Small- to Medium-Sized Companies:Th

Small- to Medium-Sized Companies:
Their Characteristics, Opportunities, and Challenges
Small and medium enterprises (SMEs) have played a significant role in the global supply chain management in various countries and in the landscape of global business competition . As reported by the U.S. Small
Business Administration, SMEs are an integral part of the renewal process that pervades and defines market and economies. New and small firms play a critical role in experimental and innovation that leads to technological changes and productivity growth. With the emergence of the new technologies, new products, new services, new markets, and new management concepts, the pattern of competitive advantage for companies—particularly for small- to medium-sized organizations—has changed and has subsequently led to new opportunities and new challenges. There is no universally accepted definition of a small and medium enterprise (SME). In the literature, the definition of SME varies based on the number of employees, ownership of the shares capital investment, or financial turnover, among others . In order to better understand the strategic roles of SMEs in the global business, it is important to recognize their inherent characteristics. SMEs are often independently owned and operated and closely controlled by the owners/managers who are the principal investors and decision makers having entrepreneurial behavior. The attitude and expression of values (cultural and personal) of owners can play a significant role in the adoption of new technology and strategy development . The decision maker, often an entrepreneur or small network of associates, formulates attitudes based on perception of its environment. The entrepreneur’s attitudes influence his/her own behavior, such as decision making, and thereby have a direct impact on the SME’s capability. They also influence an employee’s attitudes and behaviors and thus affect the internal environment through the organizational culture factor, and further indirectly affect the SME’s capability through that mechanism. SMEs are also characterized by an absence of standardization and formal working relationships, having a flat organizational structure.
Thus, they have a more organic organizational structure when compared to a more bureaucratic structure in large firms . These characteristics make SMEs more flexible to environmental changes as well as incurring lower overhead expenses and thus are perceived more innovative. Consequently, they have the potential of playing a significant role in global competition. In particular, SMEs who possess/ exhibit entrepreneurial behavior can use the new information technologies as the strategic tools to generate new products and services, and as driving force behind new processes, new forms of business organization, new scope for consumers, and new market opportunities and supply chain management.

The characteristics of an SME can determine the strategic opportunities and challenges available to these companies, particularly in the area of supply chain management. The entrepreneurial behavior of SMEs differentiates them from larger companies in supply chain management, particularly in a cross-cultural dimension and global market. While SMEs’ managers are more sales oriented, they do not have a well-developed overall strategic plan. According to Dodge and Robbins, 64% of SMEs that failed did not have a business plan. SME managers tend to rely on their tacit knowledge rather than systematic techniques
in supply chain management planning activities, such as vendor selection . The competitiveness of an SME is defined by its flexibility to environmental changes and dependent on its owner/manager , since the adoption of a strategic planning approach is affected by its ownership structure. However, they may have limited resources required for efficient supply chain management and find themselves encountering more barriers due to increased competition at national and international levels, particularly when they do not have the resources to meet the demands of their trading partners in the supply chain. SMEs that are subsidiaries of larger organizations may be able to access resources from their parent organizations and be able to overcome these challenges of limited resources. However, they are typically responsible for their local strategies and limited flexibility in their national and international strategies. Furthermore, as managers of SMEs are usually holding multiple roles as entrepreneur, and owner/manager, the management focus tends to be operational rather than strategic. However, in order to take advantage of supply chain management as a means for competitive advantage and succeed, these companies need to take a strategic approach of supply chain management. In particular, SMEs are challenged to balance their short-term operational focus with long-term strategies and technological innovations. This in turn requires greater financial and technical resources. The lack of resources required for effectiveness and efficiency is another major challenge for SMEs in adopting appropriate strategies for their supply chain management, particularly in their quest for global competition. Small to medium suppliers are less resourceful and often play niche roles within the supply chain as a commodity supplier, collaboration specialist, technology specialist, and problem-solving supplier as shown in Table 1. The supplier topology divides along two dimensions: technology and collaboration. By dividing these dimensions into high and low categories, Kaufman et al. create four distinct supplier strategies. The top left quadrant contracts. These suppliers compete on the basis of low cost. These suppliers can be replaced since switching costs are low. These commodity suppliers design and sell parts to their customers as specified by their customers. The top right quadrant describes collaboration specialists. These suppliers use standard technologies that meet customer specifications and delivery schedules. However, these firms develop enhanced collaborative techniques to fulfill current and to anticipate future customer needs. These suppliers use vendor managed inventory (VMI) strategy. The collaboration essentially requires accurate and timely information. They reduce the customers’ internal monitoring or administrative costs. The suppliers in the lower right quadrant are the problem-solver suppliers. They help their customers to avoid costly investments in specific resources. They employ both advanced technologies and collaborative methods in promoting innovative design and manufacture of supplied parts. The bottom left quadrant defines the technology specialists. They supply proprietary parts using advanced technologies. However, they have weak relationships with customers and the customers benefit from acquiring high technology parts without having to invest in resources. These different suppliers can also be classified as subcontractors who are connected to their customers through supply networks and play coordinating roles between both domestic and foreign players. The common theme in this four dimensional topology is information technology (IT). Information technology is perceived as a critical enabler for efficient exchange of information between the SMEs and the members of supply chain management, and to improve organizational performance and enhance competitive advantage. However, due to resource constraints, SMEs place lower priority on IT investments. Thus, SMEs differ from large companies in their supply chain management practices and technology. Large companies have a greater scope of operation and thus are more likely to be involved in diverse markets. They can spread costly new systems over large units of production, and have internal technical development and maintenance capabilities. SME managers and, in particular, small business entrepreneurs, tend to lack or not value many of the basic skills needed to adopt and implement networked processes. They are not operationally inclined or concerned with issues of managing their supply base methodically. They are keen to sell more. Larger firms have invested time and money in implementing their enterprise resource planning (ERP) and e-commerce strategies, including e-procurement and online selling, integrating with these firms can be frustrating. SMEs must develop the business planning skills to identify, select, and implement the supporting technology. Particularly, SMEs must adopt an integrated system such as ERP, e-commerce, and e-procurement systems to support their supply chain management and be able to “pull through” from downstream customers.
In the context of Porter’s framework of competitive advantage strategies, and given the characteristics, opportunities, and challenges facing SMEs, the competitive success of these companies may not critically depend on price leadership or differentiation strategies but on how they are unique and critical to their trading partners. In this context, SMEs could focus on meeting ultimate customers’ needs, strive to supply quality products/services, and add value to meet the demands of their supply chains. Thus, it is essential that SMEs can link their business strategies to that of the supply chain. The organic organizational structure of SMEs should enable them to develop strategic alliances with their trading partners in the supply chain so that they are able to leverage the skills and expertise of supply chain partners to gain strategic advantage for the whole chain