Essay On SME

Abe et al. (2012) argue that the importance roles of SMEs in overall economic development have been widely recognised both in developed and developing countries. Hence, they conclude the development of SMEs has been crucial in recent decades and there are some general objectives of SMEs development: (1) create jobs and generate income; (2) improve SME performance and competitiveness; and (3) increase their participation in and contribution to the national economy. Undoubtedly, SMEs play significant role as one important segment of world economy, especially in Asia, whether in developed and developing countries. As seen in Figure 1, SMEs dominate the constitution of business environment in emerging economy. However, SMEs appear to face significant

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1.1.3 Characteristics

There are certain common characteristics of SMEs which defined by Abe et al. (2012), in spite of country and regional differences:

1. Born out of individual initiatives, knowledge and skills – SME start-ups tend to evolve from a single entrepreneur or a small group of entrepreneurs – in many cases, leveraging a unique skill set;

2. Greater operational flexibility – the direct involvement of owner(s), coupled with flat organisational structures, ensure that there is greater operational flexibility. As a result, decision-making is faster;

3. Low cost of production – SMEs have lower overheads. This translates into lower production costs;

4. Specialization in niche markets – successful SMEs concentrate on small but profitable markets in order to avoid battles with large enterprises as well as to ensure effective investment and utilization of their resources and expertise;

5. A high propensity to adopt technology – SMEs show a propensity for adopting and internalizing new technology when given the proper incentives and

Utilization of locally available human and material resources – SMEs mostly utilize skills, manpower and resources available locally. This brings prosperity to the area where they operate; and

9. Reduction of geographical imbalances – unlike large enterprises, SMEs can grow in developed and underdeveloped areas. This reduces geographical imbalances.

1.1.4 Competitiveness

SMEs ability to compete for markets, resources and revenues as measured by indicators such as relative market shares, growth, profitability or innovation levels are stated by Abe et al. (2012) as SME competitiveness. Moreover, they develop competitiveness framework for SMEs which pertains causal relationship between external and internal determinations of (a) competitiveness, (b) products and services with superior quality, cost and delivery (QCD), and (c) large market share and high profitability (see Figure 4).

Figure 6 Competitiveness Framework for SMEs (Abe et al. 2012)

1.1.5 Challenges

For and foremost, due to its small operational size, lack of resources, knowledge and network connections, SMEs typically suffer from: (1) Low bargaining power, both for sales and for procurement (i.e., low prices and high costs, leading to low income and less profit); (2) Weak market access; (3) Low technology adaptation; (4) Lack of brand development; (5) High debt structure; (6) Weak management with less training; (7) Weak human resource base with a low level of compensation; and (8) Inadequate institutional support