1.0 Abstract
Small and medium enterprises business in the lower economic regions in Saudi Arabia forms the largest percentage of all businesses with a huge number of employees in the Saudi Arabian kingdom. However, small and medium enterprises’ input to the economy is little. Their visibility in the market is drastically diminishing due to inability to grow and develop effectively. There are several factors that small and medium enterprises in Saudi Arabia low economic growth regions face. The research will investigate factors affecting business success of small and medium market enterprises in low economic growth regions in Saudi Arabia. The research will apply qualitative research methods in collecting data and use documentary sources.
Key words: Small and medium enterprises (SMEs), business, Saudi Arabia.
Factors That Affect Business Success of SMEs in Low Growth Regions in Saudi Arabia
2.0 Introduction
Small and medium enterprises are regarded as key elements in the economies of different nations around the globe. Small and medium enterprises provide the basic needs of several people in different industries. Saudi Arabia’s business is characterized by SMEs sector. Small and medium market enterprises are vital components in strengthening the potential of the Saudi Arabian economy. They can provide employment opportunities for many unemployed young population in addition to enhancing economic growth. Small and medium enterprises in Saudi Arabia form 92 percent of business, providing 80% percent employment opportunities in the Saudi Arabian Kingdom. However, the sector only contributes 33% to the Kingdoms annual GDP. According to a report by EU-Gcc Chamber Forum, the standard age for the SMEs in Saudi Arabia low growth regions is seven years (Ei-Gcc Chamber Forum, 2010). The report, therefore, implies that there are minimal chances for the SMEs in Saudi Arabia to survive and grow. Consequently, research on factors affecting business success of SMEs in Saudi Arabian low growth areas is important to enhance their growth in the market and provide employment opportunities to many citizens, thereby satisfying their needs and making positive contribution to the economy.
2.1 Objectives of the Study
The objective of this study is to identify factors affecting business success of small and medium enterprises in low economic regions of Saudi Arabia. The investigation will focus on short and medium terms of growth among SMEs and identify factors that lead to their failure. Furthermore, the study will also identify strategies that needs to be put forward in short and long-term existence of SMEs in the lower economic regions of Saudi Arabia. The SMEs in the lower economic regions in Saudi Arabia are not performing to their expectations and their expansion is limited. Finally, this research is aimed at ensuring the growth and expansion of SMEs in lower economic regions is enhanced in order to support the lives of the population and the country at large.
2.2 Research Questions
What are the factors that affect business success of small and medium enterprises (SMEs) in low growth regions in Saudi Arabia?
What are the approaches that can be established to enable SMEs in lower economic regions in Saudi Arabia to subsist and expand?
What are factors, which affect the short term and long-term existence of SMEs?
What strategies needs to be put in place in order to ensure SMEs are stable and attain competition capabilities with other economic sectors?
3.0 Literature Review
There are numerous SMEs found almost everywhere around the world today. Practically, there has been no definite definition of SMEs agreed upon due to several dynamics in different settings. Different nations of the world have divergent classification of SMEs. For instance, some nations define SMEs with regards to the number of employees they encompass, while others base their definition on the SMEs asset base. Generally, small market enterprises involve between five to ten employees as a lower limit while the upper limit entails between 50 to 200 employees. The medium enterprise, on the other hand, has an estimated employee number of 100 to 250. It is intricate to espouse on a specific definition of SMEs in nations, because the condition of SMEs relies on the markets of economic size of different nations they function (Motwani, Luvenburg & Schwarz, 2006). For instance, the United States is a bigger nation.
An organization comprising of 100 employees in the nation might be considered small, which is relative to the size of its economy. On the other hand, the same organization in a nation like Jamaica is not considered small because of its economic power. In the United Kingdom companies act, (sections 382 and 465) SMEs are defined relative to the turnover and number of workers. An organization with a turnover of more than 3.26 with less than 50 workers is treated as a small company. However, an organization with less than 25.9 million and not more than 250 employees is considered as a medium sized organization (Statistics of SMEs for the UK and regions, 2009).
In Saudi Arabia, there are several definitions used to describe SMEs. According to the Small and Medium Enterprises Development Centre, a small enterprise is a company with not more than 20 employees. The centre describes a medium enterprise to have 21 to 100 employees. The General Investment Authority of Saudi Arabia, on the other hand, categorizes small enterprise to have less than 60 employees. The authority conversely classifies medium ventures to have not more than 100 employees (Eu-Gcc Chamber Forum, 2010).
The Saudi Industrial Development Fund describes SMEs with regards to annual sales. The institution describes SMEs as organizations whose annual sales do not surpass SR 20 million in financing functions. Moreover, the World Bank also disseminated questionnaires to Saudi Arabian commercial banks to establish their description of SMEs. According to the outcomes of the questionnaires, there was a clear indication that there was no big disparity in the banks categorization of SMEs. The World Bank, therefore, concluded that small enterprises are characterized by annual sales of between SR 100thousand to SR 5 million with an average employee capacity of between 2 to 49. Medium enterprises conversely have annual sales ranging from SR 5million to 50 million and an employee capacity of 50 to 200 (Saudi Arabia Monetary Agency, 2010).
3.1 Significance of SMEs
Small and medium enterprises are important components in a nation’s economy. SMEs provide a massive source of employment and income besides increasing innovation and growth. In the European Union, 99% of enterprises are composed of SMEs. 91 % of these enterprises are trivial, having less than 10 employees. This implies that SMEs are significant players in the economic growth and recovery for all nations. Furthermore, SMEs are the major sector of economies in several nations across the world. For instance, in the United Kingdom, 4.7 million business enterprises out of which 99.3% are small enterprises incorporating about 50 workers whereas only 0.6 % of the firms comprise 50 to 249 employees (Mark Ware Consulting Ltd, 2009). In India, small and medium enterprises throw in 8% of the total gross domestic product (GDP) of the nation. The GDP entails 45% manufactured production and about 40 % sells overseas. In addition, the sector provides employment to about 60 million citizens (Sharma, 2011).
SMEs have employed several strategies in their operations and functioning. The strategy for small and medium enterprises entails deliberately planned activities aimed at achieving limited goals, resources, and proficiency to action decision-making (Burke & Jarrat, 2004). SMEs strategy mainly depends on basics, such as interaction with competitors, interaction with the environment, resources availability, and planned activities. One of the major obstacles that affect SMEs face today is to successfully enter into the market that is already being controlled by established organizations or firms in terms (Sharma, 2011). They face stiff competition with regards to limited resources they have. The firms are hindered by the competitive advantage enjoyed by the already established businesses.
3.2 Factors That Affect Business Success of SMEs in Low Growth Regions in Saudi Arabia
There are several factors affecting SMES in low growth rates in Saudi Arabia. First, SMEs lack important resources to assist them grow and develop in their ventures. For instance, commercial banks and other financial institutions shun from providing financial assistance to SMEs. This is attributed to the fact that the debt capital is lower than 2% of the nation’s total lending (SUSRIS, 2011). The absence of these supportive financing programs has led to limited life spans for SMEs and stagnated growth and development. Furthermore, there are other factors emanating from innovation, planning, and ineffective management that affect the SMEs. This is because of lack of enough exposure and expertise within the SMEs. SMEs in lower growth area in Saudi Arabia also concentrate on a simple transaction of buying and selling goods and services, thereby exposing them to low margins and restricted growth and expansion in their operations.
Another factor affecting the success of SMEs in low economic regions in Saudi Arabia is the copycat conducts. Most SMEs set up businesses that are similar and close to each other. This behavior kills the morale and innovation spirit among entrepreneurs. Copycat behavior also creates a situation where goods and services in business enterprises lose value due to their flood in the market. Inadequate marketing of goods and products, and lack of technological and effective management skills also affect small and medium enterprises in Saudi Arabia. This implies that effective management strategies are not entailed in the SMEs in the lower economic regions of Saudi Arabia, thereby hindering their success.
The Saudi Arabian SMEs success in low economic regions is also hindered by limited funds allocated by the central government aimed at promoting human resources ventures. Lack of crucial training and skills hinder the growth of SMEs since the most population in the region cannot afford formal training from business institutions. Most of the institutions charge up to approximately $300 for short training courses in planning and accounting, which is unaffordable to the residents of the lower region.
Another factor affecting the success of SMEs in the lower economic region of Saudi Arabia is bureaucracy. This information is approved by an investigation conducted by SME Center at the Riyadh Chamber of Commerce and Industry (2011) as identified by 65% of respondents.
Nonetheless, there are factors that have supported the success of SMEs in Saudi Arabia lower economic regions. The government and the private sector have acknowledged the potential of SMEs and the need for them to be supported in terms of capital, and training. The Saudi Arabia Development Fund, banks, and the Finance Ministry have launched a “Kalafa” program that provides financial assistance for SMEs. The program provides financial aid in support of SMEs to a maximum of SR 200 together with loan guarantees covering about 75% of the amount financed. So far, 1,113 SMEs have benefited from the program initiative (Saudi-US Relation Information Service, 2010).
SMEs in the lower economic regions in Saudi Arabia have however received financial support, overlooking the training programs requirements aspect. This has led to sudden vanishing from the market of SMEs or stagnant growth that has a harmful effect on the nation’s economy (Shalaby, 2004).
3.0 Research Methods
3.1 Research Strategy
This research will implement interpretive approach since it is explorative. Furthermore, the interpretative strategy is applicable in designing and finding out more about what can be learned on the topic that is attuned to the nature of this investigation. In the espousal of interpretive strategy, there are achievements that this research will accrue. Through establishing the factors that affect the success of SMEs in the lower economic regions of Saudi Arabia, the SMEs will be assisted in identifying factors that affect their success both positively and negatively and providing a platform to help them experience longer life spans and growth. This study is categorized as exploratory research design because the question and objectives of the investigation are in agreement with the definition of exploratory research. Exploratory research is applied when the research topic or issue is to find out what study is needed and appropriate actions that need to be acknowledged and getting insights before making a conclusion (Stebbins, 2001).
3.2 Methods of Collecting Data
3.2.1 Secondary Data
The information will be collected from several published materials, for instance, articles, conferences, books, reports, and other recognized organizations. These documented sources will assist the researcher in establishing factors that affect the success of SMEs in low economic regions in Saudi Arabia.
3.2.2 Primary Data
The place of study in this investigation is Saudi Arabia. The sample will be gathered from different low economic regions. The most appropriate method employed in exploratory research is the qualitative method in collecting primary data. Researchers using qualitative methods include asking open questions that provide answers from participants in a formulated structure. The research will entail planned semi-structured interviews. According to Corbetta (2013), this form of interview is open to conversations that will fit the needs of researchers. Furthermore, the interviews allow the researcher to explain and provide clarifications. This will also give clear meaning to the research topic and come up with better options for the sector’s future. The interviews will be conducted to eight owners of small enterprises with less than 60 employees and eight decision makers of medium enterprises for about 61-100 employees in the low economic regions.
3.3 Data Analysis
In the analysis of qualitative data, many methods can be employed. The methods include content analysis, discourse analysis, thematic analysis, and template analysis (Btyman & Bell, 2011). Subsequently, a suitable analysis method needs to be applied in line with the objectives of the study. In this study, thematic analysis will be suitable to apply in evaluating the semi- structured interview information gathered, which concur with the purposes of the research. Factors affecting the success of SMEs in the lower economic regions in Saudi Arabia identify the elements that lead to the failure and thrive of SMEs. In this regard, the thematic analysis purpose is to identify, examine, and report the configurations or patterns of data. Furthermore, the thematic analysis defines data in detail with regards to the subject or the research through the contributors. The use of the thematic analysis by the researcher is intended to frame the research problem and come up with the basis of research design. Thematic analysis encourages participation, particularly during the initial stages of the investigation (Braun & Clarke, 2006).
4.0 Envisioned Input to Awareness
This research in projected to contribute in providing additional information in the gaps left by previous investigations on SMEs in the economic regions of Saudi Arabia. Several investigations about the topic have been carried out in the recent times, especially their roles in the economy. In the process of exploring the success factors of SMEs in the lower economic region of Saudi Arabia, there is a significant conclusion that their existence should be supported because of the accrued benefits to the nation’s economy and people’s lives. This investigation will look at the success factors of SMEs on low economic regions in Saudi Arabia, their significance, and their average life span (Riyadh Chamber Commerce, 2011). At the end of this study, the SMEs success factors will be addressed and given the capacity to conform to stable conditions. This is because the study will bring together several factors and strategies that SMEs can gain to develop and maintain growth.
5.0 Conclusion
According to Achoui, there is no formal hypothetically grounded and complete assessment of small and medium enterprises in Saudi Arabia (Achoui, 2009). The author went ahead and stated that most investigators center on the role and significance of SMEs in the economy. Some references do not have extensive information and exploration on the success factors of SMEs in Saudi Arabia lower economic region. Small and medium market enterprises in the lower economic regions in Saudi Arabia need to be empowered to grow and sustain people’s needs and improve the economic strength of the regions and the nation. The SMEs have enough support to sustain their growth and operations. As a result, this study endeavors to explore the success factors of SMEs in the lower economic region of Saudi Arabia to provide strategies in the planning of the growth, sustainability, and success of SMEs. The adoption of a single method, which is semi-structured interviews, is necessary due to the time constraint of the research. Therefore, additional studies will be case studies to find deeper information and collection of data through different methods for legitimacy and consistency reasons.
References
Achoui, M. (2009). ‘Human resource development in Gulf countries: an analysis of the trends and challenges facing Saudi Arabia’. Human Resource Development International, 12(1), 35-46.
Braun, V., & Clarke, V. (2006) ‘Using thematic analysis in psychology.’ Qualitative Research in Psychology, 3(2), 77-101.
Bryman, A., & Bell, E. (2011). Business Research Methods. 3ed. New York: Oxford University Press.
Burke, G., & Jarratt, D. (2004). ‘The influence of information and advice on competitive strategy definition in small- and medium-sized enterprises.’ Qualitative Market Research: an International Journal, 7(2), 126-138.
Corbetta, P. (2003). Social Research theory, methods and techniques. London: SAGE Publications Inc.
Saudi Arabian Monetary Agency. (2010). Small and medium enterprises. Retrieved from: http://sama.gov.sa/sites/samaen/News/Pages/SMEIOB.aspx.
Saudi-US Relation Information Service. (2010). Boosting Small and Medium Enterprises in Saudi Arabia. Retrieved from http://susris.com/2010/12/04/boosting-small-and-medium-enterprises-in-saudiarabia/
Stebbins, R. (2001). Exploratory Research in the Social Sciences. United States of America: Sage Publications, Inc.
Riyadh Camber Commerce & Industry. (2011). Small and medium enterprises in Saudi Arabia Retrieved from http://riyadhchamber.com/indexen.php
Sharma, G. (2011). ‘Do SMEs need to Strategize?’ Business Strategy Series, 12(4), 186-194.
Shalaby, N. (2004). SMEs Developments Saudi Arabia. Third national SMEs Forum, Eastern Province Chamber of Commerce and Industry, Dammam, Saudi Arabia.
Statistic of SMEs for the UK and Regions. (2009). Small and Medium- Sized Enterprises. University of Strathclyde. Glasgow. Retrieved from http://lib.strath.ac.uk/busweb/guides/smestats.htm
SUSRIS. (2011). A “SME” Authority for Saudi Arabia. Retrieved from http://saudibrit.com/2011/02/04/a-sme-authority-for-saudi-arabia/
The EU-GCC Chamber Forum. (2011). Benchmarking SME Policies in the GCC: a survey of challenges and opportunities.
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