Executive Summary
China is a very attractive gaming destination in the Asia Pacific region. This city attracts a large number of tourists and international visitors. It has also seen a rapid growth in the 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. This paper explores the role of SMEs in an emerging economies, the role of manpower in SMEs, as well as understanding the key success factors of the SMEs in China.
Introduction
SMEs are the growth engines for any economy in the world. China is no different. Being home to about a quarter of the world’s total population, China needs to depend extensively on SMEs for delivering products and services to its people and also the world. Large centralized government organizations have their own limitations when producing and delivering goods and services to the population. This is exactly where SMEs play a crucial role when it comes to delivering services to the people in China. This trend is seen not just in China, but also in all the countries across the world. Even in smaller economies, SMEs play a key role in the delivery of goods and services to the people, and China is no different.
This paper tries to understand the role SMEs play in economic development, with specific reference to the case of China, and also their impact on the global economy. The paper also tries to identify and define the key success factors (KSFs) of SMEs in China.
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 the 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, 2000).” 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 firm is expected to select an entry mode that offers the highest risk-adjusted return on investment (Swami, September, 1992).” 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, 1994).” They propose that organizations choosing were 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 the 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.
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 the 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 have 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, 1994).
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 that 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 the 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, 2002).
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, the 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, 2006). 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.
The Driving Force of the current generation Chinese Entrepreneurs
Unlike their precursors, the contemporary workforces are 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. The 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 has 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 the 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 the 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.
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 the 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 the 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 the 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 is regarded as being reciprocal and compatible. Moreover, this approach states that both these can be pursued in unanimity.
There are a plethora of factors that 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 a 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
