Entrepreneurship And Innovation For Small Enterprises

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Small and medium enterprises (SMEs) are an important approach to sustainable development. These businesses mobilize resources and cater the needs of some domestic market as it exerts a strong influence on the economies of many countries through their ability to innovate new products and processes, have been the engine of economic growth and technological progress.

Innovation is "an idea, practice, or object that is perceived as new by an individual or other unit of adoption".

Thus, SMEs have remained one of the most important sectors for any nation of this region that contribute much to create employment, Job opportunities and earn foreign currency through export.

The SMEs manufacture products and services with moderate quality applying to a great extent outdated technologies, have been confronting hard competition with the imported product and situation may further be worsened in the days to come because they have to compete with international competitors due to trend in globalization, widening free trade and phasing out of taxes barriers. The changes that have been taking place in the international economic situation have absolutely brought challenges for the SMEs. However, these same changes at the same time have opened up great business and market opportunities for this sector.

(OECD (2000-2002), Small and Medium Enterprises Outlook, OECD, Paris.)

(Vareska vandeVrandea, Jeroen P.J. de Jong, Wim Vanhaverbeke. Open innovation in SMEs:Trends,motives and management challenges)

Problems Faced by SMEs:

Small and Medium Enterprises (SMEs) are often confronted with problems that is unusual or rare to the larger companies and multi-national corporations. These problems include the following:

1-Lack of Financial Resources:

Most of the SME financial resources are often limited.  This forces company to select a solution which is always appears to be cheap initially.  However, the hidden costs will start to emerge during implementation.  This sometime causes the project to be neglected or sometime sent the company into more financial crisis, This is almost the biggest problem faced by SMEs who have taken huge amount of loans is the release of debt-burden. Those SMEs who do not have enough funds to pay to the bankers and suppliers find themselves at nothing but at a shut-down p

2-Failure of recruitment and good Marketing:

Many do not have marketing expertise or they are not in a position to hire someone who can perk up their sales. Also SMEs are largely dependent on their staffs, if you fail in the recruitment process, you fail indeed. SMEs must hire right employees, who give their best and support the enterprise through their performances.

3-No IT Support:

IT experts are highly demanded and are often attracted to larger companies. It is very difficult for SMEs to attract good IT experts. It is even more difficult to keep them.  Furthermore, good IT experts and technician are expensive and may not be affordable by most SMEs.

4-Lack of IT Literacy:

Many of the employees in SMEs started from the ground up after working with the company for many years.  Some of them are often holding supervisors and managers' chairs. These employees may not be IT literate and often have high opposition to the changes in the working process that they are comfortable with after many years which is far away from using computers like saving the Data and information in a huge record and everything is written down in that record.

5-Lack of Formal Procedure and Regulation:

Most SMEs do not have formal procedure and sometimes it is not even documented.  Furthermore, there is tendency for these procedures to change frequently.  This makes it difficult for third party, trainees and new employees to understand the existing business practices and match them with the IT process.

6-Weakness in Human Resources:

Requiring large amount of initial data entries require human resource during the implementation. Some SMEs are often in the stage of lack of manpower. This makes it very difficult for them to find time to perform implementation. Also there is always a conflict between getting the daily routing work going and to do the "additional" IT implementation.

7-Lack of Experienced Consultants:

A good consultant often save effort and time, and help to prevent drawbacks during the IT projects.  However, most SMEs are lacked of experience in working with consultants. The lack of knowledge in the field of IT makes them difficult in identifying expert consultants for the projects. They often have the feelings that the consultant costs are too high and they can handle it with their own employees. If the company has no staff that are experience and knowledgeable in the IT project, avoiding external help often costs more to the company eventually.

(OECD (2004), Financing SMEs in an Innovative Economy. Background Report prepared for the 2nd OECD Ministerial on SMEs, June 2004 in Istanbul, Turkey.)

(Acs, Z. and Audretsch, D. (1990): Innovation and Small Firms, Cambridge.)

(Baldwin, J.R. and Gellatly, G. (2004): Innovation Strategies and Performance in Small Firms, Ottawa.)

Solutions; How can SMEs overcome Inherent Difficulties:

SMEs need a positive business environment and regulations, sufficient basic infrastructure services, access to short and long-term funding at reasonable rates, advisory assistance, and knowledge about market opportunities.

Investments in training of management team and staff are necessary.  This will open the windows to the other alternatives of operating the business in more efficient and profitable way.

Resistance to changes is one of the biggest obstacles in any IT implementation or organization improvement.  Having a culture of learning and sharing of knowledge will help to minimize that effect.  The culture of the company can only be molded by the leadership of the top management.  The top management has to lead by example and show willingness to change.

Also Good external advisors or consultants can make different way of looking at the business and expertise in some specific areas.

SMEs go through deficiencies in accounting and weak entrepreneurial skills, production management, and business planning. As SMEs grow, they increasingly need connectivity to export markets and the world economy. So far, the international experience show that very few government and donor enterprise have succeeded in implementing great strategies for SME progress. To prosper, great SME development will require efforts from the various parties concerned including hiring companies, equity suppliers, consulting and training companies, internet providers, as well as local business associations.

(Fletcher, Richard. Brown, Linden. International marketing : an SME perspective , Financial Times Prentice Hall, C.2004. C.2004.)

(journal of Banking & Finance, Volume 30, Issue 11, November 2006, Pages 2931-2943

Thorsten Beck, Asli Demirguc-Kunt)

(Carson, David ,1995 Marketing and entrepreneurship in SMEs , Prentice Hall)