Financial Support of Small and Medium Enterprises in Saudi Arabia - Research Proposal Example

? The Financial Support of Small and Medium Enterprises and their Development Role in Saudi Arabia A Research Proposal Submitted in Partial Fulfillment for the Graduate Diploma Programme INTO Manchester Contents 1.0Introduction 3 2.0Literature Review 4 2.1 Small and Medium Enterprises 4 2.2 Financial Support for SMEs 5 2.3 Developmental Role of SMEs 6 2.3 Conclusion 7 3.0Research Questions 7 4.0Methodology 8 4.1 Limitation 8 5.0Ethical Considerations 9 6.0Time Scales 9 7.0 References 11 Total Word Count: 1,620 1.0 Introduction Small and Medium Enterprises (SMEs) play an important role in the development of any economy. Port (2010) highlighted that the mushrooming of these small organizations therefore creates the desired multiplier impact on the level of employment as well as economic progress made in the country. Despite their importance, SMEs, however, lack the required financial support in order to expand in size and contribute more towards the economic progress of the country (Hertog, 2012). Gulf areas in general, and Saudi Arabia in particular, are oil rich regions with the economy being driven by the large oil producing organizations. The required financial support for the SMEs, in order to strengthen their capability to further contribute towards the progress of Saudi Arabia’s economy, is however somewhat lacking. This is despite the fact that SMEs have evidently exhibited great developmental potential. The current research aims to determine the role that SMEs play in the development of Saudi Arabia; as well as to identify any governmental and other business organizations’ support provided towards sustaining continued operations and growth of SMEs in the region. This paper be presented with a brief overview of studies and researches previously conducted on the subject through a literature review of SMEs, in general; the financial support of the government for SMEs in Saudi Arabia; and the role that SMEs play towards the development of the country. The next section would focus on the research questions and methodology, which would identify the required method which would achieve responding to the main concerns identified within the discourse. Likewise, any limitation to the study would be presented; prior to delving into the ethical considerations, as required. Finally, the time scales which detail the tasks and time frames for the specific research portions would be detailed in the last section. 2.0 Literature Review There have been several studies conducted on the subject that aimed to determine the role of SMEs, in general; and SMEs within the Saudi Arabia region. Their definitions would be explored, including financial support and development role in the economy of Saudi Arabia. 2.1 Small and Medium Enterprises Though SMEs exist all over the world and in large numbers, there is still no concrete definition for SMEs due to various practical reasons. Fu (2011) suggested that defining SMEs differs from country to country and are based upon different variables such as number of employees, revenue, nature of trade etc. (Fu, 2011). Normally, the number of employees for SMEs are defined at less than or equal to fifty for relatively small organizations whereas for medium organizations, the upper limit of number of employees is normally between 100 to 250 (Capitas, 2013). Thus, SMEs were clearly classified according to the number of employees, as well as the amount of sales revenues generated within a stipulated time frame. Within Saudi Arabia, various organizations define SMEs according to different criteria and are followed by different organizations. There are two important criteria used in defining SMEs within Saudi Arabia. One criteria followed by the SME Development Center is to have less than or equal to 20 employees for small organizations and 21-100 employees for medium organizations. However, Shalaby (2004) concentrated on suggesting that different criterion is being followed by Saudi Industrial Development Fun, and it defines SMEs based upon the revenue criteria of SR 20 Million if they wish to obtain financing from the banks or other development finance organizations of the country (Shalaby, 2004). Accordingly, in terms of defining SMEs within the Saudi Arabia region, Shalaby (2004) validated the general prescription using number of employees, in conjunction with amount of revenues to be confirmed within this category. SMEs are considered as important from the perspective of their developmental role. Above all, SMEs signify the spirit of entrepreneurialism within the society and outlines as to how the new startups result into the creation of economic capital for the country. However, despite such promise SMEs face different challenges including access to finance (Bryant, 2008). Resource and scale problems were identified, as well as strategies that would appropriately address the challenges encountered. 2.2 Financial Support for SMEs SMEs in Saudi Arabia generally face different challenges, and some of them are critical for their overall survival in the country. Generally, banks and other financial institutions lack the desired will and readiness to provide financial support to them. This is evident from the low debt to capital ratio of SMEs in the country indicating the fact that SMEs are generally facing stiff challenges to seek debt from commercial banks. This lack of funds available to SMEs results in serious lack of human resources, which can help these firms upgrade their capabilities by hiring skilled workforce (Achoui, 2009). As noted, strategies that maximize the potentials of people enable SMEs to optimize their strengths and focus on emphasizing their core competencies. It is critical to understand that there is generally a lack of literature review on financial constraints faced by SMEs in the Arab world. The available literature has focused on exploring the lending share of banks in Gulf Cooperation Council (GCC) countries for SMEs. The trends which are witnessed in Saudi Arabia are also witnessed in other GCC Countries also. GCC countries are marred with low lending ratio for SMEs. One of the key reasons for low lending share for SMEs is heavy dependence on oil economics, where commercial banks and other lending institutions are focused upon lending to large and oil related firms (Emine, 2012). A closer examination of the factors that impinge on providing support to SMEs enable these participants to seek collaboration and affiliation with other business organizations to intensify their role in the overall development of the economy. 2.3 Developmental Role of SMEs The overall nature of SMEs within the Arab countries is mostly outside the agriculture sector with more than 90% of the firms operating outside the Agriculture sector. The Arab countries also have relatively significant portion of SMEs in non-formal sector of the economy, too. Small and micro enterprises are serving the informal economy in the Arab countries also, thus contributing towards the generation of employment within the region (Shalaby, 2004). These sectors, as noted, have been identified to instrumentally contribute to the growth and development of Saudi Arabia through increased employment and production within their fields of endeavor. Alasrag (2010) investigated that the overall competitiveness of SMEs in Arab countries, however, is relatively low, and in order to compete at the international level and increase the overall diversity of GCC economies. The role of government, therefore, is relatively important in ensuring that the competitiveness is improved (Alasrag, 2010). As such, government and other business organizations have been identified to play significant roles in influencing the growth and development of SMEs through the support that they could aptly provide. 2.3 Conclusion The literature review indicates that the overall lending share for SMEs is relatively low in GCC and Saudi Arabia. There is a general lack of funding support from commercial banks and other financial institutions as most of the SMEs in the region are equity financed. There is a relatively high level of concentration in GCC economies with most of the development being driven by oil based organizations. However, SMEs can play an important role if their competitiveness is improved and government plays an important and active role in supporting SMEs in the region. 3.0 Research Questions The current study focuses on identifying the financial support accorded to SMEs, as well as their development role in Saudi Arabia. Specifically, it aims to address the following research questions: 1. What role do SMEs play in the economy of Saudi Arabia? 2. How does government support SMEs financially? 3. What role do business organizations play in the process? 4.0 Methodology The methodology to be used for the study is a combination of quantitative and qualitative researches. The quantitative research would be administered through a self-designed questionnaire that would be distributed and collected from about 20 representative SMEs in Saudi Arabia. The number of SMEs would be generated from a list of SMEs in Saudi Arabia and the organizations to be selected to participate would be chosen randomly. These organizations would be sent formal letters soliciting approval to be included in the study. Those who positively responded would be sent the self-designed questionnaire that would contain designed questions which would appropriately provide the needed responses to the indicated research questions. The qualitative study would be conducted through interview of about three authorized representatives from the selected SMEs. The information gathered through the interview method would provide support to the information gathered through the distributed questionnaire. 4.1 Limitation The current study is constrained by the time and resources to generate a large sample size. With the limited number of organizations of at least 20 SMEs and only about 3 interviews, the results that could be generated might not aptly be representative of the entire SMEs in Saudi Arabia. To increase the reliability and validity of the findings, future studies could focus on increasing the sample size and expanding research variables. 5.0 Ethical Considerations Prior approvals would be sought for those SMEs who could provide information and be part of the study. Privacy and confidentiality of respondents’ disclosures would be maintained with the utmost care. 6.0 Time Scales Task/Activities Time Fames 1 Design of Questionnaire 15th - 20th- March 2 Determining list of SMEs 21st - 22nd- March 3 Sending Approval for SMEs Participation 23rd - 31st -March 4 Sending Questionnaires for SMEs 1st - 3rd- April 5 Collection, Tabulation of Data 5th - 10th - April 6 Data Analysis 15th - 20th - April 7 Completion of Dissertation April 25th - May 8 Review, Proofreading, Finalization 1st - 10th - June 9 Submission of Dissertation June 15th 7.0 References Achoui, M. (2009). Human Resource Development In Gulf Countries: An Analysis Of The Trends And Challenges Facing Saudi Arabia. Human Resource Development International, 12(1), pp. 35-46. Alsaleh, S. (2012,March). ‘Exploring strategies for small and medium enterprises in Saudi Arabia’.Paper presented at RIM Doctoral Symposium. [Online] Available at: http://www.ribm.mmu.ac.uk/symposium2012/extendedabstracts/AhmedAlSaleh.pdf [Accessed 17 Feb 2013] Bryant, H. (2008). Big in Smalls. Financial Management. Pp. 32-33. Capitas group international (n.d.), ‘Importance of an SME Authority for Saudi Arabia’, [Online] Available at: http://www.capitasgroupintl.com/Commentaries/Commentary_ImprotanceSME_KSA.pdf [Accessed 25 Jan 2013] Elasrag, H. (2010). Enhancing The Competitiveness Of The Smes In The Arab Countries The Competitiveness Of The Smes In The Arab Countries In The Knowledge Economy. Saarbru?Cken, Vdm Verlag Dr. Mu?ller. Available at: [Accessed: 17 Feb 2013] Emine, D. (2012). ‘Financial Challenges That Imped Increasing The Productivity Of SME’s In Arab Region’. Journal of Contemporary Management, pp.17-32. Fu, Y-K. (2011). ‘Marketing Activities Management In SMEs: An Exploratory Study’. Human System Management, Vol 30, pp.155-166. [Online] Available at: http://iospress.metapress.com/content/5n62948113657173/ [Accessed 27 Jan 2013] Hertog, S. (2010). ‘Benchmarking SME’s policies in the GCC: A survey of challenges and opportunities’. Belgium: Eurochambers. Howard, B. (2008). ‘Big In Smalls’. Financial Management UK, July-August 2008. [Online] Available at http://www.questia.com/library/1G1-184538268/big-in-smalls-howard-bryant-fcma-helped-to-turn-a [Accessed 25 Jan 2013] Port, D. (2010). ‘But Where Is The Money’. Entrepreneur, pp.85-89. [Online] Available at: http://www.entrepreneur.com/article/207500 [Accessed 25 Jan 2013] Publishing Research Consortium. (2009). ‘Research report access by UK small and medium-sized enterprises to professional and academic information’. Bristol, UK: Mark Ware Consulting Ltd. Shalaby, N. (2004), ‘SMEs Development in Saudi Arabia’, [Online] Available at: http://www.nabil-shalaby.com/ArticlesEN/SMEs%20DEVELOPMENT%20IN%20SAUDI%20ARABIA.pdf [Accessed 25 Jan 2013] Read More