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Small and Medium Enterprises (SMEs) are a major part of any developed and transitional economy today. They add to a country's GDP and also help in regional structuring of various parts of the country.
This document deals with the current situation of SMEs and the way they are being influenced by Enterprise Agencies (EAs). The past two decades have seen an overflow of ideas due to recent pick-up of education among the masses around the world. People are realising the importance of their ideas and are trying to find ways to make their ideas known to the world. In order to make their presence felt they require new ways to develop and sell their ideas. This can be termed Entrepreneurship. This has lead to the sudden demand for resources to set-up SMEs.
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However, even a brilliant idea is of no use if it is not produced and marketed effectively. There is a lack of business know-how and every new starter finds it hard to get a hard ground to start on. It is important to note here that SMEs have been there in every economy in one form or the other, be it Established Family businesses to crude domestic handy-craft businesses. But of late with the advent of technology this situation has changed and excessive support is needed for setting-up your own business.
In order to realize the full potential of local knowledge and entrepreneurship it soon became increasingly important to begin some kind of services to help people start their businesses. This would be started by people who already had knowledge about running their businesses to come together and furnish new aspiring lot with the help and support they need. This lead to the inception of Enterprise Agencies in the 1970s. These Enterprise agencies provide information on how to start-up a business, the ways of making strategies like a good business plan, answering technical questions, providing them help with funding through bank loans, grants and Local Development Funds.
Soon the Enterprise agencies became an organized structure starting from a Rural Enterprise Agency, which would be linked to a regional Enterprise Agency all the way up to National Agencies. Government started recognising the importance of SMEs and started helping out these agencies provide people with the needed support. It also started providing funding and passing laws to facilitate the growth of SMEs.
SMEs today face a number of obstacles and risks. They need increased support as there is a lot of market competition and only the marketwise companies can survive. In this document we try to explore how the Network of Enterprise agencies is helping the SMEs realize their potential. What is the portfolio of services available to people through EAs today, how are the services provided? What is the infrastructure of Network Agencies? We have tried to analyze whether these EAs are worthwhile or just figurative helpers.
The Big Question to answer is What is the influence of EAs on Small and Medium Enterprises.
This treatise deals with the concept of Small and Medium sized Enterprises and the way they are influenced by Enterprise Agencies. This question is dealt with in depth and the analysis is presented in the form of a report. For purpose of maintaining flow and attending to details the following breakdown structure has been adopted: -
Chapter1: Introduction gives an overview of the endeavor we are trying to undertake, explaining the topic in simple terms much like a review. We have mentioned the current situation of SMEs and the way they are being influenced by Enterprise Agencies (EAs).
Chapter 2: Executive Summary
Chapter 3: Identification of the questions
Chapter 4: Chapter 4 contains the information on small and medium sized enterprise such as the size, structure, roles etc. It explains about the classification and terminology of SMEs, which includes affiliate and number of employees. It also states the strategic importance of small and medium sized enterprises in the economy. It describes the contribution made by SMEs locally as well as internationally. We will also revise role played by SMEs in foreign trade and the contribution made by them globally. We have also talked about the drawbacks and the barrier faced by SME.
Chapter 5: Making a transition from a centrally planned to a market economy can be a tricky process. There are many obstacles that small and medium sized enterprises have to face. Many risks are involved during the life cycle of small and medium sized enterprise. We have divided risk into various categories such as operational risk, economic and political risk, cultural risk, and market risk etc, to understand the topic in depth.
Chapter 6: Several business support services have sprung up in the form of Enterprise Agencies. In our chapter 6, we have answered the questions regarding Enterprise agencies such as what are enterprise agencies, roles played by them in small and medium sized enterprises. Today SMEs can benefit vastly from the network of enterprise agencies and their service available to them. We have summarised about the benefits and services provided by them to small and medium sized enterprises. We have also talked about the opportunity available for small and medium sized enterprise, which can enhance by the help of enterprise agencies.
Chapter 7: It is very important to understand the structure of enterprise agencies. It helps SME to decide which enterprise agencies they should go, as not all, the agencies are homogenous. Looking on the clients, their objectives different agencies provide different set of rules and follow different procedures. Enterprise agencies have different ways of working such as some of the enterprise agencies work in a group and some individually. We have also revealed about the business services provided by EAs, which includes marketing services, security services, labor services etc. It also include information regarding clusters and the three C approach adopted and used by enterprise SMEs
Chapter 8: Influence of Enterprise Agencies on SMEs. As the name suggest, we have done a survey of Hungarian small and medium sized enterprise. This survey shows the influence of enterprise agencies on SMEs in Hungary. It also states how enterprise agencies played an important part in improving small and medium sizes enterprise. This survey showed us that enterprise agencies had profound effects on the success of SMEs, which is true to most economies.
Chapter 9: In this chapter we have discuss the roles played by the governments to provide appropriate measure to small and medium sized opportunities. Policies are made by the government to increase the powers of these enterprise agencies so that fund raising can be achieved at local level. We have also mentioned about the procedures and rules that should be followed, so that there is freedom to use the resources for the development of SMEs.
Chapter 10: In conclusion, we have stated about the reasons behind the success and failure of the firm. Measures that should be taken to help SMEs, so that they grow and develop properly. The kind of environment should be created, which is favorable for business, especially for foreign trade oriented. Finally, the Enterprise Agencies being the first point of contact for SMEs should be pro-development and think about protecting and strengthening the SME growth in their areas of influence
The paper requires us to present a discussion over the topic of Small and Medium Enterprises and their helping services called the enterprises agencies. Several clauses have to be into account in order to shape out the influence of enterprise agencies on SMEs. We need to know what small and medium sized enterprises are in the present day context. What factors do they owe their origin too? What are the sizes, turnovers and the industry sector of the firm? Does the firm have joint ventures abroad? How many products in percentage, the firm's exports, or imports ever year? How do the government rules and regulations affect the start-up and functioning of SMEs? We need to identify the risk involved in starting up new businesses and other vulnerability, which SMEs face. What sort of help services is available to SMEs? What should be avoided in business? What were the most important reasons for the threat or failure of the business? Have there been any changes in the business since the threat? The reasons because of which business failed? Firm's most important competitors are? Firm's competitors are still there or have gone into liquidation in the last three years? Is Firm still following the same management principles and practices or are there any changes in it? How are enterprise agencies as helping center for individuals? What is their portfolio of services? What kind of procedure they adopt? What is the size and structure of the enterprise agencies? What is the response of SMEs to take up these services? Are there any benefits? Finally, do enterprise agencies have any influence on the growth of SMEs? Is there any evidence to support the decision?
Small Business - A small business as far as the Government is concerned is a concern along with its affiliates, which is owned and operated independently. It is defined in different countries differently, depending on the industry structure it is operating keeping in mind some of the following industry criteria such as amount of competition, average sizes of firms, starting-up costs and barriers to entry. Characterising can also be based on number of employees, average annual turnovers
Affiliates - Business concerns are considered as affiliates of each other if either directly or indirectly one firm controls or can control the other or if a third party controls or has the power to control both.
Number of employees - The number of employees that a business involves is one of the important status (Micro, small or medium) determining criteria for a concern. For determining the small business status number of employees is the average number of people employed by the concern and its affiliates which may be either domestic or foreign either on a full-time, part-time, temporary or other basis during each of the pay-period of the previous 12 months. If however a concern has not been in existence for a period of 12 months then the average employment by the concern and its affiliates shall be taken into account for each pay-period that it has been in existence.
Different countries define SMEs differently. Even in individual countries, it may not be clear what constitutes a small, medium, or large company. In the EU, a business with a headcount of less than 250 is classed as medium-sized whereas a business with a headcount of less than 50 is classed as small. Anything with a headcount of lower than 10 is considered a micro or a very small business. Business's turnover rate, their balance sheets are also taken into account in the European system. In South Africa, companies are identified by their turnover, gross asset value and the number of employees. In India any concern with fixed assets less than 10 million Rupees is small-scale whereas Chile classifies companies only on the basis of their annual turn-over. Each country has its only classification defined by the legislation. Established Family businesses with hundreds of employees to self-employed people owing Micro Enterprises (ME) are all enshrined in the SME and ME sector.
In this expanding economic environment, small and medium sized enterprises (SMEs) play a pivotal role and are important driving forces in development. They provide a starting platform for budding individuals and entrepreneurs by providing a flexible way to adapt quickly to dynamic market demand and supply. They not only generate employment but also make a significant contribution to exports and trade. Their significance and presence is felt globally. In many transition economies, they have been identified as crucial tools for industrial reform and have forced the formulation of national SME programs and enterprise development policies. Good SME policies need to address major obstacles such as lack of promotion, lack of legislation, fragile infrastructures, including means of finance, which can hinder their further development.
The reasons why SMEs are of strategic importance are as follows: -
They are means of creating employment opportunities providing greater portion of employment than larger firms do. In the long run, they may become significant contributors in the share of overall employment.
They help in reforming large government owned enterprises by enabling them to abandon and/or liquidate non-profitable units and re-absorbing redundant employees.
They provide greater opportunities for economies to exploit various services and enable the manufacture of a variety of consumer goods.
They dampen the monopoly of large firms by increasing the amount of competition in market.
They provide a rostrum for entrepreneurs to exploit skills and innovation to provide new services to the community and can help in revitalising local economies.
Even though there is a large pool of SMEs a large number of them are not yet involved in international trade and investment. This is because they are often face disadvantages in terms of finance, Human resource development, networking, and technology. Among the manufacturing and wholesale industry many SMEs are export oriented. The globalisation has helped many innovative SMEs to venture into the international market after successful output in the domestic market. Until now, foreign trade was usually associated with large multinational firms who had their products splattered across the globe. SMEs have realized the importance of tapping international potential and a large portion of manufacturing and wholesale SMEs are export oriented. These SMES are contributing and benefiting from international trade in many ways: -
It has been seen that transition economies can benefit most from external trade of SMEs. To boost their trade and development such countries should implement macroeconomic policies, which can exploit globalisation of world economy and help a number of innovative SME to realize their goals of entering into the foreign market.
There are however a number of factors which are hindering the SMEs from going international such as Complex licensing procedures for legitimate import/export forcing them to enter the gray market, absence to homogenous trading regulations between countries. These barriers can be classified into two categories as follows: -
Making a transition from a centrally planned to a market economy can be a tricky process. There are several risks, which can make the SME business setup quite vulnerable. Assessing the impending risk is a complicated task and can go a long way in determining the success or failure of the business. The following categories can identify some of the most important risks that SMEs face:
Business Plan and Consultancy Services: Creating a good business plan is of utmost importance. The business plan presents the enterprise and its project plan for maximom advantage. It is therefore essential to understand the project and make a good business plan before obtaining finance for the project. The information on preparing this plan and other start-up technicalities can be provided by consultancy services. However, the lack of these services is a big disadvantage for entrepreneurs.
Entrepreneurship skills: The level of education and training in several transition economies coming out of the communist era does not provide the mix of skills suitable for a market economy. The skills shortage varies from inadequate managerial, organizational, marketing, accounting experience among others. Entrepreneurship is an alien concept in such economies. Thus, unemployment and other financial factors give birth to SMEs in these economies rather than entrepreneurship.
Market Dynamics: There is a lack in understanding market dynamics along with little or no knowledge about business opportunities or identifying risks. Thus, understanding market dynamics is essential for starting a new business.
Unpredictable Inflation: There has been a close correlation between inflation, exchange rates, and company's performance. The surge in the commodity price or exchange rate in which the commodity is quoted can be seen as a harbinger of peril. Price increase threat represents a huge risk when company's business runs with an agreement date different from that of the underlying physical transaction.
Customer Relationship with Foreign Goods: A company's success in a market depends on customer's satisfaction. SME might have to face a tough competition with foreign companies when it comes to selling their products and services. Oversees companies are capable of using various techniques to influence customer's preferences, which may lead to less demand of products and services produced by local companies. To overcome from all these problems SME should develop good local infrastructure and should use advance techniques. It is also necessary to have more experienced employees with better skills. SME should try to produce high quality goods at cheaper rates.
Right decisions: One of the mistakes an entrepreneur can make is to hurry into business. It is very essential to understand the entire situation before entering into any venture. Despite all of the attention SMEs get, they are many obstacles it faces such as having enough financial resources to attain initial credit to start up a new business. Because of the risk and labor involved in starting a new venture, it is also very crucial to choose a right partner. Choosing wrong partner can lead to failure of operation and can bring company to the bankruptcy.
Black and Grey Economy: The major challenge SMEs have to face is in finding out about the rules and regulations imposed on them by the government. Government laws such as tax-laws, environmental rules, safety rules, and permits can be barriers in progression of small companies. It is more difficult for SME in meeting those regulations, as they do not have the resources to deal with it.
Inadequate Infrastructure: Market liberalisation rendered many industrial structures obsolete. Without the presence of developed networks, there are difficulties in acquiring supplies and providing delivery of products and services. For example: agricultural and manufactured products are often held up due to delays, poor handling, spoilage which results in compromised quality and shortage of delivered goods.
Cultural Risks: Habits, inherent values, attitude, and thinking of people vary from country to country, region to region. These differences have always been a threat for SME. There can be major inconsistencies or conflict between a tansnational companies's regarding supply, quality of their manufactured goods, or any other operations preformed by the company, which can lead to failure of a business.
Economic and Political risks: There are few risks that cannot be controlled or changed by SMEs. SMEs should have strategies to identify these risks, evaluate these risks, and beat them. Inadequate finance resources, problems in attaining knowledge and investment, deprived transportation and communiqué infrastructure, large government, not receiving payment on time, downturn in production, and increase in importation prices and production cost etc can be the cause of change in political and economic risk. The amount of risk a country is in can be gauged by taking into account political and economic risk together.
Non-payment or insolvency: The risks that have always been there are not being able to fulfilll legalized duties. More risk of non-payment is involved in product markets than in most other financial markets. There are various risk involved in the overseas market such as transfer risk. If central bank or government imposes large exchange restrictions, it may become unworkable to transfer payments. SMEs in economies in conversion categorized by high volatility, and high price rates are heavily exposed at this kind of risk. It is very crucial to evaluate the company cash flow in order to avoid the shortage of cash generated in this risk situation.
All companies irrespective of size, types, and functions have to face this risk, but the exposure vulnerability varies significantly. In the recent years it has been noticed that some companies are unaware of the risk which they haven been exposed to. It is quiet difficult to identify some threats, as they are not always directly linked with the day-to-day operation of the company. For example, if most of a company's coal sales are to iron and steel industry, the company may be exposed to iron price risks even though they don't buy or sell iron itself.
SMEs suffer from several drawbacks because of intangible assets that are behind their competitiveness in marketing, production management, innovation, and IT. This is a major hurdle in their success. SMEs in advanced and transition economies alike have a hard time finding advice and information they need as compared to larger businesses. Regulation also comes down heavy on them. These problems need to be pondered upon and work needs to be done in many areas. The business solution to this problem has come in the form of Enterprise agencies, which can provide advice, counselling, and the information required by entrepreneurs to catalyze the competitiveness of their SMEs in market.
Several business support services have sprung up in the form of Enterprise Agencies which have had pronounced effect on the economic growth of SMEs. SMEs saw the augmentation to their infrastructure in the form of Enterprise agencies. EAs trace their beginnings to the birth of regional development agencies like The Welsh and Scottish development agencies, which started in UK in the 1970s such as Levicki in 1984. 1980s saw the advent of Local Enterprise Agencies (LEAs). This trend was jump started by the formation of Charity Business in the Community (BiC) in 1989. BiC's chief purpose was formation of EAs, providing them with assistance both in cash and kind, which they acquired from large firms in Private Sector and passed on to SMEs that were a part of the local community. Not soon after this the Central Government started providing funding through the Department of Employment and the LEA network built up to about 300 by 1989.
Today a number of enterprise agencies have started offering training and advice to small businesses. The agencies gauge their effectiveness by various methods such as meeting the requirements of their funding organizations, which are usually political rather than by meeting the needs of the community, they serve.
The agencies are not homogenous. Looking on the clients, they serve and their own objectives. Different agencies provide different set of objectives. However, their services are often one to one and over a period of time, a close relationship is often forged between the client and the advisor. The effectiveness of the service however depends on a number of factors such as the knowledge and skills of the advisor, the client's attitude toward the advice and rapport between the client and advisor. Another way of measuring the effectiveness of the agency can be looking at the way the agency runs its operation such as setting its objectives and measuring its outcomes.
As we have already seen in Section 3, it had become critical to provide SMEs with an efficient support system. There was a need to listen to their problems and provide them with advice on management issues and acquiring resources. Now, Enterprise agencies are having a profound influence on the SMEs market. The services provided by enterprise agencies vary vastly across the globe depending on the state of economy that is developed or transition.
UK for example has seen a sudden boom in number of enterprise agencies building up in Scotland, Wales, Ireland, and England. There is hierarchical structure, which can be seen in all these countries. There are welsh and Scottish enterprise agencies which developed in 1980. Besides enterprise agencies operating at a national level, we see regional agencies working through a number of local agencies and rural agencies. The focus has shifted to building economically viable regional economies, which shall build up to make a successful national economy. Right now start-up businesses have all the help available from enterprise agencies who have a vast portfolio of services to offer. A typical enterprise agency claims to give the following sort of services:
Business Advice: Enterprises offer free business star-up advice specialist. Business advisors are available with which sessions can be booked and the business idea can be discussed. Help would be provided to come up with a good business plan. The client can be guided through such issues like Inland Revenue, exercise, and customs. Training programs can then be suggested according to the needs of the business.
Mentoring: There are various forms of mentoring schemes available such as the business volunteer mentors association (BVMA). These schemes roughly work on the basis of volunteering meaning citizens with extensive experience of running businesses volunteer to become mentors. These mentors offer impartial and free advice to budding entrepreneurs and walk them through the starting years of their business, which are usually unstable. Mentors over a period of time develop good relationships with their clients through regular visits or even by phone. A national body runs these schemes. For example, BVA scheme is run by National Federation of Enterprise agencies (NFEA) which receives it's funding from the Department Of Trade and Industry (DTI).
Workshops and Events: Enterprise agencies also offer services like workshops, which consists of series of exercises and lectures. These sessions have practical workshops and clients can get one to one business advice in between these sessions. Workshop typically consists of such topics as:
Marketing: This usually involves helping clients determine their customer, his needs, helping in making campaign for market research, doing SWOT analysis and planning strategies for advertising and promotion.
Skill: These sessions usually help to develop selling skills, gaining confidence and dealing with customers, learning business techniques.
Financial and Legal Topics: These help in disseminating advice on various matters such as local requirements to set up a business, issues of acquiring premises, government rules and regulations and other legal and financial topics.
Bookkeeping: In these sessions the client is given basic training on preparing sales, purchase and cash books creating balance sheets, calculating profit and loss and other basic accounting skills.
Business Planning: Here advice on creating successful business plan and its other technicalities are explained.
IT: Here information on how IT can be useful tool for business solutions is taught from various perspectives such as managing finance, customers, using it for communications, marketing and also the sort of hardware and software required for client's specific business.
Technology Accreditation: Today small and medium enterprises can benefit from accredited enterprise agencies giving information and communication technology advice. Technology means Business (TMB) has become an industry standard and this is available only to some approved centers who have up-to date provisions and having TMB accredited staff. SMEs can rely on them because TMB are backed by DTI, which has sponsors like BT, Microsoft, and Intel to name a few.
Matches of Funding and Finance: Getting funding for starting up a business is one of the most troubling issue for any new business. One of the major helps, which EAs claim to provide his to help SMEs acquire loans and funding. Process of funding usually works in the following way. The enterprise agencies help the client in the inception of the idea through to creating the most promising business plan. Then they provide them with suitable contacts from where loans can be acquired. However, in this process the most promising business plan or an already existing business requiring more finance have better options. This is because the investor shares the profit as well as the risk of the venture, hence the investor would like to put its money in stake with a low risk firm. The sources of funding which are available to SMEs are vast depending on their project and the amount of money sort for. Thought for small businesses the principle loan acquires would be a few thousand to tens of thousand of pounds. Funding will be available through these sources
Equity: This involves giving others a stake in the business by way of shares in the company or raising venture capital.
Debt: This involves borrowing from bank loans and overdraft. Money borrowed needs to be paid back in a certain time.
Grants: Grants are few in number and our criteria specific suggest the kind of business a client needs to start, his future plans etc
Local Support: Also, support may be available through local business support programs.
Premises: EAs also provide help in getting business premises. Enterprise agencies usually have link ups with leasing companies usually in the form of innovation centers which provide affordable office accommodation with shared facilities such as meeting rooms, phone, internet. These office spaces are available on lease, which can be easily made available without any legal requirements.
The above Support Centres work hand in hand with support institutions like Chambers of Commerce and Industry and Commerce and Industry Associations. Together they act as all under one-roof service counters replenishing SMEs with support strategies, launching support projects by way of consultations, dispatching experts. They even appoint citizens with great expertise in SME management issues as Project managers. Besides proving support in management issues of small-scale firms, the State also provides visiting consultations, training seminars at Chambers of Commerce and Industry and Commerce and Industry Associations.
It is also worth citing here just for comparison purposes. The types of support centers run by small and medium enterprise agencies in Japan. They have three types of support centers SME/Venture Business support centers,
A) Consultation project
These centers provide all under one roof consultation and advice service ranging from management issues to technical matter. Even visiting consultation services are provided in some centers.
B) Incubator managers and Expert dispatch project
For companies going through the process of incubation i.e. expansion of sales channels, drafting of business plans, formulating strategies for patent filing there are incubation managers at their service who can come to rescue by providing them intellectual support. Depending upon the needs of the client, these centers have the option of assigning and dispatching experts for services in management, finance, technology, even on complex legal issues such as applying for a patent. These experts provide long-term services or according to need services to its clients.
C) Holding of Seminars and Lectures
Firms thinking of being listed with the stock exchange are given step-by-step practical and administrative information through seminars and lectures held at these centers.
D) Business start-ups and innovations
The centers help appreciate and nurture innovative ideas of entrepreneurs looking for starting up business. Help is extended through Project Managers who handle their projects guiding them from plan compilation to implementation thus ensuring consistency in the project.
Regional support centers work much like the SMEs support centers. They cover more municipal area and house specialise co-ordinators to help clients with their issues.
These are established in above 59 locations in prefectures. These centers provide an implementation system for SMEs support projects that are run with the help of government following the SME support law. Each prefecture center has project managers (Private Citizens) and also sub-managers helping the project manager. Together they provide same consultation services as the above two.
Besides these, they also work with support institutions like Chambers of Commerce and Industry and Commerce and Industry associations.
Today SMEs can benefit vastly from the network of enterprise agencies and their service available. SMEs do not have to run from pillar to post in order to accomplish their objective. All the services required for starting up a business are available to them in a nutshell at the local enterprises agency. Some of the benefits are numerated below:
Due to the fact that these agencies have a lot of experience with a large number of SMEs behind them. They can bestow their experience by helping create good business plans producing feasibility studies etc.
Some SMEs who are already busy in their work do not have enough time to spare on task like getting research information and acquiring funds. EA can answer their SOS by suggesting sources of funds, grants, and knowledge transfer ship institutions.
They can use the benefits of ICT to revitalise their business for which again EAs have specialist services.
One of the greatest benefits of EA is that their services are demand specific and custom built around the clients needs. EAs are able to help businesses to cope with fast changes in technology, reduce their operating cost and enhance their product quality and provide them with research knowledge database by way of knowledge transfer ships.
EAs also claim that they can help in increasing business turnover and have positive effects on large and small firms alike.
Since EAs have developed a good network base they are one-step solution to all the needs of all the firms.
The network of enterprise agencies has grown so vast that SMEs can benefit from diverse range of sectors. Experience in guidelines exists in a number of fields for SMEs to exploit to their advantage. Today EAs also give advice on law compliance, good practice advices and on how environmental friendly companies can be run keeping your sector in mind. The menu of sectors to be exploited is vast. Here we shall try and discuss a few sectors that can be exploited by SMEs.
Agriculture, Livestock, and Pest Control: Selections range from horticultural, arable farming, farming of sheep, goats, cattle, and poultry, as well as fishing. Advice is also available on businesses concerning pest control, storage, and use of pesticides on farms etc.
Electronics: Environmental friendly ways of minimising waste, reaping more profit out of your business is available for SMEs operating in electronic industry be it CRT manufacture, software houses, PCB assembly manufacture etc.
Chemical Industry: Companies operating in sectors like pollution prevention, chemical manufacturing, manufacture of perfumes, toiletries, and other chemical products can take advantage of industrial experience available in these areas.
Hotels and Restaurants: People wanting to enter this sector can benefit from invaluable advice on such aspects of hotel management as storage of materials, packaging, hygiene, storage and disposal, mobile catering, advice on opening bars etc.
Food and Drinks manufacture: Today food and drink sector is the biggest industrial sector in UK with market of about 90 billion pounds. Operating with in the sector are about ten thousand companies, the majority of which being small and medium sized enterprises. This sector has extreme competition and requires fast adaptability to market demand, hygiene, health, and safety. People wishing to enter this sector can get advice ranging from set up to law compliance regulations.
Recycling: This sector is extremely important and growing these days. SMEs can exploit areas like recycling of scrap metal. This includes information on processing waste metal that can be further processed and sold to manufactures more products. Also recycling of non-metal materials like tires, plastic, glass, which all need disposal.
Wood Products: EAs provide businesses involved in treatment of wood used for manufacture of products like furniture with guidelines that can help them exploit several areas such as manufacture of wood chips, sawdust, raisins, veneers, plywood and laminate flooring material.
Rail and Road Transport Solutions: EA is in this sector can furnish SMEs with information on such areas like fueling, cleaning of locomotives, maintenance, and repair and transport operations.
Rubber and Plastic Industry: Technical and legal issues surrounding the manufacture of rubber and plastic products such as polymers, monomers are simplified and offered for the help of SMEs.
Printing, Publishing and other Media: Not only can EAs provide SMEs with information on techniques involving finishing, binding, digital printing, stencil production and other related products but also practical advice on how to comply with environmental requirements.
SMEs require assistance not because they are small in size but due to their ability to be innovative, smart, and marketwise which can give them the power to compete not only on the national front but also internationally. EAs help them in this endeavor by providing them with quality, consultative and technical services to support and augment the infrastructure. The business services EAs provide are often defined as a mix group of activities. Thus, business services provided by EAs include marketing services, security services, labor services etc.
Networking is defined as a number of firms working together though not being localised. The idea of networking provides a path for individual SMEs to tackle their problems in order to improve their competitiveness. Networking occurs agencies operate in markets producing common products that share same business interest. This form of grouping gives firms competitive advantages. Here the idea of cluster comes in. Clusters are defined as a group of firms localise to a particular geographic location and work in the same sector. Firms may not actively collaborate in the cluster regime. Via the cluster regime, two ways of efficiency gains can be achieved. First local economies- In this kind of structure benefits can be achieved due to the fact that firms are concentrated in one town or region such a concentration will attract local suppliers to input raw materials to these firms and also generates skilled labor. Another way of increasing efficiency is via Joint Action where firms deliberately corporate and join hands to form business associations. This can generate multiple benefits by opening up overseas market thus enhancing government support toward them.
7.3. Triple C Approach
Triple C approach has been known to have most successful effects toward the growth of small firms. This is due to the involvement of three key factors which are:
Collective: In this there is effective outside assistance due to the fact that it is directed to enterprise groups and not individual firms. This causes business associations and industrial alliances. This has two distinctive advantages which are it is more cost effective because assistance is provided to groups rather than individuals. This leads to constructive relationships between enterprises improving their efficiency and increasing their ability to learn from one another.
Cumulative: This approach creates the ability within a group of firms to be self-sufficient thus reducing their need for public support. Because of this the firms remain competitive adapt themselves to change in market conditions and find new opportunities.
Customer-Oriented: This focuses the firms toward the need and demands of customers. The internal competitiveness of firms are set aside which help firms to open up and learn about customers and thus work to bring about changes and create innovations needed to match market demands.
8. Influence of Enterprise Agencies on SMEs -
8.1 Survey of Hungarian SMEs
Hungary was among the first countries in central Europe, which had an advanced legal and financial framework to enhance SME development. They had adopted company and tax laws as early as 1980 and by 1986 bankruptcy law was introduced. The first years of this reformation were characterized by rapid changes in laws and regulations such as the bankruptcy law in early 1990's. The current emphasis of the Hungarian government to promote enterprise development was to bring about regulations and legislations that were similar to EU standards.
Hungarian government set up chambers of agriculture, industry and craft. Finally in 1999, the chamber of commerce and industry and the Hungarian chamber of craft were merged together. However, due to excessive link of these chambers with private institutions, activities for the benefits of SMEs were greatly impeded. In order to revitalise the SME economy the PHARE program was launched which supported development of incubators and a national business innovation center (OAKEY in 1997). But there was lack of venture and risk capital. Even the loans available through PHARE program had high interest rates, which prevented innovators from materialising their ideas. PHARE in a desperate attempt to salvage their SMEs started creating a network of local enterprise agencies, which delivered consultancy services and technical assistance. These agencies were based on the similar model as of prevalent in the UK LEA. These were non-profit agencies set up through Hungarian Foundation For Enterprise Promotion (HFEP), which was the implementing agency for the PHARE program. ]
However, UK LEA model was not successful in Hungary. The reason was the enterprise agencies in Hungary turn to more profitable clients due to the non- participation of local governments in Hungary in the funding process. Thus, the LEAs became exceedingly commercial. Consequently the interest of the LEAs shifted toward large enterprises than SMEs. SME friendly policies eventually disappear. This after 1993 the growth of SMEs starting declining sharply which is when the government took serious steps to strengthening the SMEs and restructuring programs were developed. As of now, Hungarian SMEs have recovered and play a major part in the national production and employment.
Business volunteer mentors (BVM): This project is funded by the Phoenix fund provided trough small business service. This is a business link funded service, which is managed nationally by National Federation of Enterprise Agencies (NFEA). This is a free of charge mentoring program, which involves volunteers, and support staff that help start-up small businesses. This program is delivered by enterprise agencies and support organizations throughout the UK. Tested first in Feb 2000 through formal announcement at the NFEA annual conference in September, the service has been running successfully for the past five years and intense to last till at least March 2006.The BVM program has a network support of both retired and practicing business people drawn from the local business community who provide information and support to people interested in starting their own businesses. The benefits of the mentors taking part in the scheme are varied. Ranging from a good feeling of helping others to a quest to learn new skills. It gives mentors a sense of achievement. The program though under the contract of NFEA is provided through approximately 40 sub contractors in England. According to records there have been a at least 1200 mentors on the program who have a briefed about 25,000 mentoring sessions and have already assisted in the development of over 14,000 businesses. NFEA is a membership body of local enterprise agencies operating in England through schemes like BVM has also helped in funding through grants like new Entrepreneurs Scholarships (NES). There is also a small business advice SBA service, which disseminates internet based advisory service to self-employed people, managers, and entrepreneurs. NFEA claims to provide several membership benefits to its clients. It also plays a key role in influencing the government. European Union and other decisions makers to make strategies that assist small businesses to become elf sustaining. NFEA also tries to represent the point of views of enterprise agencies not by lobbying for their funding demands to be met but tries to bring out in the eyes of decision makers that EAs play a major role in small business start-ups. NFEA also helps enterprise agencies become DTI approved centers.
There are several case studies available to show the success of BVM program. Enlisted here are some real case studies.
The Black Rock Hen Company: This case shows documented evidence of Ben and Kathy who sought help from the north Devon enterprise agency to start 30-acre organic small holding business. For rearing a unique poultry, breed the Black Rock. They claim to have received assistance from the business volunteer Andrew Copp who himself was a farmer owing 1000 acres in Devon. Through the help of the enterprise agency, Ben and Kathy started the business with sales of 100 birds per month and now their business is running smoothly with outputs of 2000 per month.
The case of Cate Watkinson (Project North east): Cate Watkinson started the Cube Collective, a professional design company through the help of project northeast. Project northeast help this company acquire office accommodation and also introduced them to their mentoring scheme. Cube collective, which contracts in club land, music, and youth industry. They also carry out design work for student mobiles dotcom. The company gave positive reviews to project northeast which helped them acquire their office.
Rashida Bhyat- Taj: Rashida 54-year-old unemployed Asian women lived in west midlands with her family. She approached The Women Development Agency with ideas to start her own business. The agency helped her sketch out a business plan for funding the application, which was approved through Single Regeneration loans, and grant scheme. With that, she was able to purchase a freezer and specialised cooling case to make the dream of her Kulfi (an Indian ice cream) successful. Now Rashida has been able to develop excellent contacts with local restaurants and she has even purchased land opposite her home and has employed a driver for her increasing number of orders. Rashida was quoted saying WBDA is very important for women like me who know nothing about setting up their own business. Now Rashida is quiet successful and has earned reviews on Coventry telegraph etc.
This survey showed us that enterprise agencies had profound effects on the success of SMEs, which is true to most economies like UK.
From the economic point of view, it is essential to promote SMEs to keep a healthy national economy. For this there's need to plan out and map together relationships between regional and local development agencies. The corporation of existing small business support agencies and organizations has to be brought into this equation. Policies need to be made to increase the powers of these authorities so that fun rising can be achieved at local level and there is freedom to use these resources for the development of SMEs. In the end different regional economies will have their separate goals, which will require greater flexibility by local support institutions. For this relationship between government departments and local agencies will have to be forged which can help achieve greater levels of private and public support and make local bodies autonomous in their operating area.
Even among different countries, there is a need to trace out future network configurations to support small enterprises at the local regional and even at national level. This should be done to weed out any conflicting interest, which may hamper the ultimate goal of benefiting the consumer and the small business alike.
The quality of management will be a great factor in developing and growing enterprise agencies among trading countries. These enterprises should have the ability to be entrepreneurial and dynamic in response to changing market conditions. They should find ways to create a network mesh at local, regional, national, as well as international level. Since, SMEs play a major part in contributing to a countries' GDP, government should not neglect their contribution and do all in their power to promote and help entrepreneurship. It should provide advisory counselling and other required services to SMEs so that in the long run they become self-sustainable entities.
SMEs can have two outcomes: Success or Failure. There performance can be approached, conceptualised, and measured in several ways. The yardstick for measurement would be achievement of goals and objectives. We can also have two dimensions of success: financial to other success, short-term to long-term success. Survival and growth can be considered as two different scales for measuring success of SMEs. On the other hand, failure is identified by end of business with a back debt. Firms today have to maintain financial success keeping environmental factors in mind. These environmental factors can be in the form of market competition as well as government rules and regulations. This missing link between these two factors is availability of resources.
Under such fragile operating conditions, SMEs can be destroyed by the slightest environmental disturbances. In order to have a successful SME economy it is necessary to nurture it with all the support that is available. The biggest support provider in direct and indirect form will be the government. So what policies should government adopt to promote SMEs and trade?
In order to provide SMEs with a safe cocoon for growth and development. It is necessary to create an environment which is favorable for business, especially for foreign trade oriented SMEs. For example, the black sea economic corporation provides for business communities to benefit from standardising custom tariff reducing border formalities and increasing financial and foreign trade legislation. Foreign trade data should be exchanged and programs for training new specialists in fields like banking, finance, trade, marketing etc should be chalked out. Trade policies should be such that SMEs can engage in international trade as freely as they would do business domestically. Reduced red tapism should be brought about to simplify business start-up, importing/exporting formalities and relaxing international trade policies. To cite an example west European economies have developed national trade and transport facilitation committees joining the hands of public and private sector to attain this objective. Presently SMEs face international trade barriers due to non-uniform laws as different countries have different testing and certification procedures. It would cone as a great relief if a standard testing and certification regime could be adopted globally. This would make sure that a product certified in one country would pass the check in another country too.
SMEs suffer most from this irregularity in testing standards among countries, yet there are unable to do much about it due to inadequate resources. This has prevented SMEs from becoming omnipresent and omnipotent unlike the large private sector enterprises who set the standards.
Some more recommended activities which government can initiate to encourage SMEs would be:
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