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Importance of Small and Medium Enterprises

Paper Type: Free Essay Subject: Business
Wordcount: 1997 words Published: 1st Jan 2015

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Small and Medium Enterprises (SMEs) play a very important part in the world economy. As per researcher around 99% of the business firms in European Union comprise of Small and Medium sized companies (Mulhem, 1995). This is not only true for Europe and developed countries, as well, for developing nations.

As per researcher, advancement of technologies and revolution in communication field has changed the way people used to think and act in earlier days. Internet has shifted the approach of not only larger firms, as well as, that of the small and medium size firms throughout the globe. With time requirement of customers has increased to several folds and as a matter of fact E-Business strategies are a part of creating and executing business strategies of firms. With this it offers good opportunity to SMEs to get into foreign market, as well as, improve on their market position in the market they are functioning into (Coviello and McAuley, 1999). As per researchers it is highly anticipated that using this approach, SMEs will very soon start competing with larger organizations. However, as per Whitley (2000) there are few barriers to this due to which a number of SMEs are not able to take full advantage of the approach of Internet technology. This barrier can be due to the less potential and calibre of the firm for going online apart from the size of firm and type of customer they are dealing with (Poon and Swatman, 1999).

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With the stiff competition in current business acumen, it is of due importance to identify the ways in which SMEs can perform better into the international scenario (Kuivalainen et al., 2004). The current paper would concentrate on the literature of globalization of SMEs, use of internet and communication media for the same and challenges faced by SMEs while taking on E-Business strategies for international expansion.

Small and Medium Enterprise (SMEs):

In spite of large number of SMEs in the business arena, it is difficult to define it precisely, due to the diversity in the kind of firms. However, researchers have defined it in different ways as per the national and local requirements in different parts of the world (Theng and Boon 1996; Watson and Everrett 1996). Below table summarizes some of the definitions based on the same.

However, it could be summarised from the table 1 that the number of employees is the most important criteria for determining the category in most countries.

Table 1: SMEs in different nations


Globalization of SME’s:

With increase in the presence of SMEs in international scenario, there has been a substantial increase in the research on globalizations of SMEs, especially in International Entrepreneurship scenario (Lu and Beamish, 2001). However, many a researchers has been doing studies on globalization of SMEs, whereas most of them focussed on SME export activities such as the exporting processes, performance and Foreign Direct Investment (FDI). As a matter of fact, very less number of researchers paid attention towards the performance implication of strategy for globalization (McDougall & Oviatt, 1996; Coviello & McAuley, 1999) (Lu, 2002). On the adverse side of this globalization aspect, SMEs often face problems and risk from entering into some foreign market. This can be due to lack in their internal capabilities like coping with financial and managerial resources (Dunning, 1981). Here it is required for the SME to attain the knowledge and skills required for entering into the new market (Lu and Beamish, 2001).

As a matter of fact, there have been various researches done in the past which has shown that SMEs from Asia, Europe and many other nations are taking diverse steps towards international ventures. In recent years, this has shown an emerging trend for SMEs to venture into exporting and global ventures. Moreover, widespread uses of internet and E-Business technologies are making global functioning, a more cost effective and viable option for them. This is providing them the option to efficiently deal with diverse clientele throughout the globe irrespective of their smaller size (Knight, 2001). SMEs can get competitive advantage from the usage of these technologies so as to overcome the constraint of competing with the larger firms (Piscitello and Sgobbi, 2004). As a matter of fact, this would give the entrepreneurs a scope to better their performance in global scenario and reduce on the competitive pressure.

Influence of Internet in Globalization:

Since the inception of Information technology, there has been a drastic influence of the same in the business arena throughout the globe. E-Business and other internet features have offered good chances for global market access for SMEs (Coviello and McAuley, 1999; Keogh et al., 1998). As a matter of fact not all SMEs are making use of this feature of information technology; however, research has shown that, there is a mixed reaction from this group where some are relying on the use of their conventional modes of business process. On the same side there are SMEs which are making full utilization of E-Business features to improve their positioning locally and in global context. As of now researchers have found that two thirds of business firms are getting online, however, SMEs are still lagging behind larger firms by half in taking such initiatives (UK Online, 2002) (Haig, 2002) (Simpson, M and Docherty, A. J (2004).

Internet applications can ease the speed of globalization for SMEs by eliminating the role and requirement of intermediate agencies (70). With use of websites and E-mails, SMEs can ease their globalization process by easing on communication process with clients, suppliers, employees and target customers in market. As a matter of fact this would further help SMEs to maintain a good position in market by inter firm Research and Development, global sales promotion and other market intelligence activities (18). Apart from this Internet and its features helps in increasing firm’s network in the market by getting them in touch with agents, target customers, government agencies, and other bodies. This provides a visibility, is cost effective and efficient in application (46). Moreover this as well increases the chances of collaboration in between firms during globalization. However, there are chances of some competition in market at a very early stage in global market due to internet exposure. Researchers have found that SMEs in United Kingdom and Ireland faces such completion more often due to pricing and promotion factors (73).

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Internet helps in reducing the transaction cost by speeding up the globalization process. Internet can be used to gather important information pertaining to the target market. Thus, reduces risk and time wastages. Moreover E-Business provides speed in transitions, thereby making it easier to venture into foreign market. Adding into it, B2B and B2C portals are means which offers SMEs to bring about their product to the end users as well facilitates two way communications with them. It eases the process for customers regardless of their physical presence. They can get what they want, when they want and wherever they want. Thus it saves time and improves customer service (48, 16). Apart from these online transitions adds further into increasing on the customer base. Here is it important to note that the SMEs need to develop their online technical capabilities to handle such features. E-Commerce is related to the commercial activities and further helps in Enterprise integration and managing supply chain and customer relations. Below picture represents the various aspects of internet which has been discussed and could be used by SMEs for globalization process step by step. First for making their presence felt in the market, further on using portals and transaction features to increase their capabilities and at the end integrating their business for proper functioning.


Challenges Faced:

In contrast to the influence of internet, there are studies which show that due to unclear understanding of internet communication and E-Business concepts, SMEs often face problems in implementing them and sometimes even land up misusing it. At few instances some researcher has used Internet marketing, E-Commerce, E-Business as same. However, they all are quite different in concepts and meaning. Details and difference of their scope can be viewed in the below picture. The scope of e-mail and internet marketing is superseded by E-marketing and further on by the concepts of E-Commerce and E-Business, which are broader concepts having an intense scope in utilizing internet and communication technologies.


Moreover, there have been some challenges faced by SMEs while taking such decisions. There are some internal and external factors which pressurizes the entrepreneurs while taking business decisions (Lanz, 2002; Chan and Swatman, 2000). Mostly SMEs are family run businesses, so there are different kinds of vision and accordingly business owners take steps towards their realistic targets. Some prefer keeping their business small, to fulfil their family life expectation, whereas there are a few, who brings about changes in their approach and introduces Internet and E-Business concepts into their functioning, to attain growth and gain competitive advantage (Butler et al., 2007). Moreover, affordability and availability of resources, as well, add into the constraint towards introduction of such concepts in SMEs.

The external factors include the government support, communication network and the legal requirements that are needed on way to adoption of these technologies. Moreover, target market, market infrastructure and the competitor’s technology also play an important role in taking decision (Timmers, 2000). Apart from these factors firms are mostly dependent on the Internet Service Providers (ISPs) for implementing any technological concept into their organization. Here SMEs get much dependent on the private ISP in acquiring knowledge and skills for proper usage of the technology. As a matter of fact, in some of the cases risk factors are there if the ISP is not skilled enough to transfer proper knowledge to the firm and this may lead to problems in long run.


Much has been speculated about the globalization of SMEs and the role of internet and communication technologies in giving competitive advantage to these firms in the foreign market. However, this has been seen that SMEs are better at gaining competitive advantage over larger firms by using these Internet concepts as they can develop personal relations with their target consumers as well has the capabilities to provide custom made products to their customers based on their needs and requirements (White, 1998). Moreover, as SMEs venture into foreign market; hence, it becomes important for them to have technological edge over their competitors, so as to gain better share in market. (D’Cruz and Hussain, n.d.)

In short, introduction of Internet has created a very deep desire among the SMEs who are venturing into foreign market. They are getting more focused toward developing websites and using other concepts of E-Business, regardless of any long term uncertainty. To cope with the ever demanding market and advancement of technologies, SMEs are taking this concept as important so as to be a part of the game. Thus, one of the important aspects for SMEs is to improve on their capabilities not only technological, as well as cultural; so, that the changes could be successfully adopted in their functioning. The firm which has got in-house resources and capabilities has more chances to succeed in market than those who outsource such knowledge. (Tiessena et al., 2001)


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