Strengths and Weaknesses of Small & Medium Businesses on the Global Supply Chain

Moving products from one area of the globe to another in an efficient manner is difficult. Ensure that inventory is accurate and supplies arrive when needed is also difficult. Small and medium size enterprises (SMEs) often lack the competence and skill to manage their supply chains well.  A study Dr. by Mohd Rahman discusses some of the challenges in supply chain management (SCM) faced by small businesses in Malaysia. 

A few decades ago Malaysia was an agricultural center but grew to prominence in the business world.  In 2005, approximately 29.6% of all companies were geared toward manufacturing exports. SME’s are 92% of registered companies and constitute 90% of manufacturing companies that contribute to 65% of employment. SMEs within Malaysia provide a strong case study of the difficulties SMEs have with SCM.

SMEs are often a strong catalyst for growth when they can effectively obtain resources and convert those resources to export products. Despite their benefits, many SMEs have a hard time achieving growth due to limitations on resources and knowledge. Understanding their strengths and weaknesses helps in tackling limitations to create a stronger business environment. 

Advantages of SMEs:

-Flat structure and short decision making that allows companies to adjust quickly.

-Flexible culture adaptable to change.

-Chances of improved success with organic vs. bureaucratic culture.

-Higher levels of innovative activities.

Disadvantages of SMEs:

 -Lack of skills and knowledge.

-Lack of financial resources.

-Owner controlling everything.

-Improper systems and processes.

The study indicated that SMEs are limited by both internal and external environmental issues. Some of these issues include cooperation with other parties in the supply chain, management supports and data transformation.  Such businesses don’t often cooperate for mutual benefit, have enough management knowledge to run certain programs effectively and lack acute ability to understand and use data.  The study found that the top five SMC dysfunctions in SMEs are 39% inefficient inventory management, 30% ignoring uncertainties in the supply chain, 26% incorrect inventory assessments, 26% lack of communication, 23% inaccurate use of data.

Rahman, M. (2012). The effective implementation of global supply chain management in small to medium-sized companies in Malaysia: An empirical study. International Journal of Management, 29 (3).

Recession Busting Small Firms: A Study on Successful Small Business Management

Small businesses are one of the first organizational entities that sink during a recession. The strength and innovative ability of a nation lies in the ability of smaller businesses to maintain profit margins and find new ways of adapting to poor market conditions. Research helps highlight how the legal form, management, and market exposure of such small businesses contributes to their success in overcoming recession related challenges. 

The advantages of having small businesses within the market cannot be underestimated. They significantly contribute to employment, income generation, exporting of products/services, stimulators of competition and sources of innovation (Anderson & Tell, 2009). Without the success of small business states and nations would not have those innovative cushions that can recoup quickly and take advantage of market trends. 

In many cases such businesses suffer from poor financial capital as well as ineffective management that lacks clear strategic vision.  In order maximize performances small firms must accurately match their business strategies to the business environment to produce more revenue (Tang et. al., 2010).  This can be accomplished by ensuring that products and services are being sold in a manner that further contributes to proper international hedging when local market conditions suffer from recession. 

Successful businesses are seen as having a number of important positive factors. According to Hudson, et. al (2001) these factors can include cash flow, market share, overhead costs, performance, inventory control, marketing, efficiency, profitability, and cost controls. Through these multiple factors businesses are more able to adjust and steer course to new challenges. 

Unfortunately, small firms do not have the financial capital or cushion to adjust appropriately to large market fluctuations which put them under considerable risk. For example, large firms have stronger bargaining power with suppliers and customers and can compete on both broad-based strategies and their reputation (Chen & Hambrick, 1995). Small firms have limited capacity to adjust the market conditions so they must rely on their own resources.  

Research conducted by Izabella Steinerowska-Streb, from the University of Economics in Katowice Poland, attempted to determine firm specific variables on enterprise profitability during a recession (2012). These variables included firm size (amount of employees), type of manager (owner or hired), and market range (domestic or international).

In the study 1107 firms with fewer than 250 employees were used in the survey sample. Of the respondents 58.4% were micro-firms, 28.6 % were small firms and 9% were medium size firms. 90% of the firms were owner-managed meaning that the owners had some level of daily management within the company.

The Results:

-Companies run by a professional manager were less exposed to decreasing wealth in a recession.

-Joint stock and limited liability businesses experienced fewer declines in wealth than other forms of small to medium businesses.

-Joint stock and limited liability companies with international exposure experienced less declines than other forms of local businesses.

The final results help small to medium business owners to consider the best forms of conducting business when trying to hedge against recession and poor market conditions. The best practices included finding professional managers, using joint stock or limited liability legal forms, as well ensuring they have a level of international market exposure. Through the use of solid business decisions such firms can reduce their potential loss and liability when compared to other forms of businesses operating within their local market. 

Anderson, S. & Tell, J. (2009). The relationship between the manager and growth in small firms,

Journal of Small Business and Enterprise Management, 16(4): 568.

Chen, M.& Hambrick, D. (1995). Speed, stealth, and selective attack: how small firms differ from large firms in competitive behavior, Academy of Marketing Management Journal, 38: 453–482.

Steinerowska-Streb, I. (2012). The determinants of enterprise opportunity during reduced economic activity. Journal of Business Economics and Management, 13 (4).

Tang, Z., Kreiser, M., Marino, L.& Weaver, K. (2010). Exploring proactivness as a moderator

in the process of perceiving industrial munificence: a field study of SMEs in four countries,

Journal of Small Business Management 48(2): 97–115.