Executive Summary
Macau is a very attractive gaming destination in the Asia Pacific region, just across the border for Hong Kong. This city attracts a large number of tourists and international visitors. It has also seen a rapid growth in establishment of large gaming companies, ever since liberalization for gaming operators in 2002. This must have actually spurred economic growth, and boosted SMEs, which are the economic growth power engines. However, unfortunately this is not the case, primarily because of the intense pressure on manpower, which is contributing to labour turnover in Macau, so much that, almost 30% of the SMEs are facing closure in 2014, 10% have reported nominal growth of 10% in the last three years, and 5% of them reporting negative growth. All this were a direct contribution of the intense power on manpower. This paper explores the role of SMEs in an emerging economies, the role of manpower in SMEs, as well as understanding the population dynamics of Macau.
Introduction
The economy of Macau continues to become highly focused on its gaming industry, despite it being known more as the most sought after tourist destination of China. Economic forecasts are entwined with the hold of casinos, which have transformed the former Portuguese colony into becoming the global gambling capital. With industrialization in comparative retreat, casino spending and various other associated trades like hospitality and retailing have now started dominating this tiny economy of China.
The economy of Macau has relished strong growth in the recent past, thanks to the dramatic expansion in its tourism and gaming sectors, post the domination on gambling getting abolished in the year 2002. Macao transformed into becoming the global leader in gaming, as it has surpassed the gaming revenues of Las Vegas in the year 2006. However, starting from the end of 2008, the growth rates of the casino revenue in Macau have come to a standstill, due to the worsening global economy as well as the imposition of stringent visa restrictions by Mainland China, on the Chinese visitors to Macao.
The global financial crisis has also resulted in numerous casino operators to interrupt work on their multi-billion-dollar investment business, because of being cash-strapped. Massive lay-off waves, on foreign workers particularly, started after years of desperate need for labour. The employment situation in Macau remained stable during the initial months of the 1990s when the economy grew at an average rate of 6% annually. However, this picture of healthy and stable employment started changing steeply after 1997 when two significant forces started influencing higher pressure on both the quantity as well as the quality of labour demand in Macau. One of these forces was the Asian economic crisis, and the second was the economic restructuring, which required upgrading the skills of the personnel in order for them to acclimatize with the constantly developing technology. Both these forces had a very strong impact on the employment situation of Macau, and they eventually resulted in the rate of unemployment in Macau to progressively grow from 2.7% in the year 1997 to a peak of 7.1% by the end of the decade. The decline in employment has greatly alarmed the government of Macau SAR (Special Administrative Region).
This dissertation aims to find out the reasons for this high labour turnover in Macau, in comparison to the same in Hong Kong and global employee turnover rates. This dissertation is highly reliant on secondary sources of information pertaining to the various economic statistics and employment statistics of Macau, Hong Kong, and global reports. Data gathered through secondary research are analysed and conclusions are presented.
Literature Review
The task of literature review is fundamentally a very vital part of every research project. The researcher does not merely map and assesses the pertinent academic domain for answering a research question but simultaneously helps in improving the relevant knowledge base further. “Nevertheless, traditional ‘narrative’ reviews often fail to have diligence, and more often than not, fail to be regarded as genuine parts of investigatory science.” Hence, a strong probability of failing to make sense of the ultimate indications or inferences of the collection of studies exists. Furthermore, using already existing evidential reviews helps to just offer insights as well as a new direction for intervention into the operational requirements of professionals and the same has largely been less significant. For experts, who essentially try to make sense out of a bulk of often-inconsistent and incongruent evidence has evolved a daunting task. The quality of evidence supporting the decisions and action has been investigated, as inadequate or flawed evidence entirely hinders policy formulation as well as implementation.
Unlike their precursors, the contemporary workforce is taking on entrepreneurship. Over the past twenty years or so, China has witnessed the tough economic and technological power of the Chinese workforce in their entrepreneurial activities. The Chinese workforce have established a number of high tech organizations and contributed directly to China’s economic development. Moreover, they presented a number of new management models and innovative ways of funding that benefit whole load of developmental initiatives with respect to the growth of entrepreneurship in China. “Chinese workforce has established start-ups in numerous sectors, including technology, the Internet, telecommunications and media, and they have helped revitalize many traditional industries. Enterprises started by returnees are now in the mainstream of China’s new high tech economy”.
Fifty-seven per cent of enterprises started by Chinese workforce are in the field of science and technological development, with close to 44 % of those enterprises holding copyrights. A great majority of the high tech Chinese enterprises listed on the stock exchanges of Europe as well as the United States were believed to have essentially established in China and expanded to foreign markets by Chinese workforce. A central cluster of Chinese enterprises with a total market share of $30 billion are listed on the stock exchanges of Wall Street. A few such Chinese enterprises listed on the Wall Street exchanges are Asia info, UT Starcom, Baidu, Sina, Sohu, Vimicro, Ctrip, eLong, Shanda, 51job, Kongzhong.com, Suntech Power, New Oriental School, and Home Inns. All these Chinese enterprises that were listed on the Wall Street Exchange brought sophisticated technology and highly skilful talent to China along with getting global capital and innovative mechanisms in business operations to the nation.
The Chinese workforce have essentially brought China a wide numbers of sophisticated initiatives and business enterprises, the contemporary system of managing business enterprises, venture capital, and foreign listings. All these ingenuities certainly have a positive impact on China’s economic development as well as the lives of millions of people across the People’s Republic of China, especially the younger age groups.
Commitment Condition and Culture in Chinese Firms
In the last decade or so, the labour market in China has attracted the attention of a few research scholars. Cheng and Stockdale (2003) tested Meyer and Allen’s three components model in the context of China, and indicted that there is a possibility that this model of organizational commitment proposed by Meyer and Allen could possibly fit the general conditions of the Chinese organizations. Moreover, further studies of more and more Chinese firms illustrated the presence of a strong connection between organizational commitment and the HR management aspects, like in the western countries (Chen and Francesco, 2000; Froese and Xiao, 2012; Gamble and Huang, 2008).
The study on the labour market in China, there was a vital role in the divergence of outcomes that was played by the awareness of personal values. Generally, this outcome is attributed to the diversity of the cultural background. Western employees normally work as individuals units in organizations. Hence, they might regard personal interest to be of high priority rather than a few group needs. On the contrary, the studies conducted in the Chinese firms indicated a higher level of mutual value acceptance. As Chinese personnel have higher inclination to be identified as constituents of the organization, the inclination to undertake the responsibility is higher in China. The education of a unique traditional value is regarded to be the main reason which resulted in the higher commitment condition in China.
Key Player in China’s Hi-Tech Industries
Most of the business ventures launched by Chinese workforce are either in the field of science and digital technology, or in high-end services. The leadership groups of these business ventures normally comprise of high tech experts who possess the authority on the cutting-edge scientific knowledge. A few workforces even possess their own patents. With their close association with global organizations, unconventional and cutting-edge management experience and extensive network, they operate as a bridge between the domestic enterprises of China as well as the global market. Starting from the early 1990s, Chinese expat entrepreneurs have considerably boosted the development of domestic high tech enterprises as well as numerous services, while also improving the competitiveness of the Chinese businesses in the international marketplace.
Overview and theory of organizational commitment
The concept of organizational commitment had evolved over a period of three decades now. Of late, the quantity of relevant researches exploring this subject continued increasing. (Bennett and Durkin, 2000; McKenna, 2005) This concept essentially reflects the consensus that the psychological and physical demand of employees could cohere with the environment and reward of an organization. This association between organization and employees is normally ascertained from the work experience of the individuals. Therefore, if the performance target of organization can meet the demand and value of the workforce, it tends to result in high levels of involvement and employment stability. (Joo and Park, 2010; Mowday et al., 1982) Researchers have emphasized the importance of this correlation. To be precise, both the employees and the organization could profit from the reciprocal acceptance of the organizational commitment. (Mowday et al., 1982; Sun, Ayoun and Calhoun, 2013)
Moreover, several studies have highlighted numerous variables that indicate the level of organizational commitment: “level of voluntary contribution, level of approval, feeling of identification and level of loyalty. (Meyer et al., 1989; Sun, Ayoun and Calhoun, 2013).” In precedent studies, the notion of organizational commitment is demonstrated to be a pertinent factor of human resource management. With the fairly wide range of its impact, organizational commitment is used as a significant predictor in the assessment of human resource management subjects, specifically the voluntary turnover intention and work performance. (Larson and Fukami, 1984; McKenna, 2005; Mowday et al., 1982; Sun, Ayoun and Calhoun, 2013)
Past studies in this particular field of study have delineated plethora of indicators for evaluating the various correlations between organizational commitment and HR management factors, which comprise of aspects like job characteristics, internal organizational culture, and the level of interaction and the degree of communication existing between the employees and their supervisors. The correlation existing between organizational commitment and the relevant variables is becoming more predictable as a result of the recent developments in research (Grusky, 1966; Mathieu and Zajac, 1990; Mowday et al., 1982; Sun, Ayoun and Calhoun, 2013).
The first description on the topic of organizational commitment was presented by Mowday et al. (1982), according to whom; there exist three major characteristics of organization commitment, namely a strong confidence in and recognition of the goals and values of the organization; an inclination to employ substantial effort on the organization’s behalf; a strong motive to maintain affiliation and involvement in the organization. Later, Meyer and Allen (1991) advanced this theory, offering a clear system for evaluating the organizational commitment on the basis of three different components, namely the affective commitment, continuance commitment as well as the normative commitment.
First and foremost, the affective commitment essentially gauges the emotional attachment of the individual with the organization he works for. The turnover tendency of an affective committed employee is an outcome of his involvement and recognition. The second component namely the continuance commitment essentially denotes the benefit and potential cost that determines the turnover choice. The awareness and ability to meet the expense of a job turnover loss is the primary consideration in connection with continuance commitment. Thus, the likelihood to continue in the job increases with the increase in turnover cost. Eventually, normative commitment is evaluated by the duty and responsibility of the individual employee. This is yet another subjective factor which his reliant on the recognition of individuals within the organization. In this case, turnover intention is disallowed by moral choice, which could select the significance of occupation-based tasks and responsibility.
In the meantime, there is also a conflict in concluding the outcome of past studies. The multiple variables in various researches, counting indirect relationship and independent views, replicate a diversified internal culture background and question viewpoints. For example, the research conducted by Hendrie's (2004) substantiated that the positive relationship existing between job satisfaction and the employee interpersonal relationship. However, Booth and Hamer (2007) denoted a possibility that voluntary turnover could be the result of trust and support amidst employees. One more conflict that is evident was the one pertaining to the outcome of team work. “The performance, job satisfaction and organizational commitment of self-managed team members could be influenced by the interference of supervisors. However, results of different researches lead to opposite sides. (Beekum, 1989; Elloy, 2005)”
The variables indicated above are likely to be involved in the study of organizational commitment. Yet, the conflict resulting from the interaction of various indicators leads to increased ambiguity and inconsistency. Eventually, it is difficult to analyse the relationship existing between those factors and the organizational commitment. Thus, when exploring these relationships with relevance to a specific organization, a more rational option is to estimate the presence of direct relations of variables depending on the primary data collected.
Job characteristics and potential divergence
In most of the past researches that dealt with commitment and labour turnover, the degree of divergence in the job characteristics is hardly regarded as a primary indicator. Yet, the various job characteristics are probably receive associated with disparate personal requirement. All the past studies pertaining to skill-based workers, were highly sensitive to the various psychological demands that were associated with affective commitment like career growth, knowledge enrichment, satisfaction in the appraisal system and the treatment they get from the managers. (Froese and Xiao, 2012; Joo and Park, 2010; Kuo, 2013; McKenna, 2005)
In contrast, demographic characteristics indicated a weak relation to commitment in this case. (Froese and Xiao, 2012; McKenna, 2005; Meyer et al. 2002) Nevertheless, the importance of a few demographic characteristics is attested in the study of Chinese migrant workers. The matrimonial status and comparatively low levels of education would have probably resulted in the high levels of risk in the job turnover. Thus, the eventual outcome was a result in higher level of continuance commitment. Employees in real estate companies include both of office workers and physical workers. It offers a possibility to evaluate the divergence existing within the same background, ultimately improving the existing assessment of organizational commitment variables.
The study on the labour market in China, there was a vital role in the divergence of outcomes that was played by the awareness of personal values. Generally, this outcome is attributed to the diversity of the cultural background. Western employees normally work as individuals units in organizations. Hence, they might regard personal interest to be of high priority rather than a few group needs. On the contrary, the studies conducted in the Chinese firms indicated a higher level of mutual value acceptance. As Chinese personnel have higher inclination to be identified as constituents of the organization, the inclination to undertake the responsibility is higher in China (Earley, 1989; Froese and Xiao, 2012). The education of a unique traditional value is regarded to be the main reason which resulted in the higher commitment condition in China. “The collectivism and Confucianism are representatives of Chinese traditional value, which emphasize the importance of loyalty, hierarchy and interpersonal relationships in the internal culture of organizations. (Earley, 1989; Lu, Siu and Lu, 2010; Triandis, 1995)”
Factors influencing Individual behaviour at Workplace
The resources of an organization along with its skills create unique competencies. These competencies in turn help the firm identify its cost or differentiation advantages and ultimately create value for the customers . The resources of the organization include its brand value, technological know-how, patents and trademarks, and the goodwill of the firm in the market. The skills include its service quality, employee skills, and efficiencies .
The ability to integrate and co-ordinate the various groups of the organization is the main aim of core competency. It is not sufficient if a company hires brilliant people of a particular technology. This does not simply mean that the company has gained core competence. It is only when there is effective coordination among all the groups involved in developing a particular product and bringing it into the market, the firm is said to have gained core competence.
Long-term objectives are assertion of the results an organization tries to achieve over a definite period. In order to achieve prosperity in the long term, tactical planners usually set up long-term objectives in several areas like profitability etc. (Falletta, 2005). If an organization wants to achieve higher levels of employee satisfaction as well as productivity, then it is important that the organizations adopt the approach of human resources, according to which the goals of the organization and the needs of employee are regarded as being reciprocal and compatible. Moreover, this approach states that both these can be pursued in unanimity.
There are a plethora of factors which have signified the way in which most individuals behave at a workplace. Activity reinforcement is one of the most predominant influential factors which impacts human behaviour at workplace. When an individual is supported in the work done by them, they always feel the constant urge to continuous performance and they are likely to perform even better in future than what they used to in the past. There is a positive influence on the human behaviour at work and eventually the employee puts in more effort in their work. Contrastingly, if there is a lack of activity reinforcement then the behaviour might get negatively influenced as there would be lack of motivation in the employees and they would not perform better.
Likewise, management in innovative organizations trains and improves its personnel to update their talent and skills, while also encouraging them to transform into idea champs. “Idea champs are those people in an organization who are highly enthusiastic in promoting the ideas they have newly developed, systematize essential support for their ideas within the organization, overcome confrontation if any, and ensure that the organization implements their ideas or innovations.” Such individuals prosper in garnering the support for their innovation by sharing their idea and its potency with the rest of the organization’s workforce. Furthermore, their confidence and dedication plays a predominant role in persuading others about the potential of the innovation
Factors leading to Effective Teamwork and Influences threatening Success
Efficient workplace can yield astounding positive results while there exist other factors that may probably threaten the organizational success. Factors which aid in effective teamwork are able leadership wherein the leader is able enough to guide, create and sustain a positive working culture. Poor leadership yields in failure of meeting the organizational goals as well as the mission of the organization. Communication is a very essential tool for interpersonal relations and the same is crucial for team members to express their feelings as well as share ideas among themselves. It is highly crucial for teams to be aware of individual job roles and responsibilities. This can be achieved by the team manager by communicating the job roles to individual team members in a clear and precise way.
Effective teamwork comprises of forming processes for various declarations. Irrespective of the extent of perfection of a team, disagreements are common and the optimal way to deal with such disagreements is through effective management of conflicts. It is vital for the team leader to talk to the disagreeing parties and then arrive at a resolution for the conflict. Excellent teamwork denotes setting up good examples by the organizational leaders. Consequently, the team will follow such good examples while making sure that all the work is done appropriately and there is also high employee morale.
Economic growth and the hidden forces that create and maintain economic synchronization globally
The modern division of labor entails too many self-interested individuals that most of us today know very little about anything but still move around and boast like a genius. Globalization has removed all borders and today the exchange of work specialties has become even easier. Eventually, the range of life-enhancing goods that are being accessed today by the people around the world has grown drastically. The three important lessons that Lieber discusses is about prices, prosperity, and innovation in a free-market economy and the role that these three play in the daily life of individuals.
It is often quoted by many economists that prices are the ones that steer the economy on a whole and also knowledge and resources additionally. They are similar to the traffic police in the manner that they signal about what is scarce in the economy and what is valuable to both buyers and sellers.
Economics is typically defined as the study of the way in which monetary agents or the general public prefers to make use of inadequate productive resources which may have optional uses to satisfy the unlimited wants of the human being through varying degrees of significance. Economics is generally a social science which deals with aspects like production, distribution, and consumption of inadequate resources in an economy. It monitors how capital can be optimally distributed to fulfill the needs of individuals as well as the economy on a whole. Simply stated, economics explains how everyday economic activities, such as spending money, purchasing goods etc., take place in the life of an individual .
Optimal utilization of resources can be done through appropriate allocation of the available resources. Shortage and scarcity crop up in an economy when people demand more than that is available in the economy. This kind of a situation eventually leads to choice either to satisfy one demand or the consumer has to give up something else. Therefore, scarcity results in to transactions, where people exchange goods and services depending on the various priorities that they might have. Alternatively, if there are limitless resources being available in the economy, the aspect of choice does not emerge in the economy. But, such a situation can take place only in a prosperous economy or in a utopian economy. For instance, in the book, the Big Box doubles its prices due to the post-earthquake surge, despite limitless availability of resources. Big Box doubles the prices of the goods for which there is very high demand.
“Inflation, unemployment, pollution, energy shortages, and government deficits are some of the complex problems confronting an economy, which have an impact at the micro level also.” The above problems crop up due to the fact that resources are inadequate while human wants are limitless. This eventually results in dissatisfaction, causing human beings to look for ways to satisfy their needs. Therefore, insufficiency leads to the inevitability of making choices. The problems with respect to choice arise at all levels of the economy, namely at the production level, and also in the overall economy.
The country’s economic structure, which is highly different from the domestic firms, has a very high impact on the various global organizations that have their operations in Macau. Quite a few of the MNCs in predominantly focus on sectors which are highly capital intensive and are knowledge based . As mentioned earlier, the economic development has been extremely remarkable. The country has also succeeded in introducing the Foreign Direct Investment into the country. Global organizations operating in Macau have made an organized entrance into the country. These MNEs have also been highly successful in overpowering the local firms, and thus have boosted their market share in Macau. Incidentally, a few of these MNEs have almost occupied the market in quite a few crucial business areas.
Scarcity actually results when there is inadequacy in the economy in terms of natural resources, human resources, and capital resources. These may not be sufficient in quantity to fulfill the needs of the consumers. Hence, a producer has to decide what can be produced using a specific resource that may be available with him. Consumers normally make their decisions based on two fundamental considerations namely the budget constraints and the personal preferences that they have. A budget constraint can be defined as the difficulty of an individual when he tries to fulfill his limitless wants through limited income. Consequently, a purchase decision predominantly depends on aspects like income, price, and personal preferences. A consumer can have a choice of substitute products with an inadequate income. This is possible if the consumer can find a person with whom the goods or services might be exchanged. Through such exchanges, the level of satisfaction that the consumer gains is high. Such satisfaction gains are typically referred to as ‘gains from trade.’
In a market which is typically a highly competitive one, individual purchasers and vendors take into consideration the prevailing price in the marketplace which is attained by the relation among the existing market demand and supply which has plentiful of purchasers and vendors who contend against each another to make profits. It is the demand and supply that prevails in a particular market economy that eventually determines the commodity prices in a purely competitive setting.
The short-term goals of the business take into account the prevailing market rate and consequently adjust the levels of output.
Centralized systems and price determination often seem to be striking. However, in reality they experience the following basic problem:
For gaining knowledge on where to direct the available resources, it is very important that the central planners and price setters are acquainted about both the choice of goods and services that people want and the means to produce the same inexpensively or economically. However, this knowledge is held in the minds of individual consumers, businesses, and providers, not in the filing cabinets or computers of government agencies of planning. The only practical way for consumers and providers to impart this knowledge to one another is through a decentralized system of pricing which determined by the market or the economy.
The cost factors play a very crucial role in determining the price of goods and services. However, the influence of the same may change depending on the given circumstances. In a few pricing decisions, costs play only a minor or tertiary role. For instance, in insolvency sale, costs are fairly inconsequential. Conversely, the impact of the cost factors is very high in a few pricing decision.
Role of SMEs in Developing Economies
Very often the star performers in an organization hog the lime light while the actual work in the organization is not done by star performers but by the majority of the ordinary, quiet average performers and the same is applicable to the SME contribution to the economies globally. It is estimated in both developed and developing economies SME contribution to the GDP varies anywhere between 30 – 50% of the GDP.
SMEs are in a way the real engines of economies, while the larger organizations have their role to play in evolution of management practices and their contribution to the GDP, more often than not they hog the lime light while the countries chug along quietly on the contribution of SMEs and larger organizations put together. While this thesis does not demean the contribution of larger organizations, it instead tries to focus on the achievements of the SMEs and also creating a framework of Key Performance Indicators (KPI). Most of the times, it is a dream of an individual entrepreneur that starts off and continues the life of an SME. A typical SME would have its share of immense hardships, trying to struggle along with numerous un-written laws and practices while meeting the legal requirements and frame work of the land. SME owners have minimal qualifications and more often than not do not have access to latest technology or management practices.
SMEs are typically started off with an individual savings and at times with little or no support from financial institutions and often never grow out of that SME bracket. When such organizations almost form the complete backbone of an economy it is vital for such organizations to focus on key success factors to ensure their continued contribution to the success of their respective nations and economies. Akin to any large organization, SME is nothing but a microcosm of such, and needs to be managed as effectively probably more effectively for current and continued success. A typical organization’s delivery starts with client acquisition, followed by the challenges of supply, adherence to client quality norms, meeting cost targets, meeting internal revenue and profitability targets while focussing on repeat business from same client and acquiring newer clients and most importantly staying afloat all the time. So possibly it is vital to implement some of the performance management paradigms like the Balanced Scorecard at a much smaller level to ensure their success.
SMEs have limited resources at their disposal and this is a serious constraint when they start entering into newer markets. To conserve the scarce resources and ensure rapid success, it is important that they keep their eyes constantly on the dash board that updates them with factors that would lead to success in shorter periods of time. SMEs are the mainstay of quite a few developing nations. SMEs essentially contribute to the economic development in many ways, for instance, creation of employment as well as providing services.
Selection of entry strategies in international markets is one of the most essential features of international marketing management. According to Frank Bradley and Michael Gannon, “Any injudicious selection of the entry mode may give rise to opportunity costs and in some cases thwart subsequent endeavours in international markets (Gannon).” A thorough study of the benefits and disadvantages of each entry mode is to be done, before the final decision is taken.
Firms seeking to enter international markets have to first check if there is a potential market for their products in foreign markets. The second step is to pick a suitable nation or province. Organizations planning to expand into global markets for the first time are recommended to choose a welcoming and easy-to-enter economy, and preferably a nation with a common language. It is after this, the mode of entry needs to be selected.
Organizations are required to evaluate a plethora of dimensions of the global market environment’s improbability before zeroing on an entry method. This allows in resource optimization of the organization. “According to Agarwal and Ram swami a firms is expected to select an entry mode that offers the highest risk-adjusted return on investment (Swami).” Researchers have tried to identify the connection that exists between the global entry methods as well as the organizational performance. “A few researchers have used the multiple international risk measures suggested by Miller to choose superior performing entry modes (Miller).” They propose that organizations choosing an entry strategy that encompasses the global risk, performed better than those firms that did not take this risk into contemplation.
A company can get a number of short-term and long-term benefits by positioning its product in global markets. Competition in any business industry is determined not just by already existing players but also by various other forces of marketplace like consumers, suppliers, prospective entrants, and the presence of substitute products. However, it is imperative for firms in the industry to understand and analyse the competition level in the industry as it is the one that determines and influences the profit that a company can yield in the long-run. It is not possible for companies these days to stick to the same old traditional methods of marketing, if they need to establish themselves as someone different.
Strategic analysis helps organizations to recognize an array of potential attractive investment opportunities. The efficient formulation of a strategy necessitates clear understanding of prevailing market competition. As part of business strategy, in order to compete with today’s cut-throat competition and also in order to mark a presence for them in the market, companies need to adopt new marketing strategies. It is not possible for companies these days to stick to the same old traditional methods of marketing, if they need to portray themselves as someone different.
When an SME is seeking to enter into newer markets, one key criterion that it needs to consider is the level of competition. An ideal scenario to enter into markets where there is little or limited competition. This would help the SME to acquire customers at a rapid pace. A very important angle that needs to be considered prior to the entry is the need or the requirement for the SME’s products in the new market. However, an alternate method would be to go with a larger organization that is already an existing client and is entering into the new market as this organization would already be a customer to the SME in the newer market. If the levels of competition are intense, ideally entering into the market with an existing client in other markets is highly recommended as this assures certain levels of business and cash flows as the organization enters into the new market.
Vigilant analysis of market research results in useful decisions in context of the nature of a specific market and the potential customers. Devising an international marketing plan allows organizations to identify the appropriate channels for sales and distribution which would be normally used by similar players in the target marketplace. “All good marketing strategies fail at implementation time. For better execution, someone must be responsible for its implementations through a right way.”
It is strongly recommended to follow the diverse geographic approach. This will help organizations in multiple ways. Primary objective being to reach out to the local market and the secondary but equally strategic objective to set up lower cost manufacturing systems. Marketing communications which is otherwise known as promotion assists marketers effectively communicate the necessary information about the existence of the product in the market to potential customers and the value and benefits that they can accrue from that particular product. Marketing communication involves predominantly Promotion. The increasing globalization has increased the importance of market research. Earl Neumann, Donald W. Jackson Jr., William G. Wolfe in their study found that Japanese firms give utmost importance to marketing research and make a thorough research of the markets before entering them (Earl Naumann).
With the advent of globalization, organizations today are expanding over borders to develop their business. However, carrying on business operations at a global level is not the same as carrying out business in the domestic market. There are a lot of things that change when firms enter an international market right from the entry mode chosen to the strategy implementation. However, before entering a market, profound research is to be carried out in order to gain information about the market which helps in making a decision if the market is worth entering and carry out business or not. Today, most of the global markets have become integrated, and are marching ahead to a unified global marketplace, and the trade influx and outflow has increased tremendously. Although the concept of global marketing has gained prominence in the last few years, organizations had started trading across international borders much earlier.
Small and medium-sized enterprises (SMEs) play a crucial role in the domestic economies of global nations. This is particularly true with regard to the emerging markets, the term which encompasses both the recently liberated Eastern European nations that had embarked upon a liberalization policy, macro-economic stabilization, and private enterprise from the time when the communism in the 1990s collapsed and also the rapidly growing nations in Asia, Latin America, Africa as well as the Middle East, that have embraced policies favouring economic liberalization since the 1980s while also adopting a free-market system. “SMEs in emerging markets statistically account for a vast proportion of the total business firms, generate 40-50 per cent of each country's GDP, and employ 70-85 per cent of the total workforce in each economy”.
SMEs encompass a wide range of businesses that are different in terms of their dynamism, technical progress and attitude towards risk. Quite a few of them are fairly stable in their technology, market as well as scale, while others are more technically innovative, filling vital product or service niches. Others can be vibrant and energetic but high-risk, high-tech “start-ups”. Researchers and practitioners approve that SMEs are vital contributors to employment creation and economic development in both high as well as low-income nations.
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Changes in a variety of environmental factors, technology and economy in particular, have been accountable for organizations to expand beyond domestic borders, and trade globally. Most of the contemporary organizations are cognizant of the fact that, in order to attain economies of scale and survive in the intensely competitive business world, it is important to expand into global markets, use the strengths of various global markets, and trade their merchandise globally. In order to design and implement a global strategy for marketing, it is necessary that organizations adopt a highly cautious and structured approach, as the risks are extremely high and the process is pretty complicated. When organizations go beyond national boundaries, they are faced with a myriad range of constraints. While quite of them are pretty certain, others are not.
Differences in legal, economic, demographic, political, regulatory and technological environment are easy to understand but understanding the cultural diversity is the biggest constraint for companies crossing their geographical boundaries. The significance of global marketing has increased in the 21st century with several countries having opened up their economies. Domestic markets of developed nations are already saturated.
Therefore, companies need to look for new markets which can help them achieve their growth objective and satisfy their shareholders’ and capital market expectations. As companies need to reduce their product development times, they also need to recover their investments in research and development faster. For faster recovery of investments, it is essential for companies to market their products in global marketplace. This is especially true in the case of Pharmaceutical industries, where new product development costs more than $500 million. It is easier for companies dealing in technology to globalize, as technology products are standardized and not affected by national and cultural boundaries.
When an organization globalizes its marketing endeavours, it is posed with diverse situations that may be an effect of economic, political, social and cultural, legal and regulatory and technological factors. All these factors are extremely dynamic in nature. Thus, organizations are supposed to be extremely cautious about the changes in the external environment and should also quickly adapt to such changes and eventually flourish in the global marketplace (Zaheer).
The economic environment also has a tremendous impact on the global marketing, as income is the most vital components that determine the potential of a new market. World economy has undergone a significant change in the recent past. The competitive element has transformed into a new contour, with organizations facing intense international competition in addition to the local competition. The crucial factors, which influence the organization’s economic environment, are the GDP and GNP, the disposable income, inflation rate, the cost of energy and its availability, infrastructure capabilities, etc.
Generally, there are three categories of economies operating in the world; capitalist, socialist and mixed economies (Williams). This categorization if influenced by the resource allocation in the system. The resource allocation is done in three ways – market allocation, in which the customer is given maximum preference and the goods and services are produced according to the choice of the customers. In command allocation method, the government plays a prominent role in deciding what and how much is to be produced while in the mixed economy, resources are allocated on the basis of combination of both market allocation and command allocation methods. World markets can also be divided according to the GNP per capita by segmenting them into high income countries, upper-middle income countries, lower-middle income countries and low income countries.
With the increase in globalisation and regulations in government laws around the world, the study of various sources of competitive advantage has become a vital element of business research. Porter says “competitive advantage is at the heart of a firm’s performance in competitive markets” and also states in his book as to how a firm can create and sustain the competitive advantage in a particular industry. Moreover, Porter goes on to claim that “competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it”. For Porter, “the essence of strategy formulation is coping with competition”.
Internationalization is a deliberate corporate strategy adopted by companies to deliver a variety of values to stakeholders. Most usual reason is to derive some kind of competitive advantage in the market place. The competitive advantage usually is either to access cheaper labour, or better technology or larger markets. In the present day, several markets world over have incorporated, and are rallying towards a combined global market and the trade flow has radically improved. Irrespective of the fact that the concept of global marketing has gained immense value only in the recent past, organizations world over had started to trade across borders much earlier.
Transformations in a variety of environmental factors, predominantly technological and economic changes, have been the essential reasons for organizations to internationalize. Numerous organizations in the modern day have realized the fact that it is very important to become global in order for them to achieve economies of scale and continue to exist in today’s highly competitive world and additionally exploit the opportunities and strengths of different markets and sell their products internationally.
Critical success factors in an SME entry strategy
Conventional wisdom proposes that niching is the most sought after strategic choice of SMEs considering the fact that they have very limited resources. They do not have abundant financial resources, and quite often are also have manpower shortage, particularly in case of those with the most significant managerial skills and expertise in marketing. However, it is this very shortage of resources that may hamper the ability of the SMEs' to successfully niche and withstand its market entry for longer periods of time. This is due to the fact that, by adopting the strategy of niching, the SMEs must have some sustainable competitive advantages, advantages that most often need substantial resources and time for the development.
The probable entry of larger firms into the SMEs' markets should not be neither ignored nor misjudged. This is particularly so once the SMEs have fruitfully built up the market niches to the extent wherein the demand becomes adequately large, and therefore can be supplied profitably, even by larger organizations. A clear example of this is the experience of Polaroid in the market of instant photography. The entry of the larger organizations poses a serious threat to the SMEs survival. This is because, more often than not, SMEs do not have the essential means to ward off the outbreaks on their markets by larger organizations that have superior resource advantages.
It is challenging for SMEs to pursue competitive advantages based purely on cost, due to them lacking economies of scale and even scope. Moreover, any competitive advantages that are based on the quality of the product will not be sustainable as larger rivals can effortlessly replicate the strategy of the product, and even develop upon it via catapulting technology. Actually, any competitive advantages that are based on a few tangible aspects that can be developed at a cost fail to be sustainable against larger rivals who are equipped with deep pockets. Rather, SMEs should concentrate their efforts more on acquiring competitive advantages that is based on some intangible aspects and which are difficult to be acquired, even at enormously high expenses. “These may be in the form of brand equity, customer goodwill and relationships, distribution networks, business guanxi and contacts, and strategic alliances”.
The globalisation of business has gradually drawn SMEs into the global value chains with the help of a plethora of cross-border undertakings. Quite a few entrepreneurs are identifying the opportunities that this process presents and gaining global market access has essentially become a strategic tool for their further growth and expansion into the international business arena. In case of smaller organizations, access to global markets, more often than not, presents a number of business opportunities:
- “like larger markets and new market niches;
- possibilities to exploit scale and technological advantages;
- upgrading of technological capability;
- ways of spreading risk;
- lowering and sharing costs, including R&D costs; and in many cases,
- Improving access to finance”.
SMEs with large intellectual property often need to expand into global markets to achieve higher growths and such moves are of strategic importance for them. More than large organizations, SMEs need favourable business environments and other PESTLE factors including some of the infrastructure and funding to grow rapidly and prosper. Most SMEs lack sufficient management controls as well as business planning. As SMEs grow, it is essential for their growth that they access international markets and global economies.
The development of SMEs is critical for economies around the world. SMEs contribute significantly to global economies as much as 30-40% of their GDPs. Despite this, there have been no concerted efforts by governments, business associations or even NGOs to focus on such SMEs and develop them. Governments can play a very crucial role in the developments of SMEs by providing conducive and enabling environment for their development. It is a critical thing that government initiatives play a very vital role in providing level playing fields to enable SMEs to compete effectively. Another critical area that governments could play a role is accessibility of finance to SMEs.
Challenges faced by SMEs while entering new emerging economies
No business or enterprise activity can be commencing without purpose or an objective to be attained. “It is like a distant navigational aid that helps to keep the direction and re-navigate in case the course changes. The activity of planning starts when the objectives are defined. However, the most common motive of any business for that matter is nothing but profit maximization.” Shareholders are the people who normally facilitate capital, which is highly important for organizations to commence business operations, survive in the world filled with intense competition, and eventually grow. The shareholders eventually expect the management to carry out business operations in such ways, which bring the highest possible return on the investment made by them in the form of capital. Shareholders and management sometimes hold varied perspectives about business opportunities. The prime focus of the shareholders is on the money they had invested into the business. They are more interested in the long-term profitability of the organization, so that they may be able to assess their share in the company’s assets. Issues may crop up if somewhere for some reason, the organization fails to succeed and SMEs in Macau are no exception for this fact.
In an international environment, the work force of a form has to interact with people from different countries. The complex organizational structure of multinational firms tests the manger’s interpersonal skills to the limit. The leadership styles of people in different countries vary greatly. The work culture in emerging markets like the Middle East is totally different. People in such markets are not used to privacy at work place. They rather prefer to mingle with everybody and they also have an unhindered flow of communication. This kind of situations does not seem to be present in mature markets. There are a lot of differences in terms of culture, perceptions, behavior and participation etc., among the workforce of different kinds of markets and this becomes a major challenge for companies that are expanding into global arenas. It is important and very vital that firms seeking expansion into international markets gain adequate knowledge about the host country culture and try and get information about the perceptions and cultural difference of the people and design their policies accordingly much before they actually mark their presence in the global markets.
Financial uncertainty is one factor that firms need to consider while entering into a new market. In markets where there is higher risk, the bargaining power of the host country decreases. Contractor and Root point out that rules and regulations can relate to “equity limits, local content requirements, and exchange controls.” If the laws of the host country are highly stringent, restricting the entry of the firms, local content, foreign exchange, ownership level etc. will lead to lesser bargaining power. Post entry into a new market, a key danger to an SME would be lack of finances to sustain the fledgling newer operations. In such an event, the SME is forced to face dire situations where they would not be able to withdraw from the market, or continue sustained operations. This is where governments and financial institutions can play a critical role in ensuring continued financial support for SMEs thereby strengthening their cause.
A few other challenges that may be faced by companies seeking expansion into global markets is that, in order for them to compete or carry out business in certain countries like China or any emerging nations for that matter, context-specific capabilities are required. Domestic firms which would be operating in the country since many years and they would develop capabilities and this would increase the restriction of entry into such markets by MNEs (Klaus E. Meyer). Another major challenge faced by the MNEs is that of the institutional frameworks. To be clear, the institutional frame works would necessitate MNEs to work together in a wide range of issues with the local establishments and also the other business allies.
Success Factors and penetration strategies for SMEs
Currently, small and medium-sized enterprises (SMEs) represent the majority of firms in most countries, and therefore, play an important role in the economic growth of their representative countries. Although mostly in developing countries small to medium sized firms form the majority of firms in the respective country and therefore we can assume that they have a major role/impact in economic growth of the country.
In India it is estimated that Small & Medium Enterprise market contribution is around 40% to the total of the entire Indian output. Currently there are over 40 million SME units in India and nearly 90% of the industrial units in India belong to the SME sector.
Firms may choose to enter a new market for two principle reasons
- A small domestic market is likely to influence firms to enter foreign markets
- Lack of local supply in the foreign market (Young et al, 2003).
Key success factors, especially for SMEs to enter into any emerging economy like Macau would be:
- Being present in a gateway to an emerging economy and being first in the market.
- There is no extensive competition within the economy or from outside of it for the products or services and there is sufficient space and room for all the players for a minimum horizon period of about 5-10 years from the time of entry.
- The organization’s ability to have clearly understood the needs of the market that they are entering including some of the behavioral patterns that could impact them.
- Ability to quickly integrate with the target economy and be seen as one among them rather than being perceived as a foreign entity.
All the above points are made more clear and elaborated in the following section:
There is no extensive competition within the economy or from outside of it for the products or services and there is sufficient space and room for all the players for a minimum horizon period of about 5-10 years from the time of entry – If there is too much of competition in the target economy, there would be an intense pressure on the margins that could affect how quickly the breakeven could happen and, in the meantime, any change could negatively impact the organization entering into the emerging economy and lead to losses or delay in repatriation of investments and profitability for the parent organization.
The organization’s ability to have clearly understood the needs of the market that they are entering including some of the behavioral patterns that could impact them – Very often, in an anxiety to show results to the shareholders or to increase business or profitability of the organization, many a time, the organizations do not understand the various intricacies of the target markets. There could be adverse reactions wherein, the organization could be negatively impacted. For instance, one of the leading brands, Coca-Cola, when it entered China, the transliteration of its name went on to mean a pig in Chinese and a pig is not an animal that is taken very kindly by the Chinese. This led to a huge uproar in the market. However, being a large organization, Coke withstood this impact and went on to make corrections immediately afterwards, writing off a few million dollars of investment. Yet, for a smaller organization this could mean a death knell.
Ability to quickly integrate with the target economy and be seen as one among them rather than being perceived as a foreign entity – Smaller and emerging economies has a strong sense of identity almost in all cases. They tend to look at outsiders with a sense of suspicion and if the organization does not make conscious efforts to integrate with the economy, with the society in particular, it would begin to stick out like a sore thumb and hence it is important to integrate with the target segment.
Continuing Business Success for an SME
While it is very essential to have good penetration strategies, it is equally important for organizations to focus on success factors required for continuing business success. Few of the important aspects to be considered for continuing business success would include parameters like:
- Process maturity
- Process repeatability
- Establishment of customer service factors
- Customer intimacy
- Customer Responsiveness
- Integrity and quality of services and products
- Uniformity of products and services
- Ability to respond agilely to changing customer and market requirements
- Effective cash flow management
- Prudent financial management
- Ability to take a long term perspective, among various other important factors.
A business organization must behave more like a marathon runner running a marathon race and not like a scavenger who would like to scavenge in a newer economy and run away to its parent country with the profits made in the newer economy. Possibly, an organization could get away with such behavior once or may be twice and later penetrations into newer economies would be haunted by stories of what it did or did not in the previous instances and that itself could be the beginning point of failure for an SME. Such risks cannot be undertaken by an SME. The ability to stay in business for longer period of time would mean that the newer target markets would welcome the SME into their fold because they believe such organizations are entering to stay with them and contribute to the economic well-being for some period of time. Organizations and SMEs without such a vision would be looked at suspiciously.
Primary cause of Labour problems in Macau
The population of Macau has been steadily increasing over the last 50 years or so and this is apparent from the official figures as well as a few private statistics providers:
1Source: Countrymeters.info
However the population growth has not been steady:
According to official statistics in the 2nd quarter of 2014 there were 1,454 new companies were incorporated in Macau, an increase of 308 year-on-year growth. This growth saw a tremendous growth of 556% in registered capital which stands at MOPI 1.14 billion.
This kind of impressive growth has its own set of challenges on other aspects of organizational management. Typically entrepreneurs either individuals or corporates in their anxiety to reach newer markets or individual entrepreneurs register businesses and start off their operations. Now there is also an official restriction on importing labour even from mainland China. Local population skills and education levels are the third factor to be considered while addressing the labour turnover factors in Macau.
A look at the employment statistics in Macau throws light and further strengthens the above stance :
* - Due to the entry of fresh graduates into the labour force.
This is a very enviable situation to be in for any country actually! The employment and literacy figures are high, there is high labour force penetration, and even fresh graduates are getting hired! This is very hunky dory from the point view of macro-economics. Now if the situation is to be looked at from an organizational point of view it is dramatically different.
There is a pressure on recruitment and expanding businesses in Macau may not actually be able to find labour. And on top of it there are legislations that set a bar for minimum local recruitment!
There is a constant influx of corporates that want to recruit. Let us take the example of the New Cotai Resorts that needs 22,000 employees that would create an immense pressure on the labour market and thereby having a direct spin-off of labour pressure on the local SMEs. A local Macau Professor went on record saying “The local labour market may not be able to supply this number of workers, nor supplying this number at a reasonable wage.” The local economics Professor also stated, “From the point of view of businessmen,” Lei stated, “they do prefer an easy, convenient and low cost source of external labour force.” In fact, he added, that is one reason why the gaming companies sometimes complain about the bureaucracy in applying for non-resident workers – “this is a kind of pressure by the casino operators on the Government” and this exactly sums up the labour market dynamics and also the kind of pressure this can exert on the SME market.
The constant up-swing in the number of businesses that are opening in the market that most economies would be gleeful about unfortunately is exerting enormous pressure on the SMEs. SMEs globally have become the growth engines for economies. This kind of pressure on the SMEs would start stifling them.
One of the biggest booms in Macau has witnessed in the recent past is the boom in gaming industry. However this boom in gaming industry and the one nation two policies approach of not allowing the cheap Chinese labour or Hong Kong is actually is a serious threat. There is not sufficient labour simply available and everyone in the economy is competing for the same pool. Macau does not offer great locational advantage for family life and this is creating an immense pressure on the middle and senior management positions as they are not able to import labour for these positions too.
While larger organizations have the brand and the financial muscle to pull in and attract labour, the SMEs do not have this muscle, and this is where they are losing out. The international businesses coming into Macau, have had mixed impacts on the SMEs in Macau. On the positive side, there were millions of dollars that have been coming in, which opened lot of new opportunities for the SMEs in Macau. However, these new opportunities also increased overheads, and reduced labour markets for these people.
Macau has a thriving SME association that conducts regular surveys among the SMEs, and towards the end of 2013, almost all of them reported a turnover growth less than 10%, during the past three successive years.
According to Feng Xiaoyun, the economics professor the Jinan University went on record stating that 5% of the SMEs recorded negative growth, despite the city’s GDP growth of an average of 10-20%, and she also said that those SMEs were unable to share the economic fruits. Stanley Au Chong Kit, the Chairman of the SME association felt that the SMEs have been squeezed out of the market by the large gaming operators. He gave an example of the construction industry, which should have been prosperous because of the growth in the infrastructure development, and he pointed out that the SMEs in that sector were not prospering. Feng Xiaoyun said that the Chinese state-owned firms have prospered, and Mr. Au expressed deep distress that SMEs barely stood a chance in competition for resources, and specifically human resources with gaming companies and other public departments.
The survey in the first quarter of 2013 highlighted the biggest threats SMEs faced, which is the rise in operating costs, specifically labour and rents. The average salary had increased since the year 2010 to 12, 000 patacas. According to the SME survey 2013, it was reported that 12% of SMEs had shut down in the year 2013, and about 30% of them would face closure in 2014 because of lack of manpower.
Conclusion
Macau has been a dream destination for a large variety of tourism, as well as gaming operators, and it has witnessed a large influx of foreign investment, along with a sharp increase in the number of tourism related operators, thereby attracting billions of dollars of investment. This must have actually spurred the economy into stratosphere. However, unfortunately, this influx fuelled the killing of SMEs, simply because of the intense pressure it applied on the available manpower. Limited manpower that is highly educated, with large labour force penetration, among other reasons, created strong competition for labour. This is the primary reason for creating the labour turnover in Macau.
Limitations of the Study
The data for this stud has been predominantly taken from what is available in the public domain, mostly from what the government wanted to convey to the world at large. We are not very sure about the complete accuracy and reliability of this information. Secondly, there seems to be a general perception that there is a deep impact on the labour market, due to the coming of larger resorts. Is it a boon or a bane, is something that a stance cannot be arrived, at this juncture of time. A primary market survey could have been a much better tool for doing this work.
Future Scope
The impact of the arrival of two large resorts into Macau, and their impact on the labour market would be evident after certain period of time, and a primary study on the SMEs, as well as verification of the government study that 30% of SMEs would close down due to labour shortage, needs to be verified in the future course of study. Also, the impact of imported labour needs to be studied from various perspectives in order to appreciate the fallout of this study.
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