| T | | | | studies show a clear trend towards reduction of size |
| For this article, I selected a sector that has not been | | | | in firms of the manufacturing sector in developed |
| covered by authors and could hardly be found in | | | | countries. Possible reasons for this are the diffusion |
| books for Operations Management. I find this | | | | of flexible modes of production and the downsizing |
| topic’s importance and significance to the | | | | of large firms. In addition, since the eighties SMEs |
| global economy, and the Western, in particular, very | | | | have an increasingly important role in GDP in |
| high. Authors and advocates (e.g., Schroeder, 2004) | | | | developed countries. This is a result of the increasing |
| dealt with the large enterprises, from both the | | | | importance of subcontracting and labour flexibility for |
| manufacturing and service sectors; the smaller firms, | | | | competitiveness. The author points out that SMEs |
| known as Small Business, Minority Owned Business, | | | | have grown in number because in many sectors |
| SME (Small and Medium-size Enterprise), or SMB | | | | barriers to entry of new firms were reduced and also |
| (Small and Medium-size Business), have been virtually | | | | because a greater motivation of workers. Empirical |
| ignored by them. | | | | studies, done on the US and Italy, show that a firm's |
| DEFINITION AND CHARACTERISTICS | | | | size and its growth rate are negatively correlated. |
| A Small and Medium-size Enterprise is defined | | | | Nevertheless, argues La-Rovere, the reason why |
| differently, according to the purpose of each | | | | only 40% of American SMEs have a life-span above |
| definition; the UK Department of Trade & | | | | 6 years, is mainly because their lack of liquidity. |
| Industry (2001) suggests that it is mainly because | | | | O’Gorman and Doran (1999) suggest that |
| of the wide diversity of businesses. The UK | | | | another factor that affects SMEs, characterised by |
| Department provides a basic definition of SME, one | | | | strong entrepreneurial leadership, is their state of |
| that was used by the Bolton Committee in its 1971 | | | | growth and ever-changing, which requires an |
| Report on Small Firms: a small firm is an | | | | increasing need for the introduction of formal |
| independent business, managed by its owner or | | | | structures, systems, procedures, and controls. |
| part-owners and having a small market share. The | | | | Nevertheless, SMEs can achieve global |
| UK Department also comes with statistics and hard | | | | competitiveness without necessarily increasing their |
| numbers for its definition; however, I’ll use a | | | | actual size, argue Tetteh and Burn (2001), but rather, |
| more updated, and broader definition of SME, which | | | | by building on their virtual or soft assets in order to |
| is given by EU Commission (2003): | | | | expand. These virtual assets include information |
| The category of SME is made up of autonomous | | | | skills, digital resources, and competencies for |
| enterprises which employ fewer than 250 person | | | | managing inter-firm relations and collaborative |
| and which have an annual turnover not exceeding | | | | engagements with other firms. |
| EUR 50 million, and/or an annual balance sheet total | | | | The World Bank Group’s Small and Medium |
| not exceeding EUR 43 million. | | | | Enterprise Department claims to combine the |
| An autonomous enterprise is any enterprise | | | | market perspective of the International Finance |
| that is not classified as a partner | | | | Corporation with the policy expertise of the World |
| enterprise
or as a linked enterprise. | | | | Bank to promote local small business growth in |
| Partner enterprise is an enterprise (upstream | | | | developing nations (last updated February 4th, |
| enterprise), that holds, either solely or jointly, 25% or | | | | 2004, website SMEs play a key role in the developing |
| more of the capital or voting rights or another | | | | countries’ economy, which is far greater than |
| enterprise (downstream enterprise). [In the US it is | | | | it is in the Western countries. SME in Bulgaria |
| normally called small business and depending | | | | (2001) estimates that following the 1990s major |
| on who owns it, perhaps a minority owned | | | | privatisation, the number of SMEs accounts for over |
| business. In the US, minority owned businesses | | | | 98% of all registered economic entities; the vast |
| often get breaks on public projects and contact | | | | majority of these are micro-enterprises with less than |
| awards; for example they can get a 5% higher score | | | | five employees, and their main activities in the retail. |
| because of their minority status when being | | | | However, 46.5% of Bulgaria’s workers in 1999 |
| evaluated for public contracts in some cases.] | | | | were employed by SMEs; a figure that is lower than |
| Exceptions are public investment corporations and | | | | the EU average. A study in Brazil shows that small |
| venture capital companies that can hold more than | | | | and micro enterprises (up to 100 employees) |
| 25%, provided the total investment is less than EUR | | | | represent 51% of national production, 42% of |
| 1.25 million. A linked enterprise is an enterprise | | | | wages, 65% of employment and 99% of enterprises |
| that has a majority of shareholders’ or | | | | registered in the country (SEBRAE, 1991). |
| members’ voting rights in another | | | | Statistics show that in the developed countries, 50 |
| enterprise
or has the right to exercise a dominant | | | | percent of all innovations and 95 percent of all radical |
| influence over another enterprise. | | | | innovations since World War II have come from new |
| Within the SME category, a small enterprise is defined | | | | or smaller firms (Timmons, 1994). In 1996, SMEs in |
| as an enterprise which employs fewer than 50 | | | | then fifteen-members-EU made 66% of the |
| persons and whose annual turnover/ balance sheet | | | | employment share, with six persons per enterprise in |
| total does not exceed EUR 10 million. | | | | average (European Foundation, 2001). In Japan |
| Within the SME category, a micro-enterprise is | | | | of 1996, however, only 33% of the workers were |
| defined as an enterprise which employs fewer than | | | | employed by SMEs, with the average of ten persons |
| 10 persons and whose annual turnover/ balance | | | | per enterprise; nevertheless, argues the organisation, |
| sheet total does not exceed EUR 2 million. | | | | in the Japanese economy, SMEs play a way more |
| This distinction is strongly correlated with the firms' | | | | crucial role than in any Western country. The |
| organisation. Schlenker and Crocker (2003) suggest | | | | Japanese Keiretsu system of |
| that micro-enterprises are more often a mixture of | | | | groups-of-businesses, with network of |
| sole traders or sole proprietor organisations, which | | | | cross-shareholding, makes these SMEs fall out of the |
| tend to behave as consultants rather than as | | | | definition above, on technical grounds. The US is |
| corporate bodies. Small enterprises more often than | | | | rated bellow the EU with regards to the SME |
| not, begin to behave like corporate bodies, with a | | | | employment: only 42% of the workforce is |
| corporate culture and a clear division of | | | | employed in SMEs (relative to EU’s 66%), but |
| responsibilities. Medium sized enterprises often mirror | | | | when comparing between the micro-enterprises, |
| their corporate counterparts with a distinct corporate | | | | those with less than ten persons, the difference is |
| culture and a dedicated IT function. The primary | | | | wider, with 33% in EU and only 11% in the US. Some |
| purpose of these firms, they suggest, is not to | | | | of SME’s labour characteristics, as identified by |
| maximize revenues, but to generate an income for | | | | European Foundation for the Japanese |
| their owners; they are more concerned with | | | | society, are extensive use of part-time employees, |
| "quality of life" issues than stock value
only 3 per | | | | non unionised and non-regular employees (family aid, |
| cent of all SMEs actually wish or are able to grow, in | | | | seasonal and daily-temporary), lower salaries and |
| terms of either employment or turnover. Another | | | | benefits and more annual working hours. In the US, |
| characteristic of this sector, point out the authors, is | | | | on the other hand, the SME labour is characterised as |
| that most firms do not possess several of the core | | | | more flexible, even when compared to the EU; this |
| processes (conception, manufacturing, sales, delivery, | | | | flexibility is a result of informal communication, direct |
| after sales service) normally associated with "doing | | | | supervision, more broadly defined jobs, and the ability |
| business". As a result, SMEs are forced to collaborate | | | | to capitalise on strengths of individual employees to |
| with each other and with larger concerns to survive, | | | | meet customer needs. Other aspects of the SME |
| to compete, and to produce sustainable revenues | | | | sector will be discussed throughout the paper. |
| over time. A research carried out in 1992, found that | | | | However, the World Bank Group’s initiative |
| 41% of UK SMEs competed primary on quality, 37% | | | | for building better business environments at the |
| competed primary on price, 13% on time (lead-time | | | | developing world, highlights some of the difficulties |
| and on-time delivery), and 9% of the SMEs | | | | specific to SMEs in these countries: difficult |
| competed primary on flexibility (Neely et al., 1994). | | | | regulatory, tax and trade climate, barriers to entry, |
| As for the growing importance of SME in the global | | | | lack of legal infrastructure and corruption. |
| economy, La-Rovere (1996) suggests that empirical | | | | |