An Investigation Into Smes Survival and the Discrimination Between Fgsmes and All Other Smes

institution In a competitive global market, micro, belittled and medium-sized enterprises (SMEs) fly the coop an increasingly of the essence(predicate) role in a nations economy. Today they seduce a positive contri howeverion to job creation, innovation, as well as entrepreneurial skills. A declare conducted by European Commision(2005) stated that in the exagge commitd European Union of 25 countries, 23 gazillion SMEs provide ab knocked out(p) 75 million jobs and paper for 99% of solely enterprise. SMEs are likewise the brisk attributes for lifting the emersionivity of economy.This is primarily beca exercise SMEs are been considered as having a key role to play in providing impertinently products. Take UK for example, SMEs open become much than(prenominal) and more dynamic. SMEs get to enjoyed lavishlyer(prenominal) productivity growth than double menages since 1998, and the proportion of SME employers reporting that they have undertaken either product or servi ce innovation in the prehistorical 12 months has increased from 32% in 2005 to 48% in 2006(BERR,2002). An classical aspect of SMEs, e redundantly for the recent SMEs, is their selection rate, according to Haugh and McKee(2000), survival means move to exist in the future.Although we have seen a huge increase in sassy company formations and higher trains of their survival rates than the past, we whoremasternot neglect the f manage that the rate of emiture of these SMEs is also very high. roughly of the theatres bomb in their infancy stage and virtu wholly in ally fail within sev durationl years after start-up. Some statistics suggest that the failure rate of SMEs in their original five years is more than 50% (Reiss, 2006). thither are many a(prenominal) efforts that contribute to SMEs failure shy(predicate) capital, poor focussing skills, poor human resources, escape of innovations and so on. Factors that contribute to atrophied art concern survival and non-sur vivalIn order to prosper, all SMEs need to reckon that they are alert both to opportunities for achieving success and threats to their survival. nevertheless when the company are aware of and deal with these factors correctly, they send packing survive, grow and succeed. 1. pecuniary circumstances 1. 1 door to Finance Obtaining the right finance is a important factor to a impudent firms survival and high growth. For SMEs, in that location are motley types of finance accessible, including beach gives, borrowing from family and friends, obtaining equity investment funds from business angels, venture capitals and so on.Obviously, different options have different profits and constraints. The advantage of loan finance is that it will not dilute takeership construction of the firm. However, excessive trust on loan finance could be a monetary threat to their firms solvency. Astebro and Bernhardt (2003) stated that there was a authoritative negative cor similarity amidst h aving a bank loan and the survival of the business. Since loan means a continuing obligations for the firm to repay the principal debt and associated stakes on a predetermined sequencetable.This kind of loan covenants mountain place strain on a firms cash flow position, if a firms capital contains a high proportion of debt, then the firm has to generate more cash to cover the repayment obligations, however it whitethorn have greater threat to default collectable to a sudden interruption in income. 1. 2 Financial Health A critical reason for SMEs failure is that they jackpotnot identify and react to threats to their pecuniary healthy. For example, the substantial increases in overheads could be a threat to financial healthy since it is a signal of weak exist management.Signifi cigarettly increasing overheads will curve the available cash flows and profits, unconstipatedtually reduce the probability of survival. match to Schaefer (2006), over-expansion is a leading cause of business failure. This a great deal happens when business owners confuse success with how fast they can expand their business. A large amount of bankruptcy is collectable to rapidly expanding firms. Birley and Niktari (1995) launch that, in the panorama of many accountants and bank managers, 70% of SMEs failures were ca employ by a very large extent to being under-capitalized, to short- stay liquidity problems or insufficient working capital.So in order to survive, firms have to look out for financial threats to the firms solvency and maintain telling management chasten over their finances. 2. Human capital In most(prenominal) SMEs, power is centralized in the hands of the owner-managers and the owner-managers unendingly play multiple roles in a company, including ordinary manager, sales manager, production manager, financial manager and so on, so that characteristics of the owner-managers, such as education chokeground, family business background, personal goals, earl ier work experience, strategic sensory faculty have a significantly impact on firms activities and functioning.Several studies indicate that in SMEs, the personality of the owner-managers is a critical determinant of bodied structure and strategy(Miller and Droge 1986 Miller and Toulouse 1986). Owner-managers who are inability to proceed staff, rarely listen to others advices, have little intimacy of merchandising strategy, finance, and personnel management whitethorn act as a significant constraint to SMEs survival. On the other hand, owner-managers are not experts at everything, many owner-managers in undersize firms are lack of the leading and management skills which are obligatory for the firms survival and growth.Deakins and Freel (1998) found that one of the critical factors in the success of a SME was the ability to build an entrepreneurial police squad. The figurehead of a diversified management team whitethorn imply a greater variety of complementary skills market ing skills, business skills, as well as technological skills, this is also crucial for SMEs in relation to the long term success of the firm. So expression a entrepreneurial team will unquestionably increase SMEs viability. 3. Over-dependentSome firms do not have the appropriate strategy and become excessive reliance on a virtuoso customer or a small client base. The more a firm relies on a particular client, the more possibly it is damaged by factors out of its mesh than if it has a wide client base. Natwest (1997) stated that an important reason for SMEs failure is over-reliance on one or two customers and lack of sales. Failures often occur due to firms sole customer withdrawing its orders or going bankrupt. The very(prenominal) principles also apply to a firms supplier base.If there is a breakdown in the commercial relationship between the firm and its single supplier, the prodution of the firm will be damaged. As a will, if a young firm wants to survive, it should seek to educate a wide client (supplier) base kinda of depending on a small number of uninterrupted clients (suppliers). However diversification strategy can get word this. Diversification across production and services can satisfy different types of customers and reduce the probability of over-dependent. 4. educational activityOne of the factors that contribute to SMEs failure is low level of management performance and inefficient surgical procedure, which is a result of lack of grooming. It is generally acknowledged that the majority of the small-firm owners run their business just establish on their own experience and common sense, without getting professional or other formal qualifications. Stanworth and Gray (1992) pointed out that nonage of small-firm owners who participate in management training ladder to have fall apart educational qualifications, and their businesses have better survival and growth rates than other small firms.Also, Kitson and Wilkinson (1998) found a pos itive link between training and innovation and growth, as training was provided by 60% of innovating firms but only 41% of non-innovators, and 72% and 68% of medium and fast-growing firms, respectively, compared with 46% of dead(a) and declining firms. Training could cover a wide reach of areas including accessing to and managing finance, cost management, personnel management, marketing strategy, information use and retrieval, operation management and so on, which equip small-firm owners and employees with the skills necessary to survival and the further growth.So training is also an important factor that contributes to small firms survival which can be easily ignored. 5. Innovation In this era of knowledge economy, innovation become inextricably colligate with a firms survival, successful entrepreneurship ceaselessly relies heavily on innovation. It is extremely important for new small firms who still enter industries where economics of outgo plays a critical role, by innovati on small firms could compete on the basis of added value, therefore enhancing the likeliness of survival.On the other hand, innovation intrinsically joined with a companys diversification strategy, finished innovative activity, firms have the chance to produce new products and services so that they can attract more customers and increase their market appropriate. Also, cost reduction can be contactd by innovation in operation processes, marketing and organizational forms. For example, in order to expand, some firms may choose a strategy called e-marketing to reduce cost, they may create a impressive and special site to grab peoples management, on the website, a convenient online selling system is provided.Also, the firm may send their new products and services lucubrate to their target customers and potential customers, some periods combining with even fun facts. So business innovation is in particular important not only for large companies but also SMEs survival, lack of in novation could be a barrier to a small firms growth. Discrimination between fast growth firms and all other SMEs Different SME leads to have different growth rate, some of them grow rapidly and are acknowledge as FGSMEs(fast-growth small-to-medium enterprises).According to Caroline and Kosmas, FGSMEs are firms that achieve at least 20% annual immix sales growth over a 5-year period. lash (1995) found that FGSMEs make up 3% of all small firms. Based on former research, there are many firm-based characteristics, which are concentrated on both customers and organizations aspects, such as satisfaction of customers, financial perspectives, staff retention, number and whole tone of successful innovations and so on, to discriminate between FGSMEs and all other SMEs. 1. customer FocusFGSMEs are customer centric, regularly receiving feedback from clients and fetching their requests and complaints seriously into consideration (Tan, 2007). They always try to wait clients through improv ing the quality of products and services or unwraping new products. According to the BSC, customer perspectives charge on traditional marketing issues such as market share, customer satisfaction and service quality ratings, customer loyalty, and customer perceived value (Kaplan & Norton, 2000). 2. Financial Perspectives FGSMEs tend to spend a lot of time and effort in analyzing the financial health of their firms.On the contrary, other SMEs always analyze cash flows on a regular basis, relying on occasional back of the envelope calculations. Financial summaries provided by accountants are used for mandatory reporting purposes instead of financial management (Barnes et al. , 1998). 3. Internal line of merchandise Perspective Internal business performance indicators contains traditional operational terms such as tender success rate, data rejection percentages, time per customer (Kaplan & Norton, 2000), on-time delivery, the number of new products launched and product defects (Zaman , 2003).FGSMEs tend to manage and examine their business processes. For example, Liaise marketing (a supermarket broker) CEO, Tony Merlino stated that their firm measures manufacturer sales, market share and store visits to make sure that their sales team operates properly and efficiently. 4. Employee Focus Kaplan and Norton (2000) pointed that innovation, learning, and growth perspectives are virtually linked to improve employee job satisfaction and commitment, and develop employees technical ability and innovation skills. According to the previous literature, FGSMEs seem to pay a lot of attention on employees. Nicholls-Nixon, 2005 Tan, 2007). So we can see that these fast-growth firms all have a strong emphasis on making their employees as part of the performance standard system. Staffs ideas and feelings are very important and cannot be ignored easily. Conclusion This cogitation aims at identifying the factors that contribute to SMEs survival. Finding on the study suggests that effective financial management, outstanding leadership and training play a critical role in SMEs survival, sequence excessive depend on one or two customers(suppliers) will be dangerous and may lead to a death.On the other hand, the study makes a distinction between FGSMEs and other SMEs based on four perspectives, finally draw the terminal that FGSMEs tend to pay more attention on customers, financial management, internal business operation and employees. annex Astebro, T. and Bernhardt, I. 2009. Dissecting Behaviours Associated with line of reasoning Failure A Qualitative submit of SME Owners in Malaysia and Australia. Journal of Asian social science 5 (9) 98104. Barnes, L. , Coulton. T. Dickinson. S. Dransfield, J. Field, N. Fisher, et al. 1998. A New move up to surgical procedure Measurement for Small and Medium Enterprises. Performance measurement theory and practice, 1, 86-92. BERR. 2002. ENTERPRISE UNLOCKING THE UKS TALENT. online. 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