SMEs’ ENDEAVORS IN SURVIVING AND SUCCEEDING IN THE 21ST CENTURY
...trimental. On nurturing human resource for SME, government plays an essential role in providing institutional framework to sharpen competitiveness as well as link industry, training and research. Firms must have effective personnel assessment and recruitment, and be well informed in market trends, modern technology and management know-how. In Russia, the Government has recognized weakness in SMEs policies and made substantive improvements in simplifying taxation and in alleviating the administrative barriers for SMEs. The challenge is to implement reform at local levels, particularly to give incentives to local administrators to undertake pro business reform and SME growth policies. SMEs are both seen to remain small or become giant. The bottom line is that they all try to endeavored the globalization and technological change challenges by applying change programs in order to survive and stay competitive. 4. CHANGE PROGRAMS BY SMEs There are many programs that SMEs worldwide can embraced. Some of the popular programs are as follow: (i) Total Quality Program Total quality management (TQM) is the most recent and, along with high-involvement organizations, the most comprehensive approach to employee involvement. Also known as “continuous process improvement,” “continuous quality,” and “six-sigma,” TQM grew out of a manufacturing emphasis on quality control and represents a long-term effort to orient all of an organization’s activities around the concept of quality. Quality is achieved when organizational processes reliably produce products and services that meet or exceed customer expectations. Although it is possible to implement TQM without employee involvement, member participation in the change process increases the likelihood that it will become part of the organization’s culture. Quality improvement processes were popular in the 1990s, and many organizations, including Morton Salt, Weyerhaeuser, Xerox, Boeing’s Airlift and Tanker Programs, Motorola, and Analog Devices, incorporated TQM interventions. Today, a continuous quality improvement capability by SMEs is essential for global competitiveness. SMEs need to be conscious about quality. According to Porter, SMEs must transform their way of competing: they must shift from comparative advantages (i.e. low cost, labour, etc) to competitive advantages, namely the ability to compete on cost and quality, delivery and flexibility. This will require mindset changes, as SMEs are traditionally complacent about the compliance process to quality. In smaller companies, there is probably no written quality procedures, just “our way of doing things” but all in the manager’s or owner’s head. SMEs have serious difficulties in developing and applying a quality component adapted to their needs. The culture of quality has to be fostered unto SMEs to inculcate or strengthen the overall commitment of the management and employees toward continuous improvement. SMEs must be prepared to be ready for participation in quality control, assurance and management for them to be able to establish a foothold in the global economy. The relevance of formal quality management initiatives such as Total Quality Management (TQM), quality certification, and Quality Awards to SMEs has been a highly contentious issue in the Quality and SME literatures over the past decade. Literature in this area is more often conceptual than empirical, and where empirical, it sometimes suffers from methodological limitations. A study was undertaken by McMahon (2001) as part of an on-going research effort to derive, characterize and employ an empirically-based development taxonomy for SMEs operating as proprietary companies in the manufacturing sector in Australia. The study reveals that the implementation of business improvement, TQM, and QA programs are more likely amongst high growth SMEs than they are amongst moderate and low growth SMEs. Similarly, the incidence of SMEs comparing their quality-related performance with other businesses is significantly higher amongst high growth as compared to moderate or low growth SMEs. Thus, quality initiatives are more likely to be present in high growth SMEs than in moderate or low growth SMEs. Although an association between quality initiatives and SME growth can clearly be established, the direction of this relationship and causation cannot be determined without further research. That is, is the use of quality initiatives driving the rate of SME growth, or conversely, are higher growth SMEs just more likely to adopt sophisticated management practices and techniques than lower growth SMEs? Even if the direction of the relationship could have been established with this data, causation would have been difficult to determine. This is a common limitation with quantitative studies such as this; however, further qualitative research could shed more light on the issue. Nevertheless, the study does show a positive relationship between quality initiatives and the rate of SME growth for Australian manufacturing SMEs. (ii) Employee Involvement Program Employee involvement is the current label used to describe a set of practices and philosophies that started with the quality-of-work-life movement in the late 1950s.The phrase quality of work life was used to stress the prevailing poor quality of life at the workplace. In order to ensure employees are always motivated and maintain a high level of productivity, SMEs are encouraged to introduce relevant employee involvement program. (iii) Reengineering Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in performance. Reengineering transforms how organizations traditionally produce and deliver goods and services. Beginning with the Industrial Revolution, organizations have increasingly fragmented work into specialized units, each focusing on a limited part of the overall production process. Although this division of labor has enabled organizations to mass-produce standardized products and services efficiently, it can be overly complicated, difficult to manage, and slow to respond to the rapid and unpredictable changes experienced by many organizations today. Reengineering addresses these problems by breaking down specialized work units into more integrated, cross functional work processes. This streamlines work processes and makes them faster and more flexible; consequently, they are more responsive to changes in competitive conditions, customer demands, product life cycles, and technologies. SMEs need to be able to respond quickly to market and technological developments to stay ahead of competition. Since the 1970s, the structure of the manufacturing industry shifted steadily from resource-based and low technology activities to medium- and high technology ones in both industrialized and developing economies. Manufacturing production has become complex and knowledge intensive as investments in intangibles such as R & D, software, design, engineering, marketing and management come to play a greater role in the production of goods and services. This has gradually extended to reshape a broad spectrum of traditional industries. Access to pertinent technologies is among the key drivers of competitiveness for SMEs. In this respect, all industries, even ‘simple’ ones like clothing, food processing or textiles, have to upgrade: use of more advanced machines and more skilled workers, produce better-quality products, use more IT, and interact more closely with relevant agencies in the value chain. This invariably calls for a country’s SMEs to make a structural change from simple to more advanced technologies. It may consists mainly of problem-solving capabilities that enable firms to improve their productivity and to imitate and adapt products; progressing to technology upgrading within the firm and continuous improvements in product quality, and to stay ahead, to possess the capability to design and develop new products and processes. A pertinent consideration for many developing countries today is also not whether to develop all technology indigenously or to transfer it from developed countries, but rather on how to transfer it in the most appropriate way in terms of synergistic impact and adaptation to the local conditions. (iv) Organization Development Interventions An organizations development intervention is a sequence of activities, actions, and events intended to help an organizations improve its performance and effectiveness. Intervention design, or action planning, derives from careful diagnosis and is meant to resolve specific problems and to improve particular areas of organizational functioning identified in the diagnosis. OD intervention varies from standardized programs that have been developed and used in many organizations to relatively unique programs tailored to a specific organization like SME. Today, lots of SMEs are using organization development interventions to make them stay competitive. (v) Strategic Alliance The strategic alliance has emerged as one of the indispensable tools in strategy implementation. No single organization, not even IBM, Mitsubishi, or General Electric, can control the environmental and market uncertainty it faces. Sun Microsystems’ network is so complex that some products it sells are never touched by a Sun employee. One example is the establishment of an OIC network of SME agencies (ONSA): The OIC Task Force recommends that a network of the SME Development Agencies of the OIC member countries be established, which may be called the OIC Network of SME Agencies (ONSA), consisting of SME Development Agencies of the OIC member countries. ONSA may have its own Secretariat beginning with an office in a selected OIC member country. ONSA be assigned responsibility for reviewing, selecting and implementing SME development initiatives including: • Developing an SME definition to be adopted by Islamic Countries, taking into account their respective national situations. • Coordinating exchanges of SME Development Experts between member countries as well as National Chambers of Commerce and Industry. • Providing a platform for exchange of successful models of SME development, experiences and information. • Setting-up Committees on SME sub-sectors, e.g., Food/Agro Processing, Textiles, Leather, Light Engineering, etc, comprised of leading sector experts with a view to providing assistance to Member Countries. • Devising mechanisms and channelling support for technology up-gradation SMEs in Member Countries. • Devising and implementing initiatives for providing marketing information and promoting trade and joint ventures between SMEs in Islamic countries. • Utilizing ICT tools for data accumulation, information dissemination and knowledge build-up to be made available to ONSA member states and SMEs. • Developing an effective e-marketplace for SMEs in member countries. • Developing a Network of Private sector-led SME associations. • Organizing SME Trade Fairs and matchmaking between SMEs. The OIC Task Force proposes that the IDB may like to consider the establishment of a Fund for providing equity financing to SMEs in member countries. Such a fund may benefit from the experience of the Small Enterprise Assistance Fund (SEAF) established in Washington D.C. or other similar local, regional and multi-lateral fund. The Task Force also proposes that the IDB may consider establishing a window for SMEs in the member countries for the specific purpose of extending financing facility to the SMEs. The ICD/IDB may further consider mobilization of capital in member countries for the establishment of SME financing instruments proposed in this report. The Task Force recommends that consideration may be given to the establishment of business incubators in selected Islamic member countries. These incubators can be established with two specific and distinct focuses as follows: • Technology incubators to channelize innovations from developing to least developed OIC countries • Business incubators to promote trade between member countries by providing incubatee SMEs with information and support for imports and exports among the member countries It is proposed that the respective Governments of the selected member countries where the incubators are to be established may cover the local costs. The required expertise may be obtained from within the member countries. (vi) Creation of a Conducive Regulatory Environment for SME Development Poor regulatory frameworks in some OIC countries are characterised by the complexity of laws and regulations for SME development, which put them at a disadvantage viz-a-viz larger National Companies and Foreign Enterprises. With the growing importance of SME’s contribution to the OIC economies, the OIC Task Force recommends that efforts needed to be intensified for creating a regulatory environment conducive to the development of SMEs. 5. MANAGERIAL IMPLICATIONS FROM THE PERSPECTIVE OF SMEs IN MALAYSIA To develop the SME Industry in Malaysia, a comprehensive approach is being advocated. The development efforts include putting in place the infrastructure needed for institutional and capacity building of the SMEs, developing SMEs ability to compete through the production of higher quality products and services, and then equipping the SMEs with good management and financial skills and sound marketing strategies. Some important initiatives that will be carried out to assist Malaysian SMEs include the following: (i) Defining SMEs in Various Sectors for Targeted Development The SMEs, which covers manufacturing, manufacturing-related services, primary agriculture, agro-based and services sectors were defined. By having identified the SMEs in these various sectors and sub-sectors, the design of future development policies and support programmes could be more effectively planned and implemented. (ii) New Initiatives to Improve Access to Financing Malaysia will introduce an interest subsidy and securitisation of SME loans to encourage further lending by financial institutions to SMEs. This subsidy will enable viable SMEs with higher risk profile to obtain financing at lower costs. It is the ability of financial institutions to securitise SME loans in their portfolio that will further increase their capacity to lend to SMEs. (iii) Co-ordinated Training and Human Resource Development. An agency under the Malaysian Ministry of Human Resource will oversee and co-ordinate overall training and human resource development for SMEs. Its role will now include identification of training needs of SMEs across all sectors of the economy, co-ordination, monitoring and evaluation of SME training and development programmes conducted by Ministries and Agencies. (iv) Enhanced Management and Publication of SME Information The secretariat of the National SME Development Council will be expanded to include the overseeing and co-ordina...