Strategic Management Formulation in SMEs in Saudi Arabia - Research Paper Example

Strategic Management Formulation in SMEs in Saudi Arabia Research rationale Business, whether it is small, medium or large scale, is one of the majorcontributors of a country’s economy. Doing business is not an easy task in any country. Organizations need to develop right strategies at the right time and implement it at the right place in order to stay in the market. In other words, strategic management controls the success or failures of a company. Many companies are coming and going in the business world because of the improper and untimely business strategies. It is necessary to formulate innovative strategies to cater the needs of a changing business world. Globalization, liberalization and privatization have brought many changes in the business world. It opened many opportunities and challenges to the business people across the world. Saudi Arabia is a prosperous country because of the immense oil resources and the enormous capital it gains through business. “Saudi Arabia’s investment environment reflects the country’s traditions of liberal, open-market private enterprise policies. There are no restrictions on foreign exchange and no restrictions on the repatriation of capital and profits” (Investment Climate in Saudi Arabia, n. d). Even then, many small and medium sized enterprises (SME’s) failed to prosper in Saudi Arabia because of the failures in their strategic management of business. It is necessary to conduct an extensive research in order to identify the business climate of Saudi Arabia properly and the strategies necessary to exploit the opportunities present by the Saudi business world. Aim of the Research The major aim of this research is to identify the right strategies needed to the small and medium enterprises to excel in the Saudi business world. Hypothesis Saudi Arabia has encouraged SMEs for the last 5-6 years. Moreover, there are many non-governmental organizations which support SMEs financially. Even though Saudi is making every effort to encourage SME’s, most of the projects lack failed because of lack of innovation and sustainability Research Questions The questions like; what does strategy mean in the context of small firm? Should a small business have a formal strategy? Should a small firm plan its strategy? What strategies should a small firm pursue? Can a small business reposition itself strategically? What strategies are associated with success in small businesses? etc are some of the basic questions intended to answer through this research and would like to focus on (The impact of applying strategic management in general and strategic marketing management in particular on the success and sustainability of SMEs in Saudi Arabia). what are the norms or legal required to start a business in Saudi Arabia, how human right issues affect the business world in Saudi Arabia, how the development plans contributed to the improvement of business climate in Saudi Arabia etc are some of the major questions needed to investigate as part of this research. Theoretical framework Comparison of the Saudi economy before and after the introduction of globalization will give a rough picture of the Saudi’s capabilities in exploiting the globalization. Moreover, the number of SME’s operating at present and the number of SME’s before globalization will give more comprehensive picture about the small and medium scale business climate in Saudi. Sources/Resources I need both primary and secondary data to conduct this research in a successful manner. Moreover, both qualitative and quantitative data are required for the in depth analysis of the problem and to put forward certain recommendations to solve the problem. Methods Both qualitative and quantitative research methods will be used in this research in order to achieve research objectives. Qualitative data will be gathered through interviews whereas charts, diagrams, statistics and tables will be collected from the published sources to collect the quantitative data. Interviews with the business people and the officials of the governmental bodies will help me to devise new questions at the time of interview in order to get more insight into the topic. Qualitative methodology is an important tool in capturing what a person, especially a person from the governmental body thinks about this specific issue. The feedbacks obtained from the interviews will help me in proposing certain recommendations of strategies to improve the business climate of SME’s in Saudi Arabia. Quantitative data will be collected from published resources and also from internet. The past researches in this field and the results from those researches will be compared with the results I obtained from my research in order to draw final conclusions. Ethical Issues I would like not to disclose the identities of the persons I interviewed in order to keep their privacy and to ensure the confidentiality of the data collected from them. It is a fact that most of the people, who are going to be interviewed may not reveal any sensitive issues related to doing business in Saudi Arabia out of fear. If somebody dares to do so, it is my duty to ensure the confidentiality of such information. Strategies for overcoming possible problems It might be difficult to get access to the governmental bodies in Saudi Arabia. Moreover, personnel from governmental bodies may not take much interest in providing sensitive details about the business climate in Saudi Arabia. But published resources and internet can be easily accessed without any barriers even though the Saudi administration is a traditional one. It is necessary for me to visit Saudi Arabia in order get firsthand experience on the business climate and to interview the government officials. Sometimes, I need to access materials written in Arab languages also as most of the governmental documents published in Saudi Arabia are in Arabic language. Intended Structure of Dissertation Executive summary or abstract about the Strategic Management Formulation in SMEs in Saudi Arabia will be provided immediately after the title page. 300-500 words will be used for the executive summary. In the next page an introduction of the topic will be given in 10% of total dissertation words followed by literature review (20%), research methodology (20%), discussion and findings (30%), conclusions (10%), recommendations (10%) bibliography and appendices. In total there will be 9 sessions. Work schedule This research is aimed to complete within three years. I have planned to start the data collection from August 1st onwards. The first year will be utilized for collecting primary data. Being a person from Saudi Arabia, it is easy for me to collect primary and secondary data. I have planned to interview some of the Saudi business people and the government officials. I have already made arrangements for that through some of my relatives and family friends. The second year will be used to collect secondary data from the published articles, books, journals and internet. The next 6 months of the last year will be fully used for the data analysis, findings, conclusions etc. Last six months will be used for writing the dissertation. Literature Review In general terms, “a common feature is that an SME in APEC (Asia-Pacific Economic Cooperation) employs less than 100 people, but there are a lot of exceptions. There is no common agreement on what distinguishes a micro firm from a small or a medium one, but generally a micro enterprise employs less than 5 people” (What is an SME?, 2003: p.173). Different countries have different norms about the definition of SME’s. In Saudi context, an SME means a firm which employs people below 100. SME includes micro, small and medium scale industries. SME’s can engage in any kind of business ranging from part time to full time. Strategic management consists of analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages (Dess et al, 2005,p. 1). Better analysis of the business climate and prospects will help the SME’s to prosper properly in Saudi Arabia. Right decisions at the right time will help the SME’s immensely in maintaining their growth. Actions should have the backing of strategic thinking. A strategic management process for small and medium size enterprises includes four essential stages. Those are analyzing external and internal environments, selecting business strategies, implementing those strategies and, finally, evaluating the implementation success of the companies business strategies (Four stages of strategic management process for SME, 2006). Both the external and internal environments are important for an SME. The analysis of these environments will reveal the strength and weakness of the SME with respect to the competitors. It is not necessary that a business strategy succeeded at a particular time period may succeed in another occasion. Business climate and environment are changing rapidly because of the changes happening across the business world. Gary Hamel (2000), argues that the best strategy is geared towards radical change and creating a new vision of the future in which you are a leader rather than a follower of trends set by others. According to Hamel, winning strategy foresight vision (WHAT IS STRATEGIC MANAGEMENT?,n. d, p.1) Small businesses need good strategies in order to stay in the market. Big companies always have immense financial, technical and manpower resources whereas the small firms may have only strategies to counter it. If SME’s fail to formulate the right strategies, it cannot stay in the current world of globalization and liberalization in which big companies are always raising threats to the sustainability of SME’s. Small firms should try to operate in areas where the competition from the larger firms is less. Moreover, SME’s need the right marketing strategies to stay in the market. They should take marketing as a philosophy; as a strategy; as tactics/methods; and market intelligence (Reijonen, 2010, p.281) Gross Domestic Product of Saudi Arabia grew in value from about SR 603.6 billion in 1999 to about SR 714.9 billion in 2004, with the real growth rate averaging 3.4% per annum during the period. This is slightly higher than the average annual growth rate of 3.16% targeted by the Plan, and much higher than the growth rate of 1.11% per annum achieved by the Sixth Plan (NATIONAL ECONOMY DURING THE SEVENTH DEVELOPMENT PLAN n. d p.4) “Saudi SMEs contribute about 14% of total industrial production and utilize about 35% of the energy consumption of industry. It contributes about 8% to the total value of industrial exported (OTSUKI, 2002, p.5). The Seventh Development Plan has contributed heavily to the economic developments in Saudi which is reflected in the economic indicators of GDP, capital accumulation, foreign trade, balance of payments, human resources development, economic efficiency, private sector contribution, financial and monetary performance. Human resource development is one of the major factors which may bring benefits to the SME’s. Earlier, the SME’s forced to employ the locals in their organization even if they were incompetent because of the governmental policies. But the development in local human resources may reduce such anxieties of the SME’s Private sector contribution to real GDP rose from SR 316.4 billion in 1999 to about SR 390.2 billion in 2004, with an average annual growth rate of 4.3%.Value added in the crude Oil and Gas sector increased from SR 173.1 billion in 1999 to SR 196.7 billion in 2004, posting a real annual growth rate of 2.6% (NATIONAL ECONOMY DURING THE SEVENTH DEVELOPMENT PLAN n. d p.6) Private companies started to invest heavily in the Saudi business world because of the liberalized rules. Special economic zones were created largely in order to remove or reduce the burdens on the entrepreneurs. King Abdulla Economic City is currently ranked number one in the Middle East region (Middle East - General Industrial - Special Economic Zone Rankings, n. d, p.1) A supportive environment for industrial growth and development has been created by providing infrastructure and services in fourteen industrial estates spread throughout the country, in addition to the two distinguished industrial cities of Jubail and Yanbu. Moreover, several other measures have been taken, including providing soft loans for industrial projects through a number of specialized credit institutions, exempting many of the inputs of the industrial sector from custom duties, creating an improved investment climate, and establishing international bilateral and multilateral trade relations to promote Saudi industry (CHAPTER TWENTY SEVEN INDUSTRY, n. d, p.547) Saudi is currently developing as the leading business hub in the Middle East region. Compared to many other gulf countries, Saudi Arabia is big in land size and hence it has ample space for development. The eighth development plan offers more advantages to the SME’s (The Eighth Development Plan (1425/1426 - 1429/1430)A.H (2005 -2009), n. d). This plan is aimed at improving the competition among SME’s by enhancing their local, regional and international linkages. Moreover, this plan aimed at the industrial and infrastructure development of all regions of Saudi which will provide ample opportunities to the SME’s (CHAPTER TWENTY SEVEN INDUSTRY, n. d, p.547) “Over the 1992–2004 period, the natural growth rate of the Saudi population has remained high at 2.5% annually” (CHAPTER NINE POPULATION AND STANDARD OF LIVING, n. d, p.180). For conducting a business successfully, the population size around the market should be adequate. It is impossible for an SME to excel in a place where population is less. The ever increasing population size and the economic development are good signs for the SME’s. SME’s should devise suitable strategies to exploit such increasing local population. Nearly 39 per cent of Saudi businesses with a turnover of less than SR112.5 million are expecting an increase in capital expenditure, while only 19 per cent believe that investment in their companies will slow down, according to a new HSBC survey called Emerging Markets Small Business Confidence Monitor The kingdoms entrepreneurs are even more optimistic about trade outlook. About 57 per cent believe that trade with the rest of the Middle East will expand by up to a fifth or more. Some 80 per cent predict increased business with mainland China, with more than half of them anticipating a growth of more than 20 per cent (Shaikh 2009) China is one of the rapidly developing economies in the world. Even the recent recession could not cause much harm to the Chinese economy. The strong ties of Saudi with China are definitely a good sign for the SME’s. In fact China is the number one exploiter of globalization and Saudi can learn lot of lessons from China with respect to the exploitation of globalization which will be beneficial to the SME’s. “A loan guarantee scheme, to be managed by the Saudi Industrial Development Fund (SIDF), aims to promote commercial bank lending to the SME sector” (SMEs in Saudi Arabia, 2004). Small and medium scale industrial sector in Saudi has the option of receiving ample loan opportunities from the Saudi commercial banks. References 1. CHAPTER ONE: NATIONAL ECONOMY DURING THE SEVENTH DEVELOPMENT PLAN (n. d) The Eighth Development Plan (1425/1426 - 1429/1430)A.H (2005 -2009)A.D Retrieved on 30 June 2010 from http://www.mep.gov.sa/index.jsp;jsessionid=869892C320A5405CBE91F746A21E851B.alfa?event=ArticleView&Article.ObjectID=3  2. CHAPTER NINE: POPULATION AND STANDARD OF LIVING, (n. d) The Eighth Development Plan (1425/1426 - 1429/1430)A.H (2005 -2009)A.D Retrieved on 30 June 2010 from http://www.mep.gov.sa/index.jsp;jsessionid=869892C320A5405CBE91F746A21E851B.alfa?event=ArticleView&Article.ObjectID=3  3. CHAPTER TWENTY SEVEN INDUSTRY (n. d), The Eighth Development Plan (1425/1426 - 1429/1430)A.H (2005 -2009)A.D Retrieved on 30 June 2010 from http://www.mep.gov.sa/index.jsp;jsessionid=869892C320A5405CBE91F746A21E851B.alfa?event=ArticleView&Article.ObjectID=3  4. Dess, Gregory G., Lumpkin G T and Taylor M L (2005), Strategic Management. 2 ed. New York: McGraw-Hill Irwin, 2005 5. Four stages of strategic management process for SME, (2006) Retrieved on 30 June 2010 from http://www.syl.com/bc/fourstagesofstrategicmanagementprocessforsme.html 6. Investment Climate in Saudi Arabia, (n. d), Retrieved on 30 June 2010 from http://www.the-saudi.net/business-center/investment-climate.htm 7. What is an SME? (2003), Journal of Enterprising Culture, Vol. 11, No.3, September 2003, 173-337 8. KSA Economy (n. d), Retrieved on 30 June 2010 from http://www.mep.gov.sa/index.jsp;jsessionid=65329B49B5C25599FF8CFCCA01C761D5.alfa?event=ArticleView&Article.ObjectID=45 9. Middle East - General Industrial - Special Economic Zone Rankings (n. d), Retrieved on 30 June 2010 from http://www.pbiaqaba-jo.com/images/fDi%20Magazine%20-%20%20General%20Industrial%20-%20Special%20Economic%20Zone%20Rankings%20-%20(2).pdf 10. OTSUKI M, (2002), SMEs Supporting Systems in Saudi Arabia, Retrieved on 30 June 2010 from http://www.ssic2008.com/assets/files/PDF/101-150/114.pdf 11. Reijonen H (2010) Do all SMEs practice same kind of marketing? Journal of Small Business and Enterprise Development Vol. 17 No. 2, 2010 pp. 279-293 q Emerald Group Publishing Limited www.emeraldinsight.com/1462-6004.htm 12. Shaikh H (2009), Khaleej Times 08-Sep-09, Most SMEs in Saudi Arabia Optimistic about Trade Outlook 13. SMEs in Saudi Arabia (2004) Retrieved on 30 June 2010 from http://bizbeginners.biz/saudi_arabia.html 14. The Eighth Development Plan (1425/1426 - 1429/1430)A.H (2005 -2009), (n. d), Retrieved on 30 June 2010 from http://www.mep.gov.sa/index.jsp;jsessionid=15DD4FF8633A23EB77CE37EB4D874CF6.alfa?event=SwitchLanguage&Code=EN 15. WHAT IS STRATEGIC MANAGEMENT? Appendix KSA Economy (KSA Economy n. d), Read More