Increasing Productivity in Small and Medium Enterprises

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Career MBA Program

Class Name

Increasing Productivity in SMEs

Submitted in partial fulfillment
of the requirements for the degree
of Master of Business Administration

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Student Name(s)

College of Business and Public Management

The literature indicates that Small and Medium Enterprises (SMEs) contribute a significantly to a country’s GDP. In addition, they employ large numbers of people. According to the Bank of England Quarterly Report on Small Business Statistics (2001), almost 99.8% of businesses in the UK, one for every 10 workers, are SMEs, employing less than 250 people. This means that one out of eight workers is self-employed. Similarly, according to Cole (n.d.), the World Bank believes that one significant difference between high and low income countries is the percentage of SMEs in each. In a typical high-income country about 57% of employment comes from the SME sector, while in a typical low-income country only 18% of employment comes from the same sector. An example of a high-income country is the US, with 85% of companies designated at SMEs, contributing 50% of the GDP and employing 50% of the labor force (Cabello, 2010). Another example of a high-income country is Japan with 99.5% of businesses designated as SMEs employing fully two-thirds of the entire labor force (Cabello, 2010). Given the sizeable contributions SMEs make in terms of employment and adding to a country’s GDP, it is tremendously important they increase their competitiveness in a globalized economic environment. Unfortunately, there is significant evidence that SMEs lag in productivity—the reasons vary based on what line of business the SME is in. For example, in a small factory, low worker output may be due to problems with the machines or low morale because of bad worker-manager relations (Calzado, 2003). However, another reason that SMEs are unproductive is their inability to effectively utilize Information and Communication Technology (ICT), sometimes simply referred to as Information Technology (IT) (Calzado, 2003). According to Qureshi and York (2008), Ho, Kauffman, and Liang (2008), and Bharadwaj (2000), there is a large consensus among scholars and policymakers that the adequate use of ICT increases the competitiveness of employees and strengthens the position of companies in the global economy (as cited in Millis, 2008). This literature clearly shows that companies who integrate ICT in a proper way score significantly better than their competitors in the field of cost control and profit. In fact, a high level of computerization and networking is perceived as a crucial factor to enhance the efficiency of employees and thus to remain competitive, which is one reason that governments around the world have responded to these finding by launching initiatives to encourage companies to adapt ICT more aggressively (Millis, 2008). However, while there is agreement that SME productivity must be increased and that this can be achieved by the successful integration and use of ICT, the literature also indicates that SMEs are not successful at acquiring, utilizing or integrating ICT. Therefore, while large corporations have successfully integrated ICT so as to generate more output with fewer resources, SMEs have been left behind (Wielicki & Arendt, 2007). Therefore, this paper seeks to investigate the reasons why SMEs do not utilize technology effectively and possibly provide some recommendations for dealing with this situation. The Problem with Technology Integration and Utilization in SMEs Why Government Initiatives Fail

In an analysis of policy measures designed to advance the computerization levels of SMEs, Millis (2008) indicates that governments around the world have launched initiatives to encourage companies to adapt ICT more aggressively. However, while this has met with success in larger companies, adaptation of ICT in SMEs has not yielded the same return...
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