study was to establish success-determinant factors of ATC as a new SME in Thailand. The first specific objective was to identify the advantages and disadvantages of establishing ATC in Thailand as opposed to other Asian countries and the second specific objective was to identify the solution to the disadvantages of establishing an SME in Thailand to minimize the chances of business failure. 2.2. Hypothesis The study hypothesized that all the eight identified success-determinant factors were associated with SMEs. 2.3. Methodology The success of an enterprise was represented as an depended variable while the independed variables consisted of success-determinant factors which included characteristics of the SME, finances and resources, extrinsic environment, marketing strategy, market and customer, knowledge of management, services and products, and cooperation and transaction techniques. A systematic self-composed questionnaire was employed in the collection of data. The questionnaire was divided in three sections. The first section dealt with the attributes, demography and background information of the interviewees. The second section dealt with the success-determinant factors. Whereby, the interviewees were implored to answer 40 questions on the degree of necessity of a given factor using a 5-point liker scale. The last section dealt with scoring of the advantage of the perceived success factor using the 5-point liker scale. 180 hard copies of the questionnaires were distributed which resulted in collection of 133 responded questionnaires. 70 copies were handed out to managerial leaders of SMEs resulting in collection of 40 responded to questionnaires. Furthermore, 100 copies were handed out to subordinate stuff of SMEs and 20 copies to close friends of such individuals. In a nutshell out of the 200 distributed copies, only 143 copies were responded to and collected. 3. Chapter 3 3.1. Results and analysis Out of the 200 distributed questionnaires on 146 were filled by the respondents and collected. Of the 146 copies, only 143 were used in the analysis following the rejection of three copies that had incomplete information. Therefore, the rate of response was marked as 71.5%. The percentage diversities of the questionnaires were determined on various aspects which included gender, age, knowledge level, years of work experience, the actual time since the inception of the business, the number of workers, and the type of the business enterprise. The accuracy and consistency of the collected data was determined via the reliability assessment. This means that the approach relied on Cronbach’s measuring system. 3.2. Correlation assessment Correlation assessment was used to examine if SMEs success-determinant factors were interrelated. The assessment revealed that the factors were related with a significance level of 5%. However, the limit of the p-values did not exceed 70. 3.3. Analysis of SME success-determinant factors The study used Multiple Regression Assessment to identify if the SME success-determinant factors positively influenced the establishment of SMEs in Thailand. The assessment identified the factors that positively affected SMEs included characteristics of SMEs, cooperation and transactions techniques, finances and resources, extrinsic environment, and market and customers. However, knowledge of management, marketing strategy, and services and products had no positive effect on the establishment of SMEs. 4. Chapter 4.1. Discussions 4.2. Success-determinant factors and establishment of SMEs in Thailand The objective of the study was to factors that determine the success of SMEs in Thailand and establish the advantages and disadvantages of establishing ATC in Thailand based on the assessment of the success-determinant factors. The findings of the study will provide ATC with prompt information on how to manipulate the success factors to realize the advantages of relocating its production plant to Thailand from Australia and to minimize the chances of business failure by dealing with the disadvantages of investing in Thailand. From the literature review on SMEs, it was noted that SMEs consisted of more than 90% units of all sectors or industries in Thailand. Also, the same SMEs employed more than 90% of the total workforce in Thailand. In this regard, it is clear evidence that Thailand favors the growth and development of SMEs such as ATC. The question that remains to be answered is how the country achieved the described status. The answer lies in the identified success-determinant factors of SME in Thailand which directly relate to the advantages of establishing SMEs in Thailand. Moreover, understanding of the SME success-determinant factors provides ATC with an ultimatum of optimizing conditions as an SME to realize the objectives and goals of the company (Phong & Van Thong, 2008, p. 333). It is because; the study identified that both extrinsic and intrinsic environmental factors affect the success of any type of business. 4.3. Advantages The research looked into the effects of characteristics of the SME, finances and resources, extrinsic environment, marketing strategy, market and customer, knowledge and management, services and products, and cooperation and transaction techniques as factors that affected the success of ATC in Thailand. Basing on the success-determinant factor of market and customer, the research did not only establish that it was a factor that positively influenced the success of ATC in Thailand, but also established that Thailand had a customer base and a larger market for the textile products in the first place among all Asian countries (Suvakunta, 2010, p. 2). This is an advantage to ATC that needs to focus on conquering the Thailand market because the domestic market in Australia is highly competitive. Moreover, the benefits of this factor were similar to that of finances and resources. In this context, Thailand was identified as a country rich in textile resources such as raw materials and availability of labor. The resources were relatively affordable which means that ATC’s cost of production in Thailand will be lower than that in Australia. Additionally, the Thailand government and non-government organizations supported the development of SMEs strategically and financially to create jobs for the local. Therefore, ATC can access enough finances or incentives to fund the establishment of its production plant in Thailand (Miltenburg, 2009, p. 6185). Thailand was shown to have an extrinsic environment which when successfully exploited by the SMEs did not only promote high performance, but also influenced the expansion of the business. This means that it is easier for ATC to establish several branches of the same company in Thailand due to the accessibility to many geographic regions. Focusing on characteristics of SMEs, Thailand was shown to present a relative competitive environment that motivates the companies to improve their quality of products, marketing strategy and management knowledge not only to counter competition, but also to meet the customers’ preferences. The same competition will necessitate ATC to achieve global standards of textile products in Thailand. That is why the research showed that factors such as services and products, marketing strategy, and management knowledge played a minimal role in success of SMEs in Thailand. Finally, Thailand promoted the cooperation among different SMEs. The cooperation allowed the exchange of ideas that promote success of the business and improvement of transaction techniques which were important in attracting and retaining the customers (Phong & Van Thong, 2008, p. 337). Basing on these facts, it is important to state that the success-determinant factors formed the platform of finding the advantages of establishing SMEs in Thailand. 4.4. Disadvantages Apart from the advantages realized from the success-determinant factors, the research identified several disadvantages that affected the establishment of ATC in Thailand. The disadvantages included the difficulty of obtaining the necessary financial support from the government (Ali, et ail., 2012, p. 5425). The government of Thailand put in place difficult structures of borrowing money such as high interests owing to the high amount of loans required by the SMEs, their high percentage in the economic sector of the country and lack of transparency on how the loans were used in the past years. Another issue pointed out in the study was that although Thailand is characterized by affordable resources such as cheap manual labor, it was hard to find highly qualified professionals due to their scarcity (Koruka, 2011, p. 105). As a result, the few professionals demand high amount of wages. Also, the establishment of SMEs in Thailand appeared to be disadvantageous because of the high international competition from neighboring nations such as India and China. In other words, lack of domestic competition is not quantitative enough for ATC to relocate to Thailand. Basing on the same aspect, the study showed that Thailand did not have easy access to modern Information and Communication Technology (ICT) and low level of business research and development. Thailand generally inhibits efficiency and productiveness of any SME venture. Furthermore, the increased rate of bureaucratic concerns hindered smooth operation of SMEs and foreign investment in Thailand (Suvakunta, 2010, p. 4). Finally, the study identified there is much focus on local market leading to domestication of SMEs rather than embracing globalization. 5. Chapter 5 5.1. Conclusion The study was intended to establish the success-determinant factors of SMEs in Thailand which were directly linked to the advantages of foreign investment in the same country by ATC. The study established that characteristics of the SME, finances and resources, extrinsic environment, market and customer, and cooperation and transaction techniques were the main determinants of SME success in Thailand and also the major derivatives of the benefits of investing in SME business in Thailand. However, three success-determinant factors were exempted because they did not directly influence the positive establishment and success of SMEs such as ATC; rather they were summed up under the characteristics of SMEs. These factors included marketing strategy, services and products and management knowledge. The study followed of a qualitative and quantitative methodology of collecting information to establish that despite the noted disadvantages, Thailand presented the right choice of an Asian country where ATC can survive the threat of business failure and grow expand to sell its products on the world market. It is based on the fact that this study provides recommendations which when adhered to, the company can overcome the above stated disadvantages. 5.2. Recommendations All parties involved in SMEs need to address their own areas of concern to prevent misgivings of SMEs. For instance, the government of Thailand needs to avail accessibility to financial aid and reduce the rate of interests charged on loans, adopt policies that reduce the bureaucracy which inhibits foreign investment and educate the investors on how to operate smoothly in Thailand, and embrace globalization and ICT. On the other hand, the SMEs must operate within the legal system of Thailand, offer quality services and products, aspire to compete on the international market and invest in education their employees. III. 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