Role Of SMEs In The Mauritius Tourism Industry

1879 words (8 pages) essay in Economics

5/12/16 Economics Reference this

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Jones and Haven- Tang (2005) studied 10 characteristics that are popular for SMEs: SMEs are job opportunities generator; there is the risk of business failure; SMEs are more flexible than are large enterprises and small entrepreneur are have a closer relationship with their customers however not too proactive to innovation and technology; motivations of SMEs depends on the entrepreneur’s way of living and even differentiate through gender; business strategies differs from one SMEs to another some are well managed some are deficient in business and managerial skills; entry of business is easy but preparations in surviving depends on owner’s abilities to manage; SMEs are resistant to external assistance due to cultures of self reliance that act like barriers; owners are resilient to invest in managerial trainings; SMEs have poor market research and knowledge management about customers; thare are lack of an integrated approach to business planning and functionality.

According to Beyene (2002) entrepreneurship is a function of opportunities, technical and commercial skills, entrepreneurial spirit, finance, infrastructure and the overall environment within which the SMEs operate. Studies (Brigham and Smith, 1967; Walker, 1975) stated that SMEs tend to be riskier than the larger organization. Cochran (1981) found SMEs were subject to higher failure rates, and Markland (1974) suggested that SMEs tend to keep less adequate records than big companies. World Bank (1994, 2002, 2004 cited Beck et al., 2003) state 3 core characteristics of SMEs which are firstly, SMEs enhance competition and entrepreneurship and hence have external benefits on economy-wide efficiency, innovation, and aggregate productivity growth; secondly, SMEs are generally more productive than large firms; and thirdly, SME boosts employment more than large firm because SMEs are more labour intensive.

Dagmar Recklies (2001) stated SMEs are characterized by factors like size of enterprise or independent ownership (family of small group of people). These traits may lead to disadvantages and advantages with respect to globalization shown in table1 below:

Buhalis (2009) said that “the tourism industry, although the largest industry in the world, is dominated by SMEs and encapsulates any varied and disparate economic sectors”. Harvey and Lee (2002) described the role of SMEs as economic in East Asian Countries. SME, according to Harvey and Lee (2002), is a source of employment, innovation and creating export opportunities and act as a means to grow into larger firms. These aspects of SMEs are important prospects that will continue in the future.

According to UNIDO (2006), SMEs are the driving force in industrial development. They comprise more than 90% of all enterprises in the world and are on average providing 60 to 80% of total employment, thus help to contribute to Millennium Development Goals, in particular poverty eradication and developing global partnerships.

Migiro and Ocholla (2005) suggested that SMEs account for a significant share of production and employment in many countries and are directly related to poverty alleviation. While in many respects the South African economy is different from that of other countries in the continent, SMEs are relevant for employment and as an income source.

“In country after country, statistics show that even during these years of economic crisis and recession, the one robust sector providing economic growth, increased productivity and employment has been that of small and medium-sized enterprises”, WIPO. In 130 countries, 140 million SMEs employed 65% of labour force in July 2006, World Bank (2006, cited Kotelnikov, 2007).

According to Fadahunsi and Daodu (1997, cited Beyene, 2002, p.131), in Asian countries like Indonesia, Philippines, Thailand, Hong Kong, Japan Korea, India and Sri Lanka, 90% of businesses are small enterprises and this represent 98% of the employment in Indonesia, 78% in Thailand, 81% in Japan and 87% in Bangladesh. The tourism industry of Australia primarily consists of SMEs, with more than 90% of businesses employing fewer than 20 staff, OECD.

According to the European Commission SMEs play a central role in the European economy. They are a major source of entrepreneurial skills, innovation and employment. In the enlarged European Union of 25 countries, some 23 million SMEs provide around 75 million jobs and represent 99% of all enterprises.

Duarte (2004) stated that the role played by SMEs in any society is undoubtedly important, for instance, in Portugal around 98% of the industrial fabric is composed by SMEs. Duarte (2004) describes the role of SMEs as an engine of economic growth and the proportion of SMEs in the industry is large in percentage. Shumpeter (1934, cited Duarte, 2004) emphasizes the role of SMEs as a principal cause of economic development.

Lukasc (nd) studied that SMEs are recognized as the backbone of the British economy, accounting for more than half of the UK’s turnover. 93 % of all European enterprises have less than 10 employees and there are 20.5 million enterprises in the European Economic Area (EEA) and Switzerland, providing employment for 122 million people. Alistair et al. (2003) studied the role of SMEs in China and stated that SMEs are important as they contribute to the national income and employment.

Jones and Haven- Tang (2005) described the role of SMEs in developing a tourism destination’s image and service quality along with other stakeholders of the industry (especially government). They described the contributions of tourism SMEs in defining service quality and thus exploring the relationship between quality of services and products by local SMEs and destination competitiveness. Jones and Haven- Tang (2005) explained that the nature of tourism SMEs makes it important for policy makers to consider in order promoting destination development.

Andersson et al (2007) discussed the role of SMEs owned by women as contributing in job creation. The authors stated that women entrepreneurs are more likely to employ women, thus providing jobs not only for themselves but for other women, which helps to reduce the effect of discrimination against women in the labour market. In addition, reducing female unemployment assists in fighting women trafficking. Finally, female entrepreneurs serve as role models for the younger generations, demonstrating new employment (self-employment) opportunities.

According to UNIDO (2003) the only way to reduce poverty in a sustainable way is to promote economic growth, through wealth and employment creation. In developing countries, SMEs are the major source of income, a breeding ground for entrepreneurs and a provider of employment. SMEs may be characterized as the principal building blocks of the Pakistani economy, providing the country with opportunities for increased employment (including female employment), poverty eradication, enhanced productivity, competitiveness and international market penetration.

Kotelnikov (2007) studied the contributions of SMEs to employment and the countries’ GDP and innovations. It is commonplace for governments to have policies to encourage the growth of SMEs as they can help to directly alleviate poverty by increasing income levels and creating jobs. Kotelnikov (2007) stated that SMEs encourages technological progress and benefit either as producers of ICT or as users of ICT for purposes such as increased productivity, faster communications and reaching new clients. As TSMEs increases, entrepreneurs become more aware of the managerial skills as well as knowledge of the industry expands resulting into innovation of their products and services thus gaining a competitive advantage to increase profits thus encouraging people to invest to establish TSMEs because of the market opportunities captured by the profitability. He described SMEs as efforts to develop women entrepreneurship that helps in return in increasing gender equality by providing women with a source of income.

Manyara and Jones (2005) describe the importance of the TSMEs development in Kenya that can help in the goal of alleviating poverty and developing of new tourism product. Sustainable livelihoods are considered to be possible through SMEs in the tourism industry and the authors explained the economic impact of SMEs on the poverty alleviation. They consider tourism SMEs to benefit local communities and creation of SMEs will enable better linkage with the local economy and will support complementary partnerships.

Di Dominico (2005) studied the concept of ‘lifestyle entrepreneur’ that is the non-economic factors of TSMEs. She describes the non-economic business values and orientations like the lifestyle of small business owners. Establishing a small enterprise may not have same significance to different people. Different person belonging to different groups have different aims and objectives in mind while setting up a business. People have incentives according to their social, economic and cultural environment in which they live. Some people start a business to be their own boss, and not be controlled by other person. Therefore people have different motivations like liberty and independence other than economic ones like profitability to start forming small businesses defining a way of living or lifestyle. The author analysed that lifestyles of SMEs reflect a less objective definition of quality of life that consider aspects of work, family, gender and variations of consumption and the relationship between these aspects. However, she added that in TSMEs there must be a more objective approach to ownership and management in order to have development and success.

Baldwin (1995) studied the characteristics of SMEs that make success possible. He talked about innovation being the prime factor that contributes to success. The use of proper technological, marketing, management, human resource, investment and competitive strategies are necessary to increase or decrease profitability. Theses factors are the growth factors associated to success. The study shows that SMEs stress the importance of management. SMEs focus on often stated problems in the area of training, capital cost and innovation. TSMEs are conscious of the need for a highly-skilled work force and rank themselves above their competitors in this regard. He stated that successful SMEs have to consider three dimensions that are growth, profitability and productivity. The best way to achieve these dimensions according to Baldwin (1995) is by innovation.

According to Migiro and Ocholla (2005), SMEs and ICT have a direct connection in improving the business efficiency, productivity and the development of new products and services, thus creating new business opportunities and markets. The use of technology is widely used in marketing, advertising, doing transaction with foreign clients and adopting the concept of e-commerce. ICT have a role in improving business services, as in the hotel and tourism industry (Duncombe and Heeks, 2001, cited Migiro and Ocholla, 2005). Chandra (2002) stated that SMEs have to go through the technology ladder in order to remain competitive.

Lal (2007) studied the adoption of ICT in the Nigerian SMEs. According to him, globalization is among the factors that influence SMEs to make use of technologies. However, he explains that good electricity supply and connectivity is necessary for SMEs to make use of IT. ‘E-Commerce is one of the most visible examples of the way in which ICTs can contribute to economic growth. It helps countries into the global economy. It allows business and entrepreneurs to become more competitive. And it provided jobs, thereby creating wealth’ (UNCTAD 2004a, cited Lal 2007).

However, the human capital should not be ignored as Cunningham and Rowley (2008) studied the role of SMEs in China and a system of HRM that will boost competitive capabilities of SMEs. They stated that SMEs acts as non-governmental investment booster while contributing to the improvement of the economic structure. Hence, SMEs play an important economic role in China. The traditional personnel practices of SMEs should shift to HRM, which are resourcing, rewards, development and relations, and to more management dimensions. Proper management skills as well as considering other factors such as an organizational strategy and taking account of the national context are necessary for sustaining growth, prospects and ultimately survival.

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