SMEs and Growing Approach - Coursework Example

SMEs and Growing Approach Introduction Official statistics reveal that small and medium enterprises or businesses are the major drivers of economy and they contribute the majority share in GDP as well. For example, in the United Kingdom, SMEs provide account for 98-99 percent of all business opportunities and provide more than 50 percent of the share in GDP. The same is the case with United States, Ecuador, Bangladesh and many other developed or developing countries. In fact, many governments are now a days working on special packages to ensure smooth running of SMEs in their countries. Since the presence, efficiency, and growth of SMEs is crucial for any country’s economy this paper focuses on the ways in which SMEs can attain sustainable growth. Moreover, the paper would also critically analyze the advantages and disadvantages of any one of the possible strategies adopted for growth by any SME. Discussion It is important here to understand that many SMEs all over the world suffer with this problem of sustainable and continuous growth. One may question that the concept of growth comes in when survival is not under threat. Obviously, growth precedes existence and ensuring existence comes first. However, existence is just not the problem of SMEs. This is because most of the SMEs operate those businesses, which are “recession proof.” These businesses actually sell products are services which are either necessity goods or supplements of necessity goods. Moreover, many SMEs actually witness a boom in their sales during tough financial times. The signal is towards the businesses of repairs and maintenance. During recession, people restrain themselves from buying brand new items and products. They prefer paying a little for the repair or maintenance of the old one to extend its life to little further (Levy & Powell, 2005). In addition, the SMEs, which have their business online, just seem to be immune to all these. Therefore, the question is all about the growth of these businesses. Most of the SMEs just attain some growth while they are young and once they grow a little older, the trend takes a U-turn (Hallberg, 2000). Therefore, it is important to some up with a formula with which an SME can actually attain sustainable, continuous, and long-term growth. Therefore, the paper would now move forward with discussing the same. The first problem and the biggest problem that these SMEs face, have links with the type of the businesses they operate. Most of these businesses are those with seasonal sales and occasional booms. This actually hampers all their projects for growth and expansion. The solution to this problem obviously is constant or may be somewhat significant during all days of the year. However, achieving it is the biggest challenge however; they are a few ways for the same. Firstly, good customer relations and developing customer loyalty is the key because that way the probability of the customer coming back increases. Secondly, it is discounts and promotional offers during the low sale days are very essential. Thirdly, the managers should work a bit on actually diversifying their businesses for these hard times as well. This way, they would have enough cash during all times of the year, which would eventually make them think big. The reason why the big fishes in the market have a lesser chance of taking the exit door as compared to the SMEs is due to one crucial practice that differentiates them from the SMEs and that is of market research. These large firms constantly spend thousands of dollars for gaining important insights about their customers, changes in their tastes, expectations, preference and others. However, SMEs just do not do that because they think that they cannot do that. However, this is not actually true, at least not for medium size firms. They can always have small budget researches, if not by them, then by hiring college and university interns or small economical research firms. If a company does not know about its customers then how would they even think of expanding? Furthermore, the most important difference between high growth businesses and low growth businesses is continuous product innovation and one cannot achieve this goal without significant market research (Lloyd-Reason & Sear, 2007). Moreover, this also applies to small firms despite the fact that they actually do not have sufficient budget for “headline type researches.” Nevertheless, they still can ask their managers or the owner himself can engage in constant eyeing of the customer behavior by talking to them, looking at the sales data and patterns or others (Reynolds, Estimé & OECD, 1996). Another problem with expanding is that most of these businesses are sole proprietor type of businesses, operated by one individual. The reason being trust issues and this is where the problem starts. It is very unusual to see that one individual having the skills of managing human resource, finance and accounts, marketing and sales, administration and operations and others required to run big businesses. Therefore, skills is one the barriers to growth for these businesses. Another reason why some SMEs at time fail is due to their small capital structure and fewer items of the left hand side of the balance sheet. In addition, this is just not ideal for growth; in fact, you need really the opposite for growth. Therefore, SMEs need to work on the same from their very existence to attain the objective of their growth. Let us take the example of Sweet Treats ice cream manufacturers as a medium size firm operating in the United Kingdom, which aims at expansion or growth with an innovation strategy. The goal here is look at the advantages and the disadvantages of this particular strategy. Firstly, constant innovation means high customer satisfaction and retention since the organization is able to meet their needs. Moreover, with constant innovation, the firm does not have to fear about customer loyalty, being old-fashioned, new competition and others. Besides, innovation does not mean higher sales or higher revenue but it can also decrease expenses and costs significantly with process innovation. Not only innovation can help the company in growing but also innovation means higher returns on the investment. In fact, all the big companies in the market have innovation as their central activity. However, on the darker side of the picture, there are disadvantages associated with it as well. At times, the cost of innovation is much higher than the expected returns over a fixed period. In fact, innovation is not a one-day process but it requires constant allocation of funds to the research experts or the research and development department but they do not give any guarantee for coming up with an innovative product or process and they can even fail as well. Therefore, both the cost of time and money is quite high. According to a recent research, the biggest hurdle, now a day, for the growth of SMEs is the increasing paper work and legal requirements (Harvie & Lee, 2005).Innovation can increase them largely. Another concern regarding innovation is that it is a never-ending process. The fear of being obsolete is always there in the mind of companies because they know that very soon their competitor would come up with even better product than theirs and customers would not waste any of their time in shifting to that product thus forcing the company to start making a new product all over again. This whole cycle is very costly and as said at time these costs exceed the returns (Fingleton, Eraydın, & Paci, 2003). References Fingleton, Bernard, Eraydın, Ayda, & Paci, Raffaele. (2003). Regional economic growth, SMEs, and the wider Europe. Ashgate Publishing, Ltd. Hallberg, Kristin. (2000). A market-oriented strategy for small and medium scale enterprises. World Bank Publications. Harvie, Charles, & Lee, Boon-Chye. (2005). Sustaining growth and performance in East Asia: the role of small and medium sized enterprises. Edward Elgar Publishing. Levy, Margi, & Powell, Philip. (2005). Strategies for growth in SMEs: the role of information and information systems. Butterworth-Heinemann. Lloyd-Reason, Lester, & Sear, Leigh. (2007). Trading places--SMEs in the global economy: a critical research handbook. Edward Elgar Publishing. Reynolds, Paul Davidson, Estimé, Marie-Florence., & Organisation for Economic Co-operation and Development. (1996). SMEs: employment, innovation, and growth: the Washington Workshop. Organisation for Economic Co-operation and Development. Read More