| ABSTRACT | | | | have grown in number because in many sectors |
| For this article, I selected a sector that has not been | | | | barriers to entry of new firms were reduced and also |
| covered by authors and could hardly be found in | | | | because a greater motivation of workers. Empirical |
| books for Operations Management. I find this topic's | | | | studies, done on the US and Italy, show that a firm's |
| importance and significance to the global economy, | | | | size and its growth rate are negatively correlated. |
| and the Western, in particular, very high. Authors and | | | | Nevertheless, argues La-Rovere, the reason why |
| advocates (e.g., Schroeder, 2004) dealt with the large | | | | only 40% of American SMEs have a life-span above |
| enterprises, from both the manufacturing and service | | | | 6 years, is mainly because their lack of liquidity. |
| sectors; the smaller firms, known as Small Business, | | | | O'Gorman and Doran (1999) suggest that another |
| Minority Owned Business, SME (Small and Medium-size | | | | factor that affects SMEs, characterised by strong |
| Enterprise), or SMB (Small and Medium-size Business), | | | | entrepreneurial leadership, is their state of growth |
| have been virtually ignored by them. | | | | and ever-changing, which requires an increasing need |
| DEFINITION AND CHARACTERISTICS | | | | for the introduction of formal structures, systems, |
| A Small and Medium-size Enterprise is defined | | | | procedures, and controls. Nevertheless, SMEs can |
| differently, according to the purpose of each | | | | achieve global competitiveness without necessarily |
| definition; the "UK Department of Trade & Industry" | | | | increasing their actual size, argue Tetteh and Burn |
| (2001) suggests that it is mainly because of the wide | | | | (2001), but rather, by building on their virtual or soft |
| diversity of businesses. The UK Department provides | | | | assets in order to expand. "These virtual assets |
| a basic definition of SME, one that was used by the | | | | include information skills, digital resources, and |
| Bolton Committee in its 1971 Report on Small Firms: | | | | competencies for managing inter-firm relations and |
| "a small firm is an independent business, managed by | | | | collaborative engagements with other firms". |
| its owner or part-owners and having a small market | | | | The World Bank Group's Small and Medium Enterprise |
| share". The UK Department also comes with statistics | | | | Department claims to "combine the market |
| and hard numbers for its definition; however, I'll use a | | | | perspective of the International Finance Corporation |
| more updated, and broader definition of SME, which | | | | with the policy expertise of the World Bank to |
| is given by "EU Commission" (2003): | | | | promote local small business growth in developing |
| The category of SME is made up of "autonomous | | | | nations" (last updated February 4th, 2004, website |
| enterprises" which employ fewer than 250 person | | | | SMEs play a key role in the developing countries' |
| and which have an annual turnover not exceeding | | | | economy, which is far greater than it is in the |
| EUR 50 million, and/or an annual balance sheet total | | | | Western countries. "SME in Bulgaria" (2001) estimates |
| not exceeding EUR 43 million. | | | | that following the 1990s major privatisation, the |
| An "autonomous enterprise" is any enterprise that is | | | | number of SMEs accounts for over 98% of all |
| not classified as a "partner enterprise"... or as a "linked | | | | registered economic entities; the vast majority of |
| enterprise". Partner enterprise is an enterprise | | | | these are micro-enterprises with less than five |
| (upstream enterprise), that holds, either solely or | | | | employees, and their main activities in the retail. |
| jointly, 25% or more of the capital or voting rights or | | | | However, 46.5% of Bulgaria's workers in 1999 were |
| another enterprise (downstream enterprise). [In the | | | | employed by SMEs; a figure that is lower than the EU |
| US it is normally called "small business" and depending | | | | average. A study in Brazil shows that small and micro |
| on who owns it, perhaps a" minority owned business". | | | | enterprises (up to 100 employees) represent 51% of |
| In the US, minority owned businesses often get | | | | national production, 42% of wages, 65% of |
| breaks on public projects and contact awards; for | | | | employment and 99% of enterprises registered in |
| example they can get a 5% higher score because of | | | | the country ("SEBRAE", 1991). Statistics show that in |
| their minority status when being evaluated for public | | | | the developed countries, 50 percent of all innovations |
| contracts in some cases.] Exceptions are public | | | | and 95 percent of all radical innovations since World |
| investment corporations and venture capital | | | | War II have come from new or smaller firms |
| companies that can hold more than 25%, provided | | | | (Timmons, 1994). In 1996, SMEs in then |
| the total investment is less than EUR 1.25 million. A | | | | fifteen-members-EU made 66% of the employment |
| "linked enterprise" is an enterprise that has a majority | | | | share, with six persons per enterprise in average |
| of shareholders' or members' voting rights in another | | | | ("European Foundation", 2001). In Japan of 1996, |
| enterprise... or has the right to exercise a dominant | | | | however, only 33% of the workers were employed |
| influence over another enterprise. | | | | by SMEs, with the average of ten persons per |
| Within the SME category, a small enterprise is defined | | | | enterprise; nevertheless, argues the organisation, in |
| as an enterprise which employs fewer than 50 | | | | the Japanese economy, SMEs play a way more |
| persons and whose annual turnover/ balance sheet | | | | crucial role than in any Western country. The |
| total does not exceed EUR 10 million. | | | | Japanese "Keiretsu" system of groups-of-businesses, |
| Within the SME category, a micro-enterprise is | | | | with network of cross-shareholding, makes these |
| defined as an enterprise which employs fewer than | | | | SMEs fall out of the definition above, on technical |
| 10 persons and whose annual turnover/ balance | | | | grounds. The US is rated bellow the EU with regards |
| sheet total does not exceed EUR 2 million. | | | | to the SME employment: only 42% of the workforce |
| This distinction is strongly correlated with the firms' | | | | is employed in SMEs (relative to EU's 66%), but when |
| organisation. Schlenker and Crocker (2003) suggest | | | | comparing between the micro-enterprises, those with |
| that micro-enterprises are more often a mixture of | | | | less than ten persons, the difference is wider, with |
| sole traders or sole proprietor organisations, which | | | | 33% in EU and only 11% in the US. Some of SME's |
| tend to behave as consultants rather than as | | | | labour characteristics, as identified by "European |
| corporate bodies. Small enterprises more often than | | | | Foundation" for the Japanese society, are extensive |
| not, begin to behave like corporate bodies, with a | | | | use of part-time employees, non unionised and |
| corporate culture and a clear division of | | | | non-regular employees (family aid, seasonal and |
| responsibilities. Medium sized enterprises often mirror | | | | daily-temporary), lower salaries and benefits and |
| their corporate counterparts with a distinct corporate | | | | more annual working hours. In the US, on the other |
| culture and a dedicated IT function. The primary | | | | hand, the SME labour is characterised as more |
| purpose of these firms, they suggest, is not to | | | | flexible, even when compared to the EU; this |
| maximize revenues, but to generate an income for | | | | flexibility is a result of informal communication, direct |
| their owners; "they are more concerned with "quality | | | | supervision, more broadly defined jobs, and the ability |
| of life" issues than stock value... only 3 per cent of all | | | | to capitalise on strengths of individual employees to |
| SMEs actually wish or are able to grow, in terms of | | | | meet customer needs. Other aspects of the SME |
| either employment or turnover". Another | | | | sector will be discussed throughout the paper. |
| characteristic of this sector, point out the authors, is | | | | However, the World Bank Group's initiative for |
| that most firms do not possess several of the core | | | | building better business environments at the |
| processes (conception, manufacturing, sales, delivery, | | | | developing world, highlights some of the difficulties |
| after sales service) normally associated with "doing | | | | specific to SMEs in these countries: difficult |
| business". As a result, SMEs are forced to collaborate | | | | regulatory, tax and trade climate, barriers to entry, |
| with each other and with larger concerns to survive, | | | | lack of legal infrastructure and corruption. |
| to compete, and to produce sustainable revenues | | | | You can find and read the full version of the article, a |
| over time. A research carried out in 1992, found that | | | | 26-page PDF that includes the following topics: |
| 41% of UK SMEs competed primary on quality, 37% | | | | SME'S OPERATIONS STRATEGY |
| competed primary on price, 13% on time (lead-time | | | | SME'S QUALITY MANAGEMENT |
| and on-time delivery), and 9% of the SMEs | | | | FLEXIBLE PROCESS DESIGN |
| competed primary on flexibility (Neely et al., 1994). | | | | OWNERSHIP, STEWARDSHIP, AND MANAGEMENT |
| As for the growing importance of SME in the global | | | | TECHNOLOGY AND FLEXIBILITY |
| economy, La-Rovere (1996) suggests that empirical | | | | INFORMATION TECHNOLOGY FOR SME |
| studies show a clear trend towards reduction of size | | | | SME AND THE SUPPLY CHAIN |
| in firms of the manufacturing sector in developed | | | | REFERENCES |
| countries. Possible reasons for this are the diffusion | | | | FOOTNOTES |
| of flexible modes of production and the downsizing | | | | Ezra Bar, MBA, PhD Student, is a Business Process |
| of large firms. In addition, since the eighties SMEs | | | | Reengineering Consultant, for Small, Mid-size, and |
| have an increasingly important role in GDP in | | | | Large organisations, and an Online Academic Mentor |
| developed countries. This is a result of the increasing | | | | to Management and Engineering Students, operating |
| importance of subcontracting and labour flexibility for | | | | globally from Toronto. |
| competitiveness. The author points out that SMEs | | | | |